spokesman - vis … · vanguard international semiconductor corporation (vis) is a leading...

Spokesman

D. L. Tseng

Vice President, Finance

Tel: 886-3-5770355

E-mail: [email protected]

Acting Spokesperson

K. S. Chiang

Director, Finance Division

Tel: 886-3-5770355

E-mail: [email protected]

Vanguard International Semiconductor Corporation

123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Website: http: //www.vis.com.tw

Tel: 886-3-5770355

Fax: 886-3-5788572

Fab1

123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Tel: 886-3-5770355

Fab2

9, Li-Shin Rd., Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Tel: 886-3-5632111

Fab3

168,Chang-Rong RD.,14 Neighborhood, ChangXing Vil., Luzhu Dist.,Taoyuan City,

Taiwan ,R.O.C..

Tel: 886-3-3116111

Common Stock Transfer Agent

China Trust Commercial Bank

Transfer Agency Department

Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei, Taiwan 100, R.O.C.

Website: http: //www.chinatrust.com.tw

Tel: 886-2-6636-5566

Auditors

Andy Huang / Horace Lin

Deloitte & Touche

12th Floor, 156 Min Sheng E. Road, Sec. 3, Taipei 105, Taiwan R.O.C.

Website: http: //www.deloitte.com.tw

Tel: 886-2-2545-9988

Name of any exchanges where the company's securities are traded offshore, and

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

I. A Letter to Shareholders......................................................................... 1II. A Brief Introduction of VIS................................................................... 4

Company Profile................................................................................................................................... 4III. Corporate Governance Report.............................................................. 6

A. Company Organization................................................................................................................. 6B. Information on The Company’s Directors, Supervisors, General Manager, Assistant General

Managers, Deputy Assistant General Managers, and The Chiefs of all The Company’s Divisions and Branches................................................................................................................. 7

C. Remuneration to Directors, Supervisors & Managers.............................................................. 12D. Implementation of Corporate Governance................................................................................ 16E. Information Regarding VIS’s Independent Auditors................................................................ 43F. Information on Replacement of Certified Public Accountant........................................................ 43G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying

Accounting Firm or Its Affiliate Business in the Past Year......................................................... 43H. Information on Net Change in Shareholding and Net Change in Shares Pledged by

Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More...... 43I. Top 10 shareholders relation......................................................................................................... 44J. VIS Long-Term Investment Ownership....................................................................................... 45

IV. Information on Implementation of The Company Funds UtilizationPlans......................................................................................................... 46A. Capital and Shares........................................................................................................................ 46B. Issuance of Corporate Bond ........................................................................................................ 49C. Issuance of Preferred Stock Issuance........................................................................................... 49D. Issuance of Depositary Shares Issuance....................................................................................... 49E. Status of Employee Stock Option Plan (ESOP).......................................................................... 49F. Status of Mergers and Acquisitions............................................................................................ 50G. Fund Plan Implementation........................................................................................................... 50

V. Operational Highlights........................................................................... 51A. A Description Of The Business..................................................................................................... 51B. Industry Survey and Market Analysis........................................................................................ 62C. Personnel Structure....................................................................................................................... 67D. Environmental Protection Measures........................................................................................... 67E. Industrial Relations....................................................................................................................... 69F. Major Contracts............................................................................................................................. 79

VI. Financial Statements.............................................................................. 80A. Brief Balance Sheet and Brief Statements of Income................................................................. 80B. Financial Analysis.......................................................................................................................... 85

Contents

C. Audit Committee’s Review Report.............................................................................................. 90D. Financial Statements and Independent Auditors’ Report......................................................... 91E. Consolidated Financial Statements and Independent Auditors’ Report.................................. 91F. The Financial Impact to The Company Due to Company or Affiliate Companies Financial

Difficulties....................................................................................................................................... 91VII. Financial Position, Operating Results and Risk Management............ 92

A. Analysis of Consolidated Financial Position.............................................................................. 92B. Analysis of Consolidated Financial Performance....................................................................... 93C. Analysis of Consolidated Cash Flow............................................................................................ 94D. Major Capital Expenditure........................................................................................................... 95E. Long Term Investment.................................................................................................................. 96F. Risk Management.......................................................................................................................... 96G. Other Important Matters.............................................................................................................. 102

VIII. Corporate Social Responsibility............................................................ 103IX. Special Notes........................................................................................... 122

A. Affiliated Information................................................................................................................... 122B. Private Placements Securities....................................................................................................... 124C. VIS Common Shares Acquired, Disposed of and Held by Subsidiaries................................... 124D. Other Necessary Supplemen......................................................................................................... 124E. Any Events in Y2014 That Had Significant Impacts on Shareholders’ Right or Security

Prices as Started in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan............................................................................................................................................. 124

X. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report............................................................... 125Financial Statements and Independent Auditors' Report................................................................ 126Consolidated Financial Statements and Independent Auditors' Report........................................ 194

I. A Letter to Shareholders Dear Shareholders, In 2014, Vanguard International Semiconductor Corporation (VIS) achieved steady growth in terms of revenue, profit, and technology development. Due to successfully acquired Nanya Technology's 8-inch fab located at Luzhu District in Taoyuan County and equipment from Sumpro’s fab, VIS also gained the momentum to advance our process technologies, capacity and customer services. Revenue and Profit VIS's sales revenue grew steadily on sequential basis, we posted consolidated revenue of NT$23.93 billion in 2014 which represented an increase of 13% over NT$21.14 million in 2013. And a new record high – gross profit margin of about 36%, after-tax net income of approximately NT$5.44 billion, the earning per share of NT$3.30, and the increase of return of equity from 19.3% in the previous year to 20.9% in 2014 all clearly illustrated significant growth compared to that of last year. Capacity and Business VIS’ capital expenditure amounted to approximately NT$ 3.22 billion with yearly capacity around 1.82 million wafers and capacity utilization rate further increased to 102% in 2014. Annual wafer shipments reached 1.836 million units represented an increase of 12% compared with 1.634 million in 2013. In order to continually enhance process technologies and expand production capacity, we estimate capital expenditure will be around NT$2.2 billion in 2015. Technology Development In order to provide customers with more competitive technologies and services, the company has continued to develop more specialized applications from core technologies and enhance the value of services we provide. In the field of display driver IC technology development, our 0.2um, 0.18um, and 0.15um high-voltage processes, and 0.16um high-voltage process with embedded non-volatile memory exclusively designed for touch panels, have entered mass production. In BCD (Bipolar-CMOS-DMOS) processes for power management ICs, apart from the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um processes that have already put into mass production, we will complete development of a next-generation 0.11um BCD process during this year. Furthermore, we have completed development of a second-generation 0.5um ultra-low on resistance, ultra-high-voltage and SOI processes, which are ready to be used for customers’ product design. In the future, VIS will continue to develop high voltage and power management platforms to accommodate market demand, and collaborate with Taiwan Semiconductor Manufacturing Co. (TSMC) on the transfer of various advanced process technologies. Visions and Outlook

1

Vanguard InternationalSemiconductor Corporation

With the recovery of the global economy, semiconductor market increased by approximately 8% in 2014. Specifically, this increase was attributed to the 17% and 5% growth rates of memory ICs and nonmemory ICs, respectively, with total amount of US$340 billion. The IC foundry market was roughly US$ 44 billion, which represented a 10% increase over the US$40 billion in 2013. Among the total foundry market, approximately US$13.5 billion was contributed from the 8-inch IC foundry industry. As the integral part of the company's business, the end products, including displays, notebook computers, tablets, mobile phones, and LCD TVs, performed remarkably in 2014 in terms of shipments. Flanked by tablets and smartphones, display and notebook computer products experienced a decline of 2% and 5%, respectively, whereas the shipments of tablets and smartphones maintained a steady growth at 6% and 10%. While shipment of LCD TVs increased by approximately 2%. In response to the overall growth in shipment, improved panel resolution, and PMIC growth driven by benefit of energy-saving, timely provided highly competitive foundry platform, as well as increased capacity via acquisition of Sumpro's fab, once again, we achieved excellent business performance in 2014. Looking ahead to 2015, the World Bank recently predicted a 3.8% global GDP growth in 2015, which indicates a gradual economic recovery compared with the 3.3% growth in 2014. With regard to economic indicators, the unemployment rate in the United States has substantially declined from 9.1% in 2011 to 5.8% at the end of 2014. Moreover, control over European deflation is also expected. Under the influence of economic growth, the global semiconductor market is expected to reach US$358 billion, representing a growth of 5%. The foundry industry is also expected to grow at an annual rate of roughly 10% to US$50 billion. Apart from the display related IC market, where we are the market leader, the company is also striving to increase its power management IC business. It is also expected that high-voltage analog, BCD process, ultra-high-voltage process, and discrete power components demand will continue to see stable growth, which is beneficial for improving the company's businesses. Furthermore, the company's customer base will expand from fables to IDM companies, and the percentage of our oversea customers will continue to increase. We will strengthen ties and forge long-lasting partnerships with customers to secure our leading position among specialty IC foundries. In responding to customer demand growth trend, VIS will invest appropriately to expand the capacity for high-voltage products to become one of the leading companies in HV and PMIC foundry market.

2


Finally, we would like to express our thankfulness to all shareholders, customers and employees for your continuing support and contributions to VIS. We wish you all the best of health and prosperity in the year ahead.

*2015 sales forecast: 2,150K 8” wafers

Ching-Chu Chang, Chairman

Leuh Fang, President

0 1000 2000

2015

2014

2013

Wafer Shipment thousands of 8" wafers

*

3


josh

董事長簽(en)

josh

經理人簽(en)

II. A Brief Introduction of VISCompany Profile

Vanguard International Semiconductor Corporation (VIS) is a leading specialty IC

foundry service provider. Since its founding in December 5th, 1994 in Hsinchu

Science Park, Taiwan, VIS has been achieving continuous success in its technology

development and production efficiency improvement. VIS has also been consistently

offering its customers cost-effective solutions and high value-added services. VIS has

three 8-inch fabs with a monthly output of approximately 177,000 wafers in Y2015.

VIS is a spin-off of the Sub-Micron Project, sponsored by the Industrial Technology

Research Institute (ITRI). Original investors include Taiwan Semiconductor

Manufacturing Corporation (TSMC) and 13 other institutional investors. VIS was

founded with the primary focuses on the production and development of DRAM and

other memory IC. In March 1998, VIS became a listed company on the Taiwan Over-

The-Counter Stock Exchange (OTC). Its main shareholders include Taiwan

Semiconductor Manufacturing Corporation (TSMC), National Development Fund and

other institutional investors.

In 1999, VIS started to work as a subcontractor for TSMC for the manufacturing of

logic and mixed signal products. In 2000, VIS officially announced its plan to

transform from a DRAM manufacturer into a foundry service provider. In February

2004, VIS completely terminated its DRAM production and became a pure-play

foundry company. In 2007, VIS announced the procurement of 8” fabs from

Winbond. With this acquisition, VIS unleashed the growth momentum,

accommodated customers’ demands in capacity and technology, and provided a more

comprehensive solution portfolio for our customers. In 2014, VIS acquired Nanya

Technology's 8-inch fab located at Luzhu District in Taoyuan County and mechanical

equipment from Sumpro Electronic. This transaction not only granted VIS the

opportunity to expand its production capacity, but also enabled VIS to grow

continually and earn profits steadily.

VIS has continued its investment in the product development and process technology

for the market needs. VIS offers a wide range of process technologies, including High

Voltage, Ultra High Voltage, Bipolar CMOS DMOS (BCD), Discrete, Logic, Mixed-

Signal, Analog, High Precision Analog, and Embedded Memory to further help

increase its foundry customers’ global competitiveness.

In order to enhance its IP service capability, VIS has continued its IP development by

strengthening strategic relationship with its IP provision partners. Currently available

IPs are standard cell library, SRAM, one-time programmable, multiple-time

programmable, electrical fuse, power phantom cell, and ESD. With the help from

4


strategic IP partners, VIS can also provide IPs that are required by specialty ICs.

VIS has about 5,000 employees. We are committed to adhere to our customer-

oriented business philosophy to provide our customers with continuously improved

and enhanced specialty IC foundry services. To better serve its worldwide customers,

VIS has established sales offices in Taiwan and sales representatives in worldwide

main IC clusters.

Besides the display-related ICs, power management ICs is in the core of VIS

competence. Due to the current global trend towards energy-saving and low-carbon

technologies, it is also expected that high-voltage analog, BCD process, ultra-high-

voltage process, and discrete power element demand will continue to enjoy stable

growth, and the company's customer base will expand from fabless producers to even

more large IDM firms. The percentage of our foreign customers will continue to

increase, and we will rely on our deepening partnerships with customers to

consolidate our leading status among special foundries. Responding to growth trends

and demand, the company will invest an appropriate amount in the expansion of

process capacity, and continue its efforts to become the leading firm in the global

high-voltage process and power semiconductor process foundry industry segment.

5


III. CORPORATE GOVERNANCE REPORTA. Company Organization

1. Organizational chart:

2. Function Description

President Management of company-wide operations. Establish VIS business strategy and target.

VP of Finance Corporate Accounting Div., Finance Div., Material Management Div., PR & IR dept., IT & E-commerce Div., and Corporate Planning Div. Responsible for the company finance, accounting operation and material management, as well as BOD, establishing the company's external communication channel, and maintaining the company's corporate image, investor relationship, investment analysis, and long-term investment planning.

VP of Worldwide Sales and Planning

Corporate Sales Div., Customer Engineering Div., Sales Planning dept., Field Technology Support Div., and Marketing Div.. Planning of company products, including sales and marketing for these products. Responsible for product service, market analysis and development, and establishing and execution of sales plan.

VP of Research & Development

Corporate technology and IP development, as well as providing supports for device engineering, IP resources, layout, mask generation, and CAD tool management. Incl.: Technology Development Div., Device Engineering Div., Design Service Engineering Div., Design System Technology Dept., Project Management Dept., and Design Service Dept..

VP of Operation & Environment Safety

Corporate Wafer Production, Risk & Env. Safety Management Dept., Computer Int. Mfg. Div., Product Engineering Div., and Special Project Dept.. Improve operation efficiency, and ensure timely delivery of high quality products to customers.

General Counsel of Legal Corporate legal affairs, Intellectual property protection and Legal compliances. Human Resources Div. Recruiting the most qualified and suitable talents, providing employee training & development programs

to meet company's growth, and establishing an effective & innovative personnel management system and work environment in order to attract and retain talents, and maintain good labor relations.

Quality Reliability Assurance Div.

Corporate Quality Assurance Dept., Reliability Assurance Dept., Quality System Management Dept., and in charge of product inspection, quality control, and promoting quality policy and strategy in VIS.

Internal Auditing Evaluate the design and operating effectiveness of internal control systems, and provide suggestions to achieve the objectives of internal control systems.

6


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ecto

r, A

zure

Wav

e Te

chno

logi

es I

nc.

Inde

pend

ent D

irec

tor,

Her

mes

Mic

rovi

sion

, In

c.

Dir

ecto

r, M

edia

Tek

Inc.

Non

e N

one

Non

e

8


Maj

or S

har

ehol

der

s of

th

e In

stit

uti

onal

Sh

areh

old

ers:

As

of 0

7/20

/201

4 (l

ast r

ecor

d da

te)

Inst

itutio

nal S

hare

hold

ers

Maj

or S

hare

hold

ers

of th

e In

stitu

tiona

l Sha

reho

lder

s

Tai

wan

Sem

icon

duct

or

Man

ufac

turi

ng C

o., L

td.

AD

R-T

aiw

an S

emic

ondu

ctor

Man

ufac

turi

ng C

ompa

ny, L

td.

Nat

iona

l Dev

elop

men

t Fun

d, E

xecu

tive

Yua

n JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for

Sau

di A

rabi

an M

onet

ary

Age

ncy

Gov

ernm

ent o

f S

inga

pore

JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for

AB

U D

HA

BI

Inve

stm

ent A

utho

rity

JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for

Eur

oPac

ific

Gro

wth

Fun

d

Cat

hay

Lif

e In

sura

nce

Co.

, Ltd

. JP

Mor

gan

Cha

se B

ank,

N.A

., Ta

ipei

Bra

nch

in C

usto

dy f

or S

ticht

ing

Dep

osita

ry A

PG E

mer

ging

Mar

kets

Equ

ity P

ool

Van

guar

d E

mer

ging

Mar

kets

Sto

ck I

ndex

Fun

d, a

Ser

ies

of V

angu

ard

Inte

rnat

iona

l Equ

ity I

ndex

Fun

ds

iSha

res

MS

CI

Em

ergi

ng M

arke

ts I

ndex

Fun

d

20.7

8%

6.38

%

3.10

%

2.29

%

1.39

%

1.17

%

1.16

%

1.07

%

0.95

%

0.94

%

Inst

itu

tion

al S

har

ehol

der

Rep

rese

nta

tive

s fo

r M

ajor

Sh

areh

old

ers

of t

he

Inst

itu

tion

al S

har

ehol

der

s As

of 0

7/20

/201

4

Inst

itutio

nal S

hare

hold

ers

Maj

or S

hare

hold

ers

of th

e In

stitu

tiona

l Sha

reho

lder

s

Cat

hay

Lif

e In

sura

nce

Co.

, Ltd

. C

atha

y F

inan

cial

Hol

ding

s 1

00%

A

DR

-Tai

wan

Sem

icon

duct

or M

anuf

actu

ring

Com

pany

, Ltd

. N

atio

nal D

evel

opm

ent F

und,

Exe

cutiv

e Y

uan

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy f

or S

audi

Ara

bian

Mon

etar

y A

genc

y G

over

nmen

t of

Sin

gapo

re

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy f

or A

BU

DH

AB

I In

vest

men

t Aut

hori

ty

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy f

or E

uroP

acif

ic G

row

th F

und

JP

Mor

gan

Cha

se B

ank,

N.A

., Ta

ipei

Bra

nch

in C

usto

dy f

or S

ticht

ing

Dep

osita

ry A

PG E

mer

ging

Mar

kets

Equ

ity P

ool

Van

guar

d E

mer

ging

Mar

kets

Sto

ck I

ndex

Fun

d, a

Ser

ies

of V

angu

ard

Inte

rnat

iona

l Equ

ity I

ndex

Fun

ds

iSha

res

MS

CI

Em

ergi

ng M

arke

ts I

ndex

Fun

d

Non

-com

pany

org

aniz

atio

n

9


Independence Analysis of Board Members under Taiwan SFC Criteria:

February 28, 2015

Name

Over 5 years of working experience Criteria（Note） Number of other public companies that concurrently

serve as an independent director

College Instructor or higher level in Business, Legal, Finance, Accounting or company business related area

Court Judge, Prosecutor, Lawyer, Accountant, or other Certified Professional expert related to company business

Business, Legal, Finance, Accounting or company business required working experience

1 2 3 4 5 6 7 8 9 10

Ching-Chu Chang V V V V V V V V V V 0 F.C. Tseng V V V V V V V 1

Edward Y. Way V V V V V V V V V V 4K. H. Hsiao V V V V V V V V 0Chintay Shih V V V V V V V V V V V V 2

Benson W.C. Liu V V V V V V V V V V V 2 Kenneth Kin V V V V V V V V V V V V 3

Note :

1. Not an employee of affiliated companies of the company and company.

2. Not a director, supervisor of affiliated companies of the company and company.

3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company outstanding

shares, nor one of the Company top 10 natural person shareholders.

4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.

5. Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or

indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top five

share-holders of juridical person.

6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares of certain

companies or institutions that have financial or business relationship with the Company.

7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or

institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce, legal

consultation and services to the Company or affiliated companies within one year.

8. Not a spouse or first-or-second-degree relative to any other director.

9. Not a juridical person or its representative as defined in Article 30 of Company Law.


10


2.E

xecu

tive

Off

icer

s:

Feb

ruar

y 28

, 201

5

Tit

le

Nam

e D

ate

Ele

cted

Cur

rent

Sha

reho

ldin

gS

pous

e &

Min

or

Sha

reho

ldin

g

Sha

reho

ldin

g by

N

omin

ee

Arr

ange

men

t E

duca

tion

&S

elec

ted

Pas

t Pos

itio

ns

Sel

ecte

d C

urre

nt P

osit

ions

Man

ager

s A

re S

pous

e or

W

ithi

n S

econ

d-de

gree

R

elat

ive

of

Con

sang

uini

ty to

Eac

h O

ther

S

hare

s %

S

hare

s %

S

hare

s%

T

itle

N

ame

Rel

atio

n

Pre

side

ntL

euh

Fan

g20

09.2

.20

3,21

5,00

0 0.

20%

00

00

MS

, Mat

eria

ls S

cien

ce a

nd E

ngin

eeri

ng,

Uni

vers

ity

of W

ashi

ngto

n F

ab D

irec

tor,

Taiw

an S

emic

ondu

ctor

M

anuf

actu

ring

Com

pany

, Ltd

. V

ice

Pre

side

nt,

SS

MC

Dir

ecto

r an

d P

resi

dent

, VIS

Ass

ocia

tes

Inc.

D

irec

tor

and

Pre

side

nt,

VIS

Inv

estm

ent

Hol

ding

, In

c.

Dir

ecto

r, V

IS M

icro

Inc

. D

irec

tor,

IMU

Sol

utio

ns,I

nc.

Dir

ecto

r, A

dvan

ced

Mic

roel

ectr

onic

Pro

duct

s In

c.R

epre

sent

ativ

e

Non

e N

one

Non

e

Vic

e P

resi

dent

, F

inan

ce

D. L

. Tse

ng20

11.5

.1

52,7

27

0.00

%48

8,93

70.

03%

00

Bac

helo

r, N

atio

nal C

heng

chi U

nive

rsit

y D

ept.

Man

ager

, Phi

lips

Ele

ctro

nics

D

irec

tor

and

Vic

e P

resi

dent

, VIS

Ass

ocia

tes

Inc.

D

irec

tor

and

CF

O, V

IS I

nves

tmen

t Hol

ding

, Inc

. D

irec

tor

and

CF

O, V

IS M

icro

Inc

.

Non

e N

one

Non

e

Vic

e P

resi

dent

W

orld

wid

e S

ales

an

d P

lann

ing

Tho

mas

C

hang

20

03.8

.22

300,

000

0.02

%0

00

0M

S,

Ele

ctri

cal

Eng

inee

ring

, U

nive

rsit

y of

C

inci

nnat

i V

ice

Pre

side

nt,

Mos

el V

itel

ic I

nc.

Dir

ecto

r an

d P

resi

dent

, VIS

Mic

ro I

nc.

Dir

ecto

r, S

peci

alty

Tec

hFar

m, I

nc.

Non

e N

one

Non

e

Vic

e P

resi

dent

R

esea

rch

&

Dev

elop

men

t

Jun-

Wei

C

hen

2014

.10.

300

0.00

%0

00

0

Ph.

D.

in E

lect

rica

l E

ngin

eeri

ng,

Car

negi

e-M

ello

n U

nive

rsit

y

Gen

eral

Man

ager

, VIS

Mic

ro I

nc

Vic

e P

resi

dent

of

Tec

hnol

ogy,

Kin

etic

T

echn

olog

ies,

Inc

.

Vic

e P

resi

dent

of

Tec

hnol

ogy,

Adv

ance

d A

nalo

gic

Tec

hnol

ogie

s, I

nc.

Non

e N

one

Non

e N

one

Vic

e P

resi

dent

O

pera

tion

&

Env

iron

men

t S

afet

y

Cha

n-Je

n K

uo

2007

.5.2

1 80

0,91

3 0.

05%

00

00

MS

, E

lect

rica

l E

ngin

eeri

ng,

Nat

iona

l T

sing

H

ua U

nive

rsit

y N

one

Non

eN

one

Non

e

11


C.

Rem

un

erat

ion

to

Dir

ecto

rs, S

up

ervi

sors

& M

anag

ers

1.R

emu

ner

atio

n t

o D

irec

tors

:U

nit:

NT

$, in

thou

sand

s

Tit

le

Nam

e

Rem

uner

atio

n to

Dir

ecto

rs

A+

B+

C+

D a

s %

of

Net

Inc

ome

Em

ploy

ee P

rofi

t Sha

ring

A+

B+

C+

D+

E+

F+

G

as %

of

N

et I

ncom

e O

ther

R

emun

erat

ion

Rem

uner

atio

n (A

) R

etir

emen

t pay

(B

)

Rem

uner

atio

n to

D

irec

tors

fro

m

All

ocat

ed

Ear

ning

s (C

)

Tra

nspo

rtat

ion

(D)

Sal

ary

& B

onus

(E

) R

etir

emen

t pay

(F

) E

mpl

oyee

Pro

fit S

hari

ng (

G)

Num

ber

of

Em

ploy

ee S

tock

O

ptio

ns G

rant

ed

in 2

014

(H)

Num

ber

of

Em

ploy

ee

Res

tric

ted

Sto

ck

Gra

nted

in 2

013

(I)

VIS

V

IS &

A

ffil

iate

sV

IS

VIS

&

Aff

ilia

tes

VIS

V

IS &

A

ffil

iate

s V

IS

VIS

&

Aff

ilia

tes

VIS

V

IS &

A

ffil

iate

sV

ISV

IS &

A

ffil

iate

s V

IS

VIS

&

Aff

ilia

tes

VIS

V

IS &

Aff

ilia

tes

VIS

VIS

&

Aff

ilia

tes

VIS

VIS

&

Aff

ilia

tes

VIS

V

IS &

A

ffil

iate

s C

ash

Sto

ckC

ash

Sto

ck

Cha

irm

an

Chi

ng-C

hu C

hang

10,0

4410

,044

00

34,8

0034

,800

1,20

81,

208

0.85

%0.

85%

00

00

00

00

00

00

0.85

%

0.85

%

Non

e

Dir

ecto

r

Taiw

an

Sem

icon

duct

or

Man

ufac

turi

ng

Co.

, Ltd

. (T

SM

C)

Rep

rese

ntat

ive:

F.

C. T

seng

E

dwar

d Y

. Way

Dir

ecto

r

Nat

iona

l D

evel

opm

ent

Fun

d, E

xecu

tive

Y

uan

Rep

rese

ntat

ive:

K

. H. H

siao

In

depe

nden

t D

irec

tor

Chi

ntay

Shi

h

Inde

pend

ent

Dir

ecto

r B

enso

n W

.C. L

iu

Inde

pend

ent

Dir

ecto

r K

enne

th K

in

12


Range of Remuneration to Directors (NT$)

Number of DirectorA+B+C+D A+B+C+D+E+F+G

VIS VIS & Affiliates VIS VIS & AffiliatesLess than 2,000,000 2,000,000～4,999,999 Taiwan Semiconductor

Manufacturing Co., Ltd. Representative: F.C. Tseng Edward Y. Way National Development Fund, Executive Yuan Representative: K. H. Hsiao

Chintay Shih Benson W.C. Liu Kenneth Kin

Taiwan Semiconductor Manufacturing Co., Ltd. Representative: F.C. Tseng Edward Y. Way National Development Fund, Executive Yuan Representative: K. H. Hsiao






5,000,000～9,999,99910,000,000～14,999,99915,000,000～29,999,99930,000,000～49,999,999 Ching-Chu Chang Ching-Chu Chang Ching-Chu Chang Ching-Chu ChangTotal 7 7 7 7

2. Remuneration to Supervisors: None

13


3.R

emu

ner

atio

n t

o P

resi

den

t an

d V

ice

Pre

sid

ents

:U

nit:

NT

$, in

thou

sand

s

Tit

le

Nam

e

Sala

ry (

A)

Ret

irem

ent p

ay

(B)

Bon

us (

C)

Em

ploy

ee P

rofi

t Sha

ring

(D

) （

Not

e 1）

A

+B

+C

+D

as

%

of N

et I

ncom

e E

SOP

Shar

es

Gra

nted

in 2

014

No.

of

shar

es

acqu

ired

by

empl

oyee

s ex

erci

sing

sto

ck

opti

ons

Oth

er

Rem

uner

atio

n

VIS

V

IS &

A

ffil

iate

s V

ISV

IS &

A

ffil

iate

sV

ISV

IS &

A

ffil

iate

sV

IS

VIS

&A

ffil

iate

sV

ISV

IS &

A

ffil

iate

sV

ISV

IS &

A

ffil

iate

sV

ISV

IS &

Aff

ilia

tes

Cas

h S

tock

Cas

h S

tock

Pre

side

nt

Leu

h F

ang

19,9

32

23,7

18

00

75,6

0875

,608

48,0

110

48,0

11

02.

642.

710

00

0N

one

Vic

e Pr

esid

ent,

Fin

ance

D. L

. Tse

ng

Vic

e Pr

esid

ent

Wor

ldw

ide

Sale

s an

d P

lann

ing

Tho

mas

Cha

ng

Vic

e Pr

esid

ent

Eng

inee

ring

S

ervi

ce

Lar

ry T

u (N

ote

2)

Vic

e Pr

esid

ent

Res

earc

h &

D

evel

opm

ent

Jun-

Wei

C

hen

(Not

e 3)

Vic

e Pr

esid

ent,

Ope

ratio

n &

E

nvir

onm

ent

Saf

ety

Cha

n-Je

n K

uo

Not

e1 :

As

of th

e an

nual

rep

ort p

ubli

cati

on d

ate,

pri

or to

the

shar

ehol

ders

mee

ting

res

olut

ion

conc

erni

ng th

e 20

14 d

istr

ibut

ion

of e

arni

ngs,

the

boar

d of

dir

ecto

rs a

ppro

ved

a pr

opos

al d

eter

min

ing

the

amou

nts

of th

e bo

nuse

s gr

ante

d to

the

gene

ral m

anag

er a

nd d

eput

y ge

nera

l man

ager

s; th

e fi

gure

abo

ve is

a te

ntat

ive

esti

mat

e, a

nd th

e am

ount

will

be

impl

emen

ted

foll

owin

g a

reso

lutio

n at

the

2015

sha

reho

lder

s m

eeti

ng.

Not

e 2

: Lar

ry T

u w

as r

esig

ned

as V

ice

Pre

side

nt o

f V

IS o

n S

epte

mbe

r 30

, 201

4.

Not

e 3

: Jun

-Wei

Che

n w

as a

ppoi

nted

as

Vic

e P

resi

dent

of

VIS

on

Oct

ober

30,

201

4.

14


Ran

ge o

f R

emun

erat

ion

to

Pre

side

nt a

nd V

ice

Pre

side

nt (

NT

$)

Nam

e of

Pre

side

nt a

nd V

ice

Pre

side

nt

VIS

V

IS &

Aff

ilia

tes

<2,

000,

000

Jun-

Wei

Che

n Ju

n-W

ei C

hen

2,00

0,00

0 ～

4,9

99,9

99

5,00

0,00

0 ～

9,9

99,9

99

10,0

00,0

00～

14,9

99,9

99

15,0

00,0

00～

29,9

99,9

99

Lar

ry T

u, C

han-

Jen

Kuo

, Tho

mas

Cha

ng, D

. L. T

seng

L

arry

Tu,

Cha

n-Je

n K

uo, T

hom

as C

hang

, D. L

. Tse

ng

30,0

00,0

00～

49,9

99,9

99

50,0

00,0

00～

99,9

99,9

99

Leu

h F

ang

Leu

h F

ang

Tot

al6

6

Em

plo

yee

Pro

fit

Sh

arin

g G

ran

ted

to

Man

agem

ent

Tea

m in

Y20

15:

Fe

brua

ry 2

8, 2

015

Titl

e N

ame

Stoc

k C

ash

Tota

l To

tal a

s %

of

Net

Inc

ome

Pre

side

ntL

euh

Fan

g

0 48

,011

48,0

110.

88

Vic

e P

resi

dent

, Fin

ance

D

. L. T

seng

V

ice

Pre

side

nt M

arke

ting

& S

ales

T

hom

as C

hang

V

ice

Pre

side

nt R

esea

rch

& D

evel

opm

ent

Jun-

Wei

Che

n V

P O

pera

tion

& E

nvir

onm

ent S

afet

y C

han-

Jen

Kuo

15


4. Comparison and Description of all Company Paid Remuneration to Net

Income Ratio Analysis and Company Remuneration Policy, Pattern,

Procedures and Ties to the Operational Result

（1） Analysis of Remuneration to Net Income Ratio in the last two

years for Company Directors, Supervisors and Executive

Officers: Unit: NT$, in thousands

Title

VIS Paid Remuneration as % of Net Income

Y2013 Y2014

Remuneration Net Income Remuneration as % of

Net Income Remuneration Net Income

Remuneration as % of Net Income

Directors 20,521

4,370,988

0.47 46,052

5,437,889

0.85

Supervisors 0 0.00 0 0.00

President and Vice Presidents

129,230 2.96 143,551 2.64

Unit: NT$, in thousands

Title

VIS & Affiliates Paid Remuneration as % of Net Income

Y2013 Y2014

Remuneration Net Income Remuneration as % of

Net Income Remuneration Net Income

Remuneration as % of Net Income

Directors 20,521

4,370,988

0.47 46,052

5,437,889

0.85

Supervisors 0 0.00 0 0.00

President and Vice Presidents

133,746 3.06 147,337 2.71

（2） Company Remuneration Policy, Pattern, Procedures and Ties

to the Operational Result:

The compensation policy for board directors and supervisors is

regulated in the company policy. Based on the general pattern in

the industry, it is further adjusted by profit distribution approved by

board and shareholder meetings. It is heavily influenced by the

company operational result.

Executive compensation and bonus situation is set by adjustable

company rules, education and experience level, and comparison

with industry peers. It is further adjusted by profit distribution

approved by board and shareholder meetings. It is heavily

influenced by company operational result.

D. Implementation of Corporate Governance 1. Implementation of Board Meeting:

The Board convened 6 meetings in Y2014. Meeting attendance was as

follows:

16


Title Name No. of Meetings

Attended No. of Meetings

Substituted Attendance Rate Note

Chairman Ching-Chu Chang 6 0 100%Vice Chairman F.C. Tseng 5 1 83%

Independent Director Benson W.C. Liu 6 0 100% Independent Director Chintay Shih 5 1 83% Independent Director Kenneth Kin 5 1 83%

Director Edward Y. Way 6 0 100% Director K. H. Hsiao 6 0 100%

Supplement Notes: 1. No Security and Exchange Law Article 14-3 item to report for the fiscal year and upon this annual report date. No

opposition or dissenting opinions held by independent director on record or with announcement in document forresolutions passed by the board of directors.

2. Recusal of directors due to conflicts of interests:A. Name of director：Ching-Chu Chang

Resolution：To approve the proposals related to Chairmen. 3. VIS continues to improve and strengthen on the corporate governance and the corporate social responsibilities, obtain a

good performance on the Y2014 Corporate Governance Ranking; and VIS will adopt candidate nomination system toelect all directors in Y2015.

Dissenting opinions held by directors and supervisors in respect of important

resolutions passed by the board directors: None.

The State of Participation in Board Meetings by the Supervisors: NA

2. Implementation of Audit Committee Meeting:

The Audit Committee convened 5 regular meetings in Y2014. Meeting

attendance was as follows:



Substituted Attendance Rate Note

Independent Director Benson W.C. Liu 5 0 100% Independent Director Chintay Shih 4 1 80% Independent Director Kenneth Kin 3 2 60%

Supplement Notes : 1. In the latest fiscal year Audit Committee has no Security & Exchange Law Article 14-5 items to report, none

resolutions approved by two thirds of board members without Audit Committee approval.2. No refusing case for Audit Committee in the latest fiscal year.3. Whenever the accountants audit/review Company financial and business status, they also communicate with the　

accounting and interior auditing personnel. Audit Committee holds review meeting to audit company financialreports. They also hold closed-door meetings with the CPA or Director of Internal Audit Dept. to communicateissues regarding VIS financial and business conditions.

17


3.T

aiw

an C

orp

orat

e G

over

nan

ce I

mp

lem

enta

tion

as

Req

uir

ed b

y S

FC

:

Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

1.D

id th

e co

mpa

ny fo

rmul

ate

and

disc

lose

corp

orat

e go

vern

ance

pra

ctic

e pr

inci

ples

acco

rdin

g to

the

Cor

pora

te G

over

nanc

e B

est

Prac

tice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es?

V

We

did

not

form

ulat

e co

rpor

ate

gove

rnan

ce p

ract

ice

prin

cipl

es.

How

ever

, w

e ha

ve s

peci

fied

appl

icab

le r

egul

atio

ns a

ccor

ding

to

the

key

corp

orat

e go

vern

ance

prin

cipl

es o

f pr

otec

ting

shar

ehol

ders

' rig

hts

and

inte

rest

s, en

hanc

ing

the

func

tion

of b

oard

of

dire

ctor

s, em

pow

erin

g th

e su

perv

isor

s, re

spec

ting

stak

ehol

ders

' rig

hts,

and

impr

ovin

g in

form

atio

n tra

nspa

renc

y (e

.g. A

rticl

es

of I

ncor

pora

tion,

rul

es a

nd p

roce

dure

s of

sha

reho

lder

s' m

eetin

g, r

ules

and

pro

cedu

res

of b

oard

m

eetin

g, r

ules

for

req

uest

ing

and

man

agin

g au

dio

and

vide

o re

cord

ings

of

boar

d m

eetin

gs,

orga

niza

tion

rule

s fo

r aud

it co

mm

ittee

s an

d re

mun

erat

ion

com

mitt

ees,

and

guid

elin

es fo

r int

erna

l m

anag

emen

t of c

ompa

ny w

ebsi

te).

We

have

impl

emen

ted

thes

e re

gula

tions

.

No

varia

tion

18


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

2.Sh

areh

oldi

ng S

truct

ure

& S

hare

hold

ers'

Rig

hts

(1)

Did

the

com

pany

est

ablis

h in

tern

al o

pera

ting

proc

edur

es to

pro

cess

shar

ehol

ders

' su

gges

tions

, dou

bts,

disp

utes

, and

litig

atio

n m

atte

rs, a

nd im

plem

ent t

he p

roce

dure

s ac

cord

ingl

y?

(2)

The

Com

pany

's po

sses

sion

of m

ajor

sh

areh

olde

r's li

st a

nd th

e lis

t of u

ltim

ate

owne

rs o

f the

se m

ajor

shar

ehol

ders

(3)

Did

the

com

pany

est

ablis

h an

d ca

rry

out r

isk

cont

rol m

anag

emen

t and

fire

wal

ls fo

r its

af

filia

ted

ente

rpris

e?

(4)

Did

the

com

pany

dev

elop

inte

rnal

rule

s for

pr

ohib

iting

com

pany

insi

ders

from

trad

ing

secu

ritie

s usi

ng in

form

atio

n no

t dis

clos

ed to

th

e m

arke

t?

V

V

V

V

Alth

ough

we

have

not

yet

est

ablis

hed

inte

rnal

ope

ratin

g pr

oced

ures

; how

ever

, we

have

ass

igne

d va

rious

dep

artm

ents

incl

udin

g th

e Pu

blic

and

Cor

pora

tion

Inve

stor

Rel

atio

ns, L

egal

, Sec

reta

riat o

f th

e B

oard

of

Dire

ctor

s to

pro

cess

sha

reho

lder

s' su

gges

tions

, do

ubts

, or

dis

pute

s an

d lit

igat

ion

mat

ters

. We

have

als

o lis

ted

cont

act

win

dow

s of

the

VIS

fin

ance

dep

artm

ent

and

the

com

mon

st

ock

trans

fer a

genc

y on

com

pany

web

site

, und

er th

e in

vest

or re

latio

ns s

ectio

n to

resp

ond

to a

ny

sugg

estio

ns o

r arg

umen

ts in

tim

e.

VIS

ass

embl

es s

hare

hold

ers’

mee

ting

ever

y ye

ar, a

nd ta

ke in

pro

posa

ls o

f th

e sh

areh

olde

rs a

s is

re

gula

ted.

Dur

ing

the

shar

ehol

ders

’ mee

ting,

VIS

ass

igns

reas

onab

le ti

me

for d

iscu

ssio

n, a

nd fo

r sh

areh

olde

rs to

spea

k up

.

VIS

has

alre

ady

built

up

a m

echa

nism

to

mon

itor

any

shar

ehol

ding

cha

nges

fro

m t

he b

oard

m

embe

rs, m

anag

ers

and

the

shar

ehol

ders

that

ow

n ov

er 1

0% o

f the

com

pany

com

mon

sto

cks,

an

d re

port

to th

e m

anag

emen

t for

upd

ated

shar

ehol

ding

stru

ctur

e.

All

VIS

sub

sidi

arie

s ar

e m

ainl

y in

sem

icon

duct

or b

usin

ess

inve

stm

ent a

nd IC

sal

es s

ervi

ces.

VIS

ha

s es

tabl

ishe

d pr

oper

org

aniz

atio

n co

ntro

l stru

ctur

e to

mon

itor

the

maj

or fi

nanc

ial a

nd b

usin

ess

oper

atio

ns in

any

of

the

subs

idia

ries.

VIS

als

o fo

llow

s th

e in

tern

al c

ontro

l reg

ulat

ions

to r

evie

w

rela

ted

busi

ness

es o

f the

subs

idia

ries r

egul

arly

so a

s to

effe

ctiv

ely

cont

rol r

isks

.

We

have

for

mul

ated

an

"Ope

ratin

g Pr

oced

ure

for

Proc

essi

ng o

f M

ajor

Int

erna

l In

form

atio

n",

proh

ibiti

ng c

ompa

ny i

nsid

ers

from

tra

ding

sec

uriti

es u

sing

inf

orm

atio

n no

t di

sclo

sed

to t

he

mar

ket.

No

varia

tion

19


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

3.C

ompo

sitio

n an

d R

espo

nsib

ilitie

s of t

he B

oard

of D

irect

ors

(1)

Did

the

boar

d of

dire

ctor

s for

mul

ate

appr

opria

te p

olic

y on

div

ersi

ty b

ased

on

the

com

posi

tion

of it

s mem

bers

and

impl

emen

t su

ch p

olic

y ac

cord

ingl

y?

(2)

In a

dditi

on to

est

ablis

hing

a re

mun

erat

ion

com

mitt

ee a

nd a

udit

com

mitt

ee, d

id th

e co

mpa

ny v

olun

taril

y se

t up

othe

r fun

ctio

nal

com

mitt

ees?

(3)

Did

the

com

pany

form

ulat

e ru

les a

nd

met

hods

for b

oard

of d

irect

ors’

perf

orm

ance

as

sess

men

ts, a

nd p

erfo

rm p

erio

dic

perf

orm

ance

ass

essm

ents

eac

h ye

ar?

(4)

Is th

e co

mpa

ny's

boar

d of

dire

ctor

s co

mpo

sed

of in

depe

nden

t dire

ctor

s?

V

V

V

V

Prov

isio

n 5

of th

e co

mpa

ny's

Reg

ulat

ion

for

Boa

rd E

lect

ion

spec

ifica

lly d

iscl

oses

the

polic

y on

di

vers

ity o

f boa

rd o

f dire

ctor

mem

bers

; Com

pany

requ

irem

ents

and

the

dive

rsity

of c

hairm

an o

f th

e bo

ard

are

cons

ider

ed in

the

nom

inat

ions

for r

e-el

ectin

g ch

airm

an o

f the

boa

rd.

In a

dditi

on to

est

ablis

hing

a re

mun

erat

ion

com

mitt

ee a

nd a

udit

com

mitt

ee, w

e di

d no

t set

up

othe

r fu

nctio

nal c

omm

ittee

s.

We

have

for

mul

ated

rul

es f

or b

oard

of

dire

ctor

s’ pe

rfor

man

ce a

sses

smen

ts, t

hat

is, t

he P

olic

y,

Syst

em,

Stan

dard

s, an

d St

ruct

ure

for

Boa

rd o

f D

irect

ors

Perf

orm

ance

and

Ass

essm

ent

and

Rem

uner

atio

n; W

e fo

rmul

ate

boar

d pe

rfor

man

ce a

sses

smen

t ite

ms

at th

e be

ginn

ing

of e

ach

year

, ev

alua

te t

he p

erfo

rman

ce a

t th

e en

d of

eac

h ye

ar,

and

inco

rpor

ate

the

asse

ssm

ent

resu

lts i

nto

cons

ider

atio

n fo

r boa

rd re

mun

erat

ion.

V

IS A

udit

Com

mitt

ee m

embe

rs r

egul

arly

hol

d m

eetin

gs e

very

yea

r. W

ith r

egar

d to

mat

ters

that

m

ay i

nflu

ence

ind

epen

denc

e (s

uch

as:

finan

cial

int

eres

ts,

finan

cing

and

gua

rant

ees,

clos

e co

mm

erci

al r

elat

ions

hips

, CPA

s, an

d th

eir

empl

oym

ent o

f pe

rson

s w

ithin

the

seco

nd d

egre

e of

ki

nshi

p, g

ifts

with

maj

or v

alue

, no

n-au

dite

d m

atte

rs,

busi

ness

rec

ruiti

ng,

etc.

), as

sess

the

in

depe

nden

ce o

f th

e at

test

ing

CPA

with

res

pect

to e

ach

mat

ter,

and

revi

ew th

e su

itabi

lity

of th

e C

PA b

ased

on

his

past

per

form

ance

, aca

dem

ic b

ackg

roun

d an

d w

ork

expe

rienc

e, a

nd c

usto

mer

s th

at c

onst

itute

the

CPA

's ch

ief r

espo

nsib

ility

. The

y w

ill a

lso

repo

rt th

eir c

oncl

usio

ns to

the

boar

d of

dire

ctor

s for

re-c

onfir

mat

ion

to e

nsur

e th

e ob

ject

iven

ess o

f the

CPA

.

No

varia

tion

4.D

id th

e co

mpa

ny m

aint

ain

chan

nels

of

com

mun

icat

ion

with

its s

take

hold

ers,

desi

gnat

e a

stak

ehol

ders

sect

ion

on it

sw

ebsi

te, a

nd a

dequ

atel

y re

spon

d to

stak

ehol

ders

' con

cern

s reg

ardi

ng c

orpo

rate

soci

al re

spon

sibi

lity?

V

To e

nhan

ce c

omm

unic

atio

ns w

ith s

take

hold

ers,

VIS

not

onl

y pu

blic

ally

ann

ounc

es t

he c

onta

ct

win

dow

s an

d co

ntac

t inf

orm

atio

n of

the

rela

ted

depa

rtmen

ts o

n co

mpa

ny w

ebsi

te, b

ut a

lso

hold

s re

gula

r se

min

ars

for

corp

orat

e in

vest

ors,

and

pays

vis

its to

maj

or c

usto

mer

s to

und

erst

and

any

prod

uct

issu

es

and

thei

r fu

ture

ne

eds.

Plea

se

visi

t V

IS’

com

pany

w

ebsi

te

(http

://w

ww

.vis

.com

.tw/v

isC

om/e

nglis

h/g_

foot

er/g

02_c

onta

ctus

.jsp)

With

in th

e C

ompa

ny, w

e se

t up

sug

gest

ion

boxe

s fo

r em

ploy

ees

to p

rovi

de i

nput

s to

the

Pre

side

nt a

nd V

ice

Pres

iden

ts, w

e ho

ld c

omm

unic

atio

n m

eetin

gs e

very

qua

rter

for

bette

r co

mm

unic

atio

ns, t

he B

oard

of

Dire

ctor

s sh

all

also

set

up

a C

hairm

an/A

udit

Com

mitt

ee e

mai

l in

box

on t

he C

ompa

ny’s

web

site

for

re

ceiv

ing

com

plai

nts

dire

cted

aga

inst

the

Com

pany

’s b

usin

ess

ethi

cs, c

ondu

ct, a

nd/o

r sug

gest

ing

unla

wfu

l act

s. Th

ese

com

plai

nts s

hall

be h

andl

ed b

y th

e C

hairm

an a

nd In

depe

nden

t Dire

ctor

s.

No

varia

tion

20


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

5.D

id th

e co

mpa

ny e

ngag

e a

prof

essi

onal

shar

ehol

der s

ervi

ces a

gent

to h

andl

esh

areh

olde

rs m

eetin

g m

atte

rs?

V

We

have

des

igna

ted

Chi

natru

st C

omm

erci

al B

ank

as o

ur s

ervi

ce a

gent

to

hand

le s

hare

hold

ers

mee

ting

mat

ters

. N

o va

riatio

n

6.In

form

atio

n D

iscl

osur

e(1

) Es

tabl

ishm

ent o

f cor

pora

te w

ebsi

te to

di

sclo

se in

form

atio

n re

gard

ing

the

Com

pany

's fin

anci

als,

busi

ness

and

co

rpor

ate

gove

rnan

ce st

atus

(2

) O

ther

info

rmat

ion

disc

losu

re c

hann

els (

e.g.

En

glis

h w

ebsi

te, a

ppoi

ntin

g re

spon

sibl

e pe

ople

to h

andl

e in

form

atio

n co

llect

ion

and

disc

losu

re, a

ppoi

ntin

g sp

okes

pers

on,

web

cast

ing

inve

stor

con

fere

nce)

V

V

VIS

has

laun

ched

com

pany

web

site

(w

ww

.vis

.com

.tw)

with

reg

ular

upd

ates

to r

evea

l the

late

st

finan

ce a

nd c

orpo

rate

gov

erna

nce

info

rmat

ion.

VIS

has

lau

nche

d bi

lingu

al (

Chi

nese

and

Eng

lish)

web

site

s an

d ha

s as

sign

ed t

he r

elat

ed

depa

rtmen

ts to

col

lect

and

reve

al c

ompa

ny in

form

atio

n, w

hile

the

Publ

ic a

nd C

orpo

rate

Inve

stor

R

elat

ion

depa

rtmen

t is i

n ch

arge

of t

he re

new

al a

nd th

e in

tegr

ity o

f the

web

site

info

rmat

ion.

V

IS h

as a

ssig

ned

spok

esm

an a

nd a

ctin

g sp

okes

man

as

regu

late

d, a

nd r

evea

led

thei

r na

mes

and

co

ntac

t inf

orm

atio

n on

com

pany

web

site

. Ev

ery

quar

ter,

VIS

hol

d in

vest

ors c

onfe

renc

es. T

he b

riefin

g m

ater

ials

in th

e co

nfer

ence

wer

e al

so

reve

aled

on

com

pany

web

site

. We

also

mak

e th

e vi

deo

reco

rd o

f th

e la

test

inve

stor

con

fere

nce

avai

labl

e on

com

pany

web

site

for i

nqui

ries.

No

varia

tion

7.D

oes t

he c

ompa

ny p

osse

ss o

ther

impo

rtant

info

rmat

ion

for b

ette

r und

erst

andi

ng o

f the

Com

pany

's co

rpor

ate

gove

rnan

ce p

ract

ices

?

V

VIS

alw

ays

take

s em

ploy

ees

bene

fits

serio

usly

. To

take

car

e of

em

ploy

ees’

heal

th, V

IS p

rovi

ded

wel

l-rou

nded

med

ical

pla

ns a

nd s

ervi

ces.

VIS

em

ploy

ees

not o

nly

can

see

the

doct

ors i

n th

e of

fice

build

ing,

tak

e ad

vant

age

of t

he a

nnua

l he

alth

ins

pect

ion,

the

y ca

n al

so m

ake

the

mos

t of

the

fe

mal

e he

alth

care

, can

cer s

cree

ning

, gym

faci

lity,

and

wei

ght c

ontro

l con

solin

g pr

ogra

ms.

VIS

agg

ress

ivel

y pa

rtici

pate

s in

com

mun

ity w

elfa

re e

vent

s, an

d gi

ves

feed

back

to

soci

ety

in

actio

ns. I

n V

IS Y

2014

fam

ily d

ay, w

e in

vite

d 20

0 di

sabl

ed p

erso

ns a

nd e

mpl

oyee

s af

filia

ted

with

th

e St

. Jo

seph

Soc

ial

Wel

fare

Fou

ndat

ion,

the

Sun

rise

Opp

ortu

nity

Cen

ter,

and

the

St.

Jose

ph

Com

mun

ity W

orks

tatio

n of

Men

tal

Dis

abili

ty. A

part

from

a f

ull

rang

e of

del

icio

us c

uisi

ne, t

his

even

t al

so i

nclu

ded

man

y ex

citin

g pe

rfor

man

ces

by e

mpl

oyee

s, w

ho s

hare

d th

eir

war

mth

and

co

ncer

n w

ith t

he d

isab

led

parti

cipa

nts.

This

act

ivity

als

o in

clud

ed a

don

atio

n of

NT$

100,

000,

w

hich

will

be

used

to fu

nd le

arni

ng a

nd re

habi

litat

ion

mea

sure

s fo

r the

dis

able

d. F

urth

erm

ore,

to

prom

ote

soci

al

harm

ony,

th

e co

mpa

ny h

as

sinc

e Ja

nuar

y 20

15

excl

usiv

ely

spon

sore

d IC

B

road

cast

ing

Co.

, Ltd

. with

NT$

2 m

illio

n to

pro

duce

the

broa

dcas

t pro

gram

, the

Fut

ure

of T

aiw

an

& T

aiw

an i

n th

e Fu

ture

, in

whi

ch t

opic

s su

ch a

s cu

rren

t gl

obal

tre

nds,

educ

atio

n in

Tai

wan

, ta

lent

ed p

eopl

e, so

cial

live

lihoo

d, e

nerg

y re

sour

ces,

and

envi

ronm

enta

l pro

tect

ion

are

disc

usse

d.

No

varia

tion

21


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

Empl

oyee

s of

VIS

regu

larly

don

ate

mat

eria

ls a

nd b

ooks

to h

omes

for t

he o

ld a

ge, n

urse

ry g

arde

n,

and

scho

ol c

hild

ren

in ru

ral d

istri

cts.

The

fam

ilies

of V

IS e

mpl

oyee

s als

o or

gani

zed

them

selv

es in

to

a vo

lunt

eer g

roup

to a

ct a

s vo

lunt

eer g

uide

s fo

r the

Tai

chun

g Sc

ienc

e M

useu

m d

urin

g th

e w

eeke

nd

and

reco

gniz

ed h

olid

ays

to in

trodu

ce th

e pu

blic

to th

e kn

owle

dge

and

appl

icat

ion

of IC

. In

Y20

14,

ther

e w

ere

265

pers

ons/

times

of

volu

ntee

r se

rvic

e at

the

mus

eum

. VIS

vol

unte

er g

roup

s ar

e al

so

enga

ged

in c

omm

unity

ser

vice

. The

y vi

site

d an

d se

rved

the

elde

rly v

eter

an s

oldi

ers

just

as

if th

ey

wer

e se

rvin

g th

eir

own

pare

nts.

They

als

o vi

site

d th

e ch

ildre

n in

St.

Tere

sa C

hild

ren

Cen

ter

and

scho

ols

in r

ural

are

as to

sho

w th

eir

love

for

the

child

ren.

The

vol

unte

ers

are

very

ent

husi

astic

in

serv

ing

the

publ

ic. I

n Y

2014

, the

y pa

rtici

pate

d in

350

per

sons

/tim

es in

com

mun

ity se

rvic

e.

For

man

y ye

ars,

VIS

has

dev

oted

its

effo

rt to

con

tinue

im

prov

ing

the

envi

ronm

ent,

safe

ty,

and

publ

ic h

ealth

. Dis

tinct

from

pas

t yea

rs, 2

014

mar

ks th

e po

int i

n tim

e w

hen

VIS

sha

res

its y

ears

of

expe

rienc

e on

env

ironm

ent,

safe

ty, a

nd p

ublic

hea

lth to

pics

with

peo

ple

of th

e ne

xt g

ener

atio

n, w

ith

the

hope

of e

ncou

ragi

ng p

eopl

e to

step

out

of t

heir

hom

e an

d sh

ine

amon

gst a

cro

wd.

The

refo

re, w

e se

lect

ed t

he L

ongs

han

Elem

enta

ry S

choo

l ne

ar u

s an

d pr

epar

ed a

ser

ies

of e

nviro

nmen

tal

prot

ectio

n ga

mes

for

stu

dent

s in

the

sec

ond

grad

e, i

nclu

ding

Env

ironm

enta

l Pr

otec

tion

Cla

ss,

Res

ourc

e Sp

ecia

l Fo

rces

, an

d Pu

zzle

Com

petit

ion,

thu

s en

ablin

g ch

ildre

n to

lea

rn i

n a

happ

y,

rela

xed

envi

ronm

ent.

Dur

ing

the

proc

ess,

we

saw

how

the

chi

ldre

n en

deav

ored

to

show

the

ir te

amw

ork,

laug

hed

ince

ssan

tly, g

ivin

g us

war

m, s

ince

re re

spon

ses.

Mor

eove

r, th

e sc

hool

prin

cipa

l, di

rect

or, a

nd c

lass

teac

hers

hav

e al

so st

rong

ly a

ffirm

ed th

e ef

forts

we

have

show

n.

VIS

BO

D m

embe

rs a

re a

ll pr

ofic

ienc

y w

ith w

orki

ng e

xper

ienc

es a

nd e

xper

tise.

The

y al

so t

ake

train

ing

cour

ses

liste

d in

the

Gui

delin

es fo

r Pro

mot

ion

of th

e Ed

ucat

ion

of th

e B

OD

Mem

bers

and

Su

perv

isor

s of P

ublic

Com

pani

es. I

n Y

2014

, the

BO

D m

embe

rs to

ok 2

8 ex

tern

al tr

aini

ng c

lass

es.

The

risk

man

agem

ent p

olic

y, a

imin

g at

zer

o ris

k an

d ze

ro lo

ss, w

as a

ssem

bled

und

er th

e op

erat

ions

pl

an a

ppro

ved

by t

he B

OD

, whi

ch p

ut t

oget

her

pote

ntia

l ris

ks i

n op

erat

ions

, fin

ance

and

pub

lic

heal

th a

nd e

nviro

nmen

tal

safe

ty.

Each

dep

artm

ent

set

up t

he r

egul

atio

ns a

ccor

ding

to

thei

r fu

nctio

nalit

ies

to c

ontro

l ris

ks.

Arti

cles

reg

ardi

ng r

isks

in

finan

ce i

nclu

de t

he G

uide

lines

for

D

eriv

ativ

es T

radi

ng, O

pera

ting

Proc

edur

es a

nd E

ndor

sem

ent t

o Lo

an F

unds

to O

ther

s, G

uide

lines

fo

r C

redi

t M

anag

emen

t, an

d G

uide

lines

fo

r C

ash

Inve

stm

ent.

Arti

cles

in

op

erat

ions

ris

k m

anag

emen

t in

clud

e M

anua

l fo

r Sa

fety

, H

ealth

and

Env

ironm

enta

l M

anag

emen

t, Em

erge

ncy

Res

pons

e Pr

ogra

m, G

uide

lines

for M

anag

emen

t of t

he T

oxic

Che

mic

al S

ubst

ance

s, an

d G

uide

lines

fo

r En

viro

nmen

tal M

onito

ring.

For

det

ail,

refe

r to

the

note

s to

“R

isk

Man

agem

ent P

olic

y” a

nd “

R

isk

Man

agem

ent O

rgan

izat

iona

l Stru

ctur

e” in

this

ann

ual r

epor

t..

VIS

has

pur

chas

ed li

abili

ty in

sura

nce

for t

he B

OD

mem

bers

and

supe

rvis

ors t

o re

duce

and

div

erse

th

e ris

k of

them

cau

sing

sign

ifica

nt lo

sses

to th

e C

ompa

ny a

nd th

e sh

areh

olde

rs d

ue to

mis

take

s or

negl

igen

ce.

22


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n

8.D

id t

he c

ompa

ny p

rovi

de d

escr

iptio

ns o

f th

ere

sults

, su

gges

tions

, an

d im

prov

emen

t fr

omse

lf ev

alua

tion

repo

rt or

ot

her

asse

ssm

ent

repo

rt co

nduc

ted

by o

utsi

de a

genc

ies,

if an

y...

V

VIS

par

ticip

ated

in th

e Y

2008

Cor

pora

te G

over

nanc

e Ass

essm

ent S

yste

m in

itiat

ed b

y Ta

iwan

C

orpo

rate

Gov

erna

nce A

ssoc

iatio

n. T

hrou

gh th

e ev

alua

tion

com

mitt

ee a

sses

smen

ts, V

IS w

as

pr

esen

ted

CG

6004

Cor

pora

te G

over

nanc

e Ass

essm

ent C

ertif

icat

e, th

e G

ener

al C

opy.

Th

e co

mpa

ny p

erfo

rmed

a s

elf-

asse

ssm

ent

of c

urre

nt c

orpo

rate

gov

erna

nce

oper

atio

ns a

nd t

he

stat

e of

impl

emen

tatio

n in

Y20

13 in

acc

orda

nce

with

the

"Cor

pora

te G

over

nanc

e Se

lf-as

sess

men

t Ite

ms."

The

res

ults

of

this

sel

f-as

sess

men

t re

veal

ed th

at t

he c

ompa

ny w

as l

acki

ng i

n on

ly f

our

asse

ssm

ent i

ndic

ator

s, w

here

con

tinue

d re

med

ial e

fforts

will

be

mad

e, a

nd m

et r

equi

rem

ents

for

al

l ot

her

indi

cato

rs.

The

com

pany

's fu

ll as

sess

men

t re

port

can

be v

iew

ed v

ia t

he M

arke

t O

bser

vatio

n Po

st

Syst

em,

and

can

also

be

se

en

on

the

com

pany

's w

ebsi

te.

http

://w

ww

.vis

.com

.tw/v

isC

om/c

hine

se/d

_ir/d

04_c

orpo

rate

.htm

.

No

varia

tion

23


4. Compensation Committee

VIS has established a Compensation Committee as required by the

competent authority for assisting the BOD in the study and design of the

compensation policy and structure in order to attract, motivate, reward, and

retain talent. The functions of this committee are: Map out the

compensation policy and structure, the method for the release of fees for

directors and supervisors, the salaries of the managers and release of the

salaries, the reward for the managers and incentives for motivating people,

any other duties assigned by or authorized by BOD.

Members of the Compensation Committee

Title Name

Over 5 years of working experience Criteria（Note） Number of other

public companies that concurrently serve as an member of

Compensation Committee

Remark

College Instructor or

higher level in Business, Legal,

Finance, Accounting or

company business related

area

Court Judge, Prosecutor,

Lawyer, Accountant, or other Certified Professional

expert related to company business

Business, Legal,

Finance, Accounting or

company business required working

experience

1 2 3 4 5 6 7 8

Independent Director

Chintay Shih

V V V V V V V V V V 2


Kenneth Kin

V V V V V V V V V V 3


Benson W.C. Liu

V V V V V V V V V 2

Note :

1. Not an employee of affiliated companies of the company and company.

2. Not a director, supervisor of affiliated companies of the company and company.

3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company

outstanding shares, nor one of the Company top 10 natural person shareholders.

4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.

5. Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or

indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top

five share-holders of juridical person.

6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares of

certain companies or institutions that have financial or business relationship with the Company.

7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or

institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce,

legal consultation and services to the Company or affiliated companies within one year.


24


Compensation Committee Operations Information

1. The company’s Compensation Committee is composed of three members

2. Term of office for the current members: June 12, 2012 to June 12, 2015. The

committee has met 4 times in the most recent year. Membership and attendance

information are provided below:



Substituted Attendance

Rate Note

Convener Kenneth Kin 4 100%

Member Chintay Shih 3 1 75%

Member Benson W.C. Liu 4 100%

Other items of note: 1. If the Board of Directors does not adopt or amend the Compensation Committee’s

recommendations, the date, period, motion, decision of the board, and how the Company shall handle the Committee’s recommendations must be clearly stated: the Company’s board of directors adopt and do not amend the Compensation Committee’s proposals.

2. If members of the Compensation Committee oppose or reserve their opinions for any resolvedissues and have a record or written statement for it, the date, period, motion, and all opinions of the members and how these opinions were handled shall be clearly stated: the Company’s Compensation Committee members do not oppose or reserve their opinions for any resolved issues.

25


5.Im

ple

men

tati

on o

f C

orp

orat

e S

ocia

l Res

pon

sib

ilit

y M

easu

res

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Yes

No

Des

crip

tion

1.Im

plem

enta

tion

of C

orpo

rate

Gov

erna

nce

(1)

Did

the

com

pany

form

ulat

e co

rpor

ate

soci

al

resp

onsi

bilit

y po

licie

s or s

yste

ms a

nd

revi

ew th

e ef

fect

iven

ess o

f its

im

plem

enta

tion?

(2)

Did

the

com

pany

per

iodi

cally

hol

d so

cial

re

spon

sibi

lity

train

ing?

(3)

Did

the

com

pany

est

ablis

h a

unit

excl

usiv

ely

for t

he p

rom

otio

n of

cor

pora

te

soci

al re

spon

sibi

lity,

and

did

the

boar

d of

di

rect

ors a

utho

rize

high

-leve

l man

agem

ents

to

man

age

this

uni

t and

repo

rt m

anag

emen

t pr

ogre

ss to

the

boar

d of

dire

ctor

s?

(4)

Did

the

com

pany

form

ulat

e re

ason

able

re

mun

erat

ion

polic

y, in

tegr

ate

empl

oyee

pe

rfor

man

ce a

sses

smen

ts w

ith th

e co

rpor

ate

soci

al re

spon

sibi

lity

polic

y, a

nd e

stab

lish

an

effe

ctiv

e re

war

ding

and

pun

ishm

ent s

yste

m?

V

V

V

V

(1)

To im

plem

ent c

orpo

rate

soci

al re

spon

sibi

lity

and

embr

ace

the

over

all d

evel

opm

ent o

f so

ciet

ies i

n Ta

iwan

, VIS

has

est

ablis

hed

the

"Cor

pora

te S

ocia

l Res

pons

ibili

ty P

olic

y"

and

"Cor

pora

te S

ocia

l Res

pons

ibili

ty R

epor

t". F

or d

etai

ls, p

leas

e re

fer t

o Se

ctio

n V

III

"Cor

pora

te S

ocia

l Res

pons

ibili

ty"

in th

e Ann

ual R

epor

t. V

IS c

omm

its to

abi

de b

y et

hica

l no

rms i

n bu

sine

ss m

anag

emen

t, as

sum

e en

viro

nmen

tal p

rote

ctio

n re

spon

sibi

lity,

pro

vide

a

safe

wor

king

env

ironm

ent,

and

prot

ect e

mpl

oyee

righ

ts, a

s the

cru

cial

crit

eria

for

mai

ntai

ning

pos

itive

dev

elop

men

ts in

our

soci

ety.

(2

) To

em

brac

e so

cial

resp

onsi

bilit

y an

d pr

omot

e co

rpor

ate

gove

rnan

ce, V

IS c

onst

antly

re

min

ds a

nd p

rom

otes

cor

pora

te g

over

nanc

e co

ncep

ts a

nd a

fford

cor

pora

te so

cial

re

spon

sibi

lity

train

ing

to th

e ch

airm

an o

f the

boa

rd, i

ndep

ende

nt d

irect

ors,

and

empl

oyee

s. Fo

r exa

mpl

e, fo

rmul

atin

g et

hica

l nor

ms f

or b

usin

ess p

ract

ice

repr

esen

ts th

e ad

voca

cy o

f int

egrit

y an

d et

hica

l bus

ines

s beh

avio

r; pr

omot

ing

the

impo

rtanc

e of

in

tegr

ity a

nd u

prig

htne

ss h

elps

em

ploy

ees u

nder

stan

d th

e co

ncep

t and

prin

cipl

es o

f bu

sine

ss e

thic

s, th

ereb

y m

otiv

atin

g th

em to

com

ply

with

law

s and

regu

latio

ns.

Empl

oyee

s' pa

rtici

patio

n in

rele

vant

trai

ning

pro

gram

s is r

ecor

ded

and

regi

ster

ed. T

he

train

ing

outc

omes

are

pro

vide

d to

thei

r res

pect

ive

supe

rvis

ors a

s ref

eren

ce fo

r em

ploy

ee

perf

orm

ance

ass

essm

ents

. (3

) Th

e co

mpa

ny h

as se

t up

the

"Cor

pora

te S

ocia

l Res

pons

ibili

ty P

rom

otio

n C

omm

ittee

" to

ta

ke c

harg

e of

est

ablis

hing

the

"cor

pora

te so

cial

resp

onsi

bilit

y po

licy"

and

pro

posi

ng a

nd

impl

emen

ting

syst

ems w

hile

at t

he sa

me

time

cons

tant

ly re

flect

ing

upon

the

impl

emen

tatio

n ef

ficac

y an

d m

akin

g co

nsta

nt im

prov

emen

ts, e

nsur

ing

cons

olid

atio

n of

th

e co

mpa

ny's

corp

orat

e so

cial

resp

onsi

bilit

y po

licy.

The

Com

mitt

ee p

erio

dica

lly re

ports

to

the

boar

d of

dire

ctor

s reg

ardi

ng p

rom

otio

n pr

ogre

ss.

(4)

VIS

pro

vide

s its

em

ploy

ees w

ith a

sala

ry w

elfa

re a

bove

the

stan

dard

of t

hat o

f the

sam

e in

dust

ries.

Add

ition

ally

, the

com

pany

's pe

rfor

man

ce a

sses

smen

t sys

tem

con

side

rs b

oth

com

pany

stra

tegi

es a

nd p

erso

nal p

erfo

rman

ce g

oals

to k

eep

empl

oyee

s' re

mun

erat

ions

on

par

with

thei

r per

form

ance

. The

pur

pose

is to

enc

oura

ge a

nd a

war

d em

ploy

ees f

or

thei

r effo

rts d

urin

g po

licy

prom

otio

ns, t

here

by st

reng

then

ing

the

sust

aina

bilit

y of

futu

re

polic

y pr

omot

ions

.

No

varia

tion

26


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

2.D

evel

opm

ent o

f Su

stai

nabl

e E

nvir

onm

ent

(1)

Is th

e co

mpa

ny c

omm

itted

to e

nhan

cing

the

usag

e ef

fici

ency

of

vari

ous

reso

urce

s an

d ut

ilizi

ng r

enew

able

mat

eria

ls th

at e

xert

a

low

impa

ct o

n en

viro

nmen

tal l

oad?

(2)

Did

the

com

pany

est

abli

sh a

n ap

prop

riat

e en

viro

nmen

tal m

anag

emen

t sys

tem

ac

cord

ing

to it

s in

dust

ry c

hara

cter

isti

cs?

(3)

Did

the

com

pany

sho

w c

once

rns

for

the

infl

uenc

e th

at c

lim

ate

chan

ge h

as o

n it

s bu

sine

ss a

ctiv

ities

, and

em

bark

on

inve

ntor

ying

gre

enho

use

gas

emis

sion

s an

d fo

rmul

atin

g st

rate

gies

to c

onse

rve

ener

gy,

redu

ce c

arbo

n em

issi

on, a

nd d

ecre

ase

gree

nhou

se g

as v

olum

e?

V

V

V

(1)

Min

imiz

ing

envi

ronm

enta

l im

pact

thro

ugh

gree

n pr

oduc

tion

is V

IS's

cor

e en

viro

nmen

tal

polic

y. I

n 20

14, t

he c

ompa

ny h

as ta

rget

ed 7

1 it

ems

in a

n en

deav

or to

enh

ance

the

usag

e ef

fici

ency

of

vari

ous

reso

urce

s fo

r w

aste

red

uctio

n. F

or e

xam

ple,

VIS

has

atte

mpt

ed to

m

inim

ize

the

volu

me

of c

hem

ical

s an

d ga

ses

used

in a

pro

duct

ion

proc

ess;

rep

lace

the

use

of P

M s

olve

nts,

pro

long

the

lifes

pan

of s

pare

par

ts a

nd c

onsu

mab

les

to r

educ

e th

e am

ount

of

was

te p

rodu

ced.

Reg

ardi

ng r

ecyc

ling

and

reus

e, w

aste

pip

elin

es r

emov

ed

afte

r a

cons

truc

tion,

in a

dditi

on to

exh

aust

hoo

k up

mat

eria

ls a

re r

ecyc

led

for

reus

e to

m

itig

ate

the

impa

ct o

n th

e en

viro

nmen

t.

(2)

In a

dditi

on to

set

ting

up th

e "C

orpo

rate

Soc

ial R

espo

nsib

ility

Pro

mot

ion

Com

mit

tee"

to

take

cha

rge

of e

stab

lishi

ng th

e co

rpor

ate

soci

al r

espo

nsib

ility

pol

icy

and

prop

osin

g an

d im

plem

enti

ng s

yste

ms,

the

com

pany

has

est

ablis

hed

a ri

sk a

nd e

nvir

onm

enta

l, he

alth

, an

d sa

fety

man

agem

ent d

epar

tmen

t. T

here

are

app

roxi

mat

ely

50 m

embe

rs c

urre

ntly

w

orki

ng in

the

depa

rtm

ent.

Sin

ce 1

997,

the

depa

rtm

ent d

evel

oped

ISO

-140

01

envi

ronm

enta

l man

agem

ent s

yste

m a

nd c

ontin

ually

acq

uire

d ac

cred

itatio

n fo

r it,

whi

le

impl

emen

ting

envi

ronm

enta

l man

agem

ent t

hrou

gh a

pla

n-do

-che

ck-a

ct (

PDC

A)

appr

oach

, whe

reby

goa

ls a

re im

plem

ente

d, c

ontin

ually

impr

oved

, man

aged

, and

re

view

ed. I

n 20

14, V

IS h

as c

ontin

ually

rec

eive

d ce

rtif

icat

ion

to th

e IS

O-1

4001

. In

the

sam

e ye

ar, t

he c

ompa

ny p

ropo

sed

impr

ovem

ent s

trat

egie

s fo

r en

viro

nmen

tal

man

agem

ent,

whi

ch c

onta

ined

139

targ

et it

ems,

incl

udin

g w

aste

red

uctio

n, e

nerg

y co

nser

vati

on, a

nd r

ecyc

le/r

euse

. (3

) T

he c

ompa

ny h

as a

ctiv

ely

prom

oted

ene

rgy

cons

erva

tion

and

redu

ctio

n of

car

bon

and

gree

nhou

se g

as e

mis

sion

s by

pur

chas

ing

high

-per

form

ance

gre

enho

use

gas

proc

essi

ng

equi

pmen

t eac

h ye

ar. I

n ad

diti

on, V

IS c

onti

nual

ly u

tili

zes

alte

rnat

ive

gase

s w

ith

low

er

GW

P to

red

uce

the

emis

sion

of

gree

nhou

se g

ases

. All

of o

ur r

educ

tion

outc

omes

hav

e re

ceiv

ed a

3rd

-par

ty v

erif

icat

ion

acco

rdin

g to

IS

O-1

4064

cer

tifi

cati

on. A

ccor

ding

to a

n em

issi

on r

educ

tion

test

for

201

3 co

nduc

ted

in 2

014,

the

amou

nt o

f re

duct

ion

reac

hed

139,

200

met

ric

tons

of

CO

2e. T

o ac

hiev

e en

ergy

con

serv

atio

n an

d ca

rbon

red

uctio

n, V

IS

prom

oted

the

follo

win

g en

ergy

con

serv

atio

n pr

ojec

ts in

201

4: H

eat r

ecov

ery

syst

em

inte

grat

ed w

ith m

akeu

p ai

r un

it an

d he

at p

ump;

aut

omat

ic c

lean

er c

ombi

ned

with

chi

ller

and

cond

ense

r; e

nerg

y co

nser

vati

on p

roje

ct in

volv

ing

the

use

of U

PQ R

O p

ump

and

vari

able

-fre

quen

cy d

rive

(V

FD);

use

of

LE

D li

ghts

in u

nder

grou

nd p

arki

ng lo

ts; r

emov

al

of A

C p

ower

rac

k ex

haus

t; op

tim

izat

ion

of P

CW

pum

p op

erat

ions

; tim

er in

stal

latio

n in

No

vari

atio

n

27


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Yes

No

Des

crip

tion

mas

ter s

ubst

atio

n an

d ge

nera

tor r

oom

s; e

nerg

y co

nser

vatio

n th

roug

h th

e us

e of

VO

C

syst

em d

esor

ptio

n w

indm

ill a

nd V

FD; r

educ

tion

of o

pera

ting

pow

er c

ost t

hrou

gh th

e in

stal

latio

n of

CD

A in

verte

r and

com

pres

sor a

t the

inle

t of a

ir co

nditi

onin

g sy

stem

s; a

nd

redu

ctio

n of

ope

ratin

g po

wer

cos

t thr

ough

the

use

of V

FD-in

tegr

ated

CD

A a

ir co

nditi

onin

g eq

uipm

ent.

Furth

erm

ore,

the

com

pany

ann

ounc

ed it

s saf

ety,

hea

lth, a

nd

envi

ronm

ent p

olic

y to

pro

mot

e en

viro

nmen

tal p

rote

ctio

n an

d de

velo

pmen

t of a

su

stai

nabl

e en

viro

nmen

t. Fo

r det

ails

, ple

ase

visi

t VIS

web

site

as f

ollo

ws:

ht

tp://

ww

w.v

is.c

om.tw

/vis

Com

/chi

nese

/a_a

bout

/a04

_env

ironm

enta

l.htm

3.

Prot

ectio

n of

Soc

iety

's Pu

blic

Inte

rest

(1)

Did

the

com

pany

form

ulat

e ap

plic

able

m

anag

eria

l pol

icie

s and

pro

cedu

res i

n ac

cord

ance

with

rele

vant

regu

latio

ns a

nd

inte

rnat

iona

l hum

an ri

ghts

con

vent

ions

?

(2)

Did

the

com

pany

est

ablis

h a

staf

f com

plai

nt

mec

hani

sm a

nd c

hann

els,

and

adeq

uate

ly

hand

le e

mpl

oyee

com

plai

ns?

V

V

(1)

VIS

is d

edic

ated

to th

e es

tabl

ishm

ent o

f har

mon

ious

atm

osph

ere

in la

bor-m

anag

emen

t re

latio

n th

roug

h m

utua

l tru

st in

cor

pora

te m

anag

emen

t. It

embr

aces

an

activ

e, o

pen

man

agem

ent m

odel

to c

reat

e a

wor

k en

viro

nmen

t tha

t is b

oth

chal

leng

ing

and

fun.

VIS

va

lues

em

ploy

ees'

opin

ions

and

phy

sica

l and

men

tal h

ealth

, offe

ring

“Em

ploy

ee H

ealth

Se

ctio

n” fo

r han

dlin

g em

ploy

ee la

bor-m

anag

emen

t rel

atio

n an

d he

alth

-rel

ated

mat

ters

. M

oreo

ver,

diffe

rent

cha

nnel

s wer

e cu

ltiva

ted

for l

abor

-man

agem

ent c

omm

unic

atio

ns a

nd

agre

emen

ts, s

uch

as h

ostin

g or

ient

atio

n of

new

peo

ple,

qua

rterly

labo

r-man

agem

ent

mee

tings

, and

exe

cutiv

e m

eetin

gs. T

he c

ompa

ny a

lso

sets

up

a m

ailb

ox fo

r em

ploy

ee

com

mun

icat

ion

and

publ

ishe

d th

e “C

omm

unic

atio

n M

onth

ly N

ews”

to re

port

on th

e C

ompa

ny. I

n ad

ditio

n, V

IS c

ondu

cts s

urve

y on

em

ploy

ee o

pini

ons r

egar

ding

thei

r sa

tisfa

ctio

n w

ith m

anag

emen

t and

the

wel

fare

syst

em re

gula

rly. V

IS n

ot o

nly

mad

e ef

forts

in su

stai

ning

pos

itive

labo

r-man

agem

ent r

elat

ion,

but

als

o pr

ovid

ed c

onsu

ltatio

n se

rvic

es to

em

ploy

ees,

and

orga

nize

d re

late

d sp

eech

pre

sent

atio

ns a

nd sy

mpo

sium

s with

th

e em

ploy

ees a

t any

tim

e as

nee

ded

to st

reng

then

the

com

mun

icat

ions

of i

dea

and

esta

blis

h a

cons

ensu

s. Fu

rther

mor

e, V

IS a

dher

es to

gov

ernm

enta

l lab

or la

ws a

nd

regu

latio

ns w

hen

recr

uitin

g, e

mpl

oyin

g, a

nd d

ism

issi

ng e

mpl

oyee

s. Th

e co

mpa

ny a

lso

esta

blis

hed

pers

onne

l reg

ulat

ions

and

rule

s to

empl

oyee

dut

ies,

thus

faci

litat

ing

an

effe

ctiv

e re

gula

tion

in e

mpl

oyee

man

agem

ent.

(2

) V

IS is

ded

icat

ed to

the

esta

blis

hmen

t of h

arm

onio

us a

tmos

pher

e in

labo

r-man

agem

ent

rela

tion

thro

ugh

mut

ual t

rust

in c

orpo

rate

man

agem

ent.

It em

brac

es a

n ac

tive,

ope

n m

anag

emen

t mod

el to

cre

ate

a w

ork

envi

ronm

ent t

hat i

s bot

h ch

alle

ngin

g an

d fu

n. V

IS

valu

es e

mpl

oyee

s' op

inio

ns a

nd p

hysi

cal a

nd m

enta

l hea

lth, o

fferin

g “E

mpl

oyee

Hea

lth

Sect

ion”

for h

andl

ing

empl

oyee

labo

r-man

agem

ent r

elat

ion

and

heal

th-r

elat

ed m

atte

rs.

Mor

eove

r, di

ffere

nt c

hann

els,

such

as A

udit

Com

mitt

ee m

ailb

ox a

nd E

xecu

tive

mai

lbox

,

No

varia

tion

28


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Yes

No

Des

crip

tion

(3)

Did

the

com

pany

pro

vide

em

ploy

ees a

safe

he

alth

y w

orki

ng e

nviro

nmen

t, an

d pe

riodi

cally

edu

cate

em

ploy

ees o

n sa

fety

an

d he

alth

issu

es?

(4)

Did

the

com

pany

dev

ise

a pe

riodi

c co

mm

unic

atio

n m

echa

nism

for i

ts

empl

oyee

s, an

d no

tify

empl

oyee

s in

a re

ason

able

man

ner o

f pot

entia

l maj

or

influ

ence

s to

the

com

pany

's op

erat

iona

l pr

oces

s?

(5)

Did

the

com

pany

est

ablis

h ef

fect

ive

care

er

deve

lopm

ent p

rogr

ams f

or it

s em

ploy

ees?

(6)

Did

the

com

pany

form

ulat

e re

leva

nt p

olic

ies

V

V

V

V

are

prov

ided

to h

andl

e em

ploy

ee c

ompl

aint

s and

ass

ist e

mpl

oyee

s with

reso

lvin

g th

eir

soci

etal

, psy

chol

ogic

al, f

inan

cial

, and

hea

lth-r

elat

ed p

robl

ems.

In a

dditi

on, c

onta

ct

win

dow

s are

est

ablis

hed

to p

rovi

de a

var

iety

of s

ervi

ces t

o em

ploy

ees,

such

as m

edic

al

care

, sex

ual h

aras

smen

t pre

vent

ion,

psy

chol

ogic

al c

onsu

ltatio

n, a

nd la

wye

r ref

erra

ls.

(3)

VIS

hig

hly

valu

es e

mpl

oyee

s' ph

ysic

al a

nd m

enta

l hea

lth, i

mpr

ovem

ents

in w

ork

envi

ronm

ent,

and

prov

isio

n of

recr

eatio

nal a

ctiv

ities

and

faci

litie

s, an

d ex

erts

its u

tmos

t ef

fort

in re

info

rcin

g he

alth

and

insu

ranc

e-re

late

d se

rvic

es. T

o ca

ter f

or e

mpl

oyee

s' da

ily

lives

, VIS

not

onl

y of

fers

a c

lean

wor

king

env

ironm

ent w

ith a

n ar

ray

of re

crea

tiona

l fa

cilit

ies,

but a

lso

a w

hole

var

iety

of r

ecre

atio

nal e

vent

s to

allo

w e

mpl

oyee

s a c

hanc

e to

br

ing

som

e re

laxa

tion

and

fulfi

llmen

t to

thei

r life

out

side

of w

ork.

In o

rder

to sa

fegu

ard

empl

oyee

hea

lth, V

IS o

ffers

phy

sica

l hea

lth e

xam

inat

ions

to n

ew st

aff,

spec

ific

empl

oyee

s, an

d in

-ser

vice

em

ploy

ees.

In th

e w

inte

r of e

ach

year

, VIS

pro

cure

s flu

va

ccin

e, h

iring

doc

tors

to a

dmin

iste

r it o

nsite

for i

ts e

mpl

oyee

s. In

201

4, V

IS c

onfe

rred

a

num

ber o

f aw

ards

, inc

ludi

ng th

e 4t

h C

onte

st fo

r Bes

t Com

pani

es to

Wor

k Fo

r by

the

Dep

artm

ent o

f Lab

or, T

aipe

i City

Gov

ernm

ent;

Out

stan

ding

Bre

ast-F

eedi

ng R

oom

C

ertif

icat

ion

by th

e D

epar

tmen

t of H

ealth

, Hsi

nchu

City

; cop

per m

edal

for t

he

Prel

imin

ary

Wor

kpla

ce C

onte

st o

f Hsi

nchu

City

- H

ealth

y Ex

erci

se; a

nd N

atio

nal

Reg

iona

l Sem

ifina

ls fo

r Hea

lthy

Exer

cise

s in

Wor

kpla

ce─

Bes

t Tea

m P

erfo

rman

ce

Awar

d.

(4)

Mor

eove

r, th

e co

mpa

ny c

ultiv

ated

diff

eren

t cha

nnel

s for

labo

r-man

agem

ent

com

mun

icat

ions

and

agr

eem

ents

, suc

h as

hos

ting

orie

ntat

ion

of n

ew p

eopl

e, q

uarte

rly

labo

r-man

agem

ent m

eetin

gs, a

nd e

xecu

tive

mee

tings

. The

com

pany

als

o se

ts u

p a

mai

lbox

for e

mpl

oyee

com

mun

icat

ion

and

publ

ishe

d th

e “C

omm

unic

atio

n M

onth

ly

New

s” to

repo

rt on

the

Com

pany

. In

addi

tion,

VIS

con

duct

s sur

vey

on e

mpl

oyee

op

inio

ns re

gard

ing

thei

r sat

isfa

ctio

n w

ith m

anag

emen

t and

the

wel

fare

syst

em re

gula

rly.

(5)

VIS

has

a c

ompr

ehen

sive

trai

ning

syst

em fo

r tra

inin

g pr

ofes

sion

al ta

lent

s and

de

velo

ping

em

ploy

ees’

pote

ntia

l. Th

is c

ompr

ehen

sive

trai

ning

syst

em in

clud

es n

ew

com

ers’

orie

ntat

ion,

man

ager

ial t

rain

ing,

pro

fess

iona

l tra

inin

g, e

xter

nal t

rain

ing,

and

se

lf- d

evel

opm

ent.

To sy

stem

atiz

e al

l lea

rnin

g pr

oces

s, w

e ha

ve e

stab

lishe

d th

e Tr

aini

ng

Man

agem

ent S

yste

m, w

hich

pro

vide

s per

sona

l lea

rnin

g pl

ans f

or th

e ye

ar o

r end

uran

ce

culti

vatio

n pr

ogra

ms f

or e

mpl

oyee

s to

build

up

pers

onal

lear

ning

road

map

and

cul

tivat

e se

lf-m

otiv

ated

lear

ning

cul

ture

.

29


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

for

prot

ectio

n of

con

sum

er r

ight

s an

d in

tere

sts

and

cons

umer

com

plai

nts

proc

edur

e w

ith r

egar

ds to

res

earc

h &

de

velo

pmen

t (R

&D

), p

rocu

rem

ent,

prod

uctio

n, o

pera

ting,

and

ser

vice

pr

oced

ures

?

(7)

Did

the

com

pany

com

ply

wit

h ap

plic

able

la

ws,

reg

ulat

ions

, and

inte

rnat

iona

l st

anda

rds

whe

n m

arke

ting

and

labe

ling

its

prod

ucts

and

ser

vice

s?

(8)

Bef

ore

coop

erat

ing

with

a s

uppl

ier,

did

the

com

pany

ass

ess

whe

ther

the

supp

lier

had

re

cord

s of

eng

agin

g in

act

iviti

es th

at

infl

uenc

ed th

e en

viro

nmen

t and

soc

iety

?

(9)

In th

e co

ntra

ct s

igne

d be

twee

n V

IS a

nd it

s pr

imar

y su

pplie

rs, d

oes

it in

clud

e pr

ovis

ions

st

atin

g th

e te

rmin

atio

n or

res

cind

men

t of

the

cont

ract

for

inst

ance

s w

hen

the

supp

lier

vi

olat

es th

e co

mpa

ny's

cor

pora

te s

ocia

l re

spon

sibi

lity

polic

y su

ch th

at it

s ac

tions

si

gnif

ican

tly in

flue

nced

the

envi

ronm

ent

and

soci

ety?

V

V

V

(6)

VIS

has

est

abli

shed

a G

uide

line

for

Han

dlin

g C

usto

mer

Com

plai

nts,

pro

vidi

ng

cust

omer

s a

tran

spar

ent,

effe

ctiv

e ch

anne

l to

file

the

com

plai

nts

they

hav

e fo

r ou

r pr

oduc

ts a

nd s

ervi

ces.

In

addi

tion,

the

com

pany

han

dles

cus

tom

er c

ompl

aint

s fa

irly

and

in

stan

tly, a

nd c

ompl

ies

with

rel

evan

t law

s an

d re

gula

tions

in r

espe

ctin

g cu

stom

er

priv

acy

and

prot

ectio

n cu

stom

er in

form

atio

n. V

IS a

lso

peri

odic

ally

ass

esse

s cu

stom

er

satis

fact

ion

with

the

com

pany

, com

mis

sion

ing

exte

rnal

age

ncie

s to

han

dle

such

as

sess

men

ts. T

he c

ompa

ny v

iew

s cu

stom

ers

as it

s cr

ucia

l sta

keho

lder

s, a

ttend

ing

to

cust

omer

opi

nion

s an

d us

ing

thes

e op

inio

ns a

s th

e ba

sis

to im

prov

e se

rvic

e an

d pr

oduc

t de

liver

y da

tes.

(7

) T

he c

ompa

ny c

ompl

ies

with

app

licab

le la

ws,

reg

ulat

ions

, and

inte

rnat

iona

l sta

ndar

ds

whe

n m

arke

ting

its p

rodu

cts

and

serv

ices

.

(8)

Bef

ore

coop

erat

ing

with

a n

ew s

uppl

ier,

VIS

's r

elev

ant u

nit w

ould

eva

luat

e th

e su

pplie

r to

ens

ure

the

supp

lier

is n

ot in

volv

ed in

act

iviti

es th

at in

flue

nce

the

envi

ronm

ent a

nd

soci

ety

and

fulf

ills

lega

l req

uire

men

ts.

(9)

The

com

pany

spe

cifi

es in

the

cont

ract

that

the

supp

lier

mus

t adh

ere

to r

elev

ant l

aws

and

regu

latio

ns (

incl

udin

g bu

t not

lim

ited

to th

e co

rpor

ate

soci

al r

espo

nsib

ility

pol

icy)

; fa

ilure

to d

o so

sha

ll re

sult

in te

rmin

atio

n of

coo

pera

tion

with

VIS

.

4.St

reng

then

ing

of

Info

rmat

ion

Dis

clos

ure

Mea

sure

s

(1)

Did

the

com

pany

dis

clos

e an

y re

leva

nt a

nd

relia

ble

corp

orat

e so

cial

res

pons

ibili

ty

info

rmat

ion

on it

s w

ebsi

te a

nd o

n th

e M

arke

t Obs

erva

tion

Pos

t Sys

tem

of

the

Taiw

an S

tock

Exc

hang

e w

ebsi

te?

V

VIS

com

pile

s a

corp

orat

e so

cial

res

pons

ibili

ty r

epor

t ea

ch y

ear

and

publ

ishe

s su

ch r

epor

t on

th

e co

mpa

ny w

ebsi

te a

nd o

n th

e M

arke

t O

bser

vati

on P

ost

Sys

tem

, all

owin

g in

vest

ors

acce

ss

to r

elev

ant c

orpo

rate

soc

ial r

espo

nsib

ility

info

rmat

ion.

No

vari

atio

n

5.If

the

com

pany

did

for

mul

ate

prin

cipl

es f

or c

orpo

rate

soc

ial

resp

onsi

bili

ty p

ract

ices

acc

ordi

ng t

o th

e C

orpo

rate

Soc

ial

Res

pons

ibili

ty B

est

Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

dC

ompa

nies

, ple

ase

stat

e th

e va

riat

ions

in th

e op

erat

ions

and

rul

es o

f su

ch p

ract

ice:

30


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e P

rinc

iple

s fo

rT

WS

E/G

TS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

VIS

has

dev

elop

ed a

VIS

Cor

pora

te S

ocia

l Res

pons

ibili

ty M

anua

l as

a gu

ide

for

the

com

pany

to im

plem

ent i

ts s

ocia

l res

pons

ibili

ties;

suc

h im

plem

enta

tion

conf

orm

s to

the

spir

it of

the

Cor

pora

te

Soc

ial R

espo

nsib

ilit

y B

est P

ract

ice

Pri

ncip

les

for

TW

SE

/GT

SM

Lis

ted

Com

pani

es.

6.O

ther

Inf

orm

atio

n fo

r B

ette

r U

nder

stan

ding

of

the

com

pany

's c

orpo

rate

soc

ial r

espo

nsib

ility

pra

ctic

es:

VIS

act

ivel

y pa

rtic

ipat

es in

eve

nts

host

ed b

y un

ions

, ass

ocia

tions

, Sci

ence

Par

k A

dmin

istr

atio

n, a

nd E

nvir

onm

enta

l Pro

tect

ion

Adm

inis

trat

ion,

suc

h as

fol

low

s: th

e "2

014

Occ

upat

iona

l Saf

ety

and

Hea

lth W

eek

Ser

ies

Prog

ram

s an

d O

utco

me

Rep

orts

," t

he "

2014

Sci

ence

Par

k L

abor

Saf

ety

and

Env

iron

men

tal

Pro

tect

ion

Mon

th A

ctiv

ities

- D

isas

ter

Pre

vent

ion

Exp

erie

nces

,” a

nd t

he"V

IS 2

0 Y

ears

Ann

iver

sary

and

Pub

lic

Mar

atho

n" o

n V

IS f

amil

y da

y. T

he c

ompa

ny r

ecei

ved

the

2014

Aw

ard

of e

xcel

lenc

e in

the

Sci

ence

Par

k A

dmin

istr

atio

n's

2014

Sci

ence

Par

kO

utst

andi

ng C

arbo

n R

educ

tion

Ent

erpr

ise

Aw

ards

, an

d th

e 20

14 S

cien

ce P

ark

Ent

erpr

ise

with

Out

stan

ding

Ach

ieve

men

t in

Env

iron

men

tal

Pro

tect

ion

Aw

ard"

fro

m t

he H

sinc

hu B

urea

u of

Env

iron

men

tal P

rote

ctio

n.T

he c

ompa

ny p

roac

tivel

y ta

kes

part

in c

omm

unity

and

pub

lic in

tere

st e

vent

s an

d co

nsta

ntly

car

es f

or d

isad

vant

aged

pop

ulat

ions

in c

omm

uniti

es to

mak

e a

tang

ible

con

trib

utio

n to

soc

iety

. On

VIS

Y20

14 f

amil

y da

y, w

e in

vite

d 20

0 pe

ople

with

phy

sica

l an

d m

enta

l di

sabi

litie

s an

d em

ploy

ees

affi

liate

d w

ith t

he S

t. Jo

seph

Soc

ial

Wel

fare

Fou

ndat

ion,

the

Sun

rise

Opp

ortu

nity

Cen

ter,

and

the

St. J

osep

h C

omm

unit

y W

orks

tatio

n of

Men

tal

Dis

abili

ty. W

e al

so d

onat

ed a

n am

ount

of

NT

$200

,000

, whi

ch w

ill b

e us

ed to

fun

d le

arni

ng a

nd r

ehab

ilita

tion

mea

sure

s fo

r pe

ople

with

disa

bili

ties

. F

urth

erm

ore,

to

prom

ote

soci

al h

arm

ony,

the

com

pany

has

sin

ce J

anua

ry 2

015

excl

usiv

ely

spon

sore

d IC

Bro

adca

stin

g C

o.,

Ltd

. w

ith N

T$2

mil

lion

to p

rodu

ce t

he b

road

cast

prog

ram

, th

e F

utur

e of

Tai

wan

& T

aiw

an i

n th

e F

utur

e, i

n w

hich

top

ics

such

as

curr

ent

glob

al t

rend

s, e

duca

tion

in T

aiw

an,

tale

nted

peo

ple,

soc

ial

live

lihoo

d, e

nerg

y re

sour

ces,

and

envi

ronm

enta

l pro

tect

ion

are

disc

usse

d.A

part

fro

m c

orpo

rate

spo

nsor

ship

s, o

ur e

mpl

oyee

s re

gula

rly

part

icip

ate

in d

onat

ion

driv

es f

or b

ooks

and

goo

ds,

and

deliv

er d

onat

ed i

tem

s to

nur

sing

hom

es,

child

ren’

s ho

mes

, an

d sc

hool

child

ren

livin

g in

rem

ote

area

s. F

urth

erm

ore,

em

ploy

ees

and

thei

r fa

mil

ies

have

for

med

a v

olun

teer

gro

up w

hose

mem

bers

ser

ve a

s vo

lunt

eer

guid

es o

n a

rota

ting

basi

s at

the

Nat

iona

lM

useu

m o

f N

atur

al S

cien

ce o

n w

eeke

nds

and

holid

ays

to e

xpla

in t

o vi

sito

rs t

he n

atur

e an

d ap

plic

atio

ns o

f in

tegr

ated

cir

cuits

; in

201

4, v

olun

teer

gui

de s

ervi

ces

wer

e pr

ovid

ed a

t the

mus

eum

265

tim

es. O

ur c

olle

ague

s al

so p

erfo

rm c

omm

unity

vol

unte

er s

ervi

ce. E

mbr

acin

g th

e sp

irit

of h

onor

ing

old

peop

le a

s w

e do

our

ow

n ag

ed p

aren

ts, V

IS v

olun

teer

s al

so v

isit

the

Hsi

nchu

Hom

efo

r E

lder

ly V

eter

ans

on w

eeke

nds

and

holid

ays

whe

re t

hey

help

sen

iors

enj

oy t

heir

wee

kend

s as

wel

l as

the

St.

Tere

sa C

hild

ren'

s C

ente

r, w

here

the

y sp

end

tim

e re

adin

g to

chi

ldre

n. O

urvo

lunt

eer

colle

ague

s ha

ve b

een

very

gen

erou

s w

ith th

eir

time,

and

per

form

ed c

omm

unity

ser

vice

wor

k a

tota

l of

350

times

in 2

014.

For

man

y ye

ars,

VIS

has

dev

oted

its

eff

ort

to c

ontin

ue i

mpr

ovin

g th

e en

viro

nmen

t, sa

fety

, and

pub

lic h

ealth

. Dis

tinct

fro

m p

ast

year

s, 2

014

mar

ks th

e po

int

in t

ime

whe

n V

IS s

hare

s its

yea

rsof

exp

erie

nce

on e

nvir

onm

ent,

safe

ty, a

nd p

ublic

hea

lth t

opic

s w

ith p

eopl

e of

the

nex

t ge

nera

tion,

with

the

hop

e of

enc

oura

ging

peo

ple

to s

tep

out

of t

heir

hom

e an

d sh

ine

amon

gst

a cr

owd.

The

refo

re, w

e se

lect

ed th

e L

ongs

han

Ele

men

tary

Sch

ool n

ear

us a

nd p

repa

red

a se

ries

of

envi

ronm

enta

l pro

tect

ion

gam

es f

or s

tude

nts

in th

e se

cond

gra

de, i

nclu

ding

Env

iron

men

tal P

rote

ctio

nC

lass

, R

esou

rce

Spe

cial

For

ces,

and

Puz

zle

Com

petit

ion,

thu

s en

ablin

g ch

ildre

n to

lea

rn i

n a

happ

y, r

elax

ed e

nvir

onm

ent.

Dur

ing

the

proc

ess,

we

saw

how

the

chi

ldre

n en

deav

ored

to

show

thei

r te

amw

ork,

laug

hed

ince

ssan

tly, g

ivin

g us

war

m, s

ince

re r

espo

nses

. Mor

eove

r, th

e sc

hool

pri

ncip

al, d

irec

tor,

and

clas

s te

ache

rs h

ave

also

str

ongl

y af

firm

ed th

e ef

fort

s w

e ha

ve s

how

n.

7.If

the

com

pany

's c

orpo

rate

soc

ial r

espo

nsib

ility

rep

ort p

asse

s th

e ve

rifi

catio

n st

anda

rds

of r

elev

ant v

erif

icat

ion

inst

itutio

ns, d

escr

ipti

ons

of it

sho

uld

be p

rovi

ded:

ISO

900

1 qu

alit

y m

anag

emen

t sys

tem

cer

tifi

cati

on•

ISO

/TS

169

49 v

ehic

le q

ualit

y m

anag

emen

t sys

tem

cer

tific

atio

n•

ISO

140

01 e

nvir

onm

enta

l man

agem

ent s

yste

m c

erti

fica

tion

•O

HS

AS

180

01 s

afet

y an

d he

alth

man

agem

ent s

yste

m c

erti

fica

tion

•Q

C 0

8000

0 H

azar

dous

sub

stan

ce m

anag

emen

t sys

tem

cer

tifi

cati

on

31


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

•T

aiw

an o

ccup

atio

nal s

afet

y an

d he

alth

man

agem

ent s

yste

m (

TO

SH

MS

) ve

rifi

cati

on•

Gre

enho

use

gas

(GH

G)

acco

unti

ng a

nd v

erif

icat

ion

in a

ccor

danc

e w

ith

ISO

-140

64•

SO

NY

Gre

en P

artn

er c

erti

fica

tion

•P

rodu

ct c

arbo

n fo

otpr

int c

alcu

lati

on a

nd v

erif

icat

ion

•20

11 E

xcel

lenc

e in

Lab

or S

afet

y an

d H

ealth

Pro

mot

ion

Per

form

ance

Aw

ard

from

the

Sci

ence

Par

k A

dmin

istr

atio

n•

2011

Des

igna

ted

Mod

el E

nvir

onm

enta

l Pro

tect

or A

war

d fr

om th

e E

nvir

onm

enta

l Pro

tect

ion

Adm

inis

trat

ion,

Exe

cuti

ve Y

uan

•F

AB

1 re

ceiv

ed th

e 20

12 E

nerg

y C

onse

rvat

ion

& C

arbo

n P

rodu

ctio

n A

ctio

n M

ark"

fro

m th

e E

nvir

onm

enta

l Pro

tect

ion

Adm

inis

trat

ion,

Exe

cuti

ve Y

uan.

•F

AB

2 re

ceiv

ed th

e 20

12 O

utst

andi

ng W

aste

Man

agem

ent A

war

d fr

om th

e E

nvir

onm

enta

l Pro

tect

ion

Adm

inis

trat

ion,

Exe

cuti

ve Y

uan.

•F

AB

2 re

ceiv

ed th

e 20

12 O

utst

andi

ng E

nvir

onm

enta

l Pro

tect

ion

Aw

ard

from

the

Hsi

nchu

Sci

ence

Par

k A

dmin

istr

atio

n.•

FA

B1

rece

ived

the

2012

“H

ealt

h P

rom

otio

n M

ark

for

Sel

f-C

erti

fica

tion

of

Hea

lthy

Wor

kpla

ce”

from

the

Bur

eau

of H

ealt

h P

rom

otio

n, D

epar

tmen

t of

Hea

lth.

•F

AB

1 re

ceiv

ed th

e 20

13 “

Hea

lth

Pro

mot

ion

Mar

k fo

r S

elf-

Cer

tifi

cati

on o

f H

ealt

hy W

orkp

lace

” fr

om th

e B

urea

u of

Hea

lth

Pro

mot

ion,

Dep

artm

ent o

f H

ealt

h.•

FA

B2

rece

ived

the

2014

Aw

ard

of e

xcel

lenc

e in

the

Sci

ence

Par

k A

dmin

istr

atio

n's

2014

Sci

ence

Par

k O

utst

andi

ng C

arbo

n R

educ

tion

Ent

erpr

ise

Aw

ards

.•

FA

B2

rece

ived

the

2014

Sci

ence

Par

k E

nter

pris

e w

ith

Out

stan

ding

Ach

ieve

men

t in

Env

iron

men

tal P

rote

ctio

n A

war

d fr

om th

e H

sinc

hu B

urea

u of

Env

iron

men

tal P

rote

ctio

n.

6.Im

ple

men

tati

on o

f In

tegr

ity

Man

agem

ent

and

Mea

sure

s

The

com

pany

’s p

hilo

soph

y di

ctat

es t

hat

empl

oyee

s of

the

Com

pany

, re

gard

less

of

thei

r ph

ysic

al l

ocat

ion,

sha

ll a

dher

e to

the

hig

hest

sta

ndar

ds o

f pr

ofes

sion

al e

thic

s an

d

mai

ntai

n su

ch i

n th

eir

pers

onal

con

duct

. Whe

n en

gage

d in

day

-to-

day

wor

k, e

mpl

oyee

s sh

all o

bser

ve b

usin

ess

ethi

cs a

nd m

aint

ain

the

Com

pany

’s r

eput

atio

n to

gai

n th

e re

spec

t

and

trus

t of

cust

omer

s, s

uppl

iers

, and

all

oth

er p

rofe

ssio

nals

.

32


Imp

lem

enta

tion

of

inte

grit

y m

anag

emen

t

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Eth

ical

Cor

pora

te M

anag

emen

t B

est P

ract

ice

Pri

ncip

les

for

TW

SE

/GT

SM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

1.F

orm

ulat

ion

of I

nteg

rity

Man

agem

ent P

olic

y an

dM

easu

res

(1

) D

id th

e co

mpa

ny e

xplic

itly

stat

e th

e po

licy

and

prac

tices

of

inte

grity

man

agem

ent i

n its

re

gula

tion

s an

d ex

tern

al d

ocum

ents

, and

did

the

boar

d of

dir

ecto

rs a

nd m

anag

emen

ts c

omm

it to

im

plem

entin

g su

ch m

anag

emen

t pol

icy?

(2)

Did

the

com

pany

for

mul

ate

mea

sure

s fo

r pr

even

ting

dish

ones

t beh

avio

r, sp

ecif

y op

erat

ing

proc

edur

es, b

ehav

iora

l gui

delin

es, v

iola

tion

pena

lties

, and

sys

tem

of

appe

al in

suc

h m

easu

res,

an

d im

plem

ent s

uch

mea

sure

s?

(3)

Did

the

com

pany

ado

pt p

reve

ntio

n m

easu

res

agai

nst b

usin

ess

activ

ities

with

in it

s bu

sine

ss

scop

e at

a h

ighe

r ri

sk o

f be

ing

invo

lved

in a

n un

ethi

cal c

ondu

ct o

r th

ose

liste

d in

Par

agra

ph 2

of

Art

icle

7 o

f th

e E

thic

al C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

d C

ompa

nies

?

V

V

V

(1)

Art

icle

1 o

f V

IS's

bus

ines

s ph

iloso

phy:

Hon

orin

g th

e pr

inci

ple

of g

ood

faith

, abi

ding

by

an

exac

ting

cod

e of

pro

fess

iona

l et

hics

. T

he c

ompa

ny c

lear

ly r

egul

ates

the

pr

actic

e of

thi

s ph

iloso

phy

in t

he "

Pro

fess

iona

l C

ode

of E

thic

s,"

requ

irin

g al

l em

ploy

ees

to u

nder

stan

d an

d ab

ide

by t

he p

rofe

ssio

nal

code

of

ethi

cs a

nd p

erso

nal

inte

grity

. In

add

ition

, th

e P

rofe

ssio

nal

Cod

e of

Eth

ics

for

Dir

ecto

rs e

xplic

itly

stat

es

the

need

for

dir

ecto

rs t

o up

hold

the

pri

ncip

le o

f go

od f

aith

and

abi

de b

y a

beha

vior

of

pro

fess

iona

l sta

ndar

ds.

(2)

The

com

pany

sta

tes

the

oper

atin

g pr

oced

ures

, met

hods

, vio

lati

on p

enal

ties

, and

sy

stem

of

appe

al in

its

Pro

fess

iona

l Cod

e of

Eth

ics,

and

pro

vide

s em

ploy

ee tr

aini

ng

whe

n en

coun

teri

ng c

onfl

icts

of

inte

rest

eac

h ye

ar in

acc

orda

nce

wit

h th

e pr

ovis

ions

in

the

Pro

fess

iona

l Cod

e of

Eth

ics.

(3)

The

com

pany

spe

cifi

es th

e re

ason

able

sco

pe o

f gi

ft p

rese

ntat

ion

and

hosp

italit

y in

its

Pro

fess

iona

l Cod

e of

Eth

ics:

Em

ploy

ees

mus

t uph

old

the

high

est s

tand

ards

of

prof

essi

onal

eth

ics

tow

ard

the

com

pany

's s

uppl

iers

, con

trac

tors

, cus

tom

ers,

or

othe

r st

akeh

olde

rs (

incl

udin

g go

vern

men

tal o

ffic

ials

) an

d ar

e ab

solu

tely

for

bidd

en f

rom

br

ibes

of

any

form

s. I

n th

e V

IS C

orpo

rate

Soc

ial R

espo

nsib

ility

Pol

icy,

VIS

ple

dges

to

uph

old

inte

grity

in e

mpl

oyee

and

exe

cutiv

e co

nduc

t in

all b

usin

ess

activ

ities

and

in

tern

al in

tera

ctio

ns. B

usin

ess

book

s sh

all b

e cl

ear

and

accu

rate

, tra

nspa

rent

, and

co

mpl

iant

with

app

licab

le r

egul

atio

ns a

nd a

ccur

atel

y re

flec

t the

fin

anci

al

perf

orm

ance

and

hea

lth o

f th

e C

ompa

ny. V

IS w

ill w

ork

agai

nst c

orru

ptio

n in

any

an

d al

l for

ms,

incl

udin

g ex

tort

ion,

bri

bery

, and

em

bezz

lem

ent.

No

vari

atio

n

2.Im

plem

enta

tion

of

Inte

grity

Man

agem

ent

(1)

Did

the

com

pany

ass

ess

the

inte

grity

of

its

tran

sact

ion

part

ies,

and

spe

cify

pro

visi

ons

pert

aini

ng to

beh

avio

rs o

f in

tegr

ity in

the

cont

ract

si

gned

with

the

tran

sact

ion

part

y?

V

(1)

The

com

pany

man

date

s in

its

Pro

fess

iona

l Cod

e of

Eth

ics

that

em

ploy

ees

mus

t up

hold

the

high

est s

tand

ards

of

prof

essi

onal

eth

ics

tow

ard

the

com

pany

's s

uppl

iers

, co

ntra

ctor

s, c

usto

mer

s, o

r ot

her

stak

ehol

ders

(in

clud

ing

gove

rnm

enta

l off

icia

ls)

and

are

abso

lute

ly f

orbi

dden

fro

m b

ribe

s of

any

for

m. I

n ad

diti

on, t

he E

thic

al C

ode

of

VIS

and

Sup

plie

r st

ipul

ates

that

eit

her

part

y m

ay n

ot g

ive

or r

ecei

ve b

ribe

s of

any

No

vari

atio

n

33


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Eth

ical

Cor

pora

te M

anag

emen

t B

est P

ract

ice

Pri

ncip

les

for

TW

SE

/GT

SM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

(2)

Did

the

com

pany

est

ablis

h a

unit

affi

liate

d w

ith

the

boar

d of

dir

ecto

rs e

xclu

sive

ly f

or th

e pr

omot

ion

of c

orpo

rate

inte

grity

man

agem

ent a

nd

peri

odic

ally

rep

ort t

o th

e bo

ard

of d

irec

tors

re

gard

ing

the

impl

emen

tatio

n pr

ogre

ss?

(3)

Did

the

com

pany

for

mul

ate

poli

cies

for

pr

even

tion

agai

nst c

onfl

icts

of

inte

rest

s, p

rovi

de

appr

opri

ate

chan

nels

of

com

mun

icat

ion,

and

im

plem

ent s

uch

polic

ies

and

com

mun

icat

ion?

(4

) D

id th

e co

mpa

ny s

et u

p an

eff

ecti

ve a

ccou

ntin

g sy

stem

and

inte

rnal

con

trol

sys

tem

to im

plem

ent

inte

grity

man

agem

ent,

and

desi

gnat

e in

tern

al

audi

t uni

ts o

r en

trus

t acc

ount

ants

to p

erfo

rm

audi

ts o

f th

ese

syst

ems?

V

V

V

form

or

act i

n an

y w

ay c

ontr

ary

to th

e in

tere

sts

of e

ither

par

ty a

nd s

hall

avoi

d en

gagi

ng in

fre

quen

t or

impr

oper

hos

pita

lity

beha

vior

s du

ring

bus

ines

s ac

tiviti

es.

Sup

plie

rs in

vio

latio

n of

the

afor

emen

tione

d re

gula

tion

shal

l pro

mpt

VIS

to

stri

ngen

tly r

evie

w it

s bu

sine

ss c

oope

rativ

e re

latio

nshi

p w

ith th

e su

pplie

r an

d ad

opt

nece

ssar

y m

easu

res,

incl

udin

g ad

just

men

t to

the

amou

nt o

f pu

rcha

ses

from

the

supp

lier.

(2

) T

he c

ompa

ny h

as s

et u

p th

e "C

orpo

rate

Soc

ial R

espo

nsib

ility

Pro

mot

ion

Com

mit

tee"

to ta

ke c

harg

e of

est

ablis

hing

the

"cor

pora

te s

ocia

l res

pons

ibili

ty

polic

y" a

nd p

ropo

sing

and

impl

emen

ting

syst

ems

and

assi

st w

ith th

e pr

omot

ion

of

corp

orat

e in

tegr

ity m

anag

emen

t. In

add

ition

, the

Com

mit

tee

peri

odic

ally

sub

mits

the

com

pany

's c

orpo

rate

soc

ial r

espo

nsib

ility

rep

ort t

o th

e bo

ard

of d

irec

tors

, and

the

boar

d w

ill s

uper

vise

the

impl

emen

tatio

n of

cor

pora

te in

tegr

ity m

anag

emen

t.

(3)

The

com

pany

has

for

mul

ated

the

Con

flic

ts o

f In

tere

st P

reve

ntio

n po

licy

in th

e P

rofe

ssio

nal C

ode

of E

thic

s: C

onfl

icts

of

inte

rest

s sh

all b

e pe

riod

ical

ly r

epor

ted

on a

ye

arly

bas

is a

nd a

n ap

prop

riat

e ch

anne

l of

com

mun

icat

ion

shal

l be

prov

ided

for

im

plem

enta

tion

of

prev

entiv

e m

easu

res.

(4

) V

IS h

as f

orm

ulat

ed a

ccou

ntin

g sy

stem

s ac

cord

ing

to th

e In

tern

atio

nal F

inan

cial

R

epor

ting

Stan

dard

s (I

FR

S),

man

datin

g th

e ne

ed to

ado

pt a

ccou

ntan

t opi

nion

s du

ring

acc

ount

ing

proj

ect a

sses

smen

ts b

efor

e pr

esen

ting

the

mos

t sui

tabl

e pr

ojec

t to

the

exec

utiv

e-in

-cha

rge

for

revi

ew a

nd a

ppro

val;

Furt

herm

ore,

in li

ght o

f ch

ange

s to

ac

coun

ting

pol

icie

s an

d es

tim

atio

ns, t

he c

ompa

ny h

as d

evel

oped

rel

ated

pro

cedu

res

acco

rdin

g to

the

Reg

ulat

ions

Gov

erni

ng th

e P

repa

rati

on o

f F

inan

cial

Rep

orts

by

Sec

urit

ies

Issu

ers.

All

fin

anci

al s

tate

men

ts a

re a

udite

d by

cer

tifie

d pu

blic

ac

coun

tant

s to

ens

ure

the

fair

ness

of

the

fina

ncia

l sta

tem

ents

and

are

rev

iew

ed b

y th

e co

mpa

ny's

Aud

it C

omm

itte

e.

VIS

has

est

ablis

hed

a co

mpr

ehen

sive

inte

rnal

con

trol

sys

tem

, to

whi

ch c

ontr

ol

poin

ts f

or e

ach

oper

atio

n ha

ve b

een

inco

rpor

ated

. The

sys

tem

is r

evie

wed

and

m

odif

ied

on a

yea

rly

basi

s an

d in

spec

ted

by in

tern

al a

udit

units

for

fun

ctio

nalit

y.

Res

pect

ive

units

are

ask

ed to

per

form

spo

ntan

eous

insp

ectio

ns o

n a

daily

bas

is. I

n ad

ditio

n, th

e B

oard

of

Dir

ecto

rs a

nd th

e m

anag

emen

t will

dis

cuss

res

ults

of

the

spon

tane

ous

insp

ectio

ns a

nd a

udit

repo

rts

from

the

audi

t dep

artm

ent p

erio

dica

lly to

en

sure

con

soli

dati

on o

f th

e co

mpa

ny's

ope

rati

on e

ffic

acy

and

effi

cien

cy, a

ccur

acy

of

34


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Eth

ical

Cor

pora

te M

anag

emen

t B

est P

ract

ice

Pri

ncip

les

for

TW

SE

/GT

SM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

(5)

Did

the

com

pany

per

iodi

cally

hol

d in

tern

al a

nd

exte

rnal

trai

ning

on

inte

grity

man

agem

ent?

V

fi

nanc

ial r

epor

ts, a

nd c

ompl

ianc

e w

ith a

ll ap

plic

able

law

s an

d re

gula

tions

. (5

) T

he c

ompa

ny p

erio

dica

lly h

osts

inte

rnal

trai

ning

on

inte

grity

man

agem

ent o

n a

year

ly b

asis

, and

des

igna

tes

suit

able

rep

rese

ntat

ives

to p

artic

ipat

e in

ext

erna

l tr

aini

ng p

rogr

ams

or f

orum

s (e

.g. c

orpo

rate

gov

erna

nce

foru

m h

oste

d by

the

Age

ncy

Aga

inst

Cor

rupt

ion)

. Mor

eove

r, ex

pert

s fr

om T

aiw

an C

orpo

rate

Gov

erna

nce

Ass

ocia

tion

are

invi

ted

to tr

ain

VIS

's b

oard

of

dire

ctor

s an

d m

anag

ers.

3.

Ope

ratio

n of

VIS

Whi

stle

-Blo

win

g S

yste

m(1

) D

id th

e co

mpa

ny e

stab

lish

conc

rete

whi

stle

-bl

owin

g an

d in

cent

ive

syst

ems

and

conv

enie

nt

whi

stle

-blo

win

g ch

anne

ls, a

nd a

ppoi

nt a

sui

tabl

e pe

rson

nel t

o ha

ndle

the

repo

rted

cas

es?

(2)

Did

the

com

pany

dev

ise

stan

dard

ope

ratin

g pr

oced

ures

for

han

ding

the

inve

stig

atio

n of

re

port

ed c

ases

and

rel

evan

t con

fide

ntia

lity

mec

hani

sms?

(3)

Did

the

com

pany

ado

pt m

easu

res

for

prot

ecti

ng

whi

stle

-blo

wer

s fr

om in

appr

opri

ate

disc

iplin

ary

acti

ons

due

to th

eir

whi

stle

-blo

win

g?

V

V

V

(1)

The

com

pany

has

for

mul

ated

con

cret

e w

hist

le-b

low

ing

syst

ems

and

conv

enie

nt

whi

stle

-blo

win

g ch

anne

ls in

the

Prof

essi

onal

Cod

e of

Eth

ics.

Em

ploy

ees

and

stak

ehol

ders

can

dir

ectly

mak

e re

port

s to

the

com

pany

's b

oard

of

dire

ctor

Aud

it C

omm

itte

e by

usi

ng th

e w

hist

le-b

low

ing

mai

lbox

on

the

com

pany

web

site

. In

addi

tion,

ded

icat

ed u

nits

and

per

sonn

el a

re a

ppoi

nted

to h

andl

e re

port

ed c

ases

. (2

) T

he c

ompa

ny h

as s

peci

fied

sta

ndar

d op

erat

ing

proc

edur

es f

or h

andl

ing

the

inve

stig

atio

n of

rep

orte

d ca

ses

and

rele

vant

con

fide

ntia

lity

mec

hani

sms

in th

e P

rofe

ssio

nal C

ode

of E

thic

s.

The

boa

rd o

f di

rect

or A

udit

Com

mit

tee

shal

l app

oint

sui

tabl

e su

perv

isor

s to

est

ablis

h an

inve

stig

ator

y gr

oup

com

pris

ing

pers

onne

l who

spe

cial

ize

in in

tern

al a

udit

s,

hum

an r

esou

rces

, and

lega

l aff

airs

. Suc

h in

vest

igat

ory

grou

p sh

all p

erfo

rm

inve

stig

atio

ns a

nd c

ompi

le r

epor

ts to

the

Aud

it C

omm

ittee

. If

evid

ence

of

viol

atio

n is

iden

tifie

d, th

e su

bjec

t bei

ng r

epor

ted

shal

l be

give

n a

chan

ce f

or a

ppea

l, an

d th

e su

bjec

t and

his

/her

res

pect

ive

supe

rvis

or s

hall

be in

form

ed o

f th

e pe

nalti

es im

pose

d th

ereo

f.

(3)

The

com

pany

has

sti

pula

ted

mea

sure

s fo

r pr

otec

ting

whi

stle

-blo

wer

s fr

om

inap

prop

riat

e di

scip

linar

y ac

tions

due

to th

eir

whi

stle

-blo

win

g in

the

Pro

fess

iona

l C

ode

of E

thic

s; V

IS h

olds

the

prin

cipl

e of

fai

rnes

s an

d co

nfid

entia

lity

duri

ng th

e in

vest

igat

ion

proc

ess.

The

com

pany

sha

ll pr

otec

t whi

stle

-blo

wer

s ha

ndlin

g th

e in

vest

igat

ion

from

sub

ject

ing

to u

nfai

r re

veng

e or

trea

tmen

t.

No

vari

atio

n

4.St

reng

then

ing

of I

nfor

mat

ion

Dis

clos

ure

Mea

sure

s(1

) D

id th

e co

mpa

ny d

iscl

ose

the

cont

ent a

nd

prom

otio

n ef

fect

iven

ess

of it

s in

tegr

ity

man

agem

ent p

rinc

iple

s on

its

web

site

and

on

the

Mar

ket O

bser

vati

on P

ost S

yste

m o

f th

e Ta

iwan

V

(1)

The

com

pany

has

est

ablis

hed

a w

ebsi

te f

or p

erio

dica

lly d

iscl

osin

g re

leva

nt

corp

orat

e in

tegr

ity m

anag

emen

t inf

orm

atio

n on

a y

earl

y ba

sis

to it

s st

ockh

olde

rs a

nd

inve

stor

s. T

he in

form

atio

n di

sclo

sed

on th

e co

mpa

ny w

ebsi

te is

uni

form

ly c

ompi

led

and

anno

unce

d by

a p

ublic

rel

atio

n de

part

men

t.

No

vari

atio

n

35


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Var

iatio

n co

mpa

red

with

the

Eth

ical

Cor

pora

te M

anag

emen

t B

est P

ract

ice

Pri

ncip

les

for

TW

SE

/GT

SM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r th

e V

aria

tion

Yes

N

o D

escr

ipti

on

Stoc

k E

xcha

nge

web

site

? 5.

If t

he c

ompa

ny d

id f

orm

ulat

e pr

inci

ples

for

int

egri

ty m

anag

emen

t acc

ordi

ng to

the

Eth

ical

Cor

pora

te M

anag

emen

t Bes

t Pra

ctic

e P

rinc

iple

s fo

r T

WS

E/G

TS

M L

iste

d C

ompa

nies

, ple

ase

stat

eth

e va

riat

ions

in th

e op

erat

ions

and

rul

es o

f su

ch p

ract

ice:

The

com

pany

has

spe

cifi

ed o

pera

ting

pro

cedu

res

and

met

hods

in

its P

rofe

ssio

nal

Cod

e of

Eth

ics:

Em

ploy

ees

shal

l ho

nor

the

prof

essi

onal

cod

e of

eth

ics,

avo

id p

ursu

ing

pers

onal

int

eres

ts,

com

ply

with

the

pri

ncip

les

of c

onfi

dent

ialit

y, e

ngag

e in

fai

r tr

ade,

pro

tect

and

pro

perl

y ut

ilize

com

pany

ass

ets,

adh

ere

to l

aws

and

regu

lati

ons,

pre

vent

con

flic

ts o

f in

tere

sts,

off

er o

r ac

cept

brib

es a

nd h

ospi

talit

y, a

nd a

bide

by

oper

atin

g pr

oced

ures

for

pun

ishm

ent a

nd a

ppea

ls.

The

com

pany

has

spe

cifi

ed r

egul

atio

ns a

nd g

uide

lines

in

the

Pro

fess

iona

l C

ode

of E

thic

s fo

r D

irec

tors

: T

he b

oard

of

dire

ctor

s sh

all

avoi

d pe

rson

al c

onfl

icts

of

inte

rest

, av

oid

purs

uing

pers

onal

int

eres

ts,

keep

con

fide

ntia

l bu

sine

ss s

ecre

ts,

enga

ge i

n fa

ir t

rade

, pr

even

t in

side

r tr

adin

g, a

dher

e to

law

s an

d re

gula

tions

, an

d pr

esen

t re

port

s of

mis

cond

uct,

alle

ged

dish

ones

t or

illeg

al a

ctiv

ity. N

o va

riat

ion

with

the

abov

e.6.

Oth

er I

nfor

mat

ion

for

Bet

ter

Und

erst

andi

ng o

f th

e co

mpa

ny's

inte

grity

man

agem

ent p

ract

ices

:T

he E

thic

al C

ode

of V

IS a

nd S

uppl

ier:

We

antic

ipat

e th

at a

ll ou

r su

pplie

rs,

busi

ness

par

tner

s, a

nd o

ther

coo

pera

ting

grou

ps u

nder

stan

d ou

r st

anda

rds

of b

usin

ess

ethi

cs.

All

supp

liers

sha

llac

know

ledg

e V

IS's

eth

ical

con

duct

and

con

firm

the

ir c

ompl

ianc

e w

ith

the

regu

lati

ons

stip

ulat

ed i

n th

is d

ocum

ent

befo

re e

ngag

ing

in b

usin

ess

activ

ities

with

VIS

. If

any

of

the

follo

win

gco

nditi

ons

occu

r, su

pplie

rs i

n vi

olat

ion

of t

he a

fore

men

tione

d re

gula

tion

shal

l pr

ompt

VIS

to

stri

ngen

tly r

evie

w i

ts b

usin

ess

coop

erat

ive

rela

tions

hip

with

the

sup

plie

r an

d ad

opt

nece

ssar

ym

easu

res,

incl

udin

g ad

just

men

t to

the

amou

nt o

f pu

rcha

ses

from

the

supp

lier.

Pro

fess

iona

l C

ode

of E

thic

s: W

e ho

pe t

hat

our

cust

omer

s, s

uppl

iers

, bu

sine

ss p

artn

ers,

and

oth

er s

take

hold

ers

can

unde

rsta

nd a

nd s

uppo

rt o

ur p

rofe

ssio

nal

code

of

ethi

cs.

Em

ploy

ees

are

requ

ired

to

peri

odic

ally

rep

ort

of a

ny v

iola

tions

to th

e pr

inci

ple

of c

onfl

icts

of

inte

rest

acc

ordi

ng t

o re

gula

tions

on

a ye

arly

bas

is. E

ach

year

, VIS

als

o re

-rev

iew

s an

d up

date

s its

Pro

fess

iona

lC

ode

of E

thic

s ac

cord

ing

to r

ecen

t law

s an

d re

gula

tion

s an

d pr

acti

ces

of it

s co

mpe

tito

rs.

36


7. Disclosure of Company Governance Principles and Regulations

a. VIS has not subscribed company governance principles and

regulations. But VIS has announced the Audit report of Company

Governance and established following rules and regulations under

applicable legal rules:

（1） Article of Incorporation

（2） Procedure for the Acquisition and Disposition of Assets

（3） Procedure for Financing Third Parties

（4） Procedure for Guaranty and Endorsement

（5） Procedure for Derivative Trade

（6） Internal Audit Organization and Operation

（7） Professional Code of Ethics

（8） Audit Committee Organization Charter

（9） Parliamentary Procedure for General Meeting of Shareholders

（10） Parliamentary Procedure for BOD

（11） Regulation for the Election of Directors

（12） Compensation Committee Organization Charter

（13） Professional Code of Ethics for Directors

（14） Internal Material Information Processing Procedure

b. For inquiry of the disclosure of the financial position and information

on corporate governance of VIS, please visit

http://www.vis.com.tw/visCom/chinese/d_ir/d04_corporate.htm

8. Other Important Information Disclosed for Better Understanding of

Company Governance

VIS has been actively planning business strategies with company

governance fundamentals ever since its inauguration, ensuring company

capability to maximize investor return with effective company governance

mechanism and sound operations. Board of VIS has set up the Audit

Committee and Compensation Committee directly under the board in

compliance with the regulation changes and company governance

requirements from the government. BOD also updated Organic Regulations

of Audit Committee and Organic Regulations of Compensation Committee

based on the stipulation examples government provided, constituted Board

Meeting Standing Orders in accordance to government guidance, in order to

effectively improve and achieve the important company governance

principles overall.

VIS has established and effectively implemented a comprehensive internal

37


control system. All departments are required to conduct regular internal

evaluation for daily operation. Further, BOD and the management review

the evaluation reports and reports from internal audit department regularly

to ensure the operational efficiency, the accuracy of financial reporting and

compliance to all regulations.

38


9. Internal Control:


Internal Control Statement

Date: February 5, 2015

The Company states the following with regard to its internal control system in Y2014,

based on the findings of a self-evaluation:

1. The Company is fully aware that establishing, operating, and maintaining an

internal control system are the responsibility of its Board of Directors and

management. The Company has established such a system aimed at

providing reasonable assurance of the achievement of objectives in the

effectiveness and efficiency of operations (including profits, performance,

and safeguard of asset security), reliability of financial reporting, and

compliance with applicable laws and regulations.

2. An internal control system has inherent limitations. No matter how perfectly

designed, an effective internal control system can provide only reasonable

assurance of accomplishing the three goals mentioned above. Furthermore,

the effectiveness of an internal control system may change along with

changes in environment or circumstances. The internal control system of the

Company contains self-monitoring mechanisms, however, and the Company

takes corrective actions as soon as a deficiency is identified.

3. The Company judges the design and operating effectiveness of its internal

control system based on the criteria provided in the Regulations Governing

the Establishment of Internal Control Systems (herein below, the

regulations”). The internal control system judgment criteria adopted by the

Regulations divide internal control into five elements based on the process

of management control: 1. control environment, 2. risk estimation, 3. control

activities, 4. information and communications, 5. monitoring. Each element

further contains several items. Please refer to the Regulations for details.

4. The Company has evaluated the design and operating effectiveness of its

internal control system according to the aforesaid criteria.

5. Based on the findings of the evaluation mentioned in the preceding

paragraph, the Company believes that during the stated time period its

internal control system (including its supervision of subsidiaries),

encompassing internal controls for knowledge of the degree of achievement

of operational effectiveness and efficiency objectives, reliability of financial

reporting, and compliance with applicable laws and regulations, was

effectively designed and operating, and reasonably assured the achievement

of the above-stated objectives.

39


6. This Statement will become a major part of the content of the Company's

Annual Report and Prospectus, and will be made public. Any falsehood,

concealment, or other illegality in the content made public will entail legal

liability under Articles 20, 32, 171, and 174 of the Securities and Exchange

Law.

7. This statement has been approved by the Board of Directors Meeting held on

February 5, 2015. All of the 7 attending directors affirmed the content of this

Statement.


Chairman Ching-Chu Chang

President Leuh Fang

40


josh

經理人簽(en)

josh

董事長簽(en)

Where a CPA has been hired to carry out a special audit of the internal control

system, furnish the CPA audit report: None

10. Legal Penalty:

VIS has not violated in any aspect the internal control requirement that

resulted in penalty.

11. Major Resolutions of Shareholders Meetings and Board Meetings:

Review of Shareholder Meetings

The Y2014 Regular Shareholders’ Meeting was held on June 12, 2014. The

major resolutions and implementation status were as below: Date Subject Result Implementation status

2014.06.12 Approved the Y2013 business report and financial statements

After voting by poll, was approved as proposed.

Implement as approved and disclose on VIS's website.

The proposal for profit distribution


Set July 12, 2014 as recording date for dividend distribution. July 25, 2014 send out cash dividend.

Approved the revision of the Rules of Procedure for Shareholders Meetings



Approved the revision of the Procedures for Lending Funds to Other Parties



Approved the revision of the Procedures for Acquisition or Disposal of Assets



Approved the revision of the Policies and Procedures for Financial Derivatives Transactions.



Review of Board Meetings Major resolutions adopted are summarized as below: Y2014：

a. Agreed to convene the Y2014 regular shareholders meeting and related

issues.

b. Approved Y2013 annual business and operation report.

c. Approved Y2013 annual financial report.

d. Approved Y2013 profit distribution plan.

e. Approved Y2014 capital expenditure budget raising plan.

f. Amended the Procedures for Lending Funds to Other Parties.

g. Amended the Procedures for Acquisition or Disposal of Assets.

h. Amended the Policies and Procedures for Financial Derivatives

Transactions.

i. Amended the Rules of Procedure for Shareholders Meetings.

j. Amended the Internal Control System.

41


k. Approved 2013 internal control system statement.

l. Approved the Principles of Corporate Social Responsibility.

m. Approved the capitalization of ESOP exercising.

n. Approved Y2014 remuneration of managerial officers.

o. Approved Y2014 remuneration of chairman and directors.

p. Approved the investment of private equities of Advanced

Microelectronic Products Inc.

q. Approved to acquisition of 8 inch FAB of Nanya Technology, and

acquire Sumpro's equipment and spare parts and inventories.

r. Approved to release the managerial officer from non-competition

restrictions.

s. Amend the performance index and the remuneration structure of the

directors.

t. Approved Y2015 operation plan and capital expenditure budget plan.

u. Approved Y2015 Internal audit plan.

v. Agreed to Deloitte Touche Tohmatsu Limited to audit financial

statements of Vanguard and the subsidiaries.

w. Approved Mr. Jun-Wei Chen to be Appointed as Vice President.

Y2015 (As of February 28, 2015):

a. Agreed to convene the Y2015 regular shareholders meeting and related

issues.

b. Approved Y2014 annual business and operation report.

c. Approved Y2014 annual financial report.

d. Approved Y2014 profit distribution plan.

e. Approved 2014 internal control system statement.

f. Approved Y2015 remuneration of managerial officers.

g. Approved Y2015 remuneration of chairman and directors.

12. Dissenting Opinions Held by Directors and Supervisors in Respect of

Important Resolutions Passed by the Board of Directors:

No dissenting opinions held by directors in respect of important

resolutions passed by the board of directors from Y2014 to publish of this

annual report.

13. Personnel Termination Summary Related to Annual Financial

Report:

Title Name Date of Elected

Date of Resigned

Remark

Vice President Engineering Service

Larry Tu

2010.3.31 2014.9.30 Career Plan

42


E. Information Regarding VIS's Independent Auditors

Accounting Firm

Name of CPA

Audit Fee

Non-audit Fee Whether the CPA's audit

period covers an entire fiscal year

System Design

Company Registration

Human Resource

Others (Note)

Subtotal Yes No Audit Period

Deloitte & Touche

Andy Huang 4,900 0 120 0 260 380 v

2014.01.01~ 2014.12.31

Horace Lin

Note: Fees mainly related to taxation consulting.

The non-auditing fee amounted to NT$380 thousands is less than 25% of the total

engagement fee.

Audit fee of year 2014 did not reduce more than 15% of previous year.

F. Information on Replacement of Certified Public Accountant There is no replacement of certified public accountant in Y2013, Y2014, and as of February 28, 2015.

G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying Accounting Firm or Its Affiliate Business in the Past Year: None

H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More:

Title Name

Y2014 01/01/2015 ~ 02/28/2015

Net Change in

Shareholding

Net Change in

Shares Pledged

Net Change in

Shareholding

Net Change in

Shares Pledged

Chairman Ching-Chu Chang 0 0 0 0Vice Chairman Director

Taiwan Semiconductor Manufacturing Co., Ltd.(TSMC) Representatives:

(82,000,000) 0 0 0

F.C. Tseng Edward Y. Way

Director National Development Fund, Executive YuanRepresentative: K. H. Hsiao

0 0 0 0


Chintay Shih 0 0 0 0


Benson W.C. Liu 0 0 0 0


Kenneth Kin 0 0 0 0

43


President Leuh Fang 1,350,000 0 0 0Vice President D. L. Tseng 51,745 0 0 0Vice President Thomas Chang (1,046,883) 0 (300,000) 0Vice President Jun-Wei Chen 0 0 0 0Vice President Larry Tu (relieved) 54,723 0 - -Vice President Chan-Jen Kuo 769,169 0 (216,000) 0Major shareholder

Taiwan Semiconductor Manufacturing Co., Ltd.(TSMC)

(82,000,000) 0 0 0

Major shareholder

National Development Fund, Executive Yuan

0 0 0 0

Stock Trade with Related Party: None

Stock Pledge with Related Party: None

I. Top 10 shareholders relation

As of December 31, 2014

Name Shareholding

Spouse & Minor shareholding

Shareholding by nominee

arrangement

Top 10 shareholders with the relation of SFAS No.6

Note

Share % Share % Share % Name Relation Taiwan Semiconductor Manufacturing Co., Ltd.(TSMC) Representatives: Vice Chairman: F.C. Tseng Director: Edward Y. Way

546,223,493 33.33% 0 0 0 0National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao

Director of TSMC

National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao

274,029,592 16.72% 0 0 0 0 Taiwan Semiconductor Manufacturing Co., Ltd.(TSMC) Representatives: Director: F.C. Tseng Director: Edward Y. Way

Investee of NDF

Shin Kong Life Insurance Co., Ltd 37,638,000 2.30% None Nan Shan Life Insurance Co., Ltd. 33,929,000 2.07% None JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabia Monetary Bank

26,499,000 1.62% None

New Labor Pension Funds 18,205,500 1.11% 0 0 0 0 NoneOld Labor Pension Funds 15,837,500 0.97% 0 0 0 0 NoneJPMorgan Chase Bank N.A. Taipei Branch in custody for Norges Bank

15,384,455 0.94% 0 0 0 0 None

UBS LIMITED 14,990,382 0.91% 0 0 0 0 NoneROBECO CAPITAL GROWTH FUNDS 14,460,000 0.88% 0 0 0 0 None

44


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45


IV. INFORMATION ON IMPLEMENTATION OF THECOMPANY FUNDS UTILIZATION PLANS

A. Capital and shares 1. Source of capital

Unit: Shares As of February 28, 2015

Month/Year Price

Authorized Capital Paid-in Capital Remark

Shares Amount Shares Amount Sources of

Capital

Capital Increase by Assets other than

Cash

Date of Approval & Approval Document

No.

3/2014 NT$14.5

~ NT$15.7

3,300,000,000 33,000,000,000 1,636,585,923 16,365,859,230Exercise of employees stock options

(92)Tai-Tsai-Zheng (I) No.0920144383

5/2014 NT$14.5 3,300,000,000 33,000,000,000 1,638,581,098 16,385,810,980Exercise of employees stock options


8/2014 NT$14.5 3,300,000,000 33,000,000,000 1,638,982,267 16,389,822,670Exercise of employees stock options


Unit: Shares As of February 28, 2015

Type of Stock Authorized Capital

Note Listed Shares Non-listed shares Total Shares

Common Stock 1,638,212,767 1,661,017,733 3,300,000,000 VIS hold treasury stock 769,500 shares to transfer to employees

Shelf Registration: None

2. Shareholder StructureAs of December 31, 2014

Government Agencies

FinancialInstitutions

Other JuridicalPerson

DomesticNatural Persons

Foreign Institutions & Natural Persons

Treasury stock

Total

Number of Shareholders 2 27 139 39,284 607 1 40,060

Shareholding 274,029,601 81,644,564 672,744,554 125,202,795 484,591,253 769,500 1,638,982,267

Holding Percentage（%） 16.72% 4.98% 41.04% 7.64% 29.57% 0.05% 100.00%

46


3. Distribution Profile of Shareholder OwnershipAs of December 31, 2014

Shareholder Ownership (Share) Number of Shareholders Ownership (Share) Ownership (%)

1 ~ 999 20,358 5,635,182 0.34%1,000 ~ 5,000 14,969 29,419,568 1.79%5,001 ~ 10,000 2,349 16,460,560 1.00%10,001 ~ 15,000 664 7,903,719 0.48%15,001 ~ 20,000 346 6,262,351 0.38%20,001 ~ 30,000 332 8,266,987 0.50%30,001 ~ 50,000 267 10,438,479 0.64%50,001 ~ 100,000 226 16,299,515 0.99%100,001 ~ 200,000 149 21,571,477 1.32%200,001~ 400,000 122 35,024,048 2.15%400,001~ 600,000 60 30,352,658 1.85%600,001~ 800,000 38 26,210,463 1.60%800,001~1,000,000 28 24,874,125 1.52%

Over 1,000,001 152 1,400,263,135 85.44%Total 40,060 1,638,982,267 100.00%

Preferred Stock: Not Applicable

4. Major ShareholdersAs of Dec 31, 2014

Major Shareholders Total Shares Owned Ownership (%) Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) 546,223,493 33.33%National Development Fund, Executive Yuan 274,029,592 16.72%

5. Market Price, Net Worth, Earnings and Dividends Per Common Share

Unit: NT$; stocks, in thousands

YearItem

Y2013 Y2014 01/01/2015~ 02/28/2015

Market Price Per Share

Highest Market Price 37.80 53.60 57.30 Lowest Market Price 19.13 32.95 50.10 Average Market Price 30.43 44.13 54.40

Net Worth Per Share

Before distribution 14.93 16.80 - After distribution 13.17 (Note4) -

Diluted Earnings Per Share

Weighted Average Shares 1,610,258 1,648,514 -

Earnings Per Share 2.71 3.30 -

Dividends Per Share

Cash Dividends 1.80 (Note4)2.60 -

Stock Dividends

Dividends from Retained Earnings - (Note4) - Dividends from Capital Surplus - (Note4) -

Accumulated Undistributed Dividends - - -

Return on Investment

Price/Earning Ratio (Note1) 11.23 13.37 - Price/Dividend Ratio (Note2) 16.91 (Note4) - Cash Dividend Yield Rate (Note3) 5.92% (Note4) -

Note 1：Price / Earnings Ratio = Average Market Price / Earnings per Share

47


Note 2：Price / Dividend Ratio = Average Market Price / Cash Dividends per Share

Note 3：Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price

Note 4：Pending shareholders' meeting resolution.

6. Dividend Policy

According to the Company’s Articles of Incorporations, VIS shall not pay

dividends when there is no profit for a particular fiscal year. When

allocating net profits for each fiscal year, the Corporation shall first offset

its losses in previous years and set aside a legal capital reserve, then set

aside special capital reserve in accordance with relevant laws or regulations

or as requested by the authorities in charge; then set aside no more than 1%

of the balance as bonus to directors, and no less than 1% as bonus to

employees of this Corporation. The distribution of profits may be in the

form of cash dividend, stock dividend or a combination of cash and stock.

The distribution of cash dividend should not be less than 10% of the total

dividend. The Company BOD has proposed to distribute Y2014 profit as

described in following sections.

Y2014 Profit Distribution for Directors& Supervisors Compensation, and

Employee Profit Sharing: Unit: NT$

Year Date of Board

Resolution Dividend to Common Shareholders

(Cash) Directors Compensation

Employee Profit (cash)

2014 2015/02/05 4,259,353,194 34,800,000 815,683,321

7. Stock Dividend Distribution: Not Applicable

8. Employee Bonus and Directors and Supervisors Compensation

According to the Company's Articles of Incorporations, when allocating net

profits for each fiscal year, the Company, after setting aside a legal reserve

and special capital reserve, shall set aside no more than 1% of the balance

as bonus to directors, and no less than 1% as bonus to employees of the

Company.

Y2013 Directors and Supervisors Compensation and Employee Profit Sharing: Shareholder Resolution

Actual Result

Amount (NT$) Amount (NT$) Underlying Number

of Shares Dilution

Directors Compensation 9,600,000 9,600,000 None NoneEmployees’ profit sharing in cash 655,648,186 655,648,186 None None

Total 665,248,186 665,248,186 None None

48


Y2014 shareholders meeting has approved that the actual compensation for Directors and employee bonus should be consistent with what agreed upon the Board of Directors meeting.

9. Share Buy-back : None

B. Issuance of Corporate Bond : None

C. Issuance of Preferred Stock Issuance 1. Preferred Stock : None

2. Preferred Stock with Warrants : None

D. Issuance of Depositary Shares Issuance: None

E. Status of Employee Stock Option Plan (ESOP) 1. Employee Stock Option Plan

As of February 28, 2015 ESOP granted 6th ESOP 7th ESOP

Approval date 9/18/2003 9/18/2003 Issue(Grant) date 6/16/2004 9/16/2004 Issue common stock shares 42,290,000 2,860,000 Percentage of shares issued to total common stock shares (%)

1.51% 0.10%

Option termination 10 years 10 years Source of option shares Issue new stock Issue new stock

Vesting Schedule and rate(%) 2nd year: 50% 3rd year: 75% 4th year:100%

2nd year: 50% 3rd year: 75% 4th year:100%

No. of shares acquired by employees through the exercise of options

16,690,745 588,600

Total value of shares acquired by employees through the exercise of options(NT$)

272,534,959 8,711,259

No. of unexercised shares 0 0 Price per share of unexercised option(NT$) NA NA Percentage of unexercised options to total common stock shares(%)

0.06% 0%

Effects on Shareholders' Equity

Accounting for a low proportion in the total number of issued shares; therefore,

the effect on shareholders' equity is minimal.

49


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50


V. OPERATIONAL HIGHLIGHTS A. A description of the business

1. Scope of business

VIS’ scope of business is in wafer manufacturing. Main focus are LCD/ LED/

PMIC/ BCD/ UHV/ Discrete processes. At the same time, we dedicate on the

developing of BCD and high-voltage/ultra high-voltage processes. We also

support specialty Logic process manufacturing, and committed to embedding

zero defect mindset in production, supply chain management, and service

processes, and dedicated to our ultimate goal of achieving zero defect by

continuous improvement, while co-operating with various design houses and

Intellectual Property to expand our service in manufacturing and IP service

providers, all for the purpose of establishing VIS as the preferred partner in

specialty IC foundry & service.

Item AMT

(NT$ in thousand)

（1） Wafer Foundry 23,879,789

（2） Others 256,622

Less Sales returns and allowances 204,932

TTL Net Revenue 23,931,479

2. Overview of the industry

Current state of industry and trends

Macroeconomic aspects

Global GDP Growth Projections

Source: IMF （Jan. 2015）

According to the GDP growth figures for 2014 and 2015 forecasts for various

2012 2013 2014 2015 2014 2015USA 2.8% 1.9% 2.4% 3.6% 0.2% 0.5%

Euro Area ‐0.7% ‐0.5% 0.8% 1.2% 0.0% ‐0.1%

UK 0.3% 1.8% 2.6% 2.7% ‐0.6% 0.0%

Japan 1.4% 1.5% 0.1% 0.6% ‐0.8% ‐0.2%

Russia 3.4% 1.3% 0.6% ‐3.0% 0.4% ‐3.5%

China 7.7% 7.7% 7.4% 6.8% 0.0% ‐0.3%

India 4.7% 4.4% 5.8% 6.3% 0.2% ‐0.1%

Brazil 1.0% 2.3% 0.1% 0.3% ‐0.2% ‐1.1%

Worldwide 3.2% 3.0% 3.3% 3.5% 0.0% ‐0.3%

Advanced Economies 1.2% 1.3% 1.8% 2.4% 0.0% 0.1%

Emerging and Developing Economies 5.0% 4.7% 4.4% 4.3% 0.0% ‐0.7%

Country / Region

Year over Year

Real Growth

Projections

in Jan. '15

Different

from

Oct. '14

51


global regions announced by IMF in January, although Europe still experienced

the debt crisis caused by the Greek political unrest, it has recovered from the

economic hardship, obtaining a positive growth of 0.8% in 2014. In addition, the

United States' economic recovery exhibited an annual growth rate of 2.4%. With

regards to China's performance, which was influenced by the European export

deficits and the hard landing of 7.4% in China's rate of major investments, the

global GDP performance in 2014 was 3.3%, of which 1.8% was contributed by

developed countries. Moreover, the GDP of emerging economies slightly

decreased from 4.7% in 2013 to 4.4%, indicating the influence of China's

economy.

The global GDP in 2015 is still recovering, reaching a level of 3.5% compared

with the minimal increase of 0.2% in 2014. The economic growth of BRIC

(Brazil, Russia, India, and China) is no longer the main bright spot as it is before;

instead, the bright spot will gradually shift from emerging countries to developed

countries. With an improvement in its unemployment rate, the United States is

expected to show a growth of 3.6%. Similarly, in the United Kingdom, an

unemployment rate of 5.9% in 2014 represented the recovery of its economy,

which prompted us to see that the IMF's prediction for UK's GDP growth in 2015

will reach 2.7%. By comparison, China only has a growth of 6.8%, and only

India remains the emerging country expected to show promising growth, with a

growth of 6.3%.

Global Semiconductor and Pure Foundry Production Value

Source: IHS （4Q14）

The global GDP grew slightly in 2014, but semiconductor output grew by 8% to

US$340 billion (see chart below) due to the support from memory prices and

continual increase in demand for IC foundry. Specifically, the growth in the

revenue from the foundry market rose by 17% to US$48 billion.

8%

5%

17%

12%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

400

450

2014 2015 2016 2017 2018 2019

YoY

$B

Semiconductor

Foundry

Semiconductor (YoY)

Foundry (YoY)

52


Looking ahead to 2015, the growth of tablet computers has been suppressed by

that of large-scale smartphones; however, the demand for tablets and

smartphones remain the focus of industries. In addition, the key IC applied in

these devices such as application processors or baseband products as well as in

even higher performance power management ICs will still require much of

foundries' production capacity. Furthermore, the demand for semiconductor

components in a wide variety of portable devices, Internet of Things

applications, and automotive electronics industry also demonstrates a growing

trend. According to data from the research organization IHS, semiconductor sales

will increase by 5% to US$358 billion in 2015. It is also expected that the

foundry industry will enjoy better performance than the industry as a whole; this

is chiefly attributable to the fact that, due to operating cost considerations, IDM

firms will continue to outsource more orders. In addition, investments made in

advanced processes for computing processor in response to increased demand for

mobile devices have concentrated in the foundry industry, which is projected to

elevate the growth of foundry industry by 12% to US$54 billion.

Global Pure Foundry Revenue and Market Share

Source: IC Insights （Jan. 2015）

The following chart shows global foundry (including pure players and

IDMs) revenue and market share projections from IHS. TSMC remained the

dominant player in 2014, and its 25% revenue growth was higher than the

15% figure for the industry as a whole. In addition, TSMC's market share

rose from 48% in 2013 to 52% in 2014. GlobalFoundries was second with

9.6%, followed by UMC, which was followed closely by Samsung, and

SMIC occupied fifth place with a market share of 3.9%. Powerchip, which

is also a contract memory producer, had a 2.1% market share. Vanguard,

$M Share % $M Share %

1 tsmc Pure‐FDY 19,850 47.7% 24,892 52.0%

2 GF Pure‐FDY 4,261 10.2% 4,593 9.6%

3 UMC Pure‐FDY 3,959 9.5% 4,245 8.9%

4 Samsung IDM 3,950 9.5% 4,200 8.8%

5 SMIC Pure‐FDY 1,973 4.7% 1,862 3.9%

6 Powerchip Pure‐FDY 1,175 2.8% 987 2.1%

7 TowerJazz Pure‐FDY 509 1.2% 826 1.7%

8 Vanguard Pure‐FDY 713 1.7% 792 1.7%

9 Huahong Grace Pure‐FDY 710 1.7% 675 1.4%

10 Dongbu Pure‐FDY 570 1.4% 524 1.1%

11 IBM IDM 485 1.2% 0.0%

12 MagnaChip IDM 411 1.0% 0.0%

13 Win Pure‐FDY 354 0.9% 0.0%

Top‐10 37,670 90.6% 43,596 91.1%

Total 41,590 47,856

2014F2014

RankingCompany Foundry Type

2013

53


which had revenue of US$792 million in 2014 (and growth of 11%), was in

eighth place with a 1.7% market share. The top 10 firms enjoyed 16%

revenue growth in 2014 and accounted for 91.1% of the market as a whole,

compared with the 90.6% in 2013; the foundry industry is dominated to a

large degree by these major players.

Taiwan Semiconductor Industrial

According the newest figures from the Institute for Information Industry's

MIC unit, the industry's revenue grew to NT$2,089.4 billion in 2014.The IC

foundry manufacturing industry with a market value of NT$1,155 billion

exhibited the largest growth at 19%, and the values of other IC design and

packet testing industries also rose by 15% and 11%, respectively. It is

expected that various secondary semiconductor industries in Taiwan will

still enjoy a favorable performance in 2015 under the influence of the 5%

growth in global semiconductor output.

Regarding the 2014 rankings for the revenues of Taiwan's Top-9 firms in the

foundry industry, the two top firms were TSMC and UMC, while VIS

occupied 7th place. Currently, of the foundry firms in Taiwan, Inotera

Memories and Nanya Technology Corporation are the only two DRAM

manufacturers, whereas other firms, except for Winbond Electronics

Corporation, which is an IDM firm, have all adopted a foundry-based

operating model.

The relationships between up-, mid-, and downstream industry

segments are as shown in the following chart

54


Product development trends and state of competition

a. Product development trends

VIS provides the best quality IC foundry services and logic foundry process

technology. Apart from existing logic, mixed-signal and high-voltage

process, VIS also offers ultra high voltage, BCD (Bipolar-CMOS-DMOS),

SOI (Silicon on Insulator), and embedded non- volatile memory processes.

Our high voltage processes range from 10V to 800V, enabling us to satisfy

the needs of different product specifications and help customers expand

applications in different field. In response to the automobile industry's

demand for semiconductors, VIS has actively proposed solution plans and

applied for AEC-Q100 certifications to provide our customers with multiple

choices of technical platforms. In light of the increasing need for consumable

electronics, VIS has completed building the structure of an IC application

platform for magnetic and fingerprint sensor process technologies, thereby

providing customers with additional options other than driver ICs, power

management ICs, and discrete components. Our wafer foundry services are

closely linked with end markets, including computer, consumer electronics,

and communications and automotive markets. We chiefly supply products for

computers (including desktop, notebook, netbook, and tablet), LCD TVs, and

cell phones; the following are demand forecasts for various end markets from

the research firms:

Computer：

In 2014, desktop shipments accounted for 134 million units, declined by 2%

YoY, and notebook accounted for around 170 million units, declined by 5%

YoY, whereas the shipment of small tablet computers did not grow as it did in

the past (only a growth of 6% at 235 million pieces) because of the increased

shipment of large size smartphones. Envisioning the growth rate in 2015,

except for tablets which can maintain at a certain growth rate, the demand for

desktop computers and notebooks continued to show a declining trend in the

PC market.

55


2014 2015 2016 2017 2018 2019

Desktop 134 129 126 123 121 121

Notebook 170 168 168 169 170 170

Tablet 235 259 277 290 301 305

Desktop YoY ‐2% ‐4% ‐2% ‐2% ‐2% 0%

Notebook YoY ‐5% ‐1% 0% 1% 1% 0%

Tablet YoY 6% 10% 7% 5% 4% 1%

Projections and Annual Growth Rate of Global PC Shipments, including Tablets (in millions)

Source: IHS, Gartner, IDC (4Q14)

Consumer Electronic：

The following table shows global TV shipments and LCD TV resolution

trends. Product shipments in 2014 increased 3% to 219 million units, FHD

(1920x1080) and UFHD (3840x2160; 4kx2k) accounted for 55% and 6% of

all units shipped respectively. According to IHS, Gartner, and DisplaySearch

project, the overall shipment of LCD TVs for the next few years is projected

to grow by 3% to 5% given that pricing is no longer a problem. Regarding

UFHD resolution devices, favorable growth is expected under the influence

of price fluctuations, occupying 34% of the overall LCD TV market by 2019.

A positive growth in the shipment of LCD TVs and enhanced panel

resolution are a market trend positively influence our business performance. Global TV Shipment Volume (in millions of units) and Annual Growth Rate

Source: IHS, Gartner, DisplaySearch (4Q14)

LCD Shipment Ratio by Resolution

Source: IHS, Gartner, DisplaySearch (4Q14)

2014 2015 2016 2017 2018 2019

1366 x 768 39% 39% 38% 36% 33% 30%

1920 x 1080 55% 47% 42% 38% 35% 33%

3840 x 2160 6% 13% 20% 26% 29% 34%

219

227

3%

4%

0%

1%

2%

3%

4%

5%

200

210

220

230

240

250

260

2014 2015 2016 2017 2018 2019

YoY

Mu LCD TV

LCD TV YoY

56


2014 2015 2016 2017 2018 2019

Feature phone 404 307 233 187 155 141

Utility/Basic smartphone 593 744 873 975 1,057 1,090

Premium smartphone 523 610 688 744 800 800

Feature phone YoY ‐26% ‐24% ‐24% ‐20% ‐17% ‐9%

Utility/Basic smartphone YoY 49% 25% 17% 12% 8% 3%

Premium smartphone YoY 21% 17% 13% 8% 7% 0%

Communication：

The following chart shows the global mobile phone shipment and annual

growth rate projections from IHS, Gartner, and IDC. Smartphones continued

to growth in 2014; however, the chart below shows that the growth is

attributable to utility and basic mid-/low-end devices. Such a trend will

remain the mainstream for the next few years. With regard to the average

compound growth in projected shipment volume from 2014 to 2019,

smartphones volume is expected to fall by -29%, while high-end and mid-

/low-end devices are projected to grow by 9% and 13%. The company

supplies driver IC capacity for products with RAMless solution in response

to customer demands for mid-/low-end devices. Global Mobile Phone Shipments (in millions of units) and Growth Rate Forecast

Source: IHS, Gartner, IDC (4Q14)

Automotive Electronics

The global automotive shipment volume and cost of electronics per car are

shown in the following charts. The shipment volume in 2014 was

approximately 83 million cars, of which battery electric and plug-in hybrid

electric vehicles accounted for 27%. Given that growth in global GDP is

expected, it is predicted that 103 million cars will be shipped in 2019, with

battery electric vehicles showing a distribution of 53%. Increased shipment of

battery electric vehicles represents an increase in the demand for

semiconductor automotive electronics, as shown in the chart below sourced

from Toyota (Corolla vs. HEV Prius, 15% vs. 47%).

VIS is currently actively cultivating this market in response to the growing

demand for automotive electronics.

57


Global Automotive Shipment Volume (in millions of units)

Source: IHS, Gartner (4Q14)

Cost of Electronics (per car)

Source: Toyota (2014)

b. Competitiveness

In IC foundry processes, in addition to the 0.5um, 0.35um, 0.25um, 0.18um,0.16um, and 0.11um processes, we have developed multiple integratedcircuit technologies and successfully mass produced this product to enhancethe competitiveness of our customers' products. In contrast to digital ICs,analog ICs, mixed-signal ICs, and high-voltage technologies are the key tobridging communication between reality and digital systems. The design ofeach product requires specific components and IP. VIS therefore cultivatesthe development of specific components and IP to help clients quickly enterthe market. This business model of jointly developing novel technologieswith our customers helps VIS in forming a consolidated, longstandingpartnership with its customers.

15%28%

47%

0%

20%

40%

60%

80%

100%

CompactCorolla

LuxuryLexus LS460

HybridPrius

Cost

of e

lect

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cs p

er c

ar

Others

Elec.

0

20

40

60

80

100

120

2014 2015 2016 2017 2018 2019

Mu

Others

HEV

PHEV

EV

58


3. Technology and R&D

In order to provide customers with more competitive technologies and

services, the Company is continuously developing more specialized

applications from its core technology as well as enhancing the value of the

services we provide. In terms of technological developments for display

driver IC, the 0.2 μm, 0.18 μm, and 0.15 μm high voltage production

processes and the additional embedded non-volatile memory 0.16 μm high

voltage production process, especially designed for touch panels, are now

all being utilized in mass production. Besides, 0.11um high voltage process

technology was developed from 2012 and Finger Print IC technology was

also co- worked with customer and developed since 2014.

With regards to the BCD (Bipolar-CMOS-DMOS) process for power

management ICs, apart from the 0.5μm, 0.4μm, 0.35μm, 0.25μm, and

0.15μm processes that have already gone into mass production, we will

complete development of a next-generation 0.11 micron BCD process this

year. Moreover, the next generation of 0.5μm ultra-high-voltage processing

with ultra-low on resistance and cost effective version has been

accomplished and is ready to be used in customers’ product designs. The

high quality 0.5um HV SOI technology continues in mass production. The

new generation, 0.25um HV SOI technology, will be ramped up next year.

In the future, Vanguard International will continue to actively develop the

high voltage and power management technology components that the

market demands and continue to collaborate with TSMC to develop even

more advanced processes.

It is expected that VIS will increase its R&D spending in Y2014 to 5% of its

revenue.

Project Description

0.5um UHV Low Ron & High Side Technology

Based on customer demand, develop UHV Technology for Motor Driver IC & LED Driver IC.

Power Management IC Technology Platform

Develop 0.15um/0.11um power management IC technology platform to supply products for computers (including desktop, notebook, netbook, and tablet), cell phones, and automotive application.

Display driver IC technology platform Based on customer demand, develop display driver IC technology platform for 4K2K TV, tablet, mobile phone, touch panel and automotive panel display.

Finger Print IC Technology Platform Research and develop fingerprint IC technology platform that fulfills the requirement of customization and industry's latest development applications.

59


R&D expenses in past 2 years and to the day this report was printed.

Year R&D spending (in NTD thousand)

2013 983,737

2014 1,192,128

2015/01/01–2015/02/28 201,586

4. Long and short-term business development plans

Short-term development plan

We are constantly innovating and developing new technologies. We have

conducted R&D in the high-voltage process field for many years. In the short

term we will continue to apply our high-voltage process technology to driver

IC products, while developing BCD and UHV processes in an effort to

response to customers' increasing diverse needs and enhance customer service

quality.

a. Short-term business development plan: We will strengthen our on-time

delivery rate in order to boost customer satisfaction: We order

production of most of our products after orders have been accepted.

Because our customers' exacting design and customization needs, we

commonly engage in face-to-face communication with customers, and

provide consulting-style services. Our superior process technology,

professional technical personnel, and rigorous certification measures

have helped us win our customers' trust.

b. We will continue to improve our large panel driver ICs. We have

developed e-book, tablet, and 3D TV applications, and hope to capture

over 40% market share of for gate driver ICs and over 20% market

share for source driver ICs.

c. We will strive to develop high-efficiency, energy-conserving, carbon-

reducing products. We look forward to the continued growth of our

power management ICs in 2014. Our current leading products include

DC to AC power converters and AC to DC converters, which are used

in small-/medium-size computers, smartphones, and LCD TVs.

d. We will endeavor to set up a magnetic and fingerprint sensor IC

platform and expand other markets in addition to the driver IC and

power management IC markets, in order to produce an array of product

combinations.

e. We will enhance our global support and actively expand our foreign

market.

60


Long-term development plan

a. We will strengthen our BCD, UHV, and Discrete R&D, enhance our

yield rates and technological maturity, improve our processes, and cut

costs.

b. We will accelerate the process of acquiring AEC-Q100 verification for

our automotive application technology platform and actively explore

the automotive electronics market.

c. We will continue to develop new process technologies, keep on going

processes for products with new specifications, expand our range of

product applications, widen our customer base, strengthen overseas

market development, increase our order ratio simultaneously, and

continue 8” foundry life cycle.

d. We will seek partners to establish strategic alliance and attempt to

prolong the life cycle of our 8-inch FAB.

61


B. Industry survey and market analysis 1. Market analysis

Major product sales areas

Unit: in NTD thousand

Y2013 Y2014

Net Revenue % Net Revenue %

Taiwan 18,728,373 89 20,785,293 87United States of America 901,185 4 765,561 3 Singapore 663,338 3 753,633 3Austria 22,526 0 389,228 2China 60,367 0 366,315 2Japan 224,988 1 286,196 1Philippines 43,242 0 159,212 1Korea 137,108 1 128,864 0Cayman Islands 142,451 1 102,526 0 Others 211,482 1 194,651 1Total 21,135,060 100 23,931,479 100

Market share

VIS has cultivated the high-voltage process market for many years, and will

continue to develop BCD process technology, boosting operating performance.

VIS had revenue of approximately NT$23.9 billion in 2014 (grew 11% YoY).

According to statistics from the research firm, IHS, VIS had a market share of

roughly 1.7% in 2014, making it the world's eighth largest pure foundry

player.

(Please see Industry Overview concerning future supply and demand and

growth)

Favorable and unfavorable factors affecting competitive niche and

development vision, and response measures

Favorable competitive factors

(1) As new information, communications, and consumer products emerge in

rapid succession, shipment volumes have set new records. In addition,

international IDM firms are constantly releasing foundry orders in order

to boost the competitiveness of their products. As a result, the foundry

market, which VIS is enjoying steady growth. Furthermore, future

development trends for relevant end products such as LCD flat panel

displays, PCs, and handheld devices bode well for VIS, which will

62


provide technical blueprints for process services, continuously monitor with market trends, and keep up with customers' needs.

(2) VIS received ISO 9001 international quality certification in 1996, ISO 14001 international environmental certification in 1997, QS 9000 international quality management system certification in 2002, and ISO/TS 16949: 2002 international quality management system in 2004. Our first-rate manufacturing service standards and excellent relationships with large international manufacturers will greatly facilitate our future efforts to increase our market share.

(3) VIS and TSMC maintain a close wafer foundry service relationship, and VIS has acquired TSMC's 0.5um/0.35um /0.25um /0.18um /0.16um /0.11um process technologies, which have been successfully employed in mass production. VIS has also successfully developed many specialty IC technologies, which have been used in mass production.

(4) Our highly effective management team, in conjunction with our professional process team and outstanding sales team, enable us to achieve superb business performance.

(5) Our highly flexible customer support system helps us to form long-term partnerships with customers.

Unfavorable factors to competition

(1) The continued depressed state of the DRAM industry has ignited a capacity war that threatens to push out foundry firms. Foundry products with low barriers to entry will encounter price competition.

(2) In order to enhance product competitiveness, international IDM firms are migrating from 8" to 12" production, which is exerting pressure on product prices, particularly in the case of power management ICs.

(3) The current trend of terminal system component integration is such that, when the accumulated degree of system integration is higher, the Company’s 8-inch process technology might not be able to meet the needs of advanced processing customers.

Response measures

(1) We will continue to improve our process technology, quality, and mass production capability, reduce production costs for various products, enhance our yield rate and service, boost production efficiency, and consolidate our professional wafer foundry service capacity.

63


(2) We will accelerate process development, make opportune innovations in

the specialty IC foundry area, and consolidate our partnerships with

customers by maintaining differentiation, making us the optimal

specialty IC manufacturing service provider.

(3) We will focus on and optimize high-voltage, ultra-high-voltage, and

discrete elements, as well as BCD technology, and concentrate our

resources in order to enhance our competitiveness.

(4) We will strengthen our partnerships with customers and adopt an IDM

Fab-lite strategy in order to better complement our customers.

(5) We will strengthen marketing and customer service performance,

continue to raise customer satisfaction, and achieve our goal of

sustainable operation.

2. Major Applications of Products

VIS provides world-class quality Logic IC manufacturing service. Those

products can be applied into Computers and its peripherals (including TFT

LCD monitor, CD-ROMs and Motherboard), Communications (including

Mobile handset, Wireless LAN and Switch), and Consumer electronics

(including High Resolution TV, e-book, DVD player, and Digital Still

Camera).

Production Flow

64


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66


C. Personnel Structure As of February 28, 2015

Year 2013 2014 2015/02/28

Personnel

Direct 1,866 2,377 2,367

Indirect 1,979 2,574 2,587

Total 3,845 34,951 4,954

Average Age 35 35 36

Average Year of Service 6.54 5.67 5.79

Average Year

of Service

Education

PH. D 28 37 40

Master 808 1,071 1,081

College 1,695 2,252 2,251

High School 1,306 1,251 1,572

Less than

High School 8 10 10

D. Environmental Protection Measures 1. Environmental Investment

VIS continuously improves our environmental management and upgrade

pollution control equipments. In 2014, in addition to the existing equipment

maintenance, we continuously invested in purchasing pollution control

equipments for special chemical substances, wastewater and exhaust, and

local scrubbers. The total investment was around NT$97.15 million. VIS

also made an investment around NT$31.97 million in green products

procurement and will keep surveying and purchasing relative green

products in order to fulfill our environmental protection responsibility.

2. Greenhouse Gases Emissions Reduction

VIS, in coordination with Taiwan Semiconductor Industrial Association

(TSIA), has accomplished the 3rd party verification of 2013 and before

greenhouse gases (GHG) inventory, based on ISO 14064-1:2006 guidelines,

and has fulfilled its commitment to TSIA in terms of GHG emissions

reduction. VIS will continuously conduct annual GHG inventory, as the

reference for GHG emissions reduction assessment. Currently, VIS is still

undergoing the 2014 GHG inventory.

Our achievements in GHG emissions management in 2014 is summarized

as below:

a. Accomplished company-wide GHG emissions inventory. Total

emissions (non-verified) are 534,000 tons of CO2e.

67


b. PFCs used in the manufacturing processes of all Fabs is destructed and

removed by highly efficient abatement tool. As a result, the GHG

emission from PFCs is far below the commitment to TSIA of 0.0519

MMTCE (Million Metric Tons of Carbon Equivalent). The total GHG

emissions reduction was up to 139,200 tons of CO2e.

c. VIS continuously pays close attention to the efficiency of PFCs

abatement tools for newly-purchased equipments.

VIS will continuously devote itself to GHG emissions reduction, and properly

manage its GHG emissions to minimize global greenhouse effect without

reservation.

3. Environmental Management System

VIS accomplished company-wide 3rd party certification of ISO 14001:2004

in 2015 (effective through Jan 2018), in accordance with international

standards and customer requests.

Under the effective operation of our environmental management system,

the achievements of our environmental performances in 2012are listed as

below:

a. Air Pollution Management

Destruction and removal efficiency of VOCs (DRE) (Volatile Organic

Compounds) treatment was higher than 90% for Fab1 and Fab2. For

Fab3, DRE of VOCs has raised up to 96.9% from 77.6% in July 2014.

b. Water Pollution Management

(1) Quality of discharged wastewater was fully in compliance with the

standards of Hsinchu Science Industrial Park for Fab1 and Fab2,

and Taoyuan County Environmental Protection Bureau for Fab3.

(2) Recovery rate of process water exceeded 85% for Fab1 and Fab2.

For Fab3, the recovery rate of process water has raised up to 67.8%

from 62% in July 2014.

c. Waste Management

Waste production was amounted to 6,001 tons for Fab1 and Fab2. In

which, more than 95% was recycled for secondary use. For Fab3, waste

recycling rate has raised up to 90.4% from 78.4 in July 2014.

Wastes that could be recycled as resources were properly managed by

EPA-qualified and licensed recycling vendors, in purpose of effectively

preventing pollution from processing wastes, and taking our

responsibility of environmental protection.

All wastes were properly handled by EPA-qualified and licensed

vendors.

68


4. Environmental Improvement Programs

VIS carries on the spirit of continual improvement and the principle of

PDCA from ISO 14001 environmental management system and thereby

requests all departments to propose environmental improvement projects on

factory management.

a. 139 environmental improvement projects were proposed in 2014. In

which waste reduction, energy saving, and resources recovery were the

three main types of projects.

b. Projects Performances

(1) Energy saving reached 2,781,913 kWh, resulting in electricity

charges reduction of NT$7.35 million.

(2) Water conservation amounted to 34,429 ton/year, and chemical

reduction amounted to 190.52 ton/year.

5. Green Products and Customer Requests

VIS entrusted SGS Taiwan to conduct annual wafer examination, in

compliance with the following international regulations:

a. Restriction of the use of Hazardous Substance (2011/65/EU)

b. Registration, Evaluation, and Authorization of Chemicals (REACH)

c. SONY (Management Regulations for Environment-related Substances

to be Controlled Which Are Included in Parts and Materials) (SS-

00259)

E. Industrial Relations 1. Employee Benefit and Implementation

VIS regards employee health in high priority and made great effort to

improve working environment, set up leisure activities and facilities, and

provide health and insurance services.

VIS has been conferred a number of awards, including the “Outstanding

Labor Education Company (1998)”, “Distinguished Performance in Human

Resources Training (1998)”, “Outstanding Labor Publication Award

(1998)”, “Excellent Employee Welfare Institution Award (1999)”,

“Outstanding Enterprise with high attention to Female Workforce award

(2002)”, “ 1st Active Enterprise Award (2006)”, participation in the “Healthy

Workplace Self-Certification” organized by National Health Insurance

Bureau in Y2007, “Healthy Workplace self-certification—Health

Management Award (2009)”, “Job Creation Award (2010)”, “2011

Outstanding Healthy Workplace Contribution Special Award—Healthy

Weight Management Award”, 2012 Healthy Workplace Self-Certification—

69


Health Promotion Label, and 2013 Healthy Workplace Self-Certification:

Health Inspiration Label. Taipei City Department of Labor 4th Contest for

Best Companies to Work For (2014), Hsinchu City Department of Health

Outstanding Breast-Feeding Room Certification (2014), Copper medal for

the Preliminary Workplace Contest of Hsinchu City - Healthy Exercise

(2014), and National Regional Semifinals for Healthy Exercises in

Workplace─Best Team Performance Award (2014)

VIS cares for the overall quality of life of its employees. Not only do we

offer a clean and beautiful working environment with an array of

recreational facilities (basketball courts, gymnasium, recreation center,

aerobics room, karaoke rooms, and lounge), we put on a whole variety of

recreational events such as new year banquets, family days, Christmas

parties, karaoke competitions, and a variety of sports competitions. Through

the thoughtful planning of the benefits committee in putting on these events,

we want to allow employees a chance to bring some relaxation and

fulfillment to their life outside of work.

In order to safeguard employee health, VIS not only offers pre-employment

physical examinations and specific employee health exams, it also offers

periodic physical exams for employees. In the winter of each year, VIS

procures flu vaccine, hiring doctors to administer it onsite for its employees.

Conferred the Infection Prevention Award by Department of Health for two

consecutive years of 2009 and 2010 (the only winner in the park). VIS

promotes the wellbeing of its employees through weekly clinics by doctors

from Hospital. To encourage employees to participate in outdoor

recreational activities and achieve a better work-life balance, the Company

established a health promotion team lead by the director to lead enthusiastic

colleagues to act as captains in organizing jogging, swimming, hiking, and

sports teams to attract more colleagues to foster a healthy lifestyle. The

Employee Welfare Committee has organized a Yoga Club, Weight Loss and

Body Building Club, and ball games to help employees make sport a habit.

In addition, VIS has onsite masseurs and masseuse that help ease shoulder

and neck stress. Three or four times a season, health-related seminars

actively are put on, circulating throughout all of the company divisions

offering tips on healthy living.

Employee profit sharing plan:

The profit sharing plan with employees refers to financial goal of the

employees are in line with the business goal of the Company. All

employees work hard for creating profit in a concerted effort. This allows

70


the employees to share the joy of success of the Company. If there is a

surplus at the end of the fiscal year after account settlement, VIS shall cover

loss carried forward from previous period and allocate 10% as mandatory

reserve. Specific percentage of the remainder will be allocated as employee

bonuses.

Group insurance

Labor insurance and national health insurance give basic protection for the

employees. VIS seeks to provide better protection of its people by taking a

group insurance policy to cover the inadequacy of the said insurance

programs. Under this group insurance policy, the spouse and the dependents

of the employees are also protected so that the families of VIS people can

enjoy the benefits as well. The limitation of insurance benefits claim under

the group policy is much lesser than the labor insurance and the benefit

amount is higher. The Company pays for the group insurance premium and

employees are entitled to take specific options on their own under the group

coverage at their own cost. (The scope of coverage: life insurance, accident

insurance, medical insurance on accidents, coverage for hospitalization and

treatment of cancer.)

2. Training

Education and Training programs:

In this age of swift industrial and technological change, VIS strives to keep

its employees ahead of the curve and aligned with the company goals.　

Training is thus a high priority for our human resources department. VIS

continues to offer employees technical, informational, attitudinal, language,

and managerial training. This allows employees to not only keep up in terms

of technical skills and know-how, but to foster good work attitudes, skills,

and managerial acumen. VIS offers more hours of training and dedicates

more resources to training than its industry competitors. The hope is that

each employee will use what he or she learns to raise the quality of his or

her work. This in turn leads to higher profits for VIS, while at the same time

furthering the careers of our employees.

a. VIS has a comprehensive training system for training professional

talents and developing employees’ potential. This comprehensive

training system includes new comers’ orientation, professional /

technical training, external training, managerial training and self-

development.

b. We have established The Training Management System to systematize

all learning process.

71


c. We provide e-Learning web portal, which carries over 700 courses, foremployees to build up personal learning roadmap and cultivate self-motivated learning atmosphere.

d. In 2014, in addition to the engineering, quality, safety andenvironmental classes, we put special emphasis on innovation spirit ofmanagerial training. The training statistics of 2014 are summarized inthe following table.

Numbers of Personnel Total training Expense Total employees

trained Total Training hours

4,951 7,600,968 101,326 120,9493. Retirement Plan:

The pension system under the “Pension Fund Statue” requires the allocationof specific amount of contribution for retirement equivalent to 6% ofemployees' monthly salaries allocated to their personal pension fundaccounts at the Labor Insurance Bureau. The pension system under the“Labor Standards Act” requires guaranteed disbursement of pension fundswhereby the Company shall make contributions to the employee pensionfund on the basis of the total employee salaries. This fund shall bemonitored by the Pension Reserve Monitoring Committee and deposited atthe special account of the Bank of Taiwan under the title of the committee.

4. Other important agreements and employment protection policies:

The Company treasures the establishment of harmonious atmosphere inlabor-management relation through mutual trust in corporate management,and adopts the proactive openness model of management to create achallenging and joyful work environment.For example, VIS highly treasures the opinions of the employees andthereby established an “Employee Health Section” for handling labor-management relation and related matters. Different channels were cultivatedfor labor-management communications in order to create an openenvironment. Further to department meetings, which were held not on aregular basis, and orientation of new people, quarterly labor-managementmeetings, and executive meetings, VIS also set up a mailbox for employeecommunication and published the “Communication Monthly News” toreport on the Company. In addition, VIS conducts survey on employeeopinions on their satisfaction with management and the welfare systemregularly. VIS not only made efforts in sustaining positive labor-management relation, but also provided consultation services to employees,and organized related speech presentations and symposiums with the

72


employees at any time as needed to strengthen the communications of idea

and establish a consensus.

Labor-management relation at VIS is harmonious, and there is no loss or

damage deriving from labor-management disputes ever since its

establishment.

Employee Working Environment and Personal Safety

To fulfill its goal of continual improvement on operational safety by a

systematical, spontaneous and effective approach, VIS has accomplished

the 3rd party verification of OHSAS 18001 since 2003. In 2009, VIS also

attained to the 3rd party verification of TOSHMS:2007. In December 2012,

due to the regulatory requirements of Taiwan government, VIS achieved

conversion verification of CNS 15506:2011 from TOSHMS:2007.

In addition, under the full participation of VIS all employees in our safety

and health management system, and the supervision of managers at all

levels on safety and health management measures, we build a comfortable

and safe working environment by adopting hazard identification, risk

assessment, and risk control as management tools.

Our working environment, personal safety and relative measures are described as

below: ■ Manufacturing Processes/Utility/Chemical Management

Concerning processes management,

i. The potential risks of equipments are lessened through the application of

safety notices provided by the equipment suppliers.

ii. ”Equipment Installation Safety and Quality Inspection and Control

procedure” is in place for potential risks control during equipment

installation.

iii. Potential risks derived from process modifications or engineering

changes are assessed and minimized through SMOC (Safety

Management of Change) approaches.

iv. An e-system is established to help control safety risks that may occur

during all phases of changes.

Concerning utility management,

i. “Hazardous Work Permit Rules” and “High-level risk Work Regulations”

are in place for relative application of onsite implementation.

ii. In addition, for high-level risk area workplaces control, “work inform” and

“safety reminder” are put into effect as control mechanisms.

Concerning chemical management,

“Safety storage amount” and “standard operation procedure of chemical dispensation”

73


are put into effect in order to minimize risks derived from use and storage of

chemicals. On the other hand PPEs (Personal Protective Equipments) are provided for

personal safety. ■ Equipment Seismic Assessment and Improvement

With regard to seismic safety protection, seismic assessment on process equipments

has been accomplished. Reinforcing measures, according to the assessment results,

are planned for improvement.

■ Emergency Response

i. Emergency responses trainings and drills are periodically held in order to

ensure that emergency responses can be efficiently and effectively carried

out in case of accidents.

ii. Participators include not only VIS employees but also on-site agents of

contractors.

iii. Training courses include personnel evacuation drill, fire control training,

ERT (Emergency Response Team) trainings aimed at earthquakes and

chemicals/toxic gases leakage scenarios, commander training, and

dormitory evacuation drill.

iv. In addition, regular tests are conducted on factory telephone emergency

notice system, in order to guarantee the validity of urgent contact

information.

v. Leakage detection alarm system is installed and would promptly send alarm

notices to ERC (Emergency Response Center) to improve emergency

response time.

vi. In 2014, a total of 113 drills were held for emergency response practices.

vii. Concerning BCP (Business Continuity Plan), extreme climate event (such

as rainstorm) is applied as the scenario for impact assessment and

preventive measures planning, in order to advance corporate emergency

response capability.

■ Exposure Monitoring

i. Exposure monitoring is conducted every six months. Sampling points are

selected based on regulatory requirements and preliminary factory hazard

analysis, which includes personal exposure dosage assessment.

ii. Routine checks are conducted on organic chemicals or special chemicals

operations by week.

iii. Local exhaust ventilation systems are installed at workplaces where organic

vapor or dust exists.

iv. Detectors and alarm systems are installed at workplaces where special gases

are used, in order to monitor any leakage that might lead to damages. All

74


measurement items are monitored in accordance with regulatory requirements.

v. Safety management of change is conducted over manufacturing processareas with higher noise level (>75 dB), so that the overall noise level isdecreased to below 75 dB, in order to prevent employees from hearingdamage.

vi. For some workplaces with noise level above 85 dB, such as equipmentoperation areas, noise area labels are posted as a warning for people whomight enter into these areas. Earplugs or advanced hearing protectionequipments are also provided to employees who work at these areas.

vii. Hearing test is also offered on a yearly basis to secure employees wellness. Safety and Health Trainingi. In order to enhance the awareness of environmental, safety and health

(ESH), and continuously improve working environment, VIS not onlyprovides regulative courses but also design a variety of ESH training,including new staff training of safety operation of equipment.

ii. Supervisors at engineering project site, in particular, are provided withperiodical safety and health new staff training, in order to repeatedly remindthem of operational instructions and safety requirements.

iii. Concerning ESH license management, records (25 types of ESH license intotal) have been set up through a e-system. Besides, a reminder noticewould be sent out to the employee in order to notify the effectiveness oflicense expiration date.

iv. In 2014, all scheduled trainees have accomplished training courses. Contractors Managementi. Through the contractor management e-system, contractors information of all

applicant departments are integrated in order to better manage the time andarea contractors enter and exit the company. Also, in case of an accident,this information can help conduct emergency evacuation efficiently.

ii. An annual consultative organization meeting and a daily toolbox meeting,prior to the execution of engineering project, are required for all applicantdepartments and their contractors. Through which, items that should bepaid attention to are informed and communicated in order to ensureconsensus is reached upon agreement.

iii. To enhance the level of on-site safety management and properly performon-site 6S (Seiti, Seiton, Seiso, Seiketsu, Shitsuke, and Safety) in case of anengineering project, supervisors of contractors must have a C class LaborSafety and Health supervisor qualification.

75


iv. All contractors are required to strictly perform the safety preventive and

control measures. If any nonconformity is confirmed, corrective actions

must be reviewed and taken immediately. Contractors would also be

informed against the violation through VIS Safety and Health Violation

system.

■ Safety and Health Audit

i. 5S (same as 6S, except for Safety) activity is positively pursued company-

wide. Not only perform 5S on a daily basis, all relative departments also hold

the 5S meeting regularly.

ii. VIS 5S audit e-system is applied with purpose of keeping our working

environment a comfortable place with high cleanliness.

iii. Through internal and external audits, our safety and health management is

reviewed on a regular basis to ensure the compliance with OHSAS 18001

and CNS15506: 2011 requirements.

■ Employees Wellness Promotion

i. VIS takes it’s responsibility to secure employees wellness. In order to

prevent employees from exposure to hazards and occupational disease risks,

VIS not only provide a variety of PPE and half-annual exposure monitoring,

but also arrange regular physical checkup for the managers and employees,

irregular preferential physical checkups and flu vaccine injection.

ii. Physical training classes are provided to strengthen employees’ resistance

(against diseases) and working efficiency.

iii. A variety of lectures and activities are also offered in order to promote

employees’ concept for self-management in regards of safety and health.

■ Safety Culture Establishment

i. Safety and health announcements in all restrooms and posters in public areas

are applied to enhance employees’ awareness of safety and health.

ii. Different kinds of environmental safety and healthactivities are hosted to

increase employee participation and enhance the effectiveness of advocacy.

iii. Motorcycle checkups are also held to help employees detect problems earlier,

in order to increase safety of commuting.

Adhering to the spirit of continual improvement VIS will continuously delicate itself

to minimize; prevent any occupational injury and look after all employees’ safe &

health as the final goal.

76


5. Existing Important employment agreements and implementation

Employee Behavior and Ethical Standards

VIS takes the following as its core managerial principles: rounded in　

integrity, guided by professional ethics.” Furthermore, it has established a

code of professional conduct for its employees. Not only are employees

asked to adhere to this code, they are forbidden from giving or taking

bribes, from acting in any way contrary to the interests of the company, and

from any instance of conflict of interest. Each year, employees are asked to

fill out a conflict of interest disclosure form as well as a voluntary

disclosure form. VIS has established a Proprietary Information Protection

policy, which clearly lays out guidelines for confidential company

information as well as the receiving, sending, saving and utilization of

sensitive data.

To align with the corporate vision and value, VIS specifies four core

competencies as the behavior/ethical standards for management team and

employees.

Integrity

All VIS employees should emphasize business ethics, operation standards,

professionalism, and work of the highest quality and devote completely to

fulfilling the promise within the limits of the law once a promise is made.

Integrity is a fundamental value of the company.

Customer Orientation

VIS always places its customer needs first, and this principle drives its

corporate culture. This allows VIS to anticipate and understand customers’

problems and needs, creating an atmosphere of open, direct, and

constructive responsiveness and communication. In creating win-win

situations, VIS is able to work with all customers and foster a spirit of

teamwork.Value Orientation︰

VIS is constantly coming up with innovative ways of thinking, and works

proactively to improve the way that it operates. Even in challenging times,

VIS forges ahead and persists in doing what is right, fully living up to its

roles, mission, and responsibilities.

Commitment:

VIS pledges to execute the most effective and timely strategy even in the

most challenging and competitive of times. When taking on demanding new

tasks, VIS works with enthusiasm, taking each task as an opportunity to

77


learn and to make a real contribution. With focus and persistence in

fulfilling our role, we meet our goals and get results. Through strategic

thinking and overcoming challenges, VIS always gets the job done and with

the highest quality.

6. Losses due to labor disputes from previous year till current year

printing of annual report:

VIS sees its employees as its most precious asset, and strives to allow

employees to continue to develop. Thus, we have maintained harmonious

labor relations and have not suffered any losses due to labor disputes.

78


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79


VI. FINANCIAL STATEMENTSA. Brief Balance Sheets and Brief Statements of Income

1. Brief Balance Sheets

Brief Consolidated Balance Sheets (IFRS)


YearItem

Financial analysis from 2012 to 2014 2012 2013 2014

Current assets 15,976,612 21,556,195 25,114,426 Property, plant and equipment 8,219,842 6,639,474 7,983,767 Intangible assets 6,660 17,011 37,174 Other assets 579,088 637,279 619,403 Total Assets 24,782,202 28,849,959 33,754,770 Current liabilities Before distribution 3,242,906 3,697,865 5,391,799

After distribution 4,795,229 6,571,190 Note Non-current liabilities 572,099 722,334 828,739 Total Liabilities Before distribution 3,815,005 4,420,199 6,220,538

After distribution 5,367,328 7,293,524 Note Equity attributable to shareholders of parent company 20,967,197 24,429,760 27,534,232 Capital stock 16,284,830 16,365,859 16,389,823 Capital surplus 594,675 733,578 838,029 Retained earnings Before distribution 5,074,462 7,871,013 10,386,761

After distribution 3,522,139 4,997,688 Note Other equity (68,993) (53,700) (70,506)Treasury stock (917,777) (486,990) (9,875)Non-controlling interests - - -Total Equity Before distribution 20,967,197 24,429,760 27,534,232

After distribution 19,414,874 21,556,435 Note

Note: Subject to change after shareholders' meeting resolution.

Brief Unconsolidated Balance Sheets (IFRS)


YearItem

Financial data from 2012 to 2014 2012 2013 2014

Current assets 15,776,312 21,344,163 24,875,522 Property, plant and equipment 8,219,778 6,639,170 7,983,500 Intangible assets 6,660 17,011 37,174 Other assets 778,604 845,519 856,692 Total Assets 24,781,354 28,845,863 33,752,888 Current liabilities Before distribution 3,242,058 3,693,769 5,389,917

After distribution 4,794,381 6,567,094 Note Non-current liabilities 572,099 722,334 828,739 Total Liabilities Before distribution 3,814,157 4,416,103 6,218,656

After distribution 5,366,480 7,289,428 Note Capital stock 16,284,830 16,365,859 16,389,823 Capital surplus 594,675 733,578 838,029 Retained earnings Before distribution 5,074,462 7,871,013 10,386,761

After distribution 3,522,139 4,997,688 Note Other equity (68,993) (53,700) (70,506)Treasury stock (917,777) (486,990) (9,875)Total Equity Before distribution 20,967,197 24,429,760 27,534,232

After distribution 19,414,874 21,556,435 Note

Note: Subject to change after shareholders' meeting resolution.

80


Brief Consolidated Balance Sheet (ROC GAAP)


Year Item

Financial analysis 2010 2011 2012

Current assets 12,300,858 12,122,633 16,102,675Fund and Investment 410,941 305,121 211,108Fixed assets 10,323,582 9,404,061 7,547,491Intangible assets - - -Other assets 1,094,280 987,988 866,126Total Assets 24,129,661 22,819,803 24,727,400Current liabilities Before distribution 2,817,240 2,057,788 3,187,175

After distribution 3,804,556 3,026,183 4,739,498Long-term liabilities - - -Other liabilities 498,309 492,838 509,667Total Liabilities Before distribution 3,315,549 2,550,626 3,696,842

After distribution 4,302,865 3,519,021 5,249,165Capital stock 16,455,269 16,191,160 16,284,830Capital Surplus 527,532 528,717 663,507Retained earnings Before distribution 3,830,730 3,707,532 5,068,946

After distribution 2,843,414 2,739,137 3,516,623Unrealized gains(losses) on financial instruments 57,097 (44,327) 1,689Cumulative translation adjustments (56,516) (60,729) (70,637)Treasury Stock - (53,176) (917,777)Loss on unrecognized pension costs - - -Total Shareholders’Equity

Before distribution 20,814,112 20,269,177 21,030,558After distribution 19,826,796 19,300,782 19,478,235

Note: For comparison, certain accounts in the financial statement of year 2010 to 2011 have been reclassified to be consistent with that of year 2012.

81


Brief Unconsolidated Balance Sheets (ROC GAAP)


Year Item

Financial analysis

2010 2011 2012

Current assets 12,096,439 11,923,288 15,901,192Fund and Investment 613,624 505,164 412,590Fixed assets 10,323,490 9,403,945 7,547,427Intangible assets - - -Other assets 1,093,461 987,171 865,343Total Assets 24,127,014 22,819,568 24,726,552Current liabilities Before distribution 2,814,593 2,057,553 3,186,327

After distribution 3,801,909 3,025,948 4,738,650Long-term liabilities - - -Other liabilities 498,309 492,838 509,667Total Liabilities Before distribution 3,312,902 2,550,391 3,695,994

After distribution 4,300,218 3,518,786 5,248,317Capital stock 16,455,269 16,191,160 16,284,830Capital Surplus 527,532 528,717 663,507Retained earning s


Unrealized gains(losses) on financial instruments 57,097 (44,327) 1,689Cumulative translation adjustments (56,516) (60,729) (70,637)Treasury Stock - (53,176) (917,777)Loss on unrecognized pension costs - - -Total Shareholders’Equity


Note: For comparison, certain accounts in the financial statement of year 2010 to 2011 have been reclassified to be consistent with that of year 2012.

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2. Brief Statements of Income

Brief Consolidated Statements of Comprehensive Income (IFRS)

Year Item


Net revenue 17,190,000 21,135,060 23,931,479 Gross profit 3,978,189 6,862,933 8,613,673 Operating income 2,268,874 4,837,208 6,204,267 Non-operating income and expense 272,879 225,123 289,607 Income before income tax 2,541,753 5,062,331 6,493,874 Income from operations of continued segments-after tax 2,329,692 4,370,988 5,437,889 Income (loss) from operations of discontinued segments-after tax - - -Net Income 2,329,692 4,370,988 5,437,889 Other comprehensive (loss) income 102 (6,821) (65,622)Comprehensive income 2,329,794 4,364,167 5,372,267 Net income attributable to owner of the corporation 2,329,692 4,370,988 5,437,889 Net income attributable to non-controlling interests - - -Comprehensive income attributable to owner of the corporation 2,329,794 4,364,167 5,372,267 Comprehensive income attributable to non-controlling interests - - -Earnings per share * (Basic) 1.50 2.76 3.35 * Based on weighted average shares outstanding in each year.

Brief Unconsolidated Statements of Comprehensive Income (IFRS)

YearItem


Net revenue 17,190,000 21,135,060 23,931,479 Gross profit 3,978,189 6,862,933 8,613,673 Operating income 2,268,095 4,835,731 6,202,404 Non-operating income and expense 273,475 225,271 289,373 Income before income tax 2,541,570 5,061,002 6,491,777 Income from operations of continued segments-after tax 2,329,692 4,370,988 5,437,889 Income (loss) from operations of discontinued segments-after tax - - -Net Income 2,329,692 4,370,988 5,437,889 Other comprehensive (loss) income 102 (6,821) (65,622)Total comprehensive income 2,329,794 4,364,167 5,372,267 Earnings per share * (Basic) 1.50 2.76 3.35 * Based on weighted average shares outstanding in each year.

83


Brief Consolidated Income Statements (ROC GAAP)


Year Item

Financial analysis

2010 2011 2012 Net sales 16,033,860 15,190,418 17,162,545Gross profit 3,243,824 2,248,921 4,088,540Income from operations 1,815,252 905,242 2,379,566Non-operating income and gain 583,523 332,449 431,913Non-operating expenses and losses 355,662 230,905 269,609Income from operations of continued segments-before tax

2,043,113 1,006,786 2,541,870

Income from operations of continued segments-after tax

1,952,385 882,183 2,329,809

Income (loss) from operations of discontinued segments-after tax

- - -

Extraordinary income (loss) - - -Cumulative effect on change in accounting principle

- - -

Net income 1,952,385 882,183 2,329,809Earnings per share * (Basic) 1.17 0.54 1.50

* Based on weighted average shares outstanding in each year.

Brief Unconsolidated Income Statements (ROC GAAP)

Unit: NT$, in thousands Year

Item Financial analysis

2010 2011 2012 Net revenue 16,033,860 15,190,418 17,162,545Gross profit 3,243,824 2,248,921 4,088,540Income from operations 1,817,923 904,317 2,378,787Non-operating income and gain 561,382 326,784 430,149Non-operating expenses and losses 340,610 222,075 267,249Income from operations of continued segments-before tax

2,038,695 1,009,026 2,541,687

Income from operations of continued segments-after tax

1,952,385 882,183 2,329,809

Income (loss) from operations of discontinued segments-after tax

- - -

Extraordinary income (loss) - - -Cumulative effect on change in accounting principle

- - -

Net income 1,952,385 882,183 2,329,809Earnings per share * (Basic) 1.17 0.54 1.50


84


3. Auditors’ Opinion

VIS has retained Deloitte & Touche Certified Public Accountants as the external

auditors over the last 5 years Year CPA Audit Opinion Year CPA Audit Opinion

2009 H.W. Huang Z.Y. Chang

An Unqualified Opinion 2012 Andy HuangHorace Lin

An Unqualified Opinion

2010 H.W. Huang Z.Y. Chang



2011 Andy Huang Z.Y. Chang



B. Financial Analysis Consolidated Financial Analysis (IFRS)

Year Item


Capital Structure Analysis

Debt Ratio(%) 15.39 15.32 18.42 Long Term Capital to Properties, Plant and Equipment(%) 262.04 378.83 355.25 Current Ratio(%) 492.66 582.94 465.78

Liquidity Analysis Quick Ratio(%) 431.72 534.93 417.33 Times Interest Earned (Times) - - -

Operating Performance

Analysis

Avg. Collection Turnover (Times) 6.93 7.51 6.82 Avg. Collection Days 53 49 54 Avg. Inventory Turnover (Times) 8.57 8.10 7.34 Avg. Payment Turnover (Times) 22.56 18.27 15.43 Avg. Inventory Turnover Days 43 45 50 Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 Total Assets Turnover (Times) 0.72 0.79 0.76

Profitability Analysis

Return on Total Assets(%) 9.78 16.30 17.37 Return on Total Equity(%) 11.31 19.26 20.92 Pre-tax Income to Capital Stock(%) 15.61 30.93 39.62 Net Margin(%) 13.55 20.68 22.72 Basic Earnings per Share(NT$) (Note) 1.50 2.76 3.35 Diluted Earnings per Share(NT$) (Note) 1.48 2.71 3.30 Cash Flow Ratio(%) 179.89 203.71 123.63

Cash Flow Cash Flow Adequacy Ratio(%) 121.13 184.46 147.25 Cash Flow Reinvestment Ratio(%) 6.09 6.97 4.16

Leverage Analysis Operating Leverage 4.03 3.29 2.94 Financial Leverage 1.00 1.00 1.00

Analysis of Deviation over 20% - Y2014 vs. Y2013: 1. The debt ratio increased by 20% was mainly due to the increase in payable.2. The current ratio and the quick ratio decreased by 20% and 22%, respectively, were mainly due to the increase inpayable. 3. The pre-tax income to capital stock increased by 28% was primarily due to the increase in net profit.4.The earnings per share increased by 21%, as result of the increase in net income.5.The cash flow ratio decreased by 39% was mainly due to the increase in payable.6.The cash flow adequacy ratio decreased by 20% was mainly due to the increase in capital expenditure and payment of cash dividends . 7.The cash flow reinvestment ratio decreased by 40% was mainly due to the increase in working capital and plantand equipments.

Note：Based on weighted average shares outstanding in each year.

85


Unconsolidated Financial Analysis (IFRS) Year

Item Financial analysis from 2012 to 2014 2012 2013 2014

Capital Structure Analysis

Debt Ratio(%) 15.39 15.31 18.42 Long Term Capital to Properties, Plant and Equipment(%) 262.04 378.84 355.26 Current Ratio(%) 486.61 577.84 461.51

Liquidity Analysis Quick Ratio(%) 425.66 529.80 413.05 Times Interest Earned (Times) - - -


Analysis

Avg. Collection Turnover (Times) 6.93 7.51 6.82 Avg. Collection Days 53 49 54 Avg. Inventory Turnover (Times) 8.57 8.10 7.34 Avg. Payment Turnover (Times) 22.56 18.27 15.43 Avg. Inventory Turnover Days 43 45 50 Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 Total Assets Turnover (Times) 0.72 0.79 0.76


Return on Total Assets(%) 9.78 16.30 17.37 Return on Total Equity(%) 11.31 19.26 20.92 Pre-tax Income to Capital Stock(%) 15.61 30.92 39.60 Net Margin(%) 13.55 20.68 22.72 Basic Earnings per Share(NT$) (Note) 1.50 2.76 3.35 Diluted Earnings per Share(NT$) (Note) 1.48 2.71 3.30 Cash Flow Ratio(%) 179.85 203.77 123.41

Cash Flow Cash Flow Adequacy Ratio(%) 121.18 184.50 147.07 Cash Flow Reinvestment Ratio(%) 6.08 6.96 4.14

Leverage Analysis Operating Leverage 4.02 3.30 2.94 Financial Leverage 1.00 1.00 1.00

Analysis of Deviation over 20% - Y2014 vs. Y2013: 1.The debt ratio increased by 20% was mainly due to the increase in payable.2.The current ratio and quick ratio decreased by 20% and 22%, respectively, were mainly due to the increase inpayable. 3.The pre-tax income to capital stock increased by 28% was primarily due to an increase in net profit.4.The earnings per share increased by 21% was a result of an increase in net income.5.The cash flow ratio decreased by 39% was mainly due to the increase in current liabilities.6.The cash flow adequacy ratio decreased by 20% was mainly due to an increase in cash dividends and capital expenditure. 7.The cash flow reinvestment ratio decreased by 41% was mainly due to an increase in operating capital andproperty, plant and equipment.

Note：Based on weighted average shares outstanding in each year.

The calculation formula of financial analysis was listed as follows:

1. Capital Structure Analysis(1) Debts ratio = Total Liabilities / Total Assets(2) Long-term capital to properties, plant and equipment = (Equity + Non-current Liabilities) /

Net Properties, Plant and Equipment 2. Liquidity Analysis

(1) Current ratio = Current Assets / Current Liabilities(2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities(3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance Analysis(1) Average collection turnover = Net Revenue / Average Trade Receivables(2) Average Collecting days = 365 / Average collection turnover(3) Average inventory turnover = Cost of Revenue / Average Inventory(4) Average payment turnover = Cost of Revenue / Average Trade Payables(5) Average inventory turnover days = 365 / Average Inventory Turnover(6) Properties, plant and equipment turnover = Net Revenue / Net Properties, Plant and

Equipment

86


(7) Total assets turnover = Net Revenue / Total Assets 4. Profitability Analysis

(1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate)) / AverageTotal Assets

(2) Return on total equity = Net Income / Average Total Equity (3) Net margin = Net Income / Net Revenue (4) Earnings per share = (Net Income Attributable to Owner of the Corporation - Preferred Stock

Dividend) / Weighted Average Outstanding Shares 5. Cash Flow

(1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of

capital expenditures, inventory additions, and cash dividends (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /

(Gross Properties, Plant and Equipment + Investment + Other Non-current Assets + Working Capital)

6. Leverage Analysis(1) Operating leverage = (Net Revenue - Variable Cost and Expenses) / Income from Operations(2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)

Consolidated Financial Analysis (ROC GAAP) Year


2010 2011 2012 Capital Structure Analysis

Debt Ratio(%) 13.74 11.18 14.95

Long Term Fund to Fixed Assets(%) 201.62 215.54 278.64

Liquidity Analysis

Current Ratio(%) 436.63 589.11 505.23Quick Ratio(%) 375.64 525.12 443.22Times Interest Earned (Times) - - -


Analysis

Avg. Collection Turnover (Times) 8.69 7.20 7.06Avg. Collection Days 42 51 52Avg. Inventory Turnover (Times) 9.30 9.09 8.48Avg. Payment Turnover (Times) 20.47 23.51 22.32Avg. Inventory Turnover Days 39 40 43Fixed Assets Turnover (Times) 1.56 1.54 2.02Total Assets Turnover (Times) 0.69 0.65 0.72

Profitability t Analysis

Return on Total Assets(%) 8.40 3.76 9.80Return on Total Shareholders’ Equity(%) 9.57 4.29 11.28Operating Income(loss) to Capital Stock(%) 11.03 5.59 14.61Income before tax to Capital Stock(%) 12.42 6.22 15.61Net margin (%) 12.18 5.81 13.57

Earnings per share(NT$)*

Basic 1.17 0.54 1.50Diluted 1.16 0.53 1.48

Cash Flow Cash Flow Ratio(%) 169.06 185.21 183.84Cash Flow Adequacy Ratio(%) 90.66 84.06 121.23Cash Flow Reinvestment Ratio(%) 5.65 3.76 6.19

Leverage Analysis

Operating Leverage 4.28 8.13 3.84Financial Leverage 1.00 1.00 1.00


87


Unconsolidated Financial Analysis (ROC GAAP) Year


2010 2011 2012 Capital Structure Analysis

Debt Ratio(%) 13.73 11.18 14.95

Long Term Fund to Fixed Assets(%) 201.62 215.54 278.65

Liquidity Analysis

Current Ratio(%) 429.78 579.49 499.04Quick Ratio(%) 368.76 515.51 437.03Times Interest Earned (Times) - - -


Analysis

Avg. Collection Turnover (Times) 8.69 7.20 7.06Avg. Collection Days 42 51 52Avg. Inventory Turnover (Times) 9.30 9.09 8.48Avg. Payment Turnover (Times) 20.47 23.51 22.32Avg. Inventory Turnover Days 39 40 43Fixed Assets Turnover (Times) 1.56 1.54 2.02Total Assets Turnover (Times) 0.69 0.65 0.72


Return on Total Assets(%) 8.40 3.76 9.80Return on Total Shareholders’ Equity(%) 9.57 4.29 11.28Operating Income(loss) to Capital Stock(%) 11.05 5.59 14.61Income before tax to Capital Stock(%) 12.39 6.23 15.61Net margin (%)

12.18 5.81 13.57Earnings per share(NT$)*

Basic 1.17 0.54 1.50Diluted 1.16 0.53 1.48

Cash Flow Cash Flow Ratio(%) 169.97 183.58 183.76Cash Flow Adequacy Ratio(%) 90.77 84.02 121.27Cash Flow Reinvestment Ratio(%) 5.68 3.72 6.19

Leverage Analysis

Operating Leverage 4.27 8.08 3.82Financial Leverage 1.00 1.00 1.00


The calculation formula of financial analysis was listed as follows:

1. Capital Structure Analysis(1) Debts ratio = Total Liabilities / Total Assets(2) Long-term fund to fixed assets = (Shareholders' Equity + Long-term Liabilities) / Net

Properties 2. Liquidity Analysis

(1) Current ratio = Current Assets / Current Liabilities(2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities(3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance Analysis(1) Average collection turnover = Net Sales / Average Trade Receivables(2) Average Collecting days = 365 / Average collection turnover(3) Average inventory turnover = Cost of Sales / Average Inventory(4) Average payment turnover = Cost of Sales / Average Trade Payables(5) Avg. Inventory Turnover Days = 365 / Avg. Inventory Turnover(6) Fixed assets turnover = Net Sales / Net Properties(7) Total assets turnover = Net Sales / Total Assets

4. Profitability Analysis(1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate) / Average

Total Assets (2) Return on shareholders’ equity = Net Income / Average Shareholders' Equity (3) Net Margin = Net Income / Net Sales (4) Earnings per share = (Net Income - Preferred Stock Dividend) / Weighted Average Number of

Shares Outstanding

88


5. Cash Flow(1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of

capital expenditures, inventory additions, and cash dividend (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /

(Gross Plant + Investment + Other Assets + Working Capital) 6. Leverage Analysis

(1) Operating leverage = (Net Sales - Variable Cost and Expenses) / Income from Operations(2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)

89


C. Audit Committee’s Review Report

The Board of Directors has prepared and submitted to us the Company 2013 Business Report, Financial Statements (include parent company only financial statements and consolidated financial statements), and proposal for allocating profits. The CPAs of Deloitte & Touche were retained to audit the Financial Statements (include parent company only financial statements and consolidated financial statements) and have submitted a report relating thereto. The above Business Report, Financial Statements and proposal have been further determined to be correct and accurate by the Audit Committee members of Vanguard International Semiconductor Corporation. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report.


Convener of the Audit Committee: Benson W.C. Liu

February 28, 2015

90


D. Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements

and Independent Auditors’ Report

E. Consolidated Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements

and Independent Auditors’ Report

F. The financial impact to the Company due to company or affiliate

companies financial difficulties: None

91


VII. Financial Position, Operating Results and Risk ManagementA. Analysis of Consolidated Financial Position

Unit: NT$, in thousandsYear

Item 2014 2013 Difference

Amount % Current Assets 25,114,426 21,556,195 3,558,231 17 Property, Plant and Equipment 7,983,767 6,639,474 1,344,293 20 Other Non-Current Assets 656,577 654,290 2,287 0 Total Assets 33,754,770 28,849,959 4,904,811 17 Current Liabilities 5,391,799 3,697,865 1,693,934 46 Non Current Liabilities 828,739 722,334 106,405 15 Total Liabilities 6,220,538 4,420,199 1,800,339 41 Capital Stock 16,389,823 16,365,859 23,964 0 Capital Surplus 838,029 733,578 104,451 14 Retained Earnings 10,386,761 7,871,013 2,515,748 32 Total Shareholders' Equity 27,534,232 24,429,760 3,104,472 13 Analysis for deviation over 20% : 1.The increase in property, plant and equipment was mainly due to acquistion of the FAB3 plant and

equipments.2.The increase in current liabilities was mainly due to the increase of payable.3.Retaind earnings was increased as a result of an increase in net income.

92


B. Analysis of Consolidated Financial Performance Unit: NT$, in thousands

Item Year 2014 2013 Difference %

Net Revenue $ 23,931,479 $ 21,135,060 $ 2,796,419 13 Cost of Revenue 15,317,806 14,272,127 1,045,679 7

Gross Profit 8,613,673 6,862,934 1,750,740 26 Operating Expense 2,409,406 2,025,725 383,681 19

Operating Income (Loss) 6,204,267 4,837,208 1,367,059 28 Non-operating Income and Expenses 289,607 225,123 64,484 29

Income before income Tax 6,493,874 5,062,331 1,431,543 28 Income tax Expenses 1,055,985 691,343 364,642 53

Net Income 5,437,889 4,370,988 1,066,900 24

Other Comprehensive Income (65,622) (6,821) (58,801) 862

Total Comprehensive Income $ 5,372,267 $ 4,364,167 $ 1,008,100 23

1.Analysis for deviation over 20% : 1.1 The increase in Gross Profit was a result of higher sales volume, better utilization and lower cost. 1.2 The increase in operating income was a result of an increase in gross profit. 1.3 The increase in non-operating income and expenses was a result of an increase in interest income. 1.4 The increase in income before tax was mainly due to an increase in operating income. 1.5 The increase in income tax expenses was due to higher taxable income. 1.6 The increase in net income was due to increase in net revenue, and higher pre-tax income. 1.7 The increase in Other Comprehensive Income was due to the unrealized loss on available-for-sale financial assets and actuarial loss arising from defined benefit plans. 1.8 The increase in total comprehensive income was due to increase in net income.

2. Reasons for changing the Company's major business; explain the variance resulting from the adjustment of sellingprices or costs, the increase or decrease of quantity and the combination of production and selling, or the replacement of old products. If the Company's operation strategy, market situation, economic environment of other internal or external factors has changed or expects to have any significant changes, explain the fact, influencing factors and the possible impact to the Company's future finance and responding proposal : Not Applicable

3. Planned selling quantities and its base for next year. Explain the major factors that keep the Company's forecast salesquantity to rise or decline: Please refer to the " Letter To The Shareholders"

93


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95


E. Long Term Investment None of Y2014 investments and the current year investments exceeded 5% of

the Company paid-in Capital.

F. Risk Management 1. Interest Rates Fluctuation, Foreign Exchange Rate Volatility and

Inflation

Item 2014 (NTD in thousands; %)

Net interest income and expenses 192,435

Net exchange gain/loss 23,117

Net interest income and expense to revenue ratio 0.80%

Net interest income and expense to EBT ratio 2.96%

Net exchange gain/loss to revenue ratio 0.10%

Net exchange gain/loss to EBT ratio 0.36%

Interest rate:

VIS’ exposure to interest rate fluctuation relates primarily to long-term liabilities

for capital expenditures. Due to small scale of liabilities, no major impact is

expected from interest rate fluctuation

Foreign exchange:

VIS employs natural hedging and forward foreign exchange to avoid risks from

exchange rate fluctuations.

Most of VIS’ revenues are denominated in US dollar. VIS mainly utilizes spot

and forward foreign exchange trading to adjust its foreign exchange position as

per the foreign exchange market conditions for the purpose of reducing the

impact of exchange rate fluctuation on the company. In addition, VIS’ materials

and equipments payments are made in US Dollars, Japanese Yens and Euros,

among which a substantial portion is in US Dollars. Henceforth, VIS enjoys a

certain degree of natural hedge as a result of set-off between account payables

and account receivables.

Inflation:

Inflation in Taiwan was 1.2% in Y2014. VIS employs extended procurement

contracts and fixed purchasing prices to secure the procurement cost. We

consider the impact will remain insignificant in future if the inflation rate is

similar to those in the past.

2. High risk, high leveraged investment, lending, endorsement and

guarantee for other parties and financial derivatives transactions

96


VIS focuses on its foundry manufacturing operations and IC wafer

production. Accordingly, the company does not engage in high risk/high

leveraged investments. In order to control and monitor certain types of

transactions, VIS has established internal control policies and procedures

conforming to the relevant laws and regulations promulgated by the

authorities concerned. These policies and procedures include 「Policies and

Procedures for Financial Derivative Transactions 」 , 「 Procedures for

Lending Funds to Other Parties」 and 「Procedures for Endorsement and

Guarantee」. Until now, the company and affiliates have neither lent funds

to others, nor provided endorsement or guarantee for others. Financial

derivatives transactions that VIS enters into are strictly for hedging purpose

and not for trading and speculative purposes.

3. R&D Plan and Progress

In Y2014, VIS capital expenditure is about NT$3.4 billion, while in Y2015

capital expenditure is planned to be around NT$1.9 billion. Other than

equipment and facility maintaining expense, capital expenditure covers the

product and process R&D to provide complete IC manufacturing service for

customers and to enhance our competitiveness in global market. VIS will

continue to build on the existing foundation and strengthen the specialty

process technologies. VIS will continue to develop BCD process technology

supporting various voltage and applications to provide higher performance

devices and to attract more specialty process customers. In high voltage

process, VIS will continue to provide active support for the cost control in

shrink process and voltage requirement in various applications. VIS will

continue to raise the R&D budget in Y2015, estimated around 5% of total

sales. (Please refer to「Technology and R&D Status」)

4. Changes in Domestic and International Policies and Regulations

Management team closely monitors political and regulatory developments

that could have a material impact on business and operations. Political and

regulatory developments did not have any material adverse effect on VIS

during Y2014.

5. Changes in Technology

VIS has continued its investment in the product development and process

technology for the market needs; on the other hand, we also adapt ourselves

to the changes and needs due to technology evolutions to reduce risks and

97


pursue long-term steady development in finance and business. (please refer

to Overview of the Industry”)

6. Changes in Company Image

VIS is a company of strong belief in integrity and a high level of business

ethics, while keeping our focus on core business. We do not allow any

violations to the fundamental imperative integrity and core values.

We regularly examine the industry environment, business models and

management regulations. To protect our corporate image from any impacts,

we proactively simulate the impacts and initiate strategies to minimize any

uncertainties in business operations and natural disasters so that the

company can function regularly and the rights of shareholders, customers,

and employees be properly protected.

VIS has endeavored in corporate governance. We hold regular IR

conference to reveal business operations status to enhance financial

transparency.

Under the principle of PDCA, VIS people proactively launched and refined

the environmental protection and HSE management system. With the effort

of all, VIS has been accredited the ISO 14001 environmental management

system, OHSAS 18001 occupational health and safety assessment series,

and TOSHMS Taiwan occupational safety and health management system

in this year. In addition, VIS was also conferred the following awards and

credentials in environmental protection, safety and health:

a. Being accredited the ISO 14001 environmental management system,

OHSAS 18001 occupational health and safety assessment series, and

TOSHMS Taiwan occupational safety and health management system

(CNS 15506: 2011).

b. FAB 1/2 continued to be accredited the QC 080000 hazardous

substance management system.

c. FAB2 received “2014 Science Park Outstanding Carbon

Reduction Enterprise Awards”

d. FAB2 received “Hsinchu Bureau 2014 Outstanding Achievement

Award in Environmental Protection”

On the other hand, VIS proactively participated in community and public

service activities, and actively feedback to the local community. In Y2014

and up to the publication of this annual report, VIS did not encounter any

circumstances for crisis management regarding the change of corporate

image.

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7. Risks from Merge, Acquisition and Plant Expansion

No merger and acquisition event occurred from Y2014 to the date of

publishing this annual report.

8. Risks from Plant Expansion

In 2014, VIS acquired Nanya Technology's 8-inch fab located at Luzhu

District in Taoyuan County and mechanical equipment from Sumpro

Electronic. This transaction not only granted VIS the opportunity to expand

its production capacity, but also enabled VIS to grow continually and earn

profits steadily. No other plant expansion occurred from Y2014 to the

publishing date of this annual report.

9. Risks from Concentration of Stock and Sales

To avoid overly concentrated risk and to protect raw materials supply for

the manufacturing process at all time, VIS has maintained multiple

suppliers for the major materials to spread the risk. In Y2014, the top two

customers have made around 57% of company annual sales. The

concentration of sales is the industry nature of our business as focused

specialty foundry.

10. Transfer of Shareholdings of Directors, Supervisors or Large

Shareholders

The TSMC Board of Directors approved the sale of 82 million common

shares of VIS, approximately 5% of VIS’ paid-in-capital in 2014. TSMC

will remain the largest shareholder of VIS, and TSMC announces that it has

no plan to sell more VIS shares in the foreseeable future. This share sale

will not affect the strategic relations between the two companies. TSMC

expects to continue its close collaboration with VIS, including licensing

certain technologies and transferring certain technical know-how to, and

sourcing wafers from, the latter.

No other transfer of shareholdings of directors, supervisors or large

shareholders occurred from Y2014 to the date of publishing this annual

report.

11. Change of Management

No change of management occurred from Y2014 to the date of publishing

this annual report.

99


12. Litigation or non-litigation proceedings

No Litigation or non-litigation proceedings occurred from Y2014 to the

date of publishing this annual report.

13. Other Material Risks

Measures responding to events that seriously impact on the company

operations

VIS regularly conducts drills and trainings for managing natural or man-

made damage, such as typhoon, earthquake, fire, gas and chemicals leak,

and establish broad and detailed prevention measures as well as contingent

plans. VIS is capable of maintaining the company operations and protecting

the interests of shareholders, customers and employees. No emergency

event occurred from Y2014 to the publishing date of this annual report.

The Policy of the risk management

Vanguard International Semiconductor Corporation adopts professional risk

assessment techniques and concepts from local and abroad to facilitate its

pro-active risk prevention and loss control. By adopting effective

engineering technologies and risk management policies, the Company is

able to ensure employees' full participation and ongoing improvements. The

Company has incorporated risk management measures into its daily

operations. Every department is required to perform regular self

assessments on risk control, while the board of directors and the executive

management supervise the effectiveness of existing risk management

measures and ensure that risks are kept within tolerable levels.

The organization chart of the risk management

Below is a description of the Company's risk management organization:

Board of directors (including the Audit Committee): determines the overall

risk management system and monitors to ensure that the system remains

effective.

The executive management (Chairman and President): executes the board's

risk management decisions and supervises regional heads and the Health,

Safety and Environmental Protection Committee. It is also responsible for

identifying risks and monitoring the effectiveness of various control

measures.

The management (Deputy Heads and the Health, Safety and Environmental

100


Protection Committee): consolidates information regarding the

effectiveness of risk management activities; assists and supervises

subordinates in identifying risks and implementing proper control.

Risk management and policy execution units: the Company has specialized

units responsible for identifying possible risks in daily operations and

establishing control measures to address such risks. Their efforts are

reviewed and reported to the management on a regular basis.

Responsibilities of risk management and policy execution units are:

Internal Auditing: The overall implementation of the risk management

system, risk management guidance for various departments within the

Company, progress review and control, ensuring the effectiveness and

robustness of current practices, and reporting back their findings to the

executive management and board of directors to help improve the risk

management system.

Legal: Responsible for managing the legal risks with accordance of laws

from government and authorities, handling contract and law suit dispute to

lower our legal risk;

Human Resources: Responsible for human resources structure and

utilization planning. Enhance man-power efficiency and improve industrial

harmony to lower risks in management.

Quality Reliability Assurance Div.: In charge of product inspection,

quality control, and promoting quality policy and strategy in VIS to reduce

operating risk.

Finance Div: Responsible for establishing the accounting systems for the

reliability of financial reports. Controls the finance allocation planning and

application. Evaluate and supervise the investment undertakings. Under the

monitoring of risk management mechanism, perform safe liquid and

profitability analysis. Establish hedge process in foreign exchanges to lower

the risks in finance.

Operations and Environmental Safety: Corporate Wafer Production,

Production Control, Special Project, Risk & Env. Safety Management,

Operation Planning, Computer Int. Mfg., and Product Engineering. Improve

operation efficiency, cost control, ensure timely delivery of high quality

product to customers and reduce operating risk.

Worldwide Sales and Planning: Oversees customer service planning and

management for the purpose of reducing operational risks; explores local

101


and foreign opportunities and gains control of customers' information to

reduce market risks; learns the competition and market trends to develop

marketing strategies.

Research & Development: Leader to the IP Management, Design Service,

Information Tech and eCommerce, and Technology divisions. Responsible

for technology development and the provision of technical support to IP

resources, Mask, CAD, and layout teams to reduce R&D risk.

ACCT Div: Responsible for the establishment of the accounting system in

order to achieve the goal of reliability of financial reporting to lower the

risks in finance.

MM Div.: Responsible for materials management, VIS will continue to

monitor the inventory and the costs of the materials to reduce operating

risk.

ITEC Div.: Responsible for network planning, operations and network

quality maintenance to lower information risk.

G. Other important matters: None

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VIII. Corporate Social ResponsibilityVIS honors the principle of good faith, abides by an exacting code of professional

ethics, and takes social and humanitarian concern as the cornerstone of its business

philosophy. We uphold laws and regulations, dutifully meet our tax-paying

obligations, pursue sustainability, and continue to enhance shareholder's equity and

employee benefits. We preserve environmental resources, implement environmental

protection, and fulfill our corporate social responsibilities. These are the long-term

goals that VIS will continue to emphasize and strive to fulfill. The company has set up

the "Corporate Social Responsibility Promotion Committee" to take charge of

establishing the "corporate social responsibility policy" and proposing and

implementing systems while at the same time constantly reflecting upon the

implementation efficacy and making constant improvements, ensuring consolidation

of the company's corporate social responsibility policy.

VIS Corporate Social Responsibility Policy

VIS commits to embrace, support and enact, within its sphere of influence, to the

extent of applicable laws, a set of internationally recognized standards in the areas of

business ethics, employee rights, health and safety, and the environment.

Our management further commits to put up a management system for ensuring the

compliance of the Company and its next tier suppliers to this set of standards and their

continual improvement.

Business Ethics

VIS upholds integrity in employee and executive conduct in all business activities and

internal interactions. Business books shall be clear and accurate, transparent, and

compliant with applicable regulations and accurately reflect the financial performance

and health of the Company.

VIS will work against corruption in any and all forms, including extortion, bribery,

and embezzlement.

VIS respects intellectual property rights of others and establishes tight control in

protecting customers' intellectual property and trade secrets.

Employee Rights

VIS supports the internationally proclaimed human rights of employees, and treats

employees with dignity and respect without discrimination of any kind. VIS has a

zero tolerance policy for inhumane treatment, including sexual harassment, corporal

punishment, mental coercion, or verbal abuse.

103


Employee working hours are not to exceed the maximum number of hours set by local

laws and regulations. All work is voluntary and employees are free to terminate their

employment at any time. VIS does not employ child labor.

Employee compensation shall comply with all applicable local laws, including

minimum wages, overtime pay rates, labor, medical and group insurances, fringe

benefits and severance/retirement pays.

Employees are free to join or organize labor unions in accordance with local laws.

Elected employee representatives meet with management once every quarter to

communicate grievances and solutions.

Health and Safety

VIS recognizes that its utmost responsibility is to provide a healthy and safe work

environment for its employees and to enhance the company's global competitiveness.

VIS is diligent in the risk management, legal compliance and self auditing to achieve

continued improvement.

Environmental Protection

VIS, as a global citizen, undertakes precautionary approach to minimize adverse

effects of its manufacturing operation on the community, environment and global

warming, and continuously invests in the development and deployment of

environmentally friendly technologies.

Corporate Governance

VIS insists on transparent operations, cares about shareholders' equity, and

believes that a sound and efficient Board of Directors is an underlying

requirement for optimal corporate governance. VIS has set up its Remuneration

Committee and Audit Committee to comply with government laws and

regulations. The Remuneration Committee is responsible for assisting the Board

of Directors in establishing and reflecting upon policies, systems, standards, and

structures concerning the performance assessment and remunerations for board

directors and managers and periodically assesses and establishes remunerations

for the said people. Since the seventh Board of Directors, the company has

established its Audit Committee in compliance with government laws and

regulations. The Committee consists of three independent board directors; all of

them are equipped with professional knowledge and are not direct or indirect

￭ Board of Directors

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stakeholders of the company to ensure independence while they perform related

tasks. The Audit Committee of the company reviews the independence of

certified public accountants periodically on a yearly basis and submits the results

to the Board of Directors for endorsement so as to ensure independence of its

accountants.

VIS has a complete internal control system in place and effectively enhanced.

Respective units are asked to perform spontaneous inspections on a daily basis.

In addition, the Board of Directors and the management will discuss results of

the spontaneous inspections and audit reports from the audit department

periodically to ensure consolidation of the company's operation efficacy and

efficiency, accuracy of financial reports, and compliance with all applicable laws

and regulations.

Financial Transparency

To strengthen communications with stakeholders such as investors, shareholders,

and customers, VIS indicates the contact windows and information for various

operations on its website; in addition, investor conferences are held periodically

to brief operation performance, financial standing in the preceding quarter and

prospects in the coming quarter. Newsletters are released on a monthly basis. We

also announce related financial information on public information websites and

the company's website for the reference of the general public.

Employee Rights

VIS values its employees and is devoted to providing a work environment that is

both challenging and fun.

VIS supports the internationally proclaimed human rights of employees, and

treats employees with dignity and respect without discrimination of any kind.

VIS has a zero tolerance policy for inhumane treatment, including sexual

harassment, corporal punishment, mental coercion, or verbal abuse.

Employee working hours are not to exceed the maximum number of hours set by

local laws and regulations. All work is voluntary and employees are free to

terminate their employment at any time. VIS does not employ child labor.

Employee compensation is provided in compliance with all applicable local

laws, including minimum wages, overtime pay, labor and health insurances, and

severance/retirement pays in addition to group insurance, bonus, and other

various fringe benefits.

Employees are free to join or organize labor unions in accordance with local

laws. Elected employee representatives meet with the management once every

quarter to communicate and build consensus that helps boost employer-employee

collaboration.

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Environmental Protection, Safety and Health

VIS is a world leading foundry service provider. As we continue to advance and

innovate on our wafer production technology, we never neglect our social

responsibilities in the areas of environmental protection, safety, and health. We keep

close track of changes in important environmental, safety and health policies and

regulations and adjust our internal operations accordingly in a timely manner in

response to the increasingly stringent domestic and foreign regulatory requirements.

We also proactively embrace international norms and adopt autonomous management

systems under the trends of internationalization of business. We believe that the

relationship between environmental protection, safety, and health is just as inseparable

as the relationship between individuals, environment, and health. Therefore, we have

adopted and combined the ISO 14001 and OHSAS 18001 management systems, and

establish an environmental, health, and safety system well-suited to our corporate

culture based on these two complementary systems. Under the guidance of this

system, we implement our environmental, health, and safety management policies:

maintain corporate sustainability, fulfill the responsibilities of a good corporate

citizens, and on the basis of risk management, green production, and environmental

impact consideration, ensure company-wide participation in the operations of safety,

health, and environmental management system to as to achieve compliance with laws

and regulations, international environmental conventions, and the goal of maintaining

overall safety, health, and environmental protection.

Environmental Protection

As a specialized international wafer foundry service provider, apart from

responding to the requirements and concerns of our global clientele for

environmental issues, we also actively participate in various major international

environmental protection initiatives, one of which is the reduction of greenhouse

gas emissions.

We have taken part in the discussion and research on the reduction of

perfluorinated compound (PFC) emission initiated by Taiwan Semiconductor

Industry Association since 1994, and have been fully supporting the pledge of

the global semiconductor industry to reduce PFC emissions from semiconductor

processes in the joint effort to slow down the greenhouse effect and global

warming, including committing to the PFC reduction goals set forth by the World

Semiconductor Council and Taiwan Environmental Protection Administration.

To fulfill our commitment to reducing PFC emissions, we proposed a “Three-

￭ Reduction of greenhouse gas emissions

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Year PFC Emissions Reduction and Local Scrubber Upgrade Plan” in 2007.

Following a detailed survey of process gases, assessments of alternative gases,

evaluation of introducing high-efficiency scrubbers, and reviews of manpower

and funding needs of relevant departments, our attainment of PFC reduction

target was confirmed in 2011 following verification by an impartial third-party

organization. Between 2000 and 2010, we fulfilled the reduction quota of 1.05

million tons of CO2e. This effort has turned us into a leading environmentally

conscientious wafer producer.

Since 2007, we have completed company-wide greenhouse gas (GHG)

accounting and verification for each year from 2000 to 2013 in compliance with

ISO 14064. The GHG verification results not only enable us to better grasp the

state of wafer production, but also help to map out the directions for our

continued efforts in GHG reduction. Based on the verification results, we have

shifted from discharging waste PFCs from our main sources of GHG emissions

to using them as an indirect source of power. Based on the verification results,

we have shifted from discharging waste PFCs from our main sources of GHG

emissions to using them as an indirect source of power. In the case of FAB1, its

ratio in the manufacturing process dropped from 71.32% in 2007 to 42.78% in

2014.

While we are not in the position to choose a cleaner source of power, we still

actively promote various energy conservation measures. Our energy-saving

measures include assessing power system efficiency, installing inverters,

optimizing our ice water air conditioning systems, recycling hot and cold waste

gas, optimizing lighting in office areas, turning off lights during lunch break, and

turning off PCs after work, and using power-saving LED lights. These measures

have produced considerable saving in power consumption every year, while

reducing our carbon dioxide emissions. We saved 14,107,291 Kwh of electricity,

which totaled around NT$36.71 million.

With regard to domestic GHG emission controls, apart from meeting our 2010

PFC reduction pledge, we will also make out utmost effort to support the GHG

emission reduction policies of the World Semiconductor Council and

Environmental Protection Administration and manage our GHG emissions as we

endeavor to do our part in curbing the global greenhouse effect.

With regard to domestic GHG emission controls, apart from meeting our 2010

PFC reduction pledge, we will also make out utmost effort to support the GHG

emission reduction policies of the World Semiconductor Council and

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Environmental Protection Administration and manage our GHG emissions as we

endeavor to do our part in curbing the global greenhouse effect.

Furthermore, the company also announced its safety, health, and environment

policy to promote environmental protection and development of a sustainable

environment. For details, please visit VIS website as follows:

http://www.vis.com.tw/visCom/chinese/a_about/a04_environmental.htm

VIS Greenhouse Gas Emissions

Year 2012 2013 2014

Million tons CO2e 37.08 39.2753.40 (including Fab3); in progress of verification,

which is expected to be completed by May 2015

Air and water pollution control

VIS currently has three wafer fabrication plants, all of which are equipped with

extensive waste gas and wastewater collection, monitoring and treatment systems

that surpass the regulatory requirements and operate continuously 24 hours a day.

To prevent abnormal discharge of waste gas and wastewater during power

outage, we have included our production machinery and pollution control

equipment into the emergency power supply system to make sure that all waste

gas and wastewater are adequately treated before discharge. For waste gas

treatment, our various waste gas scrubbers are monitored 24 hours a day,

allowing on-duty personnel to quickly manage any system issues that may occur.

The level of volatile organic compounds in the treated waste gas we discharge is

far below the legal standard. For wastewater treatment, we have established a

fully-functioning wastewater treatment plant to make sure that the quality of

water discharged to the Science Park’s wastewater treatment facility is stable and

meets effluent standards.

In response to the future trends in water pollution control, we are currently

carrying on pollutant discharge reduction projects, such as reducing the content

of ammonia nitrogen and TMAH (tetra-methyl ammonium hydroxide) in

effluents.

Energy conservation

Holding onto the spirit of continuous improvement embedded in the PDCA

(Plan-Do-Check-Action) methodology in ISO 14001, we ask respective

departments to propose improvement projects on environmental issues every

year. The projects proposed in 2014 fall primarily into three categories: waste

reduction, energy conservation and recycle/reuse.

To effectively utilize limited water resources, we keep detailed monthly water

use records and carry out comparative analysis of these records to ensure the

effective collection and reuse of process water. Thanks to the concerted efforts of

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our personnel, we recycle more than 85% of the process water in our fab1 and

fab2, which is better than the performance of our counterparts in the global

semiconductor industry. Since July 2014, when Fab3 plant was acquired, the

recycling rate of process wastewater increased gradually from 62% to 67.8%. In

the future, we will continue developing measures to improve our waste recycling

rate.Non-process water conservation: In addition, we constantly educate our

employees on the importance of water conservation by putting up promotional

advertisements, posters, controlling the external wall cleaning frequency, and

cutting back on water used in landscape maintenance. We are also taking steps to

establish rainwater runoff collection systems in a further effort to reduce the use

of tap water. We also plan to promote water footprint verification of our products

in the future to keep abreast of the international and market development trends.

￭ Waste management and recycling To ensure that waste generated at the Company is adequately managed, we have

drafted detailed management measures in compliance with the spirit of ISO

14001, and require all employees to faithfully implement the tasks of waste

classification, collection, storage, and disposal. We currently engage a qualified

waste disposal and recycling organization to help us properly dispose, process, or

reuse waste. Because of our diligent efforts in collecting and sorting in-house

waste materials, our waste has high reuse value, and many waste disposal service

providers have been eager to sign a disposal service contract with us. As a result

of our efforts, fab1 and fab2 have maintained a recycling rate of 95% over the

past few years. Since July 2014 when Fab3 plant was acquired, the recycling rate

of wastewater increased from 78.4% to 90.4%.

￭ Green products VIS is committed to the reduction, elimination and restriction of hazardous

substances with a hazardous substance process management system (QC

080000) in place. By establishing management systems for green design, green

procurement, green production and green services, we continue to ensure that the

wafers we produce meet the international regulations and customer requirements

for hazardous substances management. To satisfy customer demands for our

wafers, we have continuously focused on upholding the requirements of the

following major international regulations and standards

(1) RoHS Directive (2011/65/EU) –Restriction of the Use of Hazardous

Substances

(2) Registration, Evaluation, Authorization, and Restriction of Chemicals

(REACH)

(3) Sony’s “Management Regulations for the Environment-Related Substances

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to be Controlled which are Included in Parts and Materials”, (SS-00259)

(MANAGEMENT REGULATIONS FOR THE ENVIRONMENT-

RELATED SUBSTANCES TO BE CONTROLLED WHICH ARE

INCLUDED IN PARTS AND MATERIALS)

According to the results of wafer testing performed by impartial third-party

organizations, the wafers we produce fully comply with international regulations

and standards.

￭ Non-use of conflict materialsTo avoid the purchase of conflict minerals (gold, tin, tantalum, tungsten and

other minerals that are identified as conflict minerals by the Electronic Industry

Citizenship Coalition (EICC) in the future) sourced from specific countries

(Democratic Republic of Congo or its neighboring countries), VIS also requires

its direct suppliers to use minerals supplied by smelters on the EICC/GeSI

Compliant Smelter List. For minerals not supplied by smelters on the EICC/

GeSI Compliant Smelter List, VIS also requires such smelters to obtain

EICC/GeSI certification to ensure that minerals used by VIS and its suppliers are

not conflict minerals.

￭ Product carbon footprintIn light of rising global awareness to carbon dioxide and greenhouse effect

issues, apart from implementing company-wide GHG emission verification

measures, we also embarked on inventorying our carbon footprint to reflect the

carbon emissions of our production processes and wafers. The inventory covered

supply chain, employee business travel, product use and disposal, outsourced

waste treatment, parts clean, and product distribution and logistics. Our carbon

footprint calculation has been verified by DNV Taiwan in 2011, which is found

superior to the carbon footprint calculations performed by other domestic 8-inch

wafer producers in the past (560-740 kg CO2e / piece).

Health and Safety

The main spirits of the VIS safety and health management system lie in employee

participation at all levels, adoption of PDCA P-D-C-A cycle, and fostering a

comfortable and safe work environment and achieving the goal of zero accident

through risk identification, risk assessment and risk control. We obtained the

certification of OHSAS-18001 for occupational health and safety the first time in

2003 and have been recertified four times since. We have also been accredited by

TOSHMS-Taiwan Occupational Safety and Health Management System since 2009

and completed the certification of our occupational safety and health management

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system for compliance with CNS 15506:2011 in 2012 in coordination with the

amendment undertaken by the Council of Labor Affairs.

￭ Process and facility safety management Apart from requiring newly-purchased machinery to comply with SEMI-S2 and

domestic regulatory requirements, we also take steps to improve the safety of

existing machinery chiefly based on the safety notices provided by the

equipment suppliers. We implement safety and quality inspection control

procedures intended to minimize safety risks when installing new equipment.

When process revisions or engineering changes may result in hazards, we

implement engineering change risk management regulations (SMOC) to assess

and reduce potential risks that may be caused by the change. Moreover, we

establish e-systems to aid and control the safety checkpoints in each stage of the

change process. We have drafted hazardous work permission regulations and

high-risk operation control measures to ensure effective safety management of

various processes. We have additionally control measures in place for high-

hazard areas in order to implement work-related communication and safety

reminder mechanisms for such hazardous areas.

We have implemented safety stock and standard repackaging procedures for

chemicals used in our plants, and keep extensive personal safety gear on hand for

use by operators to ensure safe chemical use and storage. At the same time, we

reduce the risk of fire hazard by implementing FAB area fire load reduction plans

and reduce/reorganize the total amounts of combustible materials in our plants.

￭ Health and safety risk assessment All departments must use risk assessment methods and techniques to identify the

risk levels of their work areas. For high-risk areas, we implement engineering

and management improvements and ask respective departments to propose their

own health and safety improvement plans to minimize possible risks.

￭ Epidemic prevention and management In light of the possible impact of major contagious diseases, such as SARS,

influenza, and H1N1 on the health of employees and operations of the Company,

we have formulated an annual response plan as follows:

• Regular prevention strategies1. Prepare ear thermometers, masks and other necessary materials at

building entrances/exits.

2. Set up rinse-free hand wash devices at entrances/exits and elevator

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lobby.

3. Step up the disinfection of public areas and elevator buttons in the plant

area.

4. Arrange flu shot for employees: 1,659 people received the flu shot in

2014.

5. Conduct health education.

• In case of a local outbreak1. Monitor epidemic information released by World Health Organization

and Taiwan Centers for Disease Control.

2. Sick Employee Management Guidelines;

3. Monitor employees leave due to flu or flu-like illness;

4. Follow-up the condition of employees after they return home from

hospital;

5. Return to work guidelines.

• Activate business continuity management arrangements in case of spread ofepidemics

1. Substitute system.

2. Manpower backup system;

3. Work-from-home guide.

￭ Monitoring of work environmentWe conduct regular inspection and testing of work environment, including

assessment of individual exposure dosage. Apart from checking various personal

protective gears that are required to be worn when performing various types of

work, we conduct regular checks of the effectiveness of protective gear, and

conduct weekly inspections of organic/special chemical work. All working areas

where organic vapors or dust may be present are equipped with local exhaust

facilities, and areas where special gases are used are installed with detection and

alarm systems to constantly monitor possible hazardous leaks. We currently

monitor all items required by applicable laws and regulations. Apart from

material safety data sheets established in accordance with regulations, we also

assess and control safety protection during transport, storage, use, and disposal of

newly-acquired chemical products.

￭ Health and safety trainingTo enhance the safety, health and environmental protection concepts of

employees and hone their safety skills and awareness to their own operating

environment, we arrange classes required by law and draw up health, safety, and

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environmental protection training plans based on the actual needs of our plants (training plans include new staff classes concerning safe operation of equipment used by various units). We also hold regular and special classes to reinforce employees' health and safety awareness and sense of responsibility. The online health, safety, and environmental license management system records related licenses held by in-plant personnel. The systematic tracking and recording of licenses ensures that we can effectively comply with regulatory requirements and fulfill our responsibility to inform. All participants in the 2014 health and safety training all completed the training.

￭ Contractor managementContractor management hinges on implementation. We have established anonline contractor management system to integrate contractor managementinformation at all of our departments. In particular, we carefully control access toour plant areas and clean rooms by contractor personnel, including time spent insuch areas, and have strengthened entry controls, work safety, and evacuationmeasures. Contractors are required to hold a safety meeting before the start ofwork each day as well as daily toolbox meetings to inform their workers thingsto note in work safety and health. A total of 1362 people from contractorscompleted the training in 2014.

￭ Health and safety auditsWe actively promote 5S activity within our plants, and strictly enforce properarrangement, orderliness, clean up, cleanliness, and discipline. Staff is assignedon a daily basis to perform roaming audits of in-plant health and safety, includingsuch items as hazardous work, high-risk operation, contractor management,chemical safety management, and use of personal protective gear, ensuring thatthe work environment meets the highest standards of cleanliness, safety, andcomfort. Internal and external units regularly perform follow-up audits of theoccupational health and safety management system to ensure that relevant healthand safety management measures continue to comply with OHSAS 18001 andCNS15506: 2011 requirements.

￭ Promotion of employee healthVIS takes on the responsibility for caring for and safeguarding the health of itsemployees. Apart from providing protective gears and conducting biannualmeasurement tests of the work environment, the in-house infirmary arrangesregular health check-ups for employees; in 2014, 3,745 persons participated in

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the health check-up program. We also arrange low-cost examination programs

from time to time, such as abdominal ultrasound, 3-in-1 for women (Pap smear,

breast ultrasound and gynecologic ultrasound), and blood lipid blood tests for

which people have to pay out of their own pocket, etc.; in 2014, a headcount of

752 persons participated in the special offer. We also have resident doctor and

occupational medicine physician as required by law to provide our colleagues

with healthcare service and health check-up report consultation service, and

conduct assessment of employees with work-related injury to determine whether

they are fit to be assigned a certain line of work or to resume work; in 2014, a

headcount of 50 persons received the service. We have been offering free flu

shots (at the Company expense) to employees for 12 years in a row; in 2014,

1,659 persons received free flu shots. We have a health clinic set up inside the

plant; in 2014, a headcount of 778 persons received the service. We promote

breast feeding and provide places where mothers can nurse their babies. In

addition, we also hold special managerial/ departmental health classes. We

provide employees with stress-relieving massage service aimed at boosting

employees' immunity and work efficiency. Furthermore, our infirmary holds

various types of health workshops and health promotion awareness activities

aimed at enhancing employees' awareness of personal health management. FAB2

received the 2013 “Health Promotion Mark for Self-Certification of Healthy

Workplace” from Bureau of Health Promotion, Department of Health. Taipei

City Department of Labor 4th Contest for Best Companies to Work For (2014),

Hsinchu City Department of Health Outstanding Breast-Feeding Room

Certification (2014), Copper medal for the Preliminary Workplace Contest of

Hsinchu City - Healthy Exercise (2014), and National Regional Semifinals for

Healthy Exercises in Workplace─Best Team Performance Award (2014)

￭ Establishment of a safety culture To enhance employee awareness to health and safety, we post relevant

promotional materials in lavatories and put up health, safety, and environmental

protection posters in public areas. We also conduct various activities on health,

safety, and environmental protection topics to boost employee participation and

increase the effectiveness of awareness measures. To promote “motoring safety”,

we hold vehicle check-up activities to help colleagues promptly discover any

potential problems with their vehicles and prevent traffic accidents.

We will continue to foster the spirit of “company-wide participation” and

“continuous improvement”, while preventing occupational accidents and

maintaining the safety and health of our employees.

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￭ Natural disaster prevention Major natural disasters in Taiwan are earthquake and typhoon. Apart from

establishing comprehensive disaster management and emergency response

procedures, we take steps to harness our earthquake safety and protection. In

2007, we worked with National Taiwan University Yen Tjing Ling industrial

Research Institute to complete the earthquake simulation on all existing buildings

and carried out seismic upgrade for building structures and equipment based on

the simulation results. In 2012, we worked with an insurance broker company

MARSH to assess the earthquake resistance of machines and equipment at the

wafer plants using mechanical analysis and carried out reinforcement based on

the assessment results. Through continuous improvement, VIS strives to enhance

the seismic capacity of our buildings and onsite equipment.

￭ Natural disaster prevention Major natural disasters in Taiwan are earthquake and typhoon. Apart from

establishing comprehensive disaster management and emergency response

procedures, we take steps to harness our earthquake safety and protection. In

2007, we worked with National Taiwan University Yen Tjing Ling industrial

Research Institute to complete the earthquake simulation on all existing buildings

and carried out seismic upgrade for building structures and equipment based on

the simulation results. In 2012, we worked with an insurance broker company

MARSH to assess the earthquake resistance of machines and equipment at the

wafer plants using mechanical analysis and carried out reinforcement based on

the assessment results. Through continuous improvement, VIS strives to enhance

the seismic capacity of our buildings and onsite equipment.

Taiwan’s geological location puts the island under the influence of climate and

altitude. Typhoons that typically come with strong wind and heavy rain visit

Taiwan frequently in the summer time, and bring threat to people’s lives and

company operations, especially in recent years as abnormal weather becomes the

norm. In response to climate change, VIS has been collaborating since 2010 with

a well-known local insurance company and an academic institution to carry out

plant area flood inundation potential simulation. Based on the flooding depth

caused by one-day maximum precipitation over a 200-year recurrence interval,

we subsequently completed the setup of floodgate and elevation evaluation

operation for relative low-altitude areas inside the plant. We have also

established flood management and response plan to enhance our readiness and

response capability for natural disaster to ensure the safety of lives and

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properties.

￭ Emergency response and business continuity planTo ensure immediate and effective response to and elimination of incidents, we

continue to conduct all kinds of emergency response training and drills. We

provide such training to both employees and contractor personnel stationed in

our plants. Response training courses cover evacuation drills for the plant area

and office personnel, fire safety and fire extinguishing training, emergency

response team (ERT) response to earthquake/chemical/toxic gas leak, command

officer training, and dormitory fire safety and emergency escape training. We

have installed emergency telephone notification systems in our plants, and

perform regular testing of group call notification system to ensure the accuracy

of contact information and timeliness of communication in case of an emergency.

A total of 113 rounds of emergency response drills were organized in 2014.

We have established a business continuity plan and a Risk Book to determine

improvement strategies through risk assessment since 2007. Meanwhile, we

perform operation impact assessments through periodical drills and take

preventive measures accordingly. We have also established the crisis

communication mechanism and manpower backup plan. It is hoped that through

well-planned risk and crisis management, we can minimize the uncertainties

while ensuring continuity in business operations in case of an emergency.

￭ Supplier ManagementVIS treats suppliers as its partners, and strives to build a long-term cooperative

relationship with suppliers, while jointly establishing sustainable supply chains

promoting the stable development of semiconductors. Apart from monitoring the

product quality, delivery time, and costs and constantly enhanced competitive

advantages of suppliers, we also encourage them to protect the environment,

improve health and safety, and value the human rights of their employees, gender

equity, and reasonable working hours. We seek to jointly fulfill our corporate

social responsibilities together with suppliers, while implementing risk

management and business continuity plan.

With regard to supplier selection, the company has established the "Partner

Safety, Health, and Environment Audit Management Guidelines". All potential

suppliers must follow the guidelines and complete related evaluation procedures

before they are qualified by VIS to begin the procurement process. The

evaluation includes a preliminary review and on-site investigation. Our supplier

quality management department conducts preliminary reviews, and invites our

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risk and environmental, health, and safety management department, and other

relevant departments to conduct a review. The review covers the areas of

environmental protection, health, safety, and human rights. Finally, our supplier

quality management, purchasing, materials management, and risk and

environmental, health, and safety management departments jointly select suitable

suppliers based on the investigation and review results. In addition, for qualified

suppliers, related evaluation procedures will also be performed as part of the

accreditation process.

Supplier declaration: VIS not only formulates and implements its own corporate

social responsibility policy but also asks its suppliers to make declaration of

compliance and follow the company's requirements. VIS undertakes that the

operations of VIS and VIS suppliers conform to applicable laws and regulations

of the country at where its operations take place and international codes of

conduct, including but not limited to “Corporate Social Responsibility Policy of

Vanguard International Semiconductor Corporation”, “EU RoHS Directive”,

“EU Registration, Evaluation, Authorization and Restriction of Chemical

Substances” (REACH), and “Conflict Minerals Rule” and their changes.

With regard to supplier management, VIS asks its partners to make a declaration

of compliance and further requires that supply chains of VIS implement the same

standards as those adopted by VIS in their operations. The management of major

raw material suppliers covers supplier’s quality, environmental protection, labor

health and safety, green products, ethical guidelines, and non-hiring of child

workers, which is complemented with questionnaire and onsite audit to ensure

compliance. To effectively control and improve supplier quality, our supplier

quality management department holds quarterly supplier review meetings (QSR

meetings), annual audits, and other regular meetings. To ensure that all suppliers

comply with our green product policy, we require suppliers to submit chemical

testing reports and material safety data sheets (MSDS) in accordance with

regulations for review by a designated unit. In addition, we require suppliers to

sign a RoHS affidavit in which they pledge to uphold environmental protection

commitments, to ensure that the products of VIS and its suppliers comply with

the green product policies of the world’s leading countries, international

regulations, and customers’ product specifications.

Non-use of conflict materials

With regard to conflict minerals management, the company is actively

complying with the requirements of international organizations, and also

complies with the conflict minerals source disclosure rules recently issued by the

US Securities and Exchange Commission (Rule 13p-1 of the U.S. Securities

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Exchange Act of 1934). To avoid the purchase of conflict minerals (gold, tin,

tantalum, tungsten and other minerals that are identified as conflict minerals by

the Electronic Industry Citizenship Coalition (EICC) in the future) sourced from

specific countries (Democratic Republic of Congo or its neighbors), VIS also

requires its direct suppliers to use minerals supplied by smelters on the

EICC/GeSI Compliant Smelter List. For minerals not supplied by smelters on the

EICC/ GeSI Compliant Smelter List, VIS also requires such smelters to obtain

EICC/GeSI certification or a third-party certification to ensure that minerals used

by VIS and its direct suppliers are not conflict minerals.

Business Continuity Plan

Under the trend of globalization, any major natural disaster or accident around

the world can trigger a butterfly effect to impact VIS directly or indirectly. To

keep its promise to customers on steady supply of goods, VIS has established the

Business Continuity Plan and the After-math Recovery Plan, among other

mechanisms and looks at risk management of continuous operation of supply

chains as part of its competitive advantages.

Social Participation

The company proactively takes part in community and public interest events and

constantly cares for disadvantaged populations in communities to make a tangible

contribution to society. On VIS Y2014 family day, we invited 200 people with

physical and mental disabilities and employees affiliated with the St. Joseph Social

Welfare Foundation, the Sunrise Opportunity Center, and the St. Joseph Community

Workstation of Mental Disability. We also donated an amount of NT$200,000, which

will be used to fund learning and rehabilitation measures for people with disabilities.

Furthermore, to promote social harmony, the company has since January 2015

exclusively sponsored IC Broadcasting Co., Ltd. with NT$2 million to produce the

broadcast program, the Future of Taiwan & Taiwan in the Future, in which topics such

as current global trends, education in Taiwan, talented people, social livelihood,

energy resources, and environmental protection are discussed.

Apart from corporate sponsorships, our employees regularly participate in donation

drives for books and goods, and deliver donated items to nursing homes, children’s

homes, and school children living in remote areas. Furthermore, employees and their

families have formed a volunteer group whose members serve as volunteer guides on

a rotating basis at the National Museum of Natural Science on weekends and holidays

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to explain to visitors the nature and applications of integrated circuits; in 2014,

volunteer guide services were provided at the museum 265 times. Our colleagues also

perform community volunteer service. Embracing the spirit of honoring old people as

we do our own aged parents, VIS volunteers also visit the Hsinchu Home for Elderly

Veterans on weekends and holidays where they help seniors enjoy their weekends as

well as the St. Teresa Children's Center, where they spend time reading to children.

Our volunteer colleagues have been very generous with their time, and performed

community service work a total of 350 times in 2014.

For many years, VIS has devoted its effort to continue improving the environment,

safety, and public health. Distinct from past years, 2014 marks the point in time when

VIS shares its years of experience on environment, safety, and public health topics

with people of the next generation, with the hope of encouraging people to step out of

their home and shine amongst a crowd. Therefore, we selected the Longshan

Elementary School near us and prepared a series of environmental protection games

for students in the second grade, including Environmental Protection Class, Resource

Special Forces, and Puzzle Competition, thus enabling children to learn in a happy,

relaxed environment. During the process, we saw how the children endeavored to

show their teamwork, laughed incessantly, giving us warm, sincere responses.

Moreover, the school principal, director, and class teachers have also strongly

affirmed the efforts we have shown.

Environmental protection, health and safety awards and certifications received in

2014:

1. Continued to be certified for ISO14001 environmental management system,

OHSAS 18001 occupational health and safety management system, and CNS

15506 occupational safety and health management system.

2. Continued to be certified for QC080000 hazardous substance management system.

3. FAB2 received the award of excellence in the Science Park Administration's

"2014 Science Park Outstanding Carbon Reduction Enterprise Awards."

4. FAB2 received the 2014 Science Park Enterprise with Outstanding Achievement

in Environmental Protection Award from the Hsinchu Bureau of Environmental

Protection.

119


Award Winning Records

1997 Bronze medal in the 6th National Invention & Creation Awards

1998 Outstanding Labor Education Unit

1998 Outstanding Manpower Training Award

1998 Outstanding Labor Publication Award

1999 Outstanding Employee Benefit Organization Award

1999 Silver medal in the 8th National Invention & Creation Awards

2000 Silver medal in the 9th National Invention & Creation Awards

2002 Outstanding Enterprise in Valuing Female Human Resources award from the

Council of Labor Affairs, Executive Yuan

2006 First Vitality Enterprise Award from the Executive Yuan

2007 Healthy Workplace Self-certification Mark - Health Sustainability Award.

2009 Annual Outstanding Disease Prevention Award from the Department of

Health, Executive Yuan

2009 Healthy Workplace Self-certification Mark - Health Promotion Award &

Outstanding Award

2009 Corporate governance system assessment & certification by the Taiwan

Corporate Governance Association

2009 Labor Safety and Health Distinguished Performance Award from the Council

of Labor Affairs, Executive Yuan

2010 Bronze medal in the Arts & Business Awards, Council for Cultural Affairs,

Executive Yuan

2010 Annual Outstanding Disease Prevention Award from the Department of

Health, Executive Yuan

2010 Job Creation Contribution Award from the Council of Labor Affairs, Executive

Yuan

2011 First Laurel Award from GreTai Securities Market

2011 Product Carbon Footprint Calculation and Verification

2012 "2012 Energy Conservation & Carbon Production Action Mark", Environmental

Protection Administration, Executive Yuan

2012 Outstanding Waste Management Award from the Environmental Protection

Administration, Executive Yuan.

2012 Outstanding Environmental Protection Award from the Hsinchu Science Park

Administration

2012 Health Promotion Mark for Self-Certification of Healthy Workplace from

Bureau of Health Promotion, Department of Health

120


2013 "2013 Health Promotion Mark for Self-Certification of Healthy Workplace"

from the Bureau of Health Promotion, Department of Health

2013 Award of excellence in the Science Park Administration's 2013 Science Park

Outstanding Carbon Reduction Enterprise Awards.

2013 Outstanding performance in the "2013 Energy Conservation & Carbon

Production Action Mark", Environmental Protection Administration,

Executive Yuan

2013 "2013 Hsinchu Science Park Mobile Emissions Source Assessment" program,

Hsinchu Bureau of Environmental Protection

2013 Finalist in the 7th Outstanding Atomic Energy Safety Achievement Award

offered by the Atomic Energy Council, Executive Yuan.

2014 2014 Award of excellence in the Science Park Administration's 2014 Science

Park Outstanding Carbon Reduction Enterprise Awards.

2014 2014 Science Park Enterprise with Outstanding Achievement in

Environmental Protection Award.

2014 Hsinchu Department of Health Outstanding Breast-Feeding Room

Certification

2014 Copper medal for the Preliminary Workplace Contest of Hsinchu City -

Healthy Exercise

2014 National Regional Semifinals for Healthy Exercises in Workplace─Best Team

Performance Award

121


IX. SPECIAL NOTESA. Affiliated Information

1. VIS Affiliated Companies Chart

2. Business Scope of the Affiliated Companies

Invested Company Major Business Items

VIS Associates Inc. IC business investment

VIS Investment Holding, Inc. IC business investment

Specialty TechFarm, Inc. IC business investment

VIS Micro, Inc. Conduct service and marketing activities

VIS

VIS Associates Inc.

Specialty TechFarm Inc. VIS Investment Holding, Inc.

VIS Micro, Inc.

100%

100%

100%

100%

122


3.A

ffil

iate

s In

form

atio

nU

nit:

USD

, in

thou

sand

s

Nam

e of

Ent

erpr

ise

Dat

e of

E

stab

lish

men

tA

ddre

ss

Pai

d-in

Cap

ital

Maj

or B

usin

ess

/ P

rodu

ctio

n It

ems

VIS

Ass

ocia

tes

Inc.

19

96.9

.24

Tri

dent

Cha

mbe

rs, P

O B

ox 1

46, R

oad

Tow

n T

orto

la, B

riti

sh

Vir

gin

Isla

nds

US

D 6

,000

IC b

usin

ess

inve

stm

ent

VIS

Inv

estm

ent H

oldi

ng, I

nc.

1996

.11.

15

Cor

pora

tion

Tru

st C

ente

r 12

09 O

rang

e S

tree

t W

ilm

ingt

on, D

elaw

are

1980

1 U

SD

6,2

50IC

bus

ines

s in

vest

men

t

Spe

cial

ty T

echF

arm

, Inc

. 20

04.8

.6

OM

C C

ham

bers

, P.O

. Box

315

2, R

oad

Tow

n, T

orto

la, B

riti

sh

Vir

gin

Isla

nds

US

D 1

0,00

0IC

bus

ines

s in

vest

men

t

VIS

Mic

ro, I

nc.

1996

.11.

21

1475

S. B

asco

m A

ve, S

uite

109

C

ampb

ell,

CA

950

08

US

D 2

00C

ondu

ct s

ervi

ce a

nd m

arke

ting

activ

ities

4.V

IS S

har

ehol

der

s R

epre

sen

tin

g B

oth

Hol

din

g C

omp

anie

s an

d S

ub

ord

inat

es:

Non

e

5.D

irec

tors

, Su

per

viso

rs &

Pre

sid

ents

of

Aff

ilia

tes

Uni

t: s

hare

s, in

thou

sand

s

Nam

e of

Ent

erpr

ise

Titl

e N

ame

or R

epre

sent

ativ

e H

oldi

ng S

hare

s S

hare

s (K

) %

V

IS A

ssoc

iate

s In

c.

Dir

ecto

r F

ang,

Leu

h ; T

seng

, D. L

. 6

100%

VIS

Inv

estm

ent H

oldi

ng, I

nc.

Dir

ecto

r F

ang,

Leu

h ; T

seng

, D. L

. 63

10

0%S

peci

alty

Tec

hFar

m, I

nc.

Dir

ecto

r C

hang

, Tun

g-L

ung;

Chi

ang,

Kun

-She

ng; L

in, C

hia-

Che

n 10

,000

10

0%V

IS M

icro

, Inc

. D

irec

tor

Fan

g, L

euh,

Tse

ng, D

. L.

; Cha

ng, T

ung-

Lun

g 20

0 10

0%

6.O

per

atin

g H

igh

ligh

ts o

f A

ffil

iate

sU

nit:

NT

$, in

thou

sand

s

Nam

e of

Ent

erpr

ise

Cap

ital

Tota

l Ass

ets

Tota

l Lia

bilit

ies

Net

Val

ue

Net

Rev

enue

O

pera

ting

Inco

me

Net

Inc

ome

(Los

s)E

PS

(N

T$)

(a

fter

tax)

VIS

Ass

ocia

tes

Inc.

19

5,49

2 29

9,21

5 7,

340

291,

875

58,1

16

1,86

3 (6

,866

)(1

,144

.29)

VIS

Inv

estm

ent H

oldi

ng, I

nc.

197,

525

61,4

16

7,29

2 54

,124

58

,116

2,

239

378

6.04

S

peci

alty

Tec

hFar

m, I

nc.

316,

040

69,3

91

4969

,342

0

(202

)(8

,212

)(0

.82)

VIS

Mic

ro, I

nc.

6,32

1 53

,483

7,

150

46,3

33

58,1

16

2,73

6 84

1 4.

20

123


B.

Pri

vate

pla

cem

ents

Sec

uri

ties

V

IS h

as n

o pr

ivat

e pl

acem

ents

sec

urit

ies

from

Y20

14 to

the

publ

ishi

ng d

ate

of th

is a

nnua

l rep

ort.

C.

VIS

Com

mon

Sh

ares

acq

uir

ed, d

isp

osed

of

and

hel

d b

y su

bsi

dia

ries

V

IS C

omm

on S

hare

s w

as n

ot a

cqui

red,

dis

pose

d of

and

hel

d by

sub

sidi

arie

s fr

om Y

2014

to th

e pu

blis

hing

dat

e of

this

ann

ual r

epor

t.

D.

Oth

er N

eces

sary

Su

pp

lem

ent:

Non

e

E.

An

y E

ven

ts i

n Y

2014

th

at h

ad S

ign

ific

ant

Imp

acts

on

Sh

areh

old

ers’

Rig

ht

or S

ecu

rity

Pri

ces

as s

tart

ed i

n I

tem

3 p

arag

rap

h 2

of

Art

icle

36

of S

ecu

riti

es a

nd

Exc

han

ge L

aw o

f T

aiw

an:

Non

e

124


DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in

accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business

Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended

December 31, 2014 are all the same as the companies required to be included in the consolidated

financial statements of parent and subsidiary companies as provided in International Accounting

Standard 27 “Consolidated and Separate Financial Statements”. Relevant information that should

be disclosed in the consolidated financial statements of affiliates has all been disclosed in the

consolidated financial statements of parent and subsidiary companies. Hence, we do not prepare a

separate set of consolidated financial statements of affiliates.

Very truly yours,

VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION

By

CHING-CHU CHANG Chairman

February 5, 2015

X. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report

125


INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Vanguard International Semiconductor Corporation

We have audited the accompanying consolidated balance sheets of Vanguard International Semiconductor Corporation (the “Corporation”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2014 and 2013, and their consolidated financial performance and consolidated cash flows for the years ended 2014 and 2013 in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China.

We have also audited the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the years ended December 31, 2014 and 2013 on which we have issued an unqualified report.

February 5, 2015

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance/results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

126


VA

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inan

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ncia

l ass

ets

at f

air

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loss

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es 4

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ies

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and

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400

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s (N

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ial r

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00

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ted

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ings

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al r

etai

ned

earn

ings

10

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31

7,

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27

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ther

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ty

(70,

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(53,

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-

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asur

yst

ock

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,875

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(486

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) (2

)

Tot

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uity

27,5

34,2

32

82

24

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,760

85

TO

TA

L A

SS

ET

S

$ 3

3,75

4,77

0 10

0 $

28,

849,

959

100

TO

TA

L L

IAB

ILIT

IES

AN

D E

QU

ITY

$

33,

754,

770

100

$

28,

849,

959

10

0

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e co

nsol

idat

ed f

inan

cial

sta

tem

ents

.

127


VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2014 2013 Amount % Amount %

NET REVENUE (Notes 4, 5, 21, 29 and 34) $ 23,931,479 100 $ 21,135,060 100

COST OF REVENUE (Notes 4, 12, 19 and 22) 15,317,806 64 14,272,127 67

GROSS PROFIT 8,613,673 36 6,862,933 33

OPERATING EXPENSES (Notes 4, 19, 20, 22, 26 and 29) Marketing 247,934 1 211,209 1General and administrative 969,344 4 830,779 4Research and development 1,192,128 5 983,737 5

Total operating expenses 2,409,406 10 2,025,725 10

OPERATING INCOME 6,204,267 26 4,837,208 23

NONOPERATING INCOME AND EXPENSES Other income (Notes 4, 22 and 29) 281,022 1 225,963 1Other gains and losses (Notes 4 and 22) 21,817 - 18,046 -Share of losses of associates and joint ventures (Notes 4

and 13) (13,232) - (18,886) -

Total nonoperating income and expenses 289,607 1 225,123 1

INCOME BEFORE INCOME TAX 6,493,874 27 5,062,331 24

INCOME TAX EXPENSE (Notes 4 and 23) (1,055,985) (5) (691,343) (3)

NET INCOME 5,437,889 22 4,370,988 21

OTHER COMPREHENSIVE LOSS (Notes 4, 13, 19 and 20)Exchange differences on translation of foreign operations 15,996 - 6,442 -Unrealized (losses) gains on available-for-sale financial

assets (31,875) - 9,692 -Cash flow hedges 70 - - -Actuarial loss arising from defined benefit plans (48,816) - (22,114) -Share of other comprehensive loss of associates and joint

ventures (997) - (841) -

Total other comprehensive loss (65,622) - (6,821) -

TOTAL COMPREHENSIVE INCOME $ 5,372,267 22 $ 4,364,167 21(Continued)

128



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)


NET INCOME ATTRIBUTABLE TO Owner of the Corporation $ 5,437,889 22 $ 4,370,988 21Non-controlling interests - - - -

$ 5,437,889 22 $ 4,370,988 21

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TOOwner of the Corporation $ 5,372,267 22 $ 4,364,167 21Non-controlling interests - - - -

$ 5,372,267 22 $ 4,364,167 21

EARNINGS PER SHARE (Note 24) Basic $ 3.35 $ 2.76Diluted $ 3.30 $ 2.71

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

129


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130



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars)

2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 6,493,874 $ 5,062,331Adjustments for:

Depreciation 2,072,554 2,273,164Amortization 8,837 3,998Net (gain) loss arising from changes in fair value of financial assets

and liabilities designated as at fair value through profit or loss (29,288) 58Interest income (192,453) (139,239)Dividend income (19,860) (13,497)Share-based payment 88,277 89,226Share of losses of associates and joint ventures 13,232 18,886Loss (gain) on disposal of property, plant and equipment 1,917 (73)Gain on disposal of investments (684) (4,863)Net gain on foreign currency exchange (18,425) (1,509)Changes in operating assets and liabilities:

Financial assets held for trading (489,190) 17,090Derivative financial assets for hedging - 86Notes and accounts receivable (962,355) (58,875)Accounts receivable from related parties (1,815) (363,002)Other receivables 12,879 3,854Other receivables from related parties 2,748 (10,856)Inventories (827,456) 181,628Prepayments (9,829) 19,599Other current assets (19,055) 9,507Financial liabilities held for trading 69,085 21,081Derivative financial liabilities for hedging 2,882 12,250Notes and accounts payable 335,217 87,330Other payable to related parties 2,860 (21,779)Provisions 9,802 45,373Other current liabilities 284,344 194,543Accrued pension cost 6,385 1,321Accrued profit sharing to employees and bonus to directors 185,235 300,554

Cash generated from operations 7,019,718 7,728,186Interest received 190,379 135,639Income tax paid (544,148) (330,796)

Net cash provided by operating activities 6,665,949 7,533,029(Continued)

131


VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars) 2014 2013 CASH FLOWS FROM INVESTING ACTIVITIES

Increase in financial assets designated as fair value through profit or loss $ (262,238) $ (339,155)

Proceeds from disposal of financial assets designated as fair value through profit or loss 314,725 40,000

Acquisition of available-for-sale financial assets (150,000) (1,720)Proceeds from disposal of available-for-sale financial assets - 128,790Acquisition of financial assets carried at cost - (24,000)Proceeds from liquidation of investment accounted for using equity

method - 1,526Acquisition of property, plant and equipment (3,120,408) (953,081)Proceeds from disposal of property, plant and equipment 870 73(Increase) decrease in refundable deposits (950) 872Acquisition of intangible assets (29,000) (14,349)Increase in other financial assets (32,652) (461,175)Dividends received 19,860 13,497

Net cash used in investing activities (3,259,793) (1,608,722)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in other non-current liabilities 50,287 23,525Cash dividends (2,873,325) (1,552,323)Proceeds from exercise of employee stock options 34,747 123,918Treasury stock transferred to employees 476,955 430,641

Net cash used in financing activities (2,311,336) (974,239)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH

EQUIVALENTS 13,192 1,380 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,108,012 4,951,448 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,041,723 11,090,275 CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,149,735 $ 16,041,723 The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

132



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The functional currency of the Corporation is New Taiwan dollars. The consolidated financial statementsare presented in New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorized for issue by the Board of Directors andissued on February 5, 2015.

3. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS ANDINTERPRETATIONS

a. The amendments to the Regulations Governing the Preparation of Financial Reports by SecuritiesIssuers and the 2013 version of the International Financial Reporting Standards (IFRS), InternationalAccounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)endorsed by the Financial Supervisory Commission (FSC) not yet effective

Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that theGroup should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)endorsed by the FSC and the related amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers starting January 1, 2015.

New, Amended and Revised Standards and Interpretations (the “New IFRSs”)

Effective Date Announced by IASB (Note)

Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1, 2010, as appropriate

Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods ended on or after June 30, 2009

Improvements to IFRSs (2010) July 1, 2010 and January 1, 2011, as appropriate

Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013 (Continued)

133


New, Amended and Revised

Standards and Interpretations (the “New IFRSs”) Effective Date

Announced by IASB (Note) Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7

Disclosures for First-time Adopters” July 1, 2010

Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters”

July 1, 2011

Amendment to IFRS 1 “Government Loans” January 1, 2013 Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and

Financial Liabilities” January 1, 2013

Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011 IFRS 10 “Consolidated Financial Statements” January 1, 2013 IFRS 11 “Joint Arrangements” January 1, 2013 IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013 Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated

Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance”

January 1, 2013

Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment Entities”

January 1, 2014

IFRS 13 “Fair Value Measurement” January 1, 2013 Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012 Amendment to IAS 12 “Deferred Tax: Recovery of Underlying

Assets” January 1, 2012

IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013 IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013 IAS 28 (Revised 2011) “Investments in Associates and Joint

Ventures” January 1, 2013

Amendment to IAS 32 “Offsetting Financial Assets and Financial Liabilities”

January 1, 2014

IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013 (Concluded)

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or

after the respective effective dates. Except for the following, whenever applied, the initial application of the above 2013 IFRSs version and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies:

1) IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation - Special Purpose Entities”. The Group considers whether it has control over other entities for consolidation. The Group has control over an investee if and only if it has i) power over the investee; ii) exposure or rights to variable returns from its involvement with the investee and iii) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee.

2) IFRS 12 “Disclosure of Interests in Other Entities” IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than in the current standards.

134


3) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope. The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.

4) Amendment to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendment to IAS 1 requires items of other comprehensive income to be grouped into those items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified subsequently to profit or loss. Income taxes on related items of other comprehensive income are grouped on the same basis. Under current IAS 1, there were no such requirements. The Group will apply the above amendments in presenting the consolidated statement of comprehensive income, starting from the year 2015. Items not expected to be reclassified to profit or loss are the actuarial gain (loss) arising from defined benefit plans. Item expected to be reclassified to profit or loss is the exchange differences on translation of foreign operations, unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of the other comprehensive income (except the share of the actuarial gain (loss) arising from defined benefit plans) of associates/joint ventures accounted for using the equity method. However, the application of the above amendments will not result in any impact on the net profit for the year, other comprehensive income for the year (net of income tax), and total comprehensive income for the year.

5) Revision to IAS 19 “Employee Benefits” Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminates the “corridor approach” permitted under current IAS 19 and accelerate the recognition of past service costs. The revision requires all remeasurements of the defined benefit plans to be recognized immediately through other comprehensive income in order for the net pension asset or liability to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced with a “net interest” amount, which is calculated by applying the discount rate to the net defined benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in the presentation of the defined benefit cost, and also includes more extensive disclosures. According to the retrospective application of aforementioned amendments, as of December 31,2014 and January 1, 2014, the primary impacts on the Group would include the adjustment in accrued pension cost for a decrease of $12,084 thousand and $12,822 thousand, respectively, and the adjustment in retained earnings for an increase of $12,084 thousand and $12,822 thousand, respectively.

135


b. New IFRSs in issue but not yet endorsed by the FSC The Group has not applied the following New IFRSs issued by the IASB but not yet endorsed by the FSC. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced their effective dates.

New IFRSs Effective Date

Announced by IASB (Note 1) Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 4) IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

January 1, 2016 (Note 3)

Amendments to IFRS 10, IFRS 12 and IAS 28“'Investment Entities:

Applying the Consolidation Exception” January 1, 2016

Amendment to IFRS 11 “ Accounting for Acquisitions of Interests in Joint Operations”

January 1, 2016

IFRS 14 “Regulatory Deferral Accounts” January 1, 2016 IFRS 15 “Revenue from Contracts with Customers” January 1, 2017 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable

Methods of Depreciation and Amortization” January 1, 2016

Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions” July 1, 2014

Amendment to IAS 27 “Equity Method in Separate Financial Statements”

January 1, 2016

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates. Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or

after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: Prospectively applicable to transactions occurring in annual periods beginning on or after

January 1, 2016. Note 4: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that

occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

136


The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Group’s accounting policies, except for the following: 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows： a) If they are held within a business model whose objective is to collect the contractual cash flows,

the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;

b) If they are held within a business model whose objective is achieved by both collecting

contractual cash flows and selling financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment continuously. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments is derecognized or reclassified, the cumulative gains or losses previously recognized in other comprehensive income shall be reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss. The impairment of financial assets IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not have a significant financing component. For purchased or originated credit-impaired financial assets, the Group calculates the credit-adjusted effective interest rate by taking into account the expected credit losses at initial recognition. Subsequently, any changes in expected losses are recognized as a loss allowance.

137


Hedge accounting The main change in hedge accounting is the amendment to the application requirements for hedge accounting, and it let the financial statements better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

2) Amendment to IAS 19: Amendment in 2013 The amended IAS 19 states that if contributions from employees or third parties are not linked to service, these contributions affect the remeasurement of the net defined benefit liability (asset). If the contributions are linked solely to service, the employees’ service rendered in that period in which they are paid, these contributions may be recognized as a reduction of service cost in the same period. If the contributions depend on the number of years of service, an entity is required to attribute these contributions to service periods as a reduction of service cost.

3) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to the disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that such disclosure of recoverable amounts is required only when an impairment loss has been recognized or reversed during the period. Furthermore, the Group is required to disclose the discount rate used in measurements of the recoverable amount based on fair value less costs of disposal measured by using a present value technique.

4) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments” were amended in this annual improvement. The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker. IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial. IAS 24 was amended to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.


Several standards including IFRS 3, IFRS 13 and IAS 40 “Investment Property” were amended in this annual improvement.

138


6) IFRS 15 “Revenue from Contracts with Customers” IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2017.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps: � Identify the contract with the customer; � Identify the performance obligations in the contract; � Determine the transaction price; � Allocate the transaction price to the performance obligations in the contracts; and � Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

7) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” The amendments stipulated that, when an entity sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when an entity loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when an entity sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence or joint control in an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated.


Several standards including IFRS 5 “Non-current assets held for sale and discontinued operations”, IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement. Except for the above impact, as of the date the consolidated financial statements were reported for issue, the Group continuingly assesses the possible impact that the application of other standards and interpretations will have on the Group’s financial position and operating result, and will disclose the relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed by the FSC.

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b. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at revalued amounts or fair values. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

c. Classification of current and non-current assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within twelve months after the reporting period; and 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a

liability for at least twelve months after the reporting period. Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within twelve months after the reporting period; and 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least

twelve months after the reporting period. Assets and liabilities that are not classified as current are classified as non-current.

d. Basis of consolidation

1) Principles for preparing consolidated financial statements The consolidated financial statements incorporate the financial statements of the Corporation and the entities controlled by the Corporation (its subsidiaries). When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Corporation. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

2) Subsidiary included in consolidated financial statements The detail information of the subsidiaries at the end of reporting period was as follows:

Percentage of Ownership December 31

Investor Investee Main Business 2014 2013 Remark Vanguard International

Semiconductor Corporation VIS Associates Inc. Investments 100% 100% -

VIS Associates Inc. Specialty TechFarm, Inc. Investments 100% 100% - VIS Associates Inc. VIS Investment Holding,

Inc. Investments 100% 100% -

VIS Investment Holding, Inc. VIS Micro, Inc. Marketing service 100% 100% -

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e. Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including of the subsidiaries, associates, joint ventures or branches operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate).

f. Cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

g. Inventories Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made item by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

h. Investment in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognized the changes in the share of equity of associates. When the Group subscribes for additional new shares of the associate, at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the

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Group’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group' consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

i. Property, plant, and equipment Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and subsequent accumulated impairment loss. Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

j. Intangible assets

1) Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis over their estimated useful lives. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset before the end of its economic life.

2) Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the development phase of an internal project is recognized if, and only if, all of the following have been demonstrated: a) The technical feasibility of completing the intangible asset so that it will be available for use or

sale; b) The intention to complete the intangible asset and use or sell it; c) The ability to use or sell the intangible asset;

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d) How the intangible asset will generate probable future economic benefits; e) The availability of adequate technical, financial and other resources to complete the

development and to use or sell the intangible asset; and f) The ability to measure reliably the expenditure attributable to the intangible asset during its

development. The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, it is measured at cost less accumulated amortization and accumulated impairment loss.

3) Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured at the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

k. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to the individual cash-generating units; otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

l. Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instruments.

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Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Financial assets All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. 1) Measurement category

The categories of financial assets held by the Group are financial assets at fair value through profit or loss (“FVTPL”), available-for-sale financial assets and loans and receivables. a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss. A financial asset may be designated as at fair value through profit or loss upon initial recognition if:

i) Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

ii) The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.

iii) The contract contains one or more embedded derivatives so that the entire hybrid

(combined) contract can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the “other gains and losses” line item.

b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as (i) loans and receivables, (ii) held-to-maturity investments or (iii) financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

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Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

c) Loans and receivables Loans and receivables (including cash and cash equivalent, accounts receivable, other receivables, and other financial assets) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash and cash equivalents consisted of highly liquid time deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

2) Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Objective evidence of impairment could include: significant financial difficulty of the debtor; or it is becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a default or delinquency in interest or principal payments; or extension of the maturity date; or significant financial difficulty of the final issuer or debtor; or active market for that financial asset has disappeared because of the issuer’s financial difficulties or other reasons. Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Group’s past experience in the collection of payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: a) Significant financial difficulty of the issuer or counterparty; or

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b) Breach of contract, such as a default or delinquency in interest or principal payments; or c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or d) The disappearance of an active market for that financial asset because of financial difficulties. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gain or loss from available-for-sale financial assets. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

3) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Equity instruments Equity instruments issued by a group entity are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs. Financial liabilities 1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using the effective interest method. Financial liabilities at fair value through profit or loss Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or it is designated as at fair value through profit or loss.

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Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 28.

2) Derecognition of financial liabilities The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any noncash assets transferred or liabilities assumed is recognized in profit or loss.

Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward exchange contracts and currency-swap contracts. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL.

m. Hedge accounting The Group designates certain hedging instruments, which include derivatives in respect of foreign currency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. 1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item relating to the hedged item. Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting.

2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

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If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are transferred and are included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

n. Provisions

The amount recognized as provisions is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

o. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Sales returns are recognized at the time of sale provided the seller can reliably estimate future returns and recognizes a liability for returns based on previous experience and other relevant factors. 1) Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: a) The Group has transferred to the buyer the significant risks and rewards of ownership of the

goods; b) The Group retains neither continuing managerial involvement to the degree usually associated

with ownership nor effective control over the goods sold; c) The amount of revenue can be measured reliably; d) It is probable that the economic benefits associated with the transaction will flow to the Group;

and e) The costs incurred or to be incurred in respect of the transaction can be measured reliably. The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership. Sales of goods are recognized when goods are delivered and title has passed.

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2) Dividend and interest income Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

p. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rents arising under operating leases are recognized as revenue in the period in which they are incurred.

2) The Group as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern of the lessee’s benefit from the use of the leased asset. Contingent rents arising under operating leases are recognized as an expense in the period in which they are incurred.

q. Retirement benefit costs Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses on the defined benefit obligation are recognized immediately in other comprehensive income. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the consolidated balance sheets represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognized past service cost plus the present value of available refunds and reductions in future contributions to the plan.

r. Share-based payment arrangements Employee stock options granted to employee Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date.

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The fair value determined at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in capital surplus - employee stock options. The fair value determined at the grant date of the employee stock options is recognized as an expense in full at the grate date when the stock options granted are vested immediately.

s. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve the retention of the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the condensed consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reassessed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred tax for the period Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.

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t. Treasury stocks Repurchase of the Group’s own equity instruments (treasury stocks) is recognized and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY In the application of the Group's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Revenue recognition

The Group recognizes revenue when the conditions described in Note 4 are satisfied. The Group also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used. As of December 31, 2014 and 2013, the Group recognized provisions for estimated sales returns and other allowances of $110,906 thousand and $101,104 thousand, respectively.

b. Income taxes

As of December 31, 2014 and 2013, the carrying amount of the deferred tax assets in relation to unused tax losses were $28,044 thousand and $24,809 thousand, respectively. As of December 31, 2014 and 2013, no deferred tax asset has been recognized on the tax losses of $25,672 thousand and $24,138 thousand, respectively, due to the unpredictability of future profit streams. The realizability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such reversal takes place.

c. Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

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d. Write-down of inventory Net realizable value of inventory is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The estimation of net realizable value was based on current market conditions and the historical experience of selling products of a similar nature. Changes in market conditions may have a material impact on the estimation of net realizable value.

e. Recognition and measurement of defined benefit plans Accrued pension liabilities and the resulting pension expense under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, the assumed rate of employee turnover, and long-term average rate salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

6. CASH AND CASH EQUIVALENTS

December 31 2014 2013 Deposits in bank $ 17,109,735 $ 15,739,695Cash equivalents

Bonds acquired under resale agreements 40,000 302,028 $ 17,149,735 $ 16,041,723 The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows: December 31 2014 2013 Bank deposits 0%-3.30% 0%-3.40% Bonds acquired under resale agreements 0.60%-0.62% 0.60%-0.64%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2014 2013 Financial assets designated as at FVTPL Interest rate linked structured dollar investment notes (a) $ 158,007 $ 148,455 Credit linked notes (a) 27,842 80,019 Exchangeable bonds - 94,753 Convertible bonds 111,369 16,766

297,218 339,993 (Continued)

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December 31 2014 2013 Financial assets held for trading Derivative financial assets (not designated as hedging instruments)

Forward exchange contracts (b) $ 318 $ 1,782 Currency-swap contracts (c) 1,288 3,178

Non-derivative financial assets Funds 512,097 -

513,703 4,960 $ 810,921 $ 344,953 Current $ 810,921 $ 196,498 Non-current - 148,455 $ 810,921 $ 344,953 Financial liabilities held for trading Derivative financial liabilities (not designated as hedging instruments

Forward exchange contracts (b) $ 3,731 $ 1,535 Currency-swap contracts (c) 86,853 19,964 $ 90,584 $ 21,499

Current $ 90,584 $ 21,499 (Concluded)

a. The Group entered into structured investment contracts with a bank in 2014 and 2013. The structured

investment contracts include an embedded derivative instrument which is not closely related to the host contracts. The Group designated the entire contract as financial asset at FVTPL on initial recognition.

b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteria

of hedge accounting were as follows:

Currency Maturity Date

Contract Amount

(In Thousands) December 31, 2014 Sell forward exchange contracts US$ to NT$ 2015.01.06-2015.04.07 US$ 5,000 Sell forward exchange contracts US$ to JPY 2015.01.22 US$ 3,000 December 31, 2013 Sell forward exchange contracts US$ to NT$ 2014.01.03-2014.03.31 US$ 32,000 Buy forward exchange contracts NT$ to US$ 2014.01.03-2014.02.05 US$ 4,000

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c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria of hedge accounting were as follows:


Contract Amount

(In Thousands) December 31, 2014 Sell forward exchange contracts US$ to NT$ 2015.01.08-2015.03.24 US$ 149,000 Buy forward exchange contracts JPY to US$ 2015.01.22 US$ 500 December 31, 2013 Sell forward exchange contracts US$ to NT$ 2014.01.09-2014.03.19 US$ 98,500 Buy forward exchange contracts NT$ to US$ 2014.01.13-2014.01.22 US$ 6,000 The Group entered into foreign exchange forward contracts during the years ended December 31, 2014 and 2013 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities. However, those contracts did not meet the criteria of hedge effectiveness and therefore were not accounted for by using hedge accounting.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31 2014 2013 Listed stocks $ 143,038 $ 24,913

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

December 31 2014 2013 Fair Value

Hedge Cash Flow

Hedge Fair Value

Hedge Cash Flow

Hedge Derivative financial assets for hedging Currency-swap contracts $ - $ 70 $ - $ - Derivative financial liabilities for hedging Currency-swap contracts $ 15,206 $ - $ 12,324 $ -

a. Fair value hedge

The Group used forward exchange contracts and currency-swap contracts to hedge risks on exchange rate fluctuations of expected sales and foreign-currency denominated accounts receivable. The forward exchange contracts and currency-swap contracts had the same term as the respective financial assets; the management believed the forward exchange contracts and currency-swap contracts were highly effective hedge instruments.

154


The outstanding currency-swap contracts at the end of the reporting period were as follows:


Contract Amount

(In Thousands) December 31, 2014 Sell forward exchange contracts US$ to NT$ 2015.01.09-2015.03.09 US$ 16,000 December 31, 2013 Sell forward exchange contracts US$ to NT$ 2014.01.07-2014.02.19 US$ 33,000

b. Cash flow hedge The Group used cash flow hedge to manage risks on exchange rate fluctuation and changes in time value of money for those expected sales transactions. The terms of the currency-swap contracts had been negotiated to match the terms of the respective designated hedged items. The outstanding currency-swap contracts at the end of the reporting period were as follows:


Contract Amount

(In Thousands) December 31, 2014 Sell forward exchange contracts US$ to NT$ 2015.02.26-2015.03.19 US$ 2,000

10. FINANCIAL ASSETS CARRIED AT COST

December 31 2014 2013 Unlisted stocks $ 78,436 $ 77,539 The classification of financial assets

Available-for-sale financial assets $ 78,436 $ 77,539

The management believed that the fair value of the aforementioned unlisted equity investments held by the Group cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of the reporting period.

155


11. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31 2014 2013 Notes and accounts receivable $ 3,263,431 $ 2,301,488 Allowance for doubtful accounts (1,987) (2,399) Notes and accounts receivable, net $ 3,261,444 $ 2,299,089

The average credit period on sales of goods is 30 to 45 days after the end of the month. No interest is charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Group considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts is based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Group had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable. The aging analyses of accounts receivable that were past due but not impaired were as follows: December 31 2014 2013 Less than 60 days $ 3,087 $ 16,576 61-90 days 2,423 8,756 More than 90 days 14,499 - $ 20,009 $ 25,332 The above analyses were based on the past due dates. Movements of the allowance for doubtful accounts were as follows: Years Ended December 31 2014 2013 Balance, beginning of year $ 2,399 $ 2,399 Less: Reversal of collection (412) - Balance, end of year $ 1,987 $ 2,399 The Group had no impairment loss recognized on the accounts receivable during the years ended December 31, 2014 and 2013.

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12. INVENTORIES

December 31 2014 2013 Finished goods $ 418,565 $ 103,477 Work in process 1,397,276 1,106,269 Raw materials 281,253 270,122 Supplies and spare parts 401,306 191,076 $ 2,498,400 $ 1,670,944 The write-downs of inventories included in the cost of revenue were as below: Years Ended December 31 2014 2013 Provision of inventory valuation losses $ 124,536 $ 35,957

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates December 31 2014 2013 Unlisted stocks

CMSC, Inc. $ 50,447 $ 55,527 SkyTraq Technology, Inc. 28,222 31,919 INNO-TECH Co., Ltd. 7,082 7,168

$ 85,751 $ 94,614

Linear Artwork, Inc. had been liquidated and the Group received the return of the capital in cash which amounted to 1,526 thousand in September, 2013. At the end of the reporting period, the proportion of ownership and voting rights in associates held by the Group were as follows:

December 31 2014 2013 CMSC, Inc. 25% 25% SkyTraq Technology, Inc. 26% 26% INNO-TECH Co., Ltd. 16% 20%

The summarized financial information of the Group’s associates was set out as follow:

December 31 2014 2013 Total assets $ 492,966 $ 475,234 Total liabilities $ 136,485 $ 89,970

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Years Ended December 31 2014 2013 Revenue $ 406,388 $ 438,851 Net loss for the period $ (58,968) $ (66,289) Other comprehensive loss $ (4,132) $ (4,325)

The investments accounted for using the equity method and the share of net income or loss and other comprehensive income (loss) from investments were accounted for based on the unaudited financial statements. The Group’s management considered the use of unaudited financial statements of the investees did not have material impact on its consolidated financial statements.

14. PROPERTY, PLANT AND EQUIPMENT

Advance Payments and

Buildings Machinery and

Equipment Other

Equipment Construction in Progress Total

Cost Balance, January 1, 2013 $ 13,848,397 $ 51,185,889 $ 356,228 $ 1,203,887 $ 66,594,401Additions 131,429 1,631,468 18,509 (1,088,613) 692,793Disposal - (1,554) (2,569) - (4,123)Translation adjustments - - 41 - 41 Balance, December 31, 2013 $ 13,979,826 $ 52,815,803 $ 372,209 $ 115,274 $ 67,283,112 Accumulated depreciation Balance, January 1, 2013 $ 10,257,962 $ 47,598,931 $ 334,145 $ - $ 58,191,038Depreciation expense 598,064 1,664,041 11,059 - 2,273,164Disposal - (1,554) (2,569) - (4,123)Translation adjustments - - 38 - 38 Balance, December 31, 2013 $ 10,856,026 $ 49,261,418 $ 342,673 $ - $ 60,460,117 Accumulated impairment Balance, January 1, 2013 and

December 31, 2013 $ - $ 183,521 $ - $ - $ 183,521 Carrying amounts on December 31,

2013 $ 3,123,800 $ 3,370,864 $ 29,536 $ 115,274 $ 6,639,474 Cost Balance, January 1, 2014 $ 13,979,826 $ 52,815,803 $ 372,209 $ 115,274 $ 67,283,112Additions 628,747 1,803,091 18,645 969,134 3,419,617Disposal - (7,592) (2,780) - (10,372)Translation adjustments - - 117 - 117 Balance, December 31, 2014 $ 14,608,573 $ 54,611,302 $ 388,191 $ 1,084,408 $ 70,692,474 Accumulated depreciation Balance, January 1, 2014 $ 10,856,026 $ 49,261,418 $ 342,673 $ - $ 60,460,117Depreciation expense 621,867 1,439,893 10,794 - 2,072,554Disposal - (4,835) (2,750) - (7,585)Translation adjustments - - 100 - 100 Balance, December 31, 2014 $ 11,477,893 $ 50,696,476 $ 350,817 $ - $ 62,525,186

(Continued)

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Buildings Machinery and

Equipment Other

Equipment Construction in Progress Total

Accumulated impairment Balance, January 1, 2014 and

December 31, 2014 $ - $ 183,521 $ - $ - $ 183,521 Carrying amounts on December 31,

2014 $ 3,130,680 $ 3,731,305 $ 37,374 $ 1,084,408 $ 7,983,767(Concluded)

The following useful lives are used in the calculation of depreciation under straight-line: Buildings

Main plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years

Machinery and equipment 3 to 5 yearsOther equipment 3 to 7 years

15. INTANGIBLE ASSETS

Years Ended December 31 2014 2013 Computer software Cost

Balance, beginning of year $ 731,644 $ 717,295 Additions 29,000 14,349 Balance, end of year 760,644 731,644

Accumulated amortization Balance, beginning of year 714,633 710,635 Amortization 8,837 3,998 Balance, end of year 723,470 714,633

Carrying amount, end of year $ 37,174 $ 17,011 The intangible assets are amortized on a straight-line basis at the following useful lives: Computer software 3 to 5 years

16. OTHER ASSETS December 31 2014 2013 Pledged time deposit $ 303,384 $ 283,300 Other financial assets 387,392 358,800 Tax receivables 83,802 65,662 Others 2,795 1,880 $ 777,373 $ 709,642

(Continued)

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December 31 2014 2013 Current $ 473,989 $ 426,342 Non-current 303,384 283,300 $ 777,373 $ 709,642

(Concluded) 17. OTHER CURRENT LIABILITIES

December 31 2014 2013 Other payables Bonus $ 649,586 $ 492,462 Maintenance 343,613 343,097 Utilities 148,855 112,836 Royalties 18,855 16,711 Others 558,608 471,622 1,719,517 1,436,728 Other liabilities Others (Note) 87,720 86,165 $ 1,807,237 $ 1,522,893

Note: Other liabilities - others primarily were advances receipts from customers.

18. PROVISIONS

December 31 2014 2013 Sales returns and allowances $ 110,906 $ 101,104

Sales Returns

and Allowances Year ended December 31, 2014 Balance, beginning of year $ 101,104 Provision recognized 204,931 Amount utilized (195,129) Balance, end of year $ 110,906

(Continued)

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Sales Returns

and Allowances Year ended December 31, 2013 Balance, beginning of year $ 55,731 Provision recognized 131,202 Amount utilized (85,829) Balance, end of year $ 101,104

(Concluded) The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Based on the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. Besides, VIS Micro is required by local regulations to make monthly contributions at certain percentage of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Corporation recognized pension cost of $172,368 thousand and $146,576 thousand in the consolidated statements of comprehensive income for the years ended December 31, 2014 and 2013, respectively.

b. Defined benefit plans The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Plan of Senior Management” of the Corporation, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Corporation contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. The plan assets are invested in domestic (foreign) equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of Bureau of Labor Funds, Ministry of Labor or under the mandated management. However, in accordance with Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund the return generated by employees’ pension contribution should not be below the interest rate for a 2-year time deposit with local banks. The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:

December 31 2014 2013

Discount rates 2.25% 2.15%Expected rate of return on plan assets 1.50% 1.25%Expected rate of salary increase 3.50% 3.50%

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The assessment of the overall expected rate of return was based on historical return trends and analysts’ predictions of the market for the asset over the life of the related obligation, by reference to the aforementioned use of the plan assets and the impact of the related minimum return. The pension costs for defined benefit plans recognized in profit or loss were as follows: Years Ended December 31 2014 2013 Current service cost $ 7,076 $ 8,427 Interest cost 18,815 14,909 Expected return on plan assets (4,069) (6,532) Past service cost (738) (738) $ 21,084 $ 16,066 An analysis by function

Cost of revenue $ 17,260 $ 12,789 Marketing expenses 526 575 General and administrative expenses 1,766 1,408 Research and development expenses 1,532 1,294

$ 21,084 $ 16,066 Actuarial losses recognized in other comprehensive income for the years ended December 31, 2014 and 2013 were $48,816 thousand and $22,114 thousand, respectively. The cumulative amounts of actuarial losses recognized in other comprehensive income as of December 31, 2014 and 2013 were $106,879 thousand and $58,063 thousand, respectively. The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Plan of Senior Management” of the Corporation included in the consolidated balance sheets in respect of the obligation under the defined benefit plans were as follows:

December 31 2014 2013

Present value of funded defined benefit obligation $ 953,437 $ 876,984 Fair value of plan assets (340,331) (319,817) 613,106 557,167 Past service cost not yet recognized 12,084 12,822 Accrued pension cost $ 625,190 $ 569,989 Movements in the present value of the defined benefit obligation were as follows: Years Ended December 31 2014 2013 Balance, beginning of year $ 876,984 $ 853,700 Current service cost 7,076 8,427 Interest cost 18,815 14,909 Actuarial losses 52,454 19,652 Pensions paid (1,892) (19,704) Balance, end of year $ 953,437 $ 876,984

162


Movements in the fair value of the plan assets were as follows: Years Ended December 31 2014 2013 Balance, beginning of year $ 319,817 $ 320,706 Expected return on plan assets 4,069 6,532 Actuarial gains (losses) 3,638 (2,462) Contributions from the employer 14,699 14,745 Pensions paid (1,892) (19,704) Balance, end of year $ 340,331 $ 319,817 The major categories of plan assets at the end of the reporting period were disclosed based on the information announced by the Labor Pension Fund Supervisory Committee:

December 31 2014 2013

Cash 19 23 Equity instruments 50 45 Debt instruments 31 32 100 100 The Corporation chose to disclose the history of experience adjustments as the amounts determined for each accounting period prospectively from the date of transition to IFRSs (January 1, 2012):

December 31,

2014 December 31,

2013 December 31,

2012 January 1,

2012 Present value of defined benefit obligation $ 953,437 $ 876,984 $ 853,700 $ 804,286Fair value of plan assets $ 340,331 $ 319,817 $ 320,706 $ 308,566Deficit $ (613,106) $ (557,167) $ (532,994) $ (495,720)Experience adjustments on plan liabilities $ 66,446 $ 76,742 $ 9,080 $ -Experience adjustments on plan assets $ (3,638) $ 2,462 $ 3,261 $ -

The Corporation expects to make a contribution of $15,213 thousand to the defined benefit plans during the annual period beginning in 2015.

20. EQUITY

a. Capital stock

Common stock December 31 2014 2013

Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,636,586 Issued shares $ 16,389,823 $ 16,365,859Additional paid-in capital 544,884 534,101 $ 16,934,707 $ 16,899,960

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The changes of the Group’s capital stock mainly arose from the exercise of employee stock options.

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus

December 31 2014 2013

Additional paid-in capital $ 544,884 $ 534,101 Arising from employee stock options - 109,867 From share of changes in equities of associates and joint ventures 15,352 11,548 Treasury stock transaction 268,220 75,278 Others 9,573 2,784 $ 838,029 $ 733,578 The capital surplus from shares issued in excess of par may be used to offset a deficit; in addition, when the Group has no deficit, such capital surplus may be appropriated as cash dividends or stock dividends, which are limited to a certain percentage of the Group’s paid-in capital. The capital surplus arising from investment accounted for using equity method and employee stock options may not be used for any purpose.

c. Retained earnings and dividend policy The Corporation’s Articles of Incorporation provide that the following should be appropriated from the annual net income after deducting any deficit and 10% legal reserve: 1) Special reserve; 2) Not more than 1% as remuneration to directors; 3) At least 1% as bonus to employees; and 4) Final balance, appropriation in accordance with the resolutions of shareholders’ meeting. The bonus to employees and the remuneration to directors were estimated based on past experiences, corporation policy and related law and decree, which were respectively 15% of net income and 1% of net income (net of the bonus to employees, remuneration to directors, legal reserve and special reserve), respectively. Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the following year are adjusted in the current year. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If bonuses are resolved to be distributed to employees in the form of common shares, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the shares on the day preceding the shareholders’ meeting. Based on the aforementioned estimation method, the bonuses to employees were $815,683 thousand and $655,648 thousand, and the remuneration to directors were $34,800 thousand and $9,600 thousand for the years ended December 31, 2014 and 2013, respectively.

164


All profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 10% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be transferred to capital for distribution in accordance with relevant laws or regulations of the authorities in charge. The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled “Questions and Answers about Special Reserves Appropriated Following the Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items. The appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash. Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation. The appropriations of earnings for 2013 and 2012 were approved in the shareholders’ meeting on June 12, 2014 and June 18, 2013, respectively. The appropriations and dividends per share were as follows: Appropriation of Earnings Dividend Per Share (NT$) 2013 2012 2013 2012 Legal reserve $ 437,099 $ 232,981 $ - $ - Reversal of special reserve (15,248) (36,109) - - Cash dividends 2,873,325 1,552,323 1.80 1.00 $ 3,295,176 $ 1,749,195 Years Ended December 31 2013 2012 Cash Stock Cash Stock Bonus to employees $ 655,648 $ - $ 349,471 $ - Remuneration to directors 9,600 - 14,824 - The bonus to employees and the remuneration to directors for 2013 and 2012 approved in the shareholders’ meeting on June 12, 2014 and June 18, 2013, respectively, were as follows: 2013 2012

Bonus to

Employees Remuneration

to Directors Bonus to


to Directors Amounts resolved in

shareholders’ meeting

$ 655,648 $ 9,600 $ 349,471 $ 14,824 Amounts recognized in

respective financial statements

655,648 9,600 349,471 15,223 The difference had been adjusted in profit and loss for the year ended December 31, 2013.

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The appropriation of earnings for 2014 had been proposed in the board meeting on February 5, 2015. The appropriation and dividends per share were as follows:

Appropriation

of Earnings Dividends Per

Share (NT$) Legal reserve $ 543,789 $ - Special reserve 16,806 - Cash dividends 4,259,353 2.60

The appropriation of earnings, bonus to employees and remuneration to directors for 2014 are subject to the shareholders’ meeting to be held on June 8, 2015. The information about the appropriations of bonus to employees and remuneration to directors is available at the Market Observation Post System website.

d. Other equity

1) Exchange differences on translation of foreign operations

Years Ended December 31 2014 2013 Balance, beginning of year $ (65,081) $ (70,682) Exchange differences on translation of foreign operations 15,996 6,442 Share of exchange differences of associates accounted for

using equity method (997) (841) Balance, end of year $ (50,082) $ (65,081)

2) Unrealized gains or losses on available-for-sale financial assets Years Ended December 31 2014 2013 Balance, beginning of year $ 11,381 $ 1,689 Unrealized (losses) gains on available-for-sale financial

assets (31,875) 9,692 Balance, end of year $ (20,494) $ 11,381

Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

3) Cash flow hedges Years Ended December 31 2014 2013 Balance, beginning of year $ - $ - Losses arising from changes in fair value of hedging

instruments for cash flow hedges Currency-swap contracts 70 -

Balance, end of year $ 70 $ -

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The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.

e. Treasury stock

(Shares in Thousands)

Purpose of Treasury Stock

Number of Shares,

Beginning of Period

Addition During the

Period

Reduction During the

Period

Number of Shares, End of

Period Year ended December 31, 2014

Transfer to employees 40,294 - 39,524 770 Year ended December 31, 2013

Transfer to employees 76,160 - 35,866 40,294 The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares. The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares. Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge its treasury stock nor exercise rights to receive dividends and vote. Treasury stocks were granted on March 1, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 12.70 Exercise price (NT$) 11.49 Expected volatility 30.12%-31.53%Expected life 2 years Risk-free interest rate 0.8012% Treasury stocks were granted on April 25, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 13.35 Exercise price (NT$) 12.83 Expected volatility 29.46%-29.72%Expected life 2 years Risk-free interest rate 0.8442%

167


Treasury stocks were granted on August 2, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 31 Exercise price (NT$) 12.83 Expected volatility 42.85% Expected life 1 year Risk-free interest rate 0.6952% Treasury stocks were granted on November 1, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 32.35 Exercise price (NT$) 12.83 Expected volatility 43.26% Expected life 0.4822 year Risk-free interest rate 0.641% Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 46.50 Exercise price (NT$) 11.49-12.83 Expected volatility 45.90% Expected life 0.2027 year Risk-free interest rate 0.5329%

Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows: Stock price on grant date (NT$) $ 47.30 Exercise price (NT$) 12.83 Expected volatility 32.44% Expected life 0.0356 year Risk-free interest rate 0.4798% Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of two-year government bond was used as the risk-free interest rate. Compensation costs recognized were $88,277 thousand and $89,226 thousand for the years ended December 31, 2014 and 2013, respectively.

21. REVENUE Revenue of the Group for the years ended December 31, 2014 and 2013 were analyzed as follow:

Years Ended December 31 2014 2013 Revenue from the sale of goods $ 23,674,857 $ 20,911,425Other revenue 200,193 170,189Rental revenue 56,429 53,446 $ 23,931,479 $ 21,135,060

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The Group designated certain foreign sales as hedged items to hedge the risk of cash flow. The portion of the gain or loss on the hedging instrument amounting $14,230 thousand and $13,887 thousand that was determined to be an effective hedge were reclassified to net revenue for the years ended December 31, 2014 and 2013, respectively.

22. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME a. Other income

Years Ended December 31 2014 2013 Interest income $ 192,453 $ 139,239 Dividends income 19,860 13,497 Others 68,709 73,227 $ 281,022 $ 225,963

b. Other gains and losses

Years Ended December 31 2014 2013 Net losses on financial assets designated as at FVTPL $ (213,908) $ (77,776) Net foreign exchange gains 237,025 90,981 Gains on disposal of investment 684 4,863 (Losses) gains on disposal of property, plant and equipment (1,917) 73 Other losses (67) (95) $ 21,817 $ 18,046

c. Depreciation and amortization

Years Ended December 31 2014 2013 Property, plant and equipment $ 2,072,554 $ 2,273,164 Intangible assets 8,837 3,998 $ 2,081,391 $ 2,277,162 Classification of deprecation - by function

Cost of revenue $ 2,012,534 $ 2,214,757 Operating expenses 60,020 58,407

$ 2,072,554 $ 2,273,164 Classification of amortization - by function

Cost of revenue $ 3,836 $ 1,359 Operating expenses 5,001 2,639

$ 8,837 $ 3,998

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d. Employee benefits expense

Years Ended December 31 2014 2013 Post-employment benefits (see Note 19)

Defined contribution plans $ 172,368 $ 146,576 Defined benefit plans 21,084 33,958

193,452 180,534 Share-based payments (see Note 20)

Equity-settled share-based payments 88,277 89,226 Other employee benefits 5,523,038 4,741,003 Total employee benefits expense $ 5,804,767 $ 5,010,763 Employee benefits expense summarized by function

Cost of revenue $ 4,494,225 $ 3,825,869 Operating expenses 1,310,542 1,184,894

$ 5,804,767 $ 5,010,763

23. INCOME TAXES a. Income tax recognized in profit or loss

The major components of income tax expenses were as follows: Years Ended December 31 2014 2013 Current tax

In respect of the current year $ 1,047,312 $ 408,348 In respect of prior years 6,947 1,359 Other 196 82

1,054,455 409,789 Deferred income tax

In respect of the current year 1,530 281,554 Income tax expenses recognized in profit or loss $ 1,055,985 $ 691,343

A reconciliation of income before tax and income tax expense recognized in profit or loss was as follows: Years Ended December 31 2014 2013 Income before income tax $ 6,493,874 $ 5,062,331 Income tax expense calculated at the statutory rate $ 1,105,713 $ 862,860 Additional (deductible) items in determining taxable income 7,453 5,339 Tax-exempt income (168,345) (132,960)

(Continued)

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Years Ended December 31 2014 2013 Additional income tax on unappropriated earnings $ 107,581 $ 58,061 The origination and reversal of temporary differences 6,362 (45,075)Effect of tax on investment credits (8,334) (58,323)Effect of tax on loss carryforward (1,588) - Adjustments for prior years’ tax 6,947 1,359 Others 196 82 Income tax expense recognized in profit or loss $ 1,055,985 $ 691,343

(Concluded) The Corporation applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the Company measures taxes by using the applicable tax rate for each individual jurisdiction. As the status of 2015 appropriations of 2014 earnings is uncertain, the potential income tax consequences of 2014 unappropriated earnings cannot be reliably determined.

b. Current tax liabilities

December 31 2014 2013

Current tax liabilities

Income tax payable $ 840,431 $ 331,980 c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2014

Deferred Tax Assets

Balance, Beginning of

the Year Movements Balance, End of

the Year Loss carryforwards $ 671 $ 1,701 $ 2,372 Temporary differences 3,497 (2,315) 1,182

$ 4,168 $ (614) $ 3,554

Deferred Tax Liabilities



the Year Temporary differences $ 103,275 $ 917 $ 104,192

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For the year ended December 31, 2013

Deferred Tax Assets



the Year Loss carryforwards $ 82,644 $ (81,973) $ 671 Income tax credit 98,620 (98,620) - Temporary differences 1,183 2,314 3,497

$ 182,447 $ (178,279) $ 4,168




the Year Temporary differences $ - $ 103,275 $ 103,275

d. Items for which no deferred tax assets have been recognized

December 31 2014 2013

Loss carryforwards

Expire in 2020 $ 23,463 $ 23,691 Expire in 2021 308 291 Expire in 2027 166 156 Expire in 2034 1,735 - $ 25,672 $ 24,138

Deductible temporary differences $ 189,062 $ 177,335

e. Unrecognized deferred tax liabilities associated with investments

As of December 31, 2014 and 2013, there were no taxable temporary differences associated with investment in subsidiaries for which no deferred tax liabilities have been recognized.

f. Integrated income tax

December 31 2014 2013

Balance of the Imputation Credits Accounts -

the Corporation $ 472,583 $ 214,533

The expected and actual creditable ratios for distributing the earnings of 2014 and 2013 were 15.02% and 8.78%, respectively. Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of the Corporation was calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to shareholders of the Corporation was based on the balance of the Imputation Credit Accounts as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2014 earnings may differ from the actual creditable ratio to be used in allocating imputation credits to the shareholders.

172


The unappropriated retained earnings as of December 31, 2014 and 2013 did not contain the unappropriated earnings generated on and before January 1, 1998.

g. Income tax exemption with respect to the issuance of shares The Corporation was granted a five-year income tax exemption period with respect to the issuance of shares from the appropriation for year 2015. The income tax exemption period is from January 1, 2012 to December 31, 2016.

h. Income tax assessments Income tax returns through 2012 had been examined and cleared by the tax authorities.

24. EARNINGS PER SHARE

Unit: NT$ Per Share

Years Ended December 31 2014 2013 Basic earnings per share $ 3.35 $ 2.76 Diluted earnings per share $ 3.30 $ 2.71 The earnings and weighted average number of common shares used in the computation of earnings per share were as follows: Earnings Years Ended December 31 2014 2013 Earnings used in computation of basic earnings per share $ 5,437,889 $ 4,370,988 Effect of dilutive potential common stocks:

Bonus to employees - - Employee stock options - -

Earnings used in the computation of diluted earnings per share $ 5,437,889 $ 4,370,988

Shares Years Ended December 31 2014 2013 Weighted average number of common stocks in computation of basic

earnings per share 1,625,505 1,584,031 Effect of dilutive potential common shares:

Bonus to employees 22,815 24,105 Employee stock options 194 2,122

Weighted average number of common stocks used in the

computation of diluted earnings per share 1,648,514 1,610,258

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If the Corporation may settle the bonuses paid to employees by cash or shares, the Corporation presumed that the entire amount of the bonus would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share when the shares had a dilutive effect. Such dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

25. SHARE-BASED PAYMENT

On September 18, 2003, the Securities and Futures Bureau approved the Corporation‘s Employee Stock Option Plan (hereinafter referred to as the 2003 Plan). The 2003 Plan consisted of 70,000 thousand units. These options generally vest at a certain percentage from two years after the date of grant and the options granted are valid for 10 years.

Information about stock options was as follow: Years Ended December 31 2014 2013

Number of Weighted- Number of Weighted- Outstanding average Outstanding average Stock Option Exercise Stock Option Exercise Rights Price Rights Price (In Thousands) (NT$) (In Thousands) (NT$)

Beginning balance 4,062 $ 14.50 17,923 $ 15.25 Options exercised (4,062) 14.50 (13,730) 15.29 Options canceled - - (131) 15.70 Ending balance - - 4,062 14.50

26. OPERATING LEASE ARRANGEMENTS

The Group as lessee

The Group leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-Based Industrial Park Administration and a certain individual under renewable operating lease agreements expiring on various dates from April 2015, June 2015, March 2016, December 2027 and December 2029. The rental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to the lease contract, and the lease is renewable upon expiration.

The future minimum lease payments of non-cancellable operating lease commitments were as follows:

December 31 2014 2013 Not later than 1 year $ 70,123 $ 79,373 Later than 1 year and not later than 5 years 249,806 257,583 Later than 5 years 520,516 582,863 $ 840,445 $ 919,819

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The lease payments recognized as expenses were as follows:

Years Ended December 31 2014 2013 Minimum lease payment $ 79,373 $ 79,240

27. CAPITAL MANAGEMENT The Group manages its capital in a manner to ensure its ability to continue as a going concern while maximizing the return to shareholders. The Group’s overall strategy has no significant variations. The capital structure of the Group consists of net debt (loans offset by cash and cash equivalents) and equity (i.e. capital stock, capital reserves, retained earnings and other equity). The Group is not subject to any externally imposed capital requirements.

28. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments

1) Financial instruments not carried at fair value

Except as detailed in the following table, the management considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values or their fair values cannot be reliably measured. December 31 2014 2013

Carrying Amount Fair Value


Financial assets Other current asserts

Structured deposit $ 387,392 $ 389,013 $ 358,800 $ 359,218

2) Fair value measurements recognized in the consolidated balance sheets The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active

markets for identical assets or liabilities; b) Level 2 fair value measurements are those derived from inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

175


c) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). December 31, 2014 Level 1 Level 2 Level 3 Total Financial assets at FVTPL

Derivative financial instrument $ 111,369 $ 187,525 $ - $ 298,894

Fund 512,097 - - 512,097 $ 623,466 $ 187,525 $ - $ 810,991 Available-for-sale financial

assets Domestic listed stocks -

equity investment $ 25,738 $ 117,300 $ - $ 143,038 Financial liabilities at FVTPL

Derivative financial instruments $ - $ 105,790 $ - $ 105,790

December 31, 2013 Level 1 Level 2 Level 3 Total Financial assets at FVTPL

Derivative financial assets $ 111,519 $ 233,434 $ - $ 344,953 Available-for-sale financial

assets Domestic listed stocks -

equity investment $ 24,913 $ - $ - $ 24,913 Financial liabilities at FVTPL

Derivative financial instruments $ - $ 33,823 $ - $ 33,823

There were no transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013, respectively.

3) Valuation techniques and assumptions applied for the purpose of measuring fair value The fair values of financial assets and financial liabilities are determined as follows: a) The fair values of financial assets and financial liabilities with standard terms and conditions

and traded in active liquid markets are determined with reference to quoted market prices (includes listed stocks, funds and convertible (exchangeable bonds).

b) For those instruments such as derivative financial instruments with no quoted market prices,

their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants in their estimates of fair values.

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Fair values of forward exchange contacts and currency-swap contracts are determined using valuation techniques based on forward rates for each contract. The Reuter’s quotation system is mainly used as reference for the forward rates.

b. Categories of financial instruments

December 31 2014 2013 Financial assets Fair value through profit or loss (FVTPL)

Held for trading $ 513,703 $ 4,960Designated as at FVTPL 297,218 339,993

Derivative instruments in designated hedge accounting 70 -Loans and receivables (Note 1) 21,907,551 19,800,140Available-for-sale financial assets (Note 2) 221,474 102,451 Financial liabilities Fair value through profit or loss (FVTPL)

Held for trading 90,584 21,499Derivative instruments in designated hedge accounting 15,206 12,324Measured at amortized cost (Note 3) 5,087,383 3,476,773 Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash

and cash equivalents, other financial assets, notes and accounts receivables, and other receivables.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at

cost. Note 3: The balances included financial liabilities measured at amortized cost, which comprise

accounts payables and other payables.

c. Objectives and policies of financial risk management

The Group’s major financial instruments include equity investments, accounts receivable and accounts payables. The Group's Corporate Finance function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Group seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of derivatives and non-derivative financial instruments, and the investment of excess liquidity. The compliance with policies and the control of exposure limits are continuously reviewed by the internal auditors on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Corporate Finance function reports quarterly to the Group’s Board of Directors and Audit Committee for their independent mentorship to risks and policy implementation.

177


1) Market risk

The Group's activities are exposed to the financial risks primarily arising from the changes in foreign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see (c) below). The Group enters into a variety of derivative financial instruments including forward exchange and currency - swap contracts to manage its exposure to foreign currency risk. There has been no change to the Group's exposure to market risks or the manner in which these risks are managed and measured. a) Foreign currency risk

The Group’s operating activities are partially denominated in foreign currencies and apply natural hedge. The purpose of the Group’s management of the foreign currency risk is to hedge the risk instead of making a profit. The strategy of foreign currency risk management is to review the net position exposed to foreign currency risk and manage the risk of the net position. The Group selects the instruments to hedge currency exposure by considering the hedge cost and hedge period. The Group currently utilizes derivative financial instruments, primarily buy/sell forward exchange contracts, to hedge its currency exposure. The Group use forward exchange contracts to eliminate currency exposure. It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item for maximizing the hedge effectiveness. Investing in foreign operations is for strategic purposes, it is not hedged by the Group. Sensitivity analysis The Group is mainly exposed to the exchange rate fluctuation of USD and RMB. The following table details the Group’s sensitivity to a 5% increase and decrease in the New Taiwan dollars (the functional currency) against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items (including cash and cash equivalents, accounts receivables, other receivables, accounts payables, and other payables) and the hedge contracts, for which their translation at period end is adjusted for a 5% change in foreign currency rates. The following table indicates the influences which the New Taiwan dollars strengthen 5% against foreign currency dollars. Currency USD Impact Year Ended December 31 2014 2013 Gains $ 32,464 $ 23,978 Currency RMB Impact Year Ended December 31 2014 2013 Losses $ (54,073) $ (21,904)

178


b) Interest rate risk The Group’s financial assets are exposed to interest rate risk both at fixed and floating interest rates. The carrying amounts of the Group’s financial assets with exposure to interest rates at the end of the reporting period were as follows.

December 31 2014 2013 Fair value interest rate risk

Financial assets $ 15,884,207 $ 13,496,632Cash flow interest rate risk

Financial assets 2,142,153 3,415,665

Sensitivity analysis The sensitivity analyses below are determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset outstanding at the end of the reporting period is outstanding for the whole year. If the market interest rate increases/decrease by 0.1% and all other variables remain constant the pre-tax profit of the Group for the years ended on December 31, 2014 and 2013 will increases/decrease $2,142 thousand and $3,416 thousand, respectively, resulting from the exposure of the net assets with floating rate.

c) Other price risk The Group is exposed to equity price risk arising from its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. The Group's equity price risk is mainly concentrated on equity instruments operating in electronic industry quoted in the Taiwan Stock Exchange and GreTai Securities Market. Sensitivity analysis The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period. If equity prices had been 5% higher/lower, the other comprehensive income for the years ended December 31, 2014 and 2013 would have increased/decreased by $7,152 thousand and $1,246 thousand, respectively, as a result of the changes in fair value of available-for-sale financial investment.

2) Credit risk Credit risk refers to the risk that a counterpart will default on its contractual obligations and result in financial loss to the Group. As of the end of the reporting period, the Group may have a financial loss due to the default on obligation from counterparts, and the maximum exposure to credit risk is the carrying amount of the respective recognized financial assets as stated in the consolidated balance sheets.

179


In order to mitigate credit risk, the Group has made the policy of credit management to ensure that appropriate action is taken to recover overdue receivables. In addition, the Group reviews the recoverable amount of each receivable debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Group considers the credit risk is significantly reduced. The credit risk on operating funds and derivatives is limited as the counterparts are creditworthy banks. The Group’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customer’s financial condition. The Group’s credit concentration risk was related to the five largest customers. Besides the five largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivables at any time during the period. The five largest customers are creditworthy counterparts, therefore, the Group believes the concentration of credit risk is insignificant for the remaining accounts receivable.

3) Liquidity risk The Group manages liquidity risk by monitoring and maintaining adequate reserves of cash and cash equivalents to fund the Group’s operations and mitigate the effects of fluctuations in cash flows. The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. December 31, 2014

Less than

1 Year More than

1 Year Non-derivative financial liabilities Non-interest bearing $ 5,087,383 $ - December 31, 2013

Less than

1 Year More than

1 Year Non-derivative financial liabilities Non-interest bearing $ 3,476,773 $ - The following tables detail the Group’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted net inflows and outflows on those derivatives that require gross settlement.

180


December 31, 2014

Less than

1 Year More than

1 Year Gross settled Forward exchange contracts

Inflows $ 5,442,500 $ -Outflows (5,546,614) -

$ (104,114) $ -

December 31, 2013

Less than

1 Year More than

1 Year Gross settled Forward exchange contracts

Inflows $ 5,138,981 $ -Outflows (5,167,844) -

$ (28,863) $ -

29. TRANSACTIONS WITH RELATED PARTIES

Intercompany balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties were disclosed below.

a. Operating transactions

Revenue from Sales of Goods Years Ended December 31 2014 2013 Investors that have significant influence over the Corporation $ 7,362,019 $ 6,921,443Associates $ 21,582 $ 13,641Key management personnel $ 66,104 $ 27,402Substantial related parties $ 38,036 $ 12,421

Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31 2014 2013 2014 2013 Investors that have significant

influence over the Corporation $ 471,272 $ 564,700 $ 1,298 $ 1,358

Associates $ - $ - $ - $ 748

181


Rental Revenue Nonoperating

Income and Gains Years Ended December 31 Years Ended December 31 2014 2013 2014 2013 Substantial related parties $ 22,371 $ 25,567 $ - $ - Investors that have significant

influence over the Corporation - - 22,895 34,480

Key management personnel - - 474 32 $ 22,371 $ 25,567 $ 23,369 $ 34,512

Purchase of Property, Plant and

Equipment Years Ended December 31 2014 2013 Substantial related parties $ - $ 11,325 The following balances were outstanding at the end of the reporting period: Receivables from Related Parties December 31 2014 2013 Investors that have significant influence over the Corporation $ 693,310 $ 718,378 Key management personnel 28,918 4,958 Associates 3,348 2,123 Substantial related parties 3,595 1,897 $ 729,171 $ 727,356

Other Receivables from

Related Parties December 31 2014 2013 Investors that have significant influence over the Corporation $ 15,096 $ 13,208 Key management personnel 1,210 - Substantial related parties 2,209 8,055 $ 18,515 $ 21,263 Other Payables to Related Parties December 31 2014 2013 Investors that have significant influence over the Corporation $ 108,535 $ 105,675

182


Guarantee Deposits

(Other Non-current Liabilities) December 31 2014 2013 Substantial related parties $ - $ 5,814 The terms of sales transactions with related parties were not significantly different from those of sales to third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts. The Group leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental in advance. The Group purchased equipment from related party. The terms were based on related contracts. Guarantee deposits of related parties were primary for lease.

b. Compensation of key management personnel Years Ended December 31 2014 2013 Short-term employee benefits $ 198,721 $ 174,696 Share-based payments 13,806 10,804 Post-employment benefits 2,086 17,892 $ 214,613 $ 203,392 The remuneration of directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

30. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY The following assets had been pledged as collateral for the guarantee of customs duty and lease of the manufacturing plant from the Hsinchu Science-Based Industrial Park Administration: December 31 2014 2013 Pledged time deposits (presented under other non-current assets) $ 303,384 $ 283,300

31. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS The significant commitments of the Group as of December 31, 2014 were as follows:

a. The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” with Taiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according to the net sales of certain products and reserve a portion of its production capacity.

b. As of December 31, 2014, the unused letters of credit aggregated was about JPY9,600 thousand.

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32. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN

FOREIGN CURRENCIES The significant financial assets and liabilities denominated in foreign currencies were as follows:

December 31 2014 2013

Foreign

Currencies Exchange RateForeign

Currencies Exchange Rate Financial assets Monetary items

USD $ 180,244 31.604 $ 154,913 29.80 EUR 799 38.65 228 41.18 JPY 31,171 0.2665 74,695 0.2865 RMB 212,717 5.084 89,076 4.919

Non-monetary items USD 1,390 31.604 1,568 29.80

Financial liabilities Monetary items

USD 26,289 31.604 17,506 29.80 EUR 672 38.65 365 41.18 JPY 239,662 0.2665 175,655 0.2865

33. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees: a. Loans provided to other parties: None. b. Endorsement/guarantee provided: None. c. Marketable securities held (excluding investment in subsidiaries, associates and jointly controlled

entities): Table 1 (attached) d. Purchases or sales of the same marketable securities amounting to at least NT$300 million or 20% of

the paid-in capital: None. e. Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital:

Table 2 (attached) f. Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: None. g. Purchase or sale with related parties amounting to at least NT$100 million or 20% of the paid-in capital:

Table 3 (attached) h. Receivable from related parties amounting to at least $100 million or 20% of the paid-in capital:

Table 4 (attached)

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i. Derivative transactions: Notes 7 and 9. j. Intercompany relationships and significant intercompany transactions: Table 5 (attached) k. Information on investees: Table 6 (attached)

l. Information on investment in Mainland China: None.

34. SEGMENT INFORMATION

a. For the purpose of resources allocation and performance assessment, the Group’s chief operating

decision maker reviews operating results and financial information on a per plant basis. It focuses on the operating result of each of the plants operated under Vanguard International Semiconductor Corporation and its subsidiaries. Accordingly, each of the plants constitutes an operating segment of the Group. As each plant shares similar economic characteristics, produces similar products by using similar production process and all of products produced are distributed and sold to the same level of customers through a central sales function, the Group’s segments are aggregated into a single reportable segment.

The revenues, operating results and financial information on a plant by plant basis presented to the chief operating decision maker are consistent with the information in the consolidated financial statements. The segment revenues and operating results for the years ended December 31, 2014 and 2013 can be referred to in the consolidated income statements for the years ended December 31, 2014 and 2013. The segment assets as of December 31, 2014 and 2013 can be referred to the consolidated balance sheets as of December 31, 2014 and 2013.

b. Revenue from major products and services

The following is an analysis of the Group’s revenue from its major products and services:

Years Ended December 31 2014 2013 Chips $ 23,674,857 $ 20,911,425Others 256,622 223,635 $ 23,931,479 $ 21,135,060

c. Geographic information

Revenue Non-current Assets Years Ended December 31 December 31 2014 2013 2014 2013 Taiwan $ 20,785,293 $ 18,728,373 $ 7,983,500 $ 6,639,170United States of America 765,561 901,185 267 304Singapore 753,633 663,338 - -Austria 389,228 22,526 - -China 366,315 60,367 - -Japan 286,196 224,988 - -Philippines 159,212 43,242 - -Korea 128,864 137,108 - -Cayman Islands 102,526 142,451 - -Others 194,651 211,482 - - $ 23,931,479 $ 21,135,060 $ 7,983,767 $ 6,639,474

185


Non-current assets exclude the investments accounted for by the equity method, financial instruments, intangible assets, deferred tax assets, guarantee deposits and other assets.

d. Major customers Sales to customers amounting to at least 10% of total gross sales: Years Ended December 31 2014 2013 % of % ofCustomer Amount Total Amount Total A $ 7,362,019 31 $ 6,921,443 33B 6,206,603 26 5,056,810 24

186


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e 1:

M

arke

tabl

e se

curi

ties

men

tion

ed in

the

tabl

e in

clud

e st

ocks

, bon

ds, b

enef

icia

ry c

ertif

icat

e an

d th

e de

riva

tive

sec

urit

ies

from

afo

rem

enti

oned

item

s.

187


Not

e 2:

T

he m

arke

t val

ue w

as b

ased

on

stoc

k cl

osin

g pr

ice

as o

f D

ecem

ber

31, 2

014.

N

ote

3:

The

mar

ket v

alue

was

bas

ed o

n th

e bo

ok v

alue

as

of D

ecem

ber

31, 2

014.

N

ote

4:

The

fai

r va

lue

was

bas

ed o

n va

luat

ion

tech

niqu

es.

Not

e 5:

T

he f

unds

val

ue w

as b

ased

on

the

net a

sset

val

ue a

s of

Dec

embe

r 31

, 201

4.

Not

e 6:

A

s of

Dec

embe

r 31

, 201

4, a

ll th

e se

curi

ties

wer

e no

t ple

dged

or

rest

rict

ed.

Not

e 7:

W

ith

resp

ect t

o th

e in

form

atio

n of

sub

sidi

arie

s, a

ssoc

iate

s an

d jo

int v

entu

res,

ple

ase

see

TA

BL

E 6

.

188


TA

BL

E 2

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wan

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lars

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less

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ted

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erw

ise)

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per

ty

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nt

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e T

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mou

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men

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atu

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le T

ran

sfer

if C

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icon

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bui

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cate

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16

8, C

hang

rong

Rd.

, Luz

hu

Cit

y, T

aoyu

an C

ount

y,

Tai

wan

and

No.

336

, Sec

. 1,

Nan

kan

Rd.

, Luz

hu C

ity,

T

aoyu

an C

ount

y, T

aiw

an

Mar

ch 1

4, 2

014

$

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000

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tran

sact

ion

was

com

plet

ed

on J

uly

1, 2

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T

he c

ost w

as

paid

in

com

plia

nce

with

the

cont

ract

.

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ya

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hnol

ogy

Cor

pora

tion

--

--

$ -

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tran

sfer

pri

ce w

as

mad

e ac

cord

ing

to

the

appr

aisa

l res

ult

of th

e pr

ofes

sion

al

appr

aisa

l age

nt,

cost

and

fut

ure

prod

ucti

on b

enef

it.

It w

as r

esol

ved

by

the

audi

t com

mit

tee

and

the

boar

d of

di

rect

ors

of

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guar

d In

tern

atio

nal

Sem

icon

duct

or

Cor

pora

tion

on

Mar

ch 1

4, 2

014.

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the

busi

ness

gr

owth

of

Van

guar

d In

tern

atio

nal

Sem

icon

duct

or

Cor

pora

tion

-

189


TA

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190


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ecem

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31, 2

014

No.

C

omp

any

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e C

omp

any

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e N

atu

re o

f R

elat

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ship

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rcom

pan

y T

ran

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s

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anci

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tate

men

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em

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oun

t T

erm

s (N

ote)

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cent

age

of

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dat

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et R

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otal

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ets

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angu

ard

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rnat

iona

l Sem

icon

duct

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nc.

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rect

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sidi

ary

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keti

ng e

xpen

ses

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ther

pay

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rela

ted

part

ies

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8 -

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e:

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inte

rcom

pany

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sact

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term

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d on

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ated

agr

eem

ents

.

192


TA

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emb

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etho

d

193


INDEPENDENT AUDITOR’S REPORT

The Board of Directors and Stockholders Vanguard International Semiconductor Corporation

We have audited the accompanying parent company only balance sheets of Vanguard International Semiconductor Corporation (the “Corporation”) as of December 31, 2014 and 2013 and the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2014 and 2013. These parent company only financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the parent company only financial statements referred to above present fairly, in all material respects, the parent company only financial position of Vanguard International Semiconductor Corporation as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

The statements of major accounting items listed in the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the year ended December 31, 2014 are presented for the purpose of additional analysis. Such statements have been subjected to the auditing procedures applied in our audits of the financial statements mentioned above. In our opinion, such statements are fairly stated in all material respects in relation to the financial statements as a whole.

February 5, 2015

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance/results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

194


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1,79

9,89

7 5

1,51

1,66

2 5

Tot

al c

urre

nt a

sset

s 24

,875

,522

74

21

,344

,163

74

Tot

al c

urre

nt li

abil

itie

s

5,

389,

917

163,

693,

769

13

NO

N-C

UR

RE

NT

AS

SE

TS

N

ON

-CU

RR

EN

T L

IAB

ILIT

IES

F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

Def

erre

d in

com

e ta

x li

abil

ities

(N

otes

4 a

nd 2

3)

104,

192

-10

3,27

5 -

nonc

urre

nt (

Not

es 4

, 7 a

nd 2

8)

- -

148,

455

1A

ccru

ed p

ensi

on c

ost (

Not

es 4

, 5 a

nd 1

9)

625,

190

256

9,98

9

2 A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s -

nonc

urre

nt (

Not

es 4

, 8

Oth

er n

oncu

rren

t lia

bilit

ies

(Not

e 29

) 99

,357

-

49,0

70

- an

d 28

) 14

3,03

8 -

24,9

13

-F

inan

cial

ass

ets

carr

ied

at c

ost -

non

curr

ent (

Not

es 4

and

10)

62

,716

-

62,7

16

-T

otal

non

-cur

rent

liab

ilit

ies

828,

739

272

2,33

4 2

Inve

stm

ent a

ccou

nted

for

usi

ng e

quit

y m

etho

d (N

otes

4 a

nd 1

3)

342,

322

132

1,11

9 1

Pro

pert

y, p

lant

and

equ

ipm

ent (

Not

es 4

, 14

and

29)

7,98

3,50

0 24

6,63

9,17

0 23

Tot

al li

abil

ities

6,

218,

656

184,

416,

103

15

Inta

ngib

le a

sset

s (N

otes

4 a

nd 1

5)

37,1

74

-17

,011

-

Def

erre

d ta

x as

sets

(N

otes

4 a

nd 2

3)

154

-85

9 -

EQ

UIT

Y (

Not

es 4

and

20)

R

efun

dabl

e de

posi

ts

5,07

8 -

4,15

7 -

Cap

ital

sto

ck

Oth

er n

oncu

rren

t ass

ets

(Not

es 4

, 16

and

30)

303,

384

128

3,30

0 1

Com

mon

sto

ck

16

,389

,823

49

16

,365

,859

57

C

apit

al s

urpl

us

838,

029

273

3,57

8 3

Tot

al n

on-c

urre

nt a

sset

s 8,

877,

366

267,

501,

700

26R

etai

ned

earn

ings

Leg

al r

eser

ve

2,54

7,22

4 8

2,11

0,12

5 7

Spe

cial

res

erve

53

,700

-

68,9

48

-

U

napp

ropr

iate

dea

rnin

gs

7,

785,

837

235,

691,

940

20

Tot

alre

tain

edea

rnin

gs

10

,386

,761

31

7,87

1,01

3 27

O

ther

equi

ty

(70,

506)

-

(53,

700)

-

Tre

asur

yst

ock

(9,8

75)

-(4

86,9

90)

(2)

Tot

aleq

uity

27,5

34,2

32

82

24,4

29,7

60

85

TO

TA

L A

SS

ET

S

$ 3

3,75

2,88

8 1

00

$ 2

8,84

5,86

3 1

00T

OT

AL

LIA

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ITIE

S A

ND

EQ

UIT

Y

$ 3

3,75

2,88

8 1

00

$ 2

8,84

5,86

3

100

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e pa

rent

com

pany

onl

y fi

nanc

ial s

tate

men

ts.

195



PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)


NET REVENUE (Notes 4, 5, 21 and 29) $ 23,931,479 100 $ 21,135,060 100

COST OF REVENUE (Notes 4, 12, 19 and 22) 15,317,806 64 14,272,127 67

GROSS PROFIT 8,613,673 36 6,862,933 33

OPERATING EXPENSES (Notes 4, 19, 20, 22, 26 and 29)Marketing 250,670 1 213,554 1General and administrative 968,471 4 829,911 4Research and development 1,192,128 5 983,737 5

Total operating expenses 2,411,269 10 2,027,202 10

OPERATING INCOME 6,202,404 26 4,835,731 23

NONOPERATING INCOME AND EXPENSES Other income (Notes 4, 22 and 29) 275,994 1 223,054 1Other gains and losses (Notes 4 and 22) 25,421 - 14,002 -Share of losses of subsidiaries, associates and joint

ventures (Notes 4 and 13) (12,042) - (11,785) -

Total nonoperating income and expenses 289,373 1 225,271 1

INCOME BEFORE INCOME TAX 6,491,777 27 5,061,002 24

INCOME TAX EXPENSE (Notes 4 and 23) (1,053,888) (5) (690,014) (3)

NET INCOME 5,437,889 22 4,370,988 21

OTHER COMPREHENSIVE LOSS (Notes 4, 13, 19 and 20) Exchange differences on translation of foreign

operations 16,387 - 6,505 -Unrealized (losses) gains on available-for-sale

financial assets (31,875) - 16,009 -Cash flow hedges 70 - - -Actuarial loss arising from defined benefit plans (48,816) - (22,114) -Share of other comprehensive loss of subsidiaries,

associates and joint ventures (1,388) - (7,221) -

Total other comprehensive loss (65,622) - (6,821) -

TOTAL COMPREHENSIVE INCOME $ 5,372,267 22 $ 4,364,167 21(Continued)

196



PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)


EARNINGS PER SHARE (Note 24) Basic $ 3.35 $ 2.76Diluted $ 3.30 $ 2.71

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

197


VA

NG

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ion

of

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plu

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ecia

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app

rop

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s F

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BA

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$

16,2

84,8

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59

4,67

5 $

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877,

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$

105,

057

$

3,09

2,26

1 $

(7

0,68

2)

$ 1,

689

$

- $

(9

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$ 20

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ropr

iati

on o

f pr

ior

year

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arni

ngs

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al r

eser

ve

--

232,

981

-(2

32,9

81)

--

--

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ash

divi

dend

s -

10%

--

--

(1,5

52,3

23)

--

--

(1

,552

,323

)R

ever

sal o

f sp

ecia

l res

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-

--

(36,

109)

36,1

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--

- -

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nges

in c

apit

al s

urpl

us f

rom

inve

stm

ent i

n su

bsid

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ciat

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nd jo

int v

entu

re a

ccou

nted

for

usi

ng e

quit

y m

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d-

7,66

1-

--

--

--

7,66

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inco

me

for

the

year

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ed D

ecem

ber

31, 2

013

--

--

4,37

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--

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Oth

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ompr

ehen

sive

inco

me

for

the

year

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ed

Dec

embe

r 31

, 201

3 -

--

-(2

2,11

4)5,

601

9,69

2-

- (6

,821

)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

3 -

--

-4,

348,

874

5,60

19,

692

--

4,36

4,16

7

Sha

re-b

ased

pay

men

t tra

nsac

tion

81

,029

131,

242

--

--

--

430,

787

643,

058

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

013

16,3

65,8

5973

3,57

82,

110,

125

68,9

485,

691,

940

(65,

081)

11,3

81-

(486

,990

) 24

,429

,760

App

ropr

iati

on o

f pr

ior

year

's e

arni

ngs

Leg

al r

eser

ve

--

437,

099

-(4

37,0

99)

--

--

- C

ash

divi

dend

s -

18%

--

--

(2,8

73,3

25)

--

--

(2

,873

,325

)R

ever

sal o

f sp

ecia

l res

erve

-

--

(15,

248)

15,2

48-

--

- -

Cha

nges

in c

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al s

urpl

us f

rom

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stm

ent i

n su

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asso

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usi

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quit

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d-

18,2

46-

--

--

--

18

,246

Net

inco

me

for

the

year

end

ed D

ecem

ber

31, 2

014

--

--

5,43

7,88

9-

--

-

5,43

7,88

9

Oth

er c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

4 -

--

-(4

8,81

6)14

,999

(31,

875)

70-

(65,

622)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

4 -

--

-5,

389,

073

14,9

99(3

1,87

5)70

- 5,

372,

267

Sha

re-b

ased

pay

men

t tra

nsac

tion

23

,964

86,2

05-

--

--

-47

7,11

5 58

7,28

4

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

014

$

16,3

89,8

23

$ 83

8,02

9

$ 2,

547,

224

$

53,7

00

$ 7,

785,

837

$

(50,

082)

$

(20,

494)

$

70

$ (9

,875

)

$

27,5

34,2

32

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e pa

rent

com

pany

onl

y fi

nanc

ial s

tate

men

ts.

198



PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars)

2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 6,491,777 $ 5,061,002Adjustments for:

Depreciation 2,072,482 2,273,106Amortization 8,837 3,998Net (gain) loss arising from changes in fair value of financial assets

and liabilities at fair value through profit or loss (29,288) 58Interest income (187,428) (137,113)Dividend income (19,860) (12,712)Share-based payment 75,582 88,499Share of losses of subsidiaries, associates and joint ventures 12,042 11,785Loss (gain) on disposal of property, plant and equipment 1,917 (73)Gain on disposal of investments (728) (2,175)Net gain on foreign currency exchange (18,424) (1,508)Changes in operating assets and liabilities:

Financial assets held for trading (489,190) 17,090Derivative financial assets for hedging - 86Notes and accounts receivable (962,355) (58,875)Accounts receivable from related parties (1,815) (363,002)Other receivables 12,879 3,854Other receivables from related parties 2,749 (10,856)Inventories (827,456) 181,628Prepayments (9,980) 19,849Other current assets (19,055) 9,507Financial liabilities held for trading 69,085 21,081Derivative financial liabilities for hedging 2,882 12,250Notes and accounts payable 335,217 87,330Other payable to related parties 1,183 (18,916)Provisions 9,802 45,373Other current liabilities 288,235 188,292Accrued pension cost 6,385 1,321Accrued profit sharing to employees and bonus to directors 185,235 300,554

Cash generated from operations 7,010,710 7,721,433Interest received 185,321 135,232Income tax paid (543,817) (329,830)

Net cash provided by operating activities 6,652,214 7,526,835(Continued)

199



PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars)

2014 2013

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets designated as fair value through profit

or loss $ (262,238) $ (339,155)Proceeds from disposal of financial assets designated as fair value

through profit or loss 314,725 40,000Acquisition of available-for-sale financial assets (150,000) (1,720)Proceeds from disposal of available-for-sale financial assets - 7,667Acquisition of financial assets carried at cost - (24,000)Acquisition of property, plant and equipment (3,120,361) (952,786)Proceeds from disposal of property, plant and equipment 840 73(Increase) decrease in refundable deposits (921) 875Acquisition of intangible assets (29,000) (14,349)Increase in other financial assets (32,652) (461,175)Dividends received 19,860 12,712

Net cash used in investing activities (3,259,747) (1,731,858)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in other noncurrent liabilities 50,287 23,525Cash dividends (2,873,325) (1,552,323)Proceeds from exercise of employee stock options 34,747 123,918Treasury stock transferred to employees 476,955 430,641

Net cash used in financing activities (2,311,336) (974,239)

NET INCREASE IN CASH AND CASH EQUIVALENTS 1,081,131 4,820,738

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 15,832,141 11,011,403

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 16,913,272 $ 15,832,141

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

200



NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The parent company only financial statements are presented in the Corporation’s functional currency, NewTaiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The parent company only financial statements were approved and authorized for issue by the Board ofDirectors on February 5, 2015.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. The amendments to the Regulations Governing the Preparation of Financial Reports by SecuritiesIssuers and the 2013 version of the International Financial Reporting Standards (IFRS), InternationalAccounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)endorsed by the Financial Supervisory Commission (FSC) not yet effective

Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that theCorporation should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)endorsed by the FSC and the related amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers starting January 1, 2015.



Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1, 2010, as appropriate

Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods ended on or after June 30, 2009

Improvements to IFRSs (2010) July 1, 2010 and January 1, 2011, as appropriate

Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013 Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7

Disclosures for First-time Adopters” July 1, 2010

Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters”

July 1, 2011

(Continued)

201




Amendment to IFRS 1 “Government Loans” January 1, 2013 Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and

Financial Liabilities” January 1, 2013

Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011 IFRS 10 “Consolidated Financial Statements” January 1, 2013 IFRS 11 “Joint Arrangements” January 1, 2013 IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013 Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated

Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance”

January 1, 2013

Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment Entities”

January 1, 2014

IFRS 13 “Fair Value Measurement” January 1, 2013 Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012 Amendment to IAS 12 “Deferred Tax: Recovery of Underlying

Assets” January 1, 2012

IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013 IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013 IAS 28 (Revised 2011) “Investments in Associates and Joint

Ventures” January 1, 2013

Amendment to IAS 32 “Offsetting Financial Assets and Financial Liabilities”

January 1, 2014

IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013 (Concluded)

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after the respective effective dates.

Except for the following, whenever applied, the initial application of the above 2013 IFRSs version and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Corporation’s accounting policies:

1) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries,joint arrangements, associates and unconsolidated structured entities. In general, the disclosurerequirements in IFRS 12 are more extensive than in the current standards.

2) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,establishes a framework for measuring fair value, and requires disclosures about fair valuemeasurements. The disclosure requirements in IFRS 13 are more extensive than those required inthe current standards. For example, quantitative and qualitative disclosures based on thethree-level fair value hierarchy currently required for financial instruments only will be extended byIFRS 13 to cover all assets and liabilities within its scope.

The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.

202


3) Amendment to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendment to IAS 1 requires items of other comprehensive income to be grouped into thoseitems that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassifiedsubsequently to profit or loss. Income taxes on related items of other comprehensive income aregrouped on the same basis. Under current IAS 1, there were no such requirements.

The Corporation will apply the above amendments in presenting the parent company only statementof comprehensive income, starting from the year 2015. Item not expected to be reclassified toprofit or loss is the actuarial gain (loss) arising from defined benefit plans. Items expected to bereclassified to profit or loss are the exchange differences on translation of foreign operations,unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of the othercomprehensive income (except the share of the actuarial gain (loss) arising from defined benefitplans) of subsidiaries, associates and joint ventures accounted for using the equity method.

4) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fairvalue of plan assets when they occur, and hence eliminates the “corridor approach” permitted undercurrent IAS 19 and accelerate the recognition of past service costs. The revision requires allremeasurements of the defined benefit plans to be recognized immediately through othercomprehensive income in order for the net pension asset or liability to reflect the full value of theplan deficit or surplus.

Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replacedwith a “net interest” amount, which is calculated by applying the discount rate to the net definedbenefit liability or asset. In addition, the revised IAS 19 introduces certain changes in thepresentation of the defined benefit cost, and also includes more extensive disclosures.

According to the retrospective application of aforementioned amendments, as of December 31,2014 and January 1, 2014, the primary impacts on the Corporation would include the adjustment inaccrued pension cost for a decrease of $12,084 thousand and $12,822 thousand, respectively, andthe adjustment in retained earnings for an increase of $12,084 thousand and $12,822 thousand,respectively.

b. New IFRSs in issue but not yet endorsed by the FSC

The Corporation has not applied the following New IFRSs issued by the IASB but not yet endorsed bythe FSC. As of the date the parent company only financial statements were authorized for issue, theFSC has not announced their effective dates.


Announced by IASB (Note 1)

Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 4) IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

January 1, 2016 (Note 3)

(Continued)

203



Announced by IASB (Note 1)

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

January 1, 2016

Amendment to IFRS 11 “ Accounting for Acquisitions of Interests in Joint Operations”

January 1, 2016

IFRS 14 “Regulatory Deferral Accounts” January 1, 2016 IFRS 15 “Revenue from Contracts with Customers” January 1, 2017 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable

Methods of Depreciation and Amortization” January 1, 2016

Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions” July 1, 2014

Amendment to IAS 27 “Equity Method in Separate Financial Statements”

January 1, 2016

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014 (Concluded)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: Prospectively applicable to transactions occurring in annual periods beginning on or after January 1, 2016.

Note 4: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Corporation’s accounting policies, except for the following:

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.

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For the Corporation’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows：

a) If they are held within a business model whose objective is to collect the contractual cash flows,the financial assets are measured at amortized cost and are assessed for impairmentcontinuously with impairment loss recognized in profit or loss, if any. Interest revenue isrecognized in profit or loss by using the effective interest method;

b) If they are held within a business model whose objective is achieved by both collectingcontractual cash flows and selling financial assets, the financial assets are measured at fair valuethrough other comprehensive income (FVTOCI) and are assessed for impairment continuously.Interest revenue is recognized in profit or loss by using the effective interest method, and othergain or loss shall be recognized in other comprehensive income, except for impairment gains orlosses and foreign exchange gains and losses. When the debt instruments is derecognized orreclassified, the cumulative gains or losses previously recognized in other comprehensiveincome shall be reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Corporation may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not have a significant financing component.

For purchased or originated credit-impaired financial assets, the Corporation calculates the credit-adjusted effective interest rate by taking into account the expected credit losses at initial recognition. Subsequently, any changes in expected losses are recognized as a loss allowance.

Hedge accounting

The main change in hedge accounting is the amendment to the application requirements for hedge accounting, and it let the financial statements better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

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2) Amendment to IAS 19: Amendment in 2013

The amended IAS 19 states that if contributions from employees or third parties are not linked toservice, these contributions affect the remeasurement of the net defined benefit liability (asset). Ifthe contributions are linked solely to service, the employees’ service rendered in that period inwhich they are paid, these contributions may be recognized as a reduction of service cost in thesame period. If the contributions depend on the number of years of service, an entity is required toattribute these contributions to service periods as a reduction of service cost.

3) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to thedisclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose inevery reporting period the recoverable amount of an asset or each cash-generating unit. Theamendment clarifies that such disclosure of recoverable amounts is required only when animpairment loss has been recognized or reversed during the period. Furthermore, the Corporationis required to disclose the discount rate used in measurements of the recoverable amount based onfair value less costs of disposal measured by using a present value technique.


Several standards including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” andIFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applyingthe aggregation criteria to operating segments, including a description of the operating segmentsaggregated and the economic indicators assessed in determining whether the operating segmentshave “similar economic characteristics”. The amendment also clarifies that a reconciliation of thetotal of the reportable segments’ assets to the entity’s assets should only be provided if thesegments’ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measureshort-term receivables and payables with no stated interest rate at their invoice amounts withoutdiscounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnelservices to the Corporation is a related party of the Corporation. Consequently, the Corporation isrequired to disclose as related party transactions the amounts paid or payable to the managemententity for the provision of key management personnel services. However, disclosure of thecomponents of such compensation is not required.


Several standards including IFRS 3, IFRS 13 and IAS 40 “Investment Property” were amended inthis annual improvement.

6) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations from January 1, 2017.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

● Identify the contract with the customer;● Identify the performance obligations in the contract;

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● Determine the transaction price;● Allocate the transaction price to the performance obligations in the contracts; and● Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

7) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control in an associate or a joint venture,the gain or loss resulting from the transaction is recognized only to the extent of the unrelatedinvestors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss iseliminated.


Several standards including IFRS 5 “Non-current assets held for sale and discontinued operations”,IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement.

Except for the above impact, as of the date the parent company only financial statements were reported for issue, the Corporation continuingly assesses the possible impact that the application of other standards and interpretations will have on the Corporation’s financial position and operating result, and will disclose the relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

The parent company only financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers.

b. Basis of preparation

The parent company only financial statements have been prepared on the historical cost basis except forfinancial instruments that are measured at fair values. Historical cost is generally based on the fairvalue of the consideration given in exchange for assets.

When preparing the parent company only financial statements, of the Corporation accounted forsubsidiaries, associates and jointly controlled entities by using the equity method. The net income,other comprehensive income and equity in the parent company only financial statement are the same asthe net income, other comprehensive income and equity attributable to the Corporation in theconsolidated financial statements.

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c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within twelve months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle aliability for at least twelve months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within twelve months after the reporting period; and

3) Liabilities for which the Corporation does not have an unconditional right to defer settlement for atleast twelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Foreign currencies

In preparing the parent company only financial statements, transactions in currencies other than thefunctional currency (foreign currencies) are recognized at the rates of exchange prevailing at the datesof the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise, except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Non-monetary items that aremeasured at historical cost in a foreign currency are not retranslated.

For the purposes of presenting parent company only financial statements, the assets and liabilities of theCorporation’s foreign operations (including those of the subsidiaries and associates in other countries aswell as currencies used different with the Corporation) are translated into New Taiwan dollars usingexchange rates prevailing at the end of each reporting period. Income and expense items are translatedat the average exchange rates for the period. Exchange differences arising, if any, are recognized inother comprehensive income.

e. Cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to knownamounts of cash and which are subject to an insignificant risk of change in value.

f. Inventories

Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods.Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are madeitem by item, except where it may be appropriate to group similar or related items. Net realizablevalue is the estimated selling price of inventories less all estimated costs of completion and costs

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necessary to make the sale. Inventories are recorded at weighted-average cost on the balance sheet date.

g. Investments accounted for using equity method

Investments in subsidiaries and associates are accounted for by the equity method.

1) Investment in subsidiaries

Subsidiaries are the entities controlled by the Corporation.

Under the equity method, the investment is initially recognized at cost and the carrying amount isincreased or decreased to recognize the Corporation’s share of the profit or loss and othercomprehensive income of the subsidiary after the date of acquisition. Besides, the Corporationalso recognizes the Corporation’s share of the change in other equity of the subsidiary.

When testing for impairment, the cash-generating unit is determined based on the financialstatements as a whole and compared its recoverable amount with its carrying amount. If therecoverable amount of the asset subsequently increases, the reversal of the impairment loss isrecognized as a gain, but the increased carrying amount of an asset after a reversal of an impairmentloss shall not exceed the carrying amount that would have been determined (net of amortization ordepreciation) had no impairment loss been recognized on the asset in prior years. An impairmentloss recognized for goodwill shall not be reversed in a subsequent period.

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profitsand losses from upstream with a subsidiary and sidestream transactions between subsidiaries arerecognized in the Corporation’s financial statements only to the extent of interests in the subsidiarythat are not related to the Company.

2) Investment in associates

An associate is an entity over which the Corporation has significant influence and that is neither asubsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these parent company onlyfinancial statements using the equity method of accounting. Under the equity method, aninvestment in an associate is initially recognized at cost and adjusted thereafter to recognize theCorporation’s share of the profit or loss and other comprehensive income of the associate. TheCorporation also recognized the changes in the share of equity of associates.

When the Corporation subscribes for additional new shares of the associate, at a percentagedifferent from its existing ownership percentage, the resulting carrying amount of the investmentdiffers from the amount of the Corporation’s proportionate interest in the associate. TheCorporation records such a difference as an adjustment to investments with the correspondingamount charged or credited to capital surplus. If the Corporation’s ownership interest is reduceddue to the additional subscription of the new shares of associate, the proportionate amount of thegains or losses previously recognized in other comprehensive income in relation to that associate isreclassified to profit or loss on the same basis as would be required if the investee had directlydisposed of the related assets or liabilities. When the adjustment should be debited to capitalsurplus, but the capital surplus recognized from investments accounted for by the equity method isinsufficient, the shortage is debited to retained earnings.

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When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

When the Corporation transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Corporation’s parent company only financial statements only to the extent of interests in the associate that are not related to the Corporation.

h. Property, plant, and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation andsubsequent accumulated impairment loss.

Depreciation is recognized using the straight-line method. Each significant part is depreciatedseparately. The estimated useful lives, residual values and depreciation method are reviewed at theend of each reporting period, with the effect of any changes in estimate accounted for on a prospectivebasis.

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sales proceeds and the carrying amount of the asset and isrecognized in profit or loss.

i. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially carried at cost andsubsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each reporting period, with the effect of anychanges in estimates being accounted for on a prospective basis. The residual value of anintangible asset with a finite useful life shall be assumed to be zero unless the Corporation expectsto dispose of the intangible asset before the end of its economic life.

2) Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:

a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;

b) The intention to complete the intangible asset and use or sell it;

c) The ability to use or sell the intangible asset;

d) How the intangible asset will generate probable future economic benefits;

e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and

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f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, it is measured at cost less accumulated amortization and accumulated impairment loss.

3) Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expectedfrom use or disposal. Gains or losses arising from derecognition of an intangible asset, measuredat the difference between the net disposal proceeds and the carrying amount of the asset, arerecognized in profit or loss when the asset is derecognized.

j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss. When it is not possible to estimatethe recoverable amount of an individual asset, the Corporation estimates the recoverable amount of thecash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverableamount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carryingamount of the asset or cash-generating unit is reduced to its recoverable amount.

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generatingunit is increased to the revised estimate of its recoverable amount, but only to the extent of the carryingamount that would have been determined had no impairment loss been recognized for the asset orcash-generating unit in prior years. A reversal of an impairment loss is recognized immediately inprofit or loss.

k. Financial instruments

Financial assets and financial liabilities are recognized when the Corporation becomes a party to thecontractual provisions of the instruments.

Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis.

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1) Measurement category

Financial assets are classified into the following specified categories: Financial assets at fair valuethrough profit or loss, available-for-sale financial assets and loans and receivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.

i. A financial asset may be designated as at fair value through profit or loss upon initialrecognition if:

i) Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

ii) The financial asset forms part of a group of financial assets or financial liabilities orboth, which is managed and evaluated performance on a fair value basis, in accordancewith the Corporation’s documented risk management or investment strategy, andinformation about the grouping is provided internally on that basis; or

iii) The contract contains one or more embedded derivatives so that the entire hybrid(combined) contract can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset.

b) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity investments orfinancial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Dividends on available-for-saleequity instruments are recognized in profit or loss. Other changes in the carrying amount ofavailable-for-sale financial assets are recognized in other comprehensive income and will bereclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when theCorporation’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured and derivatives that are linked to and must besettled by delivery of such unquoted equity investments are measured at cost less any identifiedimpairment losses at the end of each reporting period and are recognized in a separate line itemas financial assets carried at cost. If, in a subsequent period, the fair value of the financialassets can be reliably measured, the financial assets are remeasured at fair value. Thedifference between carrying amount and fair value is recognized in profit or loss or othercomprehensive income on financial assets. Any impairment losses are recognized in profit orloss.

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c) Loans and receivables

Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured at amortized cost using the effectiveinterest method, less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.

Cash and cash equivalents consisted of highly liquid time deposits that are readily convertible toknown amounts of cash and which are subject to an insignificant risk of changes in value.

2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.

Objective evidence of impairment could include: significant financial difficulty of the debtor; or itis becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a defaultor delinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or active market for that financial asset hasdisappeared because of the issuer’s financial difficulties or other reasons.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or lossespreviously recognized in other comprehensive income are reclassified to profit or loss in the period.

Accounts receivable that are assessed as not impaired individually are further assessed forimpairment on a collective basis. Objective evidence of impairment for a portfolio of accountsreceivable could include the Corporation’s past experience in the collection of payments, anincrease in the number of delayed payments, as well as observable changes in national or localeconomic conditions that correlate with defaults on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the financial assets at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not beenrecognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of thesecurity below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

a) Significant financial difficulty of the issuer or counterparty; or

b) Breach of contract, such as a default or delinquency in interest or principal payments; or

c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or

d) The disappearance of an active market for that financial asset because of financial difficulties.

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In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gain or loss from available-for-sale financial assets. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

3) Derecognition of financial assets

The Corporation derecognizes a financial asset only when the contractual rights to the cash flowsfrom the asset expire, or when it transfers the financial asset and substantially all the risks andrewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the sum of the consideration received and receivable and the cumulative gain or lossthat had been recognized in other comprehensive income and accumulated in equity is recognized inprofit or loss.

Equity instruments

Equity instruments issued by the Corporation are classified as equity in accordance with the substance of the contractual arrangements and the definition of an equity instrument.

Equity instruments issued by the Corporation are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method:

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for tradingor it is designated as at FVTPL.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains orlosses arising on remeasurement recognized in profit or loss. The net gain or loss recognized inprofit or loss incorporates any interest or dividend paid on the financial liability. Fair value isdetermined in the manner described in Note 28.

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2) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and theconsideration paid, including any noncash assets transferred or liabilities assumed, is recognized inprofit or loss.

Derivative financial instruments

The Corporation enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward exchange contracts and currency-swap contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL.

l. Hedge accounting

The Corporation designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.

1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, orwhen it no longer meets the criteria for hedge accounting.

2) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income and accumulated under the headingof cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognizedimmediately in profit or loss.

If a hedge of a forecast transaction subsequently results in the recognition of profit or loss, theassociated gains or losses that were recognized in other comprehensive income are reclassified fromequity to profit or loss as a reclassification adjustment in the same period or periods during whichthe hedged forecast cash flows affect profit or loss. If a hedge of a forecast transactionsubsequently results in the recognition of a non-financial asset or a non-financial liability, theassociated gains and losses that were recognized in other comprehensive income are transferred and

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are included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued prospectively when the Corporation revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

m. Provisions

The amount recognized as provisions is the best estimate of the consideration required to settle thepresent obligation at the end of the reporting period, taking into account the risks and uncertaintiessurrounding the obligation. When a provision is measured using the cash flows estimated to settle thepresent obligation, its carrying amount is the present value of those cash flows.

n. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Sales returns are recognized atthe time of sale provided the seller can reliably estimate future returns and recognizes a liability forreturns based on previous experience and other relevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed,at which time all the following conditions are satisfied:

a) The Corporation has transferred to the buyer the significant risks and rewards of ownership ofthe goods;

b) The Corporation retains neither continuing managerial involvement to the degree usuallyassociated with ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

d) It is probable that the economic benefits associated with the transaction will flow to theCorporation; and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Corporation does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

Sales of goods are recognized when goods are delivered and title has passed.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive paymenthas been established, provided that it is probable that the economic benefits will flow to theCorporation and the amount of income can be measured reliably.

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Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Corporation and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

o. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Corporation as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease unless another systematic basis is representative of the time pattern in whicheconomic benefits from the leased asset are consumed. Contingent rents arising under operatingleases are recognized as revenue in the period in which they are incurred.

2) The Corporation as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term,except where another systematic basis is more representative of the time pattern of the lessee’sbenefit from the use of the leased asset. Contingent rents arising under operating leases arerecognized as an expense in the period in which they are incurred.

p. Retirement benefit costs

Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using theProjected Unit Credit Method, with actuarial valuations being carried out at the end of each reportingperiod. Actuarial gains and losses on the defined benefit obligation are recognized immediately inother comprehensive income. Past service cost is recognized immediately to the extent that thebenefits are already vested, and otherwise is amortized on a straight-line basis over the average perioduntil the benefits become vested.

The retirement benefit obligation recognized in the parent company only balance sheets represents thepresent value of the defined benefit obligation as adjusted for unrecognized past service cost, and asreduced by the fair value of plan assets. Any asset resulting from this calculation is limited to theunrecognized past service cost plus the present value of available refunds and reductions in futurecontributions to the plan.

q. Share-based payment arrangements

Employee stock options granted to employee

Equity-settled share-based payments to employees are measured at the fair value of the equityinstruments at the grant date.

The fair value determined at the grant date of the employee share options is expensed on a straight-linebasis over the vesting period, based on the Corporation’s estimate of equity instruments that willeventually vest, with a corresponding increase in capital surplus - employee stock options. The fairvalue determined at the grant date of the employee stock options is recognized as an expense in full atthe grate date when the stock options granted are vested immediately.

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r. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve the retention of the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s taxprovision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities in the parent company only financial statements and the corresponding tax bases used inthe computation of taxable profit. Deferred tax liabilities are generally recognized for all taxabletemporary differences. Deferred tax assets are generally recognized for all deductible temporarydifferences, net operating loss carryforwards or unused tax credits for research and developmentexpenditures, and personnel training expenditures to the extent that it is probable that taxable profitswill be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, and interests in joint ventures, except where the Corporation is able tocontrol the reversal of the temporary difference and it is probable that the temporary difference willnot reverse in the foreseeable future. Deferred tax assets arising from deductible temporarydifferences associated with such investments and interests are only recognized to the extent that it isprobable that there will be sufficient taxable profits against which to utilize the benefits of thetemporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreassessed at the end of each reporting period and recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in theperiod in which the liability is settled or the asset is realized, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Corporation expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.

3) Current and deferred tax for the period

Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred tax are also recognized in other comprehensive income or directly in equity respectively.

s. Treasury stocks

Repurchase of the Corporation’s own equity instruments (treasury stocks) is recognized and deducteddirectly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue orcancellation of the Corporation’s own equity instruments.

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5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

In the application of the Corporation’s accounting policies, management is required to make judgments,estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparentfrom other sources. The estimates and associated assumptions are based on historical experience andother factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.

a. Revenue recognition

The Corporation recognizes revenue when the conditions described in Note 4 n. are satisfied. TheCorporation also records a provision for estimated future returns and other allowances in the sameperiod the related revenue is recorded. Provision for estimated sales returns and other allowances isgenerally made and adjusted at a specific percentage based on historical experience and any knownfactors that would significantly affect the allowance, and our management periodically reviews theadequacy of the percentage used.

As of December 31, 2014 and 2013, the Corporation recognized provisions for estimated sales returnsand other allowances of $110,906 thousand and $101,104 thousand, respectively.

b. Estimated impairment of accounts receivables

When there is objective evidence of impairment loss, the Corporation takes into consideration theestimation of future cash flows. The amount of the impairment loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the financial asset’s original effectiveinterest rate. Where the actual future cash flows are less than expected, a material impairment lossmay arise.

c. Write-down of inventory

Net realizable value of inventory is the estimated selling price in the ordinary course of business less theestimated costs of completion and the estimated costs necessary to make the sale. The estimation ofnet realizable value was based on current market conditions and the historical experience of sellingproducts of a similar nature. Changes in market conditions may have a material impact on theestimation of net realizable value.

d. Recognition and measurement of defined benefit plans

Accrued pension liabilities and the resulting pension expense under defined benefit pension plans arecalculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate,the assumed rate of employee turnover, and long-term average rate of future salary increase. Changesin economic circumstances and market conditions will affect these assumptions and may have amaterial impact on the amount of the expense and the liability.

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6. CASH AND CASH EQUIVALENTS

December 312014 2013

Deposits in bank $ 16,873,272 $ 15,530,113Cash equivalents

Bonds acquired under resale agreements 40,000 302,028

$ 16,913,272 $ 15,832,141

The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:


Bank deposits 0%-3.30% 0%-3.40% Bonds acquired under resale agreements 0.60%-0.62% 0.60%-0.64%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS


Financial assets designated as at FVTPL

Interest rate linked structured dollar investment notes (a) $ 158,007 $ 148,455 Credit linked notes (a) 27,842 80,019 Exchangeable bonds - 94,753 Convertible bonds 111,369 16,766

297,218 339,993

Financial assets held for trading

Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) 318 1,782 Currency-swap contracts (c) 1,288 3,178

Non-derivative financial assets Funds 512,097 -

513,703 4,960

$ 810,921 $ 344,953

Current $ 810,921 $ 196,498 Non-current - 148,455

$ 810,921 $ 344,953 (Continued)

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Financial liabilities held for trading

Derivative financial liabilities (not designated as hedging instruments) Forward exchange contracts (b) $ 3,731 $ 1,535 Currency-swap contracts (c) 86,853 19,964

$ 90,584 $ 21,499

Current $ 90,584 $ 21,499 (Concluded)

a. The Corporation entered into structured investment contracts with a bank in 2014 and 2013. Thestructured investment contracts include an embedded derivative instrument which is not closely relatedto the host contracts. The Corporation designated the entire contract as financial asset at FVTPL oninitial recognition.

b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.06-2015.04.07 US$ 5,000 Sell forward exchange contracts US$ to JPY 2015.01.22 US$ 3,000

December 31, 2013

Sell forward exchange contracts US$ to NT$ 2014.01.03-2014.03.31 US$ 32,000 Buy forward exchange contracts NT$ to US$ 2014.01.03-2014.02.05 US$ 4,000

c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.08-2015.03.24 US$ 149,000 Buy forward exchange contracts JPY to US$ 2015.01.22 US$ 500

December 31, 2013

Sell forward exchange contracts US$ to NT$ 2014.01.09-2014.03.19 US$ 98,500 Buy forward exchange contracts NT$ to US$ 2014.01.13-2014.01.22 US$ 6,000

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The Corporation entered into foreign exchange forward contracts during the years ended December 31, 2014 and 2013 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS


Listed stocks $ 143,038 $ 24,913

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

December 31 2014 2013

Fair Value Hedge

Cash Flow Hedge

Fair Value Hedge

Cash Flow Hedge

Derivative financial assets for hedging

Currency-swap contracts $ - $ 70 $ - $ -

Derivative financial liabilities for hedging

Currency-swap contracts $ 15,206 $ - $ 12,324 $ -

a. Fair value hedge

The Corporation used forward exchange contracts and currency-swap contracts to hedge risks onexchange rate fluctuations of foreign-currency denominated accounts receivable. The forwardexchange contracts and currency-swap contracts had the same term as the respective financial assets;the management believed the forward exchange contracts and currency-swap contracts were highlyeffective hedge instruments.

The outstanding currency-swap contracts at the end of the reporting period were as follows:


Contract Amount

(In Thousands)

December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.09-2015.03.09 US$ 16,000

December 31, 2013


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b. Cash flow hedge

The Corporation used cash flow hedge to manage risks on exchange rate fluctuation and changes in timevalue of money for those expected sales transactions.

The terms of the currency-swap contracts had been negotiated to match the terms of the respectivedesignated hedged items.

There outstanding currency-swap contracts at the end of the reporting period were as follows:


Contract Amount

(In Thousands)

December 31, 2014


10. FINANCIAL ASSETS CARRIED AT COST


Unlisted stocks $ 62,716 $ 62,716

The classification of financial assets Available-for-sale financial assets $ 62,716 $ 62,716

The management believed that the fair value of the aforementioned unlisted equity investments held by the Corporation cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of reporting period.

11. NOTES AND ACCOUNTS RECEIVABLE, NET


Notes and accounts receivable $ 3,263,431 $ 2,301,488 Allowance for doubtful accounts (1,987) (2,399)

Notes and accounts receivable, net $ 3,261,444 $ 2,299,089

The average credit period on sales of goods is 30 to 45 days after the end of the month. No interest is charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Corporation considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts is based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Corporation had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.

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The aging analyses of accounts receivable that were past due but not impaired were as follows:


Less than 60 days $ 3,087 $ 16,576 61-90 days 2,423 8,756 More than 90 days 14,499 -

$ 20,009 $ 25,332

The above analyses were based on the past due dates.

Movements of the allowance for doubtful accounts were as follows:

Years Ended December 31 2014 2013

Balance, beginning of year $ 2,399 $ 2,399 Less: Reversal of collection (412) -

Balance, end of year $ 1,987 $ 2,399

The Corporation had no impairment loss recognized on the accounts receivable during the years ended December 31, 2014 and 2013.

12. INVENTORIES


Finished goods $ 418,565 $ 103,477 Work in process 1,397,276 1,106,269 Raw materials 281,253 270,122 Supplies and spare parts 401,306 191,076

$ 2,498,400 $ 1,670,944

The write-down of inventories included in the cost of revenue was as below:


Provision of inventory valuation losses $ 124,536 $ 35,957

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


Investments in subsidiaries $ 291,875 $ 265,592 Investments in associates $ 50,447 $ 55,527

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a. Investments in subsidiaries


Unlisted stocks VIS Associates Inc. $ 291,875 $ 265,592

At the end of the reporting period, the proportion of ownership and voting rights in subsidiary held by the Corporation were as follows:


VIS Associates Inc. 100% 100%

The investment accounted for using the equity method and the share of net income or loss and other comprehensive income from investment in subsidiary for the years ended December 31, 2014 and 2013 were accounted for based on the subsidiaries’ financial statements audited by the auditors for the same years.

b. Investments in associates


Unlisted stocks CMSC, Inc. $ 50,447 $ 55,527

At the end of the reporting period, the proportion of ownership and voting rights in associate held by the Corporation were as follows:


CMSC, Inc. 25% 25%

The summarized financial information of the Corporation’s associates was set out as follow:


Total assets $ 298,014 $ 269,763 Total liabilities $ 95,756 $ 47,138


Revenue $ 249,795 $ 220,447 Net loss for the year $ (20,755) $ (16,204) Other comprehensive loss $ (33) $ (175)

The investment accounted for using the equity method and the share of net income or loss and other comprehensive income from investment were accounted for based on the unaudited financial statements. The Corporation’s management considered the use of unaudited financial statements did not have material impact on its parent company only financial statements.

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14. PROPERTY, PLANT AND EQUIPMENT


Machinery and Other ConstructionBuildings Equipment Equipment in Progress Total

Cost

Balance, January 1, 2013 $ 13,848,397 $ 51,185,889 $ 354,647 $ 1,203,887 $ 66,592,820Additions 131,429 1,631,468 18,214 (1,088,613 ) 692,498Disposal - (1,554 ) (2,569 ) - (4,123 )

Balance, December 31, 2013 $ 13,979,826 $ 52,815,803 $ 370,292 $ 115,274 $ 67,281,195

Accumulated depreciation

Balance, January 1, 2013 $ 10,257,962 $ 47,598,931 $ 332,628 $ - $ 58,189,521Depreciation expense 598,064 1,664,041 11,001 - 2,273,106Disposal - (1,554 ) (2,569 ) - (4,123 )

Balance, December 31, 2013 $ 10,856,026 $ 49,261,418 $ 341,060 $ - $ 60,458,504

Accumulated impairment

Balance, January 1, 2013 and December 31, 2013 $ - $ 183,521 $ - $ - $ 183,521

Carrying amounts, December 31, 2013 $ 3,123,800 $ 3,370,864 $ 29,232 $ 115,274 $ 6,639,170

Cost

Balance, January 1, 2014 $ 13,979,826 $ 52,815,803 $ 370,292 $ 115,274 $ 67,281,195Additions 628,747 1,803,091 18,597 969,134 3,419,569Disposal - (7,592 ) (2,742 ) - (10,334 )

Balance, December 31, 2014 $ 14,608,573 $ 54,611,302 $ 386,147 $ 1,084,408 $ 70,690,430

Accumulated depreciation

Balance, January 1, 2014 $ 10,856,026 $ 49,261,418 $ 341,060 $ - $ 60,458,504Depreciation expense 621,867 1,439,893 10,722 - 2,072,482Disposal - (4,835 ) (2,742 ) - (7,577 )

Balance, December 31, 2014 $ 11,477,893 $ 50,696,476 $ 349,040 $ - $ 62,523,409

Accumulated impairment

Balance, January 1, 2014 and December 31, 2014 $ - $ 183,521 $ - $ - $ 183,521

Carrying amounts, December 31, 2014 $ 3,130,680 $ 3,731,305 $ 37,107 $ 1,084,408 $ 7,983,500

The following useful lives are used in the calculation of depreciation under straight-line:

BuildingsMain plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years

Machinery and equipment 3 to 5 yearsOther equipment 3 to 5 years

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15. INTANGIBLE ASSETS


Computer software

CostBalance, beginning of year $ 731,644 $ 717,295 Additions 29,000 14,349 Balance, end of year 760,644 731,644

Accumulated amortization Balance, beginning of year 714,633 710,635 Amortization 8,837 3,998 Balance, end of year 723,470 714,633

Carrying amount, end of year $ 37,174 $ 17,011

The intangible assets are amortized on a straight-line basis at the following useful lives:

Computer software 3 to 5 years

16. OTHER ASSETS


Pledged time deposit $ 303,384 $ 283,300 Other financial assets 387,392 358,800 Tax receivables 83,802 65,662 Others 2,795 1,880

$ 777,373 $ 709,642

Current $ 473,989 $ 426,342 Non-current 303,384 283,300

$ 777,373 $ 709,642

17. OTHER CURRENT LIABILITIES


Other payables

Bonus $ 644,281 $ 483,849 Maintenance 343,613 343,097 Utilities 148,855 112,836 Royalties 18,855 16,711 Others 556,573 469,004

1,712,177 1,425,497 (Continued)

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Other liabilities

Others (Note) $ 87,720 $ 86,165

$ 1,799,897 $ 1,511,662 (Concluded)

Note: Other liabilities - others primarily were advances receipts from customers.

18. PROVISIONS - CURRENT


Sales returns and allowances $ 110,906 $ 101,104

Sales Returns

and Allowances

Year ended December 31, 2014

Balance, beginning of year $ 101,104 Provision recognized 204,931 Amount utilized (195,129)

Balance, end of year $ 110,906


Balance, beginning of year $ 55,731 Provision recognized 131,202 Amount utilized (85,829)

Balance, end of year $ 101,104

The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Based on the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.Pursuant to the aforementioned Act and local regulations, the Corporation recognized pension cost of$171,341 thousand and $145,579 thousand in the parent company only statement of comprehensiveincome for the years ended December 31, 2014 and 2013, respectively.

228


b. Defined benefit plans

The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation, under which pension benefits are calculated on the basis ofthe length of service and average monthly salaries of the six months before retirement. TheCorporation contributes amounts equal to 2% of total monthly salaries and wages to a pension fundadministered by the pension fund monitoring committee. Pension contributions are deposited in theBank of Taiwan in the committee’s name.

The plan assets are invested in domestic (foreign) equity and debt securities, bank deposits, etc. Theinvestment is conducted at the discretion of Bureau of Labor Funds, Ministry of Labor or under themandated management. However, in accordance with Regulations for Revenues, Expenditures,Safeguard and Utilization of the Labor Retirement Fund the return generated by employees’ pensioncontribution should not be below the interest rate for a 2-year time deposit with local banks.

The actuarial valuations of plan assets and the present value of the defined benefit obligation werecarried out by qualified actuaries. The principal assumptions of the actuarial valuation were asfollows:


Discount rates 2.25% 2.15%Expected rate of return on plan assets 1.50% 1.25%Expected rate of salary increase 3.50% 3.50%

The assessment of the overall expected rate of return was based on historical return trends and analysts’ predictions of the market for the asset over the life of the related obligation, by reference to the aforementioned use of the plan assets and the impact of the related minimum return.

The pension costs for defined benefit plans recognized in profit or loss were as follows:


Current service cost $ 7,076 $ 8,427 Interest cost 18,815 14,909 Expected return on plan assets (4,069) (6,532) Past service cost (738) (738)

$ 21,084 $ 16,066

An analysis by function Cost of revenue $ 17,260 $ 12,789 Marketing expenses 526 575 General and administrative expenses 1,766 1,408 Research and development expenses 1,532 1,294

$ 21,084 $ 16,066

Actuarial losses recognized in other comprehensive income for the years ended December 31, 2014 and 2013 were $48,816 thousand and $22,114 thousand, respectively. The cumulative amounts of actuarial losses recognized in other comprehensive income as of December 31, 2014 and 2013 were $106,879 thousand and $58,063 thousand, respectively.

229


The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Plan of Senior Management” of the Corporation included in the parent company only balance sheets in respect of the obligation under the defined benefit plans were as follows:


Present value of defined benefit obligation $ 953,437 $ 876,984 Fair value of plan assets (340,331) (319,817)

613,106 557,167 Past service cost not yet recognized 12,084 12,822

Accrued pension cost $ 625,190 $ 569,989

Movements in the present value of the defined benefit obligation were as follows:


Balance, beginning of year $ 876,984 $ 853,700 Current service cost 7,076 8,427 Interest cost 18,815 14,909 Actuarial losses 52,454 19,652 Pensions paid (1,892) (19,704)


Movements in the fair value of the plan assets were as follows:


Balance, beginning of year $ 319,817 $ 320,706 Expected return on plan assets 4,069 6,532 Actuarial gain (loss) 3,638 (2,462) Contributions from the employer 14,699 14,745 Pensions paid (1,892) (19,704)


The major categories of plan assets at the end of the reporting period were disclosed based on the information announced by Labor Pension Fund Supervisory Committee:


Cash 19 23 Equity instruments 50 45 Debt instruments 31 32

100 100

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The Corporation chose to disclose the history of experience adjustments as the amounts determined for each accounting period prospectively from the date of transition to IFRSs (January 1, 2012):

December 31, 2014

December 31, 2013

December 31, 2012

January 1,2012

Present value of defined benefit obligation $ 953,437 $ 876,984 $ 853,700 $ 804,286Fair value of plan assets $ 340,331 $ 319,817 $ 320,706 $ 308,566Deficit $ (613,106) $ (557,167) $ (532,994) $ (495,720)Experience adjustments on plan liabilities $ 66,446 $ 76,742 $ 9,080 $ -Experience adjustments on plan assets $ (3,638) $ 2,462 $ 3,261 $ -

The Corporation expects to make a contribution of $15,213 thousand to the defined benefit plans during the annual period beginning in 2015.

20. EQUITY

a. Capital stock

Common stock


Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,636,586

Issued capital $ 16,389,823 $ 16,365,859Additional paid-in capital 544,884 534,101

$ 16,934,707 $ 16,899,960

The changes of the Corporation’s capital stock mainly arose from the exercise of employee stock options.

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus


Additional paid-in capital $ 544,884 $ 534,101 Arising from employee stock options - 108,905 From share of changes in equities of subsidiaries, associates and

joint ventures 33,576 15,330 Treasury stock transaction 254,079 74,589 Others 5,490 653

$ 838,029 $ 733,578

The capital surplus from shares issued in excess of par may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be appropriated as cash dividends or stock dividends, which are limited to a certain percentage of the Corporation’s paid-in capital.

231


The capital surplus arising from investment accounted for using equity method and employee stock options may not be used for any purpose.

c. Retained earnings and dividend policy

The Corporation’s Articles of Incorporation provide that the following should be appropriated from theannual net income after deducting the applicable income taxes, any deficit and 10% legal reserve:

1) Special reserve;

2) Not more than 1% as remuneration to directors;

3) At least 1% as bonus to employees; and

4) Final balance, appropriation in accordance with the resolutions of shareholders’ meeting.

The bonus to employees and the remuneration to directors were estimated based on past experiences, corporation policy and related law and decree, which were respectively 15% of net income and 1% of net income (net of the bonus to employees, remuneration to directors, legal reserve and special reserve), respectively. Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the following year are adjusted in the current year. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If bonuses are resolved to be distributed to employees in the form of common shares, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the shares on the day preceding the shareholders’ meeting. Based on the aforementioned estimation method, the bonuses to employees were $815,683 thousand and $655,648 thousand, and the remuneration to directors were $34,800 thousand and $9,600 thousand for the years ended December 31, 2014 and 2013, respectively.

All profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 10% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be transferred to capital for distribution in accordance with relevant laws or regulations of the authorities in charge.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled “Questions and Answers about Special Reserves Appropriated Following the Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items.

The appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation.

232


The appropriations of earnings for 2013 and 2012 were approved in the shareholders’ meetings on June 12, 2014 and June 18, 2013, respectively. The appropriations and dividends per share were as follows:

Appropriations of Earnings Dividends Per Share (NT$) 2013 2012 2013 2012

Legal reserve $ 437,099 $ 232,981 $ - $ - Reversal of special reserve (15,248) (36,109) - - Cash dividends 2,873,325 1,552,323 1.80 1.00

$ 3,295,176 $ 1,749,195


Cash Stock Cash Stock

Bonus to employees $ 655,648 $ - $ 349,471 $ - Remuneration to directors 9,600 - 14,824 -

The bonus to employees and the remuneration to directors for 2013 and 2012 approved in the shareholders’ meeting on June 12, 2014 and June 18, 2013, respectively, were as follows:

2013 2012Bonus to


to Directors Bonus to


to Directors

Amounts resolved in shareholders’ meeting $ 655,648 $ 9,600 $ 349,471 $ 14,824

Amounts recognized in respective financial statements 655,648 9,600 349,471 15,223

The difference had been adjusted in profit and loss for the year ended December 31, 2013.

The appropriation of earnings for 2014 had been proposed in the board meeting on February 5, 2015. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividends Per Share (NT$)

Legal reserve $ 543,789 $ - Special reserve 16,806 - Cash dividends 4,259,353 2.60

The appropriation of earnings, bonus to employees and remuneration to directors for 2014 are subject to the shareholders’ meeting to be held on June 8, 2015.

The information about the appropriations of bonus to employees and remuneration to directors is available at the Market Observation Post System website.

233


d. Other equity

1) Exchange differences on translation of foreign operations


Balance, beginning of year $ (65,081) $ (70,682) Exchange differences on translation of foreign operations 16,387 6,505 Share of exchange differences of subsidiaries and associates

accounted for using equity method (1,388) (904)

Balance, end of year $ (50,082) $ (65,081)

2) Unrealized gains or losses on available-for-sale financial assets


Balance, beginning of year $ 11,381 $ 1,689 Unrealized (losses) gains on available-for-sale financial

assets (31,875) 16,009 Share of unrealized loss on available-for-sale financial assets

of subsidiaries accounted for using the equity method - (6,317)

Balance, end of year $ (20,494) $ 11,381

Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

3) Cash flow hedges


Balance, beginning of year $ - $ - Losses arising from changes in fair value of hedging

instruments for cash flow hedges Currency-swap contracts 70 -

Balance, end of year $ 70 $ -

The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.

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e. Treasury stock

(Shares in Thousands)

Purpose of Treasury Stock

Number of Shares,

Beginning of Period

Addition During the

Period

Reduction During the

Period

Number of Shares, End of

Period


Transfer to employees 40,294 - 39,524 770


Transfer to employees 76,160 - 35,866 40,294

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares.

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares.

Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge its treasury stock nor exercise rights to receive dividends and vote.

Treasury stocks were granted on March 1, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $12.70 Exercise price (NT$) 11.49 Expected volatility 30.12%-31.53%Expected life 2 years Risk-free interest rate 0.8012%

Treasury stocks were granted on April 25, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $13.35 Exercise price (NT$) 12.83 Expected volatility 29.46%-29.72%Expected life 2 years Risk-free interest rate 0.8442%

235


Treasury stocks were granted on August 2, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $31 Exercise price (NT$) 12.83 Expected volatility 42.85% Expected life 1 year Risk-free interest rate 0.6952%

Treasury stocks were granted on November 1, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $32.35 Exercise price (NT$) 12.83 Expected volatility 43.26% Expected life 0.4822 year Risk-free interest rate 0.641%

Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $46.50 Exercise price (NT$) 11.49-12.83 Expected volatility 45.90% Expected life 0.2027 year Risk-free interest rate 0.5329%

Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $47.30 Exercise price (NT$) 12.83 Expected volatility 32.44% Expected life 0.0356 year Risk-free interest rate 0.4798%

Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of two-year government bond was used as the risk-free interest rate.

Compensation costs recognized were $75,582 thousand and $88,499 thousand for the years ended December 31, 2014 and 2013, respectively.

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21. REVENUE

Revenue of the Corporation for the years ended December 31, 2014 and 2013 were analyzed as follows:


Revenue from the sale of goods $ 23,674,857 $ 20,911,425Other revenue 200,193 170,189Rental revenue 56,429 53,446

$ 23,931,479 $ 21,135,060

The Corporation designated certain foreign sales as hedged items to hedge the risk of cash flow. The portion of the loss on the hedging instrument amounting to $14,230 thousand and $13,887 thousand that were determined to be an effective hedge were reclassified to sales of goods for the years ended December 31, 2014 and 2013, respectively.

22. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME

a. Other income

Years Ended December 312014 2013

Interest income $ 187,428 $ 137,113 Dividends 19,860 12,712 Others 68,706 73,229

$ 275,994 $ 223,054

b. Other gains and losses


Net losses on financial assets designated as at FVTPL $ (213,908) $ (77,776) Net foreign exchange gains 240,585 89,625 Gains on disposal of investment 728 2,175 (Loss) gain on disposal of property, plant and equipment (1,917) 73 Other losses (67) (95)

$ 25,421 $ 14,002

c. Depreciation and amortizationYears Ended December 31

2014 2013

Property, plant and equipment $ 2,072,482 $ 2,273,106 Intangible assets 8,837 3,998

$ 2,081,319 $ 2,277,104 (Continued)

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Classification of deprecation - by function Cost of revenue $ 2,012,533 $ 2,214,757 Operating expenses 59,949 58,349

$ 2,072,482 $ 2,273,106

Classification of amortization - by function Cost of revenue $ 3,836 $ 1,359 Operating expenses 5,001 2,639

$ 8,837 $ 3,998 (Concluded)

d. Employee benefits expense


Post-employment benefits (see Note 19) Defined contribution plans $ 171,341 $ 145,579 Defined benefit plans 21,084 33,958

192,425 179,537 Share-based payments (see Note 20)

Equity-settled share-based payments 75,582 88,499 Other employee benefits 5,485,771 4,700,679

Total employee benefits expense $ 5,753,778 $ 4,968,715

Employee benefits expense summarized by function Cost of revenue $ 4,494,225 $ 3,825,870 Operating expenses 1,259,553 1,142,845

$ 5,753,778 $ 4,968,715

23. INCOME TAX

a. Income tax recognized in profit or loss

The major components of income tax expenses were as follows:


Current tax In respect of the current year $ 1,044,988 $ 405,624 In respect of prior years 7,278 1,363

1,052,266 406,987 Deferred income tax

In respect of the current year 1,622 283,027

Income tax expenses recognized in profit or loss $ 1,053,888 $ 690,014

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A reconciliation of income before tax and income tax expense recognized in profit or loss was as follow:


Income before income tax $ 6,491,777 $ 5,061,002

Income tax expense calculated at the statutory rate $ 1,103,602 $ 860,370 Additional (deductible) items in determining taxable income 8,604 6,631 Tax-exempt income (168,345) (132,960)Additional income tax on unappropriated earnings 107,581 58,061 The origination and reversal of temporary differences 3,502 (45,128)Effect of tax on investment credits (8,334) (58,323)Adjustments for prior years’ tax 7,278 1,363

Income tax expense recognized in profit or loss $ 1,053,888 $ 690,014

The Corporation applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China.

As the status of 2015 appropriations of 2014 earnings is uncertain, the potential income tax consequences of 2014 unappropriated earnings cannot be reliably determined.

b. Current tax liabilities

December 31 2014 2013

Current tax liabilities Income tax payable $ 840,431 $ 331,980

c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:


Deferred Tax Assets



the Year

Temporary differences $ 859 $ (705) $ 154




the Year

Temporary differences $ 103,275 $ 917 $ 104,192

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Deferred Tax Assets



the Year

Loss carryforwards $ 81,991 $ (81,991) $ - Income tax credits 98,620 (98,620) - Temporary differences - 859 859

$ 180,611 $ (179,752) $ 859




the Year

Temporary differences $ - $ 103,275 $ 103,275

d. Items for which no deferred tax assets have been recognized

December 31 2014 2013

Deductible temporary differences $ 189,062 $ 177,335

e. Unrecognized deferred tax liabilities associated with investments

As of December 31, 2014 and 2013, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred tax liabilities have been recognized.

f. Integrated income tax

December 31 2014 2013

Balance of the Imputation Credit Account- the Corporation $ 472,583 $ 214,533

The expected and actual creditable ratios for distributing the earnings of 2014 and 2013 were 15.02% and 8.78%, respectively.

Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credit allocated to ROC resident shareholders of the Corporation is calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the Corporation is based on the balance of the Imputation Credit Account as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2014 earnings may differ from the actual creditable ratio to be used in allocating imputation credit to the shareholders.

The unappropriated retained earnings as of December 31, 2014 and 2013 did not contain the unappropriated earnings generated prior to December 31, 1997.

g. Income tax exemption with respect to the issuance of shares

The Corporation was granted a five-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.

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h. Income tax assessments

Income tax returns through 2012 had been examined and cleared by the tax authorities.

24. EARNINGS PER SHARE

Unit: NT$ Per Share


Basic earnings per share $ 3.35 $ 2.76 Diluted earnings per share $ 3.30 $ 2.71

The earnings and weighted average number of common stocks used in the computation of earnings per share were as follows:

Earnings


Earnings used in the computation of basic earnings per share $ 5,437,889 $ 4,370,988 Effect of dilutive potential common stocks:

Bonus to employees - - Employee stock options - -

Earnings used in the computation of diluted earnings per share $ 5,437,889 $ 4,370,988

Shares


Weighted average number of common stocks used in the computation of basic earnings per share 1,625,505 1,584,031

Effect of dilutive potential common stocks: Bonus to employees 22,815 24,105 Employee stock options 194 2,122

Weighted average number of common stocks used in the computation of diluted earnings per share 1,648,514 1,610,258

If the Corporation may settle the bonuses paid to employees by cash or shares, the Corporation presumes that the entire amount of the bonus would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share when the shares had a dilutive effect. Such dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

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25. SHARE-BASED PAYMENT

On September 18, 2003, the Securities and Futures Bureau approved the Corporation’s Employee StockOption Plan (hereinafter referred to as the 2003 Plan). The 2003 Plan consisted of 70,000 thousand units.These options generally vest at a certain percentage from two years after the date of grant and the optionsgranted are valid for 10 years.

Information about stock options was as follow:


Number of Weighted- Number of Weighted- Outstanding average Outstanding average Stock Option Exercise Stock Option Exercise

Rights Price Rights Price (In Thousands) (NT$) (In Thousands) (NT$)

Balance at January 1 4,062 $ 14.50 17,923 $ 15.25 Options exercised (4,062) 14.50 (13,730) 15.29 Options canceled - - (131) 15.70

Balance at December 31 - - 4,062 14.50

26. OPERATING LEASE ARRANGEMENTS

The Corporation as lessee

The Corporation leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from April 2015, June 2015, March 2016, December 2027 and December 2029.The rental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to thelease contract, and the lease is renewable upon expiration.

The future minimum lease payments of non-cancellable operating leases are as follows:

December 31 2014 2013

Not later than 1 year $ 70,123 $ 79,373 Later than 1 year and not later than 5 years 249,806 257,583 Later than 5 years 520,516 582,863

$ 840,445 $ 919,819

The lease payments recognized as expenses were as follows:


Minimum lease payment $ 79,373 $ 79,240

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27. CAPITAL MANAGEMENT

The Corporation manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Corporation’s overall strategy has no significant variations.

The capital structure of the Corporation consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital surplus, retained earnings and other equity).

The Corporation is not subject to any externally imposed capital requirements.

28. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments

1) Financial instruments not carried at fair value

Except as detailed in the following table, the management considers that the carrying amounts offinancial assets and financial liabilities recognized in the parent company only financial statementsapproximate their fair values or their fair values cannot be reliably measured.

December 31 2014 2013



Financial assets

Other current assets Structured time deposit $ 387,392 $ 389,013 $ 358,800 $ 359,218

2) Fair value measurements recognized in the parent company only balance sheets

The following table provides an analysis of financial instruments that are measured subsequent toinitial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fairvalue is observable:

a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities;

b) Level 2 fair value measurements are those derived from inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e. as prices) orindirectly (i.e. inferred from prices); and

c) Level 3 fair value measurements are those inferred from valuation techniques that include inputsfor the asset or liability that are not based on observable market data (unobservable inputs).

243


December 31, 2014

Level 1 Level 2 Level 3 Total

Financial assets at FVTPL Derivative financial

instruments $ 111,369 $ 187,525 $ - $ 298,894Funds 512,097 - - 512,097

$ 623,466 $ 187,525 $ - $ 810,991

Available-for-sale financial assetsDomestic listed stocks -

equity investment $ 25,738 $ 117,300 $ - $ 143,038

Financial liabilities at FVTPL Derivative financial

instruments $ - $ 105,790 $ - $ 105,790

December 31, 2013

Level 1 Level 2 Level 3 Total

Financial assets at FVTPL Derivative financial

instruments $ 111,519 $ 233,434 $ - $ 344,953

Available-for-sale financial assetsDomestic listed stocks -

equity investment $ 24,913 $ - $ - $ 24,913

Financial liabilities at FVTPL Derivative financial

instruments $ - $ 33,823 $ - $ 33,823

There were no transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013, respectively.

3) Valuation techniques and assumptions applied for the purpose of measuring fair value

The fair values of financial assets and financial liabilities are determined as follows:

a) The fair values of financial assets and financial liabilities with standard terms and conditionsand traded in active liquid markets are determined with reference to quoted market prices(including listed stocks, funds and convertible (exchangeable) bonds).

b) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.

Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.

244


b. Categories of financial instruments

December 31 2014 2013

Financial assets

Fair value through profit or loss (FVTPL) Held for trading $ 513,703 $ 4,960 Designated as at FVTPL 297,218 339,993

Derivative instruments designated as hedge accounting 70 - Loans and receivables (Note 1) 21,669,273 19,588,815 Available-for-sale financial assets (Note 2) 205,754 87,629


Fair value through profit or loss (FVTPL) Held for trading 90,584 21,499

Derivative instruments designated as hedge accounting 15,206 12,324 Measured at amortized cost (Note 3) 5,085,501 3,472,677

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, other financial assets, notes and accounts receivable, and other receivables.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payable and other payables.

c. Objectives and policies of financial risk management

The Corporation’s major financial instruments include equity investments, accounts receivable, andaccounts payable. The Corporation’s Corporate Finance function provides services to the businessdepartment, coordinates access to domestic and international financial markets, monitors and managesthe financial risks relating to the operations of the Corporation through internal risk reports whichanalyze exposures by degree and magnitude of risks. These risks include market risk (includingcurrency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Corporation seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Corporation’s policiesapproved by the board of directors, which provided written principles on foreign exchange risk, interestrate risk, credit risk, the use of derivative and non-derivative financial instruments, and the investmentof excess liquidity. The compliance with policies and the control of exposure limits is continuouslyreviewed by the internal auditors. The Corporation does not enter into or trade financial instruments,including derivative financial instruments, for speculative purposes.

The Corporate Finance function reports quarterly to the Corporation’s Board of Directors and AuditCommittee for their independent monitorship to risks and policy implementation.

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1) Market risk

The Corporation’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Corporation enters into a variety of derivative financial instruments includingforward exchange and currency-swap contracts to manage its exposure to foreign currency risk.

There has been no change in the Corporation’s exposure to market risks and the manner in whichthese risks are managed and measured.

a) Foreign currency risk

The Corporation’s operating activities are partially denominated in foreign currencies and applythe natural hedge. The purpose of the Corporation’s management of the foreign currency riskis to hedge the risk instead of making a profit.

The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Corporation selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheCorporation currently utilizes derivative financial instruments, primarily buy/sell forwardexchange contracts, to hedge its currency exposure.

The Corporation uses forward exchange contracts to eliminate currency exposure. It is theCorporation’s policy to negotiate the terms of the hedge derivatives to match the terms of thehedged item for maximizing the hedge effectiveness.

Investing in foreign operations is for strategic purposes; it is not hedged by the Corporation.

Sensitivity analysis

The Corporation is mainly exposed to the exchange rate fluctuation of USD and RMB.

The following table details the Corporation’s sensitivity to a 5% increase and decrease in theNew Taiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, accounts receivables, other receivables, accountspayables, and other payables) and the hedge contracts, for which their translation at period endis adjusted for a 5% change in foreign currency rates. The following table indicates theinfluences which the New Taiwan dollars strengthen 5% against USD dollars and RMB.

Impact on USD Items Years Ended December 31

2014 2013

Gains $ 36,268 $ 29,801

Impact on RMB Items Years Ended December 31

2014 2013

Losses $ (46,057) $ (17,367)

b) Interest rate risk

The Corporation’s financial assets are exposed to interest rate risk both at fixed and floatinginterest rates.

246


The carrying amounts of the Corporation’s financial assets with exposure to interest rates at the end of the reporting period were as follows:

December 31 2014 2013

Fair value interest rate risk Financial assets $ 15,670,797 $ 13,307,216

Cash flow interest rate risk Financial assets 2,119,100 3,395,499


The sensitivity analyses below are determined based on the Corporation’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset outstanding at the end of the reporting period is outstanding for the whole year.

If the market interest rate increases/decreases by 0.1% and all other variables are constant, the pre-tax profit of the Corporation for the years ended on December 31, 2014 and 2013 will increases/decreases $2,119 thousand and $3,395 thousand, respectively, resulting from the exposure of the net assets with floating rate.

c) Other price risk

The Corporation is exposed to equity price risk arising from its investments in listed equitysecurities. Equity investments are held for strategic rather than trading purposes. TheCorporation does not actively trade these investments. The Corporation’s equity price risk ismainly concentrated on equity instruments of electronic industry quoted in the Taiwan StockExchange and GreTai Securities Market.


The sensitivity analyses below were determined based on the exposure to equity price risks atthe end of the reporting period.

If equity prices had been 5% higher/lower, the other comprehensive income for the years endedDecember 31, 2014 and 2013 would have increased/decreased by $7,152 thousand and $1,246thousand, respectively, as a result of the changes in fair value of available-for-sale financialinvestments.

2) Credit risk

Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Corporation. As of the end of the reporting period, the Corporation may havea financial loss due to the default on obligation from counterparts, and the maximum exposure tocredit risk is the carrying amount of the respective recognized financial assets as stated in the parentcompany only balance sheets.

In order to mitigate credit risk, the Corporation has made the policy of credit management to ensurethat appropriate action is taken to recover overdue receivables. In addition, the Corporationreviews the recoverable amount of each receivable debt at the end of the reporting period to ensurethat adequate impairment losses are made for irrecoverable amounts. In this regard, theCorporation considers the credit risk is significantly reduced.

247


The credit risk on operating funds and derivatives is limited as the counterparts are creditworthy banks.

The Corporation’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customers’ financial conditions.

The Corporation’s credit concentration risk was related to the five largest customers. Besides the five largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivables at any time during the period. The five largest customers are creditworthy counterparts, therefore, the Corporation believes the concentration of credit risk is insignificant for the remaining accounts receivable.

3) Liquidity risk

The Corporation manages liquidity risk by monitoring and maintaining adequate reserves of cashand cash equivalents to fund the Corporation’s operations and mitigate the effects of fluctuations incash flows.

The following tables detail the Group’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Corporation canbe required to pay. The tables include both interest and principal cash flows.

December 31, 2014

Less Than 1 Year

More Than 1 Year

Non-derivative financial liabilities

Non-interest bearing $ 2,277,508 $ -

December 31, 2013

Less Than 1 Year

More Than 1 Year

Non-derivative financial liabilities

Non-interest bearing $ 1,604,395 $ -

The following tables detail the Corporation’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.

December 31, 2014 Less Than

1 Year More Than

1 Year Gross settled

Forward exchange contracts Inflows $ 5,442,500 $ - Outflows (5,546,614) -

$ (104,114) $ -

248


December 31, 2013

Less Than 1 Year

More Than 1 Year

Gross settled

Forward exchange contracts Inflows $ 5,138,981 $ - Outflows (5,167,844) -

$ (28,863) $ -

29. TRANSACTIONS WITH RELATED PARTIES

a. Operating transactions

Revenue from Sales of Goods Years Ended December 31

2014 2013

Investors that have significant influence over the Corporation $ 7,362,019 $ 6,921,443 Associates $ 21,582 $ 13,641 Key management personnel $ 66,104 $ 27,402 Substantial related parties $ 38,036 $ 12,421

Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31

2014 2013 2014 2013

Investors that have significant influence over the Corporation $ 471,272 $ 564,700 $ 1,298 $ 1,358

Associates $ - $ - $ - $ 748

Marketing Expenses Rental Revenue Years Ended December 31 Years Ended December 31

2014 2013 2014 2013

Subsidiaries $ 58,116 $ 48,271 $ - $ - Substantial related parties - - 22,371 25,567

$ 58,116 $ 48,271 $ 22,371 $ 25,567

Nonoperating Income and GainsYears Ended December 31

2014 2013

Investors that have significant influence over the Corporation $ 22,895 $ 34,480 Key management personnel 474 32

$ 23,369 $ 34,512

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Purchase of Property, Plant and Equipment

Years Ended December 2014 2013

Substantial related parties $ - $ 11,325

The following balances were outstanding at the end of the reporting period:

Receivables from Related PartiesDecember 31

2014 2013

Investors that have significant influence over the Corporation $ 693,310 $ 718,378 Key management personnel 28,918 4,958 Associates 3,348 2,123 Substantial related parties 3,595 1,897

$ 729,171 $ 727,356

Other Receivables from Related Parties

December 31 2014 2013

Investors that have significant influence over the Corporation $ 15,096 $ 13,209 Key management personnel 1,210 - Substantial related parties 2,209 8,055

$ 18,515 $ 21,264

Other Payables to Related PartiesDecember 31

2014 2013

Investors that have significant influence over the Corporation $ 108,535 $ 105,675 Subsidiaries 5,458 7,135

$ 113,993 $ 112,810

Guarantee Deposits (Other Non-Current Liabilities)

December 31 2014 2013

Substantial related parties $ - $ 5,814

The terms of sales transactions with related parties were not significantly different from those of sales to third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.

250


The Corporation leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental in advance.

The Corporation purchased equipment from related party. The terms were based on related contracts.

Guarantee deposits of related parties were for lease.

b. Compensation of key management personnel

The remuneration of directors and other members of key management personnel for the years endedDecember 31, 2014 and 2013 were as follows:


Short-term employee benefits $ 194,935 $ 170,181 Share-based payments 13,806 10,804 Post-employment benefits 2,086 17,892

$ 210,827 $ 198,877

The remuneration of directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

30. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:

December 31 2014 2013

Pledged time deposits (presented under other non-current assets) $ 303,384 $ 283,300

31. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The significant commitments of the Corporation as of December 31, 2014 were as follows:

a. The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees accordingto the net sales of certain products and reserve a portion of its production capacity.

b. As of December 31, 2014, the unused letters of credit aggregated was about JPY9,600 thousand.

251


32. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED INFOREIGN CURRENCIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:


Foreign Currencies Exchange Rate

Foreign Currencies Exchange Rate

Financial assets

Monetary items USD $ 177,777 31.604 $ 150,868 29.80 EUR 799 38.65 228 41.18 JPY 31,171 0.2665 74,695 0.2865 RMB 181,183 5.084 70,624 4.919

Non-monetary items USD 9,235 31.604 8,912 29.80


Monetary items USD 26,229 31.604 17,369 29.80 EUR 672 38.65 365 41.18 JPY 239,662 0.2665 175,655 0.2865

33. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees:

a. Loans provided to other parties: None.

b. Endorsement/guarantee provided: None.

c. Marketable securities held (excluding investment in subsidiaries, associates and jointly controlledentities): Table 1 (attached)

d. Purchases or sales of the same marketable securities amounting to at least NT$300 million or 20% ofthe paid-in capital: None.

e. Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital:Table 2 (attached)

f. Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: None.

g. Purchase or sale with related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 3 (attached)

252


h. Receivable from related parties amounting to at least $100 million or 20% of the paid-in capital:Table 4 (attached)

i. Derivative transactions: Notes 7 and 9.

j. Information on investees: Table 5 (attached)

k. Information on investment in Mainland China: None.

253


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ond

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equi

ty

met

hod

258


THE CONTENTS OF STATEMENTS OF MAJOR ACCOUNTING ITEMS

ITEM STATEMENT INDEX

MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND EQUITY STATEMENT OF CASH AND CASH EQUIVALENTS 1 STATEMENT OF FINANCIAL ASSETS AT FAIR VALUE THROUGH

PROFIT OR LOSS Note 7

STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE 2 STATEMENT OF INVENTORIES 3 STATEMENT OF PREPAID EXPENSES 4 STATEMENT OF OTHER CURRENT ASSETS Note 16 STATEMENT OF CHANGES IN AVAILABLE-FOR-SALE FINANCIAL

ASSETS - NONCURRENT 5

STATEMENT OF CHANGES IN FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

6

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

7

STATEMENT OF CHANGES IN PROPERTY, PLANT AND EQUIPMENT Note 14 STATEMENT OF CHANGES IN ACCUMULATED DEPRECIATION AND

ACCUMULATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Note 14

STATEMENT OF CHANGES IN INTANGIBLE ASSETS Note 15 STATEMENT OF DEFERRED INCOME TAX ASSETS Note 23 c. STATEMENT OF OTHER NONCURRENT ASSETS Note 16 STATEMENT OF NOTES AND ACCOUNTS PAYABLE 8 STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT

SUPPLIERS 9

STATEMENT OF PROVISIONS Note 18 STATEMENT OF OTHER CURRENT LIABILITIES 10 STATEMENT OF DEFERRED TAX LIABILITIES Note 23 c.

MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS STATEMENT OF NET REVENUE 11 STATEMENT OF COST OF REVENUE 12 STATEMENT OF OPERATING EXPENSES 13 STATEMENT OF OTHER INCOME Note 22 a. SUMMARY STATEMENT OF EMPLOYEE BENEFITS, DEPRECIATION

AND AMORTIZATION EXPENSES BY FUNCTION 14

259


STATEMENT 1


STATEMENT OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Item Description

Annual Interest

Rate (%) Amount

Cash in banks Time deposits Including NT$15,386,413 thousand,

US$30,506 thousand @31.604 and CNY83,397 thousand @5.084

0.45-3.30 $ 16,774,503

Current accounts Including NT$24,940 thousand, US$10,655 thousand @31.604, JPY31,171 thousand @0.2665, EUR799 thousand @38.65, CNY91 thousand @5.084, small amount of HKD and SGD

0-1.09 401,431

Checking accounts 722Pledged time deposit (303,384)

16,873,272Bonds acquired under resale

agreements Expired by the end of January, 2015 0.60-0.62 40,000

$ 16,913,272

260


STATEMENT 2


STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars)

Client Name Amount

Notes receivable $ 183 Accounts receivable

Client A 1,155,216 Client B 417,624 Client C 188,927 Others (Note) 1,501,481

3,263,248Less: Allowance for doubtful accounts (1,987)

$ 3,261,444

Note: The amount of individual client included in others does not exceed 5% of the account balance.

261


STATEMENT 3


STATEMENT OF INVENTORIES DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars)

Amount

Item CostNet Realizable

Value

Finished goods $ 418,565 $ 458,361 Work in process 1,397,276 3,645,925 Raw materials 281,253 353,389 Supplies and spare parts 401,306 401,306

$ 2,498,400 $ 4,858,981

Note: Inventories were fully insured according to the amount in the parent company only balance sheet.

262


STATEMENT 4


STATEMENT OF PREPAID EXPENSES DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars)

Item Amount

Rental $ 64,714 Long-service bonuses 17,337 Natural gas 9,230 Book, newspaper and magazines 5,618 Others (Note) 16,746

$ 113,645

Note: The amount of each item in others does not exceed 5% of the account balance.

263


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OR

CO

RP

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AT

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AT

EM

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ES

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STM

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EN

DE

D D

EC

EM

BE

R 3

1, 2

014

(In

Th

ousa

nd

s of

New

Tai

wan

Dol

lars

, Un

less

Sta

ted

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erw

ise)

Inve

stm

ent

Cha

nge

s in

For

eign

Los

s

Equ

ity

Cu

rren

cyB

alan

ce, J

anua

ry 1

, 201

4 R

ecog

niz

ed b

yR

ecog

niz

ed b

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xch

ange

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alan

ce, D

ecem

ber

31,

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4 Sh

ares

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ddi

tion

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e E

quit

y th

e E

qu

ity

Val

uat

ion

S

har

es

Net

Ass

ets

Inve

stee

s (I

n T

hou

sand

s)A

mou

nt

(Not

e 1)

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etho

d

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hod

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iffe

ren

ce

(In

Th

ousa

nd

s)%

A

mou

nt

Val

ue

Col

late

ral

Rem

ark

s

VIS

Ass

ocia

tes

Inc.

6

$

265,

592

$

12,6

95

$

(6,8

66)

$

4,06

7 $

16

,387

6

100

$

291,

875

$

291,

875

Nil

N

ote

2

CM

SC

, Inc

. 9,

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55,5

27

- (5

,176

) 96

-

9,

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50,4

47

50,4

47

Nil

Not

e 3

$

32

1,11

9

$

12,6

95

$

(12,

042)

$

4,16

3 $

16

,387

$

342,

322

$

34

2,32

2

Not

e 1:

T

he a

ddit

ion

is th

e co

mpe

nsat

ion

cost

gen

erat

ed f

rom

the

gran

t of

trea

sury

sto

ck o

f pa

rent

com

pany

to e

mpl

oyee

s of

sub

sidi

ary.

Not

e 2:

T

he n

et v

alue

was

bas

ed o

n au

dite

d fi

nanc

ial s

tate

men

ts o

f th

e sa

me

peri

od.

Not

e 3:

T

he n

et v

alue

was

bas

ed o

n un

audi

ted

fina

ncia

l sta

tem

ents

of

the

sam

e pe

riod

.

266


STATEMENT 8


STATEMENT OF NOTES AND ACCOUNTS PAYABLE DECEMBER 31, 2014 (In thousands of New Taiwan Dollars)

Vendor Name Amount

Notes payable $ 528

Accounts payable Formosa Sumco Technology Corporation 143,751 Shin-Etsu Silli cone Taiwan CO., LTD. 134,461 Global Wafers Co., LTD. 71,177 Taisil Electronic Materials Corporation 62,650 Others (Note) 747,499

1,159,538

$ 1,160,066


267


STATEMENT 9


STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS DECEMBER 31, 2014 (In thousands of New Taiwan Dollars)

Vendor Name Amount

AXCELIS TECHNOLOGIES, INC. $ 120,623

M+W High Tech Projects Taiwan Co., Ltd. 33,103

Others (Note) 254,625

$ 408,351

Note: The amount of individual vendor in others does not exceed 5% of the account balance.

268


STATEMENT 10


STATEMENT OF OTHER CURRENT LIABILITIES DECEMBER 31, 2014 (In thousands of New Taiwan Dollars)

Item Amount

Bonuses $ 644,281

Maintenance 343,613

Utilities 148,855

Others (Note) 663,148

$ 1,799,897


269


STATEMENT 11


STATEMENT OF NET REVENUE FOR THE YEAR ENDED DECEMBER 31, 2014 (In thousands of New Taiwan Dollars and pieces)

Item Shipments (Piece) Item

Chips 1,835,789 $ 23,879,788Other 256,622

24,136,410Sales returns and discounts (204,931)

$ 23,931,479

270


STATEMENT 12


STATEMENT OF COST OF REVENUE FOR THE YEAR ENDED DECEMBER 31, 2014 (In thousands of New Taiwan Dollars)

Item Amount

Raw materials used Balance, beginning of year $ 270,122Raw material purchased 2,408,355Raw materials, end of year (281,253)Transferred to manufacturing or operating expenses (160,553)

2,236,671Direct labors 1,091,599Manufacturing expenses 12,287,373Manufacturing cost 15,615,643Work in process, beginning of year 1,106,269Semi - finished products purchased 310,394Work in process, end of year (1,397,276)Transferred to manufacturing or operating expenses (92)Cost of finished goods 15,634,938Finished goods, beginning of year 103,477Finished goods, end of year (418,565)Transferred to manufacturing or operating expenses (2,044)

Cost of revenue $ 15,317,806

271


STATEMENT 13


STATEMENT OF OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2014 (In thousands of New Taiwan Dollars)

Item Marketing

Expense

General and Administrative

Expense

Research and Development

Expense

Payroll and related expense $ 158,233 $ 558,601 $ 418,868

Commission 61,944 - -

Research project expense 801 8,391 679,113

Others (Note) 29,692 401,479 94,147

$ 250,670 $ 968,471 $ 1,192,128


272


ST

AT

EM

EN

T 1

4

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ER

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4 A

ND

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3 (I

n t

hou

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ds

of N

ew T

aiw

an D

olla

rs)

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r E

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ecem

ber

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4 Y

ear

En

ded

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emb

er 3

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013

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ssif

ied

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ssif

ied

as

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t of

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per

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ses

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al

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t of

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per

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Tot

al

Em

ploy

ee b

enef

its

expe

nses

Sal

ary

and

bonu

s $

3,

949,

329

$

1,15

3,59

4 $

5,

102,

923

$

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$

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abor

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ensi

on

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629

34,7

96

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50,8

59

179,

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ers

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821

13,4

77

139,

298

96,4

39

27,4

88

123,

927

$

4,

494,

225

$

1,

259,

553

$

5,

753,

778

$

3,

825,

870

$

1,14

2,84

5

$

4,96

8,71

5

Dep

reci

atio

n

$

2,01

2,53

3

$

59,9

49

$

2,

072,

482

$

2,

214,

757

$

58,3

49

$

2,

273,

106

Am

orti

zati

on

$

3,

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$

5,

001

$

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837

$

1,

359

$

2,63

9

$

3,99

8

Not

e:

As

of D

ecem

ber

31, 2

014

and

2013

, the

Cor

pora

tion

had

4,9

94 a

nd 3

,873

em

ploy

ees

resp

ecti

vely

.

273


Ching-Chu Chang, Chairman

spokesman - vis … · vanguard international semiconductor corporation (vis) is a leading...

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