Hiwin Technologies Corporation and Subsidiaries- 3 - HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES...

Hiwin Technologies Corporation and Subsidiaries

Consolidated Financial Statements for the Six Months Ended June 30, 2014 and 2013 and Independent Accountants’ Review Report

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HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

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

(Reviewed) (Audited) (Reviewed)

ASSETS Amount % Amount % Amount %

CURRENT ASSETS

Cash (Note 6) $ 2,246,912 8 $ 1,185,673 4 $ 1,235,275 5

Financial assets at fair value through profit or loss - current (Note 7) 77 - - - 756 -

Notes receivable from unrelated parties, net (Notes 10 and 27) 157,163 1 141,709 1 155,389 -

Notes receivable from related parties, net (Note 26) 5,644 - 69,275 - 17,795 -

Trade receivables from unrelated parties, net (Note 10) 4,825,493 16 4,656,896 17 3,805,394 15

Trade receivables from related parties, net (Note 26) 26,991 - - - 20,336 -

Inventories (Note 11) 4,454,622 15 3,960,986 15 4,221,881 17

Other current assets (Notes 6, 26 and 27) 601,426 2 370,849 1 176,381 1

Total current assets 12,318,328 42 10,385,388 38 9,633,207 38

NON-CURRENT ASSETS

Available-for-sale financial assets - non-current (Note 8) 17 - 16 - 15,060 -

Held-to-maturity financial assets - non-current 3,258 - 3,369 - 3,369 -

Financial assets measured at cost - non-current (Note 9) 360,954 1 360,954 1 339,954 1

Investments accounted for using equity method (Note 12) 103,527 - 99,181 - 88,018 -

Property, plant and equipment (Notes 13, 15 and 27) 13,825,449 47 13,902,937 50 12,653,412 50

Deferred tax assets (Note 4) 125,121 - 136,389 1 174,171 1

Prepayments for machinery and equipment 2,486,295 8 2,337,571 8 2,231,733 9

Refundable deposits 226,148 1 222,087 1 18,760 -

Other non-current assets (Notes 6, 10, 15 and 27) 174,385 1 163,096 1 98,039 1

Total non-current assets 17,305,154 58 17,225,600 62 15,622,516 62

TOTAL $ 29,623,482 100 $ 27,610,988 100 $ 25,255,723 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 14 and 27) $ 5,560,430 19 $ 5,120,653 19 $ 4,519,794 18

Financial liabilities at fair value through profit or loss - current

(Note 7) 26 - 2,792 - 717 -

Notes payable 7,509 - 20,518 - 12,449 -

Trade payables to unrelated parties 1,901,422 6 1,868,197 7 1,595,435 6

Trade payables to related parties (Note 26) 127,825 - 90,075 - 107,433 -

Other payables (Note 16) 1,153,114 4 1,029,653 4 869,957 4

Dividends payable 685,316 2 - - 665,355 3

Current tax liabilities (Note 4) 347,540 1 315,136 1 200,178 1

Current portion of long-term borrowings (Notes 14, 15 and 27) 1,132,847 4 1,252,797 4 1,029,697 4

Other current liabilities 159,524 1 118,764 - 107,313 -

Total current liabilities 11,075,553 37 9,818,585 35 9,108,328 36

NON-CURRENT LIABILITIES

Long-term borrowings (Notes 14 and 27) 5,708,903 19 5,210,736 19 5,110,926 20

Deferred tax liabilities (Note 4) 151,486 1 151,754 1 153,456 -

Finance lease payables - non-current (Note 15) 409,294 1 420,165 1 430,887 2

Accrued pension liabilities (Note 4) 213,863 1 213,850 1 214,216 1

Guarantee deposits received 300 - 300 - 300 -

Total non-current liabilities 6,483,846 22 5,996,805 22 5,909,785 23

Total liabilities 17,559,399 59 15,815,390 57 15,018,113 59

EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION

Common stock 2,538,208 9 2,538,208 9 2,464,280 10

Stock dividend to be distributed 76,146 - - - 73,928 -

Capital surplus- additional paid-in capital 308,630 1 308,630 1 308,630 1

Retained earnings

Legal reserve 1,355,627 5 1,153,469 4 1,153,469 5

Special reserve - - 163,449 1 163,449 1

Unappropriated earnings 7,128,300 24 7,065,846 26 5,678,209 22

Other equity 2,830 - 2,154 - (33,950) -

Total equity attributable to owners of the Corporation 11,409,741 39 11,231,756 41 9,808,015 39

NON-CONTROLLING INTERESTS 654,342 2 563,842 2 429,595 2

Total equity 12,064,083 41 11,795,598 43 10,237,610 41

TOTAL $ 29,623,482 100 $ 27,610,988 100 $ 25,255,723 100

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche review report dated August 11, 2014)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

(Reviewed, Not Audited)

For the Three Months Ended June 30 For the Six Months Ended June 30

2014 2013 2014 2013

Amount % Amount % Amount % Amount %

SALES (Note 26) $ 3,538,429 100 $ 2,803,323 100 $ 6,550,399 100 5,176,878 100

COST OF GOODS SOLD

(Notes 11, 17, 19 and

26) 2,149,884 61 1,742,166 62 3,962,978 61 3,286,218 64

GROSS PROFIT 1,388,545 39 1,061,157 38 2,587,421 39 1,890,660 36

OPERATING EXPENSES

(Notes 17, 19 and 26)

Selling and marketing

expenses 298,472 8 226,663 8 526,497 8 405,350 8

General and

administrative

expenses 272,199 8 95,612 3 498,437 7 476,675 9

Research and

development expenses 207,267 6 152,282 6 369,077 6 256,880 5

Total operating

expenses 777,938 22 474,557 17 1,394,011 21 1,138,905 22

PROFIT FROM

OPERATIONS 610,607 17 586,600 21 1,193,410 18 751,755 14

NON-OPERATING

INCOME AND

EXPENSES

Finance costs (Note 19) (44,251) (1) (37,420) (2) (85,753) (1) (74,340) (2)

Other income (Notes 12

and 26) 18,094 - 26,726 1 34,267 - 32,267 1

Net foreign exchange

gain (loss) (78,531) (2) 49,143 2 10,534 - 142,702 3

Other expenses (1,950) - (1,316) - (7,826) - (4,384) -

Total non-operating

income and

expenses (106,638) (3) 37,133 1 (48,778) (1) 96,245 2

PROFIT BEFORE

INCOME TAX 503,969 14 623,733 22 1,144,632 17 848,000 16

INCOME TAX EXPENSE

(Notes 4 and 20) 213,778 6 215,385 8 355,947 5 263,245 5

NET PROFIT FOR THE

PERIOD 290,191 8 408,348 14 788,685 12 584,755 11

(Continued)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)


For the Three Months Ended June 30 For the Six Months Ended June 30

2014 2013 2014 2013

Amount % Amount % Amount % Amount %

OTHER

COMPREHENSIVE

INCOME

Exchange differences on

translating foreign

operations $ (36,045) (1) $ 15,412 1 $ 1,254 - $ 8,736 1

Unrealized gain (loss)

on available-for-sale

financial assets (1) - 7,993 - 1 - 7,254 -

Income tax benefit

(expense) relating to

the components of

other comprehensive

income 6,128 - - - (579) - - -

Other

comprehensive

income (loss) for

the period (29,918) (1) 23,405 1 676 - 15,990 1

TOTAL

COMPREHENSIVE

INCOME FOR THE

PERIOD $ 260,273 7 $ 431,753 15 $ 789,361 12 $ 600,745 12

NET PROFIT

ATTRIBUTABLE TO:

Owners of the

Corporation $ 328,387 9 $ 435,247 16 $ 862,625 13 $ 634,260 12

Non-controlling interests (38,196) (1) (26,899) (1) (73,940) (1) (49,505) (1)

$ 290,191 8 $ 408,348 15 $ 788,685 12 $ 584,755 11

TOTAL

COMPREHENSIVE

INCOME

ATTRIBUTABLE TO:

Owners of the

Corporation $ 298,469 8 $ 458,652 16 $ 863,301 13 $ 650,250 13

Non-controlling interests (38,196) (1) (26,899) (1) (73,940) (1) (49,505) (1)

$ 260,273 7 $ 431,753 15 $ 789,361 12 $ 600,745 12

EARNINGS PER SHARE

(Note 21)

Basic $ 1.29 $ 1.71 $ 3.40 $ 2.50

Diluted $ 1.29 $ 1.71 $ 3.39 $ 2.49


(With Deloitte & Touche review report dated August 11, 2014) (Concluded)

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars, Except Dividends Per Share)


Equity Attributable to Owners of the Corporation (Note 18)

Other Equity

Exchange Unrealized

Retained Earnings Differences on Gain (Loss) on

Stock Unappropriated Translating Available-for- Non-controlling

Common Stock

Dividend to be

Distributed Capital Surplus Legal Reserve Special Reserve

Earnings

(Note 20)

Foreign

Operations

Sale Financial

Assets Total

Interests

(Note 22) Total Equity

BALANCE AT JANUARY 1, 2013 $ 2,464,280 $ - $ 308,630 $ 953,150 $ 132,863 $ 6,014,137 $ (45,404) $ (4,536) $ 9,823,120 $ 479,100 $ 10,302,220

Appropriation of 2012 earnings

Legal reserve - - - 200,319 - (200,319) - - - - -

Special reserve - - - - 30,586 (30,586) - - - - -

Cash dividends - NT$2.7 per share - - - - - (665,355) - - (665,355) - (665,355)

Share dividends - NT$0.3 per share - 73,928 - - - (73,928) - - - - -

- 73,928 - 200,319 30,586 (970,188) - - (665,355) - (665,355)

Net profit for the six months ended June 30, 2013 - - - - - 634,260 - - 634,260 (49,505) 584,755

Other comprehensive income (loss) for the six months ended

June 30, 2013, net of income tax - - - - - - 8,736 7,254 15,990 - 15,990

Total comprehensive income (loss) for the six months ended

June 30, 2013 - - - - - 634,260 8,736 7,254 650,250 (49,505) 600,745

BALANCE AT JUNE 30, 2013 $ 2,464,280 $ 73,928 $ 308,630 $ 1,153,469 $ 163,449 $ 5,678,209 $ (36,668) $ 2,718 $ 9,808,015 $ 429,595 $ 10,237,610

BALANCE AT JANUARY 1, 2014 $ 2,538,208 $ - $ 308,630 $ 1,153,469 $ 163,449 $ 7,065,846 $ 2,151 $ 3 $ 11,231,756 $ 563,842 $ 11,795,598

Appropriation of 2013 earnings

Legal reserve - - - 202,158 - (202,158) - - - - -

Reversal of special reserve - - - - (163,449) 163,449 - - - - -

Cash dividends - NT$2.7 per share - - - - - (685,316) - - (685,316) - (685,316)

Share dividends - NT$0.3 per share - 76,146 - - - (76,146) - - - - -

- 76,146 - 202,158 (163,449) (800,171) - - (685,316) - (685,316)

Changes in non-controlling interests - - - - - - - - - 164,440 164,440

Net profit for the six months ended June 30, 2014 - - - - - 862,625 - - 862,625 (73,940) 788,685

Other comprehensive income (loss) for the six months ended

June 30, 2014, net of income tax - - - - - - 675 1 676 - 676

Total comprehensive income (loss) for the six months ended

June 30, 2014 - - - - - 862,625 675 1 863,301 (73,940) 789,361

BALANCE AT JUNE 30, 2014 $ 2,538,208 $ 76,146 $ 308,630 $ 1,355,627 $ - $ 7,128,300 $ 2,826 $ 4 $ 11,409,741 $ 654,342 $ 12,064,083


(With Deloitte & Touche review report dated August 11, 2014)

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CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Six Months Ended

June 30

2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 1,144,632 $ 848,000

Adjustments for :

Depreciation expenses 543,219 520,665

Impairment loss recognized on receivables 8,815 82,272

Finance costs 85,753 74,340

Unrealized foreign currency exchange loss (gain), net 13,132 (35,098)

Impairment loss recognized on non-financial assets 460 12,052

Amortization expenses 7,364 8,705

Gain on disposal of investments - (3,575)

Share of profit of associates accounted for using equity method (4,298) (2,638)

Loss on disposal of property, plant and equipment 1,507 2,458

Net loss (gain) on fair value change of financial assets and liabilities

at fair value through profit or loss

(51) 1,583

Others 111 -

Changes in operating assets and liabilities

Financial instruments held for trading (2,792) (3,233)

Notes receivable 48,863 12,829

Trade receivables (215,165) 527,054

Inventories (459,764) (450,988)

Other current assets 111,512 (31,230)

Notes payable (13,009) 9,364

Trade payables 67,702 (33,337)

Accrued pension liabilities 13 118

Other payables (4,746) (76,192)

Other current liabilities 40,283 36,342

Cash generated from operations 1,373,541 1,499,491

Interest paid (86,443) (65,070)

Income taxes paid (313,520) (508,072)

Net cash generated from operating activities 973,578 926,349

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for property, plant and equipment (190,105) (533,711)

Increase in prepayments for machinery and equipment (329,788) (241,645)

Decrease (increase) in other financial assets (341,590) 46,904

Proceeds from sale of available-for-sale financial assets - 20,672

Increase in other non-current assets (24,249) (12,231)

Purchase of held-to-maturity financial assets - (3,369)

Increase in refundable deposits (3,328) (2,422)

Proceeds from disposal of property, plant and equipment 1,523 302

Net cash used in investing activities (887,537) (725,500)

(Continued)

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CONSOLIDATED STATEMENTS OF CASH FLOWS




June 30

2014 2013

CASH FLOWS FROM FINANCING ACTIVITIES

Repayments of long-term borrowings $ (702,052) $ (457,210)

Proceeds from short-term borrowings 437,108 186,439

Repayments of finance lease payable (10,556) (9,925)

Changes in non-controlling interests 168,127 -

Proceeds from long-term borrowings 1,085,740 -

Net cash generated from (used in) financing activities 978,367 (280,696)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES

(3,169) (1,967)

NET INCREASE (DECREASE) IN CASH 1,061,239 (81,814)

CASH AT THE BEGINNING OF THE PERIOD 1,185,673 1,317,089

CASH AT THE END OF THE PERIOD $ 2,246,912 $ 1,235,275


(With Deloitte & Touche review report dated August 11, 2014) (Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)


1. GENERAL INFORMATION

Hiwin Technologies Corporation (the “Corporation”) was incorporated on October 11, 1989. It

manufactures and sells ballscrews, linear guideways, industrial robots, aerospace automation equipment

parts, CNC (computer numerical control) milling machines and medical equipment.

The Corporation was approved by the Securities and Futures Commission (renamed “Securities and Futures

Bureau (SFB)”) to become a public Corporation on April 16, 1997. The shares of the Corporation have

been listed on the Taiwan Stock Exchange (“TSE”) since June 26, 2009.

The consolidated financial statements are presented in the Corporation’s functional currency, New Taiwan

dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors on August 11, 2014.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. The 2013 version of the International Financial Reporting Standards (IFRS), International Accounting

Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) in issue but not yet

effective

Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC) on April 3, 2014,

stipulated that the Group should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the

“IFRSs”) endorsed by the FSC 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

ending 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)

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New, Amended and Revised

Standards and Interpretations (the “New IFRSs”)

Effective Date

Announced by IASB (Note)

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 “Employee Benefits” January 1, 2013

IAS 27 “Separate Financial Statements” January 1, 2013

IAS 28 “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, the initial application of the above 2013 IFRSs version has not had 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 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.

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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 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 and share of the actuarial gains

(loss) arising from defined benefit plans of associates accounted for using the equity method.

Items expected to be reclassified to profit or loss are the exchange differences on translating foreign

operations, and unrealized gains (loss) on available-for-sale financial assets.

As of the date the consolidated financial statements were approved, the Group was continuingly to

assess other possible impacts that the application of the 2013 IFRSs version will have on the Group's

financial position and financial performance, and will disclose these other impacts when the assessment

is completed.

b. New IFRSs in issue but not yet endorsed by 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 approved, the FSC had 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

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

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

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 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.

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The initial application of the above New IFRSs has not had 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) For debt instruments, 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) For debt instruments, 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. 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.

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.

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. However, a loss allowance for full lifetime expected

credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Group takes into account the

expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.

Subsequently, any changes in expected losses are recognized as a loss allowance with a

corresponding gain or loss recognized in profit or loss.

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Recognition and measurement of financial liabilities

As for financial liabilities, the main changes in the classification and measurement relate to the

subsequent measurement of financial liabilities designated as at fair value through profit or loss.

The amount of change in the fair value of such financial liability attributable to changes in the credit

risk of that liability is presented in other comprehensive income and the remaining amount of

change in the fair value of that liability is presented in profit or loss, unless the recognition of the

effects of changes in the liability's credit risk in other comprehensive income would create or

enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial

liability's credit risk are not subsequently reclassified to profit or loss. If the above accounting

treatment would create or enlarge an accounting mismatch in profit or loss, the Group presents all

gains or losses on that liability in profit or loss.

2) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards including IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments”

were amended in this annual improvement.

IFRS 3 was amended to clarify that contingent consideration should be measured at fair value,

irrespective of whether the contingent consideration is a financial instrument within the scope of

IAS 39 or IFRS 9. Changes in fair value should be recognized in profit or loss.

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 incurred for the service 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.

3) Annual Improvements to IFRSs: 2011-2013 Cycle

Several standards including IFRS 13 were amended in this annual improvement.

The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial

assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that

are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those

contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.

4) Amendments to IAS 16 “Clarification of Acceptable Methods of Depreciation and Amortization”

The entity should use appropriate depreciation and amortization method to reflect the pattern in

which the future economic benefits of the property, plant and equipment and intangible asset are

expected to be consumed by the entity.

- 14 -

The amended IAS 16 “Property, Plant and Equipment” requires that a depreciation method that is

based on revenue that is generated by an activity that includes the use of an asset is not appropriate.

The amended standard does not provide any exception from this requirement.

An entity should apply the aforementioned amendments prospectively for annual periods beginning

on or after the effective date.

5) 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.

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.

As of the date the consolidated financial statements were approved, the Group is continuingly to

assessing the possible impact that the application of other standards and interpretations will have on the

Group's financial position and financial performance, and will disclose the relevant impact when the

assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 IAS 34 “Interim Financial

Reporting” as endorsed by the FSC. Disclosure information included in the consolidated financial

statements is less than those required in a complete set of annual financial statements.

b. Basis of consolidation

Subsidiaries included in consolidated financial statements

% of Ownership

Investor Investee Main Business

June 30,

2014

December

31, 2013

June 30,

2013

The Corporation Hiwin Corporation, U.S.A.

(“Hiwin USA”)

Manufacture and sale of aerospace

parts, ballscrews, linear guideways and industrial robots

100 100 100

Hiwin Corporation, Japan

(“Hiwin Japan”)



100 100 100

Hiwin GmbH



100 100 100

(Continued)

- 15 -

% of Ownership

Investor Investee Main Business

June 30,

2014

December

31, 2013

June 30,

2013

The Corporation Hulk Energy Technology Co.,

Ltd. (“Hulk”)

Research, development, design,

manufacture and sale of solar cell, electronic components, electric

power supply, electric transmission

and power distribution machinery products

48 49 48

Hiwin Singapore Pte. Ltd.

(“Hiwin Singapore”)



100 100 -

Hiwin Corporation

(“Hiwin Korea”)



100 100 -

Hiwin Technologies (China)

Corporation (“Hiwin China”)

Manufacture and sale of ballscrews,

linear guideways and industrial robots

100 - -

Hiwin GmbH HIWIN S.R.L. Sale of aerospace parts, ballscrews,

linear guideways and industrial robots

100 100 100

(Concluded)

Except the financial statements of Hiwin GmbH for the six months ended June 30, 2014 were reviewed

by the independent accountant, the remaining subsidiaries are non-significant subsidiaries, its financial

statements have not been reviewed.

c. Other significant accounting policies

The same accounting policies of these consolidated financial statements have been followed as were

applied in the preparation of the Group’s consolidated financial statements for the year ended December

31, 2013, except for those described below.

1) Retirement benefit costs

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially

determined pension cost rate at the end of the prior financial year, adjusted for significant market

fluctuations since that time and for significant curtailments, settlements, or other significant

one-time events.

2) Income taxes

Income tax expense is the sum of the tax currently payable and deferred tax. Interim period

income taxes are assessed on an annual basis and calculated by applying to an interim period's

pre-tax income the tax rate that would be applicable to expected total annual earnings.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

The same critical accounting judgments and key sources of estimation uncertainty of consolidated financial

statements have been followed in these consolidated financial statements as were applied in the preparation

of the consolidated financial statements for the year ended December 31, 2013.

- 16 -

6. CASH

June 30, December 31, June 30,

2014 2013 2013

Cash on hand $ 1,572 $ 1,793 $ 1,308

Cash in bank 2,640,093 1,237,819 1,290,221

2,641,665 1,239,612 1,291,529

Less: Pledged time deposits

Current (classified as other current assets) (366,580) (26,908) (11,888)

Non-current (classified as other non-current

assets)

(28,173) (27,031) (44,366)

$ 2,246,912 $ 1,185,673 $ 1,235,275

Deposit interest rate per annum (%)

Cash in bank 0.00-2.00 0.00-1.80 0.00-1.85

Pledged time deposits 0.17-3.35 0.53-1.36 0.53-1.36

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

The financial assets and liabilities at fair value through profit or loss were derivative financial instruments

of foreign exchange forward contracts. At the end of the reporting period, outstanding foreign exchange

forward contracts not under hedge accounting were as follows:

Currency Maturity Date Notional Amount

June 30, 2014

Sell EUR/NTD 2014.8.14-2014.9.26 EUR690/NTD28,092

Sell USD/NTD 2014.8.15 USD500/NTD14,980

Sell GBP/NTD 2014.8.15-2014.9.19 GBP120/NTD6,100

Sell JPY/NTD 2014.7.11-2014.9.16 JPY35,000/NTD10,287

December 31, 2013

Sell EUR/NTD 2014.1.17-2014.4.13 EUR2,970/NTD122,126

Sell USD/NTD 2014.1.16-2014.3.3 USD8,400/NTD250,152


June 30, 2013

Sell EUR/NTD 2013.7.1-2013.9.18 EUR4,220/NTD165,327

Sell USD/NTD 2013.7.1-2013.9.25 USD9,600/NTD287,092

Sell JPY/NTD 2013.7.10-2013.11.15 JPY89,000/NTD27,450


The Group entered into foreign exchange forward contracts to manage exposures due to exchange rate

fluctuations of foreign currency denominated assets and liabilities.

- 17 -

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS


2014 2013 2013

Domestic quoted stocks

Gallant Precision Machining Co., Ltd. (“Gallant”) $ 17 $ 16 $ 15,060

9. FINANCIAL ASSETS MEASURED AT COST


2014 2013 2013

Domestic unlisted common shares

Sunengine Corporation Ltd. (Sunengine) $ 81,346 $ 81,346 $ 76,246

Hiwin Mikrosystem Corp. (Hiwin

Mikrosystem)

37,922 37,922 22,022

Taichung International Country Club 2,100 2,100 2,100

King Kong Iron Work Ltd. - - -

121,368 121,368 100,368

Overseas unlisted common shares

Kaland Holdings Corp. (Kaland) 236,266 236,266 236,266

Hiwin (Schweiz) GmbH 3,320 3,320 3,320

$ 360,954 $ 360,954 $ 339,954

The Investment Commission of Ministry of Economic Affairs (MOEA) approved the Corporation’s

investment in Suzhou YIFU Finance Leasing Co., Ltd. (YIFU Finance). The investment in the amount of

US$8,168 thousand was made through investing Kaland and Cheer Tone Group Limited in British Virgin

Islands (BVI). YIFU Finance mainly engages in finance leasing services.

Management believed that the fair value of the above unlisted equity investments held by the Group cannot

be reliably measured due to the very wide range of reasonable fair value estimates; therefore they were

measured at cost less impairment at the end of reporting period.

10. NOTES RECEIVABLE AND TRADE RECEIVABLES


2014 2013 2013

Notes receivable from unrelated parties

Notes receivable $ 158,129 $ 143,059 $ 156,732

Less: Allowance for impairment loss (966) (1,350) (1,343)

$ 157,163 $ 141,709 $ 155,389

Trade receivables from unrelated parties

Trade receivables $ 4,876,340 $ 4,701,585 $ 4,064,427

Less: Allowance for impairment loss (50,847) (44,689) (259,033)

$ 4,825,493 $ 4,656,896 $ 3,805,394

- 18 -

The average credit period on sales of goods was 90 to 150 days. In determining the recoverability of a trade

receivable, the Group considered any change in the credit quality of the trade receivable since the date

credit was initially granted to the end of the reporting period. The Group recognized an allowance for

impairment loss of 100% against all receivables over 180 days because historical experience had been that

receivables that are past due beyond 180 days were not recoverable. Allowance for impairment loss was

recognized against trade receivables between 31 days and 180 days based on estimated irrecoverable

amounts determined by reference to past default experience of the counterparties and an analysis of their

current financial position.

Movements in the allowance for impairment loss recognized on notes receivable and trade receivables were

as follows (other receivables were classified as other non-current assets):

For the Six Months Ended June 30

2014 2013

Notes

Receivable

Trade

Receivables

Other

Receivables

Notes

Receivable

Trade

Receivables

Balance at January 1 $ 1,350 $ 44,689 $ 101,579 $ 1,470 $ 176,357

Add: Impairment losses

recognized (reversed)

on receivables

(384)

6,487

2,712

(127)

82,399

Less: Amounts written

off as uncollectible

- - (384) - - -

-

Effect of exchange rate

changes

-

55

-

-

277

Balance at June 30 $ 966 $ 50,847 $ 104,291 $ 1,343 $ 259,033

The aging of trade receivables that were impaired was as follows:


2014 2013 2013

31- 60 days $ 39,766 $ 105,412 $ 502,022

61-120 days 334,219 141,989 556,265

121-180 days 4,340 4,741 105,091

More than 180 days 6,869 9,403 28,321

$ 385,194 $ 261,545 $ 1,191,699

The above aging of trade receivables before deducting the allowance for impairment loss was based on the

past due date.

11. INVENTORIES


2014 2013 2013

Merchandise $ 1,672 $ 604 $ 448

Finished goods 2,162,235 1,772,837 1,842,047

Work in process 1,184,413 1,124,389 1,068,882

Raw materials and supplies 923,766 905,096 1,162,917

Inventory in transit 182,536 158,060 147,587

$ 4,454,622 $ 3,960,986 $ 4,221,881

- 19 -

The cost of inventories recognized as cost of goods sold for the three months ended June 30, 2014 and 2013

and for the six months ended June 30, 2014 and 2013 included inventory write-downs (reversal of

inventory write-downs) of $(3,282) thousand, $2,907 thousand, $460 thousand and $12,052 thousand,

respectively. Previous write-downs were reversed as a result of disposal of the write-downs inventories.

12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


Investments in associates 2014 2013 2013

Unlisted companies

Mega Fabs Motion Systems Ltd. (Mega Fabs) $ 65,133 $ 63,099 $ 56,822

HIWIN S.R.O. 38,394 36,082 31,196

$ 103,527 $ 99,181 $ 88,018

As at the end of the reporting period, the proportions of ownership and voting rights in associates held by

the Group were as follows:


Name of Associate 2014 2013 2013

Mega Fabs 40% 40% 40%

HIWIN S.R.O. 32% 32% 32%

Investments accounted for using equity method and the share of profit or loss for the six months ended June

30, 2014 and 2013 were calculated based on the financial statements that have not been reviewed.

Management believes there is no material impact on the equity method accounting or the calculation of the

share of profit or loss, from the financial statements that have not been reviewed.

13. PROPERTY, PLANT AND EQUIPMENT

For the Six Months Ended June 30, 2014

Beginning

Balance Additions Disposals Reclassified

Amount Translation

Adjustments

Ending

Balance

Cost

Land $ 2,476,839 $ 25,807 $ - $ 658,527 $ (379 ) $ 3,160,794

Buildings and improvements 5,676,072 15,563 - 28,500 (1,602 ) 5,718,533

Machinery and equipment 7,714,402 115,036 (175,078 ) 123,116 69 7,777,545

Transportation equipment 104,841 12,795 (5,421 ) 504 (112 ) 112,607

Leased assets 530,529 - - - 3 530,532

Leasehold improvements 51,866 2,567 (100 ) 356 673 55,362

Miscellaneous equipment 910,278 58,967 (25,815 ) 57,444 294 1,001,168

Construction in progress 38,206 88,050 - (28,856 ) (851 ) 96,549

Prepayments for land and

buildings 658,527 - - (658,527 ) -

-

18,161,560 $ 318,785 $ (206,414 ) $ 181,064 $ (1,905 ) 18,453,090

(Continued)

- 20 -


Beginning


Amount Translation

Adjustments

Ending

Balance

Accumulated depreciation

and impairment

Buildings and improvements $ 669,742 $ 65,119 $ - $ - $ (656 ) $ 734,205

Machinery and equipment 3,192,932 431,719 (173,514 ) (1,208 ) 153 3,450,082

Transportation equipment 49,539 9,578 (5,090 ) - (1 ) 54,026

Leased assets 1,263 - - - 2 1,265

Leasehold improvements 15,918 2,622 (100 ) - 289 18,729

Miscellaneous equipment 329,229 63,489 (24,680 ) 1,208 88 369,334

4,258,623 $ 572,527 $ (203,384 ) $ - $ (125 ) 4,627,641

$ 13,902,937 $ 13,825,449

(Concluded)


Beginning


Amount Translation

Adjustments

Ending

Balance

Cost

Land $ 1,438,143 $ 20,8177 $ - $ 157,056 $ 317 $ 1,615,693

Buildings and improvements 4,964,806 96,752 (3,553 ) 521,231 3,626 5,582,862

Machinery and equipment 7,391,695 110,794 (125,604 ) 322,496 851 7,700,232

Transportation equipment 87,982 9,390 (1,930 ) 2,165 86 97,693

Leased assets 530,497 - - - 41 530,538

Leasehold improvements 33,555 9,200 - 758 (761 ) 42,752

Miscellaneous equipment 716,670 46,263 (10,601 ) 83,076 1,305 836,713

Construction in progress 420,551 171,161 - (549,516 ) 125 42,321

Prepayments for land and

buildings 295,917 - - (157,064 ) 85

138,938

15,879,816 $ 463,737 $ (141,688 ) $ 380,202 $ 5,675 16,587,742

Accumulated depreciation

and impairment

Buildings and improvements 543,670 $ 60,735 $ (3,553 ) $ - $ 1,151 602,003

Machinery and equipment 2,690,073 420,611 (123,232 ) - (511 ) 2,986,941

Transportation equipment 37,352 8,168 (1,930 ) - (210 ) 43,380

Leased assets 1,230 - - - (845 ) 385

Leasehold improvements 14,700 1,532 - - 98 16,330

Miscellaneous equipment 240,163 54,708 (10,213 ) - 633 285,291

3,527,188 $ 545,754 $ (138,928 ) $ - $ 316 3,934,330

$ 12,352,628 $ 12,653,412

The above items of property, plant and equipment, except leased land which is not depreciated, were

depreciated on a straight-line basis over the estimated useful life of the asset:

Buildings and improvements

Main buildings 25-55 years

Electrical power equipment 35 years

Engineering system 8-55 years

Machinery and equipment

Machinery equipment 3-20 years

Inspection equipment 3-10 years

Transportation equipment 2-10 years

Miscellaneous equipment 2-15 years

Leasehold improvements 2-15 years

- 21 -

Refer to Note 27 for the carrying amount of property, plant and equipment pledged by the Group to secure

borrowings granted to the Group.

14. BORROWINGS

a. Short-term borrowings


2014 2013 2013

Secured borrowings

Loans for export sales $ 1,000,000 $ 1,051,102 $ 1,071,252

Usance letters of credit 97,045 117,300 121,896

Working capital loans 38,224 27,866 4,648

Loans secured by notes receivable 27,161 26,385 14,335

1,162,430 1,222,653 1,212,131

Unsecured borrowings

Line of credit borrowings 4,398,000 3,898,000 3,307,663

$ 5,560,430 $ 5,120,653 $ 4,519,794

Rate of interest per annum (%)

Loans for export sales 0.73-1.24 0.75-1.31 0.81-1.32

Usance letters of credit 0.83-1.59 0.78-1.48 0.75-1.27

Working capital loans 1.25-1.79 1.80-1.81 1.88-3.00

Loans secured by notes receivable 1.48-1.50 1.50 1.48-1.50

Line of credit borrowings 1.06-1.20 1.06-1.15 1.06-1.65

b. Long-term borrowings


2014 2013 2013

Secured borrowings

Secured loans $ 5,640,156 $ 5,279,254 $ 4,821,819

Syndicated loans 680,000 763,000 1,098,000

Unsecured borrowings

Unsecured loans 500,000 400,000 200,000

6,820,156 6,442,254 6,119,819

Less: Current portion (1,111,253) (1,231,518) (1,008,893)

Long-term borrowings $ 5,708,903 $ 5,210,736 $ 5,110,926

Rate of interest per annum (%)

Secured loans 1.37-6.24 0.90-6.24 0.90-6.24

Syndicated loans 1.58 1.58 1.58

Unsecured loans 1.28 1.28 1.30

- 22 -

To meet the requirements of long-term financial plans, working capital needs, and capital project

expenditures, the Corporation entered into a $4.3 billion syndicated loan agreement with 13 banks, led

by Taiwan Bank, in October 2006. The loan period was from 3 to 10 years, depending on the loan

type, starting from the first loan drawdown. As of June 30, 2014, December 31, 2013 and June 30,

2013, the Corporation had borrowed $0.68 billion, $0.763 billion and $1.098 billion, respectively.

Under the loan agreement, the Corporation commits: (a) current ratio no lower than 100%, debt ratio

no higher than 150%, interest coverage ratio at least 150% and tangible net equity ratio at certain level,

based on the Corporation’s annual unconsolidated financial statements; and (b) not dispose of important

assets and rights, buy back treasury stocks, decrease issued capital, merge with other companies, split

off or reduce the collaterals unless there is written approval from a majority of the syndicated banks.

According to the terms of the loan agreement, in case the Corporation fails to meet the above

requirements regarding financial ratios, the Corporation should seek improvement within 6 months

based on semiannual unconsolidated financial statements. If the situation did not improve after the

evaluation, the Corporation should pay extra interest of 0.25% for the unpaid principal retroactive from

the start date of default to the date the deficiency has been resolved. Also, the banks have the rights to

call the loan from the Corporation.

15. FINANCE LEASE PAYABLES


2014 2013 2013

Land; the term of lease is from September 2003

to September 2027; rentals are paid monthly,

imputed discount rate: 2.71%, 2.91% and

3.054%

$ 430,888 $ 441,444 $ 451,691

Less: Current portion (21,594) (21,279) (20,804)

Noncurrent portion $ 409,294 $ 420,165 $ 430,887

In September 2003, January 2006 and September 2007, the Corporation signed land lease contract with

Industrial Development Bureau (IDB), Ministry of Economic Affairs. The parcels of land, measuring

50,683, 18,004 and 5,602 square meters, are located in Yunlin Technology Industrial Park.

Rentals were calculated by annual rental rate based on land market price. The market price was $9,408,

$10,517 and $11,409 per square meter on the contract date. The annual rental rates are subject to

adjustment twice a year on January 1 and July 1 according to long-term loan interest rate promulgated by

the Executive Yuan. The adjustment also takes consumer price index into account annually. The annual

rental rate was 4.2% since December 2012.

The aforementioned land lease contract concluded and signed by the Corporation and IDB provides that the

first two years’ rental would be free, and 60% of the rental for third and fourth years, and 80% for fifth and

sixth years will be payable. Moreover, according to the regulations of land leasing in Yunlin Technology

Industrial Park, the lease period should be at least for 6 years and should not be longer than 20 years. The

Corporation has an option to buy the land from IDB during the period of the lease. Price to be paid will be

based on the market price at the contract date and on the Industry Development Fund of this area.

However, the rentals paid and the deposits provided would be deductible. The Corporation provided time

deposits as collaterals in the amount of $11,576 thousand, recorded as other non-current assets, which

should be returned by IDB without interest at the end of the land lease contract.

- 23 -

The finance lease obligations as of June 30, 2014 are summarized as follows:

Year Amount

The second half year of 2014 $ 16,935

2015 33,869

2016 33,869

2017 33,869

2018 33,869

$ 152,411

The aggregate rentals (include the bargain purchase price) and present value of finance lease obligations

discounted at 2.71%, 2.91% and 3.054% for future years are summarized as follows:

Year Future Value Present Value

2019-2023 $ 342,582 $ 285,616

2024-2027 21,180 17,833

$ 363,762 $ 303,449

16. OTHER PAYABLES


2014 2013 2013

Payable for salaries and bonus $ 414,336 $ 440,600 $ 319,824

Payable for bonus to employees 239,326 169,033 211,912

Payable for remuneration to directors and

supervisors

35,278 83,965 25,385

Payable for annual leave 74,548 65,889 64,316

Payable for purchase of land, building and

equipment

156,335 27,655 36,280

Others 233,291 242,511 212,240

$ 1,153,114 $ 1,029,653 $ 869,957

17. RETIREMENT BENEFIT PLANS

Employee benefit expenses in respect of the Corporation’s defined benefit retirement plans were calculated

using the actuarially determined pension cost discount rate as of December 31, 2013 and 2012, and

recognized in the following line items in their respective periods:

For the Three Months Ended

June 30


June 30

2014 2013 2014 2013

Operating cost $ 1,713 $ 1,513 $ 3,426 $ 3,028

Selling and marketing expenses 42 50 87 105

General and administrative expenses 136 142 268 289

Research and development expenses 94 106 193 216

$ 1,985 $ 1,811 $ 3,974 $ 3,638

- 24 -

18. EQUITY

a. Common stock


2014 2013 2013

Numbers of shares authorized (in thousands) 300,000 300,000 300,000

Shares authorized $ 3,000,000 $ 3,000,000 $ 3,000,000

Number of shares issued and fully paid (in

thousands)

253,821 253,821 246,428

Shares issued $ 2,538,208 $ 2,538,208 $ 2,464,280

Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right to

dividends.

b. Capital surplus

The capital surplus arising from shares issued in excess of par (including share premium from issuance

of common shares) may be used to offset a deficit; in addition, when the Corporation has no deficit,

such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a

certain percentage of the Corporation’s capital surplus and once a year).

c. Retained earnings and dividend policy

The Corporation’s Articles of Incorporation provide that the annual net income, less any deficit and

taxes, should be appropriated as follows:

1) 10% as legal reserve;

2) For special reserve;

3) At most 6% as dividends;

4) Of the remainder, at most 5% as remuneration to directors and supervisors and at most 10% as

bonus to employees; however, it should not be lower than 1%.

The Corporation needs to evaluate its cash position and take capital expenditure and working capital

requirements into account in determining the type of dividend (cash or stock). Cash dividends will be

paid when working capital requirements are fulfilled; otherwise, stock dividends will be distributed.

For the six months ended June 30, 2014 and 2013, the bonus to employees was $69,293 thousand and

$49,469 thousand, respectively, and the remuneration to directors and supervisors was $34,647

thousand and $24,734 thousand, respectively. The bonus to employees and remuneration to directors

and supervisors represented 10% and 5%, respectively, of net income (net of the bonus and

remuneration) after 6% dividends. Material differences between such estimated amounts and the

amounts proposed by the board of directors in the following year are adjusted for 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

a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing

the amount of the share bonus by the closing price (after considering the effect of cash and stock

dividends) of the shares of the day immediately preceding the shareholders’ meeting.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865

and Rule No. 1010047490 issued by the FSC on April 6, 2012 and the directive entitled “Questions and

Answers on Special Reserves Appropriated Following the Adoption of IFRSs”. Distributions can be

made out of any subsequent reversal of the debit to other equity items.

- 25 -

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, all 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 2013 and 2012 earnings, have been approved by the shareholders in its meetings

held in June 2013 and 2014, respectively. The appropriations and dividends per share were as follows:

Appropriation of Earnings Dividends Per Share (NT$)

For Year 2013 For Year 2012 For Year 2013 For Year 2012

Legal reserve $ 202,158 $ 200,319

Appropriation (reverse of)

special reserve (163,449)

30,586

Cash dividends 685,316 665,355 $ 2.7 $ 2.7

Share dividends 76,146 73,928 0.3 0.3

The issue of stock dividends of 2012 was approved by FSC, and the ex-right and ex-dividend date was

determined at August 12, 2014, both, by the board of directors.

Bonuses to employees and remuneration to directors and supervisors for 2013 and 2012 approved in the

shareholders’ meetings were as follows:

For the Year Ended December 31

2013 2012

Bonus to employees $ 166,713 $ 162,443

Remuneration of directors and supervisors 83,357 81,222

There was no difference between the amounts of the bonus to employees and the remuneration to

directors and supervisors approved in the shareholders’ meetings in 2013 and 2012 and the amounts

recognized in the consolidated financial statements for the years ended December 31, 2013 and 2012,

respectively.

Information on the bonus to employees, directors and supervisors approved by the Corporation’s

shareholders’ meetings is available on the Market Observation Post System website of the Taiwan

Stock Exchange.

d. Special reserves

The Corporation had a decrease in retained earnings that resulted from all IFRSs adjustments; therefore,

no special reserve was appropriated.

- 26 -

19. NET PROFIT FROM CONTINUING OPERATIONS

a. Information about capitalized interest


June 30


June 30 2014 2013 2014 2013

Capitalized interest $ 3,273 $ 3,613 $ 6,656 $ 8,818

Capitalization rates 1.590%-1.622% 1.56%-1.584% 1.584%-1.622% 1.559%-1.584%

b. Employee benefits expense, depreciation and amortization expenses

Operating

Costs

Operating

Expenses Total

For the Three Months Ended June 30, 2014

Short-term employee benefits $ 535,682 $ 296,679 $ 832,361

Post-employment benefits

Defined contribution plans 17,924 4,958 22,882

Defined benefit plans 1,713 272 1,985

Other employee benefits 45,180 10,287 55,467

Depreciation expenses 232,901 40,415 273,316

Amortization expenses 1,417 2,609 4,026


Short-term employee benefits 505,905 199,316 705,221








Short-term employee benefits 1,042,365 589,267 1,631,632








Short-term employee benefits 965,833 392,831 1,358,664







- 27 -

20. INCOME TAXES

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:


June 30


June 30

2014 2013 2014 2013

Current tax

In respect of the current year $ 89,745 $ 111,981 $ 226,127 $ 156,288

Income tax expense of

unappropriated earnings 119,990 103,301 119,990 103,301

In respect of prior periods (1,955) (4,125) (1,955) (4,125)

Deferred tax

In respect of the current year 5,998 4,228 11,785 7,781

Income tax expense recognized

in profit or loss

$ 213,778 $ 215,385 $ 355,947 $ 263,245

b. Income tax recognized in other comprehensive income


June 30


June 30

2014 2013 2014 2013

Deferred tax In respect of the current

period: Translation of foreign

operations $ (6,128) $ - $ 579 $ -

c. Integrated income tax

June 30,

2014

December 31,

2013

June 30,

2013

Unappropriated earnings

Generated before January 1, 1998 $ - $ - $ -

Generated on and after January 1, 1998 7,128,300 7,065,846 5,678,209

$ 7,128,300 $ 7,065,846 $ 5,678,209

Imputation credits account $ 1,439,405 $ 1,108,959 $ 1,164,399

The creditable ratio for distribution of earnings of 2013 and 2012 was 19.92% (expected ratio) and

19.36%, respectively.

- 28 -

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 was calculated based on the creditable

ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the

Corporation was based on the balance of the Imputation Credit Accounts (ICA) as of the date of

dividend distribution. Therefore, the expected creditable ratio for the 2013 earnings may differ from

the actual creditable ratio to be used in allocating imputation credits to the shareholders.

According to legal interpretation No. 10204562810 announced by the Taxation Administration of the

Ministry of Finance, when calculating imputation credits in the year of first-time adoption of IFRSs, the

cumulative retained earnings include the net increase or net decrease in retained earnings arising from

first-time adoption of IFRSs.

d. Income tax assessments

The tax returns of the Corporation through 2010 have been assessed by the tax authorities. The

Corporation disagreed with the tax authorities’ assessment of its 2010 tax return and applied for a

re-examination. Nevertheless, to be conservative, the Corporation paid the income tax assessed by the

tax authorities.

The tax returns of Hulk through 2012 have been assessed by the tax authorities.

21. EARNINGS PER SHARE

Net profit

attributable to Number of Earnings Per

Owners of the Shares Shares

Corporation (In Thousands) (NT$)


Basic earnings per share

Profit for the period attributable to owners of

the Corporation $ 328,387 253,821 $ 1.29

Effect of potentially dilutive ordinary shares:

Bonus issue to employees - 677

Diluted earnings per share


the Corporation plus effect of potentially

dilutive common stock $ 328,387 254,498 $ 1.29

Pro forma earnings per share that adjusted

retrospectively to reflect the effects of changes

in the number of shares resulted from bonus

issue (August 12, 2014)


Profit for the period attributable to owners

of the Corporation $ 328,387 261,435 $ 1.26





of the Corporation plus effect of

potentially dilutive common stock $ 328,387 262,112 $ 2.25

- 29 -

Net profit







the Corporation $ 435,247 253,821 $ 1.71


Bonus issue to employees - 1,149





















the Corporation $ 862,625 253,821 $ 3.40




















- 30 -

Net profit







the Corporation $ 634,260 253,821 $ 2.50




















If the Group can settle bonuses paid to employees in cash or shares, the Group assumes the entire amount of

the bonus would be settled in shares and the resulting potential shares are included in the weighted average

number of shares outstanding used in the computation of diluted earnings per share, if the effect is dilutive.

Such dilutive effect of the potential shares is 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.

22. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS

On March 28, 2014, the Corporation subscribes for additional new shares of Hulk at a percentage different

from its existing ownership percentage, reducing its continuing interest from 49 % to 48%.

The above transactions were accounted for as equity transactions, since the Group did not cease to have

control over Hulk.

- 31 -

23. OPERATING LEASE ARRANGEMENTS

The Group’s future lease payments on factory building, inventory warehouse and employee dormitory

based on operating lease agreements are as follows:

Year Amount

2014 $ 76,328

2015 85,862

2016 73,706

2017 19,293

2018 5,337

$ 260,526

24. CAPITAL MANAGEMENT

To support the need to expand and enhance the plant and equipment, the Group has to maintain large

amount of capital. Therefore, the capital management of the Group focuses on ensuring that it has the

necessary financial resources and operation plans to support operating funds, capital expenditure, research

and development, repayment of debt and dividend payment in the future 12 months.

25. FINANCIAL INSTRUMENTS

The fair value information on financial instruments, financial instruments categories, and objectives and

policies of financial risk management of consolidated financial statements of the Group have been followed

in the same manner without significant change in these consolidated financial statements as were applied in

the preparation of the consolidated financial statements for the year ended December 31, 2013.

26. TRANSACTIONS WITH RELATED PARTIES

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 are disclosed below.

a. Operating transactions


June 30


June 30

2014 2013 2014 2013

1) Sales of goods

Associates $ 37,969 $ 27,359 $ 75,258 $ 63,731

Others 11,539 16,717 38,854 30,747

$ 49,508 $ 44,076 $ 114,112 $ 94,478

Due to the specific differences of the products, the selling prices for related parties and those for

third parties are not comparable. The selling price is primarily quoted at cost plus a reasonable

margin according to the market price.

- 32 -


June 30


June 30

2014 2013 2014 2013

2) Purchases of goods

Others $ 131,923 $ 70,949 $ 231,867 $ 185,135

Associates 31 - 31 -

$ 131,954 $ 70,949 $ 231,898 $ 185,135

The products purchased from related parties and those from third parties are not the same, therefore,

their prices are not comparable.

3) Other operating transactions


June 30


June 30

2014 2013 2014 2013

Non-operating income -

rental income

(classified as other

income)

Others $ 2,549 $ 2,793 $ 5,268 $ 5,586

The Group leased a portion of its manufacturing facility and office to the abovementioned related

parties. The rental is negotiated based on the quoted rate in the neighborhood leased properties.

The rental is collected monthly.


June 30


June 30

2014 2013 2014 2013

Manufacturing and

operating expenses

Others $ 1,813 $ 7 $ 3,984 $ 131

Operating expenses -

donations

Others $ 5,600 $ - $ 8,100 $ 3,000

June 30,

2014

December 31,

2013

June 30,

2013

4) Notes receivable

Others $ 5,644 $ 69,275 $ 17,795

5) Trade receivables

Associates $ 20,939 $ - $ 12,555

Others 6,052 - 7,781

$ 26,991 $ - $ 20,336

- 33 -

June 30,

2014

December 31,

2013

June 30,

2013

6) Other receivables (classified as other

current assets)

Others $ 2,754 $ 425 $ 3,248

7) Trade payables

Others $ 127,825 $ 90,075 $ 107,433

b. Compensation of key management personnel


June 30


June 30

2014 2013 2014 2013

Short-term employee benefits $ 59,487 $ 81,248 $ 138,747 $ 141,988

Post-employment benefits 217 228 417 450

$ 59,704 $ 81,476 $ 139,164 $ 142,438

The remuneration of directors and key executives was determined by the remuneration committee

having regard to the performance of individuals and market trends.

27. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged or mortgaged as collateral for capital lease of land, application for

land acquisition of Dapumei Intelligent Industrial Park, short-term and long-term bank loans, research

project plan, lawsuit and guarantee of customs duties:

June 30,

2014

December 31,

2013

June 30,

2013

Property, plant and equipment $ 14,117,667 $ 11,115,954 $ 11,010,366

Pledge deposits 394,753 53,939 56,254

Notes receivable 27,161 26,385 14,335

$ 14,539,581 $ 11,196,278 $ 11,080,955

28. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

a. As of June 30, 2014, December 31, 2013 and June 30, 2013, unused letters of credit for purchases of

raw materials and machinery and equipment amounted to $72,697 thousand, $81,653 thousand and

$48,926 thousand, respectively.

b. As of June 30, 2014, December 31, 2013 and June 30, 2013, the Group had a commitment to buy

property, plant and equipment for $565,620 thousand, $385,248 thousand and $995,808 thousand,

respectively.

- 34 -

c. The Corporation’s dealer Tianjin Ace Piliar Co., Ltd. (Ace Piliar) stops repaying maturing payables

intentionally amounted to USD 6,984 thousand. The Corporation filed a civil lawsuit against Ace

Piliar at Secondary Intermediate People’s Court of Tianjin on November 7, 2013 to secure the safty of

assets, then requested for the loss of overdue payments on January 7, 2014. As a result, total request

amounted to USD 9,130 thousand. Due to the adjustment of request amount, the lawsuit had

transferred to the Supreme People’s Court of Tianjin. The Corporation executed the second property

preservation on June 18, 2014. Ace Piliar appealed to a counterclaim against the Corporation on April

21, 2014. As of August 11, 2014, the court has not start a court trial.

29. EXCHANGE RATES OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN

FOREIGN CURRENCIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:

June 30, 2014 June 30, 2013

Foreign

Currencies

Exchange

Rate

Carrying

Amount

Foreign

Currencies

Exchange

Rate

Carrying

Amount

Financial assets

Monetary items

USD $ 74,506 29.865 $ 2,225,134 $ 99,223 30.00 $ 2,976,684

EUR 15,929 40.78 649,586 11,194 39.15 438,250

JPY 1,009,307 0.2946 297,342 910,412 0.3036 276,401

CNY 226,282 4.811 1,088,643 11 4.888 54

Non-monetary items

USD 8,168 29.865 243,937 8,168 30.00 245,040

ILS 3,712 8.7032 32,304 2,945 8.2428 24,272

Financial liabilities

Monetary items

USD 3,136 29.865 93,668 1,977 30.00 59,313

EUR 961 40.78 39,192 786 39.15 30,759

JPY 754,600 0.2946 222,305 308,783 0.3036 93,747

December 31, 2013

Foreign

Currencies

Exchange

Rate

Carrying

Amount

Financial assets

Monetary items

USD $ 103,847 29.805 $ 3,095,167

EUR 14,192 41.09 583,151

JPY 957,922 0.2839 271,954

CNY 9,859 4.919 48,498

Non-monetary items

USD 8,168 29.805 243,447

ILS 3,519 8.601 30,270

Financial liabilities

Monetary items

USD 1,841 29.805 54,865

EUR 1,210 41.09 49,717

JPY 474,503 0.2839 134,711

- 35 -

30. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:

1) Financing provided to others. (Table1)

2) Endorsements/guarantees provided. (Table 2)

3) Marketable securities held (excluding investment in subsidiaries, associates and joint controlled

entities). (Table 3)

4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the

paid-in capital. (None)

5)Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital.

(None)

6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital.

(None)

7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the

paid-in capital. (Table 4)

8)Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital.

(Table 5)

9) Trading in derivative instruments. (Note 7)

10) Intercompany relationships and significant intercompany transactions. (Table 6)

11) Information on investees. (Table 7)

b. Information on investments in mainland China

1) Information on any investee company in mainland China, showing the name, principal business

activities, paid-in capital, method of investment, inward and outward remittance of funds,

ownership percentage, net income of investees, investment income or loss, carrying amount of the

investment at the end of the period, repatriations of investment income, and limit on the amount of

investment in the mainland China area. (Table 8)

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or

losses: (None)

a) The amount and percentage of purchases and the balance and percentage of the related payables

at the end of the period.

b) The amount and percentage of sales and the balance and percentage of the related receivables at

the end of the period.

c) The amount of property transactions and the amount of the resultant gains or losses.

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the

end of the period and the purposes.

- 36 -

e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds.

f) Other transactions that have a material effect on the profit or loss for the period or on the

financial position, such as the rendering or receiving of services.

31. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and

assessment of segment performance focuses on the types of goods or services delivered or provided. The

Group’s reportable segments are Linear guideways, Ballscrews and others.

Segment revenues and results

The following was an analysis of the Group’s revenue and results from continuing operations by reportable

segment.

Six Months Ended June 30

Segment Revenue Segment Profit

2014 2013 2014 2013

Linear guideways $ 3,945,154 $ 2,769,379 $ 617,420 $ 416,148

Ballscrews 1,808,946 1,618,456 166,239 148,662

Others 796,299 789,043 409,751 186,945

Total from continuing operations $ 6,550,399 $ 5,176,878 1,193,410 751,755

Finance costs (85,753) (74,340)

Other income 34,267 32,267

Net foreign exchange gain 10,534 142,702

Other expenses (7,826) (4,384)

Profit before income tax $ 1,144,632 $ 848,000

Segment revenue reported above represents revenue generated from external customers. There were no

intersegment sales for the six months ended June 30, 2014 and 2013.

Segment profit represented the profit before tax earned by each segment without finance costs, other

income, net foreign exchange gain, other expenses and income tax expense. This was the measure

reported to the chief operating decision maker for the purpose of resource allocation and assessment of

segment performance.

- 37 -

TABLE 1


FINANCING PROVIDED TO OTHERS

FOR THE SIX MONTHS ENDED JUNE 30, 2014


No. Lender Borrower Financial Statement

Account

Related

Parties

Highest Balance

for the Period

(Note 4)

Ending Balance

(Note 4)

Actual

Borrowing

Amount

(Note 5)

Interest

Rate

Nature of

Financing

(Note 2)

Business

Transaction

Amounts

(Note 5)

Reasons

for

Short-term

Financing

Allowance

for

Impairment

loss

Collateral Financing

Limit for

Each

Borrower

(Note 1)

Aggregate

Financing

Limits

(Note 3)

Item Value

0 The Corporation Hiwin Japan Other receivables from

related parties

Yes $ 200,000 $ 100,000 $ 73,775 2.02% 1 Sales $153,587

Purchases 567

- $ - - $ - $ 3,422,922

(Note 3)

$ 3,422,922

0 The Corporation Hulk Other receivables from

related parties

Yes 300,000 150,000 - 2.02% 2 - Operating

capital

- Promissory

note and

equipment

150,000 1,140,974 3,422,922

Note 1: The total amount for lending to a company for funding shall not exceed 10% of the net assets of the Corporation in the latest financial report. In addition, the total amount lending to any one borrower shall not be more than the borrower’s paid-in capital. The

above restriction does not apply to the offshore subsidiaries whose voting shares are 100% owned, directly or indirectly.

Note 2: Nature of the loan funds:

1. Business relationship.

2. Necessary for short-term financing.

Note 3: For the financing provided by each subsidiary, the maximum amount should not exceed 30% of the Corporation’s net assets as shown in its latest financial statements.

Note 4: The ending balance amount has been approved by the board of directors.

Note 5: Significant intercompany accounts and transactions have been eliminated; please see Table 6.

- 38 -

TABLE 2


ENDORSEMENTS/GUARANTEES PROVIDED



No. Endorser/Guarantor

Endorsee/Guaranteed Party

Limits on

Endorsement/

Guarantee

Given on

Behalf of

Each Party

(Note 2)

Maximum

Amount

Endorsed/

Guaranteed

During the

Period

Outstanding

Endorsement/

Guarantee at

the End of the

Period

Actual

Borrowing

Amount

Amount

Endorsed/

Guaranteed by

Collaterals

Ratio of

Accumulated

Endorsement/

Guarantee to

Net Equity In

Latest

Financial

Statements

(%)

Aggregate

Endorsement/

Guarantee

Limit

(Note 3)

Endorsement/

Guarantee

Given by

Parent on

Behalf of

Subsidiaries

Endorsement/

Guarantee

Given by

Subsidiaries

on Behalf of

Parent

Endorsement/

Guarantee

Given On

behalf of

Companies in

Mainland

China

Name Relationship

0 The Corporation Hiwin USA 2

(Note 1)

$ 1,179,659 $ 213,654

(USD 7,154)

$ 213,654

(USD 7,154)

$ 65,056 $ - 2% $ 3,993,409 Y - -

Note 1: Investees in which the Corporation directly hold more than 50% of the voting shares.

Note 2: The maximum is 10% of the net assets of the Corporation as shown in the latest financial statements.

Note 3: The maximum amount of the total guarantee is 35% of the Corporation’s net assets as shown in its latest financial statements.

Note 4: The amounts denominated in foreign currency were translated into New Taiwan dollars at prevailing exchange rate on June 30, 2014.

- 39 -

TABLE 3


MARKETABLE SECURITIES HELD

JUNE 30, 2014


Holding Company Name Type and Name of Marketable

Securities

Relationship with the

Holding Company Financial Statement Account

June 30, 2014

Note Shares Carrying Amount

Percentage of

Ownership

Fair Value

(Note 1)

The Corporation Capital stock

Gallant - Available-for-sale financial assets - non-current 1,267 $ 17 - $ 17

Capital stock

Kaland - Financial assets measured at cost - non-current 389 236,266 19 271,242

Sunengine - Financial assets measured at cost - non-current 8,134,565 81,346 11 81,026

Hiwin Mikrosystem - Financial assets measured at cost - non-current 7,195,092 37,922 10 135,979

Taichung International Country Club - Financial assets measured at cost - non-current 1 2,100 - -

King Kong Iron Work Ltd. - Financial assets measured at cost - non-current 76,300 - - -

Hiwin GmbH Share capital

Hiwin (Schweiz) GmbH - Financial assets measured at cost - non-current - EUR 72 19 EUR 72

Note 1: For companies with stocks that have no quoted market prices, the estimated fair value of the securities held is based on the investees’ net asset values as of June 30, 2014.

Note 2: Information about the investment in subsidiary and associates; please see Table 7.

- 40 -

TABLE 4


TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Related Party Relationship

Transaction Details Abnormal Transaction Notes/Accounts Receivable

(Payable) Note

Purchase/Sale Amount

(Note) % to Total Payment Terms Unit Price Payment Terms

Ending Balance

(Note) % to Total

The Corporation (Note) Hiwin GmbH Subsidiary Sale $ 446,701 8 O/A 120 days $ - - $ 312,618 6

Hiwin Japan Subsidiary Sale 153,587 3 O/A 150-180 days - - 201,125 4

Hiwin GmbH Hiwin Mikrosystem Other related party Purchase 153,469 19 O/A 90 days - - (80,246) (18)

Note: Significant intercompany accounts and transactions have been eliminated.

- 41 -

TABLE 5


RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

JUNE 30, 2014


Company Name Related Party Relationship Ending Balance (Note) Turnover Rate

Overdue Amounts Received

in Subsequent

Period

Allowance for

Impairment Loss Amount Actions Taken

The Corporation Hiwin GmbH Subsidiary Trade receivable from related parties $ 312,618 3.14 $ - - $ 79,072 $ -

Hiwin Japan Subsidiary Trade receivable from related parties 201,125 1.60 - - 23,778 -

Hiwin Japan Subsidiary Other receivables from related parties 73,909 - - - - -

Note: Significant intercompany accounts and transactions have been eliminated.

- 42 -

TABLE 6


INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS



No. Investee Company Counterparty Relationship (Note 1)

Transaction Details

Financial Statement Account Amount (Note 2) Payment Terms % to

Total Sales or Assets

0 The Corporation Hiwin Japan 1 Sales $ 153,587 O/A 150-180 days 2

1 Trade receivables 201,125 O/A 150-180 days 1

Hiwin GmbH 1 Sales 446,701 O/A 120 days 7

1 Trade receivables 312,618 O/A 120 days 1

Hiwin USA 1 Sales 66,481 O/A 120-180 days 1

Note 1: Relationship of counterparty; (1) parent company to subsidiary; (2) subsidiary to parent company.

Note 2: Significant intercompany accounts and transactions have been eliminated.

- 43 -

TABLE 7


INFORMATION ON INVESTEES



Investor Company Investee Company Location Main Businesses and Products

Original Investment Amount As of June 30, 2014 Net Income

(Loss) of the

Investee

Share of

Profit (Loss) Note

June 30, 2014 December 31,

2013 Shares %

Carrying

Amount

The Corporation Hiwin GmbH Germany Manufacture and sale of aerospace

parts, ballscrews, linear

guideways and industrial robots

$ 207,687 $ 207,687 - 100% $ 911,642 $ 129,672 $ 129,672 Subsidiary

Hiwin USA United States of America Manufacture and sale of aerospace



353,844 353,844 2,148,000 100% 325,566 31,168 31,168 Subsidiary

Hiwin Japan Japan Manufacture and sale of aerospace



156,183

(Note 1)

156,183

(Note 1)

- 100% (32,244) (58,071) (58,071) Subsidiary

Mega Fabs Israel Research, manufacture and sale of

drivers and controllers

42,444 42,444 - 40% 65,133 4,186 1,675 -

Hulk Taiwan Research, development, design,

manufacture and sale of solar

cell, electronic components,

electric power supply, electric

transmission and power

distribution machinery products

861,151 729,279 86,115,115 48% 618,655 (143,268) (69,328) Subsidiary

Hiwin Singapore Singapore Manufacture and sale of aerospace



117,550 117,550 5,000,000 100% 101,649 (7,926) (7,926) Subsidiary

Hiwin Korea Korea Manufacture and sale of aerospace



140,665 140,665 1,000,000 100% 124,027 (13,893) (13,893) Subsidiary

Hiwin GmbH Hiwin S.R.O. Czech Republic Sale of aerospace parts,

ballscrews, linear guideways,

and industrial robots

104

(CZK 70)

104

(CZK 70)

- 32% 38,394

(EUR 941)

- (Note 2) -

Hiwin S.R.L. Italy Sale of aerospace parts,

ballscrews, linear guideways,

and industrial robots

25,249

(EUR 619)

4,549

(EUR 119)

- 100% (5,234)

(EUR 128)

- (Note 2) Indirectly owned

subsidiary

Note 1: Deducted by the amount of reduction of capital to offset deficit.

Note 2: Not applicable.

Note 3: Significant intercompany accounts and transactions have been eliminated except Mega Fabs and Hiwin S.R.O..

- 44 -

TABLE 8


INFORMATION ON INVESTMENTS IN MAINLAND CHINA



Investee Company Main Businesses and Products Paid-in

Capital

Method of

Investment

Accumulated

Outward

Remittance for

Investment from

Taiwan as of

January 1, 2014

Remittance of Funds Accumulated

Outward

Remittance for

Investment from

Taiwan as of

June 30, 2014

Net Income

(Loss) of the

Investee

% Ownership

of Direct or

Indirect

Investment

Investment

Gain (Loss)

Carrying

Amount as of

June 30, 2014

Accumulated

Repatriation

of Investment

Income as of

June 30, 2014

Outward Inward

YIFU Finance Finance lease $ 746,625

(USD 25,000)

(Note 1) $ 236,266

(USD 8,168)

$ - $ - $ 236,266

(USD 8,168)

$ 22,121 19% (Note 3) $ 236,266 $ -

Hiwin China Manufacture and sale of aerospace



226,264

(CNY 46,700)

(Note 2) - 226,264

(CNY 46,700)

- 226,264

(CNY 46,700)

(4,441) 100% $ (4,441)

(Note 4)

220,316 -

Accumulated Outward Remittance for

Investment in Mainland China as of June

30, 2014

Investment Amounts Authorized by

Investment Commission, MOEA

Upper Limit on the Amount of

Investment Stipulated by Investment

Commission, MOEA

$ 462,530

(USD 8,168 and CNY 46,700)

$ 1,727,018

(USD 9,500 and CNY 300,000)

(Note 5)

Note 1: The investment was made through a corporation established in a third country, which, in turn, invested in companies located in Mainland China.

Note 2: The investment in Mainland China was made directly.

Note 3: The investment in Kaland is carried at cost; thus, no investment gain or loss is recognized.

Note 4: The share of profit or loss were calculated base on the financial statements that have not been reviewed.

Note 5: According to “Regulation for Screening of Application to Engage in Technical Cooperation in Mainland China” issued by the Investment Commission of Ministry of Economic Affairs, the investment in Mainland China has no maximum

limitation since the Corporation had acquired the IDB approval of the Corporation’s establishment of an operating headquarter in Taiwan.

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