Form 6-K

1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2012

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F  x            Form 40-F  ¨

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes  ¨            No  x

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82:             .)

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Taiwan Semiconductor Manufacturing Company Ltd.
Date: May 4, 2012     By  

/s/ Lora Ho

      Lora Ho
      Senior Vice President & Chief Financial Officer


Taiwan Semiconductor Manufacturing Company Limited

Financial Statements for the

Three Months Ended March 31, 2012 and 2011 and

Independent Accountants’ Review Report


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of March 31, 2012 and 2011, and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36, “Review of Financial Statements,” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

We have also reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the three months ended March 31, 2012 and 2011 on which we have issued an unqualified review report.

April 24, 2012

Notice to Readers

The accompanying financial statements are intended only to present the financial position, 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 review such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the accountants’ review 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 accountants’ review report and financial statements shall prevail.

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

(Reviewed, Not Audited)

 

 

    2012     2011  
    Amount     %     Amount     %  

ASSETS

       

CURRENT ASSETS

       

Cash and cash equivalents (Notes 2 and 4)

  $ 112,143,813        14      $ 93,336,868        13   

Financial assets at fair value through profit or loss (Notes 2, 5 and 22)

    —          —          11,605        —     

Available-for-sale financial assets (Notes 2, 6 and 22)

    2,618,029        —          4,069,307        —     

Held-to-maturity financial assets (Notes 2, 7 and 22)

    700,849        —          4,792,967        1   

Receivables from related parties (Notes 3 and 23)

    32,912,671        4        27,778,241        4   

Notes and accounts receivable (Note 3)

    19,086,220        2        24,160,358        3   

Allowance for doubtful receivables (Notes 2, 3 and 8)

    (485,120     —          (488,000     —     

Allowance for sales returns and others (Notes 2 and 8)

    (5,239,205     —          (6,771,655     (1

Other receivables from related parties (Notes 3 and 23)

    1,372,293        —          1,852,676        —     

Other financial assets

    145,151        —          375,679        —     

Inventories (Notes 2 and 9)

    25,576,575        3        28,893,528        4   

Deferred income tax assets (Notes 2 and 17)

    6,528,828        1        4,864,903        1   

Prepaid expenses and other current assets

    2,418,982        —          1,102,143        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    197,779,086        24        183,978,620        25   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 22)

       

Investments accounted for using equity method

    127,897,713        16        113,973,080        16   

Available-for-sale financial assets

    —          —          1,036,044        —     

Held-to-maturity financial assets

    702,007        —          1,405,140        —     

Financial assets carried at cost

    497,835        —          497,835        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

    129,097,555        16        116,912,099        16   
 

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 23)

       

Cost

       

Buildings

    163,888,364        20        144,102,555        20   

Machinery and equipment

    1,071,297,999        130        919,031,062        125   

Office equipment

    14,858,272        2        12,397,508        2   
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,250,044,635        152        1,075,531,125        147   

Accumulated depreciation

    (829,752,709     (101     (729,610,275     (100

Advance payments and construction in progress

    55,232,321        7        65,400,509        9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

    475,524,247        58        411,321,359        56   
 

 

 

   

 

 

   

 

 

   

 

 

 

INTANGIBLE ASSETS

       

Goodwill (Note 2)

    1,567,756        —          1,567,756        —     

Deferred charges, net (Notes 2 and 13)

    4,625,009        1        5,116,739        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets

    6,192,765        1        6,684,495        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS

       

Deferred income tax assets (Notes 2 and 17)

    7,015,660        1        6,386,238        1   

Refundable deposits

    4,501,743        —          4,793,553        1   

Others (Notes 2 and 23)

    1,026,245        —          1,421,263        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

    12,543,648        1        12,601,054        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 821,137,301        100      $ 731,497,627        100   
 

 

 

   

 

 

   

 

 

   

 

 

 
    2012     2011  
    Amount     %     Amount     %  

LIABILITIES AND SHAREHOLDERS’ EQUITY

       

CURRENT LIABILITIES

       

Short-term loans (Note 14)

  $ 34,687,716        4      $ 34,176,368        5   

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 22)

    47,930        —          15,028        —     

Accounts payable

    12,134,426        2        10,328,555        1   

Payables to related parties (Note 23)

    2,892,587        —          3,071,311        —     

Income tax payable (Notes 2 and 17)

    13,415,038        2        9,702,596        1   

Accrued profit sharing to employees and bonus to directors (Notes 2 and 19)

    11,307,014        1        13,415,809        2   

Payables to contractors and equipment suppliers

    33,213,318        4        32,410,632        4   

Accrued expenses and other current liabilities (Note 22)

    13,269,862        2        11,677,636        2   

Current portion of bonds payable (Notes 15 and 22)

    —          —          4,500,000        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    120,967,891        15        119,297,935        16   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM LIABILITIES

       

Bonds payable (Notes 15 and 22)

    35,000,000        4        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER LIABILITIES

       

Accrued pension cost (Notes 2 and 16)

    3,857,150        1        3,830,337        1   

Guarantee deposits (Note 25)

    379,933        —          695,472        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other liabilities

    4,237,083        1        4,525,809        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    160,204,974        20        123,823,744        17   
 

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL STOCK - NT$10 PAR VALUE (Note 19)

       

Authorized: 28,050,000 thousand shares

       

Issued: 25,920,604 thousand shares in 2012

       

            25,914,193 thousand shares in 2011

    259,206,046        31        259,141,933        35   
 

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SURPLUS (Notes 2 and 19)

    56,008,374        7        55,781,482        8   
 

 

 

   

 

 

   

 

 

   

 

 

 

RETAINED EARNINGS (Note 19)

       

Appropriated as legal capital reserve

    102,399,995        12        86,239,494        12   

Appropriated as special capital reserve

    6,433,874        1        1,313,047        —     

Unappropriated earnings

    246,831,473        30        214,504,803        29   
 

 

 

   

 

 

   

 

 

   

 

 

 
    355,665,342        43        302,057,344        41   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHERS

       

Cumulative translation adjustments (Note 2)

    (9,064,188     (1     (9,351,749     (1

Unrealized gain (loss) on financial instruments (Notes 2 and 22)

    (883,247     —          44,873        —     
 

 

 

   

 

 

   

 

 

   

 

 

 
    (9,947,435     (1     (9,306,876     (1
 

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

    660,932,327        80        607,673,883        83   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 821,137,301        100      $ 731,497,627        100   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

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

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

     2012      2011  
     Amount      %      Amount      %  

GROSS SALES (Notes 2 and 23)

   $ 105,573,837          $ 103,940,307      

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

     1,325,101            1,391,829      
  

 

 

       

 

 

    

NET SALES

     104,248,736         100         102,548,478         100   

COST OF SALES (Notes 9, 18 and 23)

     55,752,853         53         53,489,888         52   
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

     48,495,883         47         49,058,590         48   

REALIZED GROSS PROFIT FROM AFFILIATES (Note 2)

     74,029         —           56,207         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT

     48,569,912         47         49,114,797         48   
  

 

 

    

 

 

    

 

 

    

 

 

 

OPERATING EXPENSES (Notes 18 and 23)

           

Research and development

     8,614,378         8         7,314,458         7   

General and administrative

     4,359,676         4         2,985,064         3   

Marketing

     555,455         1         664,712         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     13,529,509         13         10,964,234         11   
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME FROM OPERATIONS

     35,040,403         34         38,150,563         37   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-OPERATING INCOME AND GAINS

           

Equity in earnings of equity method investees, net (Notes 2 and 10)

     984,787         1         1,577,135         2   

Foreign exchange gain, net (Note 2)

     246,139         —           380,003         —     

Interest income

     233,789         —           149,283         —     

Technical service income (Note 23)

     107,336         —           115,244         —     

Others (Notes 2 and 23)

     8,306         —           238,143         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-operating income and gains

     1,580,357         1         2,459,808         2   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

     2012      2011  
     Amount      %      Amount      %  

NON-OPERATING EXPENSES AND LOSSES

           

Impairment loss on idle assets (Note 2)

   $ 438,828         1       $ —           —     

Valuation loss on financial instruments, net (Notes 2, 5 and 22)

     221,272         —           256,988         —     

Interest expense

     191,644         —           71,582         —     

Loss on disposal of property, plant and equipment (Notes 2 and 23)

     34,864         —           164,502         —     

Others (Note 2)

     6,870         —           34,083         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-operating expenses and losses

     893,478         1         527,155         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAX

     35,727,282         34         40,083,216         39   

INCOME TAX EXPENSE (Notes 2 and 17)

     2,253,095         2         3,805,443         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

   $ 33,474,187         32       $ 36,277,773         35   
  

 

 

    

 

 

    

 

 

    

 

 

 
     2012      2011  
    

Before

Income

Tax

     After
Income
Tax
    

Before

Income

Tax

    

After

Income

Tax

 

EARNINGS PER SHARE (NT$, Note 21)

           

Basic earnings per share

   $ 1.38       $ 1.29       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 1.38       $ 1.29       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The accompanying notes are an integral part of the financial statements.      (Concluded)   

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 33,474,187      $ 36,277,773   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     26,403,157        23,872,606   

Realized gross profit from affiliates

     (74,029     (56,207

Amortization of premium/discount of financial assets

     571        4,180   

Equity in earnings of equity method investees, net

     (984,787     (1,577,135

Loss on disposal of property, plant and equipment and other assets, net

     33,385        68,332   

Impairment loss on idle assets

     438,828        —     

Deferred income tax

     (543,272     1,011,225   

Changes in operating assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     62,855        (4,411

Receivables from related parties

     (8,135,137     (2,044,267

Notes and accounts receivable

     808,166        (1,909,453

Allowance for sales returns and others

     351,326        (569,789

Other receivables from related parties

     (6,729     (66,347

Other financial assets

     (23,141     42,527   

Inventories

     (2,723,178     (3,247,180

Prepaid expenses and other current assets

     (693,246     250,101   

Accounts payable

     1,614,782        (1,521,635

Payables to related parties

     (99,995     496,861   

Income tax payable

     2,767,241        2,593,727   

Accrued profit sharing to employees and bonus to directors

     2,251,310        2,456,340   

Accrued expenses and other current liabilities

     286,730        (2,177,677

Accrued pension cost

     (3,748     5,736   
  

 

 

   

 

 

 

Net cash provided by operating activities

     55,205,276        53,905,307   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Property, plant and equipment

     (47,146,132     (77,193,490

Investments accounted for using equity method

     (2,151,483     (423,220

Proceeds from disposal of:

    

Property, plant and equipment and other assets

     19,381        553,698   

Proceeds from return of capital by investees

     21,537        —     

Increase in deferred charges

     (395,772     (181,158

Decrease (increase) in refundable deposits

     (10,008     3,845,196   

Decrease (increase) in other assets

     200        (23,199
  

 

 

   

 

 

 

Net cash used in investing activities

     (49,662,277     (73,422,173
  

 

 

   

 

 

 

(Continued)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

   $ 8,761,188      $ 3,267,731   

Proceeds from issuance of bonds

     17,000,000        —     

Repayment of bonds

     (4,500,000     —     

Decrease in guarantee deposits

     (59,099     (52,415

Proceeds from exercise of employee stock options

     136,204        127,288   
  

 

 

   

 

 

 

Net cash provided by financing activities

     21,338,293        3,342,604   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     26,881,292        (16,174,262

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     85,262,521        109,511,130   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 112,143,813      $ 93,336,868   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 218,625      $ 181,409   
  

 

 

   

 

 

 

Income tax paid

   $ 48,229      $ 213,963   
  

 

 

   

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

    

Acquisition of property, plant and equipment

   $ 47,544,436      $ 68,902,831   

Decrease (increase) in payables to contractors and equipment suppliers

     (398,304     8,290,659   
  

 

 

   

 

 

 

Cash paid

   $ 47,146,132      $ 77,193,490   
  

 

 

   

 

 

 

Disposal of property, plant and equipment and other assets

   $ 51,500      $ 1,037,746   

Increase in other receivables from related parties

     (32,119     (484,048
  

 

 

   

 

 

 

Cash received

   $ 19,381      $ 553,698   
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

    

Idle assets reclassified from property, plant and equipment

   $ 438,828      $ —     
  

 

 

   

 

 

 

Current portion of bonds payable

   $ —        $ 4,500,000   
  

 

 

   

 

 

 

Current portion of other long-term payables (under accrued expenses and other current liabilities)

   $ —        $ 912,591   
  

 

 

   

 

 

 

 

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

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

(Reviewed, Not Audited)

 

 

1. GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).

As of March 31, 2012 and 2011, the Company had 30,053 and 30,283 employees, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. 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 financial statements shall prevail.

Significant accounting policies are summarized as follows:

Foreign-currency Transactions

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

Use of Estimates

The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

 

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Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Cash Equivalents

Repurchase agreements collateralized by corporate bonds and government bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

The fair value of overseas publicly traded stock is determined using the closing prices at the end of the period. The fair value of debt securities is determined using the average of bid and asked prices at the end of the period.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

 

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If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, 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.

 

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Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are deferred until they are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

 

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When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s tax provision.

Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

 

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Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectable within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

Spin-off

In accordance with the Company’s organization realignment, the Company contributed net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries. The net assets transferred are reflected at their net book value without recognizing any gain or loss.

 

3. ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the three months ended March 31, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and it only changes the disclosure of segment reporting due to the adoption. The Company has conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements.

 

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4. CASH AND CASH EQUIVALENTS

 

     March 31  
     2012      2011  

Cash and deposits in banks

   $ 109,392,852       $ 91,709,652   

Repurchase agreements collateralized by corporate bonds

     1,913,846         —     

Repurchase agreements collateralized by government bonds

     837,115         1,627,216   
  

 

 

    

 

 

 
   $ 112,143,813       $ 93,336,868   
  

 

 

    

 

 

 

 

5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

     March 31  
     2012      2011  

Trading financial assets

     

Forward exchange contracts

   $ —         $ 11,605   
  

 

 

    

 

 

 

Trading financial liabilities

     

Forward exchange contracts

   $ 47,930       $ 15,028   
  

 

 

    

 

 

 

The Company entered into derivative contracts during the three months ended March 31, 2012 and 2011 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

March 31, 2012

     

Sell NT$/Buy JPY

   April 2012    NT$847,282/JPY2,300,000

Sell US$/Buy JPY

   April 2012    US$39,743/JPY3,190,365

March 31, 2011

     

Sell NT$/Buy JPY

   April 2011    NT$1,173,256/JPY3,268,300

Sell NT$/Buy EUR

   April 2011    NT$83,800/EUR2,000

Sell EUR/Buy NT$

   April 2011    EUR59,550/NT$2,494,130

Net losses on derivative financial instruments for the three months ended March 31, 2012 and 2011 were NT$221,272 thousand and NT$256,988 thousand, respectively.

 

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6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

     March 31  
     2012     2011  

Overseas publicly traded stock

   $ 2,618,029      $ 4,069,307   

Corporate bonds

     —          1,036,044   
  

 

 

   

 

 

 
     2,618,029        5,105,351   

Current portion

     (2,618,029     (4,069,307
  

 

 

   

 

 

 
   $ —        $ 1,036,044   
  

 

 

   

 

 

 

 

7. HELD-TO-MATURITY FINANCIAL ASSETS

 

     March 31  
     2012     2011  

Corporate bonds

   $ 1,402,856      $ 6,198,107   

Current portion

     (700,849     (4,792,967
  

 

 

   

 

 

 
   $ 702,007      $ 1,405,140   
  

 

 

   

 

 

 

 

8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

As of March 31, 2012 and 2011, the balance of the allowance for doubtful receivables was NT$485,120 thousand and NT$488,000 thousand, respectively. There was no additions or deductions of allowances for doubtful receivables for the three months ended March 31, 2012 and 2011.

Movements of the allowance for sales returns and others were as follows:

 

     Three Months Ended March 31  
     2012     2011  

Balance, beginning of period

   $ 4,887,879      $ 7,341,444   

Provision

     1,325,101        1,391,829   

Write-off

     (973,775     (1,961,618
  

 

 

   

 

 

 

Balance, end of period

   $ 5,239,205      $ 6,771,655   
  

 

 

   

 

 

 

 

9. INVENTORIES

 

     March 31  
     2012      2011  

Finished goods

   $ 4,242,403       $ 6,988,136   

Work in process

     18,281,729         18,111,238   

Raw materials

     2,095,010         2,566,796   

Supplies and spare parts

     957,433         1,227,358   
  

 

 

    

 

 

 
   $ 25,576,575       $ 28,893,528   
  

 

 

    

 

 

 

Write-down of inventories to net realizable value in the amount of NT$680,850 thousand and NT$650,892 thousand, respectively, were included in the cost of sales for the three months ended March 31, 2012 and 2011.

 

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10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     March 31  
     2012      2011  
     Carrying
Amount
     % of
Ownership
     Carrying
Amount
     % of
Ownership
 

TSMC Global Ltd. (TSMC Global)

   $ 43,137,920         100       $ 42,523,518         100   

TSMC Partners, Ltd. (TSMC Partners)

     34,664,194         100         32,779,954         100   

TSMC China Company Limited (TSMC China)

     14,095,161         100         4,721,701         100   

TSMC Solar

     9,456,531         99         —           —     

Vanguard International Semiconductor Corporation (VIS)

     8,986,165         41         9,456,221         38   

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

     5,388,363         39         7,256,841         39   

TSMC SSL

     3,541,201         95         —           —     

TSMC North America

     3,035,002         100         2,843,416         100   

Xintec Inc. (Xintec)

     1,546,668         40         1,678,379         41   

VentureTech Alliance Fund III, L.P. (VTAF III)

     1,437,397         53         2,672,382         99   

Global UniChip Corporation (GUC)

     1,191,165         35         1,164,288         35   

VentureTech Alliance Fund II, L.P. (VTAF II)

     740,533         98         1,041,270         98   

TSMC Europe B.V. (TSMC Europe)

     213,849         100         192,329         100   

Emerging Alliance Fund, L.P. (Emerging Alliance)

     205,484         99         290,203         99   

TSMC Japan Limited (TSMC Japan)

     149,861         100         144,224         100   

TSMC Guang Neng Investment, Ltd. (TSMC GN)

     84,751         100         —           —     

TSMC Korea Limited (TSMC Korea)

     23,468         100         21,093         100   

Motech Industries Inc. (Motech)

     —           —           6,770,069         20   

TSMC Solar North America, Inc. (TSMC Solar NA)

     —           —           7,945         100   

TSMC Solar Europe B.V. (TSMC Solar Europe)

     —           —           406,305         100   

TSMC Lighting North America, Inc. (TSMC Lighting NA)

     —           —           2,942         100   
  

 

 

       

 

 

    
   $ 127,897,713          $ 113,973,080      
  

 

 

       

 

 

    

In the second half year of 2011, the Company continually increased its investment in TSMC China for the amount of NT$6,759,300 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs.

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Company’s certain assets, liabilities and shareholders’ equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively. Due to the aforementioned transfer and the effect of the subsequent cash injection of NT$135,297 thousand, the Company’s percentage of ownership in VTAF III decreased to 53%.

 

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In January 2012, the Company invested NT$100,000 thousand and established a wholly-owned subsidiary, TSMC GN, which engages mainly in investment activities. In February 2012, the Company participated directly or through TSMC GN in the issuance of new shares by TSMC SSL and TSMC Solar for cash. As a portion of the shares were reserved for TSMC GN and the employees of TSMC SSL and TSMC Solar to subscribe, the Company did not subscribe to the shares at a percentage consistent with its pre-existing ownership. As a result, the Company’s percentage of ownership in TSMC SSL and TSMC Solar decreased to 95% and 99%, respectively.

For the three months ended March 31, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$984,787 thousand and NT$1,577,135 thousand, respectively.

As of March 31, 2012 and 2011, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$13,192,202 thousand and NT$13,160,444 thousand, respectively.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

     Three Months Ended March 31  
     2012     2011  

Balance, beginning of period

   $ 275,584      $ 2,504,496   

Amortizations

     (63,410     (238,356
  

 

 

   

 

 

 

Balance, end of period

   $ 212,174      $ 2,266,140   
  

 

 

   

 

 

 

As of March 31, 2012 and 2011, balance of the aforementioned difference allocated to goodwill was NT$1,061,885 thousand and NT$1,415,565 thousand, respectively. There was no acquisition or impairment in goodwill for the three months ended March 31, 2012 and 2011.

 

11. FINANCIAL ASSETS CARRIED AT COST

 

     March 31  
     2012      2011  

Non-publicly traded stocks

   $ 338,584       $ 338,584   

Mutual funds

     159,251         159,251   
  

 

 

    

 

 

 
   $ 497,835       $ 497,835   
  

 

 

    

 

 

 

 

12. PROPERTY, PLANT AND EQUIPMENT

 

     Three Months Ended March 31, 2012  
     Balance,
Beginning of Period
    

Additions

(Deductions)

     Disposals     Reclassification    

Balance,

End of Period

 

Cost

            

Buildings

   $ 149,495,478       $ 14,405,480       $ (12,594   $ —        $ 163,888,364   

Machinery and equipment

     984,978,666         87,369,338         (308,114     (741,891     1,071,297,999   

Office equipment

     13,824,434         1,312,037         (278,199     —          14,858,272   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     1,148,298,578       $ 103,086,855       $ (598,907   $ (741,891     1,250,044,635   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(Continued)

 

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     Three Months Ended March 31, 2012  
     Balance,
Beginning of Period
    

Additions

(Deductions)

    Disposals     Reclassification    

Balance,

End of Period

 

Accumulated depreciation

           

Buildings

   $ 90,274,267       $ 2,247,176      $ (11,327   $ —        $ 92,510,116   

Machinery and equipment

     704,885,017         23,318,864        (306,293     (303,063     727,594,525   

Office equipment

     9,581,513         344,754        (278,199     —          9,648,068   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     804,740,797       $ 25,910,794      $ (595,819   $ (303,063     829,752,709   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Advance payments and construction in progress

     110,815,752       $ (55,542,419   $ (41,012   $ —          55,232,321   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 454,373,533             $ 475,524,247   
  

 

 

          

 

 

 
           

 

 

 

 

(Concluded

 

 

 

     Three Months Ended March 31, 2011  
    

Balance,

Beginning of Period

    

Additions

(Deductions)

    Disposals     Reclassification    

Balance,

End of Period

 

Cost

           

Buildings

   $ 128,646,942       $ 15,465,320      $ (9,707   $ —        $ 144,102,555   

Machinery and equipment

     852,733,592         66,496,059        (198,589     —          919,031,062   

Office equipment

     11,730,537         805,809        (138,838     —          12,397,508   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     993,111,071       $ 82,767,188      $ (347,134   $ —          1,075,531,125   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

           

Buildings

     81,347,877       $ 2,112,051      $ (9,707   $ —          83,450,221   

Machinery and equipment

     616,495,207         20,975,058        (196,951     —          637,273,314   

Office equipment

     8,762,361         263,217        (138,838     —          8,886,740   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     706,605,445       $ 23,350,326      $ (345,496   $ —          729,610,275   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Advance payments and construction in progress

     80,348,673       $ (13,864,357   $ (1,083,807   $ —          65,400,509   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 366,854,299             $ 411,321,359   
  

 

 

          

 

 

 

No interest was capitalized during the three months ended March 31, 2012 and 2011.

 

13. DEFERRED CHARGES, NET

 

     Three Months Ended March 31, 2012  
    

Balance,

Beginning of Period

     Additions      Amortization    

Balance,

End of Period

 

Technology license fees

   $ 1,617,310       $ —         $ (104,922   $ 1,512,388   

Software and system design costs

     2,316,571         140,829         (269,288     2,188,112   

Patent and others

     785,363         254,943         (115,797     924,509   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 4,719,244       $ 395,772       $ (490,007   $ 4,625,009   
  

 

 

    

 

 

    

 

 

   

 

 

 
     Three Months Ended March 31, 2011  
    

Balance,

Beginning of Period

     Additions      Amortization    

Balance,

End of Period

 

Technology license fees

   $ 2,277,832       $ —         $ (167,493   $ 2,110,339   

Software and system design costs

     2,075,935         36,691         (252,004     1,860,622   

Patent and others

     1,102,660         144,467         (101,349     1,145,778   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 5,456,427       $ 181,158       $ (520,846   $ 5,116,739   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

- 17 -


14. SHORT-TERM LOANS

 

     March 31  
     2012      2011  

Unsecured loans:

     

US$1,174,700 thousand, due in April 2012, and annual interest at 0.41%-0.74% in 2012; US$1,086,000 thousand and EUR52,000 thousand, due in April 2011, and annual interest at 0.40%-0.87% in 2011

   $ 34,687,716       $ 34,176,368   
  

 

 

    

 

 

 

 

15. BONDS PAYABLE

 

     March 31  
     2012      2011  

Domestic unsecured bonds:

     

Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually

   $ 10,500,000       $ —     

Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually

     7,500,000         —     

Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually

     10,000,000         —     

Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually

     7,000,000         —     

Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually

     —           4,500,000   
  

 

 

    

 

 

 
     35,000,000         4,500,000   

Current portion

     —           (4,500,000
  

 

 

    

 

 

 
   $ 35,000,000       $ —     
  

 

 

    

 

 

 

 

16. PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$280,701 thousand and NT$281,631 thousand for the three months ended March 31, 2012 and 2011, respectively.

The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$70,905 thousand and NT$75,423 thousand for the three months ended March 31, 2012 and 2011, respectively.

 

- 18 -


Movements of the Fund and accrued pension cost under the defined benefit plan were summarized as follows:

 

     Three Months Ended March 31  
     2012     2011  

The Fund

    

Balance, beginning of period

   $ 3,017,351      $ 2,835,231   

Contributions

     72,010        71,165   

Interest

     26,304        27,083   

Payments

     (4,886     (3,495
  

 

 

   

 

 

 

Balance, end of period

   $ 3,110,779      $ 2,929,984   
  

 

 

   

 

 

 

Accrued pension cost

    

Balance, beginning of period

   $ 3,860,898      $ 3,824,601   

Accruals (deductions)

     (3,748     5,736   
  

 

 

   

 

 

 

Balance, end of period

   $ 3,857,150      $ 3,830,337   
  

 

 

   

 

 

 

 

17. INCOME TAX

 

  a. A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

     Three Months Ended March 31  
     2012     2011  

Income tax expense based on “income before income tax” at statutory rate (17%)

   $ 6,073,638      $ 6,814,147   

Tax effect of the following:

    

Tax-exempt income

     (1,870,035     (3,478,506

Temporary and permanent differences

     (485,734     (561,554

Income tax credits used

     (950,630     —     
  

 

 

   

 

 

 

Income tax currently payable

   $ 2,767,239      $ 2,774,087   
  

 

 

   

 

 

 

 

  b. Income tax expense consisted of the following:

 

     Three Months Ended March 31  
     2012     2011  

Income tax currently payable

   $ 2,767,239      $ 2,774,087   

Other income tax adjustments

     29,128        20,131   

Net change in deferred income tax assets

    

Investment tax credits

     361,473        (486,686

Temporary differences

     187,562        166,629   

Valuation allowance

     (1,092,307     1,331,282   
  

 

 

   

 

 

 

Income tax expense

   $ 2,253,095      $ 3,805,443   
  

 

 

   

 

 

 

 

- 19 -


  c. Net deferred income tax assets consisted of the following:

 

     March 31  
     2012     2011  

Current deferred income tax assets

    

Investment tax credits

   $ 5,563,872      $ 4,182,893   

Temporary differences

    

Allowance for sales returns and others

     523,921        575,591   

Unrealized gain/loss on financial instruments

     308,777        62,060   

Others

     132,258        44,359   
  

 

 

   

 

 

 
   $ 6,528,828      $ 4,864,903   
  

 

 

   

 

 

 

Noncurrent deferred income tax assets

    

Investment tax credits

   $ 14,254,615      $ 18,279,007   

Temporary differences

    

Depreciation

     1,737,772        1,891,415   

Others

     269,057        199,860   

Valuation allowance

     (9,245,784     (13,984,044
  

 

 

   

 

 

 
   $ 7,015,660      $ 6,386,238   
  

 

 

   

 

 

 

Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the period in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that period. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

 

  d. Integrated income tax information:

The balance of the imputation credit account as of March 31, 2012 and 2011 was NT$4,003,228 thousand and NT$1,669,533 thousand, respectively.

The estimated and actual creditable ratios for distribution of earnings of 2011 and 2010 were 6.67% and 4.96%, respectively.

The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of the imputation credit is made.

 

  e. All earnings generated prior to December 31, 1997 have been appropriated.

 

  f. As of March 31, 2012, investment tax credits consisted of the following:

 

                    Law/Statute                            Item    Total
Creditable
Amount
    

Remaining

Creditable

Amount

    

Expiry

Year

Statute for Upgrading Industries

  

Purchase of machinery and equipment

   $ 1,165,765       $ 804,292       2012
        6,513,605         6,513,605       2013
        7,006,655         7,006,655       2014
        482,351         482,351       2015
     

 

 

    

 

 

    
      $ 15,168,376       $ 14,806,903      
     

 

 

    

 

 

    

 

(Continued)

 

- 20 -


                        Law/Statute                            Item    Total
Creditable
Amount
    

Remaining

Creditable

Amount

    

Expiry

Year

Statute for Upgrading Industries

  

Research and development expenditures

   $ 4,994,463       $ 4,994,463       2013
     

 

 

    

 

 

    

Statute for Upgrading Industries

  

Personnel training expenditures

   $ 17,121       $ 17,121       2013
     

 

 

    

 

 

    

Statute for Industrial Innovation

  

Research and development expenditures

   $ 589,157       $ —         2012
     

 

 

    

 

 

    

(Concluded)

 

  g. The profits generated from the following projects are exempt from income tax for a five-year period:

 

     Tax-exemption Period

Construction and expansion of 2004

   2008 to 2012

Construction and expansion of 2005

   2010 to 2014

Construction and expansion of 2006

   2011 to 2015

 

  h. The tax authorities have examined income tax returns of the Company through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

18. LABOR COST, DEPRECIATION AND AMORTIZATION

 

     Three Months Ended March 31, 2012  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 5,797,911       $ 4,368,584       $ 10,166,495   

Labor and health insurance

     297,921         194,107         492,028   

Pension

     213,350         138,256         351,606   

Meal

     152,266         74,756         227,022   

Welfare

     53,767         35,961         89,728   

Others

     9,739         13,578         23,317   
  

 

 

    

 

 

    

 

 

 
   $ 6,524,954       $ 4,825,242       $ 11,350,196   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 23,482,941       $ 2,427,853       $ 25,910,794   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 307,786       $ 182,221       $ 490,007   
  

 

 

    

 

 

    

 

 

 

 

- 21 -


     Three Months Ended March 31, 2011  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 6,117,303       $ 4,260,569       $ 10,377,872   

Labor and health insurance

     307,843         168,284         476,127   

Pension

     230,885         126,169         357,054   

Meal

     165,359         65,669         231,028   

Welfare

     58,360         32,769         91,129   

Others

     14,252         7,681         21,933   
  

 

 

    

 

 

    

 

 

 
   $ 6,894,002       $ 4,661,141       $ 11,555,143   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 21,800,953       $ 1,545,577       $ 23,346,530   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 324,635       $ 196,211       $ 520,846   
  

 

 

    

 

 

    

 

 

 

 

19. SHAREHOLDERS’ EQUITY

As of March 31, 2012, 1,091,849 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,459,243 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

Capital surplus consisted of the following:

 

     March 31  
     2012      2011  

Additional paid-in capital

   $ 23,866,634       $ 23,715,050   

From merger

     22,804,510         22,805,390   

From convertible bonds

     8,892,847         8,893,190   

From long-term investments

     444,328         367,797   

Donations

     55         55   
  

 

 

    

 

 

 
   $ 56,008,374       $ 55,781,482   
  

 

 

    

 

 

 

The Company’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly:

 

  a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Company’s paid-in capital;

 

- 22 -


  b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;

 

  c. Bonus to directors and profit sharing to employees of the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

  d. Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

The Company’s Articles of Incorporation also provide that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.

Any appropriations of the profits are subject to shareholders’ approval in the following year.

The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$2,236,553 thousand and NT$2,443,687 thousand for the three months ended March 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in a Board of Directors’ meeting held on February 14, 2012 and a shareholders’ meeting held on June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

     Appropriation of Earnings      Dividends Per  Share
(NT$)
 
     For Fiscal
Year 2011
     For Fiscal
Year 2010
    

For Fiscal

Year 2011

    

For Fiscal

Year 2010

 

Legal capital reserve

   $ 13,420,128       $ 16,160,501         

Special capital reserve

     1,172,350         5,120,827         

Cash dividends to shareholders

     77,748,668         77,730,236       $ 3.00       $ 3.00   
  

 

 

    

 

 

       
   $ 92,341,146       $ 99,011,564         
  

 

 

    

 

 

       

 

- 23 -


The Board of Directors also resolved on February 14, 2012 to appropriate profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2011.

The appropriations of earnings, profit sharing to employees and bonus to directors for 2011 are to be resolved in the shareholders’ meeting held on June 12, 2012 (expected).

The Company’s profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 9, 2011. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and same amount had been charged against earnings of 2010.

The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website.

Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998.

 

20. STOCK-BASED COMPENSATION PLANS

The Company’s Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the grant date.

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of March 31, 2012.

Information about outstanding options for the three months ended March 31, 2012 and 2011 was as follows:

 

    

Number of Options

(In Thousands)

   

Weighted-average

Exercise Price

(NT$)

 

Three months ended March 31, 2012

    

Balance, beginning of period

     14,293      $ 32.1   

Options exercised

     (4,382     31.1   
  

 

 

   

Balance, end of period

     9,911        32.6   
  

 

 

   

 

(Continued)

 

- 24 -


    

Number of Options

(In Thousands)

   

Weighted-average

Exercise Price

(NT$)

 

Three months ended March 31, 2011

    

Balance, beginning of period

     21,437      $ 32.3   

Options exercised

     (4,115     30.9   
  

 

 

   

Balance, end of period

     17,322        32.6   
  

 

 

   

(Concluded)

The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans.

As of March 31, 2012, information about outstanding options was as follows:

 

     Options Outstanding  

Range of Exercise Price

(NT$)

  

Number of Options

(In Thousands)

    

Weighted-average

Remaining

Contractual Life

(Years)

  

Weighted-average

Exercise Price

(NT$)

 
$20.9-$29.3      6,972       1.1    $ 27.0   
  38.0-  50.1      2,939       2.7      45.7   
  

 

 

       
     9,911       1.6      32.6   
  

 

 

       

As of March 31, 2012, all of the above outstanding options were exercisable.

No compensation cost was recognized under the intrinsic value method for the three months ended March 31, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the three months ended March 31, 2012 and 2011 would have been as follows:

 

Valuation assumptions:

  

Expected dividend yield

   1.00%-3.44%

Expected volatility

   43.77%-46.15%

Risk free interest rate

   3.07%-3.85%

Expected life

   5 years

 

     Three Months Ended March 31  
     2012      2011  

Net income:

     

Net income as reported

   $ 33,474,187       $ 36,277,773   

Pro forma net income

     33,402,682         36,273,711   

Earnings per share (EPS) - after income tax (NT$):

     

Basic EPS as reported

   $ 1.29       $ 1.40   

Pro forma basic EPS

     1.29         1.40   

Diluted EPS as reported

     1.29         1.40   

Pro forma diluted EPS

     1.29         1.40   

 

- 25 -


21. EARNINGS PER SHARE

EPS is computed as follows:

 

     Amounts (Numerator)     

Number of

Shares

     EPS (NT$)  
    

Before

Income Tax

    

After

Income Tax

    

(Denominator)

(In Thousands)

     Before
Income Tax
     After
Income Tax
 

Three months ended March 31, 2012

              

Basic EPS

              

Earnings available to common shareholders

   $ 35,727,282       $ 33,474,187         25,917,646       $ 1.38       $ 1.29   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     —           —           8,800         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders (including effect of dilutive potential common shares)

   $ 35,727,282       $ 33,474,187         25,926,446       $ 1.38       $ 1.29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Three months ended March 31, 2011

              

Basic EPS

              

Earnings available to common shareholders

   $ 40,083,216       $ 36,277,773         25,912,506       $ 1.55       $ 1.40   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     —           —           11,060         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders (including effect of dilutive potential common shares)

   $ 40,083,216       $ 36,277,773         25,923,566       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the three months ended March 31, 2011 to remain at NT$1.40.

 

- 26 -


22. DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a. Fair values of financial instruments were as follows:

 

     March 31  
     2012      2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Assets

           

Financial assets at fair value through profit or loss

   $ —         $ —         $ 11,605       $ 11,605   

Available-for-sale financial assets

     2,618,029         2,618,029         5,105,351         5,105,351   

Held-to-maturity financial assets

     1,402,856         1,422,299         6,198,107         6,253,752   

Financial assets carried at cost

     497,835         —           497,835         —     

Liabilities

           

Financial liabilities at fair value through profit or loss

     47,930         47,930         15,028         15,028   

Bonds payable (including current portion)

     35,000,000         35,248,224         4,500,000         4,542,890   

Other long-term payables (including current portion)

     —           —           912,591         912,591   

 

  b. Methods and assumptions used in the estimation of fair values of financial instruments

 

  1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

  2) Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

  3) The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

  4) Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

  5) Fair value of bonds payable was based on their quoted market price.

 

  6) Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount.

 

  c. Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as net losses of NT$47,930 thousand and NT$3,423 thousand for the three months ended March 31, 2012 and 2011, respectively.

 

  d. As of March 31, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$1,402,856 thousand and NT$7,245,756 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$69,735,646 thousand and NT$38,691,396 thousand, respectively.

 

- 27 -


  e. Movements of the unrealized gains or losses on financial instruments for the three months ended March 31, 2012 and 2011 were as follows:

 

     Three Months Ended March 31, 2012  
    

From

Available-

for-sale

Financial Assets

   

Equity-method

Investments

    Total  

Balance, beginning of period

   $ (1,511,599   $ 338,744      $ (1,172,855

Recognized directly in shareholders’ equity

     743        288,865        289,608   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (1,510,856   $ 627,609      $ (883,247
  

 

 

   

 

 

   

 

 

 
     Three Months Ended March 31, 2011  
     From
Available-
for-sale
Financial Assets
    Equity-method
Investments
    Total  

Balance, beginning of period

   $ (395,306   $ 504,595      $ 109,289   

Recognized directly in shareholders’ equity

     128,353        (192,769     (64,416
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (266,953   $ 311,826      $ 44,873   
  

 

 

   

 

 

   

 

 

 

 

  f. Information about financial risks

 

  1) Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities.

 

  2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

  3) Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low.

 

  4) Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.

 

- 28 -


23. RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

 

  a. Subsidiaries

TSMC North America

TSMC China

TSMC Europe

TSMC Japan

 

  b. Investees

Xintec (holding a controlling financial interest)

SSMC (accounted for using the equity method)

VIS (accounted for using the equity method)

 

  c. Indirect subsidiaries

WaferTech, LLC (WaferTech)

TSMC Technology, Inc. (TSMC Technology)

TSMC Design Technology Canada, Inc. (TSMC Canada)

 

  d. Indirect investee

VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method.

 

  e. Others

Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.

Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:

 

     2012      2011  
     Amount      %      Amount      %  

For the three months ended March 31

           

Sales

           

TSMC North America

   $ 64,861,377         61       $ 57,007,986         55   

Others

     994,464         1         567,051         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 65,855,841         62       $ 57,575,037         55   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchases

           

TSMC China

   $ 3,192,921         25       $ 2,419,959         19   

WaferTech

     1,623,602         12         1,770,429         14   

SSMC

     873,056         7         955,937         7   

VIS

     732,490         6         1,325,127         10   

Others

     —           —           65,792         1   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 6,422,069         50       $ 6,537,244         51   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 29 -


     2012      2011  
     Amount      %      Amount      %  

Manufacturing expenses

           

Xintec (outsourcing and rent)

   $ 23,487         —         $ 84,600         —     

VisEra (outsourcing)

     4,024         —           5,937         —     

VIS (rent)

     —           —           7,104         —     

Others

     —           —           770         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 27,511         —         $ 98,411         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Research and development expenses

           

TSMC Technology (primarily consulting fee)

   $ 148,681         2       $ 113,013         2   

TSMC Canada (primarily consulting fee)

     52,350         1         42,489         —     

TSMC Europe (primarily consulting fee)

     13,513         —           8,774         —     

VIS (primarily rent)

     —           —           1,999         —     

Others

     2,556         —           13,476         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 217,100         3       $ 179,751         2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Marketing expenses - commission

           

TSMC Europe

   $ 82,247         15       $ 90,915         14   

TSMC Japan

     71,086         13         66,614         10   

TSMC China

     16,450         3         16,320         2   

Others

     5,190         1         5,375         1   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 174,973         32       $ 179,224         27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales of property, plant and equipment and other assets

           

TSMC China

   $ 41,011         80       $ 592,339         57   

VisEra

     9,000         17         —           —     

WaferTech

     —           —           64,255         6   

VIS

     —           —           35,208         4   

Others

     10         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 50,021         97       $ 691,802         67   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating income and gains

           

VIS (primarily technical service income)

   $ 54,829         4       $ 68,905         3   

SSMC (primarily technical service income)

     52,326         3         44,817         2   

TSMC China (primarily technical service income and gains on disposal of property, plant and equipment)

     181         —           6,801         —     

Others

     3,189         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 110,525         7       $ 120,523         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating expenses and losses

           

TSMC China (primarily losses on disposal of property, plant and equipment)

   $ 4,675         —         $ —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 30 -


     2012      2011  
     Amount     %      Amount      %  

As of March 31

          

Receivables

          

TSMC North America

   $ 32,359,734        98       $ 27,517,143         99   

Others

     552,937        2         261,098         1   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 32,912,671        100       $ 27,778,241         100   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other receivables

          

SSMC

   $ 1,192,278        87       $ 45,415         3   

VIS

     99,977        7         153,680         8   

TSMC China

     43,296        3         1,593,520         86   

Others

     36,742        3         60,061         3   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 1,372,293        100       $ 1,852,676         100   
  

 

 

   

 

 

    

 

 

    

 

 

 

Payables

          

TSMC China

   $ 1,137,485        39       $ 855,485         28   

WaferTech

     576,902        20         550,219         18   

VIS

     519,259        18         953,003         31   

SSMC

     382,415        13         395,820         13   

Others

     276,526        10         316,784         10   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 2,892,587        100       $ 3,071,311         100   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other assets (deferred credits)

          

TSMC China

   $ (3,182     —         $ 33,833         2   

VisEra

     (1,122     —           —           —     

Others

     (10     —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ (4,314     —         $ 33,833         2   
  

 

 

   

 

 

    

 

 

    

 

 

 

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses. The lease expired in June 2011.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses. The lease expired in April 2011.

The Company deferred the disposal gains/losses (classified under other assets and deferred credits) derived from sales of property, plant and equipment and other assets to TSMC China and VisEra, and then recognized such gains/losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets.

 

- 31 -


24. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2012 to January 2032 and can be renewed upon expiration.

As of March 31, 2012, future lease payments were as follows:

 

Year    Amount  

2012 (2nd to 4th quarter)

   $ 347,649   

2013

     439,841   

2014

     425,328   

2015

     415,008   

2016

     404,844   

2017 and thereafter

     3,400,454   
  

 

 

 
   $ 5,433,124   
  

 

 

 

 

25. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of March 31, 2012, excluding those disclosed in other notes, were as follows:

 

  a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Company’s capacity if the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

  b. Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of March 31, 2012, the Company had a total of US$11,330 thousand of guarantee deposits.

 

  c. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

  d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both

 

- 32 -


  breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

  e. In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

  f. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time.

 

26. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

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

 

     March 31  
     2012      2011  
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

 

Financial assets

           

Monetary items

           

USD

   $ 1,983,180         29.529       $ 1,919,150         29.468   

EUR

     177,041         39.26         127,036         41.81   

JPY

     23,367,649         0.3579         29,399,539         0.3541   

Non-monetary items

           

HKD

     688,955         3.80         1,073,696         3.79   

Investments accounted for using equity method

           

USD

     2,992,576         29.529         3,022,391         29.468   

EUR

     5,447         39.26         14,318         41.81   

JPY

     418,722         0.3579         407,297         0.3541   

RMB

     3,009,759         4.69         1,049,606         4.50   

 

(Continued)

 

- 33 -


     March 31  
     2012      2011  
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

 

Financial liabilities

           

Monetary items

           

USD

   $ 1,969,944         29.529       $ 1,915,005         29.468   

EUR

     181,806         39.26         163,964         41.81   

JPY

     30,416,402         0.3579         32,211,580         0.3541   

(Concluded)

Note:    Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

27. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

 

  a. Financings provided: Please see Table 1 attached;

 

  b. Endorsement/guarantee provided: None;

 

  c. Marketable securities held: Please see Table 2 attached;

 

  d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;

 

  e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

 

  f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

 

  g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

 

  h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

  i. Names, locations, and related information of investees over which the Company exercises significant influence: Please see Table 7 attached;

 

- 34 -


  j. Information about derivatives of investees over which the Company has a controlling interest:

Do not meet the criteria for hedge accounting

 

  1) TSMC China

TSMC China entered into forward exchange contracts during the three months ended March 31, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contract as of March 31, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

Sell US$/Buy EUR

   April 2012    US$1,565/EUR1,200

Sell US$/Buy JPY

   April 2012    US$2,584/JPY213,257

For the three months ended March 31, 2012, net gains arising from forward exchange contracts of TSMC China amounted to NT$2,855 thousand.

 

  2) Xintec

Xintec entered into forward exchange contracts during the three months ended March 31, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of March 31, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

Sell US$/Buy NT$

   April 2012 to May 2012    US$10,800/NT$318,434

For the three months ended March 31, 2012, net gains arising from forward exchange contracts of Xintec amounted to NT$10,057 thousand.

 

  3) TSMC Partners

TSMC Partners entered into forward exchange contracts during the three months ended March 31, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of March 31, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

Sell RMB/Buy US$

   April 2012    RMB1,230,782/US$195,000

For the three months ended March 31, 2012, net losses arising from forward exchange contracts of TSMC Partners amounted to NT$14,647 thousand.

 

- 35 -


  4) TSMC Solar

TSMC Solar entered into derivative contracts during the three months ended March 31, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of March 31, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

Sell NT$/Buy US$

   April 2012    NT$128,180/US$4,340

Sell NT$/Buy JPY

   April 2012    NT$9,441/JPY26,000

Outstanding cross currency swap contracts as of March 31, 2012 consisted of the following:

 

Maturity Date   

Contract Amount

(In Thousands)

  

Range of

Interest Rates

Paid

   

Range of

Interest Rates

Received

April 2012

   NT$604,165/US$20,450      0.00   0.07%-0.20%

For the three months ended March 31, 2012, net losses arising from derivative financial instruments of TSMC Solar amounted to NT$14,747 thousand.

 

  5) TSMC SSL

TSMC SSL entered into forward exchange contracts during the three months ended March 31, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of March 31, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

Sell NT$/Buy US$

   April 2012 to May 2012    NT$59,240/US$2,010

Sell NT$/Buy JPY

   April 2012    NT$13,068/JPY36,000

For the three months ended March 31, 2012, net losses arising from forward exchange contracts of TSMC SSL amounted to NT$7,251 thousand.

Meet the criteria for hedge accounting

Xintec monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, Xintec seeks to reduce the effects of future cash flow related interest rate exposures by primarily using derivative financial instruments.

Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate swap contract to hedge such a cash flow interest rate risk. As of March 31, 2012, the outstanding interest rate swap contract of Xintec consisted of the following:

 

Hedged Item   

Hedging Financial

Instrument

   Fair Value
March 31, 2012
   

Expected

Cash Flow
Generated Period

    

Expected Timing for the

Recognition of Gains

or Losses from Hedge

Long-term bank loans

  

Interest rate swap contract

   $ (135     2011 to 2012       2011 to 2012

 

- 36 -


For the three months ended March 31, 2012, the adjustment for current period to shareholder’s equity amounted to a loss of NT$1 thousand for the above Xintec’s interest rate swap contract. The amount removed from shareholder’s equity and recognized as a loss amounted to NT$98 thousand.

 

  k. Information on investment in Mainland China

 

  1) The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

  2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Note 23.

 

28. OPERATING SEGMENTS INFORMATION

The Company has provided the operating segments disclosure in the consolidated financial statements.

 

29. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the management on April 24, 2012.

 

- 37 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Investees

FINANCINGS PROVIDED

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

                                                          Collateral           Financing  

No.

 

Financing
Company

 

Counter-

party

 

Financial
Statement
Account

  Maximum
Balance for
the Period
(US$ in
Thousands)

(Note 3)
    Ending
Balance

(US$ in
Thousands)

(Note 3)
    Amount
Actually
Drawn

(US$ in
Thousands)
    Interest
Rate
 

Nature
for
Financing

  Transaction
Amounts
    Reason
for

Financing
  Allowance
for Bad
Debt
          Financing
Limits for
Each
Borrowing
Company

(Note 1)
    Company’s
Total
Financing
Amount
Limits

(Note 2)
 
                        Item     Value      

1

  TSMC Partners  

TSMC China

 

Long-term receivables from related parties

  $

(US$

7,382,250

250,000

  

  $

(US$

7,382,250

250,000

  

  $

(US$

7,382,250

250,000

  

  0.25%-0.26%  

The need for short-term financing

  $ —        Purchase
equipment
  $ —          —        $ —        $ 34,664,194      $ 34,664,194   
   

TSMC Solar

 

Other receivables from related parties

   

(US$

1,181,160

40,000

  

   

(US$

1,181,160

40,000

  

   

(US$

723,461

24,500

  

  0.4017%-0.4757%  

The need for short-term financing

    —        Operating
capital
    —          —          —          3,466,419     
   

TSMC SSL

 

Other receivables from related parties

   

(US$

885,870

30,000

  

   

(US$

885,870

30,000

  

    —        0.4545%  

The need for short-term financing

    —        Operating
capital
    —          —          —          3,466,419     

 

Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.
Note 2: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners.
Note 3: The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

- 38 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES HELD

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Held Company Name

 

Marketable Securities
Type and Name

 

Relationship with the
Company

 

Financial Statement
Account

  March 31, 2012     Note
        Shares/Units
(In  Thousands)
    Carrying
Value

(Foreign
Currencies
in Thousands)
    Percentage of
Ownership
(%)
    Market Value
or Net Asset
Value

(Foreign
Currencies
in Thousands)
   

TSMC

  Corporate bond              
 

Nan Ya Plastics Corporation

   

Held-to-maturity financial assets

    —        $ 1,099,699        N/A      $ 1,117,010     
 

China Steel Corporation

   

    —          303,157        N/A        305,289     
  Stock              
 

Semiconductor Manufacturing International Corporation

   

Available-for-sale financial assets

    1,789,493        2,618,029        7        2,618,029     
 

TSMC Global

 

Subsidiary

 

Investments accounted for using equity method

    1        43,137,920        100        43,137,920     
 

TSMC Partners

 

Subsidiary

      988,268        34,664,194        100        34,664,194     
 

TSMC Solar

 

Subsidiary

      1,118,000        9,456,531        99        9,456,531     
 

VIS

 

Investee accounted for using equity method

      628,223        8,986,165        41        8,009,850     
 

SSMC

 

Investee accounted for using equity method

      314        5,388,363        39        5,174,379     
 

TSMC SSL

 

Subsidiary

      430,400        3,541,201        95        3,541,201     
 

TSMC North America

 

Subsidiary

      11,000        3,035,002        100        3,035,002     
 

Xintec

 

Investee with a controlling financial interest

      94,011        1,546,668        40        1,546,668     
 

GUC

 

Investee accounted for using equity method

      46,688        1,191,165        35        5,182,352     
 

TSMC Europe

 

Subsidiary

      —          213,849        100        213,849     
 

TSMC Japan

 

Subsidiary

      6        149,861        100        149,861     
 

TSMC Korea

 

Subsidiary

      80        23,468        100        23,468     
 

United Industrial Gases Co., Ltd.

   

Financial assets carried at cost

    16,783        193,584        10        372,714     
 

Shin-Etsu Handotai Taiwan Co., Ltd.

        10,500        105,000        7        348,269     
 

W.K. Technology Fund IV

        4,000        40,000        2        42,581     
  Fund              
 

Horizon Ventures Fund

   

Financial assets carried at cost

    —          103,992        12        103,992     
 

Crimson Asia Capital

        —          55,259        1        55,259     
  Capital              
 

TSMC China

 

Subsidiary

 

Investments accounted for using equity method

    —          14,095,161        100        14,115,767     
 

VTAF III

 

Subsidiary

      —          1,437,397        53        1,416,270     
 

VTAF II

 

Subsidiary

      —          740,533        98        734,522     
 

Emerging Alliance

 

Subsidiary

      —          205,484        99        205,484     
 

TSMC GN

 

Subsidiary

      —          84,751        100        84,751     

TSMC Solar

  Stock              
 

Motech

 

Investee accounted for using equity method

 

Investments accounted for using equity method

    87,480        5,219,263        20        3,576,900     
 

TSMC Solar Europe

 

Subsidiary

      —          168,129        100        168,129     
 

TSMC Solar NA

 

Subsidiary

      1        35,897        100        35,897     
  Capital              
 

VTAF III

 

Investee accounted for using equity method

 

Investments accounted for using equity method

    —          1,640,461        46        1,640,461     

(Continued)

 

- 39 -


Held Company Name

 

Marketable Securities
Type and Name

 

Relationship with the
Company

 

Financial Statement
Account

  March 31, 2012     Note
        Shares/Units
(In  Thousands)
    Carrying
Value

(Foreign
Currencies
in Thousands)
    Percentage  of
Ownership

(%)
    Market Value
or Net Asset
Value

(Foreign
Currencies
in Thousands)
   

TSMC SSL

  Stock              
 

TSMC Lighting NA

 

Subsidiary

 

Investments accounted for using equity method

    1      $ 2,912        100      $ 2,912     

TSMC GN

  Stock              
 

TSMC Solar

 

Subsidiary

 

Investments accounted for using equity method

    3,759        31,755        —          31,755     
 

TSMC SSL

 

Subsidiary

      5,425        44,838        1        44,838     

TSMC Partners

  Corporate bond              
 

General Elec Cap Corp. Mtn

   

Held-to-maturity financial assets

    —        US$ 20,038        N/A      US$ 20,496     
  Stock              
 

TSMC Development, Inc. (TSMC Development)

 

Subsidiary

 

Investments accounted for using equity method

    1      US$ 470,564        100      US$ 470,564     
 

VisEra Holding Company

 

Investee accounted for using equity method

      43,000      US$ 96,445        49      US$ 96,445     
 

InveStar Semiconductor Development Fund, Inc. (ISDF)

 

Subsidiary

      787      US$ 14,041        97      US$ 14,041     
 

TSMC Technology

 

Subsidiary

      1      US$ 10,942        100      US$ 10,942     
 

InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)

 

Subsidiary

      14,153      US$ 11,455        97      US$ 11,455     
 

TSMC Canada

 

Subsidiary

      2,300      US$ 4,258        100      US$ 4,258     
 

Mcube Inc.

 

Investee accounted for using equity method

      6,333        —          25        —       
  Fund              
 

Shanghai Walden Venture Capital Enterprise

   

Financial assets carried at cost

    —        US$ 5,000        8      US$ 5,000     

TSMC North America

  Stock              
 

Spansion Inc.

   

Available-for-sale financial assets

    270      US$ 3,287        —        US$ 3,287     

TSMC Development

  Corporate bond              
 

GE Capital Corp.

   

Held-to-maturity financial assets

    —        US$ 20,059        N/A      US$ 20,496     
 

JP Morgan Chase & Co.

        —        US$ 15,000        N/A      US$ 14,850     
  Stock              
 

WaferTech

 

Subsidiary

 

Investments accounted for using equity method

    293,640      US$ 229,723        100      US$ 229,723     

Emerging Alliance

  Common stock              
 

RichWave Technology Corp.

   

Financial assets carried at cost

    4,074      US$ 1,545        10      US$ 1,545     
 

Global Investment Holding Inc.

        11,124      US$ 3,065        6      US$ 3,065     
  Preferred stock              
 

Audience, Inc.

   

Financial assets carried at cost

    1,654      US$ 250        —        US$ 250     
 

Next IO, Inc.

        8      US$ 500        —        US$ 500     
 

Pixim, Inc.

        4,641      US$ 1,137        2      US$ 1,137     
 

QST Holdings, LLC

        —        US$ 142        4      US$ 142     
  Capital              
 

VentureTech Alliance Holdings, LLC (VTA Holdings)

 

Subsidiary

 

Investments accounted for using equity method

    —          —          7        —       

VTAF II

  Common stock              
 

Aether Systems, Inc.

   

Financial assets carried at cost

    1,800      US$ 1,701        23      US$ 1,701     
 

RichWave Technology Corp.

        1,267      US$ 1,036        3      US$ 1,036     
 

Sentelic

        1,806      US$ 2,607        9      US$ 2,607     

(Continued)

 

- 40 -


Held Company Name

 

Marketable Securities
Type and Name

 

Relationship with the
Company

 

Financial Statement Account

  March 31, 2012     Note
        Shares/Units
(In  Thousands)
    Carrying
Value

(Foreign
Currencies
in Thousands)
    Percentage of
Ownership (%)
    Market Value
or Net Asset
Value

(Foreign
Currencies

in Thousands)
   

VTAF II

  Preferred stock              
 

5V Technologies, Inc.

   

Financial assets carried at cost

    2,890      US$ 2,168        4      US$ 2,168     
 

Aquantia

        4,556      US$ 4,316        3      US$ 4,316     
 

Audience, Inc.

        12,378      US$ 2,378        3      US$ 2,378     
 

Impinj, Inc.

        475      US$ 1,000        —        US$ 1,000     
 

Next IO, Inc.

        132      US$ 1,110        2      US$ 1,110     
 

Pixim, Inc.

        33,347      US$ 1,878        2      US$ 1,878     
 

Power Analog Microelectronics

        7,330      US$ 3,482        21      US$ 3,482     
 

QST Holdings, LLC

        —        US$ 593        13      US$ 593     
 

Capital

             
 

VTA Holdings

  Subsidiary  

Investments accounted for using equity method

    —          —          31        —       

VTAF III

  Common stock              
 

Mutual-Pak Technology Co., Ltd.

  Subsidiary  

Investments accounted for using equity method

    14,168      US$ 1,771        58      US$ 1,771     
 

InvenSense, Inc.

   

Available-for-sale financial assets

    796      US$ 14,415        1      US$ 14,415     
 

Accton Wireless Broadband Corp.

   

Financial assets carried at cost

    2,249      US$ 315        6      US$ 315     
  Preferred stock              
 

BridgeLux, Inc.

   

Financial assets carried at cost

    7,522      US$ 9,379        3      US$ 9,379     
 

GTBF, Inc.

        1,154      US$ 1,500        N/A      US$ 1,500     
 

LiquidLeds Lighting Corp.

        1,600      US$ 800        11      US$ 800     
 

Neoconix, Inc.

        3,916      US$ 4,779        4      US$ 4,779     
 

Powervation, Ltd.

        449      US$ 7,030        16      US$ 7,030     
 

Stion Corp.

        8,152      US$ 55,474        20      US$ 55,474     
 

Tilera, Inc.

        3,890      US$ 3,025        2      US$ 3,025     
 

Validity Sensors, Inc.

        9,340      US$ 3,456        4      US$ 3,456     
  Capital              
 

Growth Fund Limited (Growth Fund)

  Subsidiary  

Investments accounted for using equity method

    —        US$ 480        100      US$ 480     
 

VTA Holdings

  Subsidiary       —          —          62        —       

Growth Fund

  Common stock              
 

Veebeam

   

Financial assets carried at cost

    10      US$ 25        —        US$ 25     

ISDF

  Common stock              
 

Integrated Memory Logic, Inc.

   

Available-for-sale financial assets

    1,320      US$ 4,743        2      US$ 4,743     
 

Memsic, Inc.

        1,286      US$ 5,412        5      US$ 5,412     
 

Preferred stock

             
 

Sonics, Inc.

   

Financial assets carried at cost

    230      US$ 497        2      US$ 497     

ISDF II

  Common stock              
 

Memsic, Inc.

   

Available-for-sale financial assets

    1,072      US$ 4,513        5      US$ 4,513     
 

Alchip Technologies Limited

   

Financial assets carried at cost

    7,520      US$ 3,664        14      US$ 3,664     
 

Sonics, Inc.

        278      US$ 10        3      US$ 10     
 

Goyatek Technology, Corp.

        745      US$ 163        6      US$ 163     
 

Auden Technology MFG. Co., Ltd.

        1,049      US$ 223        3      US$ 223     
 

Preferred stock

             
 

Sonics, Inc.

   

Financial assets carried at cost

    264      US$ 455        3      US$ 455     

(Continued)

 

- 41 -


Held Company Name

 

Marketable Securities
Type and Name

 

Relationship with the
Company

 

Financial Statement
Account

  March 31, 2012     Note
        Shares/Units
(In  Thousands)
    Carrying
Value

(Foreign
Currencies
in
Thousands)
    Percentage  of
Ownership

(%)
    Market
Value or
Net Asset
Value

(Foreign
Currencies

in
Thousands)
   

Xintec

  Capital              
 

Compositech Ltd.

   

Financial assets carried at cost

    587      $ —          3      $ —       

TSMC Solar Europe

  Stock              
 

TSMC Solar Europe GmbH

  Subsidiary  

Investments accounted for using equity method

    1        EUR 4,186        100        EUR 4,186     

TSMC Global

 

Corporate bond

             
 

Aust + Nz Banking Group

   

Held-to-maturity financial assets

    20,000      US$ 20,000        N/A      US$ 19,995     
 

Commonwealth Bank of Australia

   

    25,000      US$ 25,000        N/A      US$ 24,796     
 

Commonwealth Bank of Australia

   

    25,000      US$ 25,000        N/A      US$ 24,898     
 

Deutsche Bank AG London

   

    20,000      US$ 19,913        N/A      US$ 20,225     
 

JP Morgan Chase + Co.

   

    35,000      US$ 35,036        N/A      US$ 35,216     
 

Nationwide Building Society-UK Government Guarantee

   

    8,000      US$ 8,000        N/A      US$ 8,001     
 

Westpac Banking Corp.

   

    25,000      US$ 25,000        N/A      US$ 24,884     
 

Westpac Banking Corp. 12/12 Frn

   

    5,000      US$ 5,000        N/A      US$ 5,012     
 

Government bond

             
 

Societe De Financement De Lec

   

Held-to-maturity financial assets

    15,000      US$ 15,000        N/A      US$ 15,003     
 

Money market fund

             
 

Ssga Cash Mgmt Global Offshore

   

Available-for-sale financial assets

    133      US$ 133        N/A      US$ 133     

(Concluded)

 

- 42 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Company

Name

  Marketable
Securities
Type and
Name
 

Financial
Statement
Account

  Counter-
party
   

Nature of
Relationship

  Beginning Balance     Acquisition     Disposal     Ending Balance (Note 2)  
          Shares/Units
(In
Thousands)
    Amount
(Foreign
Currencies
in

Thousands)
    Shares/Units
(In
Thousands)
(Note 1)
    Amount
(Foreign
Currencies

in Thousands)
    Shares/Units
(In
Thousands)
    Amount
(Foreign
Currencies

in
Thousands)
    Carrying
Value
(Foreign
Currencies

in
Thousands)
    Gain (Loss)
on Disposal
(Foreign
Currencies

in
Thousands)
    Shares/Units
(In
Thousands)
    Amount
(Foreign
Currencies

in
Thousands)
 

TSMC

  Stock                          
  TSMC
SSL
 

Investments accounted for using equity method

    —        Subsidiary     227,000      $ 1,746,893        203,400      $ 2,034,000        —        $ —        $ —        $ —          430,400      $ 3,541,201   
  TSMC
GN
      —        Subsidiary     —          —          —          100,000        —          —          —          —          —          84,751   

 

Note 1: The shares/units and amount of marketable securities acquired do not include stock dividends from investees.
Note 2: The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

- 43 -


TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Investees

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name

  Types of
Property
 

Transaction
Date

  Transaction
Amount
   

Payment
Term

 

Counter-
party

  Nature of
Relationships
  Prior Transaction of Related
Counter-party
 

Price
Reference

 

Purpose of
Acquisition

 

Other

Terms

              Owner   Relationships   Transfer
Date
  Amount      

TSMC

  Fab  

January 1, 2012 to March 30, 2012

  $ 950,083     

By the construction progress

 

Da Cin Construction Co., Ltd.

    N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
  Fab  

March 7, 2012 to March 29, 2012

    372,426     

By the construction progress

 

Fu Tsu Construction Co., Ltd.

    N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
  Fab  

March 19, 2012 to March 29, 2012

    394,839     

By the construction progress

 

China Steel Structure Co., Ltd.

    N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None

 

- 44 -


TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name

 

Related Party

 

Nature of Relationships

 

Transaction Details

  Abnormal
Transaction
    Notes/Accounts
Payable or
Receivable
    Note
     

Purchases/

Sales

  Amount     % to
Total
   

Payment Terms

  Unit
Price

(Note)
    Payment
Terms

(Note)
    Ending
Balance
    % to
Total
   

TSMC

 

TSMC North America

 

Subsidiary

  Sales   $ 64,861,377        61     

Net 30 days after invoice date

    —          —        $ 32,359,734        62     
 

GUC

 

Investee accounted for using equity method

  Sales     920,220        1     

Net 30 days after monthly closing

    —          —          552,558        1     
 

TSMC China

 

Subsidiary

  Purchases     3,192,921        25     

Net 30 days after monthly closing

    —          —          (1,137,485     8     
 

WaferTech

 

Indirect subsidiary

  Purchases     1,623,602        12     

Net 30 days after monthly closing

    —          —          (576,902     4     
 

SSMC

 

Investee accounted for using equity method

  Purchases     873,056        7     

Net 30 days after monthly closing

    —          —          (382,415     3     
 

VIS

 

Investee accounted for using equity method

  Purchases     732,490        6     

Net 30 days after monthly closing

    —          —          (519,259     3     

Xintec

 

Omni Vision

 

Parent company of director (represented for Xintec)

  Sales     191,163        33     

Net 30 days after monthly closing

    —          —          107,690        40     

 

Note: The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 45 -


TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name

 

Related Party

 

Nature of Relationships

  Ending
Balance
    Turnover
Days
(Note 1)
    Overdue     Amounts Received
in Subsequent
Period
    Allowance
for

Bad Debts
 
          Amount     Action
Taken
     

TSMC

  TSMC North America  

Subsidiary

  $ 32,379,073        40      $ 10,263,324        —        $ 12,832,204      $ —     
  SSMC  

Investee accounted for using equity method

    1,192,278        (Note 2     —          —          —          —     
  GUC  

Investee accounted for using equity method

    552,558        33        535        —          283,209        —     

Xintec

  OmniVision  

Parent company of director (represented for Xintec)

    107,690        83        —          —          —          —     

 

Note 1: The calculation of turnover days excludes other receivables from related parties.
Note 2: The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

- 46 -


TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Investees

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Investor

Company

 

Investee
Company

 

Location

 

Main
Businesses
and Products

  Original Investment
Amount
    Balance as of March 31, 2012     Net Income
(Losses) of
the Investee
(Foreign
Currencies
in Thousands)
    Equity in the
Earnings
(Losses)

(Note 1)
(Foreign
Currencies
in Thousands)
   

Note

        March 31,
2012
(Foreign
Currencies

in
Thousands)
    December 31,
2011
(Foreign
Currencies

in
Thousands)
    Shares
(In  Thousands)
    Percentage of
Ownership
    Carrying
Value

(Foreign
Currencies

in
Thousands)
       

TSMC

 

TSMC Global

 

Tortola, British Virgin Islands

 

Investment activities

  $ 42,327,245      $ 42,327,245        1        100      $ 43,137,920      $ 171,518      $ 171,518     

Subsidiary

 

TSMC Partners

 

Tortola, British Virgin Islands

 

Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry

    31,456,130        31,456,130        988,268        100        34,664,194        427,678        427,678     

Subsidiary

 

TSMC China

 

Shanghai, China

 

Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers

    18,939,667        18,939,667        —          100        14,095,161        875,143        895,570     

Subsidiary

 

TSMC Solar

 

Tai-Chung, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products

    11,180,000        11,180,000        1,118,000        99        9,456,531        (563,533     (640,173  

Subsidiary

 

VIS

 

Hsin-Chu, Taiwan

 

Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts

    13,232,288        13,232,288        628,223        41        8,986,165        24,096        (53,605  

Investee accounted for using equity method

 

SSMC

 

Singapore

 

Fabrication and supply of integrated circuits

    5,120,028        5,120,028        314        39        5,388,363        1,027,831        398,701     

Investee accounted for using equity method

 

TSMC North America

 

San Jose, California, U.S.A.

 

Selling and marketing of integrated circuits and semiconductor devices

    333,718        333,718        11,000        100        3,035,002        97,510        97,510     

Subsidiary

 

TSMC SSL

 

Hsin-Chu, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

    4,304,000        2,270,000        430,400        95        3,541,201        (279,037     (265,677  

Subsidiary

 

Xintec

 

Taoyuan, Taiwan

 

Wafer level chip size packaging service

    1,357,890        1,357,890        94,011        40        1,546,668        (117,292     (60,118  

Investee with a controlling financial interest

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    2,070,101        2,074,155        —          53        1,437,397        (25,475     (23,509  

Subsidiary

 

GUC

 

Hsin-Chu, Taiwan

 

Researching, developing, manufacturing, testing and marketing of integrated circuits

    386,568        386,568        46,688        35        1,191,165        99,536        35,056     

Investee accounted for using equity method

 

VTAF II

 

Cayman Islands

 

Investing in new start-up technology companies

    949,267        949,267        —          98        740,533        (2,725     (2,671  

Subsidiary

 

Emerging Alliance

 

Cayman Islands

 

Investing in new start-up technology companies

    892,855        892,855        —          99        205,484        (2,434     (2,422  

Subsidiary

 

TSMC Europe

 

Amsterdam, the Netherlands

 

Marketing and engineering supporting activities

    15,749        15,749        —          100        213,849        8,682        8,682     

Subsidiary

 

TSMC Japan

 

Yokohama, Japan

 

Marketing activities

    83,760        83,760        6        100        149,861        1,523        1,523     

Subsidiary

 

TSMC Korea

 

Seoul, Korea

 

Customer service and technical supporting activities

    13,656        13,656        80        100        23,468        110        110     

Subsidiary

 

TSMC GN

 

Taipei, Taiwan

 

Investment activities

    100,000        —          —          100        84,751        (3,386     (3,386  

Subsidiary

TSMC Solar

 

Motech

 

Taipei, Taiwan

 

Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems

    6,228,661        6,228,661        87,480        20        5,219,263        (988,198     Note 2     

Investee accounted for using equity method

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    1,797,496        1,795,131        —          46        1,640,461        (25,475     Note 2     

Investee accounted for using equity method

 

TSMC Solar Europe

 

Amsterdam, the Netherlands

 

Investing in solar related business

    411,032        411,032        —          100        168,129        (35,781     Note 2      Subsidiary
 

TSMC Solar NA

 

Delaware, U.S.A.

 

Selling and marketing of solar related products

    147,686        147,686        1        100        35,897        (15,073     Note 2      Subsidiary

TSMC SSL

 

TSMC Lighting NA

 

Delaware, U.S.A.

 

Selling and marketing of solid state lighting related products

    3,133        3,133        1        100        2,912        (7     Note 2      Subsidiary

(Continued)

 

- 47 -


Investor
Company

  

Investee
Company

  

Location

 

Main

Businesses

and

Products

  Original Investment
Amount
    Balance as of March 31, 2012     Net Income
(Losses) of
the Investee
(Foreign
Currencies

in
Thousands)
    Equity in
the
Earnings
(Losses)

(Note 1)
(Foreign
Currencies
in
Thousands)
   

Note

          March 31,
2012
(Foreign
Currencies

in
Thousands)
    December 31,
2011
(Foreign
Currencies

in
Thousands)
    Shares
(In
Thousands)
    Percentage
of
Ownership
    Carrying
Value

(Foreign
Currencies

in
Thousands)
       

TSMC Partners

  

TSMC Development

  

Delaware, U.S.A.

 

Investment activities

  US$ 0.001      US$ 0.001        1        100      US$ 470,564      US$ 10,529        Note 2     

Subsidiary

  

VisEra Holding Company

  

Cayman Islands

 

Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry

  US$ 43,000      US$ 43,000        43,000        49      US$ 96,445      US$ 281        Note 2     

Investee accounted for using equity method

  

ISDF

  

Cayman Islands

 

Investing in new start-up technology companies

  US$ 787      US$ 787        787        97      US$ 14,041      US$ 2,456        Note 2     

Subsidiary

  

TSMC Technology

  

Delaware, U.S.A.

 

Engineering support activities

  US$ 0.001      US$ 0.001        1        100      US$ 10,942      US$ 327        Note 2     

Subsidiary

  

ISDF II

  

Cayman Islands

 

Investing in new start-up technology companies

  US$ 14,153      US$ 14,153        14,153        97      US$ 11,455      US$ (47     Note 2     

Subsidiary

  

TSMC Canada

  

Ontario, Canada

 

Engineering support activities

  US$ 2,300      US$ 2,300        2,300        100      US$ 4,258      US$ 99        Note 2     

Subsidiary

  

Mcube Inc.

  

Delaware, U.S.A.

 

Research, development, and sale of micro-semiconductor device

  US$ 1,800      US$ 1,800        6,333        25        —        US$ (3,224     Note 2     

Investee accounted for using equity method

TSMC Development

  

WaferTech

  

Washington, U.S.A.

 

Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices

  US$ 280,000      US$ 280,000        293,640        100      US$ 229,723      US$ 9,604        Note 2     

Subsidiary

VTAF III

  

Mutual-Pak Technology Co., Ltd.

  

Taipei, Taiwan

 

Manufacturing and selling of electronic parts and researching, developing, and testing of RFID

  US$ 4,718      US$ 3,937        14,168        58      US$ 1,771      US$ (281     Note 2     

Subsidiary

  

Growth Fund

  

Cayman Islands

 

Investing in new start-up technology companies

  US$ 1,830      US$ 1,830        —          100      US$ 480      US$ (30     Note 2     

Subsidiary

  

VTA Holdings

  

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          62        —          —          Note 2     

Subsidiary

VTAF II

  

VTA Holdings

  

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          31        —          —          Note 2     

Subsidiary

Emerging Alliance

  

VTA Holdings

  

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          7        —          —          Note 2     

Subsidiary

TSMC Solar Europe

  

TSMC Solar Europe GmbH

  

Hamburg, Germany

 

Selling of solar related products and providing customer service

  EUR 9,900      EUR 9,900        1        100      EUR 4,186      EUR   (916)      Note 2     

Subsidiary

TSMC GN

  

TSMC Solar

  

Tai-Chung, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products

  $ 37,590      $ —          3,759        —        $ 31,755      $ (563,533     Note 2     

Investee accounted for using equity method

  

TSMC SSL

  

Hsin-Chu, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

    54,254        —          5,425        1        44,838        (279,037     Note 2     

Investee accounted for using equity method

 

Note 1: Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.
Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.

(Concluded)

 

- 48 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Investees

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Investee Company

 

Main
Businesses
and Products

  Total Amount
of Paid-in
Capital

(Foreign
Currencies

in Thousands)
    Method of
Investment
  Accumulated
Outflow of
Investment
from Taiwan
as of
January 1,
2012

(US$ in
Thousand)
    Investment Flows     Accumulated
Outflow of
Investment
from Taiwan
as of

March 31,
2012 (US$

in Thousands)
    Percentage of
Ownership
    Equity
in the
Earnings
(Losses)
    Carrying
Value

as of
March 31,
2012

(US$
in Thousands)
    Accumulated
Inward
Remittance
of Earnings
as of

March 31,
2012
 
          Outflow
(US$
in Thousands)
    Inflow            

TSMC China

 

Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers

                   
                     
                     
                     
    $ 18,939,667      (Note 1)   $ 18,939,667      $ —        $ —        $ 18,939,667        100   $ 895,570      $ 14,095,161      $ —     
    (RMB 4,502,080     (US$ 596,000       (US$ 596,000        

Shanghai Walden Venture Capital Enterprise

 

Investing in new start-up technology companies

                   
      953,709      (Note 2)     147,485        —          —          147,485        8     (Note 3)        147,645        —     
    (US$ 31,488     (US$ 5,000       (US$ 5,000       (US$ 5,000  

 

Accumulated Investment

in Mainland China

as of March 31, 2012

(US$ in Thousand)

     Investment Amounts
Authorized by

Investment Commission, MOEA
(US$ in Thousand)
    Upper Limit on Investment
(US$ in Thousand)
 
$

(US$

19,087,152

601,000)

  

  

   $

(US$

19,087,152

601,000

  

  $

(US$

19,087,152

601,000

  

 

Note 1: TSMC directly invested US$596,000 thousand in TSMC China.
Note 2: TSMC indirectly invested in China company through third region, TSMC Partners.
Note 3: TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 49 -


Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Three Months Ended March 31, 2012 and 2011 and

Independent Accountants’ Review Report


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of March 31, 2012 and 2011, and the related consolidated statements of income and cash flows for the three months then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36, “Review of Financial Statements,” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

April 24, 2012

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, 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 review such consolidated financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the accountants’ review 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 accountants’ review report and consolidated financial statements shall prevail.

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

(Reviewed, Not Audited)

 

 

    2012     2011  
    Amount     %     Amount     %  

ASSETS

       

CURRENT ASSETS

       

Cash and cash equivalents (Notes 2 and 4)

  $ 170,819,939        21      $ 129,445,000        17   

Financial assets at fair value through profit or loss (Notes 2, 5 and 25)

    1,658        —          12,283        —     

Available-for-sale financial assets (Notes 2, 6 and 25)

    3,577,801        1        28,564,518        4   

Held-to-maturity financial assets (Notes 2, 7 and 25)

    6,253,618        1        5,388,732        1   

Receivables from related parties (Notes 3 and 26)

    647,314        —          1,301        —     

Notes and accounts receivable (Note 3)

    53,286,548        6        54,283,659        7   

Allowance for doubtful receivables (Notes 2, 3 and 8)

    (490,882     —          (503,093     —     

Allowance for sales returns and others (Notes 2 and 8)

    (5,428,410     (1     (6,955,928     (1

Other receivables from related parties (Notes 3 and 26)

    1,301,705        —          199,095        —     

Other financial assets (Note 27)

    571,010        —          1,248,098        —     

Inventories (Notes 2 and 9)

    27,759,150        3        31,787,239        4   

Deferred income tax assets (Notes 2 and 20)

    6,736,065        1        5,099,667        1   
       

Prepaid expenses and other current assets

    3,087,516        —          1,962,700        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    268,123,032        32        250,533,271        33   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 12 and 25)

       

Investments accounted for using equity method

    23,632,874        3        25,995,552        3   

Available-for-sale financial assets

    —          —          1,036,044        —     

Held-to-maturity financial assets

    2,030,812        —          7,692,591        1   

Financial assets carried at cost

    4,180,185        1        4,209,597        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

    29,843,871        4        38,933,784        5   
 

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 13, 26 and 27)

       

Cost

       

Land and land improvements

    1,535,861        —          1,519,805        —     

Buildings

    186,907,290        22        161,757,008        21   

Machinery and equipment

    1,144,854,551        138        979,510,419        131   

Office equipment

    17,982,711        2        15,531,932        2   

Leased assets

    771,734        —          684,775        —     
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,352,052,147        162        1,159,003,939        154   

Accumulated depreciation

    (901,040,978     (108     (795,326,356     (106

Advance payments and construction in progress

    58,905,293        7        72,911,797        10   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

    509,916,462        61        436,589,380        58   
 

 

 

   

 

 

   

 

 

   

 

 

 

INTANGIBLE ASSETS

       
       

Goodwill (Note 2)

    5,590,597        1        5,582,287        1   
       

Deferred charges, net (Notes 2 and 14)

    5,378,539        —          5,628,037        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets

    10,969,136        1        11,210,324        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS

       

Deferred income tax assets, net (Notes 2 and 20)

    7,245,201        1        6,599,175        1   

Refundable deposits

    4,527,507        1        4,831,356        1   
       

Others (Notes 2 and 27)

    1,265,176        —          1,428,676        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

    13,037,884        2        12,859,207        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 831,890,385        100      $ 750,125,966        100   
 

 

 

   

 

 

   

 

 

   

 

 

 
    2012     2011  
    Amount     %     Amount     %  

LIABILITIES AND SHAREHOLDERS’ EQUITY

       

CURRENT LIABILITIES

       

Short-term loans (Note 15)

  $ 34,687,716        4      $ 34,176,368        5   

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 25)

    61,038        —          48,850        —     

Hedging derivative financial liabilities (Notes 2, 11 and 25)

    135        —          676        —     

Accounts payable

    13,262,122        2        11,923,131        2   

Payables to related parties (Note 26)

    906,317        —          1,427,800        —     

Income tax payable (Notes 2 and 20)

    13,511,557        2        9,844,973        1   

Accrued profit sharing to employees and bonus to directors and supervisors (Notes 2 and 22)

    11,327,679        1        13,586,113        2   

Payables to contractors and equipment suppliers

    34,070,990        4        33,906,105        4   

Accrued expenses and other current liabilities (Notes 13, 18, 25 and 29)

    18,279,337        2        17,602,638        2   

Current portion of bonds payable and long-term bank loans (Notes 16, 17, 25 and 27)

    93,750        —          4,740,759        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    126,200,641        15        127,257,413        17   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM LIABILITIES

       

Bonds payable (Notes 16 and 25)

    35,000,000        4        —          —     

Long-term bank loans (Notes 17, 25 and 27)

    1,556,250        —          1,040,562        —     

Other long-term payables (Notes 18, 25 and 29)

    59,058        —          3,849,674        1   

Obligations under capital leases (Notes 2, 13, and 25)

    742,931        —          678,403        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term liabilities

    37,358,239        4        5,568,639        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER LIABILITIES

       

Accrued pension cost (Notes 2 and 19)

    3,903,634        1        3,817,717        —     

Guarantee deposits (Note 29)

    405,594        —          714,643        —     

Others

    439,868        —          375,595        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other liabilities

    4,749,096        1        4,907,955        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    168,307,976        20        137,734,007        18   
 

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

       

Capital stock - NT$10 par value (Note 22)

       

Authorized: 28,050,000 thousand shares

       

Issued: 25,920,604 thousand shares in 2012

       

            25,914,193 thousand shares in 2011

    259,206,046        31        259,141,933        35   
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital surplus (Notes 2 and 22)

    56,008,374        7        55,781,482        7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings (Note 22)

       

Appropriated as legal capital reserve

    102,399,995        12        86,239,494        11   

Appropriated as special capital reserve

    6,433,874        1        1,313,047        —     

Unappropriated earnings

    246,831,473        30        214,504,803        29   
 

 

 

   

 

 

   

 

 

   

 

 

 
    355,665,342        43        302,057,344        40   
 

 

 

   

 

 

   

 

 

   

 

 

 

Others

       

Cumulative translation adjustments (Note 2)

    (9,064,188     (1     (9,351,749     (1

Unrealized gain (loss) on financial instruments (Notes 2, 11 and 25)

    (883,247     —          44,873        —     
 

 

 

   

 

 

   

 

 

   

 

 

 
    (9,947,435     (1     (9,306,876     (1
 

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to shareholders of the parent

    660,932,327        80        607,673,883        81   

MINORITY INTERESTS (Note 2)

    2,650,082        —          4,718,076        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

    663,582,409        80        612,391,959        82   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 831,890,385        100      $ 750,125,966        100   
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

 

The accompanying notes are an integral part of the consolidated financial statements.
- 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

     2012      2011  
     Amount      %      Amount      %  

GROSS SALES (Notes 2 and 26)

   $ 106,877,069          $ 106,835,757      

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

     1,369,394            1,458,262      
  

 

 

       

 

 

    

NET SALES (Note 33)

     105,507,675         100         105,377,495         100   

COST OF SALES (Notes 9, 21 and 26)

     55,221,092         52         53,706,783         51   
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

     50,286,583         48         51,670,712         49   

REALIZED GROSS PROFIT FROM AFFILIATES (Note 2)

     74,029         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT

     50,360,612         48         51,670,712         49   
  

 

 

    

 

 

    

 

 

    

 

 

 

OPERATING EXPENSES (Notes 21 and 26)

           

Research and development

     9,162,781         9         7,963,628         8   

General and administrative

     4,659,024         4         3,342,828         3   

Marketing

     1,100,839         1         1,201,276         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     14,922,644         14         12,507,732         12   
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME FROM OPERATIONS (Note 33)

     35,437,968         34         39,162,980         37   
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-OPERATING INCOME AND GAINS

           

Interest income

     501,236         1         373,284         —     

Foreign exchange gain, net (Note 2)

     429,743         —           403,081         1   

Technical service income (Notes 26 and 29)

     107,156         —           114,949         —     

Gain on settlement and disposal of financial assets, net (Notes 2 and 25)

     73,591         —           124,926         —     

Equity in earnings of equity method investees, net (Notes 2 and 10)

     20,952         —           520,109         1   

Gain on disposal of property, plant and equipment and other assets (Notes 2 and 26)

     2,235         —           96,311         —     

Others

     67,292         —           200,121         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-operating income and gains

     1,202,205         1         1,832,781         2   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

     2012      2011  
     Amount     %      Amount      %  

NON-OPERATING EXPENSES AND LOSSES

          

Impairment loss on idle assets (Note 2)

   $ 442,312        1       $ —           —     

Valuation loss on financial instruments, net (Notes 2, 5 and 25)

     245,005        —           282,237         1   

Interest expense

     217,691        —           119,922         —     

Impairment of financial assets (Notes 2, 12 and 25)

     4,390        —           58,537         —     

Loss on disposal of property, plant and equipment (Note 2)

     3,730        —           145,476         —     

Others (Note 2)

     73,341        —           77,147         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-operating expenses and losses

     986,469        1         683,319         1   
  

 

 

   

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAX

     35,653,704        34         40,312,442         38   

INCOME TAX EXPENSE (Notes 2 and 20)

     2,288,372        2         3,885,350         3   
  

 

 

   

 

 

    

 

 

    

 

 

 

NET INCOME

   $ 33,365,332        32       $ 36,427,092         35   
  

 

 

   

 

 

    

 

 

    

 

 

 

ATTRIBUTABLE TO:

          

Shareholders of the parent

   $ 33,474,187        32       $ 36,277,773         35   

Minority interests

     (108,855     —           149,319         —     
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 33,365,332        32       $ 36,427,092         35   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

     2012      2011  
     Income Attributable  to
Shareholders of the Parent
     Income Attributable  to
Shareholders of the Parent
 
     Before
Income Tax
    

After

Income Tax

     Before
Income Tax
    

After

Income Tax

 

EARNINGS PER SHARE (NT$, Note 24)

           

Basic earnings per share

   $ 1.38       $ 1.29       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 1.38       $ 1.29       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income attributable to shareholders of the parent

   $ 33,474,187      $ 36,277,773   

Net income (loss) attributable to minority interests

     (108,855     149,319   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     28,005,407        24,816,388   

Realized gross profit from affiliates

     (74,029     —     

Amortization of premium/discount of financial assets

     1,753        7,797   

Impairment of financial assets

     4,390        58,537   

Gain on disposal of available-for-sale financial assets, net

     (82,376     (111,511

Loss (gain) on disposal of financial assets carried at cost, net

     8,785        (13,415

Equity in earnings of equity method investees, net

     (20,952     (520,109

Loss on disposal of property, plant and equipment and other assets, net

     1,495        49,165   

Impairment loss on idle assets

     442,312        —     

Deferred income tax

     (608,211     1,037,018   

Changes in operating assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     60,998        24,451   

Receivables from related parties

     (461,550     1,421   

Notes and accounts receivable

     (6,965,308     (3,253,774

Allowance for doubtful receivables

     (3     (936

Allowance for sales returns and others

     363,803        (590,336

Other receivables from related parties

     (33,996     (74,509

Other financial assets

     46,132        (39,472

Inventories

     (2,918,568     (3,381,255

Prepaid expenses and other current assets

     (995,057     74,947   

Accounts payable

     1,733,684        (1,476,564

Payables to related parties

     (422,204     560,715   

Income tax payable

     2,855,433        2,660,276   

Accrued profit sharing to employees and bonus to directors and supervisors

     2,246,386        2,489,966   

Accrued expenses and other current liabilities

     499,872        (2,273,179

Accrued pension cost

     (4,874     5,366   
  

 

 

   

 

 

 

Net cash provided by operating activities

     57,048,654        56,478,079   
  

 

 

   

 

 

 

(Continued)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Property, plant and equipment

   $ (48,570,613   $ (81,262,394

Available-for-sale financial assets

     (1,477     (13,865,070

Financial assets carried at cost

     —          (1,670

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     89,733        13,459,391   

Held-to-maturity financial assets

     594,140        —     

Financial assets carried at cost

     45,053        63,254   

Property, plant and equipment and other assets

     13,155        381,310   

Increase in deferred charges

     (403,491     (188,183

Decrease (increase) in refundable deposits

     (8,644     3,846,614   

Increase in other assets

     (6,987     (5,992
  

 

 

   

 

 

 

Net cash used in investing activities

     (48,249,131     (77,572,740
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

     8,761,188        2,962,424   

Proceed from long-term bank loans

     —          800,000   

Repayment of long-term bank loans

     —          (61,943

Proceeds from issuance of bonds

     17,000,000        —     

Repayment of bonds

     (4,500,000     —     

Decrease in obligations under capital leases

     (81,995     —     

Decrease in other long-term payables

     (1,434,277     —     

Decrease in guarantee deposits

     (38,389     (74,455

Proceeds from exercise of employee stock options

     136,204        127,288   

Increase in minority interests

     298,654        15,840   
  

 

 

   

 

 

 

Net cash provided by financing activities

     20,141,385        3,769,154   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     28,940,908        (17,325,507

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     (1,593,246     (1,116,448

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     143,472,277        147,886,955   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 170,819,939      $ 129,445,000   
  

 

 

   

 

 

 

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012      2011  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     

Interest paid

   $ 235,441       $ 221,837   
  

 

 

    

 

 

 

Income tax paid

   $ 48,354       $ 218,178   
  

 

 

    

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

     

Acquisition of property, plant and equipment

   $ 48,099,028       $ 73,205,035   

Decrease in payables to contractors and equipment suppliers

     471,585         8,058,230   

Nonmonetary exchange trade-out price

     —           (871
  

 

 

    

 

 

 

Cash paid

   $ 48,570,613       $ 81,262,394   
  

 

 

    

 

 

 

Disposal of property, plant and equipment and other assets

   $ 13,155       $ 382,181   

Nonmonetary exchange trade-out price

     —           (871
  

 

 

    

 

 

 

Cash received

   $ 13,155       $ 381,310   
  

 

 

    

 

 

 

Acquisition of available-for-sale financial assets

   $ 1,477       $ 13,989,666   

Increase in accrued expenses and other current liabilities

     —           (124,596
  

 

 

    

 

 

 

Cash paid

   $ 1,477       $ 13,865,070   
  

 

 

    

 

 

 

Disposal of available-for-sale financial assets

   $ 89,733       $ 13,646,465   

Increase in other financial assets

     —           (187,074
  

 

 

    

 

 

 

Cash received

   $ 89,733       $ 13,459,391   
  

 

 

    

 

 

 

NON-CASH FINANCING ACTIVITIES

     

Idle assets reclassified from property, plant and equipment

   $ 442,312       $ —     
  

 

 

    

 

 

 

Current portion of bonds payable

   $ —         $ 4,500,000   
  

 

 

    

 

 

 

Current portion of long-term bank loans

   $ 93,750       $ 240,759   
  

 

 

    

 

 

 

Current portion of other long-term payables (under accrued expenses and other current liabilities)

   $ 1,850,950       $ 4,134,622   
  

 

 

    

 

 

 

 

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

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

(Reviewed, Not Audited)

 

 

1. GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

On September 5, 1994, TSMC’s shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).

As of March 31, 2012 and 2011, TSMC and its subsidiaries had 35,594 and 35,665 employees, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.

For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. 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 consolidated financial statements shall prevail.

Significant accounting policies are summarized as follows:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation.

 

- 8 -


The consolidated entities were as follows:

 

        Percentage of Ownership
March 31
     

Name of Investor

 

Name of Investee

      2012             2011        

Remark

TSMC

 

TSMC North America

    100     100   —  
 

TSMC Japan Limited (TSMC Japan)

    100     100   —  
 

TSMC Partners, Ltd. (TSMC Partners)

    100     100   —  
 

TSMC Korea Limited (TSMC Korea)

    100     100   —  
 

TSMC Europe B.V. (TSMC Europe)

    100     100   —  
 

TSMC Global, Ltd. (TSMC Global)

    100     100   —  
 

TSMC China Company Limited (TSMC China)

    100     100   —  
 

VentureTech Alliance Fund III, L.P. (VTAF III)

    53     99   (Note 1)
 

VentureTech Alliance Fund II, L.P. (VTAF II)

    98     98   —  
 

Emerging Alliance Fund, L.P. (Emerging Alliance)

    99.5     99.5   —  
 

Global Unichip Corporation (GUC)

    (Note  2)      35   —  
 

Xintec Inc. (Xintec)

    40     41  

TSMC obtained three out of five director positions and has a controlling interest in Xintec

 

TSMC SSL

    95     —       

Established in August 2011

TSMC and TSMC GN aggregately has a controlling interest of 96% in TSMC SSL

 

TSMC Solar

    99     —       

Established in August 2011

TSMC and TSMC GN aggregately has a controlling interest of 99% in TSMC Solar

 

TSMC Guang Neng Investment, Ltd. (TSMC GN)

    100     —       

Established in January 2012

TSMC Partners

 

TSMC Design Technology Canada Inc. (TSMC Canada)

    100     100   —  
 

TSMC Technology, Inc. (TSMC Technology)

    100     100   —  
 

TSMC Development, Inc. (TSMC Development)

    100     100   —  
 

InveStar Semiconductor Development Fund, Inc. (ISDF)

    97     97   —  
 

InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)

    97     97   —  

TSMC Development

 

WaferTech, LLC (WaferTech)

    100     100   —  

VTAF III

 

Mutual-Pak Technology Co., Ltd. (Mutual-Pak)

    58     57   —  
 

Growth Fund Limited (Growth Fund)

    100     100   —  

VTAF III, VTAF II and Emerging Alliance

 

VentureTech Alliance Holdings, LLC (VTA Holdings)

    100     100   —  

GUC

 

Global Unichip Corp.-NA (GUC-NA)

    (Note 2     100   —  
 

Global Unichip Japan Co., Ltd. (GUC-Japan)

    (Note 2     100   —  
 

Global Unichip Europe B.V. (GUC-Europe)

    (Note 2     100   —  
 

Global Unichip (BVI) Corp. (GUC-BVI)

    (Note 2     100   —  

GUC-BVI

 

Global Unichip (Shanghai) Company, Limited (GUC-Shanghai)

    (Note 2     100   —  

(Continued)

 

- 9 -


          Percentage of Ownership
March 31
     

Name of Investor

  

Name of Investee

   2012     2011     Remark

TSMC SSL

  

TSMC Lighting North America, Inc. (TSMC Lighting NA)

     100     100   (Note 1)

TSMC Solar

  

TSMC Solar North America, Inc. (TSMC Solar NA)

     100     100   (Note 1)
  

TSMC Solar Europe B.V. (TSMC Solar Europe)

     100     100   (Note 1)
  

VentureTech Alliance Fund III, L.P. (VTAF III)

     46     —        (Note 1)

TSMC Solar Europe

  

TSMC Solar Europe GmbH

     100     100   (Note 1)

(Concluded)

 

Note 1:

  In August 2011, TSMC adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.

Note 2:

  Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of March 31, 2012:

 

LOGO

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

TSMC North America is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC Japan, TSMC Korea and TSMC Europe are engaged mainly in marketing or customer service, engineering and technical supporting activities. TSMC Partners is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global, TSMC Development and TSMC GN are engaged in investing activities. TSMC China is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, VTA Holdings, ISDF, ISDF II and Growth Fund are engaged in investing in new start-up technology companies. TSMC Canada and TSMC Technology are engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. Xintec is engaged in the provision of wafer packaging service. TSMC SSL is engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems. TSMC Lighting NA is engaged in selling and marketing of solid state lighting related products. TSMC Solar is engaged in researching, developing, designing, manufacturing and selling renewable energy and energy saving related technologies and products. TSMC Solar NA is engaged in selling and marketing of solar related products. TSMC Solar Europe

 

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is engaged in investing activities of solar related business. TSMC Solar Europe GmbH is engaged in the selling and customer service of solar cell modules and related products. Mutual-Pak is engaged in the manufacturing and selling of electronic parts and researching, developing and testing of RFID.

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. In February 2012, TSMC SSL and TSMC Solar issued new shares for cash, in which a portion of shares were subscribed by their employees and TSMC GN. As a result, the Company’s percentage of ownership in TSMC SSL and TSMC Solar decreased to 96% and 99%, respectively.

TSMC together with its subsidiaries are hereinafter referred to collectively as the “Company.”

Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity.

Foreign-currency Transactions and Translation of Foreign-currency Financial Statements

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - spot rates at period-end; shareholders’ equity - historical rates; income and expenses—average rates during the period. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Cash Equivalents

Repurchase agreements collateralized by corporate bonds and government bonds, corporate bonds, and agency bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

 

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Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is determined as follows: Open-end mutual funds and money market funds - net asset values at the end of the period; publicly traded stocks - closing prices at the end of the period; and other debt securities - average of bid and asked prices at the end of the period.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

 

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Hedging Derivative Financial Instruments

Hedge derivatives are mainly derivatives instruments that are for cash flow hedge purposes and determined to be an effective hedge. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in shareholders’ equity. The amount recognized in shareholders’ equity is recognized in profit or loss in the same period or period during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in shareholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

TSMC’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, 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.

 

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Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees or from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

 

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Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, net operating loss carryforwards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s tax provision.

Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options

 

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expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

 

3. ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s consolidated financial statements as of and for the three months ended March 31, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and the Company conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements accordingly.

 

4. CASH AND CASH EQUIVALENTS

 

     March 31  
     2012      2011  

Cash and deposits in banks

   $ 168,044,810       $ 127,349,258   

Repurchase agreements collateralized by corporate bonds

     1,938,014         —     

Repurchase agreements collateralized by government bonds

     837,115         1,627,216   

Corporate bonds

     —           383,092   

Agency bonds

     —           85,434   
  

 

 

    

 

 

 
   $ 170,819,939       $ 129,445,000   
  

 

 

    

 

 

 

 

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5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

     March 31  
     2012      2011  
Trading financial assets      

Forward exchange contracts

   $ 1,376       $ 12,283   

Cross currency swap contracts

     282         —     
  

 

 

    

 

 

 
   $ 1,658       $ 12,283   
  

 

 

    

 

 

 
Trading financial liabilities      

Forward exchange contracts

   $ 60,207       $ 48,850   

Cross currency swap contracts

     831         —     
  

 

 

    

 

 

 
   $ 61,038       $ 48,850   
  

 

 

    

 

 

 

The Company entered into derivative contracts during the three months ended March 31, 2012 and 2011 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

March 31, 2012      

Sell NT$/Buy JPY

   April 2012    NT$869,791/JPY2,362,000

Sell NT$/Buy US$

   April 2012 to May 2012    NT$ 187,420/US$6,350

Sell US$/Buy JPY

   April 2012    US$42,327/JPY3,403,622

Sell US$/Buy EUR

   April 2012    US$ 1,565/EUR1,200

Sell US$/Buy NT$

   April 2012 to May 2012    US$10,800/NT$318,434

Sell RMB/Buy US$

   April 2012    RMB1,230,782/US$195,000
March 31, 2011      

Sell NT$/Buy JPY

   April 2011    NT$1,173,256/JPY3,268,300

Sell NT$/Buy EUR

   April 2011    NT$ 83,800/EUR2,000

Sell EUR/Buy NT$

   April 2011    EUR59,550/NT$2,494,130

Sell NT$/Buy US$

   April 2011    NT$ 53,267/US$1,800

Sell RMB/Buy US$

   April 2011 to June 2011    RMB925,865/US$140,500

Sell US$/Buy JPY

   April 2011    US$1,531/JPY 124,092

Sell US$/Buy NT$

   April 2011 to May 2011    US$ 9,000/NT$265,008

 

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Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date

   Contract Amount
(In Thousands)
     Range of
Interest  Rates
Paid
    Range of
Interest  Rates
Received
March 31, 2012        

April 2012

   NT$ 604,165/US$20,450         0.00   0.07%-0.20%

Net losses on derivative financial instruments for the three months ended March 31, 2012 and 2011 were NT$245,005 thousand and NT$282,237 thousand, respectively.

 

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

     March 31  
     2012     2011  

Publicly traded stocks

   $ 3,573,873      $ 4,567,080   

Money market funds

     3,928        145,015   

Corporate bonds

     —          16,650,404   

Agency bonds

     —          6,931,552   

Government bonds

     —          916,160   

Open-end mutual funds

     —          390,351   
  

 

 

   

 

 

 
     3,577,801        29,600,562   

Current portion

     (3,577,801     (28,564,518
  

 

 

   

 

 

 
   $ —        $ 1,036,044   
  

 

 

   

 

 

 

 

7. HELD-TO-MATURITY FINANCIAL ASSETS

 

     March 31  
     2012     2011  

Corporate bonds

   $ 7,841,495      $ 12,639,303   

Government bonds

     442,935        442,020   
  

 

 

   

 

 

 
     8,284,430        13,081,323   

Current portion

     (6,253,618     (5,388,732
  

 

 

   

 

 

 
   $ 2,030,812      $ 7,692,591   
  

 

 

   

 

 

 

 

8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

     Three Months Ended
March 31
 
     2012     2011  

Balance, beginning of period

   $ 490,952      $ 504,029   

Reversal

     (3     (855

Effect of exchange rate changes

     (67     (81
  

 

 

   

 

 

 

Balance, end of period

   $ 490,882      $ 503,093   
  

 

 

   

 

 

 

 

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Movements of the allowance for sales returns and others were as follows:

 

     Three Months Ended March 31  
     2012     2011  

Balance, beginning of period

   $ 5,068,263      $ 7,546,264   

Provision

     1,369,394        1,458,262   

Write-off

     (1,005,591     (2,044,133

Effect of exchange rate changes

     (3,656     (4,465
  

 

 

   

 

 

 

Balance, end of period

   $ 5,428,410      $ 6,955,928   
  

 

 

   

 

 

 

 

9. INVENTORIES

 

     March 31  
     2012      2011  

Finished goods

   $ 4,381,500       $ 7,600,064   

Work in process

     19,414,011         19,320,917   

Raw materials

     2,270,363         2,853,159   

Supplies and spare parts

     1,693,276         2,013,099   
  

 

 

    

 

 

 
   $ 27,759,150       $ 31,787,239   
  

 

 

    

 

 

 

Write-down of inventories to net realizable value in the amount of NT$642,307 thousand and NT$672,567 thousand, respectively, were included in the cost of sales for the three months ended March 31, 2012 and 2011.

 

10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     March 31  
     2012      2011  
     Carrying
Amount
     % of
Ownership
     Carrying
Amount
     % of
Ownership
 

Vanguard International Semiconductor Corporation (VIS)

   $ 8,986,165         41       $ 9,456,221         38   

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

     5,388,363         39         7,256,841         39   

Motech Industries Inc. (Motech)

     5,219,263         20         6,770,069         20   

VisEra Holding Company (VisEra Holding)

     2,847,918         49         2,512,421         49   

GUC

     1,191,165         35         —           —     

Mcube Inc. (Mcube)

     —           25         —           26   
  

 

 

       

 

 

    
   $ 23,632,874          $ 25,995,552      
  

 

 

       

 

 

    

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

For the three months ended March 31, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$20,952 thousand and NT$520,109 thousand, respectively.

 

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The quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method was NT$13,192,202 thousand (VIS and GUC) as of March 31, 2012 and NT$8,795,129 thousand (VIS) as of March 31, 2011.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

     Three Months Ended
March 31
 
     2012     2011  

Balance, beginning of period

   $ 1,645,810      $ 2,491,891   

Amortization

     (145,731     (244,977
  

 

 

   

 

 

 

Balance, end of period

   $ 1,500,079      $ 2,246,914   
  

 

 

   

 

 

 

As of March 31, 2012 and 2011, balance of the aforementioned difference allocated to goodwill was NT$1,415,565 thousand. There was no acquisition or impairment in goodwill for the three months ended March 31, 2012 and 2011.

 

11. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

     March 31  
     2012      2011  
Hedging derivative financial liabilities      

Interest rate swap contract

   $ 135       $ 676   
  

 

 

    

 

 

 

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. The outstanding interest rate swap contract consisted of the following:

 

Contract Amount

(In Thousands)

   Maturity Date    Range of Interest
Rates Paid
  Range of Interest
Rates Received
 
March 31, 2012        

NT$68,000

   August 31, 2012    1.38%     0.86%   
March 31, 2011        

NT$116,000

   August 31, 2012    1.38%     0.66%-0.68%   

For the three months ended March 31, 2012 and 2011, the adjustment for the current period to shareholders’ equity amounted to net losses of NT$1 thousand and NT$676 thousand, respectively; and the amount removed from shareholders’ equity and recognized as a loss from the above interest rate swap contract amounted to NT$98 thousand and NT$226 thousand, respectively.

 

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12. FINANCIAL ASSETS CARRIED AT COST

 

     March 31  
     2012      2011  

Non-publicly traded stocks

   $ 3,873,289       $ 4,050,346   

Mutual funds

     306,896         159,251   
  

 

 

    

 

 

 
   $ 4,180,185       $ 4,209,597   
  

 

 

    

 

 

 

The common stock of InvenSense, Inc. was listed on the NYSE in November 2011. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

For the three months ended March 31, 2012 and 2011, the Company recognized impairment on financial assets carried at cost of NT$4,390 thousand and NT$58,537 thousand, respectively.

 

13. PROPERTY, PLANT AND EQUIPMENT

 

     Three Months Ended March 31, 2012  
     Balance,
Beginning of
Period
    

Additions

(Deductions)

    Disposals     Reclassification     Effect of
Exchange Rate
Changes
   

Balance,

End of Period

 

Cost

             

Land and land improvements

   $ 1,541,128       $ 14,470      $ —        $ —        $ (19,737   $ 1,535,861   

Buildings

     172,872,550         14,567,591        (12,594     —          (520,257     186,907,290   

Machinery and equipment

     1,057,588,736         90,006,940        (358,689     (760,386     (1,622,050     1,144,854,551   

Office equipment

     16,969,266         1,361,503        (290,826     —          (57,232     17,982,711   

Leased asset

     791,480         —          —          —          (19,746     771,734   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,249,763,160       $ 105,950,504      $ (662,109   $ (760,386   $ (2,239,022     1,352,052,147   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

             

Land and land improvements

     355,555       $ 6,775      $ —        $ —        $ (8,951     353,379   

Buildings

     101,004,047         2,665,331        (11,327     —          (264,163     103,393,888   

Machinery and equipment

     762,774,355         24,384,987        (354,753     (318,074     (1,383,961     785,102,554   

Office equipment

     11,820,728         407,695        (290,379     —          (47,032     11,891,012   

Leased asset

     297,535         10,077        —          —          (7,467     300,145   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     876,252,220       $ 27,474,865      $ (656,459   $ (318,074   $ (1,711,574     901,040,978   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Advance payments and construction in progress

     116,863,976       $ (57,851,476   $ —        $ (248   $ (106,959     58,905,293   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 490,374,916               $ 509,916,462   
  

 

 

            

 

 

 

 

     Three Months Ended March 31, 2011  
     Balance,
Beginning of
Period
    

Additions

(Deductions)

    Disposals     Reclassification     Effect of
Exchange Rate
Changes
   

Balance,

End of Period

 

Cost

             

Land and land improvements

   $ 891,197       $ 652,011      $ —        $ —        $ (23,403   $ 1,519,805   

Buildings

     145,966,024         16,229,827        (9,707     —          (429,136     161,757,008   

Machinery and equipment

     913,155,252         68,138,372        (248,904     —          (1,534,301     979,510,419   

Office equipment

     14,856,582         875,855        (145,803     —          (54,702     15,531,932   

Leased asset

     701,552         —          —          —          (16,777     684,775   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,075,570,607       $ 85,896,065      $ (404,414   $ —        $ (2,058,319     1,159,003,939   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

             

Land and land improvements

     328,792       $ 6,682      $ —        $ —        $ (9,706     325,768   

Buildings

     90,472,703         2,392,872        (9,707     —          (238,029     92,617,839   

Machinery and equipment

     671,268,636         21,494,836        (247,266     —          (1,478,448     691,037,758   

Office equipment

     10,957,676         327,377        (145,786     —          (47,085     11,092,182   

Leased asset

     250,350         8,376        —          —          (5,917     252,809   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     773,278,157       $ 24,230,143      $ (402,759   $ —        $ (1,779,185     795,326,356   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Advance payments and construction in progress

     86,151,573       $ (12,691,030   $ (429,691   $ (199   $ (118,856     72,911,797   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 388,444,023               $ 436,589,380   
  

 

 

            

 

 

 

The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to December 2018.

 

- 21 -


As of March 31, 2012, future lease payments were as follows:

 

Year    Amount  

2012 (2nd to 4th quarter)

   $ 27,216   

2013

     27,216   

2014

     27,216   

2015

     27,216   

2016

     27,216   

2017 and thereafter

     761,477   
  

 

 

 
   $ 897,557   
  

 

 

 

During the three months ended March 31, 2012, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. Information about capitalized interest was as follows:

 

     Three Months Ended
March 31, 2012
 

Capitalized interest

   $ 3,174   

Capitalization rates

     1.08%-1.20%   

 

14. DEFERRED CHARGES, NET

 

     Three Months Ended March 31, 2012  
     Balance,
Beginning of
Period
     Additions      Amortization     Reclassification      Effect of
Exchange
Rate Changes
    Balance,
End of Period
 

Technology license fee

   $ 1,682,892       $ 147,825       $ (115,452   $ 191,580       $ (1,117   $ 1,905,728   

Software and system design costs

     2,366,483         144,206         (275,841     248         (357     2,234,739   

Patent and others

     1,118,189         259,285         (136,893     —           (2,509     1,238,072   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 5,167,564       $ 551,316       $ (528,186   $ 191,828       $ (3,983   $ 5,378,539   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     Three Months Ended March 31, 2011  
     Balance,
Beginning of
Period
     Additions      Amortization     Reclassification      Effect of
Exchange
Rate Changes
    Balance,
End of Period
 

Technology license fee

   $ 2,455,348       $ —         $ (185,338   $ —         $ (108   $ 2,269,902   

Software and system design costs

     2,333,271         38,065         (291,150     199         (151     2,080,234   

Patent and others

     1,238,466         150,118         (108,322     —           (2,361     1,277,901   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   $ 6,027,085       $ 188,183       $ (584,810   $ 199       $ (2,620   $ 5,628,037   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

15. SHORT-TERM LOANS

 

     March 31  
     2012      2011  

Unsecured loans:

     

US$1,174,700 thousand, due in April 2012, and annual interest at 0.41%-0.74% in 2012; US$1,086,000 thousand and EUR 52,000 thousand, due in April 2011, and annual interest at 0.40%-0.87% in 2011

   $ 34,687,716       $ 34,176,368   
  

 

 

    

 

 

 

 

- 22 -


16. BONDS PAYABLE

 

     March 31  
     2012      2011  

Domestic unsecured bonds:

     

Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually

   $ 10,500,000       $ —     

Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually

     7,500,000         —     

Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually

     10,000,000         —     

Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually

     7,000,000         —     

Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually

     —           4,500,000   
  

 

 

    

 

 

 
     35,000,000         4,500,000   

Current portion

     —           (4,500,000
  

 

 

    

 

 

 
   $ 35,000,000       $ —     
  

 

 

    

 

 

 

 

17. LONG-TERM BANK LOANS

 

     March 31  
     2012     2011  

Bank loans for working capital:

    

Repayable in full in one lump sum payment in June 2016, annual interest at 1.08%

   $ 650,000      $ —     

Repayable in full in one lump sum payment in March 2014, annual interest at 1.16% in 2012 and 1.02%-1.04% in 2011

     500,000        500,000   

Repayable from July 2012 in 16 quarterly installments, annual interest at 1.21% in 2012

     300,000        —     

Repayable from September 2012 in 16 quarterly installments, annual interest at 1.21%

     200,000        —     

Repayable from September 2012 in 6 installments before March 2015, annual interest at 1.14%, repayable in full in one lump sum payment in June 2011

     —          300,000   

Secured loans:

    

Repayable from August 2009 in 17 quarterly installments, annual interest at 0.69%-1.30% in 2011, repayable in full in one lump sum payment in June 2011

     —          481,321   
  

 

 

   

 

 

 
     1,650,000        1,281,321   

Current portion

     (93,750     (240,759
  

 

 

   

 

 

 
   $ 1,556,250      $ 1,040,562   
  

 

 

   

 

 

 

Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual financial statements of Xintec must comply with predetermined financial covenants.

 

- 23 -


As of March 31, 2012, future principal repayments for the long-term bank loans were as follows:

 

Year of Repayment    Amount  

2012 (2nd to 4th quarter)

   $ 62,500   

2013

     125,000   

2014

     625,000   

2015

     125,000   

2016

     712,500   
  

 

 

 
   $ 1,650,000   
  

 

 

 

 

18. OTHER LONG-TERM PAYABLES

 

     March 31  
     2012     2011  

Payables for acquisition of property, plant and equipment (Note 29g)

   $ 1,762,363      $ 6,942,466   

Payables for technology transfer

     147,645        —     

Payables for royalties

     —          1,041,830   
  

 

 

   

 

 

 
     1,910,008        7,984,296   

Current portion (classified under accrued expenses and other current liabilities)

     (1,850,950     (4,134,622
  

 

 

   

 

 

 
   $ 59,058      $ 3,849,674   
  

 

 

   

 

 

 

The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents.

As of March 31, 2012, future repayments for other long-term payable were as follows:

 

Year of Repayment    Amount  

2012 (2nd to 4th quarter)

   $ 1,850,950   

2013

     29,529   

2014

     29,529   
  

 

 

 
   $ 1,910,008   
  

 

 

 

 

19. PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, GUC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Solar NA and TSMC Solar Europe GmbH are required by local regulations to make monthly contributions at certain percentages of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Company recognized pension costs of NT$330,541 thousand and NT$323,975 thousand for the three months ended March 31, 2012 and 2011, respectively.

 

- 24 -


TSMC, GUC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$72,757 thousand and NT$76,010 thousand for the three months ended March 31, 2012 and 2011, respectively.

Movements in the Funds and accrued pension cost under the defined benefit plans were summarized as follows:

 

     Three Months Ended March 31  
     2012     2011  

The Funds

    

Balance, beginning of period

   $ 3,098,039      $ 2,888,852   

Contributions

     74,987        72,122   

Interest

     26,304        27,246   

Payments

     (4,886     (3,495
  

 

 

   

 

 

 

Balance, end of period

   $ 3,194,444      $ 2,984,725   
  

 

 

   

 

 

 

Accrued pension cost

    

Balance, beginning of period

   $ 3,908,508      $ 3,812,351   

Accruals (deductions)

     (4,874     5,366   
  

 

 

   

 

 

 

Balance, end of period

   $ 3,903,634      $ 3,817,717   
  

 

 

   

 

 

 

 

20. INCOME TAX

 

  a. A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

     Three Months Ended March 31  
     2012     2011  

Income tax expense based on “income before income tax” at statutory rates

   $ 6,340,599      $ 7,186,305   

Tax effect of the following:

    

Tax-exempt income

     (1,969,889     (3,634,868

Temporary and permanent differences

     (474,142     (565,085

Net operating loss carryforwards used

     (74,692     (118,323

Investment tax credits used

     (950,630     (12,061
  

 

 

   

 

 

 

Income tax currently payable

   $ 2,871,246      $ 2,855,968   
  

 

 

   

 

 

 

 

- 25 -


  b. Income tax expense consisted of the following:

 

     Three Months Ended March 31  
     2012     2011  

Income tax currently payable

   $ 2,871,246      $ 2,855,968   

Income tax adjustments on prior years

     —          2,669   

Other income tax adjustments

     34,132        23,669   

Net change in deferred income tax assets

    

Investment tax credits

     358,026        (484,374

Net operating loss carryforwards

     (135,895     116,494   

Temporary differences

     201,392        101,136   

Valuation allowance

     (1,040,529     1,269,788   
  

 

 

   

 

 

 

Income tax expense

   $ 2,288,372      $ 3,885,350   
  

 

 

   

 

 

 

 

  c. Net deferred income tax assets consisted of the following:

 

     March 31  
     2012     2011  

Current deferred income tax assets

    

Investment tax credits

   $ 5,592,737      $ 4,257,923   

Temporary differences

    

Allowance for sales returns and others

     542,558        597,393   

Unrealized gain/loss on financial instruments

     309,022        62,060   

Others

     442,348        332,930   

Valuation allowance

     (150,600     (150,639
  

 

 

   

 

 

 
   $ 6,736,065      $ 5,099,667   
  

 

 

   

 

 

 

Noncurrent deferred income tax assets

    

Investment tax credits

   $ 14,362,586      $ 18,844,684   

Net operating loss carryforwards

     2,570,085        2,537,753   

Temporary differences

    

Depreciation

     1,893,192        2,087,167   

Others

     686,233        574,518   

Valuation allowance

     (12,266,895     (17,444,947
  

 

 

   

 

 

 
   $ 7,245,201      $ 6,599,175   
  

 

 

   

 

 

 

Under the Article 10 of the Statute for Industrial Innovation (SII) legislated, effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

As of March 31, 2012, the net operating loss carryforwards generated by WaferTech, TSMC Development, Mutual-Pak, TSMC SSL and TSMC Solar would expire on various dates through 2023.

 

  d. Integrated income tax information:

The balance of the imputation credit account of TSMC as of March 31, 2012 and 2011 was NT$4,003,228 thousand and NT$1,669,533 thousand, respectively.

The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2011 and 2010 were 6.67% and 4.96%, respectively.

 

- 26 -


The imputation credit allocated to shareholders is based on its balance as of the date of the dividend distribution. The estimated creditable ratio may change when the actual distribution of the imputation credit is made.

 

  e. All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated.

 

  f. As of March 31, 2012, investment tax credits of TSMC, Xintec and Mutual-Pak and TSMC SSL consisted of the following:

 

Law/Statute    Item    Total
Creditable
Amount
     Remaining
Creditable
Amount
     Expiry
Year
 

Statute for Upgrading Industries

  

Purchase of machinery and equipment

   $ 1,172,726       $ 811,253         2012   
        6,524,655         6,524,655         2013   
        7,041,416         7,041,416         2014   
        509,388         509,388         2015   
     

 

 

    

 

 

    
      $ 15,248,185       $ 14,886,712      
     

 

 

    

 

 

    

Statute for Upgrading Industries

  

Research and development expenditures

   $ 31,434       $ 31,434         2012   
        5,020,041         5,020,041         2013   
     

 

 

    

 

 

    
      $ 5,051,475       $ 5,051,475      
     

 

 

    

 

 

    

Statute for Upgrading Industries

  

Personnel training expenditures

   $ 15       $ 15         2012   
        17,121         17,121         2013   
     

 

 

    

 

 

    
      $ 17,136       $ 17,136      
     

 

 

    

 

 

    

Statute for Industrial Innovation

  

Research and development expenditures

   $ 589,157       $ —           2012   
     

 

 

    

 

 

    

 

  g. The profits generated from the following projects of TSMC and Xintec are exempt from income tax for a five-year period:

 

     Tax-exemption Period

Construction and expansion of 2004 by TSMC

   2008 to 2012

Construction and expansion of 2005 by TSMC

   2010 to 2014

Construction and expansion of 2006 by TSMC

   2011 to 2015

Construction and expansion of 2002, 2003 and 2006 by Xintec

   2010 to 2014

 

  h. The tax authorities have examined income tax returns of TSMC through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

- 27 -


21. LABOR COST, DEPRECIATION AND AMORTIZATION

 

     Three Months Ended March 31, 2012  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 6,564,090       $ 5,329,776       $ 11,893,866   

Labor and health insurance

     319,585         251,194         570,779   

Pension

     234,537         168,761         403,298   

Meal

     170,595         80,306         250,901   

Welfare

     180,108         69,902         250,010   

Others

     22,678         78,408         101,086   
  

 

 

    

 

 

    

 

 

 
   $ 7,491,593       $ 5,978,347       $ 13,469,940   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 24,845,297       $ 2,629,568       $ 27,474,865   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 323,428       $ 204,758       $ 528,186   
  

 

 

    

 

 

    

 

 

 

 

     Three Months Ended March 31, 2011  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 6,891,851       $ 5,199,990       $ 12,091,841   

Labor and health insurance

     330,938         222,319         553,257   

Pension

     245,467         154,518         399,985   

Meal

     181,445         70,146         251,591   

Welfare

     177,414         65,708         243,122   

Others

     24,039         75,221         99,260   
  

 

 

    

 

 

    

 

 

 
   $ 7,851,154       $ 5,787,902       $ 13,639,056   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 22,615,937       $ 1,610,410       $ 24,226,347   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 342,059       $ 242,751       $ 584,810   
  

 

 

    

 

 

    

 

 

 

 

22. SHAREHOLDERS’ EQUITY

As of March 31, 2012, 1,091,849 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,459,243 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of TSMC’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

 

- 28 -


Capital surplus consisted of the following:

 

     March 31  
     2012      2011  

Additional paid-in capital

   $ 23,866,634       $ 23,715,050   

From merger

     22,804,510         22,805,390   

From convertible bonds

     8,892,847         8,893,190   

From long-term investments

     444,328         367,797   

Donations

     55         55   
  

 

 

    

 

 

 
   $ 56,008,374       $ 55,781,482   
  

 

 

    

 

 

 

TSMC’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, TSMC shall first offset its losses in previous years and then set aside the following items accordingly:

 

  a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals TSMC’s paid-in capital;

 

  b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;

 

  c. Bonus to directors and profit sharing to employees of TSMC of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of TSMC are not entitled to receive the bonus to directors. TSMC may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

  d. Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

TSMC’s Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.

Any appropriations of the profits are subject to shareholders’ approval in the following year.

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$2,236,553 thousand and NT$2,443,687 thousand for the three months ended March 31, 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

 

- 29 -


A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in TSMC’s Board of Directors’ meeting held on February 14, 2012 and TSMC’s shareholders’ meeting held on June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

     Appropriation of Earnings      Dividends Per Share
(NT$)
 
     For Fiscal
Year 2011
     For Fiscal
Year 2010
     For Fiscal
Year 2011
     For Fiscal
Year 2010
 

Legal capital reserve

   $ 13,420,128       $ 16,160,501         

Special capital reserve

     1,172,350         5,120,827         

Cash dividends to shareholders

     77,748,668         77,730,236       $ 3.00       $ 3.00   
  

 

 

    

 

 

       
   $ 92,341,146       $ 99,011,564         
  

 

 

    

 

 

       

TSMC’s Board of Directors also resolved on February 14, 2012 to appropriate profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2011.

The appropriations of earnings, profit sharing to employees and bonus to directors for 2011 are to be resolved in the TSMC’s shareholders’ meeting held on June 12, 2012 (expected).

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 9, 2011. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and same amount had been charged against earnings of 2010.

The information about the appropriations of TSMC’s profit sharing to employees and bonus to directors is available at the Market Observation Post System website.

Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998.

 

23. STOCK-BASED COMPENSATION PLANS

TSMC’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share of TSMC when exercised. The options may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TSE on the grant date.

 

- 30 -


Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of March 31, 2012.

Information about TSMC’s outstanding options for the three months ended March 31, 2012 and 2011 was as follows:

 

    

Number of
Options

(In Thousands)

    Weighted-
average
Exercise Price
(NT$)
 

Three months ended March 31, 2012

    

Balance, beginning of period

     14,293      $ 32.1   

Options exercised

     (4,382     31.1   
  

 

 

   

Balance, end of period

     9,911        32.6   
  

 

 

   

Three months ended March 31, 2011

    

Balance, beginning of period

     21,437      $ 32.3   

Options exercised

     (4,115     30.9   
  

 

 

   

Balance, end of period

     17,322        32.6   
  

 

 

   

The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings by TSMC in accordance with the plans.

As of March 31, 2012, information about TSMC’s outstanding options was as follows:

 

     Options Outstanding  
Range of Exercise
Price (NT$)
   Number of Options
(In Thousands)
     Weighted-average
Remaining
Contractual Life
(Years)
     Weighted-average
Exercise Price
(NT$)
 

$20.9-$29.3

     6,972         1.1       $ 27.0   

  38.0-  50.1

     2,939         2.7         45.7   
  

 

 

       
     9,911         1.6         32.6   
  

 

 

       

As of March 31, 2012, all of the above outstanding options were exercisable.

Xintec’s Employee Stock Option Plans, consisting of the Xintec 2007 Plan and Xintec 2006 Plan, were approved by the SFB on June 26, 2007 and July 3, 2006, respectively. The maximum number of options authorized to be granted under the Xintec 2007 Plan and Xintec 2006 Plan was 6,000 thousand each, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

 

- 31 -


Information about Xintec’s outstanding options for the three months ended March 31, 2012 and 2011 was as follows:

 

    

Number of
Options

(In Thousands)

    Weighted-
average
Exercise
Price (NT$)
 

Three months ended March 31, 2012

    

Balance, beginning of period

     825      $ 15.1   

Options exercised

     (203     17.6   
  

 

 

   

Balance, end of period

     622        14.3   
  

 

 

   

Three months ended March 31, 2011

    

Balance, beginning of period

     1,832      $ 15.1   

Options exercised

     (642     14.3   

Options canceled

     (18     17.7   
  

 

 

   

Balance, end of period

     1,172        15.6   
  

 

 

   

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the plans.

As of March 31, 2012, information about Xintec’s outstanding and exercisable options was as follows:

 

    Options Outstanding     Options Exercisable  
Range of
Exercise
Price (NT$)
  Number of
Options (In
Thousands)
    Weighted-
average
Remaining
Contractual
Life (Years)
    Weighted-
average
Exercise
Price
(NT$)
    Number of
Options (In
Thousands)
    Weighted-
average
Exercise
Price
(NT$)
 

$10.9-$12.7

    227        4.5      $ 11.0        221      $ 11.0   

  14.9-  18.8

    395        5.4        16.2        390        16.2   
 

 

 

       

 

 

   
    622        5.1        14.3        611        14.3   
 

 

 

       

 

 

   

No compensation cost was recognized under the intrinsic value method for the three months ended March 31, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the three months ended March 31, 2012 and 2011 would have been as follows:

 

    

TSMC

  

Xintec

Valuation assumptions:

     

Expected dividend yield

   1.00%-3.44%    0.80%

Expected volatility

   43.77%-46.15%    31.79%-47.42%

Risk free interest rate

   3.07%-3.85%    1.88%-2.45%

Expected life

   5 years    3 years

 

- 32 -


     Three Months Ended March 31  
     2012      2011  

Net income attributable to shareholders of the parent:

     

As reported

   $ 33,474,187       $ 36,277,773   

Pro forma

     33,402,682         36,273,711   

Earnings per share (EPS) - after income tax (NT$):

     

Basic EPS as reported

   $ 1.29       $ 1.40   

Pro forma basic EPS

     1.29         1.40   

Diluted EPS as reported

     1.29         1.40   

Pro forma diluted EPS

     1.29         1.40   

The Board of Directors of TSMC SSL and TSMC Solar resolved on November 21, 2011 to issue new shares for cash and reserved 17,175 thousand shares and 12,341 thousand shares, respectively, for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

Information about TSMC SSL’s and TSMC Solar’s employee stock options related to the aforementioned new shares issued was as follows:

 

     TSMC SSL      TSMC Solar  
    

Number of
Options

(In Thousands)

    Weighted-
average
Exercise
Price (NT$)
    

Number of
Options

(In Thousands)

    Weighted-
average
Exercise
Price (NT$)
 

Three months ended March 31, 2012

         

Balance, beginning of period

     —        $ —           —        $ —     

Options granted

     17,175        10.0         12,341        10.0   

Options exercised

     (17,175     10.0         (12,341     10.0   
  

 

 

      

 

 

   

Balance, end of period

     —          —           —          —     
  

 

 

      

 

 

   

The grant date of aforementioned stock options was January 9, 2012. TSMC SSL and TSMC Solar used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

     TSMC SSL     TSMC Solar  

Valuation assumptions:

    

Stock price on grant date (NT$/share)

   $ 8.9      $ 9.0   

Exercise price (NT$/share)

   $ 10.0      $ 10.0   

Expected volatility

     40.32     40.32

Expected life

     40 days        40 days   

Risk free interest rate

     0.76     0.76

The stock price on grant date was determined based on the cost approach. The expected volatility was calculated using the historical rate of return based on the TSE Optoelectronic Index.

The fair value of the aforementioned stock option was close to nil, and accordingly, no compensation cost was recognized.

 

- 33 -


24. EARNINGS PER SHARE

EPS is computed as follows:

 

                   Number of      EPS (NT$)  
     Amounts (Numerator)      Shares      Before      After  
     Before
Income Tax
     After
Income Tax
     (Denominator)
(In Thousands)
     Income
Tax
     Income
Tax
 

Three months ended March 31, 2012

              

Basic EPS

              

Earnings available to common shareholders of the parent

   $ 35,776,923       $ 33,474,187         25,917,646       $ 1.38       $ 1.29   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     —           —           8,800         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders of the parent (including effect of dilutive potential common shares)

   $ 35,776,923       $ 33,474,187         25,926,446       $ 1.38       $ 1.29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Three months ended March 31, 2011

              

Basic EPS

              

Earnings available to common shareholders of the parent

   $ 40,139,062       $ 36,277,773         25,912,506       $ 1.55       $ 1.40   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     —           —           11,060         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders of the parent (including effect of dilutive potential common shares)

   $ 40,139,062       $ 36,277,773         25,923,566       $ 1.55       $ 1.40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the three months ended March 31, 2011 to remain at NT$1.40.

 

25. DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a. Fair values of financial instruments were as follows:

 

     March 31  
     2012      2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Assets

           

Financial assets at fair value through profit or loss

   $ 1,658       $ 1,658       $ 12,283       $ 12,283   

Available-for-sale financial assets

       3,577,801           3,577,801         29,600,562         29,600,562   

Held-to-maturity financial assets

     8,284,430         8,328,272         13,081,323         13,206,182   

Financial assets carried at cost

     4,180,185         —           4,209,597         —     

 

(Continued)

 

- 34 -


     March 31  
     2012      2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Liabilities

           

Financial liabilities at fair value through profit or loss

   $ 61,038       $ 61,038       $ 48,850       $ 48,850   

Hedging derivative financial liabilities

     135         135         676         676   

Bonds payable (including current portion)

     35,000,000         35,248,224           4,500,000           4,542,890   

Long-term bank loans (including current portion)

     1,650,000         1,650,000         1,281,321         1,281,321   

Other long-term payables (including current portion)

     1,910,008         1,910,008         7,984,296         7,984,296   

Obligations under capital leases (including current portion)

     772,414         772,414         678,403         678,403   

(Concluded)

 

  b. Methods and assumptions used in the estimation of fair values of financial instruments

 

  1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

  2) Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

  3) The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

  4) Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

  5) Fair value of bonds payable was based on their quoted market price.

 

  6) Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amounts.

 

  c. Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as a net loss of NT$59,380 thousand and NT$36,567 thousand for the three months ended March 31, 2012 and 2011, respectively.

 

  d. As of March 31, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$8,290,016 thousand and NT$38,127,088 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$72,283,531 thousand and NT$46,346,763 thousand, respectively; and financial liabilities exposed to cash flow interest rate risk were NT$1,650,135 thousand and NT$1,281,321 thousand, respectively.

 

- 35 -


  e. Movements of the unrealized gains or losses on financial instruments for the three months ended March 31, 2012 and 2011 were as follows:

 

     Three Months Ended March 31, 2012  
    

From

Available-

for-sale
Financial Assets

   

Equity

Method
Investments

    Gain (Loss) on
Cash Flow
Hedges
    Total  

Balance, beginning of period

   $ (1,155,091   $ (17,671   $ (93   $ (1,172,855

Recognized directly in shareholders’ equity

     354,534        15,012        —          369,546   

Removed from shareholders’ equity and recognized in earnings

     (79,977     —          39        (79,938
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (880,534   $ (2,659   $ (54   $ (883,247
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended March 31, 2011  
    

From

Available-

for-sale
Financial Assets

   

Equity

Method
Investments

    Gain (Loss) on
Cash Flow
Hedges
    Total  

Balance, beginning of period

   $ 86,158      $ 23,462      $ (331   $ 109,289   

Recognized directly in shareholders’ equity

     56,915        (13,204     57        43,768   

Removed from shareholders’ equity and recognized in earnings

     (108,184     —          —          (108,184
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 34,889      $ 10,258      $ (274   $ 44,873   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  f. Information about financial risks

 

  1) Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and publicly traded stocks; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities.

 

  2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

- 36 -


  3) Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments, bonds payable and bank loans. Therefore, the liquidity risk is low.

 

  4) Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. The long-term bank loans were floating-rate loans; therefore, changes in the market interest rates will result in changes in the interest rate of the long-term bank loans, which will affect future cash flows.

 

  g. The Company seeks to reduce the effects of future cash flow related interest rate changes by primarily using derivative financial instruments.

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. Information about outstanding interest rate swap contract consisted of the following:

 

Hedged Item   

Hedging Financial

Instrument

   Fair Value     Expected Cash
Flow
Generated Period
     Expected Timing for the
Recognition of Gains or
Losses from Hedge
 

March 31, 2012

          

Long-term bank loans

  

Interest rate swap contract

   $ (135     2011 to 2012         2011 to 2012   

March 31, 2011

          

Long-term bank loans

  

Interest rate swap contract

     (676     2010 to 2012         2010 to 2012   

 

26. RELATED PARTY TRANSACTIONS

Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions:

 

  a. Investees of TSMC

GUC (prior to July 2011, GUC was a subsidiary. Since July 2011, GUC is accounted for using the equity method.)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

  b. Indirect investee

VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method by TSMC.

Mcube, an indirect investee accounted for using the equity method by TSMC.

 

  c. Others

Related parties over which the Company has significant influence but with which the Company had no material transactions.

 

- 37 -


     2012      2011  
     Amount      %      Amount      %  

For the three months ended March 31

           

Sales

           

GUC

   $ 1,067,692         1       $ —           —     

VIS

     62,072         —           48,962         —     

Others

     18,112         —           3,322         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,147,876         1       $ 52,284         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchases

           

SSMC

   $ 873,056         2       $ 955,937         2   

VIS

     732,490         1         1,333,377         2   

Others

     —           —           65,792         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,605,546         3       $ 2,355,106         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Manufacturing expenses

           

VisEra (primarily outsourcing)

   $ 4,703         —         $ 21,173         —     

VIS (primarily rent)

     —           —           7,104         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,703         —         $ 28,277         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Research and development expense

           

VisEra

   $ 1,814         —         $ 5,366         —     

VIS (primarily rent)

     —           —           1,999         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,814         —         $ 7,365         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales of property, plant and equipment and other assets

           

VisEra

   $ 9,000         68       $ —           —     

VIS

     —           —           35,208         9   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,000         68       $ 35,208         9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchase of property, plant and equipment

           

VisEra

   $ —           —         $ 11,110         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-operating income and gains

           

VIS (primarily technical service income)

   $ 54,829         5       $ 68,905         4   

SSMC (primarily technical service income)

     52,326         4         44,817         2   

Others

     39         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 107,194         9       $ 113,722         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31

           

Receivables

           

GUC

   $ 640,578         99       $ —           —     

Mcube

     6,357         1         737         57   

VisEra

     379         —           564         43   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 647,314         100       $ 1,301         100   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 38 -


     2012      2011  
     Amount      %      Amount      %  

Other receivables

           

SSMC

   $ 1,192,278         92       $ 45,415         23   

VIS

     99,977         7         153,680         77   

Others

     9,450         1         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,301,705         100       $ 199,095         100   
  

 

 

    

 

 

    

 

 

    

 

 

 

Payables

           

VIS

   $ 519,259         57       $ 954,914         67   

SSMC

     382,415         42         395,820         28   

Others

     4,643         1         77,066         5   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 906,317         100       $ 1,427,800         100   
  

 

 

    

 

 

    

 

 

    

 

 

 

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses. The lease expired in April 2011.

 

27. PLEDGED OR MORTGAGED ASSETS

The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows:

 

     March 31  
     2012      2011  

Other financial assets

   $ 118,296       $ 118,418   

Property, plant and equipment, net

     —           1,048,102   

Other assets

     —           20,000   
  

 

 

    

 

 

 
   $ 118,296       $ 1,186,520   
  

 

 

    

 

 

 

 

28. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land, factory and office premises from the Science Park Administration and Jhongli Industrial Park Service Center. These operating leases expire on various dates from April 2012 to January 2032 and can be renewed upon expiration.

The Company entered into lease agreements for its office premises and certain office equipment located in the United States, Japan, Shanghai and Taiwan. These operating leases expire between 2012 and 2020 and can be renewed upon expiration.

 

- 39 -


As of March 31, 2012, future lease payments were as follows:

 

Year    Amount  

2012 (2nd to 4th quarter)

   $ 478,646   

2013

     602,305   

2014

     575,138   

2015

     564,884   

2016

     553,294   

2017 and thereafter

     4,023,254   
  

 

 

 
   $ 6,797,521   
  

 

 

 

 

29. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of March 31, 2012, excluding those disclosed in other notes, were as follows:

 

  a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

  b. Under several foundry agreements, TSMC shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with TSMC. As of March 31, 2012, TSMC had a total of US$11,330 thousand of guarantee deposits.

 

  c. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

  d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which

 

- 40 -


  are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

  e. In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

  f. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time.

 

  g. TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled NT$1,762,363 thousand and NT$6,942,466 thousand as of March 31, 2012 and 2011, respectively, which is included in other long-term payables.

 

  h. Amounts available under unused letters of credit as of March 31, 2012 were NT$95,244 thousand.

 

30. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

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

 

     March 31
     2012    2011
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

  

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

Financial assets

           

Monetary items

           

USD

   $ 4,147,426       29.529    $ 4,105,193       29.40-29.468

EUR

     186,593       39.26-39.41      142,865       41.71-41.81

JPY

     23,809,395       0.3579-0.3592      30,343,009       0.3541-0.3550

RMB

     208,023       4.69      196,111       4.5-4.511

 

(Continued)

 

- 41 -


     March 31
     2012    2011
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

  

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

Financial assets

           

Non-monetary items

           

USD

   $ 152,073       29.529    $ 142,851       29.40-29.468

HKD

     688,955       3.80      1,073,696       3.79

Investments accounted for using equity method

           

USD

     271,675       29.529      320,411       29.468

Financial liabilities

           

Monetary items

           

USD

     2,044,403       29.529      2,130,487       29.40-29.468

EUR

     186,260       39.26-39.41      169,447       41.71-41.81

JPY

     30,848,324       0.3579-0.3592      32,939,519       0.3541-0.3550

RMB

     226,981       4.69      583,750       4.5-4.511

(Concluded)

Note: Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

31. PRE-DISCLOSURE OF THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

According to the Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Company is required to provide pre-disclosure regarding the adoption of the International Financial Reporting Standards (IFRSs) in the consolidated financial statements as follows.

 

  a. On May 14, 2009, the FSC announced the roadmap of IFRSs adoption for R.O.C. companies. Accordingly, starting 2013, companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations as well as related guidance translated by Accounting Research and Development Foundation (ARDF) and issued by the FSC. To comply with the aforementioned amendments, the Company established a taskforce to monitor and execute the IFRSs adoption plan. The important plan items, responsible divisions and plan progress are listed as follows.

 

Plan Item

  

Responsible Division

  

Plan Progress

1)      Establish the IFRSs taskforce

  

Accounting division

  

Finished

2)      Complete the identification of GAAP differences and impact

  

Accounting division, finance division and employee benefit and payroll section

  

Finished

 

(Continued)

 

- 42 -


Plan Item

  

Responsible Division

  

Plan Progress

3)      Complete the identification of consolidated entities under IFRSs

  

Accounting division

  

Finished

4)      Evaluate potential effect to business operations

  

Accounting division, finance division, employee benefit and payroll section and business system integration division

  

Finished

5)      Complete the preliminary evaluation of resources and budget needed for IFRSs adoption

  

Accounting division and business system integration division

  

Finished

6)      Set up a work plan for IFRSs adoption

  

Accounting division and business system integration division

  

Finished

7)      Personnel training

  

Accounting division

  

Finished

8)      Determine IFRSs accounting policies

  

Accounting division, finance division and employee benefit and payroll section

  

Finished

9)      Develop financial statement template under IFRSs

  

Accounting division and finance division

  

Finished

10)    Complete evaluation, configuration and testing of the IT systems

  

Accounting division and business system integration division

  

Finished

11)    Communicate with related departments on the impact of IFRSs adoption

  

Accounting division

  

Finished

12)    Complete the preparation of opening balance sheet under IFRSs

  

Accounting division

  

Finished

13)    Complete modification to the relevant internal controls

  

Accounting division and internal audit division

  

In progress according to the plan

14)    Prepare comparative financial information under IFRSs for 2012

  

Accounting division and finance division

  

In progress according to the plan

(Concluded)

 

- 43 -


  b. Exemptions from IFRS 1

IFRS 1, “First-time Adoption of International Financial Reporting Standards,” establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under IFRSs and retrospectively apply to those accounting policies in its opening balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date); except for optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows:

 

  1) Business combinations. The Company elected not to apply IFRS 3, “Business Combinations,” retrospectively to business combinations occurred before January 1, 2012. Therefore, in the opening balance sheet, the amount of goodwill generated from past business combinations remains the same compared with the one under R.O.C. GAAP as of December 31, 2011.

 

  2) Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1, 2012. In addition, the Company elected to apply the exemption disclosure requirement provided by IFRS 1, in which the amounts of present value of defined benefit obligations, the fair value of plan assets, the surplus or deficit in the plan and the experience adjustments are determined for each accounting period prospectively from the transition date.

 

  3) Share-based payment. The Company elected to take the optional exemption from applying IFRS 2, “Share-based Payment,” retrospectively for the shared-based payment transactions granted and vested before January 1, 2012.

 

  c. As of March 31, 2012, based on the Company’s assessment, the significant differences between the Company’s current accounting policies under R.O.C. GAAP and the ones under IFRSs are stated as follows:

 

  1) Reconciliation of consolidated balance sheet as of January 1, 2012

 

          Effect of Transition to IFRSs                

R.O.C. GAAP

    Recognition and
Measurement
    Presentation     IFRSs    
Item   Amount     Difference     Difference     Amount     Item   Note

Current assets

           

Cash and cash equivalents

  $ 143,472,277      $ —        $ —        $ 143,472,277     

Cash and cash equivalents

 

Financial assets at fair value through profit or loss

    15,360        —          —          15,360     

Financial assets at fair value through profit or loss

 

Available-for-sale financial assets

    3,308,770        —          —          3,308,770     

Available-for-sale financial assets

 

Held-to-maturity financial assets

    3,825,680        —          —          3,825,680     

Held-to-maturity financial assets

 

Receivables from related parties

    185,764        —          —          185,764     

Receivables from related parties

 

Notes and accounts receivable

    46,321,240        —          (490,952     45,830,288     

Notes and accounts receivable

 

Allowance for doubtful receivables

    (490,952     —          490,952        —        —    

Allowance for sales returns and others

    (5,068,263     —          5,068,263        —        —     a)

Other receivables from related parties

    122,292        —          —          122,292     

Other receivables from related parties

 

Other financial assets

    617,142        —          —          617,142     

Other receivables

 

Inventories

    24,840,582        —          —          24,840,582     

Inventories

 

Deferred income tax assets

    5,936,490        —          (5,936,490     —        —     b)

Prepaid expenses and other current assets

    2,174,014        —          —          2,174,014     

Other current asset

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total current assets

    225,260,396        —          (868,227     224,392,169     

Total current assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Long-term investments

           

Investments accounted for using equity method

    24,900,332        (13,401     —          24,886,931     

Investments accounted for using equity method

  e)

Held-to-maturity financial assets

    5,243,167        —          —          5,243,167     

Held-to-maturity financial assets

 

 

(Continued)

 

- 44 -


          Effect of Transition to IFRSs                

R.O.C. GAAP

    Recognition and
Measurement
    Presentation     IFRSs    
Item   Amount     Difference     Difference     Amount     Item   Note

Financial assets carried at cost

  $ 4,315,005      $ —        $ —        $ 4,315,005     

Financial assets carried at cost

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total long-term investments

    34,458,504        (13,401     —          34,445,103     

Total long-term investments

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Net property, plant and equipment

    490,374,916        —          47,237        490,422,153     

Property, plant and equipment

  c)
 

 

 

   

 

 

   

 

 

   

 

 

     

Intangible assets

    10,861,563        —          —          10,861,563     

Intangible assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Other assets

           

Deferred income tax assets

    7,436,717        231,011        5,936,490        13,604,218     

Deferred income tax assets

  b), d)

Refundable deposits

    4,518,863        —          —          4,518,863     

Refundable deposits

 

Others

    1,353,983        —          (47,237     1,306,746     

Others

  c)
 

 

 

   

 

 

   

 

 

   

 

 

     

Total other assets

    13,309,563        231,011        5,889,253        19,429,827     

Total other assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 774,264,942      $ 217,610      $ 5,068,263      $ 779,550,815     

Total

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Current liabilities

           

Short-term loans

  $ 25,926,528      $ —        $ —        $ 25,926,528     

Short-term loans

 

Financial liabilities at fair value through profit or loss

    13,742        —          —          13,742     

Financial liabilities at fair value through profit or loss

 

Hedging derivative financial liabilities

    232        —          —          232     

Hedging derivative financial liabilities

 

Accounts payable

    10,530,487        —          —          10,530,487     

Accounts payable

 

Payables to related parties

    1,328,521        —          —          1,328,521     

Payables to related parties

 

Income tax payable

    10,656,124        —          —          10,656,124     

Income tax payable

 

Salary and bonus payable

    6,148,499        —          —          6,148,499     

Salary and bonus payable

 

Accrued profit sharing to employees and bonus to directors and supervisors

    9,081,293        —          —          9,081,293     

Accrued profit sharing to employees and bonus to directors and supervisors

 

Payables to contractors and equipment suppliers

    35,540,526        —          —          35,540,526     

Payables to contractors and equipment suppliers

 

Accrued expenses and other current liabilities

    13,218,235        —          —          13,218,235     

Accrued expenses and other current liabilities

 

Current portion of bonds payable and long-term bank loans

    4,562,500        —          —          4,562,500     

Current portion of bonds payable and long-term bank loans

 

—  

    —          —          5,068,263        5,068,263     

Provisions

  a)
 

 

 

   

 

 

   

 

 

   

 

 

     

Total current liabilities

    117,006,687        —          5,068,263        122,074,950     

Total current liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Long-term liabilities

           

Bonds payable

    18,000,000        —          —          18,000,000     

Bonds payable

 

Long-term bank loans

    1,587,500        —          —          1,587,500     

Long-term bank loans

 

Obligations under capital leases

    870,993        —          —          870,993     

Obligations under capital leases

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total long-term liabilities

    20,458,493        —          —          20,458,493     

Total long-term liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Other liabilities

           

Accrued pension cost

    3,908,508        2,332,516        —          6,241,024     

Accrued pension cost

  d)

Guarantee deposits

    443,983        —          —          443,983     

Guarantee deposits

 

—  

    —          —          2,889        2,889     

Provisions

 

Others

    403,720        —          (2,889     400,831     

Others

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total other liabilities

    4,756,211        2,332,516        —          7,088,727     

Total other liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total liabilities

    142,221,391        2,332,516        5,068,263        149,622,170     

Total liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Equity attributable to shareholders of the parent

           

Capital stock

    259,162,226        —          —          259,162,226     

Capital stock

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Capital surplus

    55,846,357        (374,695     —          55,471,662     

Capital surplus

  e)
 

 

 

   

 

 

   

 

 

   

 

 

     

Retained earnings

         

Retained earnings

 

Appropriated as legal capital reserve

    102,399,995        —          —          102,399,995     

Appropriated as legal capital reserve

 

Appropriated as special capital reserve

    6,433,874        —          —          6,433,874     

Appropriated as special capital reserve

 

Unappropriated earnings

    213,357,286        (1,726,828     —          211,630,458     

Unappropriated earnings

  d), e)
 

 

 

   

 

 

   

 

 

   

 

 

     
    322,191,155        (1,726,828     —          320,464,327       
 

 

 

   

 

 

   

 

 

   

 

 

     

Others

           

Cumulative translation adjustments

    (6,433,369     5        —          (6,433,364  

Foreign currency translation reserve

  e)

Unrealized gain (loss) on financial instruments

    (1,172,855     —          93        (1,172,762  

Unrealized gain (loss) from available-for-sales financial assets

 

—  

    —          —          (93     (93  

Cash flow hedging reserve

 
 

 

 

   

 

 

   

 

 

   

 

 

     
    (7,606,224     5        —          (7,606,219    
 

 

 

   

 

 

   

 

 

   

 

 

     

Equity attributable to shareholders of the parent

  $ 629,593,514      $ (2,101,518   $ —        $ 627,491,996     

Equity attributable to shareholders of the parent

 

Minority interests

    2,450,037        (13,388     —          2,436,649     

Noncontrolling interests

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total shareholders’ equity

    632,043,551        (2,114,906     —          629,928,645     

Total shareholders’ equity

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 774,264,942      $ 217,610      $ 5,068,263      $ 779,550,815     

Total

 
 

 

 

   

 

 

   

 

 

   

 

 

     

(Concluded)

 

- 45 -


  2) Reconciliation of consolidated balance sheet as of March 31, 2012

 

          Effect of Transition to IFRSs                

R.O.C. GAAP

    Recognition and
Measurement
    Presentation     IFRSs    
Item   Amount     Difference     Difference     Amount     Item   Note

Current assets

           

Cash and cash Equivalents

  $ 170,819,939      $ —        $ —        $ 170,819,939     

Cash and cash equivalents

 

Financial assets at fair value through profit or loss

    1,658        —          —          1,658     

Financial assets at fair value through profit or loss

 

Available-for-sale financial assets

    3,577,801        —          —          3,577,801     

Available-for-sale financial assets

 

Held-to-maturity financial assets

    6,253,618        —          —          6,253,618     

Held-to-maturity financial assets

 

Receivables from related parties

    647,314        —          —          647,314     

Receivables from related parties

 

Notes and accounts receivable

    53,286,548        —          (490,882     52,795,666     

Notes and accounts receivable

 

Allowance for doubtful receivables

    (490,882     —          490,882        —       

—  

 

Allowance for sales returns and others

    (5,428,410     —          5,428,410        —       

—  

  a)

Other receivables from related parties

    1,301,705        —          —          1,301,705     

Other receivables from related parties

 

Other financial assets

    571,010        —          —          571,010     

Other receivables

 

Inventories

    27,759,150        —          —          27,759,150     

Inventories

 

Deferred income tax assets

    6,736,065        —          (6,736,065     —       

—  

  b)

Prepaid expenses and other current assets

    3,087,516        —          —          3,087,516     

Other current assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total current assets

    268,123,032        —          (1,307,655     266,815,377     

Total current assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Long-term investments

           

Investments accounted for using equity method

    23,632,874        (52,765     —          23,580,109     

Investments accounted for using equity method

  e)

Held-to-maturity financial assets

    2,030,812        —          —          2,030,812     

Held-to-maturity financial assets

 

Financial assets carried at cost

    4,180,185        —          —          4,180,185     

Financial assets carried at cost

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total long-term investments

    29,843,871        (52,765     —          29,791,106     

Total long-term investments

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Net property, plant and equipment

    509,916,462        —          37,042        509,953,504     

Property, plant and equipment

  c)
 

 

 

   

 

 

   

 

 

   

 

 

     

Intangible assets

    10,969,136        —          —          10,969,136     

Intangible assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Other assets

           

Deferred income tax assets

    7,245,201        229,265        6,736,065        14,210,531     

Deferred income tax assets

  b), d)

Refundable deposits

    4,527,507        —          —          4,527,507     

Refundable deposits

 

Others

    1,265,176        —          (37,042     1,228,134     

Others

  c)
 

 

 

   

 

 

   

 

 

   

 

 

     

Total other assets

    13,037,884        229,265        6,699,023        19,966,172     

Total other assets

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 831,890,385      $ 176,500      $ 5,428,410      $ 837,495,295     

Total

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Current liabilities

           

Short-term loans

  $ 34,687,716      $ —        $ —        $ 34,687,716     

Short-term loans

 

Financial liabilities at fair value through profit or loss

    61,038        —          —          61,038     

Financial liabilities at fair value through profit or loss

 

Hedging derivative financial liabilities

    135        —          —          135     

Hedging derivative financial liabilities

 

Accounts payable

    13,262,122        —          —          13,262,122     

Accounts payable

 

Payables to related parties

    906,317        —          —          906,317     

Payables to related parties

 

Income tax payable

    13,511,557        —          —          13,511,557     

Income tax payable

 

 

(Continued)

 

- 46 -


          Effect of Transition to IFRSs                

R.O.C. GAAP

    Recognition and
Measurement
    Presentation     IFRSs    
Item   Amount     Difference     Difference     Amount     Item   Note

Accrued profit sharing to employees and bonus to directors and supervisors

  $ 11,327,679      $ —        $ —        $ 11,327,679     

Accrued profit sharing to employees and bonus to directors

 

Payables to contractors and equipment suppliers

    34,070,990        —          —          34,070,990     

Payables to contractors and equipment suppliers

 

Accrued expenses and other current liabilities

    18,279,337        —          —          18,279,337     

Accrued expenses and other current liabilities

 

Current portion of bonds payable and long-term bank loans

    93,750        —          —          93,750     

Current portion of bonds payable and long-term bank loans

 

—  

    —          —          5,428,410        5,428,410     

Provisions

  a)
 

 

 

   

 

 

   

 

 

   

 

 

     

Total current liabilities

    126,200,641        —          5,428,410        131,629,051     

Total current liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Long-term liabilities

           

Bonds payable

    35,000,000        —          —          35,000,000     

Bonds payable

 

Long-term bank loans

    1,556,250        —          —          1,556,250     

Long-term bank loans

 

Other long-term payable

    59,058        —          —          59,058     

Other long-term payable

 

Obligations under capital leases

    742,931        —          —          742,931     

Obligations under capital leases

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total long-term liabilities

    37,358,239        —          —          37,358,239     

Total long-term liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Other liabilities

           

Accrued pension cost

    3,903,634        2,314,418        —          6,218,052     

Accrued pension cost

  d)

Guarantee deposits

    405,594        —          —          405,594     

Guarantee deposits

 

—  

    —          —          3,083        3,083     

Provisions

 

Others

    439,868        —          (3,083     436,785     

Others

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total other liabilities

    4,749,096        2,314,418        —          7,063,514     

Total other liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total liabilities

    168,307,976        2,314,418        5,428,410        176,050,804     

Total liabilities

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Equity attributable to shareholders of the parent

           

Capital stock

    259,206,046        —          —          259,206,046     

Capital stock

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Capital surplus

    56,008,374        (415,322     —          55,593,052     

Capital surplus

  e)
 

 

 

   

 

 

   

 

 

   

 

 

     

Retained earnings

         

Retained earnings

 

Appropriated as legal capital reserve

    102,399,995        —          —          102,399,995     

Appropriated as legal capital reserve

 

Appropriated as special capital reserve

    6,433,874        —          —          6,433,874     

Appropriated as special capital reserve

 

Unappropriated earnings

    246,831,473        (1,709,381     —          245,122,092     

Unappropriated earnings

  d), e)
 

 

 

   

 

 

   

 

 

   

 

 

     
    355,665,342        (1,709,381     —          353,955,961       
 

 

 

   

 

 

   

 

 

   

 

 

     

Others

           

Cumulative translation adjustments

    (9,064,188     16        —          (9,064,172  

Foreign currency translation reserve

  e)

Unrealized gain (loss) on financial instruments

    (883,247     —          54        (883,193  

Unrealized gain (loss) from available-for-sales financial assets

 

—  

    —          —          (54     (54  

Cash flow hedging reserve

 
 

 

 

   

 

 

   

 

 

   

 

 

     
    (9,947,435     16        —          (9,947,419    
 

 

 

   

 

 

   

 

 

   

 

 

     

Equity attributable to shareholders of the parent

    660,932,327        (2,124,687     —          658,807,640     

Equity attributable to shareholders of the parent

 

Minority interests

    2,650,082        (13,231     —          2,636,851     

Noncontrolling interests

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total shareholders’ equity

    663,582,409        (2,137,918     —          661,444,491     

Total shareholders’ equity

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 831,890,385      $ 176,500      $ 5,428,410      $ 837,495,295     

Total

 
 

 

 

   

 

 

   

 

 

   

 

 

     

(Concluded)

 

- 47 -


  3) Reconciliation of consolidated statement of comprehensive income for the three months ended March 31, 2012

 

          Effect of Transition to IFRSs                

R.O.C. GAAP

    Recognition and
Measurement
    Presentation     IFRSs    
Item   Amount     Difference     Difference     Amount     Item   Note

Net sales

  $ 105,507,675      $ —        $ 107,156      $ 105,614,831     

Net sales

  f)

Cost of sales

    55,221,092        (10,745     —          55,210,347     

Cost of sales

  d)
 

 

 

   

 

 

   

 

 

   

 

 

     

Gross profit before affiliates elimination

    50,286,583        10,745        107,156        50,404,484     

Gross profit before affiliates elimination

 

Realized gross profit from affiliates

    74,029        —          —          74,029     

Realized profit from affiliates

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Gross profit

    50,360,612        10,745        107,156        50,478,513     

Gross profit

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Operating expenses

           

Research and development

    9,162,781        (4,929     —          9,157,852     

Research and development

  d)

General and administrative

    4,659,024        (2,020     —          4,657,004     

General and administrative

  d)

Marketing

    1,100,839        (404     —          1,100,435     

Marketing

  d)
 

 

 

   

 

 

   

 

 

   

 

 

     

Total operating expenses

    14,922,644        (7,353     —          14,915,291       
 

 

 

   

 

 

   

 

 

   

 

 

     

—  

    —          —          (445,909     (445,909  

Other operating gains and losses

  f)
 

 

 

   

 

 

   

 

 

   

 

 

     

Income from operations

    35,437,968        18,098        (338,753     35,117,313     

Income from operations

 
 

 

 

   

 

 

   

 

 

   

 

 

     

Non-operating income and gains

           

Interest income

    501,236        —          (501,236     —       

—  

  f)

Foreign exchange gain, net

    429,743        —          —          429,743     

Foreign exchange gain, net

 

Technical service income

    107,156        —          (107,156     —       

—  

  f)

Gain on settlement and Disposal of financial assets, net

    73,591        —          (73,591     —       

—  

  f)

Equity in earnings of equity method investees, net

    20,952        1,252        —          22,204     

Equity in earnings of equity method investees, net

  e)

Gain on disposal of property, plant and equipment and other assets

    2,235        —          (2,235     —       

—  

  f)

Others

    67,292        —          (67,292     —       

—  

  f)

—  

    —          —          501,236        501,236     

Other income

  f)

—  

    —          —          (179,751     (179,751  

Other gains and losses

  f)
 

 

 

   

 

 

   

 

 

   

 

 

     
    1,202,205        1,252        (430,025     773,432       
 

 

 

   

 

 

   

 

 

   

 

 

     

Non-operating expenses and losses

           

Impairment loss on idle assets

    442,312        —          (442,312     —       

—  

  f)

Valuation loss on Financial instruments, net

    245,005        —          (245,005     —       

—  

  f)

Interest expense

    217,691        —          —          217,691     

Finance cost

 

Impairment of financial assets

    4,390        —          (4,390     —       

—  

  f)

Loss on disposal of property, plant and equipment

    3,730        —          (3,730     —       

—  

  f)

Others

    73,341        —          (73,341     —       

—  

  f)
 

 

 

   

 

 

   

 

 

   

 

 

     
    986,469        —          (768,778     217,691       
 

 

 

   

 

 

   

 

 

   

 

 

     

Income before income tax

    35,653,704        19,350        —          35,673,054     

Income before income tax

 

Income tax expense

    (2,288,372     (1,746     —          (2,290,118  

Income tax expense

  d)
 

 

 

   

 

 

   

 

 

   

 

 

     

Net income

  $ 33,365,332      $ 17,604      $ —          33,382,936     

Net income

 
 

 

 

   

 

 

   

 

 

   

 

 

     
          (2,624,773  

Exchange differences on translating foreign operations

 
          97     

Cash flow hedges

 
          280,020     

Net valuation gain on available-for-sale financial assets

 
          42,708     

Share of other comprehensive income of associates and joint venture

 
       

 

 

     
          (2,301,948  

Other comprehensive income for the period, net of tax effect

 
       

 

 

     
        $ 31,080,988     

Total comprehensive income for the period

 
       

 

 

     

 

- 48 -


  4) Notes to the reconciliation of the significant differences:

 

  a) Allowance for sales returns and others

Under R.O.C. GAAP, provisions for estimated sales returns and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. Allowance for sales returns and others is recorded as a deduction in accounts receivable. Under IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions (classified under current liabilities) in accordance with IAS No 37, “Provisions, Contingent Liabilities and Contingent Assets.”

As of March 31, 2012 and January 1, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$5,428,410 thousand and NT$5,068,263 thousand, respectively.

 

  b) Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset and liability is classified as current or non-current in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or non-current based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset and liability is classified as non-current asset or liability.

In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with IAS No 12, “Income Taxes,” deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used.

As of March 31, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to non-current assets were NT$6,736,065 thousand and NT$5,936,490 thousand, respectively.

 

  c) The classification of leased assets and idle assets

Under R.O.C. GAAP, leased assets and idle assets are classified under other assets. Under IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. Leased assets are mainly dormitories leased to employees and factories leased to suppliers. In accordance with IAS No 40, “Investment Property,” the dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

As of March 31, 2012 and January 1, 2012, the amounts reclassified from leased assets and idle assets to property, plant and equipment were NT$37,042 thousand and NT$47,237 thousand, respectively.

 

  d) Employee benefits

The Company had previously applied an actuarial valuation on its defined benefit obligation and recognized the related pension cost and retirement benefit obligation in conformity with R.O.C. GAAP. Under IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

 

- 49 -


In addition, under R.O.C. GAAP, it is not allowed to recognize actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of gains and losses. When using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees.

Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1. As of March 31, 2012 and January 1, 2012, accrued pension cost was adjusted for an increase of NT$2,314,418 thousand and NT$2,332,516 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$229,265 thousand and NT$231,011 thousand, respectively. Pension cost and income tax expense for the three months ended March 31, 2012 were also adjusted for a decrease of NT$18,098 thousand and an increase of NT$1,746 thousand, respectively.

 

  e) Investments accounted for using the equity method

The Company has evaluated significant differences between current accounting policies and IFRSs for the Company’s associates and joint ventures accounted for using the equity method. The significant difference is mainly due to the adjustment to employee benefits.

In addition, if the investing company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage that results in a decrease in the investing company’s holding percentage in the investee, the resulting carrying amount of the investment in the investee differs from the amount of its share in the investee’s equity. Under R.O.C. GAAP, the investing company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Under IFRSs, such transaction is deemed a disposal and aforementioned difference is recognized in earnings accordingly.

As of March 31, 2012 and January 1, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$52,765 thousand and NT$13,401 thousand, respectively; cumulative translation adjustments was adjusted for an increase of NT$16 thousand and NT$5 thousand, respectively; capital surplus was adjusted for a decrease of NT$415,322 thousand and NT$374,695 thousand, respectively. In addition, equity in earnings of equity method investees was adjusted for an increase of NT$1,252 thousand for the three months ended March 31, 2012.

 

  f) The reclassification of line items in the consolidated statement of comprehensive income

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of IFRSs, income from operations in the consolidated income statement only includes net sales, cost of sales and operating expenses. Under IFRSs, based on the nature of operating transactions, technical service income is reclassified under net sales; rental revenue, depreciation of rental assets, net loss on disposal of property, plant and equipment and other assets, and impairment loss on idle assets, are reclassified under other operating gains and losses, which are reflected in income from operations.

 

- 50 -


Under IFRSs, based on the nature of operating transactions, the Company reclassified technical service income of NT$107,156 thousand for the three months ended March 31, 2012 to net sales, rental revenue of NT$254 thousand, net loss on disposal of property, plant and equipment and other assets of NT$1,495 thousand, depreciation of rental assets of NT$2,356 thousand and impairment loss on idle assets of NT$442,312 thousand to other operating gains and losses. In addition, interest income of NT$501,236 thousand was also reclassified to other income; net gain of settlement and disposal of financial assets of NT$73,591 thousand, others of NT$67,038 thousand (under non-operating income and gains), net valuation loss on financial instruments of NT$245,005 thousand, impairment of financial assets of NT$4,390 thousand as well as others of NT$70,985 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the three months ended March 31, 2012.

 

  d. The Company’s aforementioned assessment is based on the 2010 version of IFRSs translated by ARDF and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by FSC on December 22, 2011. However, the assessment result may be impacted as FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with the adoption of IFRSs. Actual results may differ from these assessments.

 

32. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation:

 

  a. Financings provided: Please see Table 1 attached;

 

  b. Endorsement/guarantee provided: None;

 

  c. Marketable securities held: Please see Table 2 attached;

 

  d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;

 

  e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

 

  f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

 

  g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

 

  h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

  i. Names, locations, and related information of investees over which TSMC exercises significant influence: Please see Table 7 attached;

 

  j. Information on investment in Mainland China

 

  1) The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

- 51 -


  2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Table 9 attached.

 

  k. Intercompany relationships and significant intercompany transactions: Please see Table 9 attached.

 

33. OPERATING SEGMENT INFORMATION

The Company’s only reportable segment is the foundry segment. The foundry segment engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. The Company also had other operating segments that did not exceed the quantitative threshold. These segments mainly engage in the researching, developing, and providing SoC (System on Chip) design and also engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the operating profit as the measurement for segment profit and the basis of performance assessment. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 2.

The Company’s operating segment information was as follows:

 

     Foundry      Others     Elimination     Total  

Three months ended March 31, 2012

         

Sales from external customers

   $ 105,461,676       $ 45,999      $ —        $ 105,507,675   

Sales among intersegments

     —           —          —          —     

Operating profit (loss)

     35,979,165         (541,197     —          35,437,968   

Three months ended March 31, 2011

         

Sales from external customers

     103,290,219         2,087,276        —          105,377,495   

Sales among intersegments

     703,023         6,224        (709,247     —     

Operating profit (loss)

     39,370,261         (207,281     —          39,162,980   

 

34. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the management on April 24, 2012.

 

- 52 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

    Financing   Counter-   Financial
Statement
 

Maximum

Balance for
the Period
(US$ in
Thousands)

   

Ending
Balance

(US$ in
Thousands)

   

Amount
Actually
Drawn

(US$ in

    Interest   Nature
for
  Transaction     Reason
for
  Allowance
for Bad
    Collateral     Financing
Limits for
Each
Borrowing
Company
    Financing
Company’s
Total
Financing
Amount
Limits
 

No.

 

Company

 

party

 

Account

  (Note 3)     (Note 3)     Thousands)    

Rate

 

Financing

  Amounts    

Financing

  Debt     Item     Value     (Note 1)     (Note 2)  

1

  TSMC Partners   TSMC China  

Long-term receivables from related parties

  $ 7,382,250      $ 7,382,250      $ 7,382,250     

0.25%-0.26%

 

The need for short-term financing

  $ —       

Purchase equipment

  $ —          —        $ —        $ 34,664,194      $ 34,664,194   
        (US$ 250,000   (US$ 250,000   (US$ 250,000                  
    TSMC Solar  

Other receivables from related parties

    1,181,160        1,181,160        723,461      0.4017%-0.4757%  

The need for short-term financing

    —       

Operating capital

    —          —          —          3,466,419     
        (US$ 40,000   (US$ 40,000   (US$ 24,500                  
    TSMC SSL  

Other receivables from related parties

    885,870        885,870        —        0.4545%  

The need for short-term financing

    —       

Operating capital

    —          —          —          3,466,419     
        (US$ 30,000   (US$ 30,000                    

 

Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.
Note 2: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners.
Note 3: The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

- 53 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

                March 31, 2012      

Held Company Name

 

Marketable Securities Type
and Name

 

Relationship with the
Company

 

Financial Statement
Account

  Shares/
Units

(In
Thousands)
    Carrying
Value

(Foreign
Currencies
in
Thousands)
    Percentage
of
Ownership
(%)
    Market
Value or
Net Asset
Value

(Foreign
Currencies
in
Thousands)
    Note

TSMC

 

Corporate bond

             
 

Nan Ya Plastics Corporation

 

 

Held-to-maturity financial assets

    —        $ 1,099,699        N/A      $ 1,117,010     
 

China Steel Corporation

 

 

    —          303,157        N/A        305,289     
 

Stock

             
 

Semiconductor Manufacturing International Corporation

 

 

Available-for-sale financial assets

    1,789,493        2,618,029        7        2,618,029     
 

TSMC Global

 

Subsidiary

 

Investments accounted for using equity method

    1        43,137,920        100        43,137,920     
 

TSMC Partners

 

Subsidiary

 

    988,268        34,664,194        100        34,664,194     
 

TSMC Solar

 

Subsidiary

 

    1,118,000        9,456,531        99        9,456,531     
 

VIS

 

Investee accounted for using equity method

 

    628,223        8,986,165        41        8,009,850     
 

SSMC

 

Investee accounted for using equity method

 

    314        5,388,363        39        5,174,379     
 

TSMC SSL

 

Subsidiary

 

    430,400        3,541,201        95        3,541,201     
 

TSMC North America

 

Subsidiary

 

    11,000        3,035,002        100        3,035,002     
 

Xintec

 

Investee with a controlling financial interest

 

    94,011        1,546,668        40        1,546,668     
 

GUC

 

Investee accounted for using equity method

 

    46,688        1,191,165        35        5,182,352     
 

TSMC Europe

 

Subsidiary

 

    —          213,849        100        213,849     
 

TSMC Japan

 

Subsidiary

 

    6        149,861        100        149,861     
 

TSMC Korea

 

Subsidiary

 

    80        23,468        100        23,468     
 

United Industrial Gases Co., Ltd.

 

 

Financial assets carried at cost

    16,783        193,584        10        372,714     
 

Shin-Etsu Handotai Taiwan Co., Ltd.

 

 

    10,500        105,000        7        348,269     
 

W.K. Technology Fund IV

 

 

    4,000        40,000        2        42,581     
 

Fund

             
 

Horizon Ventures Fund

 

 

Financial assets carried at cost

    —          103,992        12        103,992     
 

Crimson Asia Capital

 

 

    —          55,259        1        55,259     
 

Capital

             
 

TSMC China

 

Subsidiary

 

Investments accounted for using equity method

    —          14,095,161        100        14,115,767     
 

VTAF III

 

Subsidiary

 

    —          1,437,397        53        1,416,270     
 

VTAF II

 

Subsidiary

 

    —          740,533        98        734,522     
 

Emerging Alliance

 

Subsidiary

 

    —          205,484        99        205,484     
 

TSMC GN

 

Subsidiary

 

    —          84,751        100        84,751     

TSMC Solar

 

Stock

             
 

Motech

 

Investee accounted for using equity method

 

Investments accounted for using equity method

    87,480        5,219,263        20        3,576,900     
 

TSMC Solar Europe

 

Subsidiary

 

    —          168,129        100        168,129     
 

TSMC Solar NA

 

Subsidiary

 

    1        35,897        100        35,897     
 

Capital

             
 

VTAF III

 

Investee accounted for using equity method

 

Investments accounted for using equity method

    —          1,640,461        46        1,640,461     

 

(Continued)

 

- 54 -


                March 31, 2012      

Held Company Name

 

Marketable Securities Type
and Name

 

Relationship with the
Company

 

Financial Statement
Account

  Shares/
Units

(In
Thousands)
    Carrying
Value

(Foreign
Currencies
in
Thousands)
    Percentage
of
Ownership
(%)
    Market
Value or
Net Asset
Value

(Foreign
Currencies
in
Thousands)
    Note

TSMC SSL

 

Stock

             
 

TSMC Lighting NA

 

Subsidiary

 

Investments accounted for using equity method

    1      $ 2,912        100      $ 2,912     

TSMC GN

 

Stock

             
 

TSMC Solar

 

Subsidiary

 

Investments accounted for using equity method

    3,759        31,755        —          31,755     
 

TSMC SSL

 

Subsidiary

 

    5,425        44,838        1        44,838     

TSMC Partners

 

Corporate bond

             
 

General Elec Cap Corp. Mtn

 

 

Held-to-maturity financial assets

    —        US$ 20,038        N/A      US$ 20,496     
 

Stock

             
 

TSMC Development, Inc. (TSMC Development)

 

Subsidiary

 

Investments accounted for using equity method

    1      US$ 470,564        100      US$ 470,564     
 

VisEra Holding Company

 

Investee accounted for using equity method

 

    43,000      US$ 96,445        49      US$ 96,445     
 

InveStar Semiconductor Development Fund, Inc. (ISDF)

 

Subsidiary

 

    787      US$ 14,041        97      US$ 14,041     
 

TSMC Technology

 

Subsidiary

 

    1      US$ 10,942        100      US$ 10,942     
 

InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)

 

Subsidiary

 

    14,153      US$ 11,455        97      US$ 11,455     
 

TSMC Canada

 

Subsidiary

 

    2,300      US$ 4,258        100      US$ 4,258     
 

Mcube Inc.

 

Investee accounted for using equity method

 

    6,333        —          25        —       
 

Fund

             
 

Shanghai Walden Venture Capital Enterprise

 

 

Financial assets carried at cost

    —        US$ 5,000        8      US$ 5,000     

TSMC North America

 

Stock

             
 

Spansion Inc.

 

 

Available-for-sale financial assets

    270      US$ 3,287        —        US$ 3,287     

TSMC Development

 

Corporate bond

             
 

GE Capital Corp.

 

 

Held-to-maturity financial assets

    —        US$ 20,059        N/A      US$ 20,496     
 

JP Morgan Chase & Co.

 

 

    —        US$ 15,000        N/A      US$ 14,850     
 

Stock

             
 

WaferTech

 

Subsidiary

 

Investments accounted for using equity method

    293,640      US$ 229,723        100      US$ 229,723     

Emerging Alliance

 

Common stock

             
 

RichWave Technology Corp.

 

 

Financial assets carried at cost

    4,074      US$ 1,545        10      US$ 1,545     
 

Global Investment Holding Inc.

 

 

    11,124      US$ 3,065        6      US$ 3,065     
 

Preferred stock

             
 

Audience, Inc.

 

 

Financial assets carried at cost

    1,654      US$ 250        —        US$ 250     
 

Next IO, Inc.

 

 

    8      US$ 500        —        US$ 500     
 

Pixim, Inc.

 

 

    4,641      US$ 1,137        2      US$ 1,137     
 

QST Holdings, LLC

 

 

    —        US$ 142        4      US$ 142     
 

Capital

             
 

VentureTech Alliance Holdings, LLC (VTA Holdings)

 

Subsidiary

 

Investments accounted for using equity method

    —          —          7        —       

VTAF II

 

Common stock

             
 

Aether Systems, Inc.

 

 

Financial assets carried at cost

    1,800      US$ 1,701        23      US$ 1,701     
 

RichWave Technology Corp.

 

 

    1,267      US$ 1,036        3      US$ 1,036     
 

Sentelic

 

 

    1,806      US$ 2,607        9      US$ 2,607     

 

(Continued)

 

- 55 -


                March 31, 2012      

Held Company Name

 

Marketable Securities Type
and Name

 

Relationship with the
Company

 

Financial Statement
Account

  Shares/
Units

(In
Thousands)
    Carrying
Value

(Foreign
Currencies
in
Thousands)
    Percentage
of
Ownership
(%)
    Market
Value or
Net Asset
Value

(Foreign
Currencies
in
Thousands)
    Note

VTAF II

 

Preferred stock

             
 

5V Technologies, Inc.

 

 

Financial assets carried at cost

    2,890      US$ 2,168        4      US$ 2,168     
 

Aquantia

 

 

    4,556      US$ 4,316        3      US$ 4,316     
 

Audience, Inc.

 

 

    12,378      US$ 2,378        3      US$ 2,378     
 

Impinj, Inc.

 

 

    475      US$ 1,000        —        US$ 1,000     
 

Next IO, Inc.

 

 

    132      US$ 1,110        2      US$ 1,110     
 

Pixim, Inc.

 

 

    33,347      US$ 1,878        2      US$ 1,878     
 

Power Analog Microelectronics

 

 

    7,330      US$ 3,482        21      US$ 3,482     
 

QST Holdings, LLC

 

 

    —        US$ 593        13      US$ 593     
 

Capital

             
 

VTA Holdings

 

Subsidiary

 

Investments accounted for using equity method

    —          —          31        —       

VTAF III

 

Common stock

             
 

Mutual-Pak Technology Co., Ltd.

 

Subsidiary

 

Investments accounted for using equity method

    14,168      US$ 1,771        58      US$ 1,771     
 

InvenSense, Inc.

 

 

Available-for-sale financial assets

    796      US$ 14,415        1      US$ 14,415     
 

Accton Wireless Broadband Corp.

 

 

Financial assets carried at cost

    2,249      US$ 315        6      US$ 315     
 

Preferred stock

             
 

BridgeLux, Inc.

 

 

Financial assets carried at cost

    7,522      US$ 9,379        3      US$ 9,379     
 

GTBF, Inc.

 

 

    1,154      US$ 1,500        N/A      US$ 1,500     
 

LiquidLeds Lighting Corp.

 

 

    1,600      US$ 800        11      US$ 800     
 

Neoconix, Inc.

 

 

    3,916      US$ 4,779        4      US$ 4,779     
 

Powervation, Ltd.

 

 

    449      US$ 7,030        16      US$ 7,030     
 

Stion Corp.

 

 

    8,152      US$ 55,474        20      US$ 55,474     
 

Tilera, Inc.

 

 

    3,890      US$ 3,025        2      US$ 3,025     
 

Validity Sensors, Inc.

 

 

    9,340      US$ 3,456        4      US$ 3,456     
 

Capital

             
 

Growth Fund Limited (Growth Fund)

 

Subsidiary

 

Investments accounted for using equity method

    —        US$ 480        100      US$ 480     
 

VTA Holdings

 

Subsidiary

 

    —          —          62        —       

Growth Fund

 

Common stock

             
 

Veebeam

 

 

Financial assets carried at cost

    10      US$ 25        —        US$ 25     

ISDF

 

Common stock

             
 

Integrated Memory Logic, Inc.

 

 

Available-for-sale financial assets

    1,320      US$ 4,743        2      US$ 4,743     
 

Memsic, Inc.

 

 

    1,286      US$ 5,412        5      US$ 5,412     
 

Preferred stock

             
 

Sonics, Inc.

 

 

Financial assets carried at cost

    230      US$ 497        2      US$ 497     

ISDF II

 

Common stock

             
 

Memsic, Inc.

 

 

Available-for-sale financial assets

    1,072      US$ 4,513        5      US$ 4,513     
 

Alchip Technologies Limited

 

 

Financial assets carried at cost

    7,520      US$ 3,664        14      US$ 3,664     
 

Sonics, Inc.

 

 

    278      US$ 10        3      US$ 10     
 

Goyatek Technology, Corp.

 

 

    745      US$ 163        6      US$ 163     
 

Auden Technology MFG. Co., Ltd.

 

 

    1,049      US$ 223        3      US$ 223     
 

Preferred stock

             
 

Sonics, Inc.

 

 

Financial assets carried at cost

    264      US$ 455        3      US$ 455     

 

(Continued)

 

- 56 -


                March 31, 2012      

Held Company Name

 

Marketable Securities Type
and Name

 

Relationship with the
Company

 

Financial Statement
Account

  Shares/
Units

(In
Thousands)
    Carrying
Value

(Foreign
Currencies
in
Thousands)
    Percentage
of
Ownership
(%)
    Market
Value or
Net Asset
Value

(Foreign
Currencies
in
Thousands)
    Note

Xintec

 

Capital

             
 

Compositech Ltd.

 

 

Financial assets carried at cost

    587      $ —          3      $ —       

TSMC Solar Europe

 

Stock

             
 

TSMC Solar Europe GmbH

 

Subsidiary

 

Investments accounted for using equity method

    1      EUR 4,186        100      EUR 4,186     

TSMC Global

 

Corporate bond

             
 

Aust + Nz Banking Group

 

 

Held-to-maturity financial assets

    20,000      US$ 20,000        N/A      US$ 19,995     
 

Commonwealth Bank of Australia

 

 

    25,000      US$ 25,000        N/A      US$ 24,796     
 

Commonwealth Bank of Australia

 

 

    25,000      US$ 25,000        N/A      US$ 24,898     
 

Deutsche Bank AG London

 

 

    20,000      US$ 19,913        N/A      US$ 20,225     
 

JP Morgan Chase + Co.

 

 

    35,000      US$ 35,036        N/A      US$ 35,216     
 

Nationwide Building Society-UK Government Guarantee

 

 

    8,000      US$ 8,000        N/A      US$ 8,001     
 

Westpac Banking Corp.

 

 

    25,000      US$ 25,000        N/A      US$ 24,884     
 

Westpac Banking Corp. 12/12 Frn

 

 

    5,000      US$ 5,000        N/A      US$ 5,012     
 

Government bond

             
 

Societe De Financement De Lec

 

 

Held-to-maturity financial assets

    15,000      US$ 15,000        N/A      US$ 15,003     
 

Money market fund

             
 

Ssga Cash Mgmt Global Offshore

 

 

Available-for-sale financial assets

    133      US$ 133        N/A      US$ 133     

(Concluded)

 

- 57 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

                      Beginning Balance     Acquisition     Disposal     Ending Balance
(Note 2)
 

Company
Name

 

Marketable
Securities
Type
and
Name

 

Financial
Statement
Account

  Counter-
party
    Nature of
Relationship
  Shares/
Units

(In
Thousands)
    Amount
(Foreign
Currencies
in
Thousands)
    Shares/
Units

(In
Thousands)

(Note 1)
    Amount
(Foreign
Currencies
in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(Foreign
Currencies
in
Thousands)
    Carrying
Value
(Foreign
Currencies
in
Thousands)
    Gain (Loss)
on Disposal
(Foreign
Currencies
in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(Foreign
Currencies
in
Thousands)
 

TSMC

 

Stock

                         
 

TSMC SSL

 

Investments accounted for using equity method

    —        Subsidiary     227,000      $ 1,746,893        203,400      $ 2,034,000        —        $ —        $ —        $ —          430,400      $ 3,541,201   
 

TSMC GN

 

    —        Subsidiary     —          —          —          100,000        —          —          —          —          —          84,751   

 

Note 1: The shares/units and amount of marketable securities acquired do not include stock dividends from investees.
Note 2: The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

- 58 -


TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company
Name

  Types of
Property
 

Transaction
Date

  Transaction
Amount
   

Payment
Term

 

Counter-
party

  Nature of
Relationships
    Prior Transaction of Related
Counter-party
   

Price
Reference

 

Purpose of
Acquisition

 

Other

Terms

              Owner     Relationships     Transfer
Date
    Amount        

TSMC

  Fab  

January 1, 2012 to March 30, 2012

  $ 950,083     

By the construction progress

 

Da Cin Construction Co., Ltd.

    —          N/A        N/A        N/A        N/A     

Public bidding

 

Manufacturing purpose

 

None

  Fab  

March 7, 2012 to March 29, 2012

    372,426     

By the construction progress

 

Fu Tsu Construction Co., Ltd.

    —          N/A        N/A        N/A        N/A     

Public bidding

 

Manufacturing purpose

 

None

  Fab  

March 19, 2012 to March 29, 2012

    394,839     

By the construction progress

 

China Steel Structure Co., Ltd.

    —          N/A        N/A        N/A        N/A     

Public bidding

 

Manufacturing purpose

 

None

 

- 59 -


TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company
Name

 

Related Party

 

Nature of Relationships

 

Transaction Details

  Abnormal
Transaction
    Notes/Accounts
Payable or
Receivable
    Note
     

Purchases/

Sales

  Amount     % to
Total
   

Payment Terms

  Unit
Price

(Note)
    Payment
Terms

(Note)
    Ending
Balance
    % to
Total
   

TSMC

 

TSMC North America

 

Subsidiary

 

Sales

  $ 64,861,377        61     

Net 30 days after invoice date

    —          —        $ 32,359,734        62     
 

GUC

 

Investee accounted for using equity method

 

Sales

    920,220        1     

Net 30 days after monthly closing

    —          —          552,558        1     
 

TSMC China

 

Subsidiary

 

Purchases

    3,192,921        25     

Net 30 days after monthly closing

    —          —          (1,137,485     8     
 

WaferTech

 

Indirect subsidiary

 

Purchases

    1,623,602        12     

Net 30 days after monthly closing

    —          —          (576,902     4     
 

SSMC

 

Investee accounted for using equity method

 

Purchases

    873,056        7     

Net 30 days after monthly closing

    —          —          (382,415     3     
 

VIS

 

Investee accounted for using equity method

 

Purchases

    732,490        6     

Net 30 days after monthly closing

    —          —          (519,259     3     

Xintec

 

OmniVision

 

Parent company of director (represented for Xintec)

 

Sales

    191,163        33     

Net 30 days after monthly closing

    —          —          107,690        40     

 

Note: The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 60 -


TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company
Name

 

Related Party

 

Nature of Relationships

  Ending
Balance
    Turnover
Days
(Note 1)
    Overdue     Amounts
Received in
Subsequent
Period
    Allowance
for

Bad Debts
 
          Amount     Action Taken      

TSMC

 

TSMC North America

 

Subsidiary

  $ 32,379,073        40      $ 10,263,324        —        $ 12,832,204      $ —     
 

SSMC

 

Investee accounted for using equity method

    1,192,278        (Note 2     —          —          —          —     
 

GUC

 

Investee accounted for using equity method

    552,558        33        535        —          283,209        —     

Xintec

 

OmniVision

 

Parent company of director (represented for Xintec)

    107,690        83        —          —          —          —     

 

Note 1: The calculation of turnover days excludes other receivables from related parties.
Note 2: The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

- 61 -


TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Investor Company

 

Investee
Company

 

Location

 

Main
Businesses
and Products

  Original Investment
Amount
    Balance as of March 31, 2012     Net Income
(Losses) of
the Investee
(Foreign
Currencies in
Thousands)
    Equity in the
Earnings
(Losses)
(Note 1)

(Foreign
Currencies in
Thousands)
   

Note

        March 31,
2012
(Foreign
Currencies
in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage
of
Ownership
    Carrying
Value

(Foreign
Currencies
in
Thousands)
       

TSMC

 

TSMC Global

 

Tortola, British Virgin Islands

 

Investment activities

  $ 42,327,245      $ 42,327,245        1        100      $ 43,137,920      $ 171,518      $ 171,518     

Subsidiary

 

TSMC Partners

 

Tortola, British Virgin Islands

 

Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry

    31,456,130        31,456,130        988,268        100        34,664,194        427,678        427,678     

Subsidiary

 

TSMC China

 

Shanghai, China

 

Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers

    18,939,667        18,939,667        —          100        14,095,161        875,143        895,570     

Subsidiary

 

TSMC Solar

 

Tai-Chung, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products

    11,180,000        11,180,000        1,118,000        99        9,456,531        (563,533     (640,173  

Subsidiary

 

VIS

 

Hsin-Chu, Taiwan

 

Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts

    13,232,288        13,232,288        628,223        41        8,986,165        24,096        (53,605  

Investee accounted for using equity method

 

SSMC

 

Singapore

 

Fabrication and supply of integrated circuits

    5,120,028        5,120,028        314        39        5,388,363        1,027,831        398,701     

Investee accounted for using equity method

 

TSMC North America

 

San Jose, California, U.S.A.

 

Selling and marketing of integrated circuits and semiconductor devices

    333,718        333,718        11,000        100        3,035,002        97,510        97,510     

Subsidiary

 

TSMC SSL

 

Hsin-Chu, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

    4,304,000        2,270,000        430,400        95        3,541,201        (279,037     (265,677  

Subsidiary

 

Xintec

 

Taoyuan, Taiwan

 

Wafer level chip size packaging service

    1,357,890        1,357,890        94,011        40        1,546,668        (117,292     (60,118  

Investee with a controlling financial interest

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    2,070,101        2,074,155        —          53        1,437,397        (25,475     (23,509  

Subsidiary

 

GUC

 

Hsin-Chu, Taiwan

 

Researching, developing, manufacturing, testing and marketing of integrated circuits

    386,568        386,568        46,688        35        1,191,165        99,536        35,056     

Investee accounted for using equity method

 

VTAF II

 

Cayman Islands

 

Investing in new start-up technology companies

    949,267        949,267        —          98        740,533        (2,725     (2,671  

Subsidiary

 

Emerging Alliance

 

Cayman Islands

 

Investing in new start-up technology companies

    892,855        892,855        —          99        205,484        (2,434     (2,422  

Subsidiary

 

TSMC Europe

 

Amsterdam, the Netherlands

 

Marketing and engineering supporting activities

    15,749        15,749        —          100        213,849        8,682        8,682     

Subsidiary

 

TSMC Japan

 

Yokohama, Japan

 

Marketing activities

    83,760        83,760        6        100        149,861        1,523        1,523     

Subsidiary

 

TSMC Korea

 

Seoul, Korea

 

Customer service and technical supporting activities

    13,656        13,656        80        100        23,468        110        110     

Subsidiary

 

TSMC GN

 

Taipei, Taiwan

 

Investment activities

    100,000        —          —          100        84,751        (3,386     (3,386  

Subsidiary

TSMC Solar

 

Motech

 

Taipei, Taiwan

 

Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems

    6,228,661        6,228,661        87,480        20        5,219,263        (988,198     Note 2     

Investee accounted for using equity method

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    1,797,496        1,795,131        —          46        1,640,461        (25,475     Note 2     

Investee accounted for using equity method

 

(Continued)

 

- 62 -


Investor Company

 

Investee Company

 

Location

 

Main
Businesses
and Products

  Original Investment
Amount
    Balance as of March 31, 2012     Net Income
(Losses) of
the Investee
(Foreign
Currencies in
Thousands)
    Equity in the
Earnings
(Losses)
(Note 1)

(Foreign
Currencies in
Thousands)
 

Note

        March 31,
2012
(Foreign
Currencies
in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage
of
Ownership
    Carrying
Value

(Foreign
Currencies
in
Thousands)
       

TSMC Solar

 

TSMC Solar Europe

 

Amsterdam, the Netherlands

 

Investing in solar related business

  $ 411,032      $ 411,032        —          100      $ 168,129      $ (35,781   Note 2  

Subsidiary

 

TSMC Solar NA

 

Delaware, U.S.A.

 

Selling and marketing of solar related products

    147,686        147,686        1        100        35,897        (15,073   Note 2  

Subsidiary

TSMC SSL

 

TSMC Lighting NA

 

Delaware, U.S.A.

 

Selling and marketing of solid state lighting related products

    3,133        3,133        1        100        2,912        (7   Note 2  

Subsidiary

TSMC Partners

 

TSMC Development

 

Delaware, U.S.A.

 

Investment activities

  US$ 0.001      US$ 0.001        1        100      US$ 470,564      US$ 10,529      Note 2  

Subsidiary

 

VisEra Holding Company

 

Cayman Islands

 

Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry

  US$ 43,000      US$ 43,000        43,000        49      US$ 96,445      US$ 281      Note 2  

Investee accounted for using equity method

 

ISDF

 

Cayman Islands

 

Investing in new start-up technology companies

  US$ 787      US$ 787        787        97      US$ 14,041      US$ 2,456      Note 2  

Subsidiary

 

TSMC Technology

 

Delaware, U.S.A.

 

Engineering support activities

  US$ 0.001      US$ 0.001        1        100      US$ 10,942      US$ 327      Note 2  

Subsidiary

 

ISDF II

 

Cayman Islands

 

Investing in new start-up technology companies

  US$ 14,153      US$ 14,153        14,153        97      US$ 11,455      US$ (47   Note 2  

Subsidiary

 

TSMC Canada

 

Ontario, Canada

 

Engineering support activities

  US$ 2,300      US$ 2,300        2,300        100      US$ 4,258      US$ 99      Note 2  

Subsidiary

 

Mcube Inc.

 

Delaware, U.S.A.

 

Research, development, and sale of micro-semiconductor device

  US$ 1,800      US$ 1,800        6,333        25        —        US$ (3,224   Note 2  

Investee accounted for using equity method

TSMC Development

 

WaferTech

 

Washington, U.S.A.

 

Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices

  US$
 
 
280,000
  
  
  US$
 
 
280,000
  
  
    293,640        100      US$ 229,723      US$ 9,604      Note 2  

Subsidiary

VTAF III

 

Mutual-Pak Technology Co., Ltd.

 

Taipei, Taiwan

 

Manufacturing and selling of electronic parts and researching, developing, and testing of RFID

  US$ 4,718      US$ 3,937        14,168        58      US$ 1,771      US$ (281   Note 2  

Subsidiary

 

Growth Fund

 

Cayman Islands

 

Investing in new start-up technology companies

  US$ 1,830      US$ 1,830        —          100      US$ 480      US$ (30   Note 2  

Subsidiary

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          62        —          —        Note 2  

Subsidiary

VTAF II

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          31        —          —        Note 2  

Subsidiary

Emerging Alliance

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

    —          —          —          7        —          —        Note 2  

Subsidiary

TSMC Solar Europe

 

TSMC Solar Europe GmbH

 

Hamburg, Germany

 

Selling of solar related products and providing customer service

  EUR 9,900      EUR 9,900        1        100      EUR 4,186      EUR (916   Note 2  

Subsidiary

TSMC GN

 

TSMC Solar

 

Tai-Chung, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products

    37,590        —          3,759        —          31,755        (563,533   Note 2  

Investee accounted for using equity method

 

TSMC SSL

 

Hsin-Chu, Taiwan

 

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

    54,254        —          5,425        1        44,838        (279,037   Note 2  

Investee accounted for using equity method

 

Note 1: Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.
Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.

(Concluded)

 

- 63 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

        

Total Amount
of

Paid-in Capital

        Accumulated
Outflow of
Investment
from Taiwan
as of
January 1,
    Investment Flows     Accumulated
Outflow of
Investment
from Taiwan
as of
          Equity    

Carrying
Value

as of

March 31,

    Accumulated
Inward
Remittance
of Earnings
 

Investee
Company

 

Main
Businesses
and Products

  (Foreign
Currencies in
Thousands)
    Method of
Investment
  2012
(US$ in
Thousand)
    Outflow
(US$ in
Thousands)
    Inflow     March 31,
2012 (US$ in
Thousands)
    Percentage
of
Ownership
    in the
Earnings
(Losses)
    2012
(US$ in
Thousands)
    as of
March 31,
2012
 

TSMC China

 

Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers

                   
                     
                     
    $ 18,939,667      (Note 1)   $ 18,939,667      $ —        $ —        $ 18,939,667        100   $ 895,570      $ 14,095,161      $ —     
    (RMB 4,502,080     (US$ 596,000       (US$ 596,000        

Shanghai Walden Venture Capital Enterprise

 

Investing in new start-up technology companies

    953,709      (Note 2)     147,485        —          —         

(US$

147,485

5,000

  

    8     (Note 3)        147,645        —     
    (US$ 31,488     (US$ 5,000             (US$ 5,000  

 

Accumulated Investment
in Mainland China as of
March 31, 2012

(US$ in Thousand)

    Investment Amounts
Authorized  by Investment
Commission, MOEA

(US$ in Thousand)
    Upper Limit on  Investment
(US$ in Thousand)
 
$ 19,087,152      $ 19,087,152      $ 19,087,152   
(US$ 601,000   (US$ 601,000   (US$ 601,000

 

Note 1: TSMC directly invested US$596,000 thousand in TSMC China.
Note 2: TSMC indirectly invested in China company through third region, TSMC Partners.
Note 3: TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 64 -


TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

 

A. For the three months ended March 31, 2012

 

No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
   

Intercompany Transactions

 
       

Financial Statements Item

  Amount     Terms
(Note 2)
    Percentage
of
Consolidated
Total Gross
Sales or
Total Assets
 
0  

TSMC

 

TSMC North America

    1     

Sales

  $ 64,861,377        —          61
       

Receivables from related parties

    32,359,734        —          4
       

Other receivables from related parties

    19,399        —          —     
       

Payables to related parties

    49,582        —          —     
   

TSMC China

    1     

Purchases

    3,192,921        —          3
       

Marketing expenses - commission

    16,450        —          —     
       

Disposal of property, plant and equipment

    41,011        —          —     
       

Loss on disposal of property, plant and equipment, net

    4,675        —          —     
       

Other receivables from related parties

    43,296        —          —     
       

Payables to related parties

    1,137,485        —          —     
       

Deferred charge

    3,182        —          —     
   

TSMC Japan

    1     

Marketing expenses - commission

    71,086        —          —     
       

Payables to related parties

    52,540        —          —     
   

TSMC Europe

    1     

Marketing expenses - commission

    82,247        —          —     
       

Research and development expenses

    13,513        —          —     
       

Payables to related parties

    35,760        —          —     
   

TSMC Korea

    1     

Marketing expenses - commission

    5,190        —          —     
       

Payables to related parties

    1,308        —          —     
   

TSMC Technology

    1     

Research and development expenses

    148,681        —          —     
       

Payables to related parties

    99,495        —          —     
   

WaferTech

    1     

Sales

    10,389        —          —     
       

Purchases

    1,623,602        —          2
       

Other receivables from related parties

    3,298        —          —     
       

Payables to related parties

    576,902        —          —     
   

TSMC Canada

    1     

Research and development expenses

    52,350        —          —     
       

Payables to related parties

    17,122        —          —     
   

Xintec

    1     

Manufacturing overhead

    23,487        —          —     
       

Payables to related parties

    16,628        —          —     
   

TSMC SSL

    1     

Miscellaneous revenue

    1,575        —          —     
       

Other receivables from related parties

    2,262        —          —     
   

TSMC Solar

    1     

Miscellaneous revenue

    1,575        —          —     
       

Other receivables from related parties

    2,045        —          —     

 

(Continued)

 

- 65 -


No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
   

Intercompany Transactions

 
       

Financial Statements Item

  Amount     Terms
(Note 2)
    Percentage
of
Consolidated
Total Gross
Sales or
Total Assets
 
1  

TSMC Partners

 

TSMC China

    3     

Long-term receivables from related parties

  $ 7,405,970        —          1
       

Interest income

    4,816        —          —     
   

TSMC Solar

    3     

Other receivables from related parties

    724,439        —          —     
2  

TSMC Solar

 

TSMC Solar NA

    3     

Other payables from related parties

    3,373        —          —     

 

Note 1: No. 1 represents the transactions from parent company to subsidiary.

No. 3 represents the transactions between subsidiaries.

Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

 

(Continued)

 

- 66 -


B. For the three months ended March 31, 2011

 

                 

Intercompany Transactions

 

No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
   

Financial Statements Item

  Amount     Terms
(Note 2)
    Percentage
of
Consolidated
Total Gross
Sales or
Total Assets
 

0

 

TSMC

 

TSMC North America

    1     

Sales

  $ 57,007,986        —          53
       

Receivables from related parties

    27,517,143        —          4
       

Other receivables from related parties

    6,653        —          —     
       

Payables to related parties

    36,634        —          —     
   

TSMC China

    1     

Sales

    7,070        —          —     
       

Purchases

    2,419,959        —          2
       

Marketing expenses - commission

    16,320        —          —     
       

Sales of property, plant and equipment

    592,339        —          —     
       

Gain on disposal of property, plant and equipment, net

    6,506        —          —     
       

Other receivables from related parties

    1,593,520        —          —     
       

Payables to related parties

    855,485        —          —     
       

Deferred debits

    33,833        —          —     
   

TSMC Japan

    1     

Marketing expenses - commission

    66,614        —          —     
       

Payables to related parties

    24,004        —          —     
   

TSMC Europe

    1     

Marketing expenses - commission

    90,915        —          —     
       

Research and development expenses

    8,774        —          —     
       

Payables to related parties

    36,246        —          —     
   

TSMC Korea

    1     

Marketing expenses - commission

    5,375        —          —     
       

Payables to related parties

    1,363        —          —     
   

GUC

    1     

Sales

    455,936        —          —     
       

Research and development expenses

    5,717        —          —     
       

Receivables from related parties

    260,981        —          —     
       

Payables to related parties

    1,915        —          —     
   

TSMC Technology

    1     

Research and development expenses

    113,013        —          —     
       

Payables to related parties

    76,694        —          —     
   

WaferTech

    1     

Sales

    2,027        —          —     
       

Purchases

    1,770,429        —          2
       

Sales of property, plant and equipment

    64,255        —          —     
       

Payables to related parties

    550,219        —          —     
   

TSMC Canada

    1     

Research and development expenses

    42,489        —          —     
       

Payables to related parties

    15,036        —          —     
   

Xintec

    1     

Research and development expenses

    2,755        —          —     
       

Manufacturing overhead

    84,600        —          —     
       

Payables to related parties

    53,025        —          —     
   

TSMC Solar Europe GmbH

    1     

Sales

    52,526        —          —     
       

Other receivables from related parties

    52,413        —          —     

1

 

GUC

 

TSMC North America

    3     

Purchases

    142,690        —          —     
       

Manufacturing overhead

    92,754        —          —     
       

Payables to related parties

    87,469        —          —     
   

GUC-NA

    3     

Operating expenses

    29,539        —          —     
       

Manufacturing overhead

    17,604        —          —     
       

Accrued expense

    14,791        —          —     
   

GUC-Japan

    3     

Operating expenses

    9,565        —          —     
       

Accrued expense

    2,895        —          —     
   

GUC-Shanghai

    3     

Operating expenses

    4,567        —          —     
       

Accrued expense

    1,760        —          —     

 

(Continued)

 

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Intercompany Transactions

 

No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
   

Financial Statements Item

  Amount     Terms
(Note 2)
    Percentage
of
Consolidated
Total Gross
Sales or
Total Assets
 

2

 

TSMC Partners

 

TSMC China

    3     

Other long-term receivables

  $ 7,367,000        —          1

3

 

TSMC China

 

TSMC Partners

    3     

Other long-term payables

    7,375,950        —          1

 

Note 1: No. 1 represents the transactions from parent company to subsidiary.

No. 3 represents the transactions between subsidiaries.

Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

(Concluded)

 

- 68 -