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 November 2014

 

 

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: November 14, 2014     By  

/s/ Lora Ho

      Lora Ho
      Senior Vice President & Chief Financial Officer


Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2014 and 2013 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 September 30, 2014 and 2013 and the related consolidated statements of comprehensive income for the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, as well as the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2014 and 2013. 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 International Accounting Standard 34, “Interim Financial Reporting,” endorsed by the Financial Supervisory Commission of the Republic of China.

November 11, 2014

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

(In Thousands of New Taiwan Dollars)

 

 

     September 30, 2014
(Reviewed)
     December 31, 2013
(Audited)
     September 30, 2013
(Reviewed)
 
     Amount      %      Amount      %      Amount      %  

ASSETS

                 

CURRENT ASSETS

                 

Cash and cash equivalents (Note 6)

   $ 225,884,318         17       $ 242,695,447         19       $ 216,603,697         19   

Financial assets at fair value through profit or loss (Note 7)

     69,164         —           90,353         —           188,970         —     

Available-for-sale financial assets (Note 8)

     64,391,337         5         760,793         —           672,179         —     

Held-to-maturity financial assets (Note 9)

     —           —           1,795,949         —           700,285         —     

Notes and accounts receivable, net (Note 11)

     113,999,433         8         71,649,926         6         78,844,389         7   

Receivables from related parties (Note 31)

     532,767         —           291,708         —           827,480         —     

Other receivables from related parties (Note 31)

     161,962         —           221,576         —           194,408         —     

Inventories (Note 12)

     65,336,989         5         37,494,893         3         36,916,527         3   

Other financial assets (Note 32)

     2,989,824         —           501,785         —           522,137         —     

Other current assets (Note 17)

     2,864,405         —           2,984,224         —           2,740,765         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     476,230,199         35         358,486,654         28         338,210,837         29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT ASSETS

                 

Available-for-sale financial assets (Note 8)

     —           —           58,721,959         5         61,145,097         5   

Financial assets carried at cost (Note 13)

     1,866,008         —           2,145,591         —           2,124,507         —     

Investments accounted for using equity method (Note 14)

     26,979,558         2         28,316,260         2         25,903,920         2   

Property, plant and equipment (Note 15)

     824,309,879         61         792,665,913         63         727,716,024         62   

Intangible assets (Note 16)

     11,942,249         1         11,490,383         1         11,393,280         1   

Deferred income tax assets (Note 4)

     5,033,530         1         7,239,609         1         7,165,944         1   

Refundable deposits (Note 31)

     2,359,756         —           2,519,031         —           2,464,658         —     

Other noncurrent assets (Note 17)

     1,273,661         —           1,469,577         —           1,415,948         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent assets

     873,764,641         65         904,568,323         72         839,329,378         71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 1,349,994,840         100       $ 1,263,054,977         100       $ 1,177,540,215         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

                 

CURRENT LIABILITIES

                 

Short-term loans (Note 18)

   $ 35,883,358         3       $ 15,645,000         1       $ 18,053,096         2   

Financial liabilities at fair value through profit or loss (Note 7)

     691,062         —           33,750         —           18,876         —     

Hedging derivative financial liabilities (Note 10)

     9,769,897         1         —           —           —           —     

Accounts payable

     20,418,733         1         14,670,260         1         13,478,598         1   

Payables to related parties (Note 31)

     1,290,677         —           1,688,456         —           1,594,104         —     

Salary and bonus payable

     9,505,689         1         8,330,956         1         7,668,518         1   

Accrued profit sharing to employees and bonus to directors and supervisors (Note 21)

     12,959,725         1         12,738,801         1         9,946,700         1   

Payables to contractors and equipment suppliers

     28,683,936         2         89,810,160         7         58,381,100         5   

Income tax payable (Note 4)

     19,412,953         1         22,563,286         2         17,025,992         1   

Provisions (Note 19)

     7,677,524         1         7,603,781         1         6,720,214         1   

Accrued expenses and other current liabilities

     25,954,613         2         16,693,484         1         15,396,990         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     172,248,167         13         189,777,934         15         148,284,188         13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT LIABILITIES

                 

Hedging derivative financial liabilities (Note 10)

     5,821         —           5,481,616         —           6,144,025         —     

Bonds payable (Note 20)

     211,796,805         15         210,767,625         17         210,416,434         18   

Long-term bank loans

     40,000         —           40,000         —           40,000         —     

Obligations under finance leases

     773,743         —           776,230         —           758,732         —     

Accrued pension cost (Note 4)

     7,612,862         1         7,589,926         1         6,931,366         1   

Others (Note 19)

     959,191         —           846,561         —           790,709         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent liabilities

     221,188,422         16         225,501,958         18         225,081,266         19   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     393,436,589         29         415,279,892         33         373,365,454         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

                 

Capital stock (Note 21)

     259,293,750         19         259,286,171         21         259,283,910         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Capital surplus (Note 21)

     55,944,799         4         55,858,626         4         55,841,716         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retained earnings (Note 21)

                 

Appropriated as legal capital reserve

     151,250,682         12         132,436,003         11         132,436,003         11   

Appropriated as special capital reserve

     —           —           2,785,741         —           2,785,741         —     

Unappropriated earnings

     473,064,885         35         382,971,408         30         338,752,961         29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     624,315,567         47         518,193,152         41         473,974,705         40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Others (Note 21)

     16,865,491         1         14,170,306         1         14,776,668         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity attributable to shareholders of the parent

     956,419,607         71         847,508,255         67         803,876,999         68   

NONCONTROLLING INTERESTS (Note 21)

     138,644         —           266,830         —           297,762         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     956,558,251         71         847,775,085         67         804,174,761         68   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 1,349,994,840         100       $ 1,263,054,977         100       $ 1,177,540,215         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     For the Three Months Ended September 30     For the Nine Months Ended September 30  
     2014      2013     2014      2013  
     Amount     %      Amount     %     Amount     %      Amount     %  

NET REVENUE (Notes 23, 31 and 36)

   $ 209,049,734        100       $ 162,577,034        100      $ 540,285,390        100       $ 451,218,350        100   

COST OF REVENUE (Notes 12, 28 and 31)

     103,468,164        49         83,636,464        51        273,127,447        51         235,092,710        52   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

     105,581,570        51         78,940,570        49        267,157,943        49         216,125,640        48   

REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

     (3,206     —           (49,759     —          13,442        —           (42,833     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

GROSS PROFIT

     105,578,364        51         78,890,811        49        267,171,385        49         216,082,807        48   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES (Notes 28 and 31)

                  

Research and development

     15,206,014        8         13,357,075        8        40,881,706        7         35,949,931        8   

General and administrative

     4,611,885        2         4,738,276        3        14,675,420        3         15,119,366        3   

Marketing

     1,323,181        1         1,164,881        1        3,710,704        1         3,359,373        1   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     21,141,080        11         19,260,232        12        59,267,830        11         54,428,670        12   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

OTHER OPERATING INCOME AND EXPENSES, NET (Notes 15 and 28)

     (5,300     —           (12,525     —          (235,292     —           21,008        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

INCOME FROM OPERATIONS (Note 36)

     84,431,984        40         59,618,054        37        207,668,263        38         161,675,145        36   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

                  

Share of profits of associates and joint venture

     1,036,527        —           1,113,243        1        3,039,533        1         2,826,900        1   

Other income

     688,325        —           433,395        —          2,618,607        —           1,788,780        —     

Foreign exchange gain (loss), net

     1,150,993        1         (314,948     —          759,385        —           133,136        —     

Finance costs (Note 24)

     (816,054     —           (732,326     —          (2,414,084     —           (1,861,664     —     

Other gains and losses (Note 25)

     (1,110,583     —           (767,534     (1     1,109,450        —           552,180        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total non-operating income and expenses

     949,208        1         (268,170     —          5,112,891        1         3,439,332        1   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

     85,381,192        41         59,349,884        37        212,781,154        39         165,114,477        37   

INCOME TAX EXPENSE (Notes 4 and 26)

     9,076,586        4         7,415,132        5        28,970,913        5         21,882,679        5   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME

     76,304,606        37         51,934,752        32        183,810,241        34         143,231,798        32   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS) (Notes 21 and 26)

                  

Exchange differences arising on translation of foreign operations

     3,410,878        1         (1,740,459     (1     3,190,117        1         2,335,435        1   

Changes in fair value of available-for-sale financial assets

     8,120        —           7,685,269        5        (438,481     —           15,180,754        3   

Share of other comprehensive income (loss) of associates and joint venture

     (36,019     —           37,947        —          (42,040     —           (18,924     —     

Income tax benefit (expense) related to components of other comprehensive income

     (2,622     —           10,274        —          (13,745     —           53,484        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss) for the period, net of income tax

     3,380,357        1         5,993,031        4        2,695,851        1         17,550,749        4   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

   $ 79,684,963        38       $ 57,927,783        36      $ 186,506,092        35       $ 160,782,547        36   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO:

                  

Shareholders of the parent

   $ 76,335,237        37       $ 51,951,943        32      $ 183,908,266        34       $ 143,336,544        32   

Noncontrolling interests

     (30,631     —           (17,191     —          (98,025     —           (104,746     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 76,304,606        37       $ 51,934,752        32      $ 183,810,241        34       $ 143,231,798        32   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

                  

Shareholders of the parent

   $ 79,715,131        38       $ 57,951,263        36      $ 186,603,451        35       $ 160,893,697        36   

Noncontrolling interests

     (30,168     —           (23,480     —          (97,359     —           (111,150     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 79,684,963        38       $ 57,927,783        36      $ 186,506,092        35       $ 160,782,547        36   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     For the Three Months Ended September 30      For the Nine Months Ended September 30  
     2014      2013      2014      2013  
    

Income Attributable to

Shareholders of

the Parent

    

Income Attributable to
Shareholders of

the Parent

    

Income Attributable to
Shareholders of

the Parent

    

Income Attributable to

Shareholders of

the Parent

 

EARNINGS PER SHARE (NT$, Note 27)

           

Basic earnings per share

   $ 2.94       $ 2.00       $ 7.09       $ 5.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 2.94       $ 2.00       $ 7.09       $ 5.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

    Equity Attributable to Shareholders of the Parent        
                                Others            
   

 

  Capital Stock - Common Stock  

     

 

Retained Earnings

 

Foreign
Currency

Translation
Reserve

 

Unrealized
Gain/Loss
from Available-

for-sale
Financial Assets

                   
   

Shares

(In Thousands)

  Amount   Capital Surplus   Legal Capital
Reserve
  Special Capital
Reserve
  Unappropriated
Earnings
  Total       Cash Flow
Hedges Reserve
  Total   Total   Noncontrolling
Interests
 

Total

Equity

BALANCE, JANUARY 1, 2014

      25,928,617       $ 259,286,171       $ 55,858,626       $ 132,436,003       $ 2,785,741       $ 382,971,408       $ 518,193,152       $ (7,140,362 )     $ 21,310,781       $ (113 )     $ 14,170,306       $ 847,508,255       $ 266,830       $ 847,775,085  

Appropriations of prior year’s earnings

                                                       

Legal capital reserve

      —           —           —           18,814,679         —           (18,814,679 )       —           —           —           —           —           —           —           —    

Reversal of special capital reserve

      —           —           —           —           (2,785,741 )       2,785,741         —           —           —           —           —           —           —           —    

Cash dividends to shareholders - NT$3.00 per share

      —           —           —           —           —           (77,785,851 )       (77,785,851 )       —           —           —           —           (77,785,851 )       —           (77,785,851 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

      —           —           —           18,814,679         (2,785,741 )       (93,814,789 )       (77,785,851 )       —           —           —           —           (77,785,851 )       —           (77,785,851 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net income for the nine months ended September 30, 2014

      —           —           —           —           —           183,908,266         183,908,266         —           —           —           —           183,908,266         (98,025 )       183,810,241  

Other comprehensive income for the nine months ended September 30, 2014, net of income tax

      —           —           —           —           —           —           —           3,150,962         (455,751 )       (26 )       2,695,185         2,695,185         666         2,695,851  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total comprehensive income for the nine months ended September 30, 2014

      —           —           —           —           —           183,908,266         183,908,266         3,150,962         (455,751 )       (26 )       2,695,185         186,603,451         (97,359 )       186,506,092  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Issuance of stock from exercise of employee stock options

      758         7,579         25,908         —           —           —           —           —           —           —           —           33,487         —           33,487  

Disposal of investments accounted for using equity method

      —           —           (2,273 )       —           —           —           —           —           —           —           —           (2,273 )       —           (2,273 )

Adjustments to share of changes in equities of associates and joint venture

      —           —           90,327         —           —           —           —           —           —           —           —           90,327         (45 )       90,282  

From share of changes in equities of subsidiaries

      —           —           (27,789 )       —           —           —           —           —           —           —           —           (27,789 )       27,789         —    

Decrease in noncontrolling interests

      —           —           —           —           —           —           —           —           —           —           —           —           (58,571 )       (58,571 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

BALANCE, SEPTEMBER 30, 2014

      25,929,375       $ 259,293,750       $ 55,944,799       $ 151,250,682       $ —         $ 473,064,885       $ 624,315,567       $ (3,989,400 )     $ 20,855,030       $ (139 )     $ 16,865,491       $ 956,419,607       $ 138,644       $ 956,558,251  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

BALANCE, JANUARY 1, 2013

      25,924,435       $ 259,244,357       $ 55,675,340       $ 115,820,123       $ 7,606,224       $ 284,985,121       $ 408,411,468       $ (10,753,806 )     $ 7,973,321       $ —         $ (2,780,485 )     $ 720,550,680       $ 2,543,226       $ 723,093,906  

Appropriations of prior year’s earnings

                                                       

Legal capital reserve

      —           —           —           16,615,880         —           (16,615,880 )       —           —           —           —           —           —           —           —    

Reversal of special capital reserve

      —           —           —           —           (4,820,483 )       4,820,483         —           —           —           —           —           —           —           —    

Cash dividends to shareholders - NT$3.00 per share

      —           —           —           —           —           (77,773,307 )       (77,773,307 )       —           —           —           —           (77,773,307 )       —           (77,773,307 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

      —           —           —           16,615,880         (4,820,483 )       (89,568,704 )       (77,773,307 )       —           —           —           —           (77,773,307 )       —           (77,773,307 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net income for the nine months ended September 30, 2013

      —           —           —           —           —           143,336,544         143,336,544         —           —           —           —           143,336,544         (104,746 )       143,231,798  

Other comprehensive income for the nine months ended September 30, 2013, net of income tax

      —           —           —           —           —           —           —           2,315,276         15,241,944         (67 )       17,557,153         17,557,153         (6,404 )       17,550,749  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total comprehensive income for the nine months ended September 30, 2013

      —           —           —           —           —           143,336,544         143,336,544         2,315,276         15,241,944         (67 )       17,557,153         160,893,697         (111,150 )       160,782,547  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Issuance of stock from exercise of employee stock options

      3,956         39,553         74,613         —           —           —           —           —           —           —           —           114,166         —           114,166  

Stock option compensation cost of subsidiary

      —           —           —           —           —           —           —           —           —           —           —           —           5,312         5,312  

Adjustments to share of changes in equities of associates and joint venture

      —           —           27,011         —           —           —           —           —           —           —           —           27,011         —           27,011  

From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries

      —           —           64,752         —           —           —           —           —           —           —           —           64,752         (64,752 )       —    

Increase in noncontrolling interests

      —           —           —           —           —           —           —           —           —           —           —           —           198,279         198,279  

Effect of deconsolidation of subsidiary

      —           —           —           —           —           —           —           —           —           —           —           —           (2,273,153 )       (2,273,153 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

BALANCE, SEPTEMBER 30, 2013

      25,928,391       $ 259,283,910       $ 55,841,716       $ 132,436,003       $ 2,785,741       $ 338,752,961       $ 473,974,705       $ (8,438,530 )     $ 23,215,265       $ (67 )     $ 14,776,668       $ 803,876,999       $ 297,762       $ 804,174,761  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

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

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Nine Months Ended September 30  
     2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Income before income tax

   $ 212,781,154      $ 165,114,477   

Adjustments for:

    

Depreciation expense

     141,919,819        113,400,781   

Amortization expense

     1,914,239        1,629,482   

Stock option compensation cost of subsidiary

     —          5,312   

Finance costs

     2,414,084        1,861,664   

Share of profits of associates and joint venture

     (3,039,533     (2,826,900

Interest income

     (1,974,366     (1,282,220

Gain on disposal of property, plant and equipment and intangible assets, net

     (13,482     (19,554

Impairment loss of property, plant and equipment

     239,864        —     

Impairment loss of financial assets

     176,920        1,541,170   

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

     (260,908     (1,239,442

Gain on disposal of financial assets carried at cost, net

     (65,819     (32,199

Loss (gain) on disposal of investments accounted for using equity method

     (2,028,643     733   

Loss from liquidation of subsidiary

     90        —     

Gain on deconsolidation of subsidiary

     —          (293,578

Unrealized (realized) gross profit on sales to associates

     (13,442     42,833   

Loss on foreign exchange, net

     1,200,859        353,755   

Dividend income

     (644,241     (506,560

Income from receipt of equity securities in settlement of trade receivables

     (1,211     (9,590

Loss from hedging instruments

     4,643,145        6,319,146   

Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion

     (4,163,555     (5,989,610

Changes in operating assets and liabilities:

    

Derivative financial instruments

     678,501        (145,680

Notes and accounts receivable, net

     (42,349,537     (21,325,495

Receivables from related parties

     (241,059     (740,050

Other receivables from related parties

     4,897        77,757   

Inventories

     (27,842,096     700,838   

Other financial assets

     (2,244,906     39,939   

Other current assets

     137,831        (79,924

Accounts payable

     5,726,261        (959,796

Payables to related parties

     (397,779     755,742   

Salary and bonus payable

     1,174,733        221,487   

Accrued profit sharing to employees and bonus to directors and supervisors

     220,924        (1,239,891

Accrued expenses and other current liabilities

     9,654,733        2,906,280   

Provisions

     73,286        714,527   

Accrued pension cost

     22,936        13,068   
  

 

 

   

 

 

 

(Continued)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Nine Months Ended September 30  
     2014     2013  

Cash generated from operations

   $ 297,703,699      $ 259,008,502   

Income taxes paid

     (29,848,815     (14,398,067
  

 

 

   

 

 

 

Net cash generated by operating activities

     267,854,884        244,610,435   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Available-for-sale financial assets

     (91,405     (16,496

Financial assets carried at cost

     (3,765     (18,059

Held-to-maturity financial assets

     (1,396,723     —     

Property, plant and equipment

     (236,115,030     (213,640,001

Intangible assets

     (2,268,872     (2,013,354

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     663,433        2,370,217   

Held-to-maturity financial assets

     3,200,000        4,445,850   

Financial assets carried at cost

     68,919        53,857   

Investments accounted for using equity method

     3,471,883        —     

Property, plant and equipment

     163,250        97,368   

Cash received from other long-term receivables

     83,840        —     

Costs from entering into hedging transactions

     (520,856     (143,982

Interest received

     1,874,722        1,194,967   

Other dividends received

     644,241        506,560   

Dividends received from investments accounted for using equity method

     3,223,090        2,141,881   

Refundable deposits paid

     (49,868     (67,513

Refundable deposits refunded

     73,851        81,922   

Net cash outflow from deconsolidation of subsidiary

     —          (979,910
  

 

 

   

 

 

 

Net cash used in investing activities

     (226,979,290     (205,986,693
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase (decrease) in short-term loans

     20,610,319        (17,314,261

Proceeds from issuance of bonds

     —          130,844,821   

Increase in long-term bank loans

     —          690,000   

Repayment of long-term bank loans

     —          (62,500

Repayment of other long-term payables

     —          (853,788

Interest paid

     (2,743,513     (1,242,377

Guarantee deposits received

     13,213        14,916   

Guarantee deposits refunded

     (4,981     (71,982

Decrease in obligations under finance leases

     (28,426     (27,796

Proceeds from exercise of employee stock options

     33,487        114,166   

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Nine Months Ended September 30  
     2014     2013  

Cash dividends

   $ (77,785,851   $ (77,773,307

Increase (decrease) in noncontrolling interests

     (58,571     212,410   
  

 

 

   

 

 

 

Net cash generated by (used in) financing activities

     (59,964,323     34,530,302   
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     2,277,600        39,065   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (16,811,129     73,193,109   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     242,695,447        143,410,588   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 225,884,318      $ 216,603,697   
  

 

 

   

 

 

 
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 NINE MONTHS ENDED SEPTEMBER 30, 2014 and 2013

(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.

On September 5, 1994, TSMC’s shares were listed on the Taiwan Stock Exchange (TWSE). 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).

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 36.

 

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on November 11, 2014.

 

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

As of the date that the accompanying consolidated financial statements were issued, the Company has not applied the following International Financial Reporting Standards, International Accounting Standards (IASs), Interpretations of International Financial Reporting Standards (IFRIC), and Interpretations of IAS (SIC) issued by the International Accounting Standards Board (IASB) (collectively, “IFRSs”).

 

  a. The 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030029342 and Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “2013 Taiwan-IFRSs version”) and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers should be adopted by the Company starting 2015.

 

New, Revised or Amended Standards and Interpretations

  

Effective Date Issued

by IASB (Note)

Amendments to IFRSs Improvements to IFRSs 2009 - Amendment to IAS 39   

January 1, 2009 or January 1, 2010

Amendment to IAS 39 Embedded Derivatives   

Effective in fiscal year ended on or after June 30, 2009

(Continued)

 

- 8 -


New, Revised or Amended Standards and Interpretations

  

Effective Date Issued

by IASB (Note)

Improvements to IFRSs 2010

  

July 1, 2010 or January 1, 2011

Annual Improvements to IFRSs 2009 - 2011 Cycle

   January 1, 2013

Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First - time Adopters

   July 1, 2010

Amendment to IFRS 7 Disclosures - offsetting Financial Assets and Financial Liabilities

   January 1, 2013

Amendment to IFRS 7 Disclosures - Transfers of Financial Assets

   July 1, 2011

IFRS 10 Consolidated Financial Statements

   January 1, 2013

IFRS 11 Joint Arrangements

   January 1, 2013

IFRS 12 Disclosure of Interests in Other Entities

   January 1, 2013

Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance

   January 1, 2013

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities

   January 1, 2014

IFRS 13 Fair Value Measurement

   January 1, 2013

Amendment to IAS 1 Presentation of Items of Other Comprehensive Income

   July 1, 2012

Amendment to IAS 12 Deferred Tax: Recovery of Underlying Assets

   January 1, 2012

IAS 19 (Revised 2011) “Employee Benefits”

   January 1, 2013

IAS 27 (Revised 2011) “Separate Financial Statements”

   January 1, 2013

IAS 28 (Revised 2011) “Investments in Associates and Joint Ventures”

   January 1, 2013

Amendment to IAS 32 Offsetting of Financial Assets and Financial Liabilities

   January 1, 2014

(Concluded)

 

  Note: The aforementioned new, revised or amended standards or interpretations are effective after fiscal year beginning on or after the effective dates, unless specified otherwise.

Except for the following items, the Company believes that the adoption of aforementioned 2013 Taiwan-IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers will not have a significant effect on the Company’s consolidated financial statements.

 

  1) IFRS 12, “Disclosure of Interests in Other Entities”

IFRS 12 is a standard that requires a broader disclosure in an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated entities. The objective of IFRS 12 is to specify the disclosure information provided by the entity that enables the users of financial statements in evaluating the nature of, and risks associated with, its interests in other entities and the effects of those interests on the entity’s financial assets and liabilities, as well as the involvement of the owners of noncontrolling interests towards the entity. The Company expects the application of IFRS 12 will result in more extensive disclosures of interests in other entities in the financial statements.

 

  2) IFRS 13, “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope.

 

- 9 -


The measurement requirements of IFRS 13 shall be applied prospectively.

 

  3) Amendments to IAS 1, “Presentation of Items of Other Comprehensive Income”

According to the amendments to IAS 1, the items of other comprehensive income will be grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. In addition, income tax on items of other comprehensive income is also required to be allocated on the same basis. The aforementioned allocation basis will not be strictly enforced prior to the adoption of amendments.

The items that will not be reclassified subsequently to profit or loss are expected to include actuarial gains or losses from defined benefit plans, the share of actuarial gains or losses from defined benefit plans of associates and joint venture as well as the related income tax on such items. Items that will be reclassified subsequently to profit or loss are expected to include exchange differences arising on translation of foreign operations, changes in fair value of available-for-sale financial assets, cash flow hedges, the share of other comprehensive income of associates and joint venture as well as the related income tax on items of other comprehensive income (except for the share of actuarial gains or losses from defined benefit plans).

 

  4) Amendments to IAS 19, “Employee Benefits”

The amendments to IAS 19 require the Company to calculate a “net interest” amount by applying the discount rate to the net defined benefit liability or asset to replace the interest cost and expected return on planned assets used in current IAS 19. In addition, the amendments eliminate the accounting treatment of either corridor approach or the immediate recognition of actuarial gains and losses to profit or loss when it incurs, and instead, required to recognize all actuarial gains and losses immediately through other comprehensive income. The past service cost, on the other hand, will be expensed immediately when it incurs and no longer be amortized over the average period before vested on a straight-line basis. In addition, the amendments also require a broader disclosure in defined benefit plans.

According to the retrospective application of aforementioned amendments, as of September 30, 2014 and January 1, 2014, the primary impacts on the Company include the adjustment in accrued pension cost for a decrease of NT$774,528 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$687,216 thousand and NT$698,762 thousand, respectively.

 

  b. The IFRSs issued by IASB but not endorsed by FSC

The Company has not applied the following IFRSs issued by the IASB but not endorsed by the FSC. As of the date that the consolidated financial statements were issued, the initial adoption to the following standards and interpretations is still subject to the effective date to be published by the FSC.

 

New, Revised or Amended Standards and Interpretations

  

Effective Date Issued

by IASB (Note 1)

Annual Improvements to IFRSs 2010 - 2012 Cycle

  

July 1, 2014 or transactions on or after July 1, 2014

Annual Improvements to IFRSs 2011 - 2013 Cycle

  

July 1, 2014

Annual Improvements to IFRSs 2012 - 2014 Cycle

  

January 1, 2016 (Note 2)

IFRS 9 Financial Instruments

  

January 1, 2018

Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosure

  

January 1, 2018

(Continued)

 

- 10 -


New, Revised or Amended Standards and Interpretations

   Effective Date Issued
by IASB (Note 1)

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

   Prospectively
applicable to
transactions
beginning on or
after
January 1, 2016

Amendment to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

   January 1, 2016

IFRS 15 Revenue from Contracts with Customers

   January 1, 2017

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization

   January 1, 2016

Amendment to IAS 19 Defined Benefit Plans: Employee Contributions

   July 1, 2014

Amendment to IAS 27 Equity Method in Separate Financial Statements

   January 1, 2016

Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets

   January 1, 2014

Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

   January 1, 2014

(Concluded)

 

Note 1:

   The aforementioned new, revised or amended standards or interpretations are effective after fiscal year beginning on or after the effective dates, unless specified otherwise.

Note 2:

   The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

Except for the following, the initial application of the above new standards and interpretations has not had any material impact on the Company’s accounting policies:

 

  1) IFRS 9, “Financial Instruments”

All recognized financial assets currently in the scope of IAS 39, “Financial Instruments: Recognition and Measurement,” will be subsequently measured at either the amortized cost or the fair value. The classification and measurement requirements in IFRS 9 are stated as follows:

For the debt instruments invested by the Company, if the contractual cash flows that are solely for payments of principal and interest on the principal amount outstanding, the classification and measurement requirements are stated as follows:

 

  a) If the objective of the Company’s business model is to hold the financial asset to collect the contractual cash flows, such assets are measured at the amortized cost. Interest revenue should be recognized in profit or loss by using the effective interest method, continuously assessed for impairment and the impairment loss or reversal of impairment loss should be recognized in profit and loss.

 

  b) If the objective of the Company’s business model is to hold the financial asset both to collect the contractual cash flows and to sell the financial assets, such assets are measured at fair value through other comprehensive income and are continuously assessed for impairment. Interest revenue should be recognized in profit or loss by using the effective interest method. A gain or loss on a financial asset measured at fair value through other comprehensive income should be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When such financial asset is derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

 

- 11 -


The other financial assets which do not meet the aforementioned criteria should be measured at the fair value through profit or loss. However, the Company may irrevocably designate an investment in equity instruments that is not held for trading as measured at fair value through other comprehensive income. All relevant gains and losses shall be recognized in other comprehensive income, except for dividends which are recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

IFRS 9 adds a new expected loss impairment model to measure the impairment of financial assets. A loss allowance for expected credit losses should be recognized on financial assets measured at amortized cost and financial assets mandatorily measured at fair value through other comprehensive income. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Company should measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. If the credit risk on a financial instrument has increased significantly since initial recognition and is not deemed to be a low credit risk, the Company should measure the loss allowance for that financial instrument at an amount equal to the lifetime expected credit losses. The Company should always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables.

The main change in IFRS 9 is the increase of the eligibility of hedge accounting. It allows reporters to reflect risk management activities in the financial statements more closely as it provides more opportunities to apply hedge accounting. A fundamental difference to IAS 39 is that IFRS 9 (a) increases the scope of hedged items eligible for hedge accounting. For example, the risk components of non-financial items may be designated as hedging accounting; (b) revises a new way to account for the gain or loss recognition arising from hedging derivative financial instruments, which results in a less volatility in profit or loss; and (c) is necessary for there to be an economic relationship between the hedged item and hedging instrument instead of performing the retrospective hedge effectiveness testing.

 

  2) IFRS 15, “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18, “Revenue,” IAS 11, “Construction Contracts,” and a number of revenue-related interpretations.

When applying IFRS 15, the Company shall recognize revenue by applying the following steps:

 

    Identify the contract with the customer;

 

    Identify the performance obligations in the contract;

 

    Determine the transaction price;

 

    Allocate the transaction price to the performance obligations in the contracts; and

 

    Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

 

  3) Amendments to IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets”

The amendments to IAS 36 clarify that the Company is only required to disclose the recoverable amount in the period of impairment accrual or reversal. Moreover, if the recoverable amount of impaired assets is based on fair value less costs of disposal, the Company should also disclose the discount rate used. The Company expects the aforementioned amendments will result in a broader disclosure of recoverable amount for non-financial assets.

 

- 12 -


Except for the aforementioned impact, as of the date that the accompanying consolidated financial statements were reported for issue, the Company continues in evaluating the impact on its financial position and financial performance as a result of the initial adoption of the other standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

 

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2013.

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.

Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and IAS 34, “Interim Financial Reporting,” endorsed by the FSC. The consolidated financial statements do not present all the disclosures required for a complete set of annual consolidated financial statements prepared under Taiwan-IFRSs.

Basis of Consolidation

The basis for the consolidated financial statements

The basis for the consolidated financial statements applied in these consolidated financial statements is consistent with those applied in the consolidated financial statements for the year ended December 31, 2013.

The subsidiaries in the consolidated financial statements

The detail information of the subsidiaries at the end of reporting period was as follows:

 

           

Establishment

and Operating

Location

  Percentage of Ownership      
Name of Investor   Name of Investee   Main Businesses and Products    

September 30,

2014

    December 31,
2013
   

September 30,

2013

    Note

TSMC

 

TSMC North America

 

Selling and marketing of integrated circuits and semiconductor devices

 

San Jose, California, U.S.A.

    100     100     100   —  
 

TSMC Japan Limited (TSMC Japan)

 

Marketing activities

 

Yokohama, Japan

    100     100     100   a)
 

TSMC Partners, Ltd. (TSMC Partners)

 

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

 

Tortola, British Virgin Islands

    100     100     100   —  
 

TSMC Korea Limited (TSMC Korea)

 

Customer service and technical supporting activities

 

Seoul, Korea

    100     100     100   a)
 

TSMC Europe B.V. (TSMC Europe)

 

Marketing and engineering supporting activities

 

Amsterdam, the Netherlands

    100     100     100   a)
 

TSMC Global, Ltd. (TSMC Global)

 

Investment activities

 

Tortola, British Virgin Islands

    100     100     100   —  
 

TSMC China Company Limited (TSMC China)

 

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

 

Shanghai, China

    100     100     100   —  
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98     50     50   b)
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98     98     98   —  
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    99.5     99.5     99.5   a)

(Continued)

 

- 13 -


              

Establishment

and Operating

Location

   Percentage of Ownership      
Name of Investor    Name of Investee    Main Businesses and Products      

September 30,

2014

    December 31,
2013
   

September 30,

2013

    Note

TSMC

  

TSMC Solid State Lighting Ltd. (TSMC SSL)

  

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

  

Hsin-Chu, Taiwan

     92     92     92  

TSMC and TSMC GN aggregately have a controlling interest of 94% in TSMC SSL.

  

TSMC Solar Ltd. (TSMC Solar)

  

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

  

Tai-Chung, Taiwan

     99     99     99  

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

  

TSMC Guang Neng Investment, Ltd. (TSMC GN)

  

Investment activities

  

Taipei, Taiwan

     100     100     100   a)

TSMC Partners

  

TSMC Design Technology Canada Inc. (TSMC Canada)

  

Engineering support activities

  

Ontario, Canada

     100     100     100   a)
  

TSMC Technology, Inc. (TSMC Technology)

  

Engineering support activities

  

Delaware, U.S.A.

     100     100     100   a)
  

TSMC Development, Inc. (TSMC Development)

  

Investment activities

  

Delaware, U.S.A.

     100     100     100   —  
  

InveStar Semiconductor Development Fund, Inc. (ISDF)

  

Investing in new start-up technology companies

  

Cayman Islands

     97     97     97   a)
  

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

  

Investing in new start-up technology companies

  

Cayman Islands

     97     97     97   a)

TSMC Development

  

WaferTech, LLC (WaferTech)

  

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

  

Washington, U.S.A.

     100     100     100   —  

VTAF III

  

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

  

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

  

New Taipei, Taiwan

     58     58     58   a)
  

Growth Fund Limited (Growth Fund)

  

Investing in new start-up technology companies

  

Cayman Islands

     100     100     100   a)

VTAF III, VTAF II and Emerging Alliance

  

VentureTech Alliance Holdings, LLC (VTA Holdings)

  

Investing in new start-up technology companies

  

Delaware, U.S.A.

     100     100     100   a)

TSMC SSL

  

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

  

Selling and marketing of solid state lighting related products

  

Delaware, U.S.A.

     —          100     100   a), c)

TSMC Solar

  

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

  

Selling and marketing of solar related products

  

Delaware, U.S.A.

     100     100     100   a)
  

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

  

Investing in solar related business

  

Amsterdam, the Netherlands

     100     100     100   a), d)
  

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

  

Investing in new start-up technology companies

  

Cayman Islands

     —          49     49   b)

TSMC Solar Europe

  

TSMC Solar Europe GmbH

  

Selling of solar related products and providing customer service

  

Hamburg, Germany

     100     100     100   a), d)

(Concluded)

 

Note a:   This is an immaterial subsidiary for which the consolidated financial statements are not reviewed by the Company’s independent accountants.
Note b:   According to the agreement among TSMC, TSMC Solar and VTAF III, each of the investment held by VTAF III is separately owned by TSMC and TSMC Solar. As the investment owned by VTAF III, which is indirectly owned by TSMC Solar, has entered into liquidation process due to bankruptcy and the bankruptcy trustee confirmed that no residual assets could be reimbursed to the shareholders, in the second quarter of 2014, TSMC Solar’s percentage of ownership over VTAF III has decreased to nil. Consequently, TSMC’s percentage of ownership over VTAF III has been adjusted to 98%.
Note c:   To simplify overseas investment structure, in the second quarter of 2014, the Board of Directors of TSMC SSL approved to file for the liquidation of TSMC Lighting NA. The liquidation procedure has been completed in the third quarter of 2014.
Note d:   To simplify overseas investments structure, in the second quarter of 2014, the Board of Directors of TSMC Solar approved to file for the liquidation of TSMC Solar Europe After the liquidation, TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, will be held directly by TSMC Solar. The liquidation procedure is expected to be processed starting from the third quarter of 2014.

Retirement Benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. The interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period.

 

- 14 -


5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

The same critical accounting judgments and key sources of estimates and uncertainty have been followed in these consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2013.

 

6. CASH AND CASH EQUIVALENTS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Cash and deposits in banks

   $ 222,381,793       $ 238,014,580       $ 213,978,108   

Repurchase agreements collateralized by corporate bonds

     2,680,979         1,809,344         2,052,723   

Commercial paper

     499,744         —           —     

Repurchase agreements collateralized by government bonds

     321,802         475,879         123,063   

Repurchase agreements collateralized by short-term commercial paper

     —           2,395,644         449,803   
  

 

 

    

 

 

    

 

 

 
   $ 225,884,318       $ 242,695,447       $ 216,603,697   
  

 

 

    

 

 

    

 

 

 

Deposits in banks consisted of highly liquid time deposits that were readily convertible to known amounts of cash and which were subject to an insignificant risk of changes in value.

 

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

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Derivative financial assets

        

Cross currency swap contracts

   $ 37,840       $ —         $ 162,919   

Forward exchange contracts

     31,324         90,353         26,051   
  

 

 

    

 

 

    

 

 

 
   $ 69,164       $ 90,353       $ 188,970   
  

 

 

    

 

 

    

 

 

 

Derivative financial liabilities

        

Cross currency swap contracts

   $ 613,747       $ 4,177       $ 16,790   

Forward exchange contracts

     77,315         29,573         2,086   
  

 

 

    

 

 

    

 

 

 
   $ 691,062       $ 33,750       $ 18,876   
  

 

 

    

 

 

    

 

 

 

The Company entered into derivative contracts 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.

 

- 15 -


Outstanding forward exchange contracts consisted of the following:

 

          Contract Amount
     Maturity Date    (In Thousands)

September 30, 2014

     

Sell EUR/Buy US$

   October 2014    EUR3,580/US$4,568

Sell NT$/Buy JPY

   October 2014    NT$55,560/JPY200,000

Sell NT$/Buy US$

   October 2014    NT$1,613,044/US$53,600

Sell US$/Buy EUR

   October 2014    US$20,060/EUR15,800

Sell US$/Buy JPY

   October 2014    US$291,612/JPY31,673,300

Sell US$/Buy NT$

   October 2014    US$90,000/NT$2,713,420

Sell US$/Buy RMB

   October 2014 to November 2014    US$152,000/RMB936,402

December 31, 2013

     

Sell NT$/Buy EUR

   January 2014    NT$4,514,314/EUR110,000

Sell NT$/Buy US$

   January 2014    NT$683,749/US$22,800

Sell US$/Buy EUR

   January 2014    US$340,134/EUR248,000

Sell US$/Buy JPY

   January 2014    US$341,023/JPY35,754,801

Sell US$/Buy RMB

   January 2014 to February 2014    US$138,000/RMB841,492

September 30, 2013

     

Sell NT$/Buy JPY

   October 2013    NT$14,344/JPY48,000

Sell NT$/Buy US$

   October 2013    NT$639,824/US$21,650

Sell US$/Buy EUR

   October 2013    US$428,345/EUR317,000

Sell US$/Buy JPY

   October 2013    US$64,418/JPY6,352,719

Sell US$/Buy RMB

   October 2013 to December 2013    US$117,000/RMB718,331

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

September 30, 2014

        

October 2014

   NT$2,947,561/US$98,080    —      0.20%-0.33%

October 2014 to November 2014

   US$1,800,000/NT$54,200,290    0.19%-1.91%    —  

December 31, 2013

        

January 2014

   NT$1,639,215/US$55,080    —      1.03%-2.00%

September 30, 2013

        

October 2013

   NT$1,366,150/US$46,080    —      0.32%-0.60%

October 2013 to November 2013

   US$1,199,000/NT$35,692,006    0.31%-3.51%    —  

 

- 16 -


8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Publicly traded stocks

   $ 64,390,960       $ 59,481,569       $ 61,802,636   

Money market funds

     377         1,183         14,640   
  

 

 

    

 

 

    

 

 

 
   $ 64,391,337       $ 59,482,752       $ 61,817,276   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 64,391,337       $ 760,793       $ 672,179   

Noncurrent portion

     —           58,721,959         61,145,097   
  

 

 

    

 

 

    

 

 

 
   $ 64,391,337       $ 59,482,752       $ 61,817,276   
  

 

 

    

 

 

    

 

 

 

In the second quarter of 2014, the Company reclassified some publicly traded stocks from non-current asset to current asset since the lock-up period will end within a year.

 

9. HELD-TO-MATURITY FINANCIAL ASSETS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Current portion

        

Commercial paper

   $ —         $ 1,795,949       $ —     

Corporate bonds

     —           —           700,285   
  

 

 

    

 

 

    

 

 

 
   $ —         $ 1,795,949       $ 700,285   
  

 

 

    

 

 

    

 

 

 

 

10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Financial liabilities- current

        

Fair value hedges

        

Stock forward contracts

   $ 9,769,897       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Financial liabilities- noncurrent

        

Fair value hedges

        

Stock forward contracts

   $ 5,821       $ 5,481,616       $ 6,144,025   
  

 

 

    

 

 

    

 

 

 

The Company’s investments in publicly traded stocks are exposed to the risk of market price fluctuations. Accordingly, the Company entered into stock forward contracts to sell shares at a contracted price determined by specific percentage of the spot price on the trade date in a specific future period in order to hedge the fair value risk caused by changes in equity prices.

 

- 17 -


The outstanding stock forward contracts consisted of the following:

 

    

September 30,

2014

   

December 31,

2013

   

September 30,

2013

 

Contract amount (US$ in thousands)

   $ 53,962,363      $ 37,431,626      $ 18,012,420   
     (US$1,771,000     (US$1,256,095     (US$609,124

 

11. NOTES AND ACCOUNTS RECEIVABLE, NET

 

    

September 30,

2014

    December 31,
2013
   

September 30,

2013

 

Notes and accounts receivable

   $ 114,486,051      $ 72,136,514      $ 79,330,887   

Allowance for doubtful receivables

     (486,618     (486,588     (486,498
  

 

 

   

 

 

   

 

 

 

Notes and accounts receivable, net

   $ 113,999,433      $ 71,649,926      $ 78,844,389   
  

 

 

   

 

 

   

 

 

 

In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from the end of the month of when the invoice is issued. The allowance for doubtful receivables is assessed by reference to the collectability of receivables by performing the account aging analysis, historical experience and current financial condition of customers.

Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at the end of the reporting period is summarized in the following table. Notes and accounts receivable include amounts that are past due but for which the Company has not recognized a specific allowance for doubtful receivables after the assessment since there has not been a significant change in the credit quality of its customers and the amounts are still considered recoverable.

Aging analysis of notes and accounts receivable, net

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Neither past due nor impaired

   $ 103,429,104       $ 64,112,564       $ 71,148,159   

Past due but not impaired

        

Past due within 30 days

     10,570,329         7,537,362         7,696,230   
  

 

 

    

 

 

    

 

 

 
   $ 113,999,433       $ 71,649,926       $ 78,844,389   
  

 

 

    

 

 

    

 

 

 

Movements of the allowance for doubtful receivables

 

     Individually
Assessed for
Impairment
    Collectively
Assessed for
Impairment
    Total  

Balance at January 1, 2014

   $ 8,058      $ 478,530      $ 486,588   

Provision

     —          22,071        22,071   

Reversal

     (284     (21,787     (22,071

Effect of exchange rate changes

     —          30        30   
  

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ 7,774      $ 478,844      $ 486,618   
  

 

 

   

 

 

   

 

 

 

(Continued)

 

- 18 -


     Individually
Assessed for
Impairment
    Collectively
Assessed for
Impairment
    Total  

Balance at January 1, 2013

   $ 137,336      $ 342,876      $ 480,212   

Provision

     —          126,740        126,740   

Reversal

     (117,360     —          (117,360

Effect of deconsolidation of subsidiary

     (3,157     —          (3,157

Effect of exchange rate changes

     1,881        (1,818     63   
  

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 18,700      $ 467,798      $ 486,498   
  

 

 

   

 

 

   

 

 

 

(Concluded)

Aging analysis of accounts receivable that is individually determined as impaired

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Not past due

   $ —         $ 38       $ 7,557   

Past due 1-30 days

     —           276         6,832   

Past due 31-60 days

     —           80         4,576   

Past due 61-120 days

     —           158         —     

Past due over 121 days

     7,774         7,824         —     
  

 

 

    

 

 

    

 

 

 
   $ 7,774       $ 8,376       $ 18,965   
  

 

 

    

 

 

    

 

 

 

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of September 30, 2014, December 31, 2013 and September 30, 2013, the amount of the bank guarantee and other credit enhancements were nil, NT$318 thousand (US$11 thousand) and NT$265 thousand (US$9 thousand), respectively.

 

12. INVENTORIES

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Finished goods

   $ 5,043,513       $ 7,245,209       $ 6,696,080   

Work in process

     55,142,160         26,033,625         25,528,912   

Raw materials

     3,160,203         2,435,269         2,889,113   

Supplies and spare parts

     1,991,113         1,780,790         1,802,422   
  

 

 

    

 

 

    

 

 

 
   $ 65,336,989       $ 37,494,893       $ 36,916,527   
  

 

 

    

 

 

    

 

 

 

Write-down of inventories to net realizable value was included in the cost of revenue, which was as follows:

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2014      2013      2014      2013  

Inventory losses

   $ 691,557       $ 252,245       $ 2,215,165       $ 489,414   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 19 -


13. FINANCIAL ASSETS CARRIED AT COST

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Non-publicly traded stocks

   $ 1,678,365       $ 1,865,078       $ 1,844,469   

Mutual funds

     187,643         280,513         280,038   
  

 

 

    

 

 

    

 

 

 
   $ 1,866,008       $ 2,145,591       $ 2,124,507   
  

 

 

    

 

 

    

 

 

 

Since there is a wide range of estimated fair values of the Company’s investments in non-publicly traded stocks, the Company concludes that the fair value cannot be reliably measured and therefore should be measured at the cost less any impairment.

The Company recognized impairment loss on financial assets carried at cost in the amount of NT$176,920 thousand and NT$1,495,454 thousand for the three months ended September 30, 2014 and 2013, respectively; and of NT$176,920 thousand and NT$1,541,170 thousand for the nine months ended September 30, 2014 and 2013, respectively.

 

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments accounted for using the equity method consisted of the following:

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Associates

   $ 23,799,583       $ 24,823,807       $ 22,459,686   

Jointly controlled entities

     3,179,975         3,492,453         3,444,234   
  

 

 

    

 

 

    

 

 

 
   $ 26,979,558       $ 28,316,260       $ 25,903,920   
  

 

 

    

 

 

    

 

 

 

 

  a. Investments in associates

Associates consisted of the following:

 

         Place of   Carrying Amount     % of Ownership and Voting Rights
Held by the Company
 
Name of Associate    Principal Activities   Incorporation
and Operation
 

September 30,

2014

    December 31,
2013
   

September 30,

2013

   

September 30,

2014

    December 31,
2013
   

September 30,

2013

 

Vanguard International Semiconductor Corporation (VIS)

  

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

  Hsinchu,
Taiwan
  $ 9,636,451      $ 10,556,348      $ 10,107,307        33     39     39

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

  

Fabrication and supply of integrated circuits

  Singapore     7,606,755        7,457,733        6,870,266        39     39     39

Motech Industries, Inc. (Motech)

  

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

  New
Taipei,
Taiwan
    3,571,283        3,887,462        2,713,227        20     20     20

Xintec Inc. (Xintec)

  

Wafer level chip size packaging service

  Taoyuan,
Taiwan
    1,932,824        1,866,123        1,785,184        40     40     40

Global Unichip Corporation (GUC)

  

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

  Hsinchu,
Taiwan
    1,052,270        1,056,141        983,702        35     35     35
      

 

 

   

 

 

   

 

 

       
       $ 23,799,583      $ 24,823,807      $ 22,459,686         
      

 

 

   

 

 

   

 

 

       

 

- 20 -


In the second quarter of 2014, the Company sold 82,000 thousand common shares of VIS and recognized a disposal gain of NT$2,028,643 thousand. After the sale, the Company owned approximately 33.7% of the equity interest in VIS.

In the fourth quarter of 2012, the Company recognized an impairment loss in the amount of NT$1,186,674 thousand, due to the lower estimated recoverable amount compared with the carrying amount of its investments in stocks traded on the Taiwan GreTai Securities Market. Subsequently, as the recoverable amount of the aforementioned investments was higher than its carrying amount, the impairment loss of NT$1,186,674 thousand recognized in prior year was reversed in the fourth quarter of 2013.

Since TSMC did not participate in Mcube Inc.’s issuance of new shares in the third quarter of 2013, the Company’s percentage of ownership in Mcube Inc. decreased to 18%. As a result, the Company evaluated and concluded that the Company no longer exercises significant influence over Mcube Inc. Therefore Mcube Inc. is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost. The Company also measured the fair value of retained interest in Mcube Inc. when the significant influence was lost, which has no difference with the carrying amount; accordingly, the Company did not recognize any gain or loss.

 

  b. Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

          Place of    Carrying Amount      % of Ownership and Voting Rights
Held by the Company
 
Name of Jointly Controlled Entity    Principal Activities    Incorporation
and Operation
  

September 30,

2014

     December 31,
2013
    

September 30,

2013

    

September 30,

2014

    December 31,
2013
   

September 30,

2013

 

VisEra Holding Company (VisEra Holding)

  

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

   Cayman
Islands
   $ 3,179,975       $ 3,492,453       $ 3,444,234         49     49     49
        

 

 

    

 

 

    

 

 

        

 

15. PROPERTY, PLANT AND EQUIPMENT

 

     Land and Land
Improvements
    Buildings     Machinery and
Equipment
    Office Equipment     Assets under
Finance Leases
     Equipment under
Installation and
Construction in
Progress
    Total  

Cost

               

Balance at January 1, 2014

   $ 3,986,909      $ 229,182,736      $ 1,413,919,794      $ 22,062,032      $ 804,430       $ 272,173,793      $ 1,942,129,694   

Additions

     —          36,959,513        315,209,803        5,289,730        —           (183,863,766     173,595,280   

Disposals or retirements

     —          (1,140     (978,661     (576,042     —           —          (1,555,843

Reclassification

     —          (1,996     1,996        —          —           —          —     

Effect of exchange rate changes

     17,423        373,621        1,403,525        35,457        12,041         13,347        1,855,414   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2014

   $ 4,004,332      $ 266,512,734      $ 1,729,556,457      $ 26,811,177      $ 816,471       $ 88,323,374      $ 2,116,024,545   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Accumulated depreciation and impairment

               

Balance at January 1, 2014

   $ 404,192      $ 125,234,166      $ 1,009,213,689      $ 14,225,771      $ 385,963       $ —        $ 1,149,463,781   

Additions

     20,608        11,526,796        128,094,234        2,246,814        31,367         —          141,919,819   

Disposals or retirements

     —          (418     (884,428     (575,946     —           —          (1,460,792

Impairment

     —          —          239,864        —          —           —          239,864   

Reclassification

     —          (532     532        —          —           —          —     

Effect of exchange rate changes

     9,325        261,933        1,239,751        34,697        6,288         —          1,551,994   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2014

   $ 434,125      $ 137,021,945      $ 1,137,903,642      $ 15,931,336      $ 423,618       $ —        $ 1,291,714,666   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amounts at January 1, 2014

   $ 3,582,717      $ 103,948,570      $ 404,706,105      $ 7,836,261      $ 418,467       $ 272,173,793      $ 792,665,913   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amounts at September 30, 2014

   $ 3,570,207      $ 129,490,789      $ 591,652,815      $ 10,879,841      $ 392,853       $ 88,323,374      $ 824,309,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cost

               

Balance at January 1, 2013

   $ 1,527,124      $ 197,411,851      $ 1,279,893,177      $ 20,067,943      $ 766,732       $ 119,063,976      $ 1,618,730,803   

Additions

     3,212,000        30,371,814        127,162,251        3,006,548        —           64,777,969        228,530,582   

Disposals or retirements

     —          —          (2,094,599     (506,366     —           —          (2,600,965

Reclassification

     —          3,797        —          —          —           —          3,797   

Effect of deconsolidation of subsidiary

     (772,029     (986,205     (5,630,854     (1,055,809     —           (1,632,860     (10,077,757

Effect of exchange rate changes

     13,860        586,240        1,628,558        29,489        24,593         2,894        2,285,634   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2013

   $ 3,980,955      $ 227,387,497      $ 1,400,958,533      $ 21,541,805      $ 791,325       $ 182,211,979      $ 1,836,872,094   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Accumulated depreciation and impairment

               

Balance at January 1, 2013

   $ 367,369      $ 111,801,731      $ 875,510,879      $ 13,160,567      $ 328,069       $ —        $ 1,001,168,615   

Additions

     20,332        9,642,611        101,931,987        1,774,915        30,936         —          113,400,781   

Disposals or retirements

     —          —          (2,024,038     (506,117     —           —          (2,530,155

Effect of deconsolidation of subsidiary

     —          (226,908     (3,656,326     (599,483     —           —          (4,482,717

Effect of exchange rate changes

     6,642        302,058        1,257,708        22,729        10,409         —          1,599,546   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2013

   $ 394,343      $ 121,519,492      $ 973,020,210      $ 13,852,611      $ 369,414       $ —        $ 1,109,156,070   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amounts at September 30, 2013

   $ 3,586,612      $ 105,868,005      $ 427,938,323      $ 7,689,194      $ 421,911       $ 182,211,979      $ 727,716,024   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

- 21 -


The significant part of the Company’s buildings includes main plants, mechanical and electrical power equipment and clean rooms, and the related depreciation is calculated using the estimated useful lives of 20 years, 10 years and 10 years, respectively.

In the second quarter of 2014, the Company recognized impairment losses of NT$239,864 thousand under other operating segments since the carrying amount of some of machinery and equipment is expected to be unrecoverable. Such impairment losses were included in other operating income and expenses for the nine months ended September 30, 2014.

There was no capitalization of borrowing costs for the nine months ended September 30, 2014 and 2013.

 

16. INTANGIBLE ASSETS

 

     Goodwill      Technology
License Fees
    Software and
System Design
Costs
    Patent and
Others
    Total  

Cost

           

Balance at January 1, 2014

   $ 5,627,517       $ 4,444,828      $ 17,086,805      $ 3,729,396      $ 30,888,546   

Additions

     —           875,891        711,811        685,382        2,273,084   

Retirements

     —           —          (51,405     —          (51,405

Effect of exchange rate changes

     91,276         (1,491     2,019        2,003        93,807   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ 5,718,793       $ 5,319,228      $ 17,749,230      $ 4,416,781      $ 33,204,032   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization

           

Balance at January 1, 2014

   $ —         $ 3,341,667      $ 13,439,135      $ 2,617,361      $ 19,398,163   

Additions

     —           314,529        1,102,788        496,922        1,914,239   

Retirements

     —           —          (51,405     —          (51,405

Effect of exchange rate changes

     —           (1,491     1,879        398        786   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ —         $ 3,654,705      $ 14,492,397      $ 3,114,681      $ 21,261,783   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at January 1, 2014

   $ 5,627,517       $ 1,103,161      $ 3,647,670      $ 1,112,035      $ 11,490,383   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at September 30, 2014

   $ 5,718,793       $ 1,664,523      $ 3,256,833      $ 1,302,100      $ 11,942,249   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Cost

           

Balance at January 1, 2013

   $ 5,523,707       $ 4,590,548      $ 15,095,421      $ 3,094,664      $ 28,304,340   

Additions

     —           —          1,809,264        287,840        2,097,104   

Retirements

     —           —          (17,486     (23,549     (41,035

Reclassification

     —           (29,565     (110,746     101,007        (39,304

Effect of deconsolidation of subsidiary

     —           (113,340     (25,335     (42,089     (180,764

Effect of exchange rate changes

     72,612         (1,164     3,498        3,662        78,608   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 5,596,319       $ 4,446,479      $ 16,754,616      $ 3,421,535      $ 30,218,949   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization

           

Balance at January 1, 2013

   $ —         $ 3,128,655      $ 12,126,479      $ 2,089,637      $ 17,344,771   

Additions

     —           211,287        994,698        423,497        1,629,482   

Retirements

     —           —          (17,214     (23,549     (40,763

Reclassification

     —           —          (5,942     —          (5,942

Effect of deconsolidation of subsidiary

     —           (66,587     (12,661     (25,195     (104,443

Effect of exchange rate changes

     —           (1,164     3,131        597        2,564   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ —         $ 3,272,191      $ 13,088,491      $ 2,464,987      $ 18,825,669   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at September 30, 2013

   $ 5,596,319       $ 1,174,288      $ 3,666,125      $ 956,548      $ 11,393,280   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rate of 8.50% and 9.00% in its test of impairment as of December 31, 2013 and 2012, respectively, to reflect the relevant specific risk in the cash-generating unit.

 

- 22 -


For the nine months ended September 30, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

17. OTHER ASSETS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Tax receivable

   $ 1,787,749       $ 1,781,376       $ 1,471,795   

Prepaid expenses

     1,070,833         1,081,957         1,258,358   

Long-term receivable

     537,880         820,000         796,400   

Others

     741,604         770,468         630,160   
  

 

 

    

 

 

    

 

 

 
   $ 4,138,066       $ 4,453,801       $ 4,156,713   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 2,864,405       $ 2,984,224       $ 2,740,765   

Noncurrent portion

     1,273,661         1,469,577         1,415,948   
  

 

 

    

 

 

    

 

 

 
   $ 4,138,066       $ 4,453,801       $ 4,156,713   
  

 

 

    

 

 

    

 

 

 

 

18. SHORT-TERM LOANS

 

    

September 30,

2014

    

December 31,

2013

    

September 30,

2013

 

Unsecured loans

        

Amount

   $ 35,883,358       $ 15,645,000       $ 18,053,096   
  

 

 

    

 

 

    

 

 

 

Original loan content

        

US$ (in thousands)

   $ 1,147,400       $ 525,000       $ 610,500   

EUR (in thousands)

     24,000         —           —     

Annual interest rate

     0.35%-0.51%         0.38%-0.42%         0.38%-0.40%   

Maturity date

    
 
Due by
November 2014
  
  
    

 

Due in

January 2014

  

  

    

 

Due in

October 2013

  

  

 

19. PROVISIONS

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Sales returns and allowances

   $ 7,677,524       $ 7,603,781       $ 6,720,214   

Warranties

     16,148         10,452         7,344   
  

 

 

    

 

 

    

 

 

 
   $ 7,693,672       $ 7,614,233       $ 6,727,558   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 7,677,524       $ 7,603,781       $ 6,720,214   

Noncurrent portion (classified under other noncurrent liabilities)

     16,148         10,452         7,344   
  

 

 

    

 

 

    

 

 

 
   $ 7,693,672       $ 7,614,233       $ 6,727,558   
  

 

 

    

 

 

    

 

 

 

 

- 23 -


    

Sales Returns

and Allowances

    Warranties     Total  

Nine months ended September 30, 2014

      

Balance, beginning of period

   $ 7,603,781      $ 10,452      $ 7,614,233   

Provision

     5,747,340        7,416        5,754,756   

Payment

     (5,680,243     (1,227     (5,681,470

Effect of exchange rate changes

     6,646        (493     6,153   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 7,677,524      $ 16,148      $ 7,693,672   
  

 

 

   

 

 

   

 

 

 

Nine months ended September 30, 2013

      

Balance, beginning of period

   $ 6,038,003      $ 4,891      $ 6,042,894   

Provision

     3,798,683        3,687        3,802,370   

Payment

     (3,086,482     (1,361     (3,087,843

Effect of deconsolidation of subsidiary

     (37,748     —          (37,748

Effect of exchange rate changes

     7,758        127        7,885   
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 6,720,214      $ 7,344      $ 6,727,558   
  

 

 

   

 

 

   

 

 

 

Provisions for sales returns and allowances are estimated based on historical experience, management judgment, and any known factors that would significantly affect the returns and allowances, and are recognized as a reduction of revenue in the same period of the related product sales.

The provision for warranties represents the present value of the Company’s best estimate of the future outflow of the economic benefits that will be required under the Company’s obligations for warranties. The estimate has been made on the basis of historical warranty trends of business and may vary as a result of new materials, altered manufacturing processes or other events affecting product quality.

 

20. BONDS PAYABLE

 

    

September 30,

2014

    December 31,
2013
   

September 30,

2013

 

Noncurrent portion

      

Domestic unsecured bonds

   $ 166,200,000      $ 166,200,000      $ 166,200,000   

Overseas unsecured bonds

     45,705,000        44,700,000        44,356,500   
  

 

 

   

 

 

   

 

 

 
     211,905,000        210,900,000        210,556,500   

Less: Discounts on bonds payable

     (108,195     (132,375     (140,066
  

 

 

   

 

 

   

 

 

 
   $ 211,796,805      $ 210,767,625      $ 210,416,434   
  

 

 

   

 

 

   

 

 

 

The major terms of overseas unsecured bonds are as follows:

 

Issuance Period   

Total Amount
(US$

in Thousands)

     Coupon Rate    

Repayment and Interest

Payment

April 2013 to April 2016

   $ 350,000         0.95  

Bullet repayment; interest payable semi-annually

April 2013 to April 2018

     1,150,000         1.625  

The same as above

 

- 24 -


21. EQUITY

 

  a. Capital stock

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Authorized shares (in thousands)

     28,050,000         28,050,000         28,050,000   
  

 

 

    

 

 

    

 

 

 

Authorized capital

   $ 280,500,000       $ 280,500,000       $ 280,500,000   
  

 

 

    

 

 

    

 

 

 

Issued and paid shares (in thousands)

     25,929,375         25,928,617         25,928,391   
  

 

 

    

 

 

    

 

 

 

Issued capital

   $ 259,293,750       $ 259,286,171       $ 259,283,910   
  

 

 

    

 

 

    

 

 

 

A holder of issued common shares with par value of NT$10 per share is entitled to vote and to receive dividends.

The authorized shares include 500,000 thousand shares allocated for the exercise of employee stock options.

As of September 30, 2014, 1,076,263 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,381,317 thousand shares (one ADS represents five common shares).

 

  b. Capital surplus

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Additional paid-in capital

   $ 24,043,271       $ 24,017,363       $ 24,009,220   

From merger

     22,804,510         22,804,510         22,804,510   

From convertible bonds

     8,892,847         8,892,847         8,892,847   

From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries

     —           100,827         105,485   

From share of changes in equities of subsidiaries

     73,038         —           —     

From share of changes in equities of associates and joint venture

     131,078         43,024         29,599   

Donations

     55         55         55   
  

 

 

    

 

 

    

 

 

 
   $ 55,944,799       $ 55,858,626       $ 55,841,716   
  

 

 

    

 

 

    

 

 

 

Under the Company Law, 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, the surplus from treasury stock transactions and the differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of TSMC’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries may be used to offset a deficit.

 

- 25 -


  c. Retained earnings and dividend policy

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:

 

  1) Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals TSMC’s paid-in capital;

 

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

 

  3) 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;

 

  4) 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$5,104,785 thousand and NT$3,492,973 thousand for the three months ended September 30, 2014 and 2013, respectively; and NT$12,297,732 thousand and NT$9,637,364 thousand for the nine months ended September 30, 2014 and 2013, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently approved 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 approved for distribution to employees is in the form of common shares, 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 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.

Pursuant to existing regulations, the Company is required to set aside additional special capital reserve equivalent to the net debit balance of the other components of stockholders’ equity, such as the accumulated balance of foreign currency translation reserve, unrealized valuation gain/loss from available-for-sale financial assets, gain/loss from changes in fair value of hedging instruments in cash flow hedges, etc. For the subsequent decrease in the deduction amount to stockholders’ equity, any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

 

- 26 -


The appropriations of 2013 and 2012 earnings have been approved by TSMC’s shareholders in its meeting held on June 24, 2014 and on June 11, 2013, respectively. The appropriations and dividends per share were as follows:

 

     Appropriation of Earnings     Dividends Per Share
(NT$)
 
     For Fiscal     For Fiscal     For Fiscal      For Fiscal  
     Year 2013     Year 2012     Year 2013      Year 2012  

Legal capital reserve

   $ 18,814,679      $ 16,615,880        

Special capital reserve

     (2,785,741     (4,820,483     

Cash dividends to shareholders

     77,785,851        77,773,307      $ 3.00       $ 3.00   
  

 

 

   

 

 

      
   $ 93,814,789      $ 89,568,704        
  

 

 

   

 

 

      

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, had been approved by the shareholders in its meeting held on June 24, 2014 and June 11, 2013, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 18, 2014 and February 5, 2013 and the same amount had been charged against earnings of 2013 and 2012, respectively.

The information about the appropriations of TSMC’s profit sharing to employees and bonus to members of the Board of 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.

 

  d. Others

Changes in others were as follows:

 

     Nine Months Ended September 30, 2014  
     Foreign
Currency
Translation
Reserve
    Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
    Cash Flow
Hedges Reserve
    Total  

Balance, beginning of period

   $ (7,140,362   $ 21,310,781      $ (113   $ 14,170,306   

Exchange differences arising on translation of foreign operations

     3,189,480        —          —          3,189,480   

Other comprehensive income/losses reclassified to profit or loss upon disposal of subsidiaries

     84        —          —          84   

Changes in fair value of available-for-sale financial assets

     —          (178,550     —          (178,550

Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets

     —          (260,050     —          (260,050

Share of other comprehensive income of associates and joint venture

     (41,619     (486     (26     (42,131

(Continued)

 

- 27 -


     Nine Months Ended September 30, 2014  
     Foreign
Currency
Translation
Reserve
    Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
    Cash Flow
Hedges Reserve
    Total  

The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates

   $ 3,017      $ (2,920   $ —        $ 97   

Income tax effect

     —          (13,745     —          (13,745
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (3,989,400   $ 20,855,030      $ (139   $ 16,865,491   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Concluded)

 

     Nine Months Ended September 30, 2013  
     Foreign
Currency
Translation
Reserve
    Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
    Cash Flow
Hedges Reserve
    Total  

Balance, beginning of period

   $ (10,753,806   $ 7,973,321      $ —        $ (2,780,485

Exchange differences arising on translation of foreign operations

     2,334,714        —          —          2,334,714   

Changes in fair value of available-for-sale financial assets

     —          16,417,454        —          16,417,454   

Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets

     —          (1,229,330     —          (1,229,330

Share of other comprehensive income of associates and joint venture

     (20,214     380        (67     (19,901

The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates

     776        (44     —          732   

Income tax effect

     —          53,484        —          53,484   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ (8,438,530   $ 23,215,265      $ (67   $ 14,776,668   
  

 

 

   

 

 

   

 

 

   

 

 

 

The exchange differences arising on translation of foreign operation’s net assets from its functional currency to TSMC’s presentation currency are recognized directly in other comprehensive income and also accumulated in the foreign currency translation reserve.

Unrealized gain/loss on available-for-sale financial assets represents the cumulative gains or losses arising from the fair value measurement on available-for-sale financial assets that are recognized in other comprehensive income, excluding the amounts recognized in profit or loss for the effective portion from changes in fair value of the hedging instruments. When those available-for-sale financial assets have been disposed of or are determined to be impaired subsequently, the related cumulative gains or losses in other comprehensive income are reclassified to profit or loss.

The cash flow hedges reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses arising on changes in fair value of the hedging instruments that are recognized and accumulated in cash flow hedges reserve will be reclassified to profit or loss only when the hedge transaction affects profit or loss.

 

- 28 -


  e. Noncontrolling interests

 

     Nine Months Ended September 30  
     2014     2013  

Balance, beginning of period

   $ 266,830      $ 2,543,226   

Share of noncontrolling interests

    

Net loss

     (98,025     (104,746

Exchange differences arising on translation of foreign operations

     547        721   

Other comprehensive income/losses reclassified to profit or loss upon disposal of subsidiaries

     6        —     

Changes in fair value of available-for-sale financial assets

     977        2,741   

Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets

     (858     (10,111

Stock option compensation cost of subsidiary

     —          5,312   

Share of other comprehensive income of associates and joint venture

     (6     244   

The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates

     —          1   

Adjustments to share of changes in capital surplus of associations and joint venture

     (45     —     

From share of changes in equities of subsidiaries

     27,789        —     

From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries

     —          (64,752

Increase (decrease) in noncontrolling interests

     (58,571     198,279   

Effect of deconsolidation of subsidiary

     —          (2,273,153
  

 

 

   

 

 

 

Balance, end of period

   $ 138,644      $ 297,762   
  

 

 

   

 

 

 

 

22. SHARE-BASED PAYMENT

The Company did not issue employee stock option plans for the nine months ended September 30, 2014 and 2013. Information about TSMC’s outstanding employee stock options is described as follows:

 

  a. Optional exemption from applying IFRS 2 “Share-based Payment” (IFRS 2)

 

TSMC   

Number of
Stock

Options

(In Thousands)

   

Weighted-

average

Exercise Price

(NT$)

 

Nine months ended September 30, 2014

    

Balance, beginning of period

     1,763      $ 45.9   

Options exercised

     (758     44.2   
  

 

 

   

Balance, end of period

     1,005        47.2   
  

 

 

   

Balance exercisable, end of period

     1,005        47.2   
  

 

 

   

(Continued)

 

- 29 -


TSMC   

Number of
Stock

Options

(In Thousands)

   

Weighted-

average

Exercise Price

(NT$)

 

Nine months ended September 30, 2013

    

Balance, beginning of period

     5,945      $ 34.6   

Options exercised

     (3,956     28.9   
  

 

 

   

Balance, end of period

     1,989        45.9   
  

 

 

   

Balance exercisable, end of period

     1,989        45.9   
  

 

 

   

(Concluded)

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

Information about TSMC’s outstanding stock options was as follows:

 

September 30, 2014        December 31, 2013        September 30, 2013  
    Weighted-average               Weighted-average               Weighted-average  

Range of

Exercise Price

  Remaining
Contractual Life
       Range of
Exercise Price
     Remaining
Contractual Life
       Range of
Exercise Price
     Remaining
Contractual Life
 
(NT$)   (Years)        (NT$)      (Years)        (NT$)      (Years)  
$47.2     0.6         $ 43.2-$47.2         1.0         $ 38.0-$50.1         1.3   

 

  b. Application of IFRS 2

 

           Weighted-  
     Number of     average  
     Options     Exercise  
TSMC SSL    (In Thousands)     Price (NT$)  

Nine months ended September 30, 2013

    

Balance, beginning of period

     —        $ —     

Options granted

     17,000        10.0   

Options exercised

     (17,000     10.0   
  

 

 

   

Balance, end of period

     —          —     
  

 

 

   

Balance exercisable, end of period

     —          —     
  

 

 

   

Weighted-average fair value of options granted (NT$/share)

   $ —       
  

 

 

   

The grant date of aforementioned stock options was April 10, 2013. TSMC SSL used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

     2013 Stock
Option Plan
 

Valuation assumptions:

  

Stock price on grant date (NT$/share)

   $ 4.6   

Exercise price (NT$/share)

   $ 10.0   

Expected volatility

     51.68

Expected life

     31 days   

Risk free interest rate

     0.60

 

- 30 -


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 TWSE Optoelectronic Index.

The fair value of the aforementioned stock option was close to nil, and accordingly, no compensation cost was recognized.

 

23. NET REVENUE

The analysis of the Company’s net revenue was as follows:

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2014      2013      2014      2013  

Net revenue from sale of goods

   $ 208,916,301       $ 162,446,219       $ 539,796,082       $ 450,836,794   

Net revenue from royalties

     133,433         130,815         489,308         381,556   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 209,049,734       $ 162,577,034       $ 540,285,390       $ 451,218,350   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24. FINANCE COSTS

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2014      2013      2014      2013  

Interest expense

           

Corporate bonds

   $ 768,796       $ 699,980       $ 2,308,899       $ 1,734,861   

Bank loans

     42,285         26,668         90,292         98,788   

Finance leases

     4,871         4,940         14,681         14,637   

Others

     102         738         212         13,378   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 816,054       $ 732,326       $ 2,414,084       $ 1,861,664   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25. OTHER GAINS AND LOSSES

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2014     2013      2014     2013  

Gain on disposal of financial assets, net

         

Available-for-sale financial assets

   $ 126,888      $ 248,729       $ 260,908      $ 1,239,442   

Financial assets carried at cost

     13,125        27,626         65,819        32,199   

Gain (loss) on disposal of investments accounted for using equity method

     —          —           2,028,643        (733

Loss on disposal of subsidiary

     (90     —           (90     —     

Gain on deconsolidation of subsidiary

     —          —           —          293,578   

Settlement income

     —          —           —          451,050   

Other gains

     55,558        94,444         170,082        281,054   

(Continued)

 

- 31 -


     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2014     2013     2014     2013  

Net gain/(loss) on financial instruments at FVTPL

        

Held for trading

   $ (1,159,262   $ 484,154      $ (604,424   $ 333,860   

Impairment loss of financial assets

        

Financial assets carried at cost

     (176,920     (1,495,454     (176,920     (1,541,170

Fair value hedges

        

Loss from hedging instruments

     (4,053,902     (4,381,780     (4,643,145     (6,319,146

Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion

     4,085,446        4,331,786        4,163,555        5,989,610   

Other losses

     (1,426     (77,039     (154,978     (207,564
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (1,110,583   $ (767,534   $ 1,109,450      $ 552,180   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Concluded)

 

26. INCOME TAX

 

  a. Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2014     2013     2014     2013  

Current income tax expense (benefit)

        

Current tax expense recognized in the current period

   $ 9,012,932      $ 5,909,113      $ 26,135,926      $ 16,927,948   

Income tax adjustments on prior years

     —          23,357        404,566        (1,020,806

Other income tax adjustments

     48,759        (7,121     186,926        (19,405
  

 

 

   

 

 

   

 

 

   

 

 

 
     9,061,691        5,925,349        26,727,418        15,887,737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax expense (benefit)

        

Temporary differences

     (185,576     137,229        (239,624     1,178,359   

Investment tax credits and loss carryforward

     200,471        1,352,554        2,483,119        4,895,057   

Effect of deconsolidation of subsidiary

     —          —          —          (78,474
  

 

 

   

 

 

   

 

 

   

 

 

 
     14,895        1,489,783        2,243,495        5,994,942   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense recognized in profit or loss

   $ 9,076,586      $ 7,415,132      $ 28,970,913      $ 21,882,679   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

- 32 -


  b. Income tax expense recognized in other comprehensive income

 

     Three Months Ended
September 30
    Nine Months Ended
September 30
 
     2014      2013     2014      2013  

Deferred income tax expense (benefit)

          

Related to unrealized gain/loss on available-for-sale financial assets

   $ 2,622       $ (10,274   $ 13,745       $ (53,484
  

 

 

    

 

 

   

 

 

    

 

 

 

 

  c. Integrated income tax information

 

    

September 30,

2014

     December 31,
2013
    

September 30,

2013

 

Balance of the Imputation

        

Credit Account - TSMC

   $ 28,263,046       $ 15,242,724       $ 15,242,724   
  

 

 

    

 

 

    

 

 

 

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2013 and 2012 were 9.78% and 7.75 %, respectively.

Under the Rule No.10204562810 issued by the Ministry of Finance, when calculating the creditable ratio in the year of first-time adoption of Taiwan-IFRSs, the Company has included the adjustments to retained earnings from the effect of transition to Taiwan-IFRSs in the accumulated unappropriated earnings.

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.

All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated.

 

  d. Income tax examination

The tax authorities have examined income tax returns of TSMC through 2011. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

27. EARNINGS PER SHARE

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2014      2013      2014      2013  

Basic EPS

   $  2.94       $  2.00       $  7.09       $  5.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 2.94       $ 2.00       $ 7.09       $ 5.53   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 33 -


EPS is computed as follows:

 

     Amounts
(Numerator)
     Number of
Shares
(Denominator)
(In Thousands)
     EPS (NT$)  

Three months ended September 30,2014

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 76,335,237         25,929,375       $ 2.94   
        

 

 

 

Effect of dilutive potential common shares

     —           627      
  

 

 

    

 

 

    

Diluted EPS

        

Net income available to common shareholders of the parent (including effect of dilutive potential common shares)

   $ 76,335,237         25,930,002       $ 2.94   
  

 

 

    

 

 

    

 

 

 

Three months ended September 30,2013

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 51,951,943         25,928,322       $ 2.00   
        

 

 

 

Effect of dilutive potential common shares

     —           1,162      
  

 

 

    

 

 

    

Diluted EPS

        

Net income available to common shareholders of the parent (including effect of dilutive potential common shares)

   $ 51,951,943         25,929,484       $ 2.00   
  

 

 

    

 

&nb