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 2015

 

 

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 13, 2015     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, 2015 and 2014 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 (the “Company”) as of September 30, 2015 and 2014 and the related consolidated statements of comprehensive income for the three months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015 and 2014, as well as the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2015 and 2014. 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 10, 2015

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, 2015

(Reviewed)

   

December 31, 2014

(Adjusted and Audited)

   

September 30, 2014

(Adjusted and Reviewed)

   

January 1, 2014

(Adjusted and Audited)

 
    (Note 3)     (Note 3)     (Note 3)     (Note 3)  
    Amount     %     Amount     %     Amount     %     Amount     %  

ASSETS

               

CURRENT ASSETS

               

Cash and cash equivalents (Note 6)

  $ 515,731,398        33      $ 358,449,029        24      $ 225,884,318        17      $ 242,695,447        19   

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

    98,835               192,045               69,164               90,353          

Available-for-sale financial assets (Note 8)

    1,597,602               73,797,476        5        64,391,337        5        760,793          

Held-to-maturity financial assets (Note 9)

    7,362,003        1        4,485,593                             1,795,949          

Hedging derivative financial assets (Note 10)

    96,153                                                    

Notes and accounts receivable, net (Note 11)

    96,611,632        6        114,734,743        8        113,999,433        8        71,649,926        6   

Receivables from related parties (Note 32)

    511,008               312,955               532,767               291,708          

Other receivables from related parties (Note 32)

    128,490               178,625               161,962               221,576          

Inventories (Note 12)

    65,066,214        4        66,337,971        5        65,336,989        5        37,494,893        3   

Noncurrent assets held for sale (Note 30)

                  944,208                                      

Other financial assets (Note 33)

    3,613,680               3,476,884               2,989,824               501,785          

Other current assets (Note 17)

    2,844,481               3,656,110               2,864,405               2,984,224          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    693,661,496        44        626,565,639        42        476,230,199        35        358,486,654        28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT ASSETS

               

Available-for-sale financial assets (Note 8)

                                              58,721,959        5   

Held-to-maturity financial assets (Note 9)

    2,571,357                                                    

Financial assets carried at cost (Notes 13 and 31)

    1,507,749               1,800,542               1,866,008               2,145,591          

Investments accounted for using equity method (Note 14)

    26,935,985        2        28,255,737        2        26,985,165        2        28,321,241        2   

Property, plant and equipment (Note 15)

    830,825,109        53        818,198,801        55        824,309,879        61        792,665,913        63   

Intangible assets (Note 16)

    13,196,292        1        13,531,510        1        11,942,249        1        11,490,383        1   

Deferred income tax assets (Note 4)

    5,743,803               5,138,782               4,940,633        1        7,145,004        1   

Refundable deposits (Note 32)

    400,263               356,069               2,359,756               2,519,031          

Other noncurrent assets (Note 17)

    1,376,756               1,202,006               1,273,661               1,469,577          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent assets

    882,557,314        56        868,483,447        58        873,677,351        65        904,478,699        72   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,576,218,810        100      $ 1,495,049,086        100      $ 1,349,907,550        100      $ 1,262,965,353        100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

               

CURRENT LIABILITIES

               

Short-term loans (Note 18)

  $ 33,564,120        2      $ 36,158,520        2      $ 35,883,358        3      $ 15,645,000        1   

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

    179,363               486,214               691,062               33,750          

Hedging derivative financial liabilities (Note 10)

                  16,364,241        1        9,769,897        1                 

Accounts payable

    18,057,750        1        21,878,934        2        20,418,733        1        14,670,260        1   

Payables to related parties (Note 32)

    1,128,121               1,491,490               1,290,677               1,688,456          

Salary and bonus payable

    10,428,126        1        10,573,922        1        9,505,689        1        8,330,956        1   

Accrued compensation/profit sharing to employees and bonus to directors and supervisors (Notes 22 and 29)

    16,105,423        1        18,052,820        1        12,959,725        1        12,738,801        1   

Payables to contractors and equipment suppliers

    34,338,079        2        26,980,408        2        28,683,936        2        89,810,160        7   

Income tax payable (Note 4)

    24,464,158        2        28,616,574        2        19,412,953        1        22,563,286        2   

Provisions (Note 19)

    9,898,270        1        10,445,452        1        7,677,524        1        7,603,781        1   

Liabilities directly associated with noncurrent assets held for sale (Note 30)

                  219,043                                      

Long-term liabilities - current portion (Note 20)

    23,515,931        1                                             

Accrued expenses and other current liabilities (Note 21)

    30,010,029        2        29,746,011        2        25,954,613        2        16,693,484        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    201,689,370        13        201,013,629        14        172,248,167        13        189,777,934        15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT LIABILITIES

               

Hedging derivative financial liabilities (Note 10)

                                5,821               5,481,616          

Bonds payable (Note 20)

    191,970,754        12        213,673,818        14        211,796,805        15        210,767,625        17   

Long-term bank loans

    35,000               40,000               40,000               40,000          

Deferred income tax liabilities (Note 4)

    153,932               199,750                                      

Obligations under finance leases (Note 15)

                  802,108               773,743               776,230          

Net defined benefit liability (Note 4)

    6,611,531               6,567,782               6,838,838        1        6,801,663        1   

Guarantee deposits (Note 21)

    23,208,034        2        25,538,475        2        160,419               151,660          

Others (Note 19)

    1,555,245               885,192               798,772               694,901          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent liabilities

    223,534,496        14        247,707,125        16        220,414,398        16        224,713,695        18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    425,223,866        27        448,720,754        30        392,662,565        29        414,491,629        33   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

               

Capital stock (Note 22)

    259,303,805        16        259,296,624        17        259,293,750        19        259,286,171        21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital surplus (Note 22)

    56,298,728        4        55,989,922        4        55,944,799        4        55,858,626        4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings (Note 22)

               

Appropriated as legal capital reserve

    177,640,561        11        151,250,682        10        151,250,682        12        132,436,003        11   

Appropriated as special capital reserve

                                              2,785,741          

Unappropriated earnings

    644,577,881        41        553,914,592        37        473,751,730        35        383,670,168        30   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    822,218,442        52        705,165,274        47        625,002,412        47        518,891,912        41   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others (Note 22)

    13,138,191        1        25,749,291        2        16,865,491        1        14,170,306        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to shareholders of the parent

    1,150,959,166        73        1,046,201,111        70        957,106,452        71        848,207,015        67   

NONCONTROLLING INTERESTS (Note 22)

    35,778               127,221               138,533               266,709          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,150,994,944        73        1,046,328,332        70        957,244,985        71        848,473,724        67   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,576,218,810        100      $ 1,495,049,086        100      $ 1,349,907,550        100      $ 1,262,965,353        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
 
    2015
(Note 3)
    2014
(Adjusted)
(Note 3)
    2015
(Note 3)
    2014
(Adjusted)
(Note 3)
 
    Amount     %     Amount     %     Amount     %     Amount     %  

NET REVENUE (Notes 24, 32 and 37)

  $ 212,504,909        100      $ 209,049,734        100      $ 639,978,805        100      $ 540,285,390        100   

COST OF REVENUE (Notes 12, 29 and 32)

    110,188,424        52        103,471,256        49        328,509,564        51        273,136,725        51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    102,316,485        48        105,578,478        51        311,469,241        49        267,148,665        49   

REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

    19,271               (3,206            735               13,442          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

    102,335,756        48        105,575,272        51        311,469,976        49        267,162,107        49   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES (Notes 29 and 32)

               

Research and development

    16,486,365        8        15,207,282        8        49,880,041        8        40,885,511        7   

General and administrative

    4,296,668        2        4,612,193        2        13,126,301        2        14,676,344        3   

Marketing

    1,377,131        1        1,323,259        1        4,247,546        1        3,710,936        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    22,160,164        11        21,142,734        11        67,253,888        11        59,272,791        11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER OPERATING INCOME AND EXPENSES, NET (Notes 15,16 and 29)

    (1,786,668            (5,300            (2,131,983            (235,292       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS (Note 37)

    78,388,924        37        84,427,238        40        242,084,105        38        207,654,024        38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

               

Share of profits of associates and joint venture

    925,854               1,036,725               2,876,252               3,040,159        1   

Other income

    1,066,001               688,325               3,492,533        1        2,618,607          

Foreign exchange gain, net (Note 36)

    2,571,011        1        1,150,993        1        2,326,899               759,385          

Finance costs (Note 25)

    (792,941            (816,054            (2,370,284            (2,414,084       

Other gains and losses (Note 26)

    1,235,770        1        (1,110,583            21,375,777        3        1,109,450          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income and expenses

    5,005,695        2        949,406        1        27,701,177        4        5,113,517        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

    83,394,619        39        85,376,644        41        269,785,282        42        212,767,541        39   

INCOME TAX EXPENSE (Notes 4 and 27)

    8,077,319        4        9,076,017        4        36,071,170        5        28,969,205        5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    75,317,300        35        76,300,627        37        233,714,112        37        183,798,336        34   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS) (Notes 22 and 27)

               

Items that may be reclassified subsequently to profit or loss

               

Exchange differences arising on translation of foreign operations

    13,245,566        6        3,410,878        1        7,597,640        1        3,190,117        1   

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

    (3,622,659     (1     8,120               (20,455,403     (3     (438,481       

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

    (354,145            (36,019            239,665               (42,040       

Income tax benefit (expense) related to components of other comprehensive income that may be reclassified subsequently

    15,553               (2,622            (2,551            (13,745       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    9,284,315        5        3,380,357        1        (12,620,649     (2     2,695,851        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

  $ 84,601,615        40      $ 79,680,984        38      $ 221,093,463        35      $ 186,494,187        35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO:

               

Shareholders of the parent

  $ 75,329,224        35      $ 76,331,255        37      $ 233,736,649        37      $ 183,896,351        34   

Noncontrolling interests

    (11,924            (30,628            (22,537            (98,015       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 75,317,300        35      $ 76,300,627        37      $ 233,714,112        37      $ 183,798,336        34   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

               

Shareholders of the parent

  $ 84,613,016        40      $ 79,711,149        38      $ 221,125,549        35      $ 186,591,536        35   

Noncontrolling interests

    (11,401            (30,165            (32,086            (97,349       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 84,601,615        40      $ 79,680,984        38      $ 221,093,463        35      $ 186,494,187        35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Three Months Ended
September 30
    For the Nine Months Ended
September 30
 
    2015     2014     2015     2014  
   

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 28)

       

Basic earnings per share

  $          2.91      $          2.94      $          9.01      $          7.09   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

  $          2.91      $          2.94      $          9.01      $          7.09   
 

 

 

   

 

 

   

 

 

   

 

 

 

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
    Unrealized
Gain/Loss from
Available-
                               
   

Shares

(In Thousands)

    Amount     Capital Surplus     Legal Capital
Reserve
    Special Capital
Reserve
    Unappropriated
Earnings
    Total     Translation
Reserve
    for-sale
Financial Assets
    Cash Flow
Hedges Reserve
    Total     Total     Noncontrolling
Interests
    Total Equity  

BALANCE, JANUARY 1, 2015

    25,929,662      $ 259,296,624      $ 55,989,922      $ 151,250,682      $      $ 553,261,982      $ 704,512,664      $ 4,502,113      $ 21,247,483      $ (305   $ 25,749,291      $ 1,045,548,501      $ 127,246      $ 1,045,675,747   

Effect of retrospective application

                                       652,610        652,610                                    652,610        (25     652,585   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

ADJUSTED BALANCE, JANUARY 1, 2015

    25,929,662        259,296,624        55,989,922        151,250,682               553,914,592        705,165,274        4,502,113        21,247,483        (305     25,749,291        1,046,201,111        127,221        1,046,328,332   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Appropriations of prior year’s earnings

                           

Legal capital reserve

                         26,389,879               (26,389,879                                                        

Cash dividends to shareholders - NT$4.50 per share

                                       (116,683,481     (116,683,481                                 (116,683,481            (116,683,481
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

                         26,389,879               (143,073,360     (116,683,481                                 (116,683,481            (116,683,481
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the nine months ended September 30, 2015

                                       233,736,649        233,736,649                                    233,736,649        (22,537     233,714,112   

Other comprehensive income for the nine months ended September 30, 2015, net of income tax

                                                     7,507,537        (20,118,301     (336     (12,611,100     (12,611,100     (9,549     (12,620,649
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the nine months ended September 30, 2015

                                       233,736,649        233,736,649        7,507,537        (20,118,301     (336     (12,611,100     221,125,549        (32,086     221,093,463   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of stock from exercise of employee stock options

    718        7,181        130,974                                                                138,155               138,155   

Disposal of investments accounted for using equity method

                  (26,537                                                             (26,537            (26,537

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

                  230,222                                                                230,222        149        230,371   

From share of changes in equities of subsidiaries

                  (25,853                                                             (25,853     25,853          

Decrease in noncontrolling interests

                                                                                        (42,719     (42,719

Effect of disposal of subsidiary

                                                                                        (42,640     (42,640
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, September 30, 2015

    25,930,380      $ 259,303,805      $ 56,298,728      $ 177,640,561      $      $ 644,577,881      $ 822,218,442      $ 12,009,650      $ 1,129,182      $ (641   $ 13,138,191      $ 1,150,959,166      $ 35,778      $ 1,150,994,944   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   

Effect of retrospective application

                                       698,760        698,760                                    698,760        (121     698,639   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

ADJUSTED BALANCE, JANUARY 1, 2014

    25,928,617        259,286,171        55,858,626        132,436,003        2,785,741        383,670,168        518,891,912        (7,140,362     21,310,781        (113     14,170,306        848,207,015        266,709        848,473,724   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

                                       183,896,351        183,896,351                                    183,896,351        (98,015     183,798,336   

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

                                       183,896,351        183,896,351        3,150,962        (455,751     (26     2,695,185        186,591,536        (97,349     186,494,187   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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      $      $ 473,751,730      $ 625,002,412      $ (3,989,400   $ 20,855,030      $ (139   $ 16,865,491      $ 957,106,452      $ 138,533      $ 957,244,985   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
     2015     

2014

(Adjusted)

 

CASH FLOWS FROM OPERATING ACTIVITIES

     

Income before income tax

   $ 269,785,282       $ 212,767,541   

Adjustments for:

     

Depreciation expense

     163,884,425         141,919,819   

Amortization expense

     2,365,320         1,914,239   

Finance costs

     2,370,284         2,414,084   

Share of profits of associates and joint venture

     (2,876,252      (3,040,159

Interest income

     (2,875,858      (1,974,366

Loss (gain) on disposal of property, plant and equipment and intangible assets, net

     49,503         (13,482

Impairment loss on property, plant and equipment

     2,317,424         239,864   

Impairment loss on intangible assets

     58,514           

Impairment loss on financial assets

     132,015         176,920   

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

     (21,482,011      (260,908

Gain on disposal of financial assets carried at cost, net

     (82,128      (65,819

Gain on disposal of investments accounted for using equity method

     (2,305,323      (2,028,643

Loss from liquidation of subsidiaries

             90   

Realized gross profit on sales to associates

     (735      (13,442

Loss on foreign exchange, net

     2,492,659         1,200,859   

Dividend income

     (616,675      (644,241

Income from receipt of equity securities in settlement of trade receivables

             (1,211

Loss from hedging instruments

     137,124         4,643,145   

Loss (gain) arising from changes in fair value of available-for-sale financial assets in hedge effective portion

     298,751         (4,163,555

Gain from lease agreement modification

     (428,388        

Changes in operating assets and liabilities:

     

Derivative financial instruments

     (213,641      678,501   

Notes and accounts receivable, net

     15,780,788         (42,349,537

Receivables from related parties

     (198,053      (241,059

Other receivables from related parties

     51,115         4,897   

Inventories

     1,271,757         (27,842,096

Other financial assets

     1,049,004         (2,244,906

Other current assets

     925,665         137,831   

Accounts payable

     (3,106,992      5,726,261   

Payables to related parties

     (363,369      (397,779

Salary and bonus payable

     (145,796      1,174,733   

Accrued compensation/profit sharing to employees and bonus to directors and supervisors

     (1,947,397      220,924   

Accrued expenses and other current liabilities

     198,533         9,654,733   

Provisions

     (540,919      73,286   

Net defined benefit liability

     43,749         37,175   
  

 

 

    

 

 

 

(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  
     2015     

2014

(Adjusted)

 

Cash generated from operations

   $ 426,028,375       $ 297,703,699   

Income taxes paid

     (40,821,123      (29,848,815
  

 

 

    

 

 

 

Net cash generated by operating activities

     385,207,252         267,854,884   
  

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

     

Acquisitions of:

     

Available-for-sale financial assets

     (3,628      (91,405

Financial assets carried at cost

     (87,970      (3,765

Held-to-maturity financial assets

     (19,301,111      (1,396,723

Property, plant and equipment

     (172,993,344      (236,115,030

Intangible assets

     (2,657,499      (2,268,872

Proceeds from disposal or redemption of:

     

Available-for-sale financial assets

     53,990,941         663,433   

Held-to-maturity financial assets

     13,900,000         3,200,000   

Financial assets carried at cost

     357,993         68,919   

Investments accounted for using equity method

     3,962,848         3,471,883   

Property, plant and equipment

     70,433         163,250   

Cash received from other long-term receivables

             83,840   

Costs from entering into hedging transactions

     (495,348      (520,856

Interest received

     2,606,926         1,874,722   

Other dividends received

     616,675         644,241   

Dividends received from investments accounted for using equity method

     3,407,126         3,223,090   

Refundable deposits paid

     (267,994      (49,868

Refundable deposits refunded

     227,253         73,851   

Net cash inflow from disposal of subsidiary (Note 30)

     601,047           
  

 

 

    

 

 

 

Net cash used in investing activities

     (116,065,652      (226,979,290
  

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

     

Increase (decrease) in short-term loans

     (2,628,330      20,610,319   

Interest paid

     (2,704,853      (2,743,513

Guarantee deposits received

     557,639         13,213   

Guarantee deposits refunded

     (552,993      (4,981

Decrease in obligations under finance leases

     (29,098      (28,426

Proceeds from exercise of employee stock options

     33,891         33,487   

Cash dividends

     (116,683,481      (77,785,851

Decrease in noncontrolling interests

     (42,719      (58,571
  

 

 

    

 

 

 

Net cash used in financing activities

     (122,049,944      (59,964,323
  

 

 

    

 

 

 

(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  
     2015     

2014

(Adjusted)

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

   $ 10,109,235       $ 2,277,600   
  

 

 

    

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     157,200,891         (16,811,129

CASH AND CASH EQUIVALENTS INCLUDED IN NONCURRENT ASSETS HELD FOR SALE, BEGINNING OF PERIOD

     81,478           

CASH AND CASH EQUIVALENT ON CONSOLIDATED BALANCE SHEET, BEGINNING OF PERIOD

     358,449,029         242,695,447   
  

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 515,731,398       $ 225,884,318   
  

 

 

    

 

 

 

 

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, 2015 and 2014

(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 37.

 

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on November 10, 2015.

 

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

  a. Initial application of the amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the 2013 version of the International Financial Reporting Standards, International Accounting Standards (IASs), Interpretations of International Financial Reporting Standards (IFRIC), and Interpretations of IASs (SIC) (collectively, “IFRSs”) endorsed by the Financial Supervisory Commission (FSC) (collectively, “2013 Taiwan-IFRSs version”)

According to Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC, the 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.

The Company believes that as a result of the adoption of aforementioned 2013 Taiwan-IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the following items have impacted the Company’s consolidated financial statements.

 

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

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 for the Company’s annual consolidated financial statements are more extensive than in the previous standards.

 

- 8 -


  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 are extended by IFRS 13 to cover all assets and liabilities within its scope.

The measurement requirements of IFRS 13 shall be applied prospectively from January 1, 2015. Please refer to Note 31 for related disclosures.

 

  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 may not be reclassified subsequently to profit or loss; and (b) items that may 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 items that may not be reclassified subsequently to profit or loss 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 may be reclassified subsequently to profit or loss 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.

 

  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, require 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.

The impact on the current period is summarized as follows:

 

Impact on Assets, Liabilities and Equity   

September 30,

2015

 

Increase in investments accounted for using equity method

   $ 471   

Increase in deferred income tax assets

     2,060   
  

 

 

 

Increase in assets

   $ 2,531   
  

 

 

 

Increase in net defined benefit liability

   $ 17,169   
  

 

 

 

Increase in liabilities

   $ 17,169   
  

 

 

 

Decrease in retained earnings

   $ (14,638
  

 

 

 

Decrease in equity

   $ (14,638
  

 

 

 

 

- 9 -


                                                                   
Impact on Total Comprehensive Income   

Three Months
Ended

September 30,
2015

    

Nine Months
Ended

September 30,
2015

 

Increase in cost of revenue

   $ (3,658    $ (11,021

Increase in operating expense

     (2,065      (6,148

Increase in share of profit of associate and joint venture

     144         471   

Decrease in income tax expense

     686         2,060   
  

 

 

    

 

 

 

Decrease in net income and other comprehensive income attributable to shareholders of the parent

   $ (4,893    $ (14,638
  

 

 

    

 

 

 

The impact on the prior reporting periods is summarized as follows:

 

Impact on Assets, Liabilities and Equity    As Originally
Stated
     Adjustments
Arising
from Initial
Application
     Adjusted  

December 31, 2014

        

Noncurrent assets held for sale

   $ 945,356       $ (1,148    $ 944,208   

Investments accounted for using equity method

     28,251,002         4,735         28,255,737   

Deferred income tax assets

     5,227,128         (88,346      5,138,782   
     

 

 

    

Total effect on assets

      $ (84,759   
     

 

 

    

Liabilities directly associated with noncurrent assets held for sale

     220,191       $ (1,148      219,043   

Net defined benefit liability

     7,303,978         (736,196      6,567,782   
     

 

 

    

Total effect on liabilities

      $ (737,344   
     

 

 

    

Retained earnings

     704,512,664       $ 652,610         705,165,274   

Noncontrolling interests

     127,246         (25      127,221   
     

 

 

    

Total effect on equity

      $ 652,585      
     

 

 

    

September 30, 2014

        

Investments accounted for using the equity method

     26,979,558       $ 5,607         26,985,165   

Deferred income tax assets

     5,033,530         (92,897      4,940,633   
     

 

 

    

Total effect on assets

      $ (87,290   
     

 

 

    

Net defined benefit liability

     7,612,862       $ (774,024      6,838,838   
     

 

 

    

Total effect on liabilities

      $ (774,024   
     

 

 

    

Retained earnings

     624,315,567       $ 686,845         625,002,412   

Noncontrolling interests

     138,644         (111      138,533   
     

 

 

    

Total effect on equity

      $ 686,734      
     

 

 

    

(Continued)

 

- 10 -


                                                              
Impact on Assets, Liabilities and Equity    As Originally
Stated
     Adjustments
Arising from
Initial
Application
     Adjusted  

January 1, 2014

        

Investments accounted for using the equity method

   $ 28,316,260       $ 4,981       $ 28,321,241   

Deferred income tax assets

     7,239,609         (94,605      7,145,004   
     

 

 

    

Total effect on assets

      $ (89,624   
     

 

 

    

Net defined benefit liability

     7,589,926       $ (788,263      6,801,663   
     

 

 

    

Total effect on liabilities

      $ (788,263)      
     

 

 

    

Retained earnings

     518,193,152       $ 698,760         518,891,912   

Noncontrolling interests

     266,830         (121      266,709   
     

 

 

    

Total effect on equity

      $ 698,639      
     

 

 

    
           (Concluded
Impact on Total Comprehensive Income    As Originally
Stated
     Adjustments
Arising from
Initial
Application
     Adjusted  

Three months ended September 30, 2014

        

Cost of revenue

   $ (103,468,164    $ (3,092    $ (103,471,256

Operating expense

     (21,141,080      (1,654      (21,142,734

Share of the profit or loss of associates and joint ventures

     1,036,527         198         1,036,725   

Income tax expense

     (9,076,586      569         (9,076,017
     

 

 

    

Impact on net income for the period

      $ (3,979   
     

 

 

    

Impact on net income attributable to:

        

Shareholders of the parent

   $ 76,335,237       $ (3,982    $ 76,331,255   

Noncontrolling interests

     (30,631      3         (30,628
  

 

 

    

 

 

    

 

 

 
   $ 76,304,606       $ (3,979    $ 76,300,627   
  

 

 

    

 

 

    

 

 

 

Impact on total comprehensive income attributable to:

        

Shareholders of the parent

   $ 79,715,131       $ (3,982    $ 79,711,149   

Noncontrolling interests

     (30,168      3         (30,165
  

 

 

    

 

 

    

 

 

 
   $ 79,684,963       $ (3,979    $ 79,680,984   
  

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 11 -


                                                              
Impact on Total Comprehensive Income    As Originally
Stated
     Adjustments
Arising
from Initial
Application
     Adjusted  

Nine months ended September 30, 2014

        

Cost of revenue

   $ (273,127,447    $ (9,278    $ (273,136,725

Operating expense

     (59,267,830      (4,961      (59,272,791

Share of the profit or loss of associates and joint ventures

     3,039,533         626         3,040,159   

Income tax expense

     (28,970,913      1,708         (28,969,205
     

 

 

    

Impact on net income for the period

      $ (11,905   
     

 

 

    

Impact on net income attributable to:

        

Shareholders of the parent

   $ 183,908,266       $ (11,915    $ 183,896,351   

Noncontrolling interests

     (98,025      10         (98,015
  

 

 

    

 

 

    

 

 

 
   $ 183,810,241       $ (11,905    $ 183,798,336   
  

 

 

    

 

 

    

 

 

 

Impact on total comprehensive income attributable to:

        

Shareholders of the parent

   $ 186,603,451       $ (11,915    $ 186,591,536   

Noncontrolling interests

     (97,359      10         (97,349
  

 

 

    

 

 

    

 

 

 
   $ 186,506,092       $ (11,905    $ 186,494,187   
  

 

 

    

 

 

    

 

 

 

(Concluded)

 

  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

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

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

  

January 1, 2016

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

  

January 1, 2016

(Continued)

 

- 12 -


New, Revised or Amended Standards and Interpretations

  

Effective Date Issued by IASB (Note 1)

IFRS 15 Revenue from Contracts with Customers

  

January 1, 2018

Amendment to IAS 1 Disclosure Initiative

  

January 1, 2016

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

  

January 1, 2016

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.

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.

 

- 13 -


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 supersede 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.

Except for the aforementioned impact, as of the date that the accompanying consolidated financial statements were issued, 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.

 

- 14 -


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, 2014.

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, 2014.

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,

2015

    December 31,
2014
   

September 30,

2014

       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        a
 

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     98     98        a
 

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

 

Investing in new start-up technology companies

  Cayman Islands     98     98     98        a
 

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

 

Investing in new start-up technology companies

  Cayman Islands     99.5     99.5     99.5        a
 

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        b

(Continued)

 

- 15 -


           

Establishment

and Operating Location

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

September 30,

2015

    December 31,
2014
   

September 30,

2014

    Note

TSMC

 

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
99.8%
controlling
interest of
in TSMC
Solar.

c)

 

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 Solar

 

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

 

Selling and marketing of solar related products

  Delaware, U.S.A.     100     100     100   a), c)
 

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

 

Investing in solar related business

  Amsterdam, the Netherlands            100     100   a), d)
 

TSMC Solar Europe GmbH

 

Selling of solar related products and providing customer service

  Hamburg, Germany     100                 a), c), d)

TSMC Solar Europe

 

TSMC Solar Europe GmbH

 

Selling of solar related products and providing customer service

  Hamburg, Germany            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: TSMC and TSMC GN aggregately had a controlling interest of 94% in TSMC SSL as of December 31, 2014 and September 30, 2014. TSMC and TSMC GN completed the disposal of TSMC SSL in February 2015. Please refer to Note 30.
Note c: In August 2015, TSMC Solar ceased its manufacturing operations. In November 2015, the Board of Directors of TSMC approved that TSMC Solar will be incorporated into TSMC.
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. The liquidation procedure was completed in the second quarter of 2015 and TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, is held directly by TSMC Solar.

Retirement Benefits

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the Projected Unit Credit Method. Service cost (including current service cost), and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

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.

 

- 16 -


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.

 

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, 2014.

 

6. CASH AND CASH EQUIVALENTS

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Cash and deposits in banks

   $ 510,693,940       $ 352,761,240       $ 222,381,793   

Repurchase agreements collateralized by corporate bonds

     3,961,517         3,920,562         2,680,979   

Repurchase agreements collateralized by government bonds

     576,463         158,722         321,802   

Repurchase agreements collateralized by short-term commercial paper

     499,478         449,180           

Commercial paper

             1,159,325         499,744   
  

 

 

    

 

 

    

 

 

 
   $ 515,731,398       $ 358,449,029       $ 225,884,318   
  

 

 

    

 

 

    

 

 

 

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

 

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

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Derivative financial assets

        

Forward exchange contracts

   $ 73,638       $ 73,117       $ 31,324   

Cross currency swap contracts

     25,197         118,928         37,840   
  

 

 

    

 

 

    

 

 

 
   $ 98,835       $ 192,045       $ 69,164   
  

 

 

    

 

 

    

 

 

 

Derivative financial liabilities

        

Forward exchange contracts

   $ 179,363       $ 126,607       $ 77,315   

Cross currency swap contracts

             359,607         613,747   
  

 

 

    

 

 

    

 

 

 
   $ 179,363       $ 486,214       $ 691,062   
  

 

 

    

 

 

    

 

 

 

 

- 17 -


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.

Outstanding forward exchange contracts consisted of the following:

 

          Contract Amount
     Maturity Date    (In Thousands)

September 30, 2015

     

Sell EUR/Buy US$

   October 2015    EUR3,400/US$3,810

Sell NT$/Buy US$

   October 2015    NT$1,828,624/US$56,000

Sell US$/Buy EUR

   October 2015    US$25,692/EUR23,000

Sell US$/Buy NT$

   October 2015 to November 2015    US$845,000/NT$27,667,518

Sell US$/Buy RMB

   October 2015 to November 2015    US$188,000/RMB1,199,447

December 31, 2014

     

Sell EUR/Buy US$

   January 2015    EUR4,550/US$5,561

Sell NT$/Buy US$

   January 2015    NT$1,632,401/US$51,900

Sell US$/Buy EUR

   January 2015    US$29,450/EUR24,100

Sell US$/Buy JPY

   January 2015    US$226,003/JPY27,150,983

Sell US$/Buy NT$

   January 2015    US$170,000/NT$5,276,500

Sell US$/Buy RMB

   January 2015    US$181,000/RMB1,129,243

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

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, 2015

        

October 2015

   NT$3,216,025/US$98,500       0.18%

December 31, 2014

        

January 2015

   NT$2,511,905/US$80,080       0.05%-0.13%

January 2015

   US$1,460,000/NT$45,974,755    0.16%-1.92%   

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%   

 

- 18 -


8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Publicly traded stocks

   $ 1,597,196       $ 73,797,085       $ 64,390,960   

Money market funds

     406         391         377   
  

 

 

    

 

 

    

 

 

 
   $ 1,597,602       $ 73,797,476       $ 64,391,337   
  

 

 

    

 

 

    

 

 

 

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 ended within a year.

 

9. HELD-TO-MATURITY FINANCIAL ASSETS

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Corporate bonds/Bank debentures

   $ 7,539,404       $       $   

Commercial paper

     2,393,956         4,485,593           
  

 

 

    

 

 

    

 

 

 
   $ 9,933,360       $ 4,485,593       $   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 7,362,003       $ 4,485,593       $   

Noncurrent portion

     2,571,357                   
  

 

 

    

 

 

    

 

 

 
   $ 9,933,360       $ 4,485,593       $   
  

 

 

    

 

 

    

 

 

 

 

10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Financial assets- current

        

Fair value hedges

        

Stock forward contracts

   $ 96,153       $       $   
  

 

 

    

 

 

    

 

 

 

Financial liabilities- current

        

Fair value hedges

        

Stock forward contracts

   $       $ 16,364,241       $ 9,769,897   
  

 

 

    

 

 

    

 

 

 

Financial liabilities- noncurrent

        
        

Fair value hedges

        

Stock forward contracts

   $       $       $ 5,821   
  

 

 

    

 

 

    

 

 

 

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.

 

- 19 -


The outstanding stock forward contracts consisted of the following:

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Contract amount (US$ in thousands)

   $        814,135       $  56,172,570       $   53,962,363   
   (US$ 24,741    (US$ 1,771,000    (US$ 1,771,000

 

11. NOTES AND ACCOUNTS RECEIVABLE, NET

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Notes and accounts receivable

   $ 97,115,658       $ 115,221,473       $ 114,486,051   

Allowance for doubtful receivables

     (504,026      (486,730      (486,618
  

 

 

    

 

 

    

 

 

 

Notes and accounts receivable, net

   $ 96,611,632       $ 114,734,743       $ 113,999,433   
  

 

 

    

 

 

    

 

 

 

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, 

2015

     December 31,
2014
    

September 30,

2014

 

Neither past due nor impaired

   $ 87,742,721       $ 102,692,871       $ 103,429,104   

Past due but not impaired

        

Past due within 30 days

     8,585,713         12,041,872         10,570,329   

Past due 31-60 days

     283,198                   
  

 

 

    

 

 

    

 

 

 
   $ 96,611,632       $ 114,734,743       $ 113,999,433   
  

 

 

    

 

 

    

 

 

 

Movements of the allowance for doubtful receivables

 

                                                                                
     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
     Total  

Balance at January 1, 2015

   $ 8,093       $ 478,637       $ 486,730   

Provision

     28,593         20,670         49,263   

Reversal

             (32,832      (32,832

Effect of exchange rate changes

     775         90         865   
  

 

 

    

 

 

    

 

 

 

Balance at September 30, 2015

   $ 37,461       $ 466,565       $ 504,026   
  

 

 

    

 

 

    

 

 

 

(Continued)

 

- 20 -


                                                                                
     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   
  

 

 

    

 

 

    

 

 

 

(Concluded)

Aging analysis of accounts receivable that is individually determined as impaired

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Not past due

   $ 1,136       $       $   

Past due 1-30 days

     3,327                   

Past due 31-60 days

     4,207                   

Past due 61-120 days

     3,264                   

Past due over 121 days

     25,527         8,093         7,774   
  

 

 

    

 

 

    

 

 

 
   $ 37,461       $ 8,093       $ 7,774   
  

 

 

    

 

 

    

 

 

 

 

12. INVENTORIES

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Finished goods

   $ 10,138,370       $ 9,972,024       $ 5,043,513   

Work in process

     49,216,582         51,027,892         55,142,160   

Raw materials

     3,422,366         3,222,523         3,160,203   

Supplies and spare parts

     2,288,896         2,115,532         1,991,113   
  

 

 

    

 

 

    

 

 

 
   $ 65,066,214       $ 66,337,971       $ 65,336,989   
  

 

 

    

 

 

    

 

 

 

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

 

                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Inventory losses

   $ 97,971       $ 691,557       $ 1,465,692       $ 2,215,165   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 21 -


13. FINANCIAL ASSETS CARRIED AT COST

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Non-publicly traded stocks

   $ 1,215,789       $ 1,606,659       $ 1,678,365   

Mutual funds

     291,960         193,883         187,643   
  

 

 

    

 

 

    

 

 

 
   $ 1,507,749       $ 1,800,542       $ 1,866,008   
  

 

 

    

 

 

    

 

 

 

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 common stock of Alchip Technologies, Ltd. was listed on the Taiwan Stock Exchange Corporation in October 2014. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

 

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

                                                                                
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Associates

   $ 23,585,244       $ 24,968,071       $ 23,805,190   

Joint venture

     3,350,741         3,287,666         3,179,975   
  

 

 

    

 

 

    

 

 

 
   $ 26,935,985       $ 28,255,737       $ 26,985,165   
  

 

 

    

 

 

    

 

 

 

 

  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,

2015

    December 31,
2014
   

September 30,

2014

   

September 30,

2015

    December 31,
2014
   

September 30,

2014

 

Vanguard International Semiconductor Corporation (VIS)

 

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

 

Hsinchu, Taiwan

  $ 8,201,681      $ 10,105,485      $ 9,642,010        28     33     33

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

 

Fabrication and supply of integrated circuits

  Singapore     8,961,566        8,296,955        7,606,755        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

    3,102,751        3,408,945        3,571,283        18     20     20

Xintec Inc. (Xintec)

 

Wafer level chip size packaging service

 

Taoyuan, Taiwan

    2,240,223        2,053,982        1,932,853        35     40     40

Global Unichip Corporation (GUC)

 

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

 

Hsinchu, Taiwan

    1,079,023        1,102,704        1,052,289        35     35     35
     

 

 

   

 

 

   

 

 

       
      $ 23,585,244      $ 24,968,071      $ 23,805,190         
     

 

 

   

 

 

   

 

 

       

 

- 22 -


In March 2015, Xintec listed its shares on the R.O.C. Over-the-Counter (Taipei Exchange). Consequently, TSMC’s percentage of ownership over Xintec was diluted to approximately 35.4%. In April 2015, TSMC sold 2,172 thousand common shares of Xintec and recognized a disposal gain of NT$43,017 thousand in the second quarter of 2015. After the sale, TSMC owned approximately 34.6% of the equity interest in Xintec.

In both of the second quarters of 2015 and 2014, the Company sold 82,000 thousand common shares of VIS and respectively recognized a disposal gain of NT$2,263,539 thousand and NT$2,028,643 thousand. After the sale, the Company owned approximately 28.3% and 33.7% of the equity interest in VIS.

In June 2015, Motech merged with Tpcell Solar International Co., Ltd (TSi) with exchange of shares. As a result, the Company’s percentage of ownership over Motech decreased to 18.0%. Motech continues to be accounted for using equity method as the Company still retains significant influence over Motech.

The market prices of the investments accounted for using the equity method in publicly traded stocks calculated by the closing price at the end of the reporting period are summarized as follow. The closing price represents the quoted price in active markets, the level 1 fair value measurement.

 

                                                                                
Name of Associate   

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

VIS

   $ 17,315,536       $ 28,567,489       $ 24,361,568   
  

 

 

    

 

 

    

 

 

 

Motech

   $ 3,179,890       $ 4,242,769       $ 3,525,435   
  

 

 

    

 

 

    

 

 

 

GUC

   $ 2,712,565       $ 4,327,965       $ 4,267,270   
  

 

 

    

 

 

    

 

 

 

Xintec

   $ 3,256,518         
  

 

 

       

 

  b. Investments in joint venture

Joint venture consisted of the following:

 

        Place of   Carrying Amount     % of Ownership and Voting Rights
Held by the Company
 

Name of

Joint Venture

 

Principal

Activities

  Incorporation
and Operation
 

September 30,

2015

    December 31,
2014
   

September 30,

2014

   

September 30,

2015

    December 31,
2014
   

September 30,

2014

 

VisEra Holding Company (VisEra Holding)

 

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

 

Cayman Islands

  $ 3,350,741      $ 3,287,666      $ 3,179,975        49     49     49
     

 

 

   

 

 

   

 

 

       

In August 2015, the Board of Directors of TSMC approved the acquisition of OmniVision Technologies, Inc.’s (“OVT’s”) 49.1% ownership in VisEra Holding and 100% ownership in Taiwan OmniVision Investment Holding Co. Inc., at an amount not more than US$126 million. The acquisition of shares is pending upon the regulatory approval from related governments.

 

- 23 -


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, 2015

  $ 4,036,785      $ 269,163,850      $ 1,754,170,227      $ 27,960,835      $ 841,154      $ 109,334,736      $ 2,165,507,587   

Additions

           24,150,678        123,991,559        2,406,587               28,365,554        178,914,378   

Disposals or retirements

           (6,180     (1,908,608     (880,917                   (2,795,705

Lease agreement modification

                                (820,963            (820,963

Effect of exchange rate changes

    30,892        471,030        2,593,902        53,458        (13,076     26,861        3,163,067   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

  $ 4,067,677      $ 293,779,378      $ 1,878,847,080      $ 29,539,963      $ 7,115      $ 137,727,151      $ 2,343,968,364   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

             

Balance at January 1, 2015

  $ 459,140      $ 141,245,913      $ 1,188,388,402      $ 16,767,934      $ 447,397      $      $ 1,347,308,786   

Additions

    21,494        11,968,771        149,087,602        2,781,445        25,113               163,884,425   

Disposals or retirements

           (5,313     (1,832,675     (836,801                   (2,674,789

Lease agreement modification

                                (458,612            (458,612

Impairment

           278,057        2,028,627        10,740                      2,317,424   

Effect of exchange rate changes

    18,215        380,506        2,339,517        34,566        (6,783            2,766,021   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

  $ 498,849      $ 153,867,934      $ 1,340,011,473      $ 18,757,884      $ 7,115      $      $ 1,513,143,255   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at January 1, 2015

  $ 3,577,645      $ 127,917,937      $ 565,781,825      $ 11,192,901      $ 393,757      $ 109,334,736      $ 818,198,801   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at September 30, 2015

  $ 3,568,828      $ 139,911,444      $ 538,835,607      $ 10,782,079      $      $ 137,727,151      $ 830,825,109   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30, 2014

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 August 2015, TSMC Solar ceased its manufacturing operations. The Company recognized an impairment loss of NT$2,286,016 thousand since the carrying amounts of some of machinery and equipment, office equipment and mechanical and electrical power equipment were expected to be unrecoverable. Such impairment loss was included in other operating income and expenses for the nine months ended September 30, 2015.

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 was expected to be unrecoverable. Such impairment losses were included in other operating income and expenses for the six months ended June 30, 2014.

The Company had a building lease agreement with leasing terms from December 2003 to November 2018 and such lease was accounted for as a finance lease. In August 2015, the lease was determined to be an operating lease due to a modification on lease conditions; as such, the Company recognized a gain of NT$428,388 thousand from the modification. Such gain was included in other operating income and expenses for the nine months ended September 30, 2015.

 

- 24 -


16. INTANGIBLE ASSETS

 

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

Cost

              

Balance at January 1, 2015

   $ 5,888,813       $ 6,350,253       $ 18,697,098       $ 4,292,555       $ 35,228,719   

Additions

             1,068,240         416,977         440,090         1,925,307   

Retirements

                     (100,272              (100,272

Effect of exchange rate changes

     161,845         (6,542      2,281         1,753         159,337   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2015

   $ 6,050,658       $ 7,411,951       $ 19,016,084       $ 4,734,398       $ 37,213,091   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization

              

Balance at January 1, 2015

   $       $ 3,778,912       $ 14,861,146       $ 3,057,151       $ 21,697,209   

Additions

             693,671         1,245,215         426,434         2,365,320   

Retirements

                     (100,272              (100,272

Impairment

             58,130         384                 58,514   

Effect of exchange rate changes

             (6,542      2,073         497         (3,972
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2015

   $       $ 4,524,171       $ 16,008,546       $ 3,484,082       $ 24,016,799   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at January 1, 2015

   $ 5,888,813       $ 2,571,341       $ 3,835,952       $ 1,235,404       $ 13,531,510   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at September 30, 2015

   $ 6,050,658       $ 2,887,780       $ 3,007,538       $ 1,250,316       $ 13,196,292   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2014

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 8.40% and 8.50% in its test of impairment as of December 31, 2014 and 2013, respectively, to reflect the relevant specific risk in the cash-generating unit.

In August 2015, TSMC Solar ceased its manufacturing operation and the Company recognized an impairment loss of NT$58,514 thousand since the carrying amounts of technology license fees, software and system design costs were expected to be unrecoverable. Such impairment loss was included in other operating income and expenses for the nine months ended September 30, 2015.

 

- 25 -


17. OTHER ASSETS

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Tax receivable

   $ 1,671,508       $ 2,187,136       $ 1,787,749   

Prepaid expenses

     1,079,711         1,399,810         1,070,833   

Long-term receivable

     369,500         385,700         537,880   

Others

     1,100,518         885,470         741,604   
  

 

 

    

 

 

    

 

 

 
   $ 4,221,237       $ 4,858,116       $ 4,138,066   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 2,844,481       $ 3,656,110       $ 2,864,405   

Noncurrent portion

     1,376,756         1,202,006         1,273,661   
  

 

 

    

 

 

    

 

 

 
   $ 4,221,237       $ 4,858,116       $ 4,138,066   
  

 

 

    

 

 

    

 

 

 

 

18. SHORT-TERM LOANS

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Unsecured loans Amount

   $     33,564,120       $     36,158,520       $     35,883,358   
  

 

 

    

 

 

    

 

 

 

Original loan content

        

US$ (in thousands)

   $ 1,020,000       $ 1,140,000       $ 1,147,400   

EUR (in thousands)

                     24,000   

Annual interest rate

     0.38%-0.47%         0.38%-0.50%         0.35%-0.51%   

Maturity date

    
 
Due in
October 2015
  
  
    
 
Due in
January 2015
  
  
    
 
Due by
November 2014
  
  

 

19. PROVISIONS

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Sales returns and allowances

   $ 9,898,270       $ 10,445,452       $ 7,677,524   

Warranties

     46,805         19,828         16,148   
  

 

 

    

 

 

    

 

 

 
   $ 9,945,075       $ 10,465,280       $ 7,693,672   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 9,898,270       $ 10,445,452       $ 7,677,524   

Noncurrent portion (classified under other noncurrent liabilities)

     46,805         19,828         16,148   
  

 

 

    

 

 

    

 

 

 
   $ 9,945,075       $ 10,465,280       $ 7,693,672   
  

 

 

    

 

 

    

 

 

 

 

- 26 -


                                                                                
     Sales Returns
and Allowances
     Warranties      Total  

Nine months ended September 30, 2015

        

Balance, beginning of period

   $ 10,445,452       $ 19,828       $ 10,465,280   

Provision

     11,957,512         39,353         11,996,865   

Payment

     (12,526,015      (11,769      (12,537,784

Effect of exchange rate changes

     21,321         (607      20,714   
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 9,898,270       $ 46,805       $ 9,945,075   
  

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

 

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,

2015

     December 31,
2014
    

September 30,

2014

 

Domestic unsecured bonds

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

Overseas unsecured bonds

     49,359,000         47,577,000         45,705,000   
  

 

 

    

 

 

    

 

 

 
     215,559,000         213,777,000         211,905,000   

Less: Discounts on bonds payable

     (77,315      (103,182      (108,195

Less: Current portion

     (23,510,931                
  

 

 

    

 

 

    

 

 

 
   $ 191,970,754       $ 213,673,818       $ 211,796,805   
  

 

 

    

 

 

    

 

 

 

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

 

- 27 -


21. GUARANTEE DEPOSITS

 

    

September 30,

2015

    

December 31,

2014

    

September 30,

2014

 

Capacity guarantee

   $ 28,792,750       $ 30,132,100       $   

Others

     173,834         164,075         160,419   
  

 

 

    

 

 

    

 

 

 
   $ 28,966,584       $ 30,296,175       $ 160,419   
  

 

 

    

 

 

    

 

 

 

Current portion (classified under accrued expenses and other current liabilities)

   $ 5,758,550       $ 4,757,700       $   

Noncurrent portion

     23,208,034         25,538,475         160,419   
  

 

 

    

 

 

    

 

 

 
   $ 28,966,584       $ 30,296,175       $ 160,419   
  

 

 

    

 

 

    

 

 

 

Starting from the second quarter of 2015, some of guarantee deposits were refunded to customers by offsetting related accounts receivable.

 

22. EQUITY

 

  a. Capital stock

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

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)

     25,930,380         25,929,662         25,929,375   
  

 

 

    

 

 

    

 

 

 

Issued capital

   $ 259,303,805       $ 259,296,624       $ 259,293,750   
  

 

 

    

 

 

    

 

 

 

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, 2015, 1,072,645 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,363,225 thousand shares (one ADS represents five common shares).

 

  b. Capital surplus

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Additional paid-in capital

   $ 24,184,939       $ 24,053,965       $ 24,043,271   

From merger

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

From convertible bonds

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

From share of changes in equities of subsidiaries

     78,482         104,335         73,038   

From share of changes in equities of associates and joint venture

     337,895         134,210         131,078   

Donations

     55         55         55   
  

 

 

    

 

 

    

 

 

 
   $ 56,298,728       $ 55,989,922       $ 55,944,799   
  

 

 

    

 

 

    

 

 

 

 

- 28 -


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.

 

  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.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. Accordingly, the Company expects to make amendments to the Company’s Articles of Incorporation to be approved during the 2016 annual shareholders’ meeting. For information about the accrual basis of employees’ compensation or profit sharing to employees and bonus to directors for the three months ended September 30, 2015 and 2014, and the nine months ended September 30, 2015 and 2014, and the actual appropriations for the years ended December 31, 2014 and 2013, please refer to Employee benefits expense in Note 29.

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.

 

- 29 -


The appropriations of 2014 and 2013 earnings have been approved by TSMC’s shareholders in its meeting held on June 9, 2015 and on June 24, 2014, 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 2014      Year 2013      Year 2014      Year 2013  

Legal capital reserve

   $ 26,389,879       $ 18,814,679         

Special capital reserve

             (2,785,741      

Cash dividends to shareholders

     116,683,481         77,785,851       $ 4.50       $ 3.00   
  

 

 

    

 

 

       
   $ 143,073,360       $ 93,814,789         
  

 

 

    

 

 

       

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, 2015  
     Foreign
Currency
Translation
Reserve
     Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
     Cash Flow
Hedges Reserve
     Total  

Balance, beginning of period

   $ 4,502,113       $ 21,247,483       $ (305    $ 25,749,291   

Exchange differences arising on translation of foreign operations

     8,955,736                         8,955,736   

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

             (322,039              (322,039

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

     (1,358,840      (20,123,082              (21,481,922

Share of other comprehensive income of associates and joint venture

     (93,715      327,320         (347      233,258   

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

     4,356         2,051         11         6,418   

Income tax effect

             (2,551              (2,551
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 12,009,650       $ 1,129,182       $ (641    $ 13,138,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 30 -


                                                                                           
     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

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

- 31 -


    e. Noncontrolling interests

 

     Nine Months Ended September 30  
     2015      2014  

Balance, beginning of period

   $ 127,221       $ 266,709   

Share of noncontrolling interests

     

Net loss

     (22,537      (98,015

Exchange differences arising on translation of foreign operations

     744         547   

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

             6   

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

     (10,193      977   

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

     (89      (858

Share of other comprehensive income of associates and joint venture

     (14      (6

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

     3           

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

     149         (45

From share of changes in equities of subsidiaries

     25,853         27,789   

Decrease in noncontrolling interests

     (42,719      (58,571

Effect of disposal of subsidiary

     (42,640        
  

 

 

    

 

 

 

Balance, end of period

   $ 35,778       $ 138,533   
  

 

 

    

 

 

 

 

23. SHARE-BASED PAYMENT

The Company did not issue employee stock option plans for nine months ended September 30, 2015 and 2014. TSMC elected to take the optional exemption for its issued employee stock options from applying IFRS 2 “Share-based Payment.” The related information is as follows:

 

    

Number of
Stock

Options

(In Thousands)

    

Weighted-

average

Exercise
Price (NT$)

 

Nine months ended September 30, 2015

     

Balance, beginning of period

     718       $ 47.2   

Options exercised

     (718      47.2   
  

 

 

    

Balance, end of period

               
  

 

 

    

Balance exercisable, end of period

               
  

 

 

    

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   
  

 

 

    

 

- 32 -


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.

The employee stock options have been fully exercised in the second quarter of 2015.

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

 

December 31, 2014

 

September 30, 2014

Range of

Exercise Price

(NT$)

 

Weighted-average
Remaining

Contractual Life

(Years)

 

Range of

Exercise Price

(NT$)

 

Weighted-average

Remaining

Contractual Life

(Years)

$47.2

  0.4   $47.2   0.6

 

24. NET REVENUE

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

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Net revenue from sale of goods

   $ 212,380,151       $ 208,916,301       $ 639,586,536       $ 539,796,082   

Net revenue from royalties

     124,758         133,433         392,269         489,308   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 212,504,909       $ 209,049,734       $ 639,978,805       $ 540,285,390   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25. FINANCE COSTS

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Interest expense

           

Corporate bonds

   $       780,506       $       768,796       $       2,318,841       $       2,308,899   

Bank loans

     10,657         42,285         39,615         90,292   

Finance leases

     1,693         4,871         11,622         14,681   

Others

     85         102         206         212   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $       792,941       $ 816,054       $ 2,370,284       $ 2,414,084   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 33 -


26. OTHER GAINS AND LOSSES

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Gain on disposal of financial assets, net

           

Available-for-sale financial assets

   $ 3,839,644       $ 126,888       $ 21,482,011       $ 260,908   

Financial assets carried at cost

     11,531         13,125         82,128         65,819   

Gain on disposal of investments accounted for using equity method

                     2,305,323         2,028,643   

Loss on disposal of subsidiary

             (90              (90

Other gains

     37,358         55,558         64,767         170,082   

Net loss on financial instruments at FVTPL

           

Held for trading

     (2,423,547      (1,159,262      (1,862,869      (604,424

Impairment loss of financial assets

           

Financial assets carried at cost

     (132,015      (176,920      (132,015      (176,920

Fair value hedges

           

Gain/Loss from hedging instruments

     600,181         (4,053,902      (137,124      (4,643,145

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

     (597,942      4,085,446         (298,751      4,163,555   

Other losses

     (99,440      (1,426      (127,693      (154,978
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,235,770       $ (1,110,583    $ 21,375,777       $ 1,109,450   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27. 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
 
     2015      2014      2015      2014  

Current income tax expense

           

Current tax expense recognized in the current period

   $  8,557,492       $  9,012,932       $  37,422,822       $  26,135,926   

Income tax adjustments on prior years

     (185,523              (979,196      404,566   

Other income tax adjustments

     71,371         48,759         220,883         186,926   
  

 

 

    

 

 

    

 

 

    

 

 

 
     8,443,340         9,061,691         36,664,509         26,727,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 34 -


                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Deferred income tax expense (benefit)

           

Temporary differences

   $ (479,457    $ (186,145    $ (893,655    $ (241,332

Investment tax credits and loss carryforward

     113,436         200,471         300,316         2,483,119   
  

 

 

    

 

 

    

 

 

    

 

 

 
     (366,021      14,326         (593,339      2,241,787   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense recognized in profit or loss

   $ 8,077,319       $ 9,076,017       $ 36,071,170       $ 28,969,205   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

 

  b. Income tax expense recognized in other comprehensive income

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Deferred income tax benefit (expense)

           

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

   $ 15,553       $ (2,622    $ (2,551    $ (13,745
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  c. Integrated income tax information

 

                                                                    
    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Balance of the Imputation

        

Credit Account - TSMC

   $ 45,850,793       $ 35,353,150       $ 28,263,046   
  

 

 

    

 

 

    

 

 

 

The estimated creditable ratio for distribution of TSMC’s earnings of 2014 was 11.13%; however, effective from January 1, 2015, the creditable ratio for individual shareholders residing in the Republic of China will be half of the original creditable ratio according to the revised Article 66-6 of the Income Tax Law.

The actual creditable ratio for distribution of TSMC’s earnings of 2013 was 9.78%, which is calculated based on the Rule No.10204562810 issued by the Ministry of Finance to include the adjustments to retained earnings from the effect of transition to Taiwan-IFRSs in the accumulated unappropriated earnings in the year of first-time adoption of Taiwan-IFRSs.

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.

 

- 35 -


  d. Income tax examination

The tax authorities have examined income tax returns of TSMC through 2012. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

28. EARNINGS PER SHARE

 

                                                                                   
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Basic EPS

   $ 2.91       $ 2.94       $ 9.01       $ 7.09   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 2.91       $   2.94       $   9.01       $   7.09   
  

 

 

    

 

 

    

 

 

    

 

 

 

EPS is computed as follows:

 

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

Three months ended September 30, 2015

        

Basic/Diluted EPS

        

Net income available to common shareholders of the parent

   $ 75,329,224         25,930,380       $ 2.91   
  

 

 

    

 

 

    

 

 

 

Three months ended September 30, 2014

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 76,331,255         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)

   $ 76,331,255         25,930,002       $ 2.94   
  

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2015

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 233,736,649         25,930,257       $ 9.01   
        

 

 

 

Effect of dilutive potential common shares

             123      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 233,736,649         25,930,380       $ 9.01   
  

 

 

    

 

 

    

 

 

 

(Continued)

 

- 36 -


                                                                          
    

Amounts

(Numerator)

    

Number of

Shares

(Denominator)

(In Thousands)

     EPS (NT$)  

Nine months ended September 30, 2014

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 183,896,351         25,929,186       $ 7.09   
        

 

 

 

Effect of dilutive potential common shares

             796      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 183,896,351         25,929,982       $ 7.09   
  

 

 

    

 

 

    

 

 

 

(Concluded)

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

 

29. ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

                                                                                   
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

a. Depreciation of property, plant and equipment

           

Recognized in cost of revenue

   $ 51,504,491       $ 52,193,345       $ 152,693,473       $ 131,455,586   

Recognized in operating expenses

     3,828,916         3,381,809         11,172,287         10,445,568   

Recognized in other operating income and expenses

     6,222         6,222         18,665         18,665   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 55,339,629       $ 55,581,376       $ 163,884,425       $ 141,919,819   
  

 

 

    

 

 

    

 

 

    

 

 

 

b. Amortization of intangible assets

           

Recognized in cost of revenue

   $ 412,698       $ 346,780       $ 1,224,540       $ 1,000,578   

Recognized in operating expenses

     396,315         304,411         1,140,780         913,661   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 809,013       $ 651,191       $ 2,365,320       $ 1,914,239   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 37 -


     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

c. Research and development costs expensed as incurred

   $ 16,486,365       $ 15,207,282       $ 49,880,041       $ 40,885,511   
  

 

 

    

 

 

    

 

 

    

 

 

 

d. Employee benefits expenses

           

Post-employment benefits

           

Defined contribution plans

   $ 518,259       $ 450,150       $ 1,495,832       $ 1,293,418   

Defined benefit plans

     73,858         76,418         221,577         229,292   
  

 

 

    

 

 

    

 

 

    

 

 

 
     592,117         526,568         1,717,409         1,522,710   

Other employee benefits

     22,230,481         21,480,613         67,394,111         57,336,620   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 22,822,598       $ 22,007,181       $ 69,111,520       $ 58,859,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

Employee benefits expense summarized by function

           

Recognized in cost of revenue

   $ 13,276,664       $ 12,975,880       $ 40,147,247       $ 34,980,201   

Recognized in operating expenses

     9,545,934         9,031,301         28,964,273         23,879,129   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 22,822,598       $ 22,007,181       $ 69,111,520       $ 58,859,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

Under the Company Act as amended in May 2015, the Company’s Articles of Incorporation should stipulate a fixed amount or ratio of annual profit to be distributed as employees’ compensation. The Company expects to make amendments to the Company’s Articles of Incorporation to be approved during the 2016 annual shareholders’ meeting.

TSMC accrued employees’ compensation based on a percentage of net income before income tax, employees’ compensation and bonuses to members of the Board of Directors during the period, which amounted to NT$5,051,196 thousand for the three months ended September 30, 2015, and NT$15,672,486 thousand for the nine months ended September 30, 2015. TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,104,785 thousand for the three months ended September 30, 2014, and NT$12,297,732 thousand for the nine months ended September 30, 2014. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$17,645,966 thousand and NT$406,854 thousand in cash for 2014, respectively, and 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, had been approved by the shareholders in its meeting held on June 9, 2015 and June 24, 2014, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 10, 2015 and February 18, 2014 and the same amount had been charged against earnings of 2014 and 2013, 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.

 

- 38 -


30. DISPOSAL OF SUBSIDIARY

In January 2015, the Board of Directors of TSMC approved a sale of TSMC SSL common shares of 565,480 thousand held by TSMC and TSMC Guang Neng to Epistar Corporation (EPISTAR). Accordingly, the Company reclassified TSMC SSL as a disposal group held for sale in its consolidated balance sheet as of December 31, 2014. The expected fair value less costs to sell is substantially lower than the carrying amount of the related net assets of TSMC SSL; as such, impairment losses of NT$734,467 thousand were recognized under other operating gains and losses in the Company’s consolidated statement of comprehensive income for the year ended December 31, 2014. The transaction was completed in February 2015. For the major classes of assets and liabilities classified as held for sale, please refer to Note 13 to the consolidated financial statements for the year ended December 31, 2014.

 

  a. Consideration received from the disposal

 

                     

Total consideration received

   $ 825,000   

Expenditure associated with consideration received

     (142,475
  

 

 

 

Net consideration received

   $ 682,525   
  

 

 

 

 

  b. Analysis of assets and liabilities over which the control was lost

 

                     

Assets

  

Cash and cash equivalents

   $ 81,478   

Inventories

     28,519   

Other current assets

     91,331   

Property, plant and equipment

     643,699   

Intangible assets

     47,373   

Others

     51,808   

Liabilities

  

Salary and bonus payable

     (38,151

Accrued expenses and other current liabilities

     (68,132

Net defined benefit liability

     (35,845

Others

     (76,915
  

 

 

 

Net assets disposed of

   $ 725,165   
  

 

 

 

 

  c. Gain/loss on disposal of subsidiary

 

                     

Net consideration received

   $ 682,525   

Net assets disposed of

     (725,165

Noncontrolling interests

     42,640   
  

 

 

 

Gain/loss on disposal of subsidiary

   $   
  

 

 

 

 

  d. Net cash inflow arising from disposal of subsidiary

 

                     

Net consideration received

   $ 682,525   

Less: balance of cash and cash equivalents disposed of

     81,478   
  

 

 

 
   $ 601,047   
  

 

 

 

 

- 39 -


31. FINANCIAL INSTRUMENTS

 

  a. Categories of financial instruments

 

           

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Financial assets

           

FVTPL

           

Held for trading derivatives

     a    $ 98,835       $ 200,364       $ 69,164   

Available-for-sale financial assets

     b      3,105,351         75,598,018         66,257,345   

Held-to-maturity financial assets

             9,933,360         4,485,593           

Derivative financial instruments in designated hedge accounting relationships

             96,153                   

Loans and receivables

           

Cash and cash equivalents

     a      515,731,398         358,530,507         225,884,318   

Notes and accounts receivables (including related parties)

     a      97,122,640         115,057,965         114,532,200   

Other receivables

     a      4,111,670         4,051,452         3,405,988   

Refundable deposits

     a      400,263         356,582         2,359,756   
     

 

 

    

 

 

    

 

 

 
      $ 630,599,670       $ 558,280,481       $ 412,508,771   
     

 

 

    

 

 

    

 

 

 

Financial liabilities

           

FVTPL

           

Held for trading derivatives

     a    $ 179,363       $ 486,614       $ 691,062   

Derivative financial instruments in designated hedge accounting relationships

                     16,364,241         9,775,718   

Amortized cost

           

Short-term loans

             33,564,120         36,158,520         35,883,358   

Accounts payable (including related parties)

     a      19,185,871         23,379,762         21,709,410   

Payables to contractors and equipment suppliers

     a      34,338,079         26,983,424         28,683,936   

Accrued expenses and other current liabilities

     a      20,950,233         22,248,135         22,820,251   

Bonds payable (including long-term liabilities - current portion)

             215,481,685         213,673,818         211,796,805   

Long-term bank loans (including long-term liabilities - current portion)

             40,000         40,000         40,000   

(Continued)

 

- 40 -


           

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Other long-term payables (classified under accrued expenses and other current liabilities and other noncurrent liabilities)

           $ 18,000       $ 36,000       $ 36,000   

Guarantee deposits (including those classified under accrued expenses and other current liabilities)

     a      28,966,584         30,297,600         160,419   
     

 

 

    

 

 

    

 

 

 
      $ 352,723,935       $ 369,668,114       $ 331,596,959   
     

 

 

    

 

 

    

 

 

 

(Concluded)

Note a: Including those classified to noncurrent assets held for sale or liabilities directly associated with noncurrent assets held for sale as of December 31, 2014.

Note b:     Including financial assets carried at cost.

 

  b. Financial risk management objectives

The Company seeks to ensure sufficient cost-efficient funding readily available when needed. The Company manages its exposure to foreign currency risk, interest rate risk, equity price risk, credit risk and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by Audit Committees and/or Board of Directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, Corporate Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

 

  c. Market risk

The Company is exposed to the market risks arising from changes in foreign exchange rates, interest rates and the prices in equity investments, and utilizes some derivative financial instruments to reduce the related risks.

Foreign currency risk

Most of the Company’s operating activities are denominated in foreign currencies. Consequently, the Company is exposed to foreign currency risk. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Company utilizes derivative financial instruments, including currency forward contracts and cross currency swaps, to hedge its currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements.

The Company also holds short-term borrowings in foreign currencies in proportion to its expected future cash flows. This allows foreign-currency-denominated borrowings to be serviced with expected future cash flows and provides a partial hedge against transaction translation exposure.

 

- 41 -


The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the nine months ended September 30, 2015 and 2014 would have decreased by NT$415,074 thousand and NT$698,942 thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.

Interest rate risk

The Company is exposed to interest rate risk arising from borrowing at both fixed and floating interest rates. All of the Company’s long-term bonds have fixed interest rates and are measured at amortized cost. As such, changes in interest rates would not affect the future cash flows. On the other hand, because interest rates of the Company’s long-term bank loans are floating, changes in interest rates would affect the future cash flows but not the fair value.

Assuming the amount of floating interest rate bank loans at the end of the reporting period had been outstanding for the entire period and all other variables were held constant, a hypothetical increase in interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of tax, by approximately NT$249 thousand for both nine months ended September 30, 2015 and 2014, respectively.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments. To reduce the equity price risk, the Company utilizes some stock forward contracts to partially hedge its exposure.

Assuming a hypothetical decrease of 5% in equity prices of the equity investments at the end of the reporting period, the net income for the nine months ended September 30, 2015 and 2014 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the nine months ended September 30, 2015 and 2014 would have decreased by NT$111,752 thousand and NT$120,713 thousand, respectively.

 

  d. Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is exposed to credit risk from operating activities, primarily trade receivables, and from investing activities, primarily bank deposits, fixed-income investments and other financial instruments. Credit risk is managed separately for business related and financial related exposures. As of the end of the reporting period, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets recognized in the consolidated balance sheet.

Business related credit risk

The Company has considerable trade receivables outstanding with its customers worldwide. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic conditions worsen.

As of September 30, 2015, December 31, 2014 and September 30, 2014, the Company’s ten largest customers accounted for 70%, 76% and 72% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

 

- 42 -


Financial credit risk

The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts the concentration limit according to market conditions and the credit standing of the counterparties. The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.

 

  e. Liquidity risk management

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements associated with existing operations over the next 12 months. The Company manages its liquidity risk by maintaining adequate cash.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including principal and interest.

 

     Less Than
1 Year
     2-3 Years      4-5 Years      5+ Years      Total  

September 30, 2015

              

Non-derivative financial liabilities

              

Short-term loans

   $ 33,571,425       $       $       $       $ 33,571,425   

Accounts payable (including related parties)

     19,185,871                                 19,185,871   

Payables to contractors and equipment suppliers

     34,338,079                                 34,338,079   

Accrued expenses and other current liabilities

     20,950,233                                 20,950,233   

Bonds payable

     26,568,221         104,834,596         68,616,980         26,091,145         226,110,942   

Long-term bank loans

     6,390         21,752         15,363                 43,505   

Other long-term payables (classified under accrued expenses and other current liabilities)

     18,000                                 18,000   

Guarantee deposits (including those classified under accrued expense and other current liabilities)

     5,758,550         13,336,234         9,871,800                 28,966,584   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     140,396,769         118,192,582         78,504,143         26,091,145         363,184,639   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

     36,791,586                                 36,791,586   

Inflows

     (36,694,164                              (36,694,164
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     97,422                                 97,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     3,216,025                                 3,216,025   

Inflows

     (3,241,727                              (3,241,727
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     (25,702                              (25,702
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     814,135                                 814,135   

Inflows

     (814,135                              (814,135
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 140,468,489       $ 118,192,582       $ 78,504,143       $ 26,091,145       $ 363,256,359   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 43 -


     Less Than
1 Year
     2-3 Years      4-5 Years      5+ Years      Total  

December 31, 2014

              

Non-derivative financial liabilities

              

Short-term loans

   $ 36,164,316       $       $       $       $ 36,164,316   

Accounts payable (including related parties)

     23,370,424                                 23,370,424   

Payables to contractors and equipment suppliers

     26,980,408                                 26,980,408   

Accrued expenses and other current liabilities

     22,177,901                                 22,177,901   

Bonds payable

     3,079,862         66,720,514         98,460,598         58,320,169         226,581,143   

Long-term bank loans

     1,450         19,792         20,846         2,504         44,592   

Other long-term payables (classified under accrued expenses and other current liabilities and other noncurrent liabilities)

     18,000         18,000                         36,000   

Obligations under finance leases

     29,667         59,335         800,409                 889,411   

Guarantee deposits (including those classified under accrued expense and other current liabilities)

     4,757,700         12,851,275         12,687,200                 30,296,175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     116,579,728         79,668,916         111,969,053         58,322,673         366,540,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

     17,327,250                                 17,327,250   

Inflows

     (17,283,079                              (17,283,079
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     44,171                                 44,171   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     47,291,943                                 47,291,943   

Inflows

     (46,970,942                              (46,970,942
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     321,001                                 321,001   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     56,172,570                                 56,172,570   

Inflows

     (56,172,570                              (56,172,570
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 116,944,900       $ 79,668,916       $ 111,969,053       $ 58,322,673       $ 366,905,542   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2014

              

Non-derivative financial liabilities

              

Short-term loans

   $ 35,889,735       $       $       $       $ 35,889,735   

Accounts payable (including related parties)

     21,709,410                                 21,709,410   

Payables to contractors and equipment suppliers

     28,683,936                                 28,683,936   

Accrued expenses and other current liabilities

     22,820,251                                 22,820,251   

Bonds payable

     3,052,391         66,426,546         97,370,173         58,541,919         225,391,029   

Long-term bank loans

     1,450         17,447         21,027         5,030         44,954   

Other long-term payables(classified under accrued expenses and other current liabilities and other noncurrent liabilities)

     18,000         18,000                         36,000   

Obligations under finance leases

     28,799         57,599         776,987                 863,385   

Guarantee deposits

             160,419                         160,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     112,203,972         66,680,011         98,168,187         58,546,949         335,599,119   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 44 -


     Less Than
1 Year
     2-3 Years      4-5 Years      5+ Years      Total  

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

     18,676,552                                 18,676,552   

Inflows

     (18,591,783                              (18,591,783
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     84,769                                 84,769   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     57,793,561                                 57,793,561   

Inflows

     (57,188,788                              (57,188,788
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     604,773                                 604,773   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     53,208,498         753,865                         53,962,363   

Inflows

     (53,208,498      (753,865                      (53,962,363
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 112,893,514       $ 66,680,011       $ 98,168,187       $ 58,546,949       $ 336,288,661   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

 

  f. Fair value of financial instruments

 

  1) Fair value of financial instruments carried at amortized cost

Except as detailed in the following table, the Company considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

 

     September 30, 2015      December 31, 2014      September 30, 2014  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Financial assets

                 

Held-to-maturity financial assets

                 

Corporate bonds/Bank debentures

   $ 7,539,404       $ 7,540,402       $       $       $       $   

Commercial paper

     2,393,956         2,398,449         4,485,593         4,486,541                   

Financial liabilities

                 

Measured at amortized cost

                 

Bonds payable

     215,481,685         216,023,352         213,673,818         213,177,122         211,796,805         211,291,145   

 

  2) Valuation techniques and assumptions used in fair value measurement

The fair values of financial assets and financial liabilities are determined as follows:

 

    The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes publicly traded stocks and money market funds).

 

    Forward exchange contracts and cross currency swap contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts; interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates; and stock forward contracts are measured at the difference between the present value of stock forward price discounted based on the applicable yield curve derived from quoted interest rates and the stock spot price.

 

    The fair values of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

 

- 45 -


  3) Fair value measurements recognized in the consolidated balance sheets

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

    Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

    Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

    Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Financial assets and liabilities measured at fair value on a recurring basis

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:

 

                                                                           
     September 30, 2015  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments

   $       $ 98,835       $       $ 98,835   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

   $   1,597,196       $       $       $ 1,597,196   

Money market funds

     406                         406   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,597,602       $       $       $ 1,597,602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial assets

           

Stock forward contract

   $       $ 96,153       $       $ 96,153   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at FVTPL

           

Derivative financial instruments

   $       $     179,363       $             —       $ 179,363   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments (Note)

   $       $ 200,364       $       $ 200,364   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

   $ 73,797,085       $       $       $ 73,797,085   

Money market funds

     391                         391   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $   73,797,476       $         —       $             —       $   73,797,476   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 46 -


                                                                           
     December 31, 2014  
     Level 1      Level 2      Level 3      Total  

Financial liabilities at FVTPL

           

Derivative financial instruments (Note)

   $       $ 486,614       $       $ 486,614   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial liabilities

           

Stock forward contract

   $       $ 16,364,241       $       $ 16,364,241   
  

 

 

    

 

 

    

 

 

    

 

 

 
           (Concluded)   

Note:    Including those classified to noncurrent assets held for sale or liabilities directly associated with noncurrent assets held for sale.

   

     September 30, 2014  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments

   $       $ 69,164       $       $ 69,164   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

   $ 64,390,960       $       $       $ 64,390,960   

Money market funds

     377                         377   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 64,391,337       $       $       $ 64,391,337   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at FVTPL

           

Derivative financial instruments

   $       $ 691,062       $       $ 691,062   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial liabilities

           

Stock forward contract

   $       $ 9,775,718       $       $ 9,775,718   
  

 

 

    

 

 

    

 

 

    

 

 

 

For assets and liabilities held as of September 30, 2015, December 31, 2014 and September 30, 2014 that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.

There were no purchases and disposals for assets on Level 3 for the nine months ended September 30, 2015 and 2014, respectively.

Assets and liabilities measured at fair value on a nonrecurring basis

The Company measures certain financial assets at fair value on a nonrecurring basis when they are deemed to be impaired. The valuation processes include controls that are designed to ensure appropriate fair values are recorded. These controls include valuation technique validation, review of key inputs, and analysis of period-over-period fluctuations where appropriate. Due to significant unobservable inputs used, the Company classified these measurements as Level 3.

The Company reviews investments in non-publicly traded stocks and mutual funds for impairment quarterly and records an impairment charge when the Company believes an investment has experienced a significant or prolonged decline in the fair value and carrying value may not be recovered. The Company recognized impairment loss on financial assets carried at cost in the amount of NT$132,015 thousand and NT$176,920 thousand for the three months ended September 30, 2015 and 2014, respectively; and of NT$132,015 thousand and NT$176,920 thousand for the nine months ended September 30, 2015 and 2014, respectively.

 

- 47 -


Determining whether a significant or prolonged decline in fair value of the investment below its carrying amount has occurred is highly subjective. Factors the Company considers include the fair value of the investment in relation to its carrying amount and the duration of the decline in fair value below the carrying amount of the investment. Due to the absence of quoted market prices, the fair values are determined significantly based on management judgment with the best information available. The Company calculates these fair values using the market approach which includes recent financing activities, valuation of comparable companies, technology development stage, market condition and other economic factors as their inputs.

Financial assets and liabilities not measured at fair value but for which the fair value is disclosed

For investments in bonds and commercial paper, the fair value is determined using active market prices and the present value of future cash flows based on the observable yield curves, respectively.

The fair value of the Company’s bonds payable is determined using active market prices.

The table below sets out the balances for the Company’s assets and liabilities at amortized cost but for which the fair value is disclosed as of September 30, 2015:

 

     September 30, 2015  
     Level 1      Level 2      Level 3      Total  
     NT$      NT$      NT$      NT$  
     (In Millions)      (In Millions)      (In Millions)      (In Millions)  

Assets

           

Held-to-maturity securities

           

Corporate bonds/Bank debentures

   $ 7,540,402       $       $       $ 7,540,402   

Commercial paper

             2,398,449                 2,398,449   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7,540,402       $ 2,398,449       $       $ 9,938,851   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Measured at amortized cost

           

Bonds payable

   $   216,023,352       $                    $                    $   216,023,352   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

32. RELATED PARTY TRANSACTIONS

Intercompany balances and transactions between TSMC and its subsidiaries, which are related parties of TSMC, have been eliminated upon consolidation; therefore those items are not disclosed in this note. The following is a summary of transactions between the Company and other related parties:

 

  a. Net revenue

 

          Three Months Ended
September 30
     Nine Months Ended
September 30
 
          2015      2014      2015      2014  

Item

   Related Party Categories            

Net revenue from sale of goods

   Associates    $   999,725       $   1,192,312       $   3,186,227       $   3,185,376   
   Joint venture      241         52         908         702   
     

 

 

    

 

 

    

 

 

    

 

 

 
      $   999,966       $   1,192,364       $   3,187,135       $   3,186,078   
     

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue from royalties

   Associates    $   119,718       $ 133,433       $ 381,862       $ 388,497   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

- 48 -


  b. Purchases

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Related Party Categories

           

Associates

   $   2,680,634       $   3,038,154       $   8,659,775       $   8,890,002   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  c. Receivables from related parties

 

         

September 30,

2015

    

December 31,

2014

    

September 30,

2014

 

Item

   Related Party Categories         

Receivables from related parties

   Associates    $ 510,752       $ 312,641       $ 532,767   
   Joint venture      256         314           
     

 

 

    

 

 

    

 

 

 
      $ 511,008       $ 312,955       $ 532,767   
     

 

 

    

 

 

    

 

 

 

Other receivables from related parties

   Associates    $ 128,490       $ 178,625       $ 161,962   
     

 

 

    

 

 

    

 

 

 

 

  d. Payables to related parties

 

         

September 30,

2015

    

December 31,

2014

    

September 30,

2014

 

Item

   Related Party Categories         

Payables to related parties

   Associates    $ 1,125,062       $ 1,490,997       $ 1,288,727   
   Joint venture      3,059         493         1,950   
     

 

 

    

 

 

    

 

 

 
      $ 1,128,121       $ 1,491,490       $ 1,290,677   
     

 

 

    

 

 

    

 

 

 

 

  e Disposal of property, plant and equipment

 

                                                                                           
     Proceeds  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Related Party Categories

           

Associates

   $     —       $ 7,630       $     —       $ 23,447   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 49 -


                                                                                           
     Gains  
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Related Party Categories

           

Associates

   $     —       $ 4,193       $     —       $ 20,010   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  f. Others

 

         

September 30,

2015

    

December 31,

2014

    

September 30,

2014

 

Item

   Related Party Categories         

Refundable deposits

   Associates    $       $       $ 5,813   
     

 

 

    

 

 

    

 

 

 

 

                                                                                                                  
          Three Months Ended
September 30
     Nine Months Ended
September 30
 
          2015      2014      2015      2014  

Item

   Related Party Categories            

Manufacturing expenses

   Associates    $     443,498       $     518,487       $     1,838,197       $     1,648,347   
  

Joint venture

     4,220         2,068         9,583         6,763   
     

 

 

    

 

 

    

 

 

    

 

 

 
      $     447,718       $     520,555       $     1,847,780       $     1,655,110   
     

 

 

    

 

 

    

 

 

    

 

 

 

Research and

   Associates    $ 53,773       $ 31,295       $ 79,699       $ 84,628   

development expenses

   Joint venture      29         275         977         1,116   
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 53,802       $ 31,570       $ 80,676       $ 85,744   
     

 

 

    

 

 

    

 

 

    

 

 

 

General and administrative expenses

   Associates    $ 2,465       $       $ 3,515       $   
     

 

 

    

 

 

    

 

 

    

 

 

 

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

The Company leased machinery and equipment from Xintec and office from VIS, respectively. The lease terms and prices were both determined in accordance with mutual agreements. The rental expenses were paid to Xintec and VIS quarterly and monthly, respectively; the related expenses were both classified under manufacturing expenses.

The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to related parties (transactions with associates and joint venture), and then recognized such gain/loss over the depreciable lives of the disposed assets.

 

- 50 -


  g. Compensation of key management personnel

The compensation to directors and other key management personnel for the three months and nine months ended September 30, 2015 and 2014 were as follows:

 

                                                                                           
     Three Months Ended
September 30
     Nine Months Ended
September 30
 
     2015      2014      2015      2014  

Short-term employee benefits

   $   443,155       $   478,693       $   1,413,381       $   1,241,715   

Post-employment benefits

     921         11,980         2,963         45,910   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $   444,076       $   490,673       $   1,416,344       $   1,287,625   
  

 

 

    

 

 

    

 

 

    

 

 

 

The compensation to directors and other key management personnel were determined by the Compensation Committee of TSMC in accordance with the individual performance and the market trends.

 

33. PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for litigation and building lease agreements. As of September 30, 2015, December 31, 2014 and September 30, 2014, the aforementioned other financial assets amounted to NT$177,490 thousand, NT$293,409 thousand and NT$283,678 thousand, respectively.

 

34. SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land, factory and office premises from the Science Park Administration and entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between October 2015 and March 2035 and can be renewed upon expiration.

Future minimum lease payments under the above non-cancellable operating leases are as follows:

 

    

September 30,

2015

     December 31,
2014
    

September 30,

2014

 

Not later than 1 year

   $ 1,074,941       $ 891,767       $ 898,450   

Later than 1 year and not later than 5 years

     3,632,058         3,490,783         3,512,763   

Later than 5 years

     7,063,457         6,576,218         6,646,874   
  

 

 

    

 

 

    

 

 

 
   $ 11,770,456       $ 10,958,768       $ 11,058,087   
  

 

 

    

 

 

    

 

 

 

 

- 51 -


35. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

Significant contingent liabilities and unrecognized commitments of the Company as of the end of the reporting period, excluding those disclosed in other notes, were as follows:

 

  a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity provided TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. As of September 30, 2015, the R.O.C. Government did not invoke such right.

 

  b. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. TSMC and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of September 30, 2015.

 

  c. In June 2010, Keranos, LLC. filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents were invalid. These two litigations have been consolidated into a single lawsuit in the U.S. District Court for the Eastern District of Texas. In February 2014, the Court entered a final judgment in favor of TSMC, dismissing all of Keranos’ claims against TSMC with prejudice. Keranos appealed the final judgment to the U.S. Court of Appeals for the Federal Circuit, and in August 2015, the Federal Circuit remanded the case back to the Texas court for further proceedings. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

  d. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of infringing several U.S. patents. In September 2014, the Court granted summary judgment of noninfringement in favor of TSMC and TSMC North America. Ziptronix, Inc. can appeal the Court’s order. In August 2015, Tessera Technologies, Inc. announced it had acquired Ziptronix. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

  e. TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012, and the lock-up period expired on May 1, 2015. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of September 30, 2015, TSMC has paid EUR150,193 thousand to ASML under the research and development funding agreement.

 

- 52 -


  f. In September 2013, Zond Inc. filed a complaint in U.S. District Court for the District of Massachusetts against TSMC, certain TSMC subsidiaries and other companies alleging infringing of several U.S. patents. Subsequently, TSMC and Zond initiated additional legal actions in the U.S. District Courts for the District of Delaware and the District of Massachusetts over several additional patents owned by Zond. In March 2015, all pending litigations between the parties in the U.S. District Courts for the District of Massachusetts and the District of Delaware were dismissed.

 

  g. In March 2014, DSS Technology Management, Inc. (DSS) filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, TSMC Development and several other companies infringe one U.S. patent. TSMC Development has subsequently been dismissed. In May 2015, the Court entered a final judgment of noninfringement in favor of TSMC and TSMC North America. DSS has appealed the final judgment to the U.S. Court of Appeals for the Federal Circuit. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

  h. Amounts available under unused letters of credit as of September 30, 2015, December 31, 2014 and September 30, 2014 were NT$144,786 thousand, NT$222,026 thousand and NT$213,290 thousand, respectively.

 

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

The following information was summarized according to the foreign currencies other than the functional currency of each subsidiary of the Company. The exchange rates disclosed were used to translate the foreign currencies into the functional currency of each subsidiary. The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note 1)

    Carrying
Amount
 

September 30, 2015

       

Financial assets

       

Monetary items

       

USD

   $ 3,740,174         32.906      $ 123,074,162   

USD

     217,169         6.357 (Note 2)      7,146,172   

RMB

     601,282         0.157 (Note 3)      3,112,417   

EUR

     74,991         36.95        2,770,910   

JPY

     34,650,692         0.2742        9,501,220   

Non-monetary items

       

HKD

     147,733         4.25        627,865   

Financial liabilities

       

Monetary items

       

USD

     3,045,299         32.906        100,208,604   

EUR

     108,176         36.95        3,997,112   

JPY

     34,141,496         0.2742        9,361,598   

(Continued)

 

- 53 -


    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note 1)

     Carrying
Amount
 

December 31, 2014

        

Financial assets

        

Monetary items

        

USD

   $ 5,002,082         31.718       $ 158,656,051   

EUR

     22,887         38.57         882,741   

JPY

     704,925         0.2652         186,946   

Non-monetary items

        

HKD

     149,844         4.09         612,860   

Financial liabilities

        

Monetary items

        

USD

     3,348,306         31.718         106,201,584   

EUR

     44,152         38.57         1,702,926   

JPY

     28,734,248         0.2652         7,620,323   

September 30, 2014

        

Financial assets

        

Monetary items

        

USD

     4,249,535         30.470         129,483,331   

EUR

     76,225         38.42         2,928,580   

JPY

     621,822         0.2778         172,742   

Non-monetary items

        

HKD

     168,838         3.93         663,532   

Financial liabilities

        

Monetary items

        

USD

     2,389,085         30.470         72,795,431   

EUR

     88,499         38.42         3,400,142   

JPY

     31,391,969         0.2778         8,720,689   

(Concluded)

 

  Note 1: Except as otherwise noted, exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.
  Note 2: The exchange rate represents the number of RMB for which one USD dollars could be exchanged.
  Note 3: The exchange rate represents the number of USD dollars for which one RMB could be exchanged.

 

- 54 -


The realized and unrealized foreign exchange gain and loss was a net gain of NT$2,571,011 thousand and NT$1,150,993 thousand for the three months ended September 30, 2015 and 2014, respectively, and NT$2,326,899 thousand and NT$759,385 thousand for the nine months ended September 30, 2015 and 2014, respectively. Since there were varieties of foreign currency transactions and functional currencies within the subsidiaries of the Company, the Company was unable to disclose foreign exchange gain (loss) towards each foreign currency with significant impact.

 

37. OPERATING SEGMENTS INFORMATION

 

  a. Operating segments

The Company’s only reportable segment is the foundry segment. The foundry segment engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. The Company also had other operating segments that did not exceed the quantitative threshold for separate reporting. These segments mainly engaged in the researching, developing, designing, manufacturing and selling of renewable energy and efficiency related technologies and products.

The Company uses the income from operations as the measurement for segment profit and the basis of performance assessment. There was no material differences between the accounting policies of the operating segment and the accounting policies described in Note 4.

 

  b. Segment revenue and operating results

 

     Foundry      Others      Elimination      Total  

Three months ended September 30, 2015

           

Net revenue from external customers

   $ 212,258,591       $ 246,318       $       $ 212,504,909   

Income (loss) from operations

     78,994,590         (605,666              78,388,924   

Three months ended September 30, 2014

           

Net revenue from external customers

     208,977,912         71,822                 209,049,734   

Net revenue from sales among intersegments

             5,749         (5,749        

Income (loss) from operations

     85,144,417         (717,179              84,427,238   

Nine months ended September 30, 2015

           

Net revenue from external customers

     639,321,151         657,654                 639,978,805   

Income (loss) from operations

     243,351,349         (1,267,244              242,084,105   

Nine months ended September 30, 2014

           

Net revenue from external customers

     539,874,035         411,355                 540,285,390   

Net revenue from sales among intersegments

             32,644         (32,644        

Income (loss) from operations

     209,709,955         (2,055,931              207,654,024   

 

- 55 -


38. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the Securities and Futures Bureau (SFB) for TSMC:

 

  a. Financings provided: Please see Table 1 attached;

 

  b. Endorsement/guarantee provided: Please see Table 2 attached;

 

  c. Marketable securities held (excluding investments in subsidiaries, associates and jointly controlled entities): Please see Table 3 attached;

 

  d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 4 attached;

 

  e. Acquisition of individual real estate properties at costs of at least NT$300 million or 20% of the paid-in capital: Please see Table 5 attached;

 

  f. Disposal of individual real estate properties at prices of at least NT$300 million or 20% of the paid-in capital: None;

 

  g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

  h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached;

 

  i. Information about the derivative financial instruments transaction: Please see Notes 7 and 10;

 

  j. Others: The business relationship between the parent and the subsidiaries, and significant transactions between them: Please see Table 8 attached;

 

  k. Names, locations, and related information of investees over which TSMC exercises significant influence (excluding information on investment in Mainland China): Please see Table 9 attached;

 

  l. Information on investment in Mainland China

 

  1) The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, income (losses) of the investee, share of profits/losses of investee, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 10 attached.

 

  2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Table 8 attached.

 

- 56 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

No.

 

Financing
Company

  Counter-
party
 

Financial
Statement
Account

  Related
Party
  Maximum
Balance for
the Period
(US$ in
Thousands)

(Note 4)
    Ending
Balance

(US$ in
Thousands)

(Note 4)
    Amount
Actually
Drawn

(US$ in
Thousands)
    Interest
Rate
   

Nature
for
Financing

  Transaction
Amounts
    Reason
for
Financing
  Allowance
for Bad
Debt
    Collateral     Financing
Limits for
Each
Borrowing
Company
    Financing
Company’s
Total
Financing
Amount
Limits

(Note 3)
 
                          Item     Value      

1

  TSMC Partners   TSMC Solar  

Other receivables from related parties

  Yes   $

(US$

5,594,020

170,000

  

  $

(US$

5,594,020

170,000

  

  $

(US$

5,297,866

161,000

  

    0.38  

The need for short-term financing

  $      Operating
capital
  $             $      $

 

20,236,121

(Note 1

  

  $ 50,590,303   
    TSMC SSL  

Other receivables from related parties

  Yes    

(US$

1,645,300

50,000

  

                  0.38  

The need for short-term financing

         Operating
capital
                        

 

20,236,121

(Note 1

  

    50,590,303   

2

  TSMC Solar   TSMC Solar
NA
 

Other receivables from related parties

  Yes    

(US$

19,744

600

  

                      

The need for short-term financing

         Operating
capital
                        

 


(Note 2

  

      

 

Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. The above restriction does not apply to the subsidiaries whose voting shares are 90% and up owned, directly or indirectly, by TSMC (90% and up owned subsidiaries). However, the aggregate amounts lendable to 90% and up owned subsidiaries and the total amount lendable to one such borrower of 90% and up owned subsidiaries shall not exceed forty percent (40%) of the net worth of TSMC Partners.
Note 2: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Solar. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth; however, this restriction does not apply to the subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC Solar.
Note 3: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and twenty percent (20%) of the net worth of TSMC Solar.
Note 4: The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.

 

- 57 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

No.

 

Endorsement/

Guarantee Provider

 

Guaranteed Party

  Limits on
Endorsement/
Guarantee
Amount
Provided to Each
Guaranteed
Party

(Notes 1 and 2)
    Maximum
Balance
for the Period
(US$ in
Thousands)

(Note 3)
    Ending
Balance
(US$ in
Thousands)

(Note 3)
    Amount
Actually
Drawn

(US$ in
Thousands)
    Amount of
Endorsement/
Guarantee
Collateralized
by Properties
    Ratio of
Accumulated
Endorsement/
Guarantee to
Net Equity
per Latest
Financial
Statements
    Maximum
Endorsement/
Guarantee
Amount
Allowable

(Note 2)
    Guarantee
Provided
by Parent
Company
    Guarantee
Provided by
A Subsidiary
    Guarantee
Provided to
Subsidiaries
in Mainland
China
 
   

Name

 

Nature of
Relationship

                   

0

  TSMC  

TSMC
Global

  Subsidiary   $ 287,739,792      $

(US$

49,359,000

1,500,000

  

  $

(US$
 

49,359,000

 
1,500,000

  

  

  $

(US$

49,359,000

 1,500,000

  

  $        4.29   $ 287,739,792        Yes        No        No   
   

TSMC North America

  Subsidiary     287,739,792       

(US$

2,738,217

83,213

  

   

(US$

2,738,217

83,213

  

   

(US$

2,738,217

83,213

  

           0.24     287,739,792        Yes        No        No   

 

Note 1: The total amount of the guarantee provided by TSMC to any individual entity shall not exceed ten percent (10%) of TSMC’s net worth, or the net worth of such entity. However, subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions after the approval of the Board of Directors.
Note 2: The total amount of guarantee shall not exceed twenty-five percent (25%) of TSMC’s net worth.
Note 3: The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.

 

- 58 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2015

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

 

 

Held Company

Name

 

Marketable Securities Type and Name

  Relationship
with the
Company
   

Financial Statement Account

  September 30, 2015     Note
        Shares/Units
(In Thousands)
    Carrying Value
(Foreign
Currencies
in Thousands)
    Percentage of
Ownership (%)
    Fair Value
(Foreign
Currencies
in Thousands)
   

TSMC

  Bank debentures              
  HSBC Bank (Taiwan) Limited          Held-to-maturity financial assets          $ 3,312,027        N/A      $ 3,311,653     
  The Export-Import Bank of ROC                     149,999        N/A        150,000     
  Corporate bond              
  Taiwan Power Company          Held-to-maturity financial assets            1,006,080        N/A        1,006,280     
  Hon Hai Precision Ind. Co., Ltd.                     1,005,233        N/A        1,005,733     
  CPC Corporation, Taiwan                     854,286        N/A        854,293     
  Formosa Plastics Corporation                     351,063        N/A        350,964     
  Formosa Petrochemical Corporation                     300,975        N/A        301,521     
  China Steel Corporation                     200,624        N/A        200,624     
  Commercial Paper              
  Taiwan Power Company          Held-to-maturity financial assets     240        2,393,956        N/A        2,398,449     
  Stock              
 

Semiconductor Manufacturing International Corporation

         Available-for-sale financial assets     211,047        627,865        1        627,865     
  United Industrial Gases Co., Ltd.          Financial assets carried at cost     21,230        193,584        10        193,584     
  Shin-Etsu Handotai Taiwan Co., Ltd.              10,500        105,000        7        105,000     
  W.K. Technology Fund IV              4,000        31,280        2        31,280     
  Fund              
  Crimson Asia Capital          Financial assets carried at cost            18,265        1        18,265     
  Horizon Ventures Fund                     17,029        12        17,029     

TSMC Partners

  Stock              
  Mcube Inc.          Financial assets carried at cost     6,333               14            
  Fund              
  Shanghai Walden Venture Capital Enterprise          Financial assets carried at cost          US$ 5,000        6      US$ 5,000     
  China Walden Venture Investments II, L.P.                   US$ 2,800        9      US$ 2,800     

TSMC Global

  Corporate bond              
  JPMorgan Chase & Co.          Held-to-maturity financial assets          US$ 10,913        N/A      US$ 10,920     
  Stock              
  ASML          Available-for-sale financial assets     250      US$ 21,819             US$ 21,819     
  Money market fund              
  Ssga Cash Mgmt Global Offshore          Available-for-sale financial assets     12      US$ 12        N/A      US$ 12     

VTAF III

  Common stock              
  Accton Wireless Broadband Corp.          Financial assets carried at cost     2,249      US$ 315        6      US$ 315     
  Preferred stock              
  BridgeLux, Inc.          Financial assets carried at cost     7,522      US$ 5,177        3      US$ 5,177     
  GTBF, Inc.              1,154      US$ 1,500        N/A      US$ 1,500     
  LiquidLeds Lighting Corp.              1,600      US$ 800        11      US$ 800     
  Neoconix, Inc.              4,147      US$ 170             US$ 170     

(Continued)

 

- 59 -


Held Company
Name

 

Marketable Securities Type and Name

  Relationship
with the
Company
   

Financial Statement Account

  September 30, 2015     Note
        Shares/Units
(In Thousands)
    Carrying Value
(Foreign
Currencies
in Thousands)
    Percentage of
Ownership (%)
    Fair Value
(Foreign
Currencies
in Thousands)
   

VTAF II

  Common stock              
  Sentelic          Financial assets carried at cost     1,806      US$ 2,607        8      US$ 2,607     
  Aether Systems, Inc.              2,600      US$ 2,243        28      US$ 2,243     
  RichWave Technology Corp.              1,267      US$ 1,036        3      US$ 1,036     
 

Preferred stock

             
  Aquantia          Financial assets carried at cost     4,643      US$ 4,441        2      US$ 4,441     
  5V Technologies, Inc.              963      US$ 2,168        2      US$ 2,168     
  Impinj, Inc.              711      US$ 1,100             US$ 1,100     
  QST Holdings, LLC                   US$ 588        13      US$ 588     
  Cresta Technology Corporation              92      US$ 28             US$ 28     

Emerging Alliance

  Common stock              
  Global Investment Holding Inc.          Financial assets carried at cost     11,124      US$ 3,065        6      US$ 3,065     
  RichWave Technology Corp.              4,074      US$ 1,545        9      US$ 1,545     
 

Preferred stock

             
  QST Holdings, LLC          Financial assets carried at cost          US$ 141        4      US$ 141     

ISDF

  Preferred stock              
  Sonics, Inc.          Financial assets carried at cost     230               3            

ISDF II

  Common stock              
  Alchip Technologies Limited          Available-for-sale financial assets     6,581      US$ 7,638        11      US$ 7,638     
  Sonics, Inc.          Financial assets carried at cost     278               4            
  Goyatek Technology, Corp.              745               6            
 

Preferred stock

             
  Sonics, Inc.          Financial assets carried at cost     264               4            

(Concluded)

 

- 60 -


TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Company

Name

 

Marketable

Securities

Type and Name

 

Financial Statement
Account

  Counter-party     Nature of
Relationship
    Beginning Balance     Acquisition     Disposal     Ending Balance (Note 1)  
          Shares/Units
(In Thousands)
    Amount     Shares/Units
(In Thousands)
    Amount     Shares/Units
(In Thousands)
    Amount     Carrying
Value
    Gain/Loss on
Disposal
    Shares/Units
(In Thousands)
    Amount  

TSMC

  Bank debentures                          
 

HSBC Bank (Taiwan) Limited

 

Held-to-maturity financial assets

                       $             $ 3,316,906             $      $      $             $ 3,312,027   
 

Corporate bond

                         
 

Taiwan Power Company

 

Held-to-maturity financial assets

                                       1,006,690                                           1,006,080   
 

Hon Hai Precision Ind. Co., Ltd.

                                         1,006,244                                           1,005,233   
 

CPC Corporation, Taiwan

                                         855,145                                           854,286   
 

Formosa Plastics Corporation

                                         351,464                                           351,063   
 

Formosa Petrochemical Corporation

                                         301,625                                           300,975   
 

Commercial Paper

                         
 

Taiwan Power Company

 

Held-to-maturity financial assets

                  220        2,192,014        1,080        10,768,924        1,060        10,600,000        10,566,982        33,018        240        2,393,956   
 

CPC Corporation, Taiwan

                    230        2,293,579        100        997,799        330        3,300,000        3,291,378        8,622                 
 

Stock

                         
 

VIS

 

Investments accounted for using equity method

    Public Market        Associate        546,223        10,105,485                      82,000        3,871,910        1,608,371        2,263,539        464,223        8,201,681   
 

TSMC Global

 

Prepayments for Investments (Note 2)

           Subsidary                             43,639,503                                           43,639,503   
 

TSMC SSL

 

Noncurrent assets held for sale

    EPISTAR        Subsidary        554,674        669,472                      554,674       

 

782,701

(Note 3

  

    669,472        113,229                 

TSMC Global

  Corporate bond                          
 

JPMorgan Chase & Co.

 

Held-to-maturity financial assets

                                     US$ 11,002                                         US$ 10,913   
 

Stock

                         
 

ASML

 

Available-for-sale financial assets

                  20,993      US$ 2,284,919                      20,743      US$ 1,755,849      US$ 1,072,547      US$ 683,302        250      US$ 21,819   

 

Note 1: The ending balance includes the amortization of premium/discount on bonds investments, share of profits/losses of investees and other related adjustment.
Note 2: To lower the hedging cost, in June 2015, the Board of Directors of TSMC approved to inject US$2,000,000 thousand of capital into TSMC Global. This project was approved by the Investment Commission, MOEA. The prepayment for investment was US$1,359,100 thousand as of September 30, 2015 and the total injection is expected to be finished in the fourth quarter of 2015.
Note 3: The amount of disposal is the selling price less associated expenditure.

 

- 61 -


TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Company Name

 

Types of

Property

 

Transaction Date

  Transaction
Amount

(Foreign
Currencies in
Thousands)
 

Payment Term

 

Counter-party

  Nature of
Relationships
  Prior Transaction of Related Counter-party  

Price
Reference

 

Purpose of
Acquisition

 

Other

Terms

              Owner   Relationships   Transfer Date   Amount      

TSMC

  Fab  

July 09, 2014 to July 06, 2015

  $3,222,693  

Monthly settlement by the construction progress and acceptance

 

DA CIN Construction Co., Ltd.

    N/A   N/A   N/A   N/A   Bidding, price comparison and price negotiation   Manufacturing purpose   None
 

Fab

 

August 13, 2014 to July 15, 2015

  3,245,091  

Monthly settlement by the construction progress and acceptance

 

Fu Tsu Construction Co., Ltd.

    N/A   N/A   N/A   N/A   Bidding, price comparison and price negotiation   Manufacturing purpose   None
 

Fab

 

September 26, 2014 to July 17, 2015

  323,819  

Monthly settlement by the construction progress and acceptance

 

Mandartech Interiors Inc.

    N/A   N/A   N/A   N/A   Bidding, price comparison and price negotiation   Manufacturing purpose   None
 

Fab

 

November 03, 2014 to June 18, 2015

  1,371,031  

Monthly settlement by the construction progress and acceptance

 

China Steel Structure Co., Ltd.

    N/A   N/A   N/A   N/A   Bidding, price comparison and price negotiation   Manufacturing purpose   None

 

- 62 -


TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

           

Transaction Details

  Abnormal Transaction   Notes/Accounts
Payable or
Receivable
     

Company Name

 

Related Party

 

Nature of Relationships

 

Purchases/Sales

  Amount
(Foreign Currencies
in Thousands)
    % to
Total
   

Payment Terms

  Unit Price   Payment Terms   Ending Balance
(Foreign
Currencies in
Thousands)
    % to
Total
    Note

TSMC

 

TSMC North America

  Subsidiary   Sales   $ 425,960,417        66     

Net 30 days from invoice date (Note)

    Note   $ 65,932,970        69     
 

GUC

  Associate   Sales     2,373,020            

Net 30 days from the end of the month of when invoice is issued

        492,185        1     
 

TSMC China

  Subsidiary   Purchases     17,288,312        31     

Net 30 days from the end of the month of when invoice is issued

        (1,867,158     9     
 

WaferTech

  Indirect subsidiary   Purchases     6,706,115        12     

Net 30 days from the end of the month of when invoice is issued

        (525,748     3     
 

VIS

  Associate   Purchases     5,427,373        10     

Net 30 days from the end of the month of when invoice is issued

        (492,028     2     
 

SSMC

  Associate   Purchases     3,232,402        6     

Net 30 days from the end of the month of when invoice is issued

        (429,391     2     

TSMC North America

 

GUC

  Associate of TSMC   Sales     723,796            

Net 30 days from invoice date

        17,012            
        ( US$ 23,038           ( US$ 517    

TSMC Solar

 

TSMC Solar Europe GmbH

  Subsidiary   Sales     410,357        66     

Net 90 days from the end of the month of when invoice is issued

        128,466        49     

 

Note: The tenor is 30 days from TSMC’s invoice date or determined by the payment terms granted to its clients by TSMC North America.

 

- 63 -


TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

SEPTEMBER 30, 2015

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

 

 

Company Name

  

Related Party

  

Nature of Relationships

   Ending Balance
(Foreign Currencies
in Thousands)
     Turnover Days
(Note 1)
  

 

Overdue

     Amounts Received
in Subsequent
Period
     Allowance for
Bad Debts
 
               Amount      Action Taken        

TSMC

  

TSMC North America

  

Subsidiary

   $ 66,229,269       50    $ 2,387,454               $ 2,709,224       $   
  

GUC

  

Associate

     492,185       44                                

TSMC Partners

  

TSMC Solar

  

The same parent company

     5,298,313       Note 2                                
         (US$ 161,014               

TSMC China

  

TSMC

  

Parent company

     1,867,158       30                                
         (RMB 360,716               

TSMC Solar

  

TSMC Solar Europe GmbH

  

Subsidiary

     128,466       98                                

TSMC Technology

  

TSMC

  

Parent company

     165,782       Note 2                                
         (US$ 5,038               

WaferTech

   TSMC    Parent company      525,748       24                                
         (US$ 15,978               

 

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

 

- 64 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.

  

Company Name

  

Counter Party

   Nature of
Relationship

(Note 1)
  

Intercompany Transactions

           

Financial Statements Item

   Amount      Terms
(Note 2)
   Percentage of
Consolidated Net Revenue
or Total Assets

0

   TSMC    TSMC North America    1   

Net revenue from sale of goods

   $ 425,960,417          67%
           

Receivables from related parties

     65,932,970          4%
           

Other receivables from related parties

     296,299          —    
      TSMC Japan    1   

Marketing expenses - commission

     170,894          —    
      TSMC Europe    1   

Marketing expenses - commission

     293,736          —    
      TSMC China    1   

Purchases

     17,288,312          3%
           

Disposal of property, plant and equipment

     115,270          —    
           

Payables to related parties

     1,867,158          —    
      TSMC Canada    1   

Research and development expenses

     173,266          —    
      TSMC Technology    1   

Research and development expenses

     1,326,684          —    
           

Payables to related parties

     165,782          —    
      WaferTech    1   

Purchases

     6,706,115          1%
           

Payables to related parties

     525,748          —    

1

   TSMC Solar   

TSMC Solar Europe GmbH

   1   

Net revenue from sale of goods

     410,357          —    
           

Receivables from related parties

     128,466          —    
      TSMC Partners    3   

Other payables to related parties

     5,298,313          —    

 

Note 1: No. 1 represents the transactions from parent company to subsidiary.

No. 3 represents the transactions between subsidiaries.

Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

 

- 65 -


TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INFORMATION ON INVESTMENT IN MAINLAND CHINA)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Investor

Company

 

Investee

Company

 

Location

 

Main Businesses

and Products

  Original Investment Amount     Balance as of September 30, 2015     Net Income
(Losses) of the
Investee
(Foreign
Currencies in
Thousands)
    Share of
Profits/Losses

of Investee
(Note 1)
(Foreign
Currencies in
Thousands)
   

Note

        September 30,
2015
(Foreign
Currencies in
Thousands)
    December 31,
2014
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage of
Ownership

(%)
    Carrying
Value

(Foreign
Currencies in
Thousands)
       

TSMC

  TSMC Global   Tortola, British Virgin Islands   Investment activities   $

 

146,754,371

(Note 3

  

  $ 103,114,868        3        100      $ 182,062,864      $ 21,528,153      $ 21,528,153      Subsidiary
  TSMC Partners   Tortola, British Virgin Islands  

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

    31,456,130        31,456,130        988,268        100        50,529,423        1,318,094        1,318,174      Subsidiary
  SSMC   Singapore  

Fabrication and supply of integrated circuits

    5,120,028        5,120,028        314        39        8,961,566        4,955,540        1,922,254      Associate
  VIS   Hsin-Chu, Taiwan  

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

    10,180,677        11,789,048        464,223        28        8,201,681        3,282,753        1,032,965      Associate
  TSMC North America   San Jose, California, U.S.A.  

Selling and marketing of integrated circuits and semiconductor devices

    333,718        333,718        11,000        100        4,168,152        32,985        32,985      Subsidiary
  Xintec   Taoyuan, Taiwan  

Wafer level chip size packaging service

    1,309,969        1,357,890        92,778        35        2,240,223        223,191        83,986      Associate
  GUC   Hsin-Chu, Taiwan  

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

    386,568        386,568        46,688        35        1,079,023        323,394        114,036      Associate
  VTAF III   Cayman Islands  

Investing in new start-up technology companies

    1,737,336        1,850,782               98        638,771        (83,198     (81,534   Subsidiary
  VTAF II   Cayman Islands  

Investing in new start-up technology companies

    608,562        605,479               98        483,968        (6,162     (6,039   Subsidiary
  TSMC Europe   Amsterdam, the Netherlands  

Marketing and engineering supporting activities

    15,749        15,749               100        329,649        29,333        29,333      Subsidiary
  Emerging Alliance   Cayman Islands  

Investing in new start-up technology companies

    844,775        844,775               99.5        158,066        (2,749     (2,735   Subsidiary
  TSMC Japan   Yokohama, Japan  

Marketing activities

    83,760        83,760        6        100        128,829        4,412        4,412      Subsidiary
  TSMC Korea   Seoul, Korea  

Customer service and technical supporting activities

    13,656        13,656        80        100        34,975        2,948        2,948      Subsidiary
  TSMC GN   Taipei, Taiwan  

Investment activities

    270,000        200,000               100        1,942        (108,748     (108,748   Subsidiary
  TSMC Solar   Tai-Chung, Taiwan  

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

    11,180,000        11,180,000        289,647        99        (1,022,041     (4,030,736     (3,976,630   Subsidiary

TSMC Partners

  TSMC Development   Delaware, U.S.A.  

Investment activities

   

( US$

0.03

0.001

  

   

( US$

0.03

0.001

  

           100       

( US$

25,893,581

786,895

  

   

( US$

1,134,534

36,111

  

    Note 2      Subsidiary
  VisEra Holding   Cayman Islands  

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

   

( US$

1,414,958

43,000

  

   

( US$

1,414,958

43,000

  

    43,000        49       

( US$

3,350,741

101,828

  

   

( US$

213,319

6,790

  

    Note 2     

Jointly controlled entity

  TSMC Technology   Delaware, U.S.A.  

Engineering support activities

   

( US$

0.03

0.001

  

   

( US$

0.03

0.001

  

           100       

( US$

520,354

15,813

  

   

( US$

25,181

801

  

    Note 2      Subsidiary
  ISDF II   Cayman Islands  

Investing in new start-up technology companies

   

( US$

305,993

9,299

  

   

( US$

305,993

9,299

  

    9,299        97       

( US$

366,186

11,128

  

   

( US$

3,302

105

  

    Note 2      Subsidiary
  TSMC Canada   Ontario, Canada  

Engineering support activities

   

( US$

75,684

2,300

  

   

( US$

75,684

2,300

  

    2,300        100       

( US$

153,500

4,665

  

   

( US$

14,375

458

  

    Note 2      Subsidiary
  ISDF   Cayman Islands  

Investing in new start-up technology companies

   

( US$

19,184

583

  

   

( US$

19,184

583

  

    583        97       

( US$

4,116

125

  

   

( US$

(409

(13


) ) 

    Note 2      Subsidiary

 

(Continued)

 

- 66 -


Investor

Company

 

Investee

Company

 

Location

 

Main Businesses

and Products

  Original Investment Amount     Balance as of September 30, 2015     Net Income
(Losses) of the
Investee
(Foreign
Currencies in
Thousands)
    Share of
Profits/Losses

of Investee
(Note 1)
(Foreign
Currencies in
Thousands)
    Note
        September 30,
2015
(Foreign
Currencies in
Thousands)
    December 31,
2014
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage of
Ownership

(%)
    Carrying
Value

(Foreign
Currencies in
Thousands)
       

VTAF III

  Mutual-Pak   New Taipei, Taiwan  

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

  $

(US$

171,528

5,212

  

  $

(US$

171,528

5,212

  

    15,643        58      $

(US$

20,754

631

  

  $

(US$

(15,535

(494


)) 

    Note 2      Subsidiary
 

Growth Fund

  Cayman Islands  

Investing in new start-up technology companies

   

(US$

21,776

662

  

   

(US$

71,735

2,180

  

           100       

(US$

785

24

  

   

(US$

31,235

994

  

    Note 2      Subsidiary
 

VTA Holdings

  Delaware, U.S.A.  

Investing in new start-up technology companies

                         62                      Note 2      Subsidiary

VTAF II

  VTA Holdings   Delaware, U.S.A.  

Investing in new start-up technology companies

                         31                      Note 2      Subsidiary

Emerging Alliance

  VTA Holdings   Delaware, U.S.A.  

Investing in new start-up technology companies

                         7                      Note 2      Subsidiary

TSMC Solar

  Motech   New Taipei, Taiwan  

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

    6,228,661        6,228,661        87,480        18        3,102,751        (991,600     Note 2      Associate
 

TSMC Solar Europe GmbH

  Hamburg, Germany  

Selling of solar related products and providing customer service

    25,266               1        100        10,055        (27,052     Note 2      Subsidiary
 

TSMC Solar NA

  Delaware, U.S.A.  

Selling and marketing of solar related products

    236,025        236,025        1        100        325        (15,240     Note 2      Subsidiary
 

TSMC Solar Europe

  Amsterdam, the Netherlands  

Investing in solar related business

           504,107               100               (5,102     Note 2      Subsidiary

TSMC GN

  TSMC Solar   Tai-Chung, Taiwan  

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

    94,586        53,092        3,492        1        (12,707     (4,030,736     Note 2      Associate

TSMC Development

  WaferTech   Washington, U.S.A.  

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

                  293,637        100       

(US$

7,210,363

219,120

  

   

(US$

1,085,327

34,545

  

    Note 2      Subsidiary

TSMC Solar Europe

  TSMC Solar Europe GmbH   Hamburg, Germany  

Selling of solar related products and providing customer service

          

(EUR

458,180

12,400

  

                        

(EUR

(27,052

(766


)) 

    Note 2      Subsidiary

 

Note 1: The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.
Note 2: The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.
Note 3: To lower the hedging cost, in June 2015, the Board of Directors of TSMC approved to inject US$2,000,000 thousand of capital into TSMC Global. This project was approved by the Investment Commission, MOEA. The prepayment for investment was US$1,359,100 thousand as of September 30, 2015 and the total injection is expected to be finished in the fourth quarter of 2015.

(Concluded)

 

- 67 -


TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Investee Company

 

Main Businesses and
Products

  Total Amount of
Paid-in Capital

(Foreign Currencies
in Thousands)
    Method of
Investment
    Accumulated
Outflow of
Investment from
Taiwan as of
January 1, 2015

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

September 30,
2015 (US$ in
Thousands)
    Net Income
(Losses) of the
Investee
Company
    Percentage of
Ownership
    Share of
Profits/Losses
    Carrying
Amount

as of
September 30,
2015
    Accumulated
Inward
Remittance of
Earnings as of

September 30,
2015
 
          Outflow     Inflow              

TSMC China

 

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

  $

(RMB

18,939,667

4,502,080

  

    Note 1      $

(US$

18,939,667

596,000

  

  $      $      $

(US$

18,939,667

596,000

  

  $ 7,235,242        100   $

 

7,249,333

(Note 2

  

  $ 39,621,695      $   

 

Accumulated Investment in Mainland China
as of September 30, 2015
(US$ in Thousands)
     Investment Amounts Authorized by
Investment Commission, MOEA
(US$ in Thousands)
     Upper Limit on Investment
(US$ in Thousands)
 
$

(US$

18,939,667

596,000

  

   $

(US$

18,939,667

596,000

  

   $

(US$

18,939,667

596,000

  

 

Note 1: TSMC directly invested US$596,000 thousand in TSMC China.
Note 2: Amount was recognized based on the reviewed financial statements.

 

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