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 2013

 

 

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:             .)

 

 

 

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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 15, 2013			By			/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Nine months ended September 30, 2013 and 2012 and

Independent Accountants’ Review Report

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012 and the related consolidated statements of comprehensive income for the three months ended September 30, 2013 and 2012 and for the nine months ended September 30, 2013 and 2012, as well as the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2013 and 2012. 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, International Financial Reporting Standard 1, “First-time adoption of International Financial Reporting Standards,” and International Accounting Standard 34, “Interim Financial Reporting,” endorsed by the Financial Supervisory Commission of the Republic of China.

November 12, 2013

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.

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

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

 

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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
		2013								2012								2013								2012
		Amount				%				Amount				%				Amount				%				Amount				%
NET REVENUE (Notes 5, 26, 37 and 42)		$	162,577,034				100			$	141,499,253				100			$	451,218,350				100			$	375,300,415				100
COST OF REVENUE (Notes 12, 33 and 37)			83,636,464				51				72,344,501				51				235,092,710				52				193,133,859				52
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			78,940,570				49				69,154,752				49				216,125,640				48				182,166,556				48
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			(49,759	)			—				10,381				—				(42,833	)			—				(129,569	)			—
GROSS PROFIT			78,890,811				49				69,165,133				49				216,082,807				48				182,036,987				48
OPERATING EXPENSES (Notes 5, 33 and 37)
Research and development			13,357,075				8				10,656,855				8				35,949,931				8				29,883,097				8
General and administrative			4,738,276				3				4,478,517				3				15,119,366				3				13,500,459				3
Marketing			1,164,881				1				1,234,982				1				3,359,373				1				3,440,158				1
Total operating expenses			19,260,232				12				16,370,354				12				54,428,670				12				46,823,714				12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 27 and 33)			(12,525	)			—				3,199				—				21,008				—				(425,894	)			—
INCOME FROM OPERATIONS (Note 42)			59,618,054				37				52,797,978				37				161,675,145				36				134,787,379				36
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture (Note 14)			1,113,243				1				712,186				1				2,826,900				1				1,338,261				—
Other income (Note 28)			433,395				—				353,132				—				1,788,780				—				1,364,809				—
Foreign exchange gain (loss), net			(314,948	)			—				(157,185	)			—				133,136				—				208,125				—
Finance costs (Notes 10 and 29)			(732,326	)			—				(270,379	)			—				(1,861,664	)			—				(685,418	)			—
Other gains and losses (Note 30)			(767,534	)			(1	)			326,609				—				552,180				—				(1,620,830	)			—
Total non-operating income and expenses			(268,170	)			—				964,363				1				3,439,332				1				604,947				—
INCOME BEFORE INCOME TAX			59,349,884				37				53,762,341				38				165,114,477				37				135,392,326				36
INCOME TAX EXPENSE (Note 31)			7,415,132				5				4,340,047				3				21,882,679				5				10,787,480				3
NET INCOME			51,934,752				32				49,422,294				35				143,231,798				32				124,604,846				33
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 10, 14, 24 and 31)
Exchange differences arising on translation of foreign operations			(1,740,459	)			(1	)			(2,239,717	)			(2	)			2,335,435				1				(3,627,600	)			(1	)
Changes in fair value of available-for-sale financial assets			7,685,269				5				(112,534	)			—				15,180,754				3				1,710,289				1
Cash flow hedges			—				—				28,258				—				—				—				28,421				—
Share of other comprehensive income of associates and joint venture			37,947				—				48,074				—				(18,924	)			—				68,461				—
Income tax benefit (expense) related to components of other comprehensive income			10,274				—				(24,497	)			—				53,484				—				(333,426	)			—
Other comprehensive income (loss) for the period, net of income tax			5,993,031				4				(2,300,416	)			(2	)			17,550,749				4				(2,153,855	)			—
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		$	57,927,783				36			$	47,121,878				33			$	160,782,547				36			$	122,450,991				33
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	51,951,943				32			$	49,379,633				35			$	143,336,544				32			$	124,714,606				33
Noncontrolling interests			(17,191	)			—				42,661				—				(104,746	)			—				(109,760	)			—
		$	51,934,752				32			$	49,422,294				35			$	143,231,798				32			$	124,604,846				33
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	57,951,263				36			$	47,092,066				33			$	160,893,697				36			$	122,537,025				33
Noncontrolling interests			(23,480	)			—				29,812				—				(111,150	)			—				(86,034	)			—
		$	57,927,783				36			$	47,121,878				33			$	160,782,547				36			$	122,450,991				33

 

		For the Three Months Ended September 30								For the Nine Months Ended September 30
		2013				2012				2013				2012
		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 32)
Basic earnings per share		$	2.00			$	1.90			$	5.53			$	4.81
Diluted earnings per share		$	2.00			$	1.90			$	5.53			$	4.81

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

		Equity Attributable to Shareholders of the Parent
																														Others
		Capital Stock—Common Stock												Retained Earnings																Foreign Currency Translation Reserve				Unrealized Gain (Loss) from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total				Total				Noncontrolling Interests				Total Equity
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total
BALANCE, JANUARY 1, 2013			25,924,435			$	259,244,357			$	55,675,340			$	115,820,123			$	7,606,224			$	284,985,121			$	408,411,468			$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)		$	720,550,680			$	2,543,226			$	723,093,906
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				16,615,880				—				(16,615,880	)			—				—				—				—				—				—				—				—
Reversal of special capital reserve			—				—				—				—				(4,820,483	)			4,820,483				—				—				—				—				—				—				—				—
Cash dividends to shareholders—NT$3.00 per share			—				—				—				—				—				(77,773,307	)			(77,773,307	)			—				—				—				—				(77,773,307	)			—				(77,773,307	)
Total			—				—				—				16,615,880				(4,820,483	)			(89,568,704	)			(77,773,307	)			—				—				—				—				(77,773,307	)			—				(77,773,307	)
Net income for the nine months ended September 30, 2013			—				—				—				—				—				143,336,544				143,336,544				—				—				—				—				143,336,544				(104,746	)			143,231,798
Other comprehensive income for the nine months ended September 30, 2013, net of income tax			—				—				—				—				—				—				—				2,315,276				15,241,944				(67	)			17,557,153				17,557,153				(6,404	)			17,550,749
Total comprehensive income for the nine months ended September 30, 2013			—				—				—				—				—				143,336,544				143,336,544				2,315,276				15,241,944				(67	)			17,557,153				160,893,697				(111,150	)			160,782,547
Issuance of stock from exercise of employee stock options			3,956				39,553				74,613				—				—				—				—				—				—				—				—				114,166				—				114,166
Stock option compensation cost of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				5,312				5,312
Adjustments to share of changes in equity of associates and joint venture			—				—				27,011				—				—				—				—				—				—				—				—				27,011				—				27,011
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				64,752				—				—				—				—				—				—				—				—				64,752				(64,752	)			—
Increase in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				198,279				198,279
Effect of deconsolidation of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(2,273,153	)			(2,273,153	)
BALANCE, SEPTEMBER 30, 2013			25,928,391			$	259,283,910			$	55,841,716			$	132,436,003			$	2,785,741			$	338,752,961			$	473,974,705			$	(8,438,530	)		$	23,215,265			$	(67	)		$	14,776,668			$	803,876,999			$	297,762			$	804,174,761
BALANCE, JANUARY 1, 2012			25,916,222			$	259,162,226			$	55,471,662			$	102,399,995			$	6,433,874			$	211,630,458			$	320,464,327			$	(6,433,364	)		$	(1,172,762	)		$	(93	)		$	(7,606,219	)		$	627,491,996			$	2,436,649			$	629,928,645
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				13,420,128				—				(13,420,128	)			—				—				—				—				—				—				—				—
Special capital reserve			—				—				—				—				1,172,350				(1,172,350	)			—				—				—				—				—				—				—				—
Cash dividends to shareholders—NT$3.00 per share			—				—				—				—				—				(77,748,668	)			(77,748,668	)			—				—				—				—				(77,748,668	)			—				(77,748,668	)
Total			—				—				—				13,420,128				1,172,350				(92,341,146	)			(77,748,668	)			—				—				—				—				(77,748,668	)			—				(77,748,668	)
Net income for the nine months ended September 30, 2012			—				—				—				—				—				124,714,606				124,714,606				—				—				—				—				124,714,606				(109,760	)			124,604,846
Other comprehensive income for the nine months ended September 30, 2012, net of income tax			—				—				—				—				—				—				—				(3,618,876	)			1,413,013				28,282				(2,177,581	)			(2,177,581	)			23,726				(2,153,855	)
Total comprehensive income for the nine months ended September 30, 2012			—				—				—				—				—				124,714,606				124,714,606				(3,618,876	)			1,413,013				28,282				(2,177,581	)			122,537,025				(86,034	)			122,450,991
Issuance of stock from exercise of employee stock options			5,825				58,250				118,206				—				—				—				—				—				—				—				—				176,456				—				176,456
Stock option compensation cost of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				3,372				3,372
Adjustments to share of changes in equity of associates and joint venture			—				—				2,601				—				—				—				—				—				—				—				—				2,601				—				2,601
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				37,956				—				—				—				—				—				—				—				—				37,956				(37,956	)			—
Increase in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				273,920				273,920
BALANCE, SEPTEMBER 30, 2012			25,922,047			$	259,220,476			$	55,630,425			$	115,820,123			$	7,606,224			$	244,003,918			$	367,430,265			$	(10,052,240	)		$	240,251			$	28,189			$	(9,783,800	)		$	672,497,366			$	2,589,951			$	675,087,317

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

		For the Nine Months Ended September 30
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	165,114,477			$	135,392,326
Adjustments for:
Depreciation expense			113,400,781				93,501,687
Amortization expense			1,629,482				1,642,604
Stock option compensation cost of subsidiary			5,312				3,372
Finance costs			1,861,664				685,418
Share of profits of associates and joint venture			(2,826,900	)			(1,338,261	)
Interest income			(1,282,220	)			(1,294,864	)
Gain on disposal of property, plant and equipment and intangible assets, net			(19,554	)			(263	)
Impairment loss on property, plant and equipment			—				422,323
Impairment loss of financial assets			1,541,170				2,748,616
Gain on disposal of available-for-sale financial assets, net			(1,239,442	)			(321,580	)
Gain on disposal of financial assets carried at cost, net			(32,199	)			(127,480	)
Loss on disposal of investments in associates			733				1,009
Gain on deconsolidation of subsidiary			(293,578	)			—
Unrealized gross profit on sales to associates			42,833				129,569
Loss (gain) on foreign exchange, net			353,755				(1,707,952	)
Dividend income			(506,560	)			(69,945	)
Income from receipt of equity securities in settlement of trade receivables			(9,590	)			(886	)
Loss on hedging instruments			6,319,146				—
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			(5,989,610	)			—
Changes in operating assets and liabilities:
Derivative financial instruments			(145,680	)			(37,059	)
Receivables from related parties			(740,050	)			(739,481	)
Notes and accounts receivable, net			(21,325,495	)			(18,556,562	)
Other receivables from related parties			77,757				(34,852	)
Inventories			700,838				(8,408,463	)
Other current assets			(79,924	)			(476,904	)
Other financial assets			39,939				107,508
Accounts payable			(959,796	)			2,891,661
Payables to related parties			755,742				(559,968	)
Salary and bonus payable			221,487				845,786
Accrued profit sharing to employees and bonus to directors and supervisors			(1,239,891	)			(427,278	)
Accrued expenses and other current liabilities			2,906,280				4,418,928
Provisions			714,527				1,839,277
Accrued pension cost			13,068				(7,746	)
Cash generated from operations			259,008,502				210,520,540
Income taxes paid			(14,398,067	)			(10,355,944	)
Net cash generated by operating activities			244,610,435				200,164,596

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

		For the Nine Months Ended September 30
		2013				2012
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets		$	(16,496	)		$	(4,434	)
Financial assets carried at cost			(18,059	)			(6,833	)
Property, plant and equipment			(213,640,001	)			(186,371,680	)
Intangible assets			(2,013,354	)			(1,106,734	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			2,370,217				616,757
Held-to-maturity financial assets			4,445,850				1,278,089
Financial assets carried at cost			53,857				236,735
Property, plant and equipment			97,368				116,748
Other assets			—				8,259
Costs from entering into hedging transactions			(143,982	)			—
Interest received			1,194,967				1,340,623
Other dividends received			506,560				69,945
Dividends received from associates			2,141,881				2,088,472
Refundable deposits paid			(67,513	)			(103,531	)
Refundable deposits refunded			81,922				2,290,428
Net cash outflow from deconsolidation of subsidiary (Note 34)			(979,910	)			—
Net cash used in investing activities			(205,986,693	)			(179,547,156	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of bonds			130,844,821				57,600,000
Repayment of bonds			—				(4,500,000	)
Increase (decrease) in short-term loans			(17,314,261	)			4,494,916
Increase in long-term bank loans			690,000				50,000
Repayment of long-term bank loans			(62,500	)			(181,250	)
Repayment of other long-term payables			(853,788	)			(2,367,866	)
Interest paid			(1,242,377	)			(683,003	)
Guarantee deposits received			14,916				14,814
Guarantee deposits refunded			(71,982	)			(229,585	)
Decrease in obligations under finance leases			(27,796	)			(124,923	)
Proceeds from exercise of employee stock options			114,166				176,456
Cash dividends			(77,773,307	)			(77,748,668	)
Increase in noncontrolling interests			212,410				273,920
Net cash generated (used) by financing activities			34,530,302				(23,225,189	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			39,065				(2,126,415	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			73,193,109				(4,734,164	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			143,410,588				143,472,277
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	216,603,697			$	138,738,113

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

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

(Reviewed, Not Audited)

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products.

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 42.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements were reported to the Board of Directors and issued on November 12, 2013.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

On May 14, 2009, the Financial Supervisory Commission (FSC) announced the roadmap of IFRSs adoption for R.O.C. companies. Accordingly, starting 2013, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations as well as related guidance translated by Accounting Research and Development Foundation (ARDF) endorsed by the FSC with the effective dates (collectively, “Taiwan-IFRSs”).

The new, revised or amended IFRSs, IASs, interpretations and related guidance in issue but not yet adopted by the Company as well as the effective dates issued by the International Accounting Standards Board (IASB), are stated as follows; however, the initial adoption to the following new, revised or amended standards and interpretations is still subject to the effective date to be published by the FSC.

 

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(Continued)

 

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(Concluded)

 

Note:

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

Except for the following items, the Company believes that the adoption of aforementioned new, revised or amended standards or interpretations will not have a significant effect on the Company’s accounting policies.

 

a.

IFRS 9, “Financial Instruments”

Under IFRS 9, 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. If the objective of the Company’s business model is to hold the financial asset to collect the contractual cash flows which are solely for payments of principal and interest on the principal amount outstanding, such assets are measured at the amortized cost. All other financial assets must be measured at the fair value through profit or loss as of the balance sheet date.

 

b.

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

c.

IFRS 13, “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements.

 

d.

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

The amendments to IAS 1 introduce a new disclosure terminology for other comprehensive income, which require additional disclosures in other comprehensive income. The items of other comprehensive income will be grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. In addition, income tax on items of other comprehensive income is also required to be allocated on the same basis. The Company expects the aforementioned amendments will change the Company’s presentation on the statement of comprehensive income.

 

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e.

Amendments to IAS 19, “Employee Benefits”

The amendments to IAS 19 change the accounting for defined benefit plans, which require the Company to recognize changes in defined benefit obligations or assets, to disclose the components of the defined benefit costs, to eliminate the corridor approach and to accelerate the recognition of past service cost. According to the amendments, all actuarial gains and losses will be recognized 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 amendment also requires a broader disclosure in defined benefit plans.

 

f.

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.

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are the Taiwan-IFRSs interim consolidated financial statements for part of the period covered by the Taiwan-IFRSs annual consolidated financial statements prepared for the year ended December 31, 2013. The Company’s date of transition to Taiwan-IFRSs is January 1, 2012, and the effect of the transition to Taiwan-IFRSs is disclosed in Note 43.

For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language consolidated financial statements shall prevail.

Significant accounting policies are summarized as follows:

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 IFRS 1, “First-time adoption of International Financial Reporting Standards,” (IFRS 1) 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 consolidated financial statements incorporate the financial statements of TSMC and entities controlled by TSMC (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

 

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Income and expenses of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the shareholders of the parent and to the noncontrolling interests even if this results in the noncontrolling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to shareholders of the parent.

When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between:

 

a.

the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and

 

b.

the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any noncontrolling interest.

The Company shall account for all amounts recognized in other comprehensive income in relation to the subsidiary on the same basis as would be required if the Company had directly disposed of the related assets and liabilities.

The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the cost on initial recognition of an investment in an associate.

The subsidiaries in the consolidated financial statements

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

 

(Continued)

 

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(Concluded)

 

Note a:

This is an insignificant subsidiary for which the financial statements are not reviewed by the Company’s independent accountants. The Company’s management believes the investment in such subsidiary has no material effect on the Company’s consolidated financial statements.

 

Note b:

TSMC has no power to govern the financial and operating policies of Xintec starting June 2013 due to the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method. Please refer to Note 34.

Other Significant Accounting Policies

The same accounting policies have been followed in this consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the three months ended March 31, 2013. For the summary of other significant accounting policies, please refer to Note 4 to the consolidated financial statements for the three months ended March 31, 2013.

 

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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 three months ended March 31, 2013. For the related information, please refer to Note 5 to the consolidated financial statements for the three months ended March 31, 2013.

 

6.	CASH AND CASH EQUIVALENTS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Cash and deposits in banks		$	213,978,108			$	140,072,294			$	135,330,257			$	139,637,363
Repurchase agreements collateralized by corporate bonds			2,052,723				2,691,042				2,534,741				—
Repurchase agreements collateralized by short-term commercial paper			449,803				349,341				399,585				—
Repurchase agreements collateralized by government bonds			123,063				297,911				473,530				3,834,914
		$	216,603,697			$	143,410,588			$	138,738,113			$	143,472,277

Deposits in banks, for the purpose of meeting short-term cash commitments, consisted of highly liquid time deposits that were readily convertible to known amounts of cash and which were subject to an insignificant risk of changes in value.

 

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

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Derivative financial assets
Forward exchange contracts		$	26,051			$	38,607			$	55,995			$	15,360
Cross currency swap contracts			162,919				947				2,695				—
		$	188,970			$	39,554			$	58,690			$	15,360
Derivative financial liabilities
Forward exchange contracts		$	2,086			$	12,174			$	16,045			$	13,623
Cross currency swap contracts			16,790				3,451				3,968				119
		$	18,876			$	15,625			$	20,013			$	13,742

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.

 

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Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date		Contract Amount (In Thousands)
September 30, 2013
Sell NT$/Buy JPY		October 2013		NT$14,344/JPY48,000
Sell NT$/Buy US$		October 2013		NT$639,824/US$21,650
Sell US$/Buy EUR		October 2013		US$428,345/EUR317,000
Sell US$/Buy JPY		October 2013		US$64,418/JPY6,352,719
Sell US$/Buy RMB		October 2013 to December 2013		US$117,000/RMB718,331
December 31, 2012
Sell NT$/Buy EUR		January 2013		NT$9,417,062/EUR246,000
Sell NT$/Buy US$		January 2013		NT$590,403/US$20,400
Sell NT$/Buy JPY		January 2013		NT$44,110/JPY130,000
Sell US$/Buy NT$		January 2013 to March 2013		US$13,700/NT$398,239
Sell US$/Buy RMB		January 2013		US$20,000/RMB124,735
September 30, 2012
Sell NT$/Buy EUR		October 2012		NT$7,684/EUR200
Sell NT$/Buy JPY		October 2012 to November 2012		NT$149,017/JPY393,000
Sell NT$/Buy US$		October 2012 to November 2012		NT$449,412/US$15,000
Sell RMB/Buy US$		October 2012		RMB685,056/US$108,000
Sell US$/Buy EUR		October 2012		US$52,421/EUR40,500
Sell US$/Buy JPY		October 2012		US$315,000/JPY24,525,215
Sell US$/Buy NT$		October 2012 to December 2012		US$106,190/NT$3,131,774
January 1, 2012
Sell EUR/Buy NT$		January 2012		EUR38,600/NT$1,528,206
Sell NT$/Buy US$		January 2012 to February 2012		NT$163,491/US$5,400
Sell RMB/Buy US$		January 2012		RMB1,118,705/US$177,000
Sell US$/Buy EUR		January 2012		US$2,082/EUR1,591
Sell US$/Buy JPY		January 2012		US$3,335/JPY259,830
Sell US$/Buy NT$		January 2012 to February 2012		US$16,900/NT$510,122

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, 2013
October 2013		NT$1,366,150/US$46,080		—		0.32%-0.60%
October 2013 to November 2013		US$1,199,000/NT$35,692,006		0.31%-3.51%		—
December 31, 2012
January 2013		NT$1,083,139/US$37,280		—		0.06%
January 2013		US$275,000/NT$7,986,190		0.14%-0.17%		—

(Continued)

 

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Maturity Date		Contract Amount (In Thousands)		Range of Interest Rates Paid		Range of Interest Rates Received
September 30, 2012
October 2012		NT$833,013/US$28,280		—		0.04%-0.05%
October 2012		US$170,000/NT$4,991,030		0.10%-0.11%		—
January 1, 2012
January 2012		NT$420,431/US$13,880		—		0.48%

(Concluded)        

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Publicly traded stocks		$	61,802,636			$	41,160,437			$	2,067,730			$	3,306,248
Money market funds			14,640				1,443				—				2,522
		$	61,817,276			$	41,161,880			$	2,067,730			$	3,308,770
Current portion		$	672,179			$	2,410,635			$	2,067,730			$	3,308,770
Noncurrent portion			61,145,097				38,751,245				—				—
		$	61,817,276			$	41,161,880			$	2,067,730			$	3,308,770

In October 2012, the Company acquired 5% of the outstanding equity of ASML Holding N.V. (ASML) for EUR837,816 thousand with a lock-up period of 2.5 years starting from the acquisition date. (Note 40f)

In the second quarter of 2012, the Company recognized an impairment loss on some of the overseas publicly traded stocks in the amount of NT$2,677,529 thousand due to the significant decline in fair value.

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Corporate bonds		$	700,285			$	5,056,973			$	7,556,046			$	8,614,527
Government bonds			—				—				—				454,320
		$	700,285			$	5,056,973			$	7,556,046			$	9,068,847
Current portion		$	700,285			$	5,056,973			$	6,854,611			$	3,825,680
Noncurrent portion			—				—				701,435				5,243,167
		$	700,285			$	5,056,973			$	7,556,046			$	9,068,847

 

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10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Financial assets
Current
Cash flow hedges
Forward exchange contract		$	—			$	—			$	28,189			$	—
Financial liabilities
Current
Cash flow hedges
Interest rate swap contracts		$	—			$	—			$	—			$	232
Noncurrent
Fair value hedges
Stock forward contracts		$	6,144,025			$	—			$	—			$	—

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

The outstanding stock forward contracts consisted of the following:

 

Contract Shares (In Thousands)		Maturity Date		Contract Price
September 30, 2013
8,250		May 2015 to September 2015		Determined by the specific percentage of spot price on the trade date

The Company entered into derivative contracts to hedge cash flow risk arising from foreign exchange rate fluctuations of an expected equity transaction in September 2012. Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
September 30, 2012
Sell US$/Buy EUR			October 2012			US$	257,759/EUR200,000

For the three months and nine months ended September 30, 2012, the amount recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve from the above forward exchange contract both amounted to a net gain of NT$28,189 thousand.

In addition, the Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. The interest rate swap contract of the Company was due in August 2012.

 

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The outstanding interest rate swap contract consisted of the following:

 

Contract Amount (In Thousands)		Maturity Date				Range of Interest Rates Paid				Range of Interest Rates Received
January 1, 2012
NT$80,000			August 31, 2012				1.38%			0.63%-0.86%

For the three months and the nine months ended September 30, 2012, the amount recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve from the above interest rate swap contract amounted to a net gain of NT$22 thousand and NT$5 thousand, respectively; the amount reclassified from equity and recognized as a loss from the above interest rate swap contract amounted to a net loss of NT$47 thousand and NT$227 thousand, respectively, which were included under finance costs in the consolidated statements of comprehensive income.

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Notes and accounts receivable		$	79,330,887			$	58,257,798			$	64,876,527			$	46,321,240
Allowance for doubtful receivables			(486,498	)			(480,212	)			(489,590	)			(490,952	)
Notes and accounts receivable, net		$	78,844,389			$	57,777,586			$	64,386,937			$	45,830,288

The Company’s sales agreements typically provide that the payment is due 30 days from the invoice date for a majority of the costumers and 30 to 45 days after the end of the month in which sales occur for some customers. 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 an 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, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Neither past due nor impaired		$	71,148,159			$	47,528,952			$	55,324,138			$	39,362,390
Past due but not impaired
Past due within 30 days			7,696,230				10,248,634				9,062,799				6,467,898
		$	78,844,389			$	57,777,586			$	64,386,937			$	45,830,288

 

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Movements of the allowance for doubtful receivables

 

		Nine Months Ended September 30
		2013				2012
Balance, beginning of the period		$	480,212			$	490,952
Provision (reversal)			9,380				(3	)
Write-off			—				(1,272	)
Effect of deconsolidation of subsidiary			(3,157	)			—
Effect of exchange rate changes			63				(87	)
Balance, end of the period		$	486,498			$	489,590

Aging analysis of accounts receivable that is individually determined to be impaired

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Not past due		$	7,557			$	160,354			$	125,474			$	81,017
Past due 1-30 days			6,832				2,863				10,165				24,351
Past due 31-60 days			4,576				—				—				4,684
Past due over 120 days			—				3,157				—				9,769
		$	18,965			$	166,374			$	135,639			$	119,821

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the amount of the bank guarantee and other credit enhancements were US$9 thousand, US$1,000 thousand, US$1,985 thousand and US$2,962 thousand, respectively.

 

12.	INVENTORIES

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Finished goods		$	6,696,080			$	6,244,824			$	4,255,500			$	3,347,849
Work in process			25,528,912				25,713,217				24,686,231				17,940,960
Raw materials			2,889,113				3,864,105				2,429,431				1,808,615
Supplies and spare parts			1,802,422				2,008,352				1,877,883				1,743,158
		$	36,916,527			$	37,830,498			$	33,249,045			$	24,840,582

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

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Inventory losses		$	252,245			$	443,728			$	489,414			$	1,485,371

 

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13.	FINANCIAL ASSETS CARRIED AT COST

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Non-publicly traded stocks		$	1,844,469			$	3,314,713			$	3,689,527			$	4,004,314
Mutual funds			280,038				290,364				291,724				310,691
		$	2,124,507			$	3,605,077			$	3,981,251			$	4,315,005

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

The Company recognized impairment loss on financial assets carried at cost in the amount of NT$1,495,454 thousand and NT$160 thousand for the three months ended September 30, 2013 and 2012, respectively; and of NT$1,541,170 thousand and NT$71,087 thousand for the nine months ended September 30, 2013 and 2012, respectively.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	22,459,686			$	20,325,277			$	20,993,580			$	22,033,567
Jointly controlled entities			3,444,234				3,035,641				2,913,578				2,853,364
		$	25,903,920			$	23,360,918			$	23,907,158			$	24,886,931

 

a.

Investments in associates

Associates consisted of the following:

 

				Place of Incorporation and Operation		Carrying Amount																% of Ownership and Voting Rights Held by the Company
Name of Associate		Principal Activities				September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012				September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Vanguard International Semiconductor Corporation (VIS)		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts		Hsinchu, Taiwan		$	10,107,307			$	9,406,597			$	9,121,036			$	8,985,340				39	%			40	%			41	%			39	%
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)		Fabrication and supply of integrated circuits		Singapore			6,870,266				6,710,956				6,253,232				6,289,429				39	%			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		Taipei, Taiwan			2,713,227				2,992,899				4,449,280				5,609,002				20	%			20	%			20	%			20	%
Xintec		Wafer level chip size packaging service		Taoyuan, Taiwan			1,785,184				—				—				—				40	%			—				—				—
Global Unichip Corporation (GUC)		Researching, developing, manufacturing, testing and marketing of integrated circuits		Hsinchu, Taiwan			983,702				1,214,825				1,170,032				1,149,796				35	%			35	%			35	%			35	%
Mcube Inc. (Mcube)		Research, development, and sale of micro-semiconductor device		Delaware, U.S.A.			—				—				—				—				—				25	%			25	%			25	%
						$	22,459,686			$	20,325,277			$	20,993,580			$	22,033,567

 

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

TSMC has no power to govern the financial and operating policies of Xintec starting June 2013 due to the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method. Please refer to Note 34.

In the fourth quarter of 2012, the Company recognized an impairment loss in the amount of NT$1,186,674 thousand due to the lower estimated recoverable amount compared with the carrying amount of its investments in stocks traded on the Taiwan GreTai Securities Market.

In February 2010, the Company acquired 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; following such acquisition, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years from the acquisition date is prohibited unless permitted by other related regulations.

Financial information of the Company’s associates was summarized as follows:

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Total assets		$	86,577,100			$	76,889,298			$	78,210,258			$	79,721,042
Total liabilities			(25,288,666	)			(21,683,504	)			(23,922,106	)			(20,948,855	)
Net assets		$	61,288,434			$	55,205,794			$	54,288,152			$	58,772,187
The Company’s share of net assets of associates		$	22,459,686			$	20,325,277			$	20,993,580			$	22,033,567

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Net revenue		$	16,901,548			$	14,721,518			$	45,692,397			$	41,525,415
Net income		$	3,107,787			$	1,230,675			$	6,806,119			$	1,170,094
The Company’s share of profits of associates		$	969,247			$	558,002			$	2,420,334			$	852,523
The Company’s share of other comprehensive income (loss) of associates		$	1,108			$	3,115			$	28,292			$	(6,682	)

The market prices of the investments accounted for using the equity method in publicly traded stocks calculated by the closing price at the balance sheet date are summarized as follows:

 

Name of Associate		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
VIS		$	20,323,030			$	12,658,703			$	11,370,845			$	6,627,758
Motech		$	4,435,225			$	2,383,824			$	2,703,125			$	4,645,176
GUC		$	4,066,513			$	4,692,130			$	5,439,136			$	4,645,442

 

- 20 -

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b.	Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

Name of Jointly Controlled Entity		Principal Activities		Place of Incorporation and Operation		Carrying Amount																% of Ownership and Voting Rights Held by the Company
						September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012				September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
VisEra Holding Company (VisEra Holding)		Investing in companies involved in the design, manufacturing and other related businesses in the semiconductor industry		Cayman Islands		$	3,444,234			$	3,035,641			$	2,913,578			$	2,853,364				49	%			49	%			49	%			49	%

Financial information of the Company’s jointly controlled entities was summarized as follows:

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Current assets		$	2,221,606			$	1,887,122			$	1,531,298			$	1,616,916
Noncurrent assets		$	1,641,911			$	1,780,903			$	1,975,543			$	1,732,247
Current liabilities		$	418,821			$	631,803			$	592,516			$	495,066
Noncurrent liabilities		$	462			$	581			$	747			$	733

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Net revenue		$	482,576			$	546,251			$	1,463,662			$	1,251,020
Cost of revenue		$	311,902			$	334,873			$	905,720			$	856,342
Operating expenses		$	34,084			$	30,024			$	99,545			$	90,615
Non-operating income, net		$	31,673			$	3,205			$	39,287			$	193,414
Income tax expense		$	24,267			$	30,375			$	91,118			$	11,739
The Company’s share of profits of joint venture		$	143,996			$	154,184			$	406,566			$	485,738
The Company’s share of other comprehensive income (loss) of joint venture		$	36,839			$	44,959			$	(47,216	)		$	75,143

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Land and land improvements		$	3,586,612			$	1,159,755			$	1,170,071			$	1,185,573
Buildings			105,868,005				85,610,120				86,982,731				71,915,740
Machinery and equipment			427,938,323				404,382,298				418,513,468				294,814,381
Office equipment			7,689,194				6,907,376				6,558,696				5,148,538
Assets under finance leases			421,911				438,663				444,782				493,945
Advance payments and construction in progress			182,211,979				119,063,976				66,444,314				116,863,976
		$	727,716,024			$	617,562,188			$	580,114,062			$	490,422,153

 

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		Nine Months Ended September 30, 2013
		Balance, Beginning of Period				Additions				Disposals				Reclassification				Effect of Deconsolidation of Subsidiary				Effect of Exchange Rate Changes				Balance, End of Period
Cost
Land and land improvements		$	1,527,124			$	3,212,000			$	—			$	—			$	(772,029	)		$	13,860			$	3,980,955
Buildings			197,411,851				30,371,814				—				3,797				(986,205	)			586,240				227,387,497
Machinery and equipment			1,279,893,177				127,162,251				(2,094,599	)			—				(5,630,854	)			1,628,558				1,400,958,533
Office equipment			20,067,943				3,006,548				(506,366	)			—				(1,055,809	)			29,489				21,541,805
Assets under finance leases			766,732				—				—				—				—				24,593				791,325
			1,499,666,827			$	163,752,613			$	(2,600,965	)		$	3,797			$	(8,444,897	)		$	2,282,740				1,654,660,115
Accumulated depreciation and impairment
Land improvements			367,369			$	20,332			$	—			$	—			$	—			$	6,642				394,343
Buildings			111,801,731				9,642,611				—				—				(226,908	)			302,058				121,519,492
Machinery and equipment			875,510,879				101,931,987				(2,024,038	)			—				(3,656,326	)			1,257,708				973,020,210
Office equipment			13,160,567				1,774,915				(506,117	)			—				(599,483	)			22,729				13,852,611
Assets under finance leases			328,069				30,936				—				—				—				10,409				369,414
			1,001,168,615			$	113,400,781			$	(2,530,155	)		$	—			$	(4,482,717	)		$	1,599,546				1,109,156,070
Advance payments and construction in progress			119,063,976			$	64,777,969			$	—			$	—			$	(1,632,860	)		$	2,894				182,211,979
		$	617,562,188																							$	727,716,024

 

		Nine Months Ended September 30, 2012
		Balance, Beginning of Period				Additions (Deductions)				Disposals				Impairment				Reclassification				Effect of Exchange Rate Changes				Balance, End of Period
Cost
Land and land improvements		$	1,541,128			$	18,500			$	—			$	—			$	—			$	(25,431	)		$	1,534,197
Buildings			172,997,391				23,699,216				(53,487	)			—				—				(772,172	)			195,870,948
Machinery and equipment			1,057,926,529				208,463,387				(1,125,566	)			—				(35	)			(2,354,872	)			1,262,909,443
Office equipment			17,041,306				2,790,915				(472,763	)			—				35				(75,533	)			19,283,960
Assets under finance leases			791,480				—				—				—				—				(31,217	)			760,263
			1,250,297,834			$	234,972,018			$	(1,651,816	)		$	—			$	—			$	(3,259,225	)			1,480,358,811
Accumulated depreciation and impairment
Land improvements			355,555			$	20,335			$	—			$	—			$	—			$	(11,764	)			364,126
Buildings			101,081,651				8,248,043				(43,387	)			—				—				(398,090	)			108,888,217
Machinery and equipment			763,112,148				83,843,149				(1,028,311	)			422,323				(8	)			(1,953,326	)			844,395,975
Office equipment			11,892,768				1,359,994				(464,794	)			—				8				(62,712	)			12,725,264
Assets under finance leases			297,535				30,166				—				—				—				(12,220	)			315,481
			876,739,657			$	93,501,687			$	(1,536,492	)		$	422,323			$	—			$	(2,438,112	)			966,689,063
Advance payments and construction in progress			116,863,976			$	(50,318,756	)		$	—			$	—			$	(2,086	)		$	(98,820	)			66,444,314
		$	490,422,153																							$	580,114,062

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.

For the nine months ended September 30, 2012, the Company recognized impairment loss of NT$422,323 thousand related to property, plant and equipment of the foundry reportable segment since the carrying amount of some of property, plant and equipment is expected to be unrecoverable.

The Company entered into agreements to lease buildings from December 2003 to November 2018 that qualify as finance leases.

Future minimum lease gross payments were as follows:

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Minimum lease payments
Not later than 1 year		$	27,912			$	27,042			$	26,809			$	—
Later than 1 year and not later than 5 years			111,648				108,168				107,236				223,296
Later than five years			725,137				729,566				723,303				780,962
			864,697				864,776				857,348				1,004,258
Less: Future finance expenses			97,353				108,471				112,244				133,265
Present value of minimum lease payments		$	767,344			$	756,305			$	745,104			$	870,993

(Continued)

 

- 22 -

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(Concluded)

There was no capitalization of interest for the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. For the three months and the nine months ended September 30, 2012, the amount of capitalized interest was nil and NT$6,442 thousand, respectively, and the capitalized interest rate was 1.08%-1.20%.

 

16.	INTANGIBLE ASSETS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Goodwill		$	5,596,319			$	5,523,707			$	5,560,762			$	5,693,999
Technology license fees			1,174,288				1,461,893				1,548,893				1,682,892
Software and system design costs			3,666,125				2,968,942				2,627,158				2,366,483
Patent and others			956,548				1,005,027				1,152,041				1,118,189
		$	11,393,280			$	10,959,569			$	10,888,854			$	10,861,563

 

		Nine Months Ended September 30, 2013
		Balance, Beginning of Period				Additions				Disposals				Reclassification				Effect of Deconsolidation of Subsidiary				Effect of Exchange Rate Changes				Balance, End of Period
Cost
Goodwill		$	5,523,707			$	—			$	—			$	—			$	—			$	72,612			$	5,596,319
Technology license fees			4,590,548				—				—				(29,565	)			(113,340	)			(1,164	)			4,446,479
Software and system design costs			15,095,421				1,809,264				(17,486	)			(110,746	)			(25,335	)			3,498				16,754,616
Patent and others			3,094,664				287,840				(23,549	)			101,007				(42,089	)			3,662				3,421,535
			28,304,340			$	2,097,104			$	(41,035	)		$	(39,304	)		$	(180,764	)		$	78,608				30,218,949
Accumulated amortization
Technology license fees			3,128,655			$	211,287			$	—			$	—			$	(66,587	)		$	(1,164	)			3,272,191
Software and system design costs			12,126,479				994,698				(17,214	)			(5,942	)			(12,661	)			3,131				13,088,491
Patent and others			2,089,637				423,497				(23,549	)			—				(25,195	)			597				2,464,987
			17,344,771			$	1,629,482			$	(40,763	)		$	(5,942	)		$	(104,443	)		$	2,564				18,825,669
		$	10,959,569																							$	11,393,280

 

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		Nine Months Ended September 30, 2012
		Balance, Beginning of Period				Additions				Disposals				Reclassification				Effect of Exchange Rate Changes				Balance, End of Period
Cost
Goodwill		$	5,693,999			$	—			$	—			$	—			$	(133,237	)		$	5,560,762
Technology license fees			4,370,173				29,565				—				191,580				(527	)			4,590,791
Software and system design costs			13,438,579				1,162,867				(48,201	)			(91,904	)			(5,114	)			14,456,227
Patent and others			2,670,031				422,527				(91,844	)			93,990				(4,641	)			3,090,063
			26,172,782			$	1,614,959			$	(140,045	)		$	193,666			$	(143,519	)			27,697,843
Accumulated amortization
Technology license fees			2,687,281			$	354,029			$	—			$	—			$	588				3,041,898
Software and system design costs			11,072,096				846,409				(48,201	)			(36,552	)			(4,683	)			11,829,069
Patent and others			1,551,842				442,166				(91,844	)			36,552				(694	)			1,938,022
			15,311,219			$	1,642,604			$	(140,045	)		$	—			$	(4,789	)			16,808,989
		$	10,861,563																			$	10,888,854

The recoverable amount of the Company’s goodwill has been tested for impairment at the end of the annual reporting period and was determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering future five-year period, and the Company used annual discount rate of 9.00% and 9.68% in its test of impairment as of December 31, 2012 and 2011, respectively, to reflect the relevant specific risk in the cash-generating unit.

For the nine months ended September 30, 2013 and 2012, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Tax receivable		$	1,471,795			$	1,565,104			$	1,462,504			$	708,891
Prepaid expenses			1,258,358				1,080,236				1,042,826				1,436,416
Long-term receivable			796,400				767,800				756,400				785,400
Others			630,160				608,412				590,813				550,053
		$	4,156,713			$	4,021,552			$	3,852,543			$	3,480,760
Current portion		$	2,740,765			$	2,786,408			$	2,639,414			$	2,174,014
Noncurrent portion			1,415,948				1,235,144				1,213,129				1,306,746
		$	4,156,713			$	4,021,552			$	3,852,543			$	3,480,760

 

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18.	SHORT-TERM LOANS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Unsecured loans
Amount		$	18,053,096			$	34,714,929			$	29,749,650			$	25,926,528
Original loan content
US$ (in thousands)		$	610,500			$	1,195,500			$	1,015,000			$	856,000
Annual interest rate			0.38%-0.40%				0.39%-0.58%				0.42%-0.65%				0.45%-1.00%
Maturity date			Due in October 2013				Due in January 2013				Due in October 2012				Due by February 2012

 

19.	PROVISIONS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Sales returns and allowances		$	6,720,214			$	6,038,003			$	6,900,184			$	5,068,263
Warranties			7,344				4,891				3,619				2,889
		$	6,727,558			$	6,042,894			$	6,903,803			$	5,071,152
Current portion		$	6,720,214			$	6,038,003			$	6,900,184			$	5,068,263
Noncurrent portion			7,344				4,891				3,619				2,889
		$	6,727,558			$	6,042,894			$	6,903,803			$	5,071,152

 

		Sales Returns and Allowances				Warranties				Total
Nine months ended September 30, 2013
Balance, beginning of period		$	6,038,003			$	4,891			$	6,042,894
Provision			3,798,683				3,687				3,802,370
Payment			(3,086,482	)			(1,361	)			(3,087,843	)
Effect of deconsolidation of subsidiary			(37,748	)			—				(37,748	)
Effect of exchange rate changes			7,758				127				7,885
Balance, end of period		$	6,720,214			$	7,344			$	6,727,558
Nine months ended September 30, 2012
Balance, beginning of period		$	5,068,263			$	2,889			$	5,071,152
Provision			6,462,738				820				6,463,558
Payment			(4,624,281	)			—				(4,624,281	)
Effect of exchange rate changes			(6,536	)			(90	)			(6,626	)
Balance, end of period		$	6,900,184			$	3,619			$	6,903,803

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.

 

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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, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Domestic unsecured bonds		$	166,200,000			$	80,000,000			$	75,600,000			$	22,500,000
Overseas unsecured bonds			44,356,500				—				—				—
			210,556,500				80,000,000				75,600,000				22,500,000
Less: Discounts on bonds payable			140,066				—				—				—
Total		$	210,416,434			$	80,000,000			$	75,600,000			$	22,500,000
Current portion		$	—			$	—			$	—			$	4,500,000
Noncurrent portion			210,416,434				80,000,000				75,600,000				18,000,000
		$	210,416,434			$	80,000,000			$	75,600,000			$	22,500,000

The major terms of domestic unsecured bonds are as follows:

 

Issuance		Tranche		Issuance Period		Total Amount		Coupon Rate		Repayment and Interest Payment
100-1		A		September 2011 to   September 2016		$10,500,000		1.40%		Bullet repayment; interest payable annually
		B		September 2011 to   September 2018		7,500,000		1.63%		”
100-2		A		January 2012 to   January 2017		10,000,000		1.29%		”
		B		January 2012 to   January 2019		7,000,000		1.46%		”
101-1		A		August 2012 to   August 2017		9,900,000		1.28%		”
		B		August 2012 to   August 2019		9,000,000		1.40%		”
101-2		A		September 2012 to   September 2017		12,700,000		1.28%		”
		B		September 2012 to   September 2019		9,000,000		1.39%		”
101-3		—		October 2012 to   October 2022		4,400,000		1.53%		”
101-4		A		January 2013 to   January 2018		10,600,000		1.23%		”
		B		January 2013 to   January 2020		10,000,000		1.35%		”
		C		January 2013 to   January 2023		3,000,000		1.49%		”

(Continued)

 

- 26 -

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Issuance		Tranche		Issuance Period		Total Amount		Coupon Rate		Repayment and Interest Payment
102-1		A		February 2013 to   February 2018		$6,200,000		1.23%		Bullet repayment; interest payable annually
		B		February 2013 to   February 2020		11,600,000		1.38%		”
		C		February 2013 to   February 2023		3,600,000		1.50%		”
102-2		A		July 2013 to   July 2020		10,200,000		1.50%		”
		B		July 2013 to   July 2023		3,500,000		1.70%		”
102-3		A		August 2013 to   August 2017		4,000,000		1.34%		”
		B		August 2013 to   August 2019		8,500,000		1.52%		”
102-4		A		September 2013 to   September 2016		1,500,000		1.35%		”
		B		September 2013 to   September 2017		1,500,000		1.45%		”
		C		September 2013 to   March 2019		1,400,000		1.60%		Bullet repayment; interest payable annually (interest for the six months prior to maturity will accrue on the basis of actual days and be repayable at maturity)
		D		September 2013 to   March 2021		2,600,000		1.85%		”
		E		September 2013 to   March 2023		5,400,000		2.05%		”
		F		September 2013 to   September 2023		2,600,000		2.10%		Bullet repayment; interest payable annually
Domestic       5th		C		January 2002 to   January 2012		4,500,000		3.00%		”

(Concluded)

The major terms of overseas unsecured bonds are as follows:

 

Issuance Period		Total Amount (US$)		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%		”

 

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21.	LONG-TERM BANK LOANS

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Bank loans for working capital:
Repayable from April 2016 in 16 quarterly installments, annual interest rate at 3.63% in 2013		$	40,000			$	—			$	—			$	—
Repayable in full in one lump sum payment in June 2016 but repaid earlier of NT$100,000 thousand in September 2012, annual interest rate at 1.08%-1.21% in 2012			—				550,000				550,000				650,000
Repayable in full in one lump sum payment in March 2015 but repaid earlier of NT$50,000 thousand in August 2012, annual interest rate at 1.16%-1.18% in 2012			—				450,000				450,000				500,000
Repayable from July 2012 in 16 quarterly installments, annual interest rate at 1.21%-1.24% in 2012			—				262,500				281,250				300,000
Repayable from September 2012 in 16 quarterly installments, annual interest rate at 1.21%-1.24% in 2012			—				175,000				187,500				200,000
Repayable from October 2013 in 16 quarterly installments, annual interest rate at 1.23%-1.24% in 2012			—				50,000				50,000				—
		$	40,000			$	1,487,500			$	1,518,750			$	1,650,000
Current portion		$	—			$	128,125			$	125,000			$	62,500
Noncurrent portion			40,000				1,359,375				1,393,750				1,587,500
		$	40,000			$	1,487,500			$	1,518,750			$	1,650,000

As of September 30, 2013, some of the long-term bank loans were amounted to nil as a result of deconsolidation of Xintec in June 2013 (refer to Note 34).

 

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22.	OTHER LONG-TERM PAYABLES

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Payables for software and system design costs		$	54,000			$	113,000			$	113,000			$	—
Payables for acquisition of property, plant and equipment			—				825,447				818,361				3,399,855
Payables for technology transfer			—				29,038				29,310				—
		$	54,000			$	967,485			$	960,671			$	3,399,855
Current portion (classified under accrued expenses and other current liabilities)		$	18,000			$	913,485			$	906,671			$	3,399,855
Noncurrent portion			36,000				54,000				54,000				—
		$	54,000			$	967,485			$	960,671			$	3,399,855

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. The property, plant and equipment have been in use by TSMC China since 2004. The aforementioned payables were totally paid in July 2013.

 

23.	RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Technology, TSMC Solar NA and TSMC Solar Europe GmbH also make monthly contributions at certain percentages of the basic salary of their employees. Accordingly, the Company recognized expenses of NT$402,495 thousand and NT$364,639 thousand in the consolidated statements of comprehensive income for the three months ended September 30, 2013 and 2012, respectively; and of NT$1,190,732 thousand and NT$1,031,294 thousand in the consolidated statements of comprehensive income for the nine months ended September 30, 2013 and 2012, respectively.

b. Defined benefit plans

TSMC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

The Company adopted projected unit credit method to measure the present value of the defined benefit obligation, current service costs and prior service costs.

 

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The Company adopted the pension cost rate from the actuarial valuation as of December 31, 2012 and January 1, 2012 to determine and recognize pension expenses of NT$60,702 thousand and NT$56,697 thousand in the consolidated statements of comprehensive income for the three months ended September 30, 2013 and 2012, respectively; and of NT$182,089 thousand and NT$166,025 thousand in the consolidated statements of comprehensive income for the nine months ended September 30, 2013 and 2012, respectively. For the information of the defined benefit plans as of December 31, 2012 and January 1, 2012, please refer to Note 23 to the consolidated financial statements for the three months ended March 31, 2013.

The pension costs of the defined benefit plans were as follows:

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Cost of revenue		$	39,638			$	35,128			$	117,894			$	102,684
Research and development expenses			15,621				14,321				46,686				43,236
General and administrative expenses			4,349				6,179				14,164				16,760
Marketing expenses			1,094				1,069				3,345				3,345
		$	60,702			$	56,697			$	182,089			$	166,025

 

24.

EQUITY

 

a.

Capital stock

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Authorized shares (in thousand)			28,050,000				28,050,000				28,050,000				28,050,000
Authorized capital		$	280,500,000			$	280,500,000			$	280,500,000			$	280,500,000
Issued and paid shares (in thousand)			25,928,391				25,924,435				25,922,047				25,916,222
Issued capital		$	259,283,910			$	259,244,357			$	259,220,476			$	259,162,226

Issued common shares with par value of $10 per share entitled the right to vote and to receive dividends.

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

As of September 30, 2013, 1,088,027 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,440,133 thousand shares (one ADS represents five common shares).

 

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b.	Capital surplus

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Additional paid-in capital		$	24,009,220			$	23,934,607			$	23,892,456			$	23,774,250
From merger			22,804,510				22,804,510				22,804,510				22,804,510
From convertible bonds			8,892,847				8,892,847				8,892,847				8,892,847
From differences between equity purchase price and carrying amount arising from acquisition or disposal of subsidiaries			105,485				40,733				40,557				—
From share of changes in equities of associates and joint venture			29,599				2,588				—				—
Donations			55				55				55				55
		$	55,841,716			$	55,675,340			$	55,630,425			$	55,471,662

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 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, which are limited to a certain percentage of TSMC’s paid-in capital.

 

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.

 

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TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$3,492,973 thousand and NT$3,289,330 thousand for the three months ended September 30, 2013 and 2012, respectively; and NT$9,637,364 thousand and NT$8,333,282 thousand for the nine months ended September 30, 2013 and 2012, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently approved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

Pursuant to existing regulations, the Company is required to set aside additional special capital reserve equivalent to the net debit balance of the other components of stockholders’ equity, such as the accumulated balance of foreign currency translation reserve, unrealized valuation gain/loss on 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.

The appropriations of 2012 and 2011 earnings have been approved by TSMC’s shareholders in its meetings held on June 11, 2013 and on June 12, 2012, respectively. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings								Dividends Per Share (NT$)
		For Fiscal Year 2012				For Fiscal Year 2011				For Fiscal Year 2012				For Fiscal Year 2011
Legal capital reserve		$	16,615,880			$	13,420,128
Special capital reserve			(4,820,483	)			1,172,350
Cash dividends to shareholders			77,773,307				77,748,668			$	3.00			$	3.00
		$	89,568,704			$	92,341,146

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, had been approved by the shareholders in its meeting held on June 11, 2013 and June 12, 2012, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 5, 2013 and February 14, 2012 and the same amount had been charged against earnings of 2012 and 2011, respectively.

The appropriations of earnings, payment of profit sharing to employees and bonus to directors for 2012 approved by the Board of Directors of TSMC were based on the financial statements for the year ended December 31, 2012 prepared under the R.O.C. GAAP and in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by the FSC before amendment.

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

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

 

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d.

Others

Changes in others were as follows:

 

		Nine Months Ended September 30, 2013
		Foreign Currency Translation Reserve				Unrealized Gain (Loss) from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of period		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)
Exchange differences arising on translation of foreign operations			2,334,714				—				—				2,334,714
Changes in fair value of available-for-sale financial assets			—				16,417,454				—				16,417,454
Cumulative gain/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				(1,229,330	)			—				(1,229,330	)
Share of other comprehensive income of associates and joint venture			(20,214	)			380				(67	)			(19,901	)
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			776				(44	)			—				732
Income tax effect			—				53,484				—				53,484
Balance, end of period		$	(8,438,530	)		$	23,215,265			$	(67	)		$	14,776,668

 

		Nine Months Ended September 30, 2012
		Foreign Currency Translation Reserve				Unrealized Gain (Loss) from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of period		$	(6,433,364	)		$	(1,172,762	)		$	(93	)		$	(7,606,219	)
Exchange differences arising on translation of foreign operations			(3,658,135	)			—				—				(3,658,135	)
Changes in fair value of hedging instruments for cash flow hedges			—				—				28,191				28,191
Changes in fair value of hedging instruments for cash flow hedges reclassified to profit or loss			—				—				91				91
Changes in fair value of available-for-sale financial assets			—				(643,360	)			—				(643,360	)
															(Continued	)

 

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		Nine Months Ended September 30, 2012
		Foreign Currency Translation Reserve				Unrealized Gain (Loss) from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Cumulative gain/loss reclassified to profit or loss upon impairment of available-for-sale financial assets		$	—			$	2,677,529			$	—			$	2,677,529
Cumulative gain/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				(316,932	)			—				(316,932	)
Share of other comprehensive income of associates and joint venture			39,259				29,202				—				68,461
Income tax effect			—				(333,426	)			—				(333,426	)
Balance, end of period		$	(10,052,240	)		$	240,251			$	28,189			$	(9,783,800	)
															(Concluded	)

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 gain or loss 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.

 

e.	Noncontrolling interests

 

		Nine Months Ended September 30
		2013				2012
Balance, beginning of period		$	2,543,226			$	2,436,649
Share of noncontrolling interests
Net loss			(104,746	)			(109,760	)
Exchange differences arising on translation of foreign operations			721				30,535
Changes in fair value of available-for-sale financial assets			2,741				(2,300	)
Cumulative gain/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			(10,111	)			(4,648	)
							(Continued	)

 

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		Nine Months Ended September 30
		2013				2012
Changes in fair value of hedging instruments for cash flow hedges		$	—			$	3
Changes in fair value of hedging instruments for cash flow hedges reclassified to profit or loss			—				136
Stock option compensation cost of subsidiary			5,312				3,372
Share of other comprehensive income of associates and joint venture			244				—
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			1				—
Adjustments arising from changes in percentage of ownership in subsidiaries			(64,752	)			(37,956	)
Increase in noncontrolling interests			198,279				273,920
Effect of deconsolidation of subsidiary			(2,273,153	)			—
Balance, end of period		$	297,762			$	2,589,951
							(Concluded	)

 

25.	SHARE-BASED PAYMENT

 

a.

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

The Company elected to take the optional exemption from applying IFRS 2 retrospectively for the shared-based payment transactions granted and vested before January 1, 2012. The plans are described as follows:

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

Stock options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2013.

 

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Information about TSMC’s outstanding options for the nine months ended September 30, 2013 and 2012 was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Nine months ended September 30, 2013
Balance, beginning of period			5,945			$	34.6
Options exercised			(3,956	)			28.9
Balance, end of period			1,989				45.9
Nine months ended September 30, 2012
Balance, beginning of period			14,293			$	31.4
Options exercised			(5,825	)			30.3
Options canceled			(135	)			34.6
Balance, end of period			8,333				32.6

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

Information about TSMC’s outstanding options was as follows:

 

September 30, 2013						December 31, 2012
Range of Exercise Price (NT$)		Weighted-average Remaining Contractual Life (Years)				Range of Exercise Price (NT$)				Weighted-average Remaining Contractual Life (Years)
$38.0-$50.1			1.3			$	20.2-$28.3				0.4
						$	38.0-$50.1				2.0

 

September 30, 2012						January 1, 2012
Range of Exercise Price (NT$)		Weighted-average Remaining Contractual Life (Years)				Range of Exercise Price (NT$)				Weighted-average Remaining Contractual Life (Years)
$20.2-$28.3			0.6			$	20.9-$29.3				1.2
$38.0-$50.1			2.2			$	38.0-$50.1				2.9

As of September 30, 2013, all of the above outstanding options were exercisable.

 

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b.

Application of IFRS 2

The Company applied IFRS 2 for the following plans as the shared-based payment transactions were granted and vested on or after January 1, 2012. The plans are described as follows:

The Board of Directors of TSMC SSL approved on December 18, 2012 and November 21, 2011 the issuance of new shares and allocated 17,000 thousand shares and 17,175 thousand shares for 2013 and 2012 stock option plan, respectively, for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

Information about TSMC SSL’s employee stock options related to the aforementioned new shares issued was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Nine months ended September 30, 2013
Balance, beginning of period			—			$	—
Options granted			17,000				10.0
Options exercised			(17,000	)			10.0
Balance, end of period			—				—
Nine months ended September 30, 2012
Balance, beginning of period			—			$	—
Options granted			17,175				10.0
Options exercised			(17,175	)			10.0
Balance, end of period			—				—

The grant dates of aforementioned stock options were April 10, 2013 and January 9, 2012, respectively. TSMC SSL used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

		2013 Stock Option Plan				2012 Stock Option Plan
Valuation assumptions:
Stock price on grant date (NT$/share)		$	4.6			$	8.9
Exercise price (NT$/share)		$	10.0			$	10.0
Expected volatility			51.68	%			40.32	%
Expected life			31 days				40 days
Risk free interest rate			0.60	%			0.76	%

The stock price on grant date was determined based on the cost approach. The expected volatility was calculated using the historical rate of return based on the TWSE Optoelectronic Index.

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

The Board of Directors of TSMC Solar approved on November 21, 2011 the issuance of new shares and allocated 12,341 thousand shares for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

 

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Information about TSMC Solar’s employee stock options related to the aforementioned new shares issued was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Nine months ended September 30, 2012
Balance, beginning of period			—			$	—
Options granted			12,341				10.0
Options exercised			(12,341	)			10.0
Balance, end of period			—				—

The grant date of aforementioned stock options was January 9, 2012. TSMC Solar used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

Valuation assumptions:
Stock price on grant date (NT$/share)		$	9.0
Exercise price (NT$/share)		$	10.0
Expected volatility			40.32	%
Expected life			40 days
Risk free interest rate			0.76	%

The stock price on grant date was determined based on the cost approach. The expected volatility was calculated using the historical rate of return based on the TWSE Optoelectronic Index.

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

 

26.	NET REVENUE

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

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Net revenue from the sale of goods		$	162,446,219			$	141,375,451			$	450,836,794			$	374,943,954
Net revenue from royalties			130,815				123,802				381,556				356,461
		$	162,577,034			$	141,499,253			$	451,218,350			$	375,300,415

 

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27.	OTHER OPERATING INCOME AND EXPENSES, NET

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Income (expenses) of rental assets
Rental income		$	3,508			$	—			$	10,763			$	503
Depreciation of rental assets			(6,222	)			(1,434	)			(18,899	)			(5,223	)
			(2,714	)			(1,434	)			(8,136	)			(4,720	)
Gain (loss) on disposal of property, plant and equipment and intangible assets, net			(9,811	)			4,389				19,554				263
Impairment loss on property, plant and equipment			—				—				—				(422,323	)
Income from receipt of equity securities in settlement of trade receivables			—				244				9,590				886
		$	(12,525	)		$	3,199			$	21,008			$	(425,894	)

 

28.	OTHER INCOME

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Interest income
Bank deposits		$	424,053			$	319,380			$	1,257,553			$	1,187,270
Available-for-sale financial assets			1,339				1,532				4,339				4,518
Held-to-maturity financial assets			4,135				32,220				20,328				103,076
			429,527				353,132				1,282,220				1,294,864
Dividend income			3,868				—				506,560				69,945
		$	433,395			$	353,132			$	1,788,780			$	1,364,809

 

29.	FINANCE COSTS

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Interest expense
Corporate bonds		$	699,980			$	211,432			$	1,734,861			$	477,966
Bank loans			26,668				46,892				98,788				160,565
Finance leases			4,940				4,831				14,637				16,026
Others			738				7,177				13,378				37,076
			732,326				270,332				1,861,664				691,633
Loss reclassified to profit or loss arising from effective portion for cash flow hedges			—				47				—				227
Capitalized interest			—				—				—				(6,442	)
		$	732,326			$	270,379			$	1,861,664			$	685,418

 

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30.	OTHER GAINS AND LOSSES

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Gain (loss) on disposal of financial assets, net
Available-for-sale financial assets		$	248,729			$	89,958			$	1,239,442			$	321,580
Financial assets carried at cost			27,626				(6,629	)			32,199				127,480
Gain on deconsolidation of subsidiary			—				—				293,578				—
Settlement income			—				—				451,050				448,275
Other gains			94,444				88,360				281,054				410,589
Net gain on financial instruments at FVTPL
Held for trading			484,154				233,579				333,860				43,842
Impairment loss of financial assets
Available-for-sale financial assets			—				—				—				(2,677,529	)
Financial assets carried at cost			(1,495,454	)			(160	)			(1,541,170	)			(71,087	)
Fair value hedges
Loss from hedging instruments			(4,381,780	)			—				(6,319,146	)			—
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			4,331,786				—				5,989,610				—
Other losses			(77,039	)			(78,499	)			(208,297	)			(223,980	)
		$	(767,534	)		$	326,609			$	552,180			$	(1,620,830	)

 

31.	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
		2013				2012				2013				2012
Current income tax expense (benefit)
Current tax expense recognized for the current period		$	5,909,113			$	4,085,587			$	16,927,948			$	10,516,159
Income tax adjustments on prior years			23,357				3,224				(1,020,806	)			51,273
Other income tax adjustments			(7,121	)			7,047				(19,405	)			45,331
			5,925,349				4,095,858				15,887,737				10,612,763

(Continued)

 

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		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Deferred income tax expense (benefit)
Effect of tax rate changes		$	—			$	(543,611	)		$	—			$	(543,611	)
The origination and reversal of temporary differences			137,229				86,690				1,178,359				(636,702	)
Income tax credits and loss carryforward			1,352,554				701,110				4,895,057				1,355,030
Effect of deconsolidation of subsidiary			—				—				(78,474	)			—
			1,489,783				244,189				5,994,942				174,717
Income tax expense recognized in profit or loss		$	7,415,132			$	4,340,047			$	21,882,679			$	10,787,480

(Concluded)

A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:

 

		Nine Months Ended September 30
		2013				2012
Income before tax		$	165,114,477			$	135,392,326
Income tax expense at the statutory rate		$	29,072,500			$	25,313,164
Tax effect of adjusting items:
Nondeductible expenses in determining taxable income			(1,330,430	)			(2,051,178	)
Tax-exempt income			(7,725,255	)			(8,575,286	)
Additional income tax on unappropriated earnings			7,659,010				4,193,497
Effect of tax rate changes on deferred income tax			—				(543,611	)
The origination and reversal of temporary differences			1,178,359				(636,702	)
Remeasurement of investment tax credits			(5,814,829	)			(5,134,721	)
Remeasurement of loss carryforward			(37,991	)			(1,874,287	)
Effect of deconsolidation of subsidiary			(78,474	)			—
Current income tax expense			22,922,890				10,690,876
Income tax adjustments on prior years			(1,020,806	)			51,273
Other income tax adjustments			(19,405	)			45,331
Income tax expense recognized in profit or loss		$	21,882,679			$	10,787,480

 

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b.	Income tax expense recognized in other comprehensive income

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Deferred income tax expense (benefit)
Related to unrealized gain/loss on available-for-sale financial assets		$	(10,274	)		$	24,497			$	(53,484	)		$	333,426

 

c.	Integrated income tax information

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Balance of the Imputation
Credit Account—TSMC		$	15,242,724			$	8,130,060			$	8,136,884			$	4,003,228

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2012 and 2011 were 7.75% and 6.69%, respectively. Under the Rule No.10204562810 issued by the Ministry of Finance, when calculating the creditable ratio in the year of first-time adoption of Taiwan-IFRSs, companies should include the net increase/decrease to retained earnings from the effect of transition to Taiwan-IFRSs in the accumulated unappropriated earnings.

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

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

 

d.

Income tax examination

The tax authorities have examined income tax returns of TSMC through 2010. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

32. EARNINGS PER SHARE

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Basic EPS		$	2.00			$	1.90			$	5.53			$	4.81
Diluted EPS		$	2.00			$	1.90			$	5.53			$	4.81

 

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EPS is computed as follows:

 

		Amounts (Numerator)				Number of Shares (Denominator) (In Thousands)				EPS (NT$)
Three months ended September 30,2013
Basic EPS
Net income available to common shareholders of the parent		$	51,951,943				25,928,322			$	2.00
Effect of dilutive potential common shares			—				1,162
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	51,951,943				25,929,484			$	2.00
Three months ended September 30,2012
Basic EPS
Net income available to common shareholders of the parent		$	49,379,633				25,921,333			$	1.90
Effect of dilutive potential common shares			—				5,724
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	49,379,633				25,927,057			$	1.90
Nine months ended September 30, 2013
Basic EPS
Net income available to common shareholders of the parent		$	143,336,544				25,927,532			$	5.53
Effect of dilutive potential common shares			—				1,968
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	143,336,544				25,929,500			$	5.53
Nine months ended September 30, 2012
Basic EPS
Net income available to common shareholders of the parent		$	124,714,606				25,919,899			$	4.81
Effect of dilutive potential common shares			—				7,139
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	124,714,606				25,927,038			$	4.81

 

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

33. ADDITIONAL INFORMATION OF EXPENSES BY NATURE

Net income included the following items:

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
a.     Depreciation of property, plant and equipment
Recognized in cost of revenue		$	36,483,642			$	31,394,353			$	103,953,761			$	85,505,984
Recognized in operating expenses			3,391,676				2,728,548				9,428,121				7,990,480
Recognized in other operating income and expenses			6,222				1,434				18,899				5,223
		$	39,881,540			$	34,124,335			$	113,400,781			$	93,501,687
b.     Amortization of intangible assets
Recognized in cost of revenue		$	292,879			$	345,860			$	869,541			$	1,026,093
Recognized in operating expenses			265,013				207,858				759,941				616,511
		$	557,892			$	553,718			$	1,629,482			$	1,642,604
c.     Research and development costs expensed as         incurred		$	13,357,075			$	10,656,855			$	35,949,931			$	29,883,097
d.     Employee benefits expenses
Post-employment benefits (Note 23)
Defined contribution plans		$	402,495			$	364,639			$	1,190,732			$	1,031,294
Defined benefit plans			60,702				56,697				182,089				166,025
			463,197				421,336				1,372,821				1,197,319
Share-based payments
Equity-settled share-based payments			—				2,975				5,312				3,372
Other employee benefits			17,480,981				16,447,437				49,775,647				44,400,299
		$	17,944,178			$	16,871,748			$	51,153,780			$	45,600,990
Employee benefits expense summarized by function
Recognized in cost of revenue		$	10,676,625			$	9,790,370			$	30,602,553			$	26,289,869
Recognized in operating expenses			7,267,553				7,081,378				20,551,227				19,311,121
		$	17,944,178			$	16,871,748			$	51,153,780			$	45,600,990

 

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34.	DECONSOLIDATION OF SUBSIDIARY

Starting June 2013, the Company has no power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors; accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Xintec.

 

a.

Consideration received

The Company did not receive any consideration in connection with the deconsolidation of Xintec.

 

b.

Analysis of assets and liabilities over which the Company lost control

 

		June 30, 2013
Current assets
Cash and cash equivalents		$	979,910
Accounts receivable			564,364
Inventories			213,133
Others			110,766
Noncurrent assets
Property, plant and equipment			5,595,040
Others			164,311
Current liabilities
Accounts payable			(1,571,289	)
Others			(291,715	)
Noncurrent liabilities
Loans			(1,940,625	)
Others			(27,472	)
Net assets deconsolidated		$	3,796,423

 

c.

Gain on deconsolidation of subsidiary

 

		Six Months Ended June 30, 2013
Fair value of interest retained		$	1,816,848
Less: Carrying amount of interest retained
Net assets deconsolidated			3,796,423
Noncontrolling interests			(2,273,153	)
			1,523,270
Gain on deconsolidation of subsidiary		$	293,578

Gain on deconsolidation of subsidiary was included in other gains and losses for the six months ended June 30, 2013.

 

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d.

Net cash outflow arising from deconsolidation of the subsidiary

 

		Six Months Ended June 30, 2013
The balance of cash and cash equivalents deconsolidated		$	979,910

 

35.	CAPITAL MANAGEMENT

The Company requires significant amounts of capital to build and expand its production facilities and equipment. In consideration of the industry dynamics, the Company manages its capital in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital needs, capital asset purchases, research and development activities, dividend payments, debt service requirements and other business requirements associated with its existing operations over the next 12 months.

 

36.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Financial assets
FVTPL
Held for trading derivatives		$	188,970			$	39,554			$	58,690			$	15,360
Derivative instruments in designated hedge accounting relationships			—				—				28,189				—
Available-for-sale financial assets (Note)			63,941,783				44,766,957				6,048,981				7,623,775
Held-to-maturity financial assets			700,285				5,056,973				7,556,046				9,068,847
Loans and receivables
Cash and cash equivalents			216,603,697				143,410,588				138,738,113				143,472,277
Notes and accounts receivables (including related parties)			79,671,869				58,131,397				65,312,182				46,016,052
Other receivables			1,393,288				1,307,473				1,262,762				1,403,694
Refundable deposits			2,464,658				2,426,712				2,331,966				4,518,863
		$	364,964,550			$	255,139,654			$	221,336,929			$	212,118,868
Financial liabilities
FVTPL
Held for trading derivatives		$	18,876			$	15,625			$	20,013			$	13,742
Derivative instruments in designated hedge accounting relationships			6,144,025				—				—				232
Amortized cost
Short-term loans			18,053,096				34,714,929				29,749,650				25,926,528
Accounts payable (including related parties)			15,072,702				15,239,042				14,556,361				11,859,008
Payables to contactors and equipment suppliers			58,381,100				44,831,798				32,785,881				35,540,526
Accrued expenses and other current liabilities			13,380,307				9,316,232				11,194,461				7,796,538
Bonds payable			210,416,434				80,000,000				75,600,000				22,500,000
Long-term bank loans			40,000				1,487,500				1,518,750				1,650,000
Other long-term payables			54,000				967,485				960,671				3,399,855
Guarantee deposits			149,622				203,890				229,212				443,983
		$	321,710,162			$	186,776,501			$	166,614,999			$	109,130,412

Note: Including financial assets carried at cost.

 

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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.

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items and forward contracts designated as hedging instruments in cash flow hedge 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, 2013 and 2012 would have decreased by NT$390,328 thousand and NT$464,243 thousand, respectively, and the equity as of September 30, 2013 and 2012 would have decreased by nil and NT$755,493 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. To reduce the cash flow risk caused by floating interest rates, the Company utilized an interest rate swap contract to partially hedge its exposure.

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$83 thousand and NT$9,664 thousand for the nine months ended September 30, 2013 and 2012, respectively.

 

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Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments. To reduce the price risk, the Company utilized 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, 2013 and 2012 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the nine months ended September 30, 2013 and 2012 would have decreased by NT$1,982,639 thousand and NT$283,693 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 financing activities, primarily deposits, fixed-income investments and other financial instruments with banks. Credit risk is managed separately for business related and financial related exposures. As of the balance sheet date, 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 hundreds of 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, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the Company’s ten largest customers accounted for 68%, 68%, 65% and 64% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

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 and banking facilities.

As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the unused of financing facilities of the Company amounted to NT$74,576,628 thousand, NT$53,422,331 thousand, NT$56,735,075 thousand and NT$63,708,014 thousand, respectively.

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

 

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		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
September 30, 2013
Non-derivative financial liabilities
Short-term loans		$	18,054,545			$	—			$	—			$	—			$	18,054,545
Accounts payable (including related parties)			15,072,702				—				—				—				15,072,702
Payables to contractors and equipment suppliers			58,381,100				—				—				—				58,381,100
Accrued expenses and other current liabilities			13,380,307				—				—				—				13,380,307
Bonds payable			3,031,089				28,365,613				100,905,347				94,765,194				227,067,243
Long-term bank loans			1,450				7,840				21,752				15,362				46,404
Other long-term payables			18,000				36,000				—				—				54,000
Obligations under finance leases			27,912				55,824				55,824				725,137				864,697
Guarantee deposits			—				149,622				—				—				149,622
			107,967,105				28,614,899				100,982,923				95,505,693				333,070,620
Derivative financial instruments
Forward exchange contracts
Outflows			18,685,458				—				—				—				18,685,458
Inflows			(18,648,781	)			—				—				—				(18,648,781	)
			36,677				—				—				—				36,677
Cross currency swap contracts
Outflows			36,821,779				—				—				—				36,821,779
Inflows			(37,054,637	)			—				—				—				(37,054,637	)
			(232,858	)			—				—				—				(232,858	)
Stock forward contracts
Outflows			—				18,012,420				—				—				18,012,420
Inflows			—				(18,012,420	)			—				—				(18,012,420	)
			—				—				—				—				—
		$	107,770,924			$	28,614,899			$	100,982,923			$	95,505,693			$	332,874,439
December 31, 2012
Non-derivative financial liabilities
Short-term loans		$	34,721,003			$	—			$	—			$	—			$	34,721,003
Accounts payable (including related parties)			15,239,042				—				—				—				15,239,042
Payables to contractors and equipment suppliers			44,831,798				—				—				—				44,831,798
Accrued expenses and other current liabilities			9,316,232				—				—				—				9,316,232
Bonds payable			1,108,150				2,216,300				44,911,191				37,834,474				86,070,115
Long-term bank loans			146,571				745,174				637,580				—				1,529,325
Other long-term payables			913,485				36,000				18,000				—				967,485
Obligations under finance leases			27,042				54,084				54,084				729,566				864,776
Guarantee deposits			—				203,890				—				—				203,890
			106,303,323				3,255,448				45,620,855				38,564,040				193,743,666
Derivative financial instruments
Forward exchange contracts
Outflows			11,030,154				—				—				—				11,030,154
Inflows			(11,059,396	)			—				—				—				(11,059,396	)
			(29,242	)			—				—				—				(29,242	)
Cross currency swap contracts
Outflows			9,068,589				—				—				—				9,068,589
Inflows			(9,068,727	)			—				—				—				(9,068,727	)
			(138	)			—				—				—				(138	)
		$	106,273,943			$	3,255,448			$	45,620,855			$	38,564,040			$	193,714,286

(Continued)

 

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		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
September 30, 2012
Non-derivative financial liabilities
Short-term loans		$	29,755,776			$	—			$	—			$	—			$	29,755,776
Accounts payable (including related parties)			14,556,361				—				—				—				14,556,361
Payables to contractors and equipment suppliers			32,785,881				—				—				—				32,785,881
Accrued expenses and other current liabilities			11,194,461				—				—				—				11,194,461
Bonds payable			1,040,830				2,081,660				44,917,871				33,232,144				81,272,505
Long-term bank loans			142,415				746,515				673,790				—				1,562,720
Other long-term payables			906,671				36,000				18,000				—				960,671
Obligations under finance leases			26,809				53,618				53,618				723,303				857,348
Guarantee deposits			—				229,212				—				—				229,212
			90,409,204				3,147,005				45,663,279				33,955,447				173,174,935
Derivative financial instruments
Forward exchange contracts
Outflows			25,207,529				—				—				—				25,207,529
Inflows			(25,249,296	)			—				—				—				(25,249,296	)
			(41,767	)			—				—				—				(41,767	)
Cross currency swap contracts
Outflows			5,815,713				—				—				—				5,815,713
Inflows			(5,819,917	)			—				—				—				(5,819,917	)
			(4,204	)			—				—				—				(4,204	)
		$	90,363,233			$	3,147,005			$	45,663,279			$	33,955,447			$	173,128,964
January 1, 2012
Non-derivative financial liabilities
Short-term loans		$	25,933,177			$	—			$	—			$	—			$	25,933,177
Accounts payable (including related parties)			11,859,008				—				—				—				11,859,008
Payables to contractors and equipment suppliers			35,540,526				—				—				—				35,540,526
Accrued expenses and other current liabilities			7,796,538				—				—				—				7,796,538
Bonds payable			4,775,081				538,500				11,000,933				7,713,258				24,027,772
Long-term bank loans			79,558				778,190				849,021				—				1,706,769
Other long-term payables			3,399,855				—				—				—				3,399,855
Obligations under finance leases			—				167,472				55,824				780,962				1,004,258
Guarantee deposits			—				443,983				—				—				443,983
			89,383,743				1,928,145				11,905,778				8,494,220				111,711,886
Derivative financial instruments
Forward exchange contracts
Outflows			7,736,197				—				—				—				7,736,197
Inflows			(7,726,584	)			—				—				—				(7,726,584	)
			9,613				—				—				—				9,613
Cross currency swap contracts
Outflows			420,431				—				—				—				420,431
Inflows			(420,397	)			—				—				—				(420,397	)
			34				—				—				—				34
Interest rate swap contracts
Outflows			706				—				—				—				706
Inflows			(442	)			—				—				—				(442	)
			264				—				—				—				264
		$	89,393,654			$	1,928,145			$	11,905,778			$	8,494,220			$	111,721,797

(Concluded)

 

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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, 2013								December 31, 2012								September 30, 2012								January 1, 2012
		Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value
Financial assets
Held-to-maturity financial assets
Corporate bonds		$	700,285			$	701,689			$	5,056,973			$	5,066,363			$	7,556,046			$	7,572,791			$	8,614,527			$	8,674,016
Government bonds			—				—				—				—				—				—				454,320				454,047
Financial liabilities
Measured at amortized cost
Bonds payable			210,416,434				208,999,161				80,000,000				80,343,413				75,600,000				75,940,020				22,500,000				22,597,115

 

2)

Fair value measurements recognized in the consolidated statement of financial position

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).

 

		September 30, 2013
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	188,970			$	—			$	188,970
Available-for-sale financial assets
Publicly traded stocks		$	61,802,636			$	—			$	—			$	61,802,636
Money market funds			14,640				—				—				14,640
		$	61,817,276			$	—			$	—			$	61,817,276
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	18,876			$	—			$	18,876
Hedging derivative financial liabilities
Stock forward contract		$	—			$	6,144,025			$	—			$	6,144,025

 

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		December 31, 2012
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	39,554			$	—			$	39,554
Available-for-sale financial assets
Publicly traded stocks		$	41,160,437			$	—			$	—			$	41,160,437
Money market funds			1,443				—				—				1,443
		$	41,161,880			$	—			$	—			$	41,161,880
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	15,625			$	—			$	15,625

 

		September 30, 2012
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	58,690			$	—			$	58,690
Hedging derivative financial assets
Forward exchange contract		$	—			$	28,189			$	—			$	28,189
Available-for-sale financial assets
Publicly traded stocks		$	2,067,730			$	—			$	—			$	2,067,730
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	20,013			$	—			$	20,013

 

		January 1, 2012
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	15,360			$	—			$	15,360
Available-for-sale financial assets
Publicly traded stocks		$	3,306,248			$	—			$	—			$	3,306,248
Money market funds			2,522				—				—				2,522
		$	3,308,770			$	—			$	—			$	3,308,770
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	13,742			$	—			$	13,742
Hedging derivative financial liabilities
Interest rate swap contract		$	—			$	232			$	—			$	232

 

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There were no transfers between Level 1 and 2 for the nine months ended September 30, 2013 and 2012, respectively.

There were no purchases and disposals for assets on Level 3 for the nine months ended September 30, 2013 and 2012, respectively.

 

3)

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.

 

37.	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.

Operating transactions

 

		Net Revenue from Sale of Goods
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	1,550,041			$	1,696,563			$	3,167,527			$	4,332,593
Joint venture			248				642				1,087				2,947
		$	1,550,289			$	1,697,205			$	3,168,614			$	4,335,540
		Net Revenue from Royalties
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	130,815			$	123,444			$	379,060			$	350,695

 

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		Purchases
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	2,712,305			$	2,290,626			$	6,982,310			$	6,055,155
		Manufacturing Expenses
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	392,111			$	3,566			$	404,863			$	4,861
Joint venture			1,283				3,787				4,785				13,391
		$	393,394			$	7,353			$	409,648			$	18,252
		Research and Development Expenses
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	312			$	4,656			$	312			$	4,656
Joint venture			852				2,208				4,310				6,669
		$	1,164			$	6,864			$	4,622			$	11,325
		Sales of Property, Plant and Equipment
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	3,548			$	—			$	14,966			$	—
Joint venture			—				—				—				9,000
		$	3,548			$	—			$	14,966			$	9,000
		Gains (Losses) from Sales of Property, Plant and Equipment, Net
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	(6,772	)		$	—			$	(4,207	)		$	—
Joint venture			832				58				948				155
		$	(5,940	)		$	58			$	(3,259	)		$	155

 

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		Purchase of Property, Plant and Equipment and Intangible Assets
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	9,300			$	17,631			$	21,135			$	21,768
Joint venture			—				—				—				1,224
		$	9,300			$	17,631			$	21,135			$	22,992
		Non-operating Income
		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Associates		$	—			$	20			$	—			$	5,136

The following balances were outstanding at the end of reporting period:

 

		Receivables from Related Parties
		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	827,323			$	353,652			$	924,935			$	185,552
Joint venture			157				159				310				212
		$	827,480			$	353,811			$	925,245			$	185,764
		Other Receivables from Related Parties
		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	194,408			$	185,550			$	157,144			$	121,767
Joint venture			—				—				—				525
		$	194,408			$	185,550			$	157,144			$	122,292
		Refundable Deposits
		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	5,813			$	5,813			$	5,813			$	—
Joint venture			—				4				4				—
		$	5,813			$	5,817			$	5,817			$	—
		Payables to Related Parties
		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	1,592,616			$	746,532			$	779,862			$	1,325,791
Joint venture			1,488				2,081				3,391				2,730
		$	1,594,104			$	748,613			$	783,253			$	1,328,521

 

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		Deferred Gains (Losses) from Disposal of Machinery and Equipment
		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Associates		$	—			$	(7,806	)		$	—			$	—
Joint venture			—				948				1,006				—
		$	—			$	(6,858	)		$	1,006			$	—

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. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid quarterly and the related expense was 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.

 

b.

Compensation of key management personnel:

The compensation to directors and other key management personnel were as follows:

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Short-term employee benefits		$	433,540			$	401,196			$	1,064,506			$	1,071,118
Post-employment benefits			1,081				903				3,429				2,667
		$	434,621			$	402,099			$	1,067,935			$	1,073,785

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.

 

38.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for building lease agreements. As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the aforementioned other financial assets amounted to NT$119,657 thousand, NT$119,710 thousand, NT$120,761 thousand and NT$121,140 thousand, respectively.

 

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39.	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 January 2014 and December 2032 and can be renewed upon expiration.

The Company expensed the lease payments as follows:

 

		Three Months Ended September 30								Nine Months Ended September 30
		2013				2012				2013				2012
Minimum lease payments		$	207,129			$	177,698			$	674,611			$	508,810

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

 

		September 30, 2013				December 31, 2012				September 30, 2012				January 1, 2012
Not later than 1 year		$	855,050			$	693,758			$	688,636			$	627,882
Later than 1 year and not later than 5 years			3,095,753				2,478,443				2,568,078				2,258,302
Later than 5 years			5,700,287				4,221,524				4,175,578				3,870,728
		$	9,651,090			$	7,393,725			$	7,432,292			$	6,756,912

 

40.	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 if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

b.

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

 

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c.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement. The above mentioned warrant has expired without being exercised in July 2013.

 

d.

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

 

e.

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. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

f.

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. Both parties also signed the research and development funding agreement and TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017.

 

g.

Amounts available under unused letters of credit as of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012 were NT$88,713 thousand, NT$99,671 thousand, NT$87,930 thousand and NT$263,880 thousand, respectively.

 

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

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

 

		September 30, 2013								December 31, 2012								September 30, 2012								January 1, 2012
		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Foreign Currencies (In Thousands)				Exchange Rate (Note)				Foreign Currencies (In Thousands)				Exchange Rate (Note)				Foreign Currencies (In Thousands)				Exchange Rate (Note)
Financial assets
Monetary items
USD		$	5,588,215				29.571			$	3,437,165				29.038			$	4,497,012				29.31			$	3,744,817				30.288
EUR			428,636				39.82				125,973				38.39-38.49				80,269				37.82-37.89				135,857				39.18-39.27
JPY			32,291,536				0.3016				35,734,874				0.3352-0.3364				10,086,700				0.3776-0.3777				37,276,671				0.3897-0.3906
RMB			775,484				4.81				102,995				4.66				66,627				4.62				201,385				4.81
Non-monetary items
USD			2,464,088				29.571				1,611,474				29.038				345,383				29.31				141,498				30.288
HKD			143,498				3.81				492,014				3.75				429,815				3.78				671,060				3.90
Investments accounted for using equity method
USD			348,805				29.571				328,281				29.038				305,453				29.31				294,797				30.288
Financial liabilities
Monetary items
USD			3,079,988				29.571				2,193,343				29.038				1,919,805				29.31				1,744,746				30.288
EUR			757,852				39.82				247,052				38.39-38.49				86,661				37.82-37.89				111,750				39.18-39.27
JPY			38,952,345				0.3016				43,311,360				0.3352-0.3364				30,796,781				0.3776-0.3777				35,349,169				0.3897-0.3906
RMB			206,520				4.81				205,930				4.66				213,842				4.62				278,877				4.81

 

Note:

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

 

42.	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 engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

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

 

b.

Segment sales and operating results

 

		Foundry				Others				Elimination				Total
Three months ended September 30, 2013
Net revenue from external customers		$	162,503,501			$	73,533			$	—			$	162,577,034
Net revenue from sales among intersegments			—				8,939				(8,939	)			—
Income (loss) from operations			60,255,825				(637,771	)			—				59,618,054

(Continued)

 

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		Foundry				Others				Elimination				Total
Three months ended September 30, 2012
Net revenue from external customers		$	141,495,125			$	4,128			$	—			$	141,499,253
Net revenue from sales among intersegments			—				3,489				(3,489	)			—
Income (loss) from operations			53,519,822				(721,844	)			—				52,797,978
Nine months ended September 30, 2013
Net revenue from external customers			450,987,343				231,007				—				451,218,350
Net revenue from sales among intersegments			—				14,837				(14,837	)			—
Income (loss) from operations			163,656,307				(1,981,162	)			—				161,675,145
Nine months ended September 30, 2012
Net revenue from external customers			375,224,307				76,108				—				375,300,415
Net revenue from sales among intersegments			—				6,967				(6,967	)			—
Income (loss) from operations			136,700,564				(1,913,185	)			—				134,787,379

(Concluded)

 

43.	FIRST-TIME ADOPTION OF TAIWAN-IFRSs

 

a.

Basis of preparation for financial information under Taiwan-IFRSs

The Company prepares consolidated financial statements for the nine months ended September 30, 2013 under Taiwan-IFRSs. As the basis of the preparation, the Company not only follows the significant accounting policies stated in Note 4 but also applies IFRS 1.

 

b.

Exemptions from IFRS 1

IFRS 1 establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with Taiwan-IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under Taiwan-IFRSs and retrospectively apply those accounting policies in its opening balance sheet at the date of transition to Taiwan-IFRSs; except for optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows:

 

1)

Business combinations. The Company elected not to apply IFRS 3, “Business Combinations,” retrospectively to business combinations that occurred before January 1, 2012. Therefore, in the opening balance sheet, the amount of goodwill generated from past business combinations remains the same compared with the one under R.O.C. GAAP as of December 31, 2011.

 

2)

Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1, 2012. In addition, the Company elected to apply the exemption disclosure requirement provided by IFRS 1, in which the amounts of present value of defined benefit obligations, the fair value of plan assets, the surplus or deficit in the plan and the experience adjustments are determined for each accounting period prospectively from the transition date.

 

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3)

Share-based payment. The Company elected to take the optional exemption from applying IFRS 2 retrospectively for the shared-based payment transactions granted and vested before January 1, 2012.

 

c.

Effect of transition to Taiwan-IFRSs

Except for the additional information disclosed below, for the effect of transition to Taiwan-IFRSs on the Company’s consolidated balance sheets and the consolidated statements of comprehensive income, please refer to Note 42 to the consolidated financial statements for the three months ended March 31, 2013 for details.

 

1)

Reconciliation of consolidated balance sheet as of September 30, 2012

 

						Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP						Recognition and Measurement				Presentation				Taiwan-IFRSs
Item		Amount				Difference				Difference				Amount				Item		Note
Current assets
Cash and cash equivalents		$	138,738,113			$	—			$	—			$	138,738,113			Cash and cash equivalents
Financial assets at fair value through profit or loss			58,690				—				—				58,690			Financial assets at fair value through profit or loss
Available-for-sale financial assets			2,067,730				—				—				2,067,730			Available-for-sale financial assets
Held-to-maturity financial assets			6,854,611				—				—				6,854,611			Held-to-maturity financial assets
Hedging derivative financial assets			28,189				—				—				28,189			Hedging derivative financial assets
Notes and accounts receivable			64,876,527				—				(489,590	)			64,386,937			Notes and accounts receivable
Receivables from related parties			925,245				—				—				925,245			Receivables from related parties
Allowance for doubtful receivables			(489,590	)			—				489,590				—			—
Allowance for sales returns and others			(6,900,184	)			—				6,900,184				—			—			a	)
Other receivables from related parties			157,144				—				—				157,144			Other receivables from related parties
Other financial assets			469,979				—				—				469,979			Other financial assets
Inventories			33,249,045				—				—				33,249,045			Inventories
Deferred income tax assets			2,650,432				—				(2,650,432	)			—			—			b	)
Prepaid expenses and other current assets			2,639,414				—				—				2,639,414			Other current assets
Total current assets			245,325,345				—				4,249,752				249,575,097			Total current assets
Long-term investments
Investments accounted for using equity method			23,958,462				(51,304	)			—				23,907,158			Investments accounted for using equity method			e	)
Held-to-maturity financial assets			701,435				—				—				701,435			Held-to-maturity financial assets
Financial assets carried at cost			3,981,251				—				—				3,981,251			Financial assets carried at cost
Total long-term investments			28,641,148				(51,304	)			—				28,589,844
Net property, plant and equipment			580,079,887				—				34,175				580,114,062			Property, plant and equipment			c	)
Intangible assets			10,888,854				—				—				10,888,854			Intangible assets
Other assets
Deferred income tax assets			10,137,266				270,786				2,650,432				13,058,484			Deferred income tax assets			b	), d)
Refundable deposits			2,331,966				—				—				2,331,966			Refundable deposits
Others			1,247,304				—				(34,175	)			1,213,129			Other noncurrent assets			c	)
Total other assets			13,716,536				270,786				2,616,257				16,603,579
Total		$	878,651,770			$	219,482			$	6,900,184			$	885,771,436			Total

(Continued)

 

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						Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP						Recognition and Measurement				Presentation				Taiwan-IFRSs
Item		Amount				Difference				Difference				Amount				Item		Note
Current liabilities
Short-term loans		$	29,749,650			$	—			$	—			$	29,749,650			Short-term loans
Financial liabilities at fair value through profit or loss			20,013				—				—				20,013			Financial liabilities at fair value through profit or loss
Accounts payable			13,773,108				—				—				13,773,108			Accounts payable
Payables to related parties			783,253				—				—				783,253			Payables to related parties
Income tax payable			10,855,245				—				—				10,855,245			Income tax payable
Salary and bonus payable			6,994,285				—				—				6,994,285			Salary and bonus payable
Accrued profit sharing to employees and bonus to directors and supervisors			8,654,015				—				—				8,654,015			Accrued profit sharing to employees and bonus to directors and supervisors
Payables to contractors and equipment suppliers			32,785,881				—				—				32,785,881			Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities			15,312,033				—				—				15,312,033			Accrued expenses and other current liabilities
Current portion of bonds payable and long-term bank loans			125,000				—				—				125,000			Current portion of bonds payable and long-term bank loans
—			—				—				6,900,184				6,900,184			Provisions			a	)
Total current liabilities			119,052,483				—				6,900,184				125,952,667			Total current liabilities
Long-term liabilities
Bonds payable			75,600,000				—				—				75,600,000			Bonds payable
Long-term bank loans			1,393,750				—				—				1,393,750			Long-term bank loans
Other long-term payable			54,000				—				—				54,000			Other long-term payable
Obligations under capital leases			737,034				—				—				737,034			Obligations under capital leases
Total long-term liabilities			77,784,784				—				—				77,784,784
Other liabilities
Accrued pension cost			3,955,056				2,278,222				—				6,233,278			Accrued pension cost			d	)
Guarantee deposits			229,212				—				—				229,212			Guarantee deposits
—			—				—				3,619				3,619			Provisions
Others			484,178				—				(3,619	)			480,559			Other noncurrent liabilities
Total other liabilities			4,668,446				2,278,222				—				6,946,668
Total liabilities			201,505,713				2,278,222				6,900,184				210,684,119			Total liabilities
Equity attributable to shareholders of the parent     Capital stock			259,220,476				—				—				259,220,476			Capital stock
Capital surplus			56,074,435				(444,010	)			—				55,630,425			Capital surplus			e	)
Retained earnings																		Retained earnings
Appropriated as legal capital reserve			115,820,123				—				—				115,820,123			Appropriated as legal capital reserve
Appropriated as special capital reserve			7,606,224				—				—				7,606,224			Appropriated as special capital reserve
Unappropriated earnings			245,605,674				(1,601,756	)			—				244,003,918			Unappropriated earnings			d	), e)
			369,032,021				(1,601,756	)			—				367,430,265
Others
Cumulative translation adjustments			(10,052,181	)			(59	)			—				(10,052,240	)		Foreign currency translation reserve			e	)
Unrealized gain/loss on financial instruments			268,440				—				(28,189	)			240,251			Unrealized gain (loss) from available-for-sale financial assets
—			—				—				28,189				28,189			Cash flow hedging reserve
			(9,783,741	)			(59	)			—				(9,783,800	)
Equity attributable to shareholders of the parent			674,543,191				(2,045,825	)			—				672,497,366			Equity attributable to shareholders of the parent
Minority interests			2,602,866				(12,915	)			—				2,589,951			Noncontrolling interests			d	)
Total shareholders’ equity			677,146,057				(2,058,740	)			—				675,087,317			Total shareholders’ equity
Total		$	878,651,770			$	219,482			$	6,900,184			$	885,771,436			Total

(Concluded)

 

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2)	Reconciliation of consolidated statement of comprehensive income for the nine months ended September 30, 2012

 

						Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP						Recognition and Measurement Difference				Presentation Difference				Taiwan-IFRSs
Item		Amount												Amount				Item		Note
Net sales		$	374,943,954			$	—			$	356,461			$	375,300,415			Net revenue			f	)
Cost of sales			193,167,804				(33,945	)			—				193,133,859			Cost of revenue			d	)
Gross profit before affiliates elimination			181,776,150				33,945				356,461				182,166,556			Gross profit before unrealized gross profit on sales to associates
Unrealized gross profit from affiliates			(129,569	)			—				—				(129,569	)		Unrealized gross profit on sales to associates
Gross profit			181,646,581				33,945				356,461				182,036,987			Gross profit
Operating expenses
Research and development			29,897,315				(14,218	)			—				29,883,097			Research and development			d	)
General and administrative			13,505,479				(5,020	)			—				13,500,459			General and administrative			d	)
Marketing			3,441,269				(1,111	)			—				3,440,158			Marketing			d	)
Total operating expenses			46,844,063				(20,349	)			—				46,823,714
—			—				—				(425,894	)			(425,894	)		Other operating income and expenses, net			f	)
Income from operations			134,802,518				54,294				(69,433	)			134,787,379			Income from operations
Non-operating income and gains
Equity in earnings of equity method investees, net			1,305,776				32,485				—				1,338,261			Share of profits of associates and joint venture			e	)
Interest income			1,294,864				—				(1,294,864	)			—			—			f	)
Gain on disposal of financial assets, net			449,060				—				(449,060	)			—			—			f	)
Settlement income			448,275				—				(448,275	)			—			—			f	)
Technical service income			356,461				—				(356,461	)			—			—			f	)
Foreign exchange gain, net			208,125				—				—				208,125			Foreign exchange gain, net
Valuation gain on financial instruments, net			43,842				—				(43,842	)			—			—			f	)
Gain on disposal of property, plant and equipment and other assets			21,749				—				(21,749	)			—			—			f	)
Others			481,489				—				(481,489	)			—			—			f	)
—			—				—				1,364,809				1,364,809			Other income			f	)
—			—				(1,009	)			(1,619,821	)			(1,620,830	)		Other gains and losses			e	), f)
			4,609,641				31,476				(3,350,752	)			1,290,365
Non-operating expenses and losses
Impairment loss of financial assets			2,748,616				—				(2,748,616	)			—			—			f	)
Interest expense			685,418				—				—				685,418			Finance cost
Impairment loss on idle assets			422,323				—				(422,323	)			—			—			f	)
Loss on disposal of property, plant and equipment			21,486				—				(21,486	)			—			—			f	)
Others			227,760				—				(227,760	)			—			—			f	)
			4,105,603				—				(3,420,185	)			685,418
Income before income tax			135,306,556				85,770				—				135,392,326			Income before income tax
Income tax expense			10,827,255				(39,775	)			—				10,787,480			Income tax expense			d	)
Net income		$	124,479,301			$	125,545			$	—				124,604,846			Net income
															(3,627,600	)		Exchange differences arising on translation of foreign operations
															1,710,289			Changes in fair value of available-for-sale financial assets
															28,421			Cash flow hedges
															68,461			Share of other comprehensive income of associates and joint venture

(Continued)

 

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Effect of Transition to Taiwan-IFRSs

R.O.C. GAAP

Recognition and Measurement Difference

Presentation Difference

Taiwan-IFRSs

Item

Amount

Amount

Item

Note

$

(333,426

)

Income tax expense relating to components of other comprehensive income

(2,153,855

)

Other comprehensive income for the period, net of income tax

$

122,450,991

Total comprehensive income for the period

(Concluded)

 

3)	Reconciliation of consolidated statement of comprehensive income for the three months ended September 30, 2012

 

						Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP						Recognition and Measurement Difference				Presentation Difference				Taiwan-IFRSs
Item		Amount												Amount				Item		Note
Net sales		$	141,375,451			$	—			$	123,802			$	141,499,253			Net revenue			f	)
Cost of sales			72,356,073				(11,572	)			—				72,344,501			Cost of revenue			d	)
Gross profit before affiliates elimination			69,019,378				11,572				123,802				69,154,752			Gross profit before realized gross profit on sales to associates
Realized gross profit from affiliates			10,381				—				—				10,381			Realized gross profit on sales to associates
Gross profit			69,029,759				11,572				123,802				69,165,133			Gross profit
Operating expenses
Research and development			10,661,534				(4,679	)			—				10,656,855			Research and development			d	)
General and administrative			4,480,013				(1,496	)			—				4,478,517			General and administrative			d	)
Marketing			1,235,333				(351	)			—				1,234,982			Marketing			d	)
Total operating expenses			16,376,880				(6,526	)			—				16,370,354
—			—				—				3,199				3,199			Other operating income and expenses, net			f	)
Income from operations			52,652,879				18,098				127,001				52,797,978			Income from operations
Non-operating income and gains
Equity in earnings of equity method investees, net			695,480				16,706				—				712,186			Share of profits of associates and joint venture			e	)
Interest income			353,132				—				(353,132	)			—			—			f	)
Valuation gain on financial assets, net			233,579				—				(233,579	)			—			—			f	)
Technical service income			123,802				—				(123,802	)			—			—			f	)
Gain on settlement and disposal of financial assets, net			83,329				—				(83,329	)			—			—			f	)
Gain on disposal of property, plant and equipment and other assets			4,389				—				(4,389	)			—			—			f	)
Others			88,170				—				(88,170	)			—			—			f	)
—			—				—				353,132				353,132			Other income			f	)
—			—				(1,009	)			327,618				326,609			Other gains and losses			e	), f)
			1,581,881				15,697				(205,651	)			1,391,927
Non-operating expenses and losses
Interest expense			270,379				—				—				270,379			Finance costs
Foreign exchange loss, net			157,185				—				—				157,185			Foreign exchange loss, net
Impairment loss of financial assets			160				—				(160	)			—			—			f	)
Others			78,490				—				(78,490	)			—			—			f	)
			506,214				—				(78,650	)			427,564
Income before income tax			53,728,546				33,795				—				53,762,341			Income before income tax
Income tax expense			4,383,313				(43,266	)			—				4,340,047			Income tax expense			d	)
Net income		$	49,345,233			$	77,061			$	—				49,422,294			Net income

(Continued)

 

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				Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP				Recognition and Measurement Difference		Presentation Difference		Taiwan-IFRSs
Item		Amount						Amount				Item		Note
								$	(2,239,717	)		Exchange differences arising on translation of foreign operations
									(112,534	)		Changes in fair value of available-for-sale financial assets
									28,258			Cash flow hedges
									48,074			Share of other comprehensive income of associates and joint venture
									(24,497	)		Income tax expense relating to components of other comprehensive income
									(2,300,416	)		Other comprehensive income for the period, net of income tax
								$	47,121,878			Total comprehensive income for the period

(Concluded)

 

4)	Reconciliation of equity

 

		Note				September 30, 2012
Equity under R.O.C. GAAP						$	677,146,057
Adjustments:
Defined benefit plans			d	)			(2,007,436	)
Investments accounted for using the equity method			e	)			(51,304	)
Equity under Taiwan-IFRSs						$	675,087,317

 

d.	Notes to the reconciliation of the significant differences:

 

a)

Allowance for sales returns and others

Under R.O.C. GAAP, provisions for estimated sales returns and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. The corresponding allowance for sales returns and others is recorded as a deduction in accounts receivable. Under Taiwan-IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions in accordance with IAS No. 37, “Provisions, Contingent Liabilities and Contingent Assets.”

As of September 30, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$6,900,184 thousand.

 

b)

Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset and liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Under Taiwan-IFRSs, a deferred tax asset and liability is classified as noncurrent asset or liability.

 

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In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with IAS No. 12, “Income Taxes,” deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used.

As of September 30, 2012, the amounts reclassified from deferred income tax assets to noncurrent assets were NT$2,650,432 thousand.

 

c)

The classification of assets leased to others and idle assets

Under R.O.C. GAAP, assets leased to others and idle assets are classified under other assets. Under Taiwan-IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. In accordance with IAS No. 40, “Investment Property,” investment properties are defined as properties held to earn rentals or for capital appreciation; however, the Company’s assets leased to others are mainly dormitories leased to employees and factories leased to suppliers. The dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

As of September 30, 2012, the amounts reclassified from assets leased to others and idle assets to property, plant and equipment were NT$34,175 thousand.

 

d)

Employee benefits

The Company had recognized the pension cost and retirement benefit obligation under its defined benefit plans based on actuarial valuations performed in conformity with R.O.C. GAAP. Under Taiwan-IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

In addition, under R.O.C. GAAP, it is not allowed to recognize actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of such actuarial gains and losses. When using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees.

Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1. For the year ended December 31, 2012, total actuarial gains and losses were also recognized to other comprehensive income in accordance with actuarial valuation carried out in 2012.

In addition, under R.O.C. GAAP, the minimum pension liability should be recognized in the balance sheet. If the accrued pension cost is less than the minimum amount, the difference should be recognized as an additional liability. Under Taiwan-IFRSs, there is no aforementioned requirement of minimum pension liability.

As of September 30, 2012, accrued pension cost of the Company was adjusted for an increase of NT$2,278,222 thousand; deferred income tax assets were adjusted for an increase of NT$270,786 thousand; noncontrolling interests were adjusted for a decrease of NT$12,915 thousand. For the nine months ended September 30, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$54,294 thousand and NT$39,775 thousand, respectively. For the three months ended September 30, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$18,098 thousand and NT$43,266 thousand, respectively.

 

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e)

Investments accounted for using the equity method

The Company has evaluated significant differences between current accounting policies and Taiwan-IFRSs for the Company’s associates and joint ventures accounted for using the equity method. The significant difference is mainly due to the adjustment to employee benefits.

In addition, if the investing company subscribes to additional investee’s shares disproportionate to its existing ownership percentage that results in a decrease in the investing company’s ownership percentage in the investee, the resulting carrying amount of the investment in the investee differs from the amount of its share in the investee’s equity. Under R.O.C. GAAP, the investing company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. Under Taiwan-IFRSs, such a difference is still adjusted to investments and capital surplus; however, if the investing company’s ownership interest in an associate is reduced, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities.

As of September 30, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$51,304 thousand; foreign currency translation reserve was adjusted for an decrease of NT$59 thousand; capital surplus was adjusted for a decrease of NT$444,010 thousand. In addition, share of profits of associates and joint venture was adjusted for an increase of NT$32,485 thousand and NT$16,706 thousand, respectively, for the nine months and three months ended September 30, 2012, respectively. Other gains and losses were both adjusted for a decrease of NT$1,009 thousand for the nine months and three months ended September 30, 2012.

 

f)

The reclassification of line items in the consolidated statement of comprehensive income

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of Taiwan-IFRSs, income from operations in the consolidated income statement only includes net revenue, cost of revenue and operating expenses. Under Taiwan-IFRSs, based on the nature of operating transactions, technical service income is reclassified under net revenue; rental revenue, depreciation of rental assets, net gain or loss on disposal of property, plant and equipment and other assets, and impairment loss on idle assets, are reclassified under other operating income and expenses, which are included in income from operations.

Under Taiwan-IFRSs, based on the nature of operating transactions, for the nine months ended September 30, 2012, the Company reclassified technical service income of NT$356,461 thousand to net revenue; rental revenue of NT$503 thousand, other income of NT$886 thousand, net gain on disposal of property, plant and equipment and other assets of NT$263 thousand, depreciation of rental assets of NT$5,223 thousand and impairment loss on idle assets of NT$422,323 thousand to other operating income and expenses. In addition, interest income of NT$1,294,864 thousand and dividend income of NT$69,945 thousand were reclassified to other income; settlement income of NT$448,275 thousand, net gain on disposal of financial assets of NT$449,060 thousand, others of NT$410,589 thousand (under non-operating income and gains), net valuation gain on financial instruments of NT$43,842 thousand, impairment loss of financial assets of NT$2,748,616 thousand as well as others of NT$222,971 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the Company also reclassified technical service income of NT$123,802 thousand to net revenue, other income of NT$244 thousand, net gain on disposal of property, plant and equipment and other assets of NT$4,389 thousand, depreciation of rental assets of NT$1,434 thousand to other operating income and expenses. In addition, interest income of NT$353,132 thousand was also reclassified to other income; net gain on disposal of financial assets of NT$83,329 thousand, others of NT$88,360 thousand (under non-operating income and gains), net valuation gain on financial instruments of NT$233,579 thousand, impairment loss of financial assets of NT$160 thousand as well as others of NT$77,490 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the three months ended September 30, 2012.

 

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44.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation:

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: Please see Table 2 attached;

 

c.

Marketable securities held: Please see Table 3 attached;

 

d.

Marketable securities acquired and disposed of at costs or prices of at least NT$100 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$100 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$100 million or 20% of the paid-in capital: None;

 

g.

Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 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 instruments transaction: Please see Notes 7 and 10;

 

j.

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

 

k.

Names, locations, and related information of investees over which TSMC exercises significant influence: 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, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 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.

 

- 68 -

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

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

 

No.		Financing Company		Counter-party		Financial Statement Account		Maximum Balance for the Period (US$ in Thousands) (Note 3)				Ending Balance (US$ in Thousands) (Note 3)				Amount Actually Drawn (US$ in Thousands)				Interest Rate				Nature for Financing		Transaction Amounts				Reason for Financing		Allowance for Bad Debt				Collateral								Financing Limits for Each Borrowing Company				Financing Company’s Total Financing Amount Limits (Note 2)
																																				Item				Value
1		TSMC Partners		TSMC China		Other receivables from related parties		$ (US$	3,844,230 130,000	)		$	—			$	—				—			The need for short-term financing		$	—			Purchase equipment		$	—				—			$	—			$	41,185,682 (Note 1	)		$	41,185,682
				TSMC Solar		Other receivables from related parties		(US$	2,661,390 90,000	)		(US$	2,661,390 90,000	)		(US$	1,936,901 65,500	)			0.3805	%		The need for short-term financing			—			Operating capital			—				—				—				16,474,273 (Note 1	)			41,185,682
				TSMC SSL		Other receivables from related parties		(US$	1,774,260 60,000	)		(US$	1,774,260 60,000	)			—				—			The need for short-term financing			—			Operating capital			—				—				—				16,474,273 (Note 1	)			41,185,682
2		TSMC Development		TSMC Solar		Other receivables from related parties		(US$	2,365,680 80,000	)			—				—				—			The need for short-term financing			—			Operating capital			—				—				—				5,942,311 (Notes 1 and 4	)			14,855,778 (Note 4	)
				TSMC SSL		Other receivables from related parties		(US$	2,661,390 90,000	)			—				—				—			The need for short-term financing			—			Operating capital			—				—				—				5,942,311 (Notes 1 and 4	)			14,855,778 (Note 4	)

 

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 and TSMC Development, respectively. 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 offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC (offshore 100% owned subsidiaries) or the subsidiaries whose voting shares are 90% and up owned, directly or indirectly, by TSMC (90% and up owned subsidiaries). However, the respective lending limit for offshore 100% owned subsidiaries shall not exceed the net worth of TSMC Partners and TSMC Development, respectively, and the aggregate amounts lendable to 90% and up owned subsidiaries and the total amount lendable to one such borrower in 90% and up owned subsidiaries shall not exceed forty percent (40%) of the net worth of TSMC Partners and TSMC Development, respectively.

 

Note 2:

The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and TSMC Development, respectively.

 

Note 3:

The maximum balance for the period and ending balance represents the amounts approved by the Board of Directors.

 

Note 4:

The amount was determined based on the reviewed financial statements in accordance with local accounting principles.

 

- 69 -

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

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

 

No.

Endorsement/ Guarantee Provider

Guaranteed Party

Limits on Endorsement/ Guarantee Amount Provided to Each

Maximum Balance for the Period

Ending Balance

Amount Actually

Amount of Endorsement/ Guarantee

Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest

Maximum Endorsement/ Guarantee Amount

Name

Nature of Relationship

Guaranteed Party (Notes 1 and 2)

(US$ in Thousands) (Note 3)

(US$ in Thousands) (Note 3)

Drawn (US$ in Thousands)

Collateralized by Properties

Financial Statements

Allowable (Note 2)

0

TSMC

TSMC Global

Subsidiary

$

200,969,250

$ (US$

44,356,500 1,500,000

)

$ (US$

44,356,500 1,500,000

)

$ (US$

44,356,500 1,500,000

)

$

—

5.5

%

$

200,969,250

 

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.

 

- 70 -

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2013

(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, 2013																Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
TSMC		Corporate bond
		Nan Ya Plastics Corporation		—		Held-to-maturity financial assets			—			$	549,989				N/A			$	551,136
		China Steel Corporation		—		”			—				150,296				N/A				150,553
		Stock
		Semiconductor Manufacturing International Corporation		—		Available-for-sale financial assets			275,957				270,921				1				546,726			Notes 1 and 2
		TSMC Global		Subsidiary		Investments accounted for using equity method			1				66,623,434				100				66,623,434
		TSMC Partners		Subsidiary		”			988,268				41,185,282				100				41,185,682
		VIS		Investee accounted for using equity method		”			628,223				10,107,307				39				20,323,030
		SSMC		Investee accounted for using equity method		”			314				6,870,266				39				6,656,282
		TSMC Solar		Subsidiary		”			1,118,000				3,640,710				99				3,613,746
		TSMC North America		Subsidiary		”			11,000				3,415,950				100				3,415,950
		TSMC SSL		Subsidiary		”			554,674				2,583,242				92				2,583,242
		Xintec		Investee accounted for using equity method		”			94,950				1,785,184				40				1,587,934
		GUC		Investee accounted for using equity method		”			46,688				983,702				35				4,066,513
		TSMC Europe		Subsidiary		”			—				273,016				100				273,016
		TSMC Japan		Subsidiary		”			6				132,129				100				132,129
		TSMC Korea		Subsidiary		”			80				28,573				100				28,573
		United Industrial Gases Co., Ltd.		—		Financial assets carried at cost			21,230				193,584				10				402,735
		Shin-Etsu Handotai Taiwan Co., Ltd.		—		”			10,500				105,000				7				337,396
		W.K. Technology Fund IV		—		”			4,000				39,280				2				33,232
		Fund
		Horizon Ventures Fund		—		Financial assets carried at cost			—				78,303				12				78,303
		Crimson Asia Capital		—		”			—				53,879				1				53,879
		Capital
		TSMC China		Subsidiary		Investments accounted for using equity method			—				22,019,781				100				22,139,659
		VTAF III		Subsidiary		”			—				870,860				50				848,642
		VTAF II		Subsidiary		”			—				439,556				98				433,310
		Emerging Alliance		Subsidiary		”			—				144,670				99				144,670
		TSMC GN		Subsidiary		”			—				90,306				100				90,306
TSMC Solar		Stock
		Motech		Investee accounted for using equity method		Investments accounted for using equity method			87,480				2,713,227				20				4,435,225			Note 3
		TSMC Solar Europe		Subsidiary		”			—				106,215				100				106,215
		TSMC Solar NA		Subsidiary		”			1				16,707				100				16,707
		Capital
		VTAF III		Investee accounted for using equity method		Investments accounted for using equity method			—				1,707				49				1,707

(Continued)

 

- 71 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		September 30, 2013																Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
TSMC SSL		Stock
		TSMC Lighting NA		Subsidiary		Investments accounted for using equity method			1			$	2,881				100			$	2,881
TSMC GN		Stock
		TSMC Solar		Investee accounted for using equity method		Investments accounted for using equity method			4,783				15,396				—				15,396
		TSMC SSL		Investee accounted for using equity method		”			5,091				23,784				1				23,784
TSMC Partners		Stock
		TSMC Development		Subsidiary		Investments accounted for using equity method			—			US$	648,501				100			US$	648,501
		VisEra Holding Company		Investee accounted for using equity method		”			43,000			US$	116,473				49			US$	116,473
		TSMC Technology		Subsidiary		”			—			US$	12,804				100			US$	12,804
		ISDF II		Subsidiary		”			14,153			US$	10,852				97			US$	10,852
		ISDF		Subsidiary		”			787			US$	8,413				97			US$	8,413
		TSMC Canada		Subsidiary		”			2,300			US$	4,797				100			US$	4,797
		Mcube Inc.		—		Financial assets carried at cost			6,333				—				18				—			Note 4
		Fund
		Shanghai Walden Venture Capital Enterprise		—		Financial assets carried at cost			—			US$	5,000				6			US$	5,000
TSMC North America		Stock
		Spansion Inc.		—		Available-for-sale financial assets			272			US$	5,179				—			US$	2,749			Note 1
TSMC Development		Stock
		WaferTech		Subsidiary		Investments accounted for using equity method			293,637			US$	255,451				100			US$	265,809
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				10			US$	1,545
		Preferred stock
		Next IO, Inc.		—		Financial assets carried at cost			8				—				—				—			Note 5
		QST Holdings, LLC		—		”			—			US$	141				4			US$	141
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method			—				—				7				—
VTAF II		Common stock
		Sentelic		—		Financial assets carried at cost			1,806			US$	2,607				9			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

(Continued)

 

- 72 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		September 30, 2013																Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
VTAF II		Preferred stock
		5V Technologies, Inc.		—		Financial assets carried at cost			2,890			US$	2,168				4			US$	2,168
		Aquantia		—		”			4,556			US$	4,316				2			US$	4,316
		Cresta Technology Corporation		—		”			92			US$	28				—			US$	28
		Impinj, Inc.		—		”			711			US$	1,100				—			US$	1,100
		Next IO, Inc.		—		”			179				—				1				—			Note 6
		QST Holdings, LLC		—		”			—			US$	588				13			US$	588
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method			—				—				31				—
VTAF III		Common stock
		Mutual-Pak Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method			15,643			US$	1,328				58			US$	882
		Accton Wireless Broadband Corp.		—		Financial assets carried at cost			2,249			US$	315				6			US$	315
		Preferred stock
		BridgeLux, Inc.		—		Financial assets carried at cost			7,522			US$	9,379				3			US$	9,379
		GTBF, Inc.		—		”			1,154			US$	1,500				N/A			US$	1,500
		LiquidLeds Lighting Corp.		—		”			1,600			US$	800				11			US$	800
		Neoconix, Inc.		—		”			4,147			US$	170				—			US$	170			Note 7
		Powervation, Ltd.		—		”			509			US$	7,938				16			US$	7,938
		Stion Corp.		—		”			8,152				—				15				—			Note 8
		Tilera, Inc.		—		”			3,890			US$	3,025				2			US$	3,025
		Validity Sensors, Inc.		—		”			11,192			US$	4,197				4			US$	4,197
		Capital
		Growth Fund		Subsidiary		Investments accounted for using equity method			—			US$	335				100			US$	335
		VTA Holdings		Subsidiary		”			—				—				62				—
ISDF		Common stock
		Integrated Memory Logic, Inc.		—		Available-for-sale financial assets			408			US$	87				—			US$	998			Note 1
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			230			US$	497				2			US$	497
ISDF II		Common stock
		Alchip Technologies Limited		—		Financial assets carried at cost			7,520			US$	3,664				14			US$	3,664
		Sonics, Inc.		—		”			278			US$	10				3			US$	10
		Goyatek Technology, Corp.		—		”			745			US$	163				6			US$	163
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			264			US$	456				3			US$	456

(Continued)

 

- 73 -

---

Held Company Name

Marketable Securities Type and Name

Relationship with the Company

Financial Statement Account

September 30, 2013

Note

Shares/Units (In Thousands)

Carrying Value (Foreign Currencies in Thousands)

Percentage of Ownership (%)

Market Value or Net Asset Value (Foreign Currencies in Thousands)

TSMC Solar Europe

Stock

TSMC Solar Europe GmbH

Subsidiary

Investments accounted for using equity method

—

EUR

2,585

100

EUR

2,585

TSMC Global

Stock

ASML

—

Available-for-sale financial assets

20,993

US$

1,085,474

5

US$

2,067,739

Notes 1 and 9

Money market fund

Ssga Cash Mgmt Global Offshore

—

Available-for-sale financial assets

495

US$

495

N/A

US$

495

Note 1

 

Note 1:

The carrying value is original carrying amount without fair value adjustment.

 

Note 2:

The carrying value includes the impairment loss in the amount of NT$412,901 thousand.

 

Note 3:

The carrying value includes the impairment loss in the amount of NT$1,186,674 thousand.

 

Note 4:

Since TSMC did not participate in Mcube’s issuance of new shares in the third quarter of 2013, the Company’s percentage of ownership in Mcube decreased to 18%. As a result, after reassessment, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost.

 

Note 5:

The carrying value includes the impairment loss in the amount of US$500 thousand.

 

Note 6:

The carrying value includes the impairment loss in the amount of US$1,219 thousand.

 

Note 7:

The carrying value includes the impairment loss in the amount of US$4,672 thousand.

 

Note 8:

The carrying value includes the impairment loss in the amount of US$55,474 thousand.

 

Note 9:

In October 2012, TSMC Global acquired 5% of the outstanding equity of ASML with a lock-up period of 2.5 years starting from the acquisition date.

(Concluded)

 

- 74 -

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(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 (Foreign Currencies in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain/Loss on Disposal (Foreign Currencies in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)
TSMC		Stock
		Semiconductor Manufacturing International Corporation		Available-for-sale financial assets		—		—			1,277,958			$	1,845,052				—			$	—				1,002,001			$	1,830,424			$	983,714			$	846,710				275,957			$	546,726
		TSMC SSL		Investments accounted for using equity method		—		Subsidiary			430,400				2,389,541				124,274				1,242,744				—				—				—				—				554,674				2,583,242
		Capital
		VTAF II		Investments accounted for using equity method		—		Subsidiary			—				563,056				—				—				—				—				122,511				Note 2				—				439,556
TSMC Global		Corporate bond
		Aust + Nz Banking Group		Held-to-maturity financial assets		—		—			20,000			US$	19,999				—				—				20,000			US$	20,000			US$	20,000				—				—				—
		Commonwealth Bank of Australia		”		—		—			25,000			US$	25,000				—				—				25,000			US$	25,000			US$	25,000				—				—				—
		Commonwealth Bank of Australia		”		—		—			25,000			US$	25,000				—				—				25,000			US$	25,000			US$	25,000				—				—				—
		Deutsche Bank AG London		”		—		—			20,000			US$	19,999				—				—				20,000			US$	20,000			US$	20,000				—				—				—
		JP Morgan Chase + Co.		”		—		—			35,000			US$	35,006				—				—				35,000			US$	35,000			US$	35,000				—				—				—
		Westpac Banking Corp.		”		—		—			25,000			US$	25,000				—				—				25,000			US$	25,000			US$	25,000				—				—				—
ISDF		Stock
		Memsic, Inc.		Available-for-sale financial assets		—		—			1,286			US$	4,294				—				—				1,286			US$	5,431			US$	1,414			US$	4,017				—				—
ISDF II		Stock
		Memsic, Inc.		Available-for-sale financial assets		—		—			1,072			US$	3,581				—				—				1,072			US$	4,529			US$	1,461			US$	3,068				—				—
TSMC		Stock
Development		WaferTech		Investments accounted for using equity method		—		Subsidiary			293,637			US$	262,053				—				—				—				—			US$	50,000				Note 2				293,637			US$	255,451

 

Note 1:

The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, share of profits/losses of investees and other related adjustment to equity.

 

Note 2:

The disposal is primarily consisted of capital return, which is not applicable in recognizing any gain or loss.

 

- 75 -

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name

Types of Property

Transaction Date

Transaction Amount

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Land

January 3, 2013

$2,248,400

By the contract

Miaoli County Government

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to September 26, 2013

2,889,647

By the construction progress

Da Cin Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to September 26, 2013

441,244

By the construction progress

Tasa Construction Corporation

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to September 26, 2013

380,439

By the construction progress

I Domain Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to September 26, 2013

134,529

By the construction progress

Mandartech Interiors Inc.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to August 19, 2013

2,385,135

By the construction progress

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 28, 2013 to July 30, 2013

931,045

By the construction progress

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

February 23, 2013 to May 28, 2013

132,116

By the construction progress

Mega Facade Corporation

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

July 26, 2013 to September 26, 2013

271,668

By the construction progress

Evergreen Steel Corp.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

 

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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, 2013

(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 (Note)				Payment Terms (Note)				Ending Balance (Foreign Currencies in Thousands)				% to Total				Note
TSMC		TSMC North America		Subsidiary		Sales		$	308,572,239				69			Net 30 days after invoice date			—				—			$	57,435,875				72
		GUC		Investee accounted for using equity method		Sales			1,533,394				1			Net 30 days after monthly closing			—				—				378,840				—
		VIS		Investee accounted for using equity method		Sales			162,966				—			Net 30 days after monthly closing			—				—				—				—
		Mcube		Note 2		Sales			119,067				—			Net 30 days after invoice date			—				—				Note 2				—
		TSMC China		Subsidiary		Purchases			12,305,204				27			Net 30 days after monthly closing			—				—				(1,440,521	)			9
		WaferTech		Indirect subsidiary		Purchases			6,529,044				14			Net 30 days after monthly closing			—				—				(613,223	)			4
		VIS		Investee accounted for using equity method		Purchases			4,889,938				11			Net 30 days after monthly closing			—				—				(691,974	)			4
		SSMC		Investee accounted for using equity method		Purchases			2,090,638				5			Net 30 days after monthly closing			—				—				(327,944	)			2
TSMC North America		GUC		Investee accounted for using equity method by TSMC		Sales		(US$	1,258,998 42,363	)			—			Net 30 days after invoice date			—				—			(US$	448,483 15,166	)			1

 

Note 1:

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

 

Note 2:

Starting the third quarter of 2013, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer a related party to the Company.

 

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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, 2013

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

 

						Ending Balance (Foreign Currencies				Turnover Days		Overdue								Amounts Received in Subsequent				Allowance for
Company Name		Related Party		Nature of Relationships		in Thousands)				(Note 1)		Amount				Action Taken				Period				Bad Debts
TSMC		TSMC North America		Subsidiary		$	57,612,301			44		$	18,858,653				—			$	21,582,692			$	—
		GUC		Investee accounted for using equity method			378,840			55			—				—				—				—
		VIS		Investee accounted for using equity method			131,090			(Note 2)			—				—				—				—
TSMC Partners		TSMC Solar		The same parent company		(US$	1,937,044 65,505	)		(Note 2)			—				—				—				—
TSMC China		TSMC		Parent company		(RMB	1,440,521 294,868	)		31			—				—				—				—
TSMC Technology		TSMC		Parent company		(US$	187,203 6,331	)		66			—				—				—				—
WaferTech		TSMC		Parent company		(US$	613,223 20,737	)		25			—				—				—				—
TSMC North America		GUC		Investee accounted for using equity method by TSMC		(US$	448,483 15,166	)		53		(US$	139,603 4,721	)			—			(US$	341,694 11,555	)			—

 

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.

 

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(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 the sale of goods		$	308,572,239				—				68	%
								Receivables from related parties			57,435,875				—				5	%
								Other receivables from related parties			176,426				—				—
								Payables to related parties			31,284				—				—
				TSMC China		1		Net revenue from the sale of goods			6,440				—				—
								Purchases			12,305,204				—				3	%
								Marketing expenses—commission			64,348				—				—
								Disposal of property, plant and equipment			63,778				—				—
								Loss on disposal of property, plant and equipment			9,827				—				—
								Purchases of property, plant and equipment			89,990				—				—
								Other receivables from related parties			26,466				—				—
								Payables to related parties			1,440,521				—				—
				TSMC Japan		1		Marketing expenses—commission			181,896				—				—
								Payables to related parties			20,044				—				—
				TSMC Europe		1		Marketing expenses—commission			278,878				—				—
								Research and development expenses			43,670				—				—
								Payables to related parties			42,083				—				—
				TSMC Korea		1		Marketing expenses—commission			16,450				—				—
								Payables to related parties			1,409				—				—
				TSMC Technology		1		Research and development expenses			614,999				—				—
								Payables to related parties			187,203				—				—
				WaferTech		1		Net revenue from the sale of goods			9,792				—				—
								Purchases			6,529,044				—				1	%
								Other receivables from related parties			1,822				—				—
								Payables to related parties			613,223				—				—
				TSMC Canada		1		Research and development expenses			162,780				—				—
								Payables to related parties			18,041				—				—
				Xintec (Note 3)		1		Manufacturing expenses			106,290				—				—
								Research and development expenses			1,418				—				—
								Disposal of property, plant and equipment			26,977				—				—
				TSMC SSL		1		Other gains and losses			6,525				—				—
								Other receivables from related parties			2,025				—				—
								Payables to related parties			9,386				—				—
								Purchases of property, plant and equipment			7,437				—				—
								Manufacturing expenses			1,682				—				—
				TSMC Solar		1		Manufacturing expenses			2,822				—				—
								General and administrative expenses			2,257				—				—
								Purchases of property, plant and equipment			5,660				—				—

(Continued)

 

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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 Solar		1		Other gains and losses		$	7,677				—				—
								Other receivables from related parties			2,409				—				—
1		TSMC Partners		TSMC China		3		Other income			2,792				—				—
2		TSMC Development		WaferTech		1		Other receivables from related parties			32,240				—				—
3		TSMC North America		TSMC Technology		3		Other receivables from related parties			5,131				—				—
4		TSMC Solar		TSMC Solar Europe GmbH		1		Net revenue from the sale of goods			70,061				—				—
								Receivables from related parties			10,078				—				—
				TSMC Development		3		Finance costs			2,613				—				—
				TSMC Partners		3		Other payables to related parties			1,937,044				—				—
5		TSMC China		Xintec (Note 3)		3		Disposal of property, plant and equipment			48,193				—				—

 

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.

 

Note 3:

TSMC has no power to govern the financial and operating policies of Xintec starting June 2013 for the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method.

(Concluded)

 

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TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(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, 2013												Net Income				Share of Profits/ Losses				Note
								September 30, 2013 (Foreign Currencies in Thousands)				December 31, 2012 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)				(Losses) of the Investee (Foreign Currencies in Thousands)				of Investee (Note 1) (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	66,623,434			$	29,488			$	29,488			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				41,185,282				2,114,741				2,114,822			Subsidiary
		TSMC China		Shanghai, China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers			18,939,667				18,939,667				—				100				22,019,781				3,685,251				3,627,216			Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			13,232,288				13,232,288				628,223				39				10,107,307				3,241,736				1,283,219			Investee accounted for using equity method
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				6,870,266				3,669,415				1,423,366			Investee accounted for using equity method
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				11,180,000				1,118,000				99				3,640,710				(2,466,942	)			(2,428,223	)		Subsidiary
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				3,415,950				179,361				179,361			Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			5,546,744				4,304,000				554,674				92				2,583,242				(1,196,037	)			(1,119,623	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				1,785,184				130,864				(42,676	)		Investee accounted for using equity method
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				983,702				146,274				50,468			Investee accounted for using equity method
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,882,556				1,896,914				—				50				870,860				(1,497,510	)			(138,614	)		Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			593,616				704,447				—				98				439,556				473				464			Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				273,016				28,095				28,095			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			841,757				852,258				—				99				144,670				(9,954	)			(9,904	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				132,129				4,107				4,107			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			150,000				100,000				—				100				90,306				(21,691	)			(21,691	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				28,573				1,116				1,116			Subsidiary
TSMC Solar		Motech		Taipei, Taiwan		Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems			6,228,661				6,228,661				87,480				20				2,713,227				(149,906	)			Note 2			Investee accounted for using equity method
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,806,693				1,801,918				—				49				1,707				(1,497,510	)			Note 2			Investee accounted for using equity method
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			504,107				504,107				—				100				106,215				(73,876	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			205,772				205,772				1				100				16,707				(28,608	)			Note 2			Subsidiary

(Continued)

 

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Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of September 30, 2013												Net Income				Share of Profits/ Losses				Note
								September 30, 2013 (Foreign Currencies in Thousands)				December 31, 2012 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)				(Losses) of the Investee (Foreign Currencies in Thousands)				of Investee (Note 1) (Foreign Currencies in Thousands)
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products			3,133				3,133				1				100				2,881				(36	)			Note 2			Subsidiary
TSMC Partners		TSMC Development		Delaware, U.S.A.		Investment activities		$ (US$	0.03 0.001	)		$ (US$	0.03 0.001	)			—				100			$ (US$	19,176,812 648,501	)		$ (US$	1,311,604 44,134	)			Note 2			Subsidiary
		VisEra Holding Company		Cayman Islands		Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry		(US$	1,271,553 43,000	)		(US$	1,271,553 43,000	)			43,000				49			(US$	3,444,234 116,473	)		(US$	827,363 27,840	)			Note 2			Investee accounted for using equity method
		TSMC Technology		Delaware, U.S.A.		Engineering support activities		(US$	0.03 0.001	)		(US$	0.03 0.001	)			—				100			(US$	378,624 12,804	)		(US$	32,174 1,083	)			Note 2			Subsidiary
		ISDF II		Cayman Islands		Investing in new start-up technology companies		(US$	418,518 14,153	)		(US$	418,518 14,153	)			14,153				97			(US$	320,900 10,852	)		(US$	74,175 2,496	)			Note 2			Subsidiary
		ISDF		Cayman Islands		Investing in new start-up technology companies		(US$	23,272 787	)		(US$	23,272 787	)			787				97			(US$	248,779 8,413	)		(US$	169,952 5,719	)			Note 2			Subsidiary
		TSMC Canada		Ontario, Canada		Engineering support activities		(US$	68,013 2,300	)		(US$	68,013 2,300	)			2,300				100			(US$	141,854 4,797	)		(US$	11,018 371	)			Note 2			Subsidiary
		Mcube Inc.		Delaware, U.S.A.		Research, development, and sale of micro-semiconductor device		(US$	53,228 1,800	)		(US$	53,228 1,800	)			6,333				18				—			(US$	(210,622 (7,106	)  ))			Note 2			Note 3
TSMC Development		WaferTech		Washington, U.S.A.		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices		(US$	3,844,230 130,000	)		(US$	8,279,880 280,000	)			293,637				100			(US$	7,553,943 255,451	)		(US$	1,290,557 43,425	)			Note 2			Subsidiary
VTAF III		Mutual-Pak Technology Co., Ltd.		Taipei, Taiwan		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		(US$	154,124 5,212	)		(US$	154,124 5,212	)			15,643				58			(US$	39,280 1,328	)		(US$	(14,022 (472	)  ))			Note 2			Subsidiary
		Growth Fund		Cayman Islands		Investing in new start-up technology companies		(US$	54,115 1,830	)		(US$	54,115 1,830	)			—				100			(US$	9,921 335	)		(US$	(982 (33	)  ))			Note 2			Subsidiary
		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			—				—				—				62				—				—				Note 2			Subsidiary
VTAF II		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			—				—				—				31				—				—				Note 2			Subsidiary
Emerging Alliance		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			—				—				—				7				—				—				Note 2			Subsidiary
TSMC Solar Europe		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service		(EUR	493,768 12,400	)		(EUR	493,768 12,400	)			—				100			(EUR	102,948 2,585	)		(EUR	(74,028 (1,884	)  ))			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			47,830				42,945				4,783				—				15,396				(2,466,942	)			Note 2			Investee accounted for using equity method
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			50,910				34,266				5,091				1				23,784				(1,196,037	)			Note 2			Investee accounted for using equity method

 

Note 1:

The share of profits/losses of investee includes the effect of unrealized gross profit on sales to affiliates.

 

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:

Since TSMC did not participate in Mcube’s issuance of new shares in the third quarter of 2013, the Company’s percentage of ownership in Mcube decreased to 18%. As a result, after reassessment, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost.

(Concluded)

 

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TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

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

 

 

Investee		Main Businesses and		Total Amount of Paid-in Capital (Foreign Currencies in				Method of				Accumulated Outflow of Investment from Taiwan as of January 1, 2013 (US$ in				Investment Flows								Accumulated Outflow of Investment from Taiwan as of September 30, 2013 (US$ in				Percentage of				Share of				Carrying Amount as of September 30, 2013 (US$ in				Accumulated Inward Remittance of Earnings as of September 30,
Company		Products		Thousands)				Investment				Thousands)				Outflow				Inflow				Thousands)				Ownership				Profits/Losses				Thousands)				2013
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	)			100	%		$	3,627,216 (Note 3	)		$	22,019,781			$	—
Shanghai Walden Venture Capital Enterprise		Investing in new start-up technology companies		(US$	2,324,062 78,791	)			(Note 2	)		(US$	147,485 5,000	)			—				—			(US$	147,485 5,000	)			6	%			(Note 4	)		(US$	147,855 5,000	)			—

 

Accumulated Investment in Mainland China as of September 30, 2013 (US$ in Thousands)				Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)				Upper Limit on Investment (US$ in Thousands)
$ (US$	19,087,152 601,000)			$ (US$	19,087,152 601,000	)		$ (US$	19,087,152 601,000	)

 

Note 1:

TSMC directly invested US$596,000 thousand in TSMC China.

 

Note 2:

TSMC indirectly invested in China company through third region, TSMC Partners.

 

Note 3:

Amount was recognized based on the reviewed financial statements.

 

Note 4:

TSMC Partners invested in financial assets carried at cost, share of profits/losses from which was not recognized.

 

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