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 March 2014

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x             Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

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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: March 06, 2014				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

Years Ended December 31, 2013 and 2012 and

Independent Auditors’ Report

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REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2013, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the Statement of Financial Accounting Standards No. 7, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements.

Very truly yours,

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED

By

 

 

MORRIS CHANG

Chairman

February 18, 2014

 

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2013 and 2012 and January 1, 2012 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2013 and 2012 and January 1, 2012, and the results of their consolidated operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the International Financial Reporting Standards, International Accounting Standards, interpretation as well as related guidance translated by Accounting Research and Development Foundation endorsed by the Financial Supervisory Commission of the Republic of China with the effective dates.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the years ended December 31, 2013 and 2012 on which we have issued an unqualified opinion.

 

February 18, 2014

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

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

Member of Deloitte Touche Tohmatsu Limited

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

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)

 

		2013								2012
		Amount				%				Amount				%
NET REVENUE (Notes 5, 26, 37 and 42)		$	597,024,197				100			$	506,745,234				100
COST OF REVENUE (Notes 12, 33 and 37)			316,057,820				53				262,583,098				52
GROSS PROFIT BEFORE UNREALIZED GROSS PROFIT ON SALES TO ASSOCIATES			280,966,377				47				244,162,136				48
UNREALIZED GROSS PROFIT ON SALES TO ASSOCIATES			(20,870	)			—				(25,029	)			—
GROSS PROFIT			280,945,507				47				244,137,107				48
OPERATING EXPENSES (Notes 5, 33 and 37)
Research and development			48,118,165				8				40,383,195				8
General and administrative			18,928,544				3				17,631,694				3
Marketing			4,516,525				1				4,495,986				1
Total operating expenses			71,563,234				12				62,510,875				12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 27 and 33)			47,090				—				(449,364	)			—
INCOME FROM OPERATIONS (Note 42)			209,429,363				35				181,176,868				36
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture (Notes 14 and 42)			3,972,031				1				2,073,729				—
Other income (Note 28)			2,342,123				—				1,716,093				—
Foreign exchange gain, net			285,460				—				582,498				—
Finance costs (Notes 10 and 29)			(2,646,776	)			—				(1,020,422	)			—
Other gains and losses (Notes 30 and 37)			2,104,921				—				(2,852,310	)			—
Total non-operating income and expenses			6,057,759				1				499,588				—
INCOME BEFORE INCOME TAX			215,487,122				36				181,676,456				36
INCOME TAX EXPENSE (Notes 31 and 42)			27,468,185				5				15,552,654				3
NET INCOME			188,018,937				31				166,123,802				33

(Continued)

 

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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)

 

		2013								2012
		Amount				%				Amount				%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 10, 14, 23, 24 and 31)
Exchange differences arising on translation of foreign operations		$	3,668,509				1			$	(4,322,697	)			(1	)
Changes in fair value of available-for-sale financial assets			13,290,385				2				9,534,269				2
Cash flow hedges			—				—				232				—
Share of other comprehensive income (loss) of associates and joint venture			(59,740	)			—				53,748				—
Actuarial loss from defined benefit plans			(662,074	)			—				(685,978	)			—
Income tax benefit (expense) related to components of other comprehensive income			115,168				—				(326,942	)			—
Other comprehensive income for the year, net of income tax			16,352,248				3				4,252,632				1
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		$	204,371,185				34			$	170,376,434				34
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	188,146,790				31			$	166,318,286				33
Noncontrolling interests			(127,853	)			—				(194,484	)			—
		$	188,018,937				31			$	166,123,802				33
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	204,505,782				34			$	170,521,543				34
Noncontrolling interests			(134,597	)			—				(145,109	)			—
		$	204,371,185				34			$	170,376,434				34

 

		2013				2012
		Income Attributable to Shareholders of the Parent				Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 32)
Basic earnings per share		$	7.26			$	6.42
Diluted earnings per share		$	7.26			$	6.41

 

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

 

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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)

 

		Equity Attributable to Shareholders of the Parent
																														Others
																														Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets
		Capital Stock- Common Stock												Retained Earnings
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total												Cash Flow Hedges Reserve				Total				Total				Noncontrolling Interests				Total Equity
BALANCE, JANUARY 1, 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 in 2012			—				—				—				—				—				166,318,286				166,318,286				—				—				—				—				166,318,286				(194,484	)			166,123,802
Other comprehensive income in 2012, net of income tax			—				—				—				—				—				(622,477	)			(622,477	)			(4,320,442	)			9,146,083				93				4,825,734				4,203,257				49,375				4,252,632
Total comprehensive income in 2012			—				—				—				—				—				165,695,809				165,695,809				(4,320,442	)			9,146,083				93				4,825,734				170,521,543				(145,109	)			170,376,434
Issuance of stock from exercise of employee stock options			8,213				82,131				160,357				—				—				—				—				—				—				—				—				242,488				—				242,488
Stock option compensation cost of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				6,219				6,219
Adjustments to share of changes in equity of associates and joint venture			—				—				2,588				—				—				—				—				—				—				—				—				2,588				—				2,588
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				40,733				—				—				—				—				—				—				—				—				40,733				(40,733	)			—
Increase in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				286,200				286,200
BALANCE, DECEMBER 31, 2012			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 in 2013			—				—				—				—				—				188,146,790				188,146,790				—				—				—				—				188,146,790				(127,853	)			188,018,937
Other comprehensive income in 2013, net of income tax			—				—				—				—				—				(591,799	)			(591,799	)			3,613,444				13,337,460				(113	)			16,950,791				16,358,992				(6,744	)			16,352,248
Total comprehensive income in 2013			—				—				—				—				—				187,554,991				187,554,991				3,613,444				13,337,460				(113	)			16,950,791				204,505,782				(134,597	)			204,371,185
Issuance of stock from exercise of employee stock options			4,182				41,814				82,756				—				—				—				—				—				—				—				—				124,570				—				124,570
Stock option compensation cost of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				5,312				5,312
Adjustments to share of changes in equity of associates and joint venture			—				—				38,084				—				—				—				—				—				—				—				—				38,084				—				38,084
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				62,446				—				—				—				—				—				—				—				—				62,446				(62,446	)			—
Increase in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				188,488				188,488
Effect of deconsolidation of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(2,273,153	)			(2,273,153	)
BALANCE, DECEMBER 31, 2013			25,928,617			$	259,286,171			$	55,858,626			$	132,436,003			$	2,785,741			$	382,971,408			$	518,193,152			$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306			$	847,508,255			$	266,830			$	847,775,085

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)

 

		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	215,487,122			$	181,676,456
Adjustments for:
Depreciation expense			153,979,847				129,168,514
Amortization expense			2,202,022				2,180,775
Stock option compensation cost of subsidiary			5,312				6,219
Finance costs			2,646,776				1,020,422
Share of profits of associates and joint venture			(3,972,031	)			(2,073,729	)
Interest income			(1,835,980	)			(1,645,036	)
Gain on disposal of property, plant and equipment and intangible assets, net			(48,848	)			(103	)
Impairment loss on property, plant and equipment			—				444,505
Impairment loss of financial assets			352,214				4,231,602
Gain on disposal of available-for-sale financial assets, net			(1,267,086	)			(399,598	)
Gain on disposal of financial assets carried at cost, net			(44,721	)			(141,491	)
Loss (gain) on disposal of investments in associates			733				(4,977	)
Gain on deconsolidation of subsidiary			(293,578	)			—
Unrealized gross profit on sales to associates			20,870				25,029
Loss (gain) on foreign exchange, net			317,547				(3,219,144	)
Dividend income			(506,143	)			(71,057	)
Income from receipt of equity securities in settlement of trade receivables			(9,977	)			(886	)
Loss on hedging instruments			5,602,779				—
Gain on arising from changes in fair value of available-for-sale financial assets in hedge effective portion			(5,071,118	)			—
Changes in operating assets and liabilities:
Derivative financial instruments			(32,189	)			(22,311	)
Notes and accounts receivable, net			(14,131,066	)			(11,947,191	)
Receivables from related parties			(204,278	)			(168,047	)
Other receivables from related parties			50,589				(63,258	)
Inventories			122,472				(12,989,916	)
Other financial assets			18,578				53,182
Other current assets			(312,251	)			648,051
Accounts payable			346,401				3,656,358
Payables to related parties			850,094				(605,182	)
Salary and bonus payable			883,925				1,386,797
Accrued profit sharing to employees and bonus to directors and supervisors			1,552,210				2,105,298
Accrued expenses and other current liabilities			3,531,017				2,051,785
Provisions			1,595,810				977,901
Accrued pension cost			9,554				(5,769	)
Cash generated from operations			361,846,606				296,275,199
Income taxes paid			(14,463,069	)			(11,312,039	)
Net cash generated by operating activities			347,383,537				284,963,160

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

		2013				2012
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets		$	(21,303	)		$	(31,525,876	)
Held-to-maturity financial assets			(1,795,949	)			—
Financial assets carried at cost			(27,165	)			(56,512	)
Property, plant and equipment			(287,594,773	)			(246,137,361	)
Intangible assets			(2,750,361	)			(1,782,299	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			2,418,578				964,367
Held-to-maturity financial assets			5,145,850				2,711,440
Financial assets carried at cost			67,986				353,656
Property, plant and equipment			173,554				157,484
Other assets			—				26,688
Costs from entering into hedging transactions			(143,982	)			—
Interest received			1,790,725				1,719,026
Other dividends received			506,143				71,057
Dividends received from associates			2,141,881				2,088,472
Refundable deposits paid			(98,888	)			(517,162	)
Refundable deposits refunded			113,399				2,609,313
Net cash outflow from deconsolidation of subsidiary (Note 34)			(979,910	)			—
Net cash used in investing activities			(281,054,215	)			(269,317,707	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of bonds			130,844,821				62,000,000
Repayment of bonds			—				(4,500,000	)
Increase (decrease) in short-term loans			(19,636,240	)			9,747,094
Increase in long-term bank loans			690,000				50,000
Repayment of long-term bank loans			(62,500	)			(212,500	)
Repayment of other long-term payables			(853,788	)			(2,367,866	)
Interest paid			(1,330,886	)			(736,607	)
Guarantee deposits received			41,519				15,671
Guarantee deposits refunded			(113,087	)			(255,764	)
Decrease in obligations under finance leases			(27,796	)			(108,863	)
Proceeds from exercise of employee stock options			124,570				242,488
Cash dividends			(77,773,307	)			(77,748,668	)
Increase in noncontrolling interests			202,619				286,200
Net cash generated by (used in) financing activities			32,105,925				(13,588,815	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			849,612				(2,118,327	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			99,284,859				(61,689	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			143,410,588				143,472,277
CASH AND CASH EQUIVALENTS, END OF YEAR		$	242,695,447			$	143,410,588

 

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 YEARS ENDED DECEMBER 31, 2013 AND 2012

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

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks.

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 42.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors on February 18, 2014.

 

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”.)

 

a.

New and revised standards, amendments and interpretations in issue but not yet effective

As of the date that the accompanying consolidated financial statements were authorized for issue, 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 standards and interpretations is still subject to the effective date to be published by the FSC except that the standards and interpretation included in the 2013 Taiwan-IFRSs version should be adopted by the Company starting 2015.

 

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New, Revised or Amended Standards and Interpretations		Effective Date Issued by IASB (Note)
Included in the 2013 Taiwan-IFRSs version
Amendments to IFRSs Improvements to IFRSs 2009 - Amendment to IAS 39		January 1, 2009 or January 1, 2010
Amendment to IAS 39 Embedded Derivatives		Effective in fiscal year ended on or after June 30, 2009
Improvements to IFRSs 2010		July 1, 2010 or January 1, 2011
Annual Improvements to IFRSs 2009 - 2011 Cycle		January 1, 2013
Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First - time Adopters		July 1, 2010
Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First - time Adopters		July 1, 2011
Amendments to IFRS 1 Government Loans		January 1, 2013
Amendment to IFRS 7 Disclosures - offsetting Financial Assets and Financial Liabilities		January 1, 2013
Amendment to IFRS 7 Disclosures - Transfers of Financial Assets		July 1, 2011
IFRS 10 Consolidated Financial Statements		January 1, 2013
IFRS 11 Joint Arrangements		January 1, 2013
IFRS 12 Disclosure of Interests in Other Entities		January 1, 2013
Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance		January 1, 2013
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities		January 1, 2014
IFRS 13 Fair Value Measurement		January 1, 2013
Amendment to IAS 1 Presentation of Items of Other Comprehensive Income		July 1, 2012
Amendment to IAS 12 Deferred Tax: Recovery of Underlying Assets		January 1, 2012
Amendment to IAS 19 Employee Benefits		January 1, 2013
Amendment to IAS 27 Separate Financial Statements		January 1, 2013
Amendment to IAS 28 Investments in Associates and Joint Ventures		January 1, 2013
Amendment to IAS 32 Offsetting of Financial Assets and Financial Liabilities		January 1, 2014
IFRIC 20 Stripping Costs in the Production Phase of A Surface Mine		January 1, 2013
Not included in the 2013 Taiwan-IFRSs version
Annual Improvements to IFRSs 2010 - 2012 Cycle		July 1, 2014 or transactions on or after July 1, 2014
Annual Improvements to IFRSs 2011 - 2013 Cycle		July 1, 2014
IFRS 9 Financial Instruments		Not yet determined
Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosure		Not yet determined
IFRS 14 Regulatory Deferral Accounts		January 1, 2016
Amendment to IAS 19 Defined Benefit Plans: Employee Contributions		July 1, 2014
Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets		January 1, 2014
Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting		January 1, 2014
IFRIC 21 Levies		January 1, 2014

 

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.

 

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b.

Significant changes in accounting policy resulted from new and revised standards, amendments and interpretations in issue but not yet effective

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

 

1)

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 end of the reporting period.

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

The amendment to IFRS 9 issued by IASB introduces the new hedge accounting model and removed the original mandatory effective date of January 1, 2015 (on and after). IASB will reconsider the appropriate effective date once the standard is complete with a new impairment model and the finalization of any limited amendments to classification and measurement.

 

2)

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.

 

3)

IFRS 13, “Fair Value Measurement”

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

 

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4)

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.

 

5)

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.

 

6)

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 year 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.

 

c.

Impact of the application of the new and revised standards, amendments and interpretations in issue but not yet effective on the consolidated financial statements of the Company

As of the date that the accompanying consolidated financial statements were approved and 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 accompanying consolidated financial statements are the first 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, the IFRSs, IASs, interpretations as well as related guidance translated by the ARDF endorsed by the FSC with the effective dates.

 

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Basis of Preparation

The accompanying consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The opening balance sheet at the date of transition is prepared in accordance with the recognition and measurement required by IFRS 1. According to IFRS 1, the Company is required to apply each effective IFRS retrospectively 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 described in Note 43.

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.

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.

 

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The subsidiaries in the consolidated financial statements

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

 

						Establishment and Operating Location		Percentage of Ownership
Name of Investor		Name of Investee		Main Businesses and Products				December 31, 2013				December 31, 2012				January 1, 2012				Note
TSMC		TSMC North America		Selling and marketing of integrated circuits and semiconductor devices		San Jose, California, U.S.A.			100	%			100	%			100	%		—
		TSMC Japan Limited (TSMC Japan)		Marketing activities		Yokohama, Japan			100	%			100	%			100	%		a)
		TSMC Partners, Ltd. (TSMC Partners)		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry		Tortola, British Virgin Islands			100	%			100	%			100	%		—
		TSMC Korea Limited (TSMC Korea)		Customer service and technical supporting activities		Seoul, Korea			100	%			100	%			100	%		a)
		TSMC Europe B.V. (TSMC Europe)		Marketing and engineering supporting activities		Amsterdam, the Netherlands			100	%			100	%			100	%		a)
		TSMC Global, Ltd. (TSMC Global)		Investment activities		Tortola, British Virgin Islands			100	%			100	%			100	%		—
		TSMC China Company Limited (TSMC China)		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		Shanghai, China			100	%			100	%			100	%		—
		VentureTech Alliance Fund III, L.P. (VTAF III)		Investing in new start-up technology companies		Cayman Islands			50	%			50	%			53	%		—
		VentureTech Alliance Fund II, L.P. (VTAF II)		Investing in new start-up technology companies		Cayman Islands			98	%			98	%			98	%		—
		Emerging Alliance Fund, L.P. (Emerging Alliance)		Investing in new start-up technology companies		Cayman Islands			99.5	%			99.5	%			99.5	%		a)
		Xintec Inc. (Xintec)		Wafer level chip size packaging service		Taoyuan, Taiwan			b	)			40	%			40	%		—
		TSMC Solid State Lighting Ltd. (TSMC SSL)		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems		Hsin-Chu, Taiwan			92	%			95	%			100	%		TSMC and TSMC GN aggregately have a controlling interest of 93% in TSMC SSL.
		TSMC Solar Ltd. (TSMC Solar)		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products		Tai-Chung, Taiwan			99	%			99	%			100	%		TSMC and TSMC GN aggregately have a controlling interest of 99% in TSMC Solar.
		TSMC Guang Neng Investment, Ltd. (TSMC GN)		Investment activities		Taipei, Taiwan			100	%			100	%			—			—
TSMC Partners		TSMC Design Technology Canada Inc. (TSMC Canada)		Engineering support activities		Ontario, Canada			100	%			100	%			100	%		a)
		TSMC Technology, Inc. (TSMC Technology)		Engineering support activities		Delaware, U.S.A.			100	%			100	%			100	%		a)
		TSMC Development, Inc. (TSMC Development)		Investment activities		Delaware, U.S.A.			100	%			100	%			100	%		—
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Investing in new start-up technology companies		Cayman Islands			97	%			97	%			97	%		a)
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Investing in new start-up technology companies		Cayman Islands			97	%			97	%			97	%		a)
TSMC Development		WaferTech, LLC (WaferTech)		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices		Washington, U.S.A.			100	%			100	%			100	%		—
VTAF III		Mutual-Pak Technology Co., Ltd. (Mutual-Pak)		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		Taipei, Taiwan			58	%			58	%			57	%		a)
		Growth Fund Limited (Growth Fund)		Investing in new start-up technology companies		Cayman Islands			100	%			100	%			100	%		a)
VTAF III, VTAF II and Emerging Alliance		VentureTech Alliance Holdings, LLC (VTA Holdings)		Investing in new start-up technology companies		Delaware, U.S.A.			100	%			100	%			100	%		a)
TSMC SSL		TSMC Lighting North America, Inc. (TSMC Lighting NA)		Selling and marketing of solid state lighting related products		Delaware, U.S.A.			100	%			100	%			100	%		a)
TSMC Solar		TSMC Solar North America, Inc. (TSMC Solar NA)		Selling and marketing of solar related products		Delaware, U.S.A.			100	%			100	%			100	%		a)
		TSMC Solar Europe B.V. (TSMC Solar Europe)		Investing in solar related business		Amsterdam, the Netherlands			100	%			100	%			100	%		a)
		VentureTech Alliance Fund III, L.P. (VTAF III)		Investing in new start-up technology companies		Cayman Islands			49	%			49	%			46	%		—
TSMC Solar Europe		TSMC Solar Europe GmbH		Selling of solar related products and providing customer service		Hamburg, Germany			100	%			100	%			100	%		a)

 

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Note a:

This is an immaterial subsidiary for which the consolidated financial statements are not audited by the Company’s independent accountants.

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.

Foreign Currencies

The financial statements of each individual consolidated entity were expressed in the currency which reflected its primary economic environment (functional currency). The functional currency of TSMC and presentation currency of the consolidated financial statements are both New Taiwan Dollars (NT$). In preparing the consolidated financial statement, the operating results and financial positions of each consolidated entity are translated into NT$.

In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to noncontrolling interests as appropriate).

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time deposits and investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial Instruments

Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Fair value is determined in the manner described in Note 36.

 

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Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at fair value through profit or loss” (FVTPL), “held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Derivative financial instruments that do not meet the criteria for hedge accounting are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c) financial assets at fair value through profit or loss.

Stocks and money market funds held by the Company that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value at the end of each reporting period.

Interest income from available-for-sale monetary financial assets and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Such equity instruments are subsequently remeasured at fair value when their fair value can be reliably measured, and the difference between the carrying amount and fair value is recognized in profit or loss or other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including cash and cash equivalents, notes and accounts receivable and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for those loans and receivables with immaterial discounted effect.

 

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Impairment of financial assets

Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Those financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, their estimated future cash flows have been affected.

For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

For financial assets carried at amortized cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the year.

In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gains or losses from available-for-sale financial assets.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

 

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Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are subsequently measured either at amortized cost using effective interest method or at FVTPL.

Financial liabilities measured at FVTPL are derivative financial instruments that do not meet the criteria for hedge accounting, and they are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently measured at amortized cost at the end of each reporting period.

Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative Financial Instruments

The Company enters into a variety of derivative financial instruments to manage its market risk exposure to foreign exchange rate, interest rate and equity price fluctuation, including forward exchange contracts, cross currency swap contracts, interest rate swaps and forward stock contracts.

Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative financial instrument is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the period when the hedged item is recognized in profit or loss.

 

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Inventories

Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value represents the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Investments Accounted for Using Equity Method

Investments accounted for using the equity method include investments in associates and interests in joint ventures.

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control). Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The operating results and assets and liabilities of associates and jointly controlled entities are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a jointly controlled entity is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate and jointly controlled entity as well as the distribution received. The Company also recognized its share in the changes in the associates and jointly controlled entity.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate or a jointly controlled entity recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date when the Company ceases to have significant influence over an associate. When the Company retains an interest in the former associate, the Group measures the retained interest at fair value at that date. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Company shall account for all amounts recognized in other comprehensive income in relation to that associate on the same basis as would be required if the associate had directly disposed of the related assets or liabilities.

 

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When the Company subscribes to additional shares in an associate or jointly controlled entity at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate or jointly controlled entity. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate or joint controlled entity by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate or jointly controlled entity shall be reclassified to profit or loss on the same basis as would be required if the associate or jointly controlled entity had directly disposed of the related assets or liabilities.

When a consolidated entity transacts with an associate or a joint controlled entity, profits and losses resulting from the transactions with the associate or jointly controlled entity are recognized in the Company’ consolidated financial statements only to the extent of interests in the associate or jointly controlled entity that are not owned by the Company.

Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property, plant and equipment.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful lives, and it is computed using the straight-line method over the following estimated useful lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Leases

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

 

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The Company as lessee

Assets held under finance lease are initially recognized as assets of the Company at the fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated balance sheet as an obligation under finance lease.

Lease payments are apportioned between finance expense and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Intangible Assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Other intangible assets

Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method over the following estimated useful lives: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination. If the recoverable amount of a cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such cash generating unit and then to the other assets of the cash generating unit pro rata based on the carrying amount of each asset in the cash generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Other tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

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Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

 

•

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

•

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

•

The amount of revenue can be measured reliably;

 

•

It is probable that the economic benefits associated with the transaction will flow to the Company; and

 

•

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

In principle, payment term granted to customers is due 30 days from the invoice date or 30 days from the end of the month of when the invoice is issued. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

 

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Royalties, dividend and interest income

Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably).

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Retirement Benefits

For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense when the employees have rendered service entitling them to the contribution. For defined benefit retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at year end. Actuarial gains and losses are reported in retained earnings in the period that they are recognized as other comprehensive income.

Share-based Payment Arrangements

The Company elected to take the optional exemption under IFRS 1 for the share-based payment transactions granted and vested before the date of transition to Taiwan-IFRSs. There were no stock options granted prior to but unvested at the date of transition. Please refer to the description in Note 43 b.

The compensation costs of employee stock options that were granted after January 1, 2012 are measured at the fair value of the stock options at the grant date. The fair value of the stock option granted determined at the grant date of the stock options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the number of stock options that will eventually vest, with a corresponding increase in capital surplus—employee stock option. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from original estimates.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

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

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

 

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Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, net operating loss carryforwards and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

 

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

In the application of the Company’s accounting policies, which are described in Note 4, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The following are the critical judgments, apart from those involving estimations, that the directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

 

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Revenue Recognition

The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used.

Impairment of Tangible and Intangible Assets Other than Goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the nature of semiconductor industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

Impairment of Goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the recoverable amount of relevant cash-generating units.

Impairment Assessment on Investment Using Equity Method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable. The Company measures the impairment based on a projected future cash flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate formulated by such investees’ internal management team. The Company also takes into account market conditions and the relevant industry trends to ensure the reasonableness of such assumptions.

Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company use judgment and estimate to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid technological changes, the Company estimates the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon.

 

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Recognition and Measurement of Defined Benefit Plans

Accrued pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

6.	CASH AND CASH EQUIVALENTS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Cash and deposits in banks		$	238,014,580			$	140,072,294			$	139,637,363
Repurchase agreements collateralized by short-term commercial paper			2,395,644				349,341				—
Repurchase agreements collateralized by corporate bonds			1,809,344				2,691,042				—
Repurchase agreements collateralized by government bonds			475,879				297,911				3,834,914
		$	242,695,447			$	143,410,588			$	143,472,277

 

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Derivative financial assets
Forward exchange contracts		$	90,353			$	38,607			$	15,360
Cross currency swap contracts			—				947				—
		$	90,353			$	39,554			$	15,360
Derivative financial liabilities
Forward exchange contracts		$	29,573			$	12,174			$	13,623
Cross currency swap contracts			4,177				3,451				119
		$	33,750			$	15,625			$	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:

 

				Contract Amount
		Maturity Date		(In Thousands)
December 31, 2013
Sell NT$/Buy EUR		January 2014		NT$4,514,314/EUR110,000
Sell NT$/Buy US$		January 2014		NT$683,749/US$22,800
Sell US$/Buy EUR		January 2014		US$340,134/EUR248,000
Sell US$/Buy JPY		January 2014		US$341,023/JPY35,754,801
Sell US$/Buy RMB		January 2014 to February 2014		US$138,000/RMB841,492
December 31, 2012
Sell NT$/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$20,000/RMB124,735
January 1, 2012
Sell EUR/Buy NT$		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
December 31, 2013
January 2014		NT$1,639,215/US$55,080		—		1.03%-2.00%
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%		—
January 1, 2012
January 2012		NT$420,431/US$13,880		—		0.48%

 

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8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Publicly traded stocks		$	59,481,569			$	41,160,437			$	3,306,248
Money market funds			1,183				1,443				2,522
		$	59,482,752			$	41,161,880			$	3,308,770
Current portion		$	760,793			$	2,410,635			$	3,308,770
Noncurrent portion			58,721,959				38,751,245				—
		$	59,482,752			$	41,161,880			$	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 40e)

In the second quarter of 2012, the Company recognized an impairment loss on some of the foreign 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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Commercial paper		$	1,795,949			$	—			$	—
Corporate bonds			—				5,056,973				8,614,527
Government bonds			—				—				454,320
		$	1,795,949			$	5,056,973			$	9,068,847
Current portion		$	1,795,949			$	5,056,973			$	3,825,680
Noncurrent portion			—				—				5,243,167
		$	1,795,949			$	5,056,973			$	9,068,847

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Financial liabilities
Current
Cash flow hedges
Interest rate swap contracts		$	—			$	—			$	232
Financial liabilities
Noncurrent
Fair value hedges
Stock forward contracts		$	5,481,616			$	—			$	—

 

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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 Amount (In Thousands)		Contract Price
December 31, 2013
NT$37,431,626 (US$1,256,095)		Determined by the specific percentage of spot price on the trade date

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. The contract information was as follows:

 

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 year ended December 31, 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$5 thousand; the amount reclassified from equity and recognized as a loss from the above interest rate swap contract amounted to a net loss of NT$227 thousand, which was included under finance costs in the consolidated statements of comprehensive income.

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

		December 31, 2013				December 31, 2012				January 1, 2012
Notes and accounts receivable		$	72,136,514			$	58,257,798			$	46,321,240
Allowance for doubtful receivables			(486,588	)			(480,212	)			(490,952	)
Notes and accounts receivable, net		$	71,649,926			$	57,777,586			$	45,830,288

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

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

 

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Aging analysis of notes and accounts receivable, net

 

		December 31, 2013				December 31, 2012				January 1, 2012
Neither past due nor impaired		$	64,112,564			$	47,528,952			$	39,362,390
Past due but not impaired
Past due within 30 days			7,537,362				10,248,634				6,467,898
		$	71,649,926			$	57,777,586			$	45,830,288

Movements of the allowance for doubtful receivables

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	480,212			$	490,952
Provision			9,436				450
Write-off			—				(11,083	)
Effect of deconsolidation of subsidiary			(3,157	)			—
Effect of exchange rate changes			97				(107	)
Balance, end of year		$	486,588			$	480,212

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Not past due		$	38			$	160,354			$	81,017
Past due 1-30 days			276				2,863				24,351
Past due 31-60 days			80				—				4,684
Past due 61-120 days			158				—				—
Past due over 121 days			7,824				3,157				9,769
		$	8,376			$	166,374			$	119,821

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of December 31, 2013 and 2012 and January 1, 2012, the amount of the bank guarantee and other credit enhancements were US$11 thousand, US$1,000 thousand and US$2,962 thousand, respectively.

 

12.	INVENTORIES

 

		December 31, 2013				December 31, 2012				January 1, 2012
Finished goods		$	7,245,209			$	6,244,824			$	3,347,849
Work in process			26,033,625				25,713,217				17,940,960
Raw materials			2,435,269				3,864,105				1,808,615
Supplies and spare parts			1,780,790				2,008,352				1,743,158
		$	37,494,893			$	37,830,498			$	24,840,582

 

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Write-down of inventories to net realizable value in the amount of NT$664,662 thousand and NT$1,558,915 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2013 and 2012.

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31, 2013				December 31, 2012				January 1, 2012
Non-publicly traded stocks		$	1,865,078			$	3,314,713			$	4,004,314
Mutual funds			280,513				290,364				310,691
		$	2,145,591			$	3,605,077			$	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$1,538,888 thousand and NT$367,399 thousand for the years ended December 31, 2013 and 2012, respectively.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	24,823,807			$	20,325,277			$	22,033,567
Jointly controlled entities			3,492,453				3,035,641				2,853,364
		$	28,316,260			$	23,360,918			$	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				December 31, 2013				December 31, 2012				January 1, 2012				December 31, 2013				December 31, 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		$	10,556,348			$	9,406,597			$	8,985,340				39	%			40	%			39	%
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)		Fabrication and supply of integrated circuits		Singapore			7,457,733				6,710,956				6,289,429				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			3,887,462				2,992,899				5,609,002				20	%			20	%			20	%
Xintec		Wafer level chip size packaging service		Taoyuan, Taiwan			1,866,123				—				—				40	%			—				—
Global Unichip Corporation (GUC)		Researching, developing, manufacturing, testing and marketing of integrated circuits		Hsinchu, Taiwan			1,056,141				1,214,825				1,149,796				35	%			35	%			35	%
Mcube Inc. (Mcube)		Research, development, and sale of micro-semiconductor device		Delaware, U.S.A.			—				—				—				—				25	%			25	%
						$	24,823,807			$	20,325,277			$	22,033,567

 

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

Since TSMC did not participate in Mcube’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, the Company evaluated and concluded that the Company did not exercise significant influence over Mcube. 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.

The summarized financial information in respect of the Company’s associates is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRSs, IASs, interpretations as well as related guidance translated by the ARDF endorsed by the FSC with the effective dates, which is also adjusted by the Company using the equity method of accounting.

 

		December 31, 2013				December 31, 2012				January 1, 2012
Total assets		$	96,689,523			$	82,348,735			$	87,282,437
Total liabilities			(28,141,625	)			(21,683,504	)			(20,948,855	)
Net assets		$	68,547,898			$	60,665,231			$	66,333,582
The Company’s share of net assets of associates		$	24,823,807			$	20,325,277			$	22,033,567

 

		Years Ended December 31
		2013				2012
Net revenue		$	67,752,079			$	55,746,115
Net income		$	8,325,722			$	175,900
Other comprehensive income (loss)		$	168,081			$	(24,553	)
The Company’s share of profits of associates		$	3,518,495			$	1,456,645
The Company’s share of other comprehensive income (loss) of associates		$	18,554			$	(39,238	)

 

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

 

Name of Associate		December 31, 2013				December 31, 2012				January 1, 2012
VIS		$	22,239,112			$	12,658,703			$	6,627,758
Motech		$	5,345,015			$	2,383,824			$	4,645,176
GUC		$	3,454,902			$	4,692,130			$	4,645,442

 

b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

The summarized financial information in respect of the Company’s jointly controlled entity is set out below. The summarized financial information below represents amounts shown in the jointly controlled entity’s financial statements prepared in accordance with IFRSs, IASs, interpretations as well as related guidance translated by the ARDF endorsed by the FSC with the effective dates, which is also adjusted by the Company using the equity method of accounting.

 

		December 31, 2013				December 31, 2012				January 1, 2012
Current assets		$	2,335,612			$	1,887,122			$	1,616,916
Noncurrent assets		$	1,564,485			$	1,780,903			$	1,732,247
Current liabilities		$	407,184			$	631,803			$	495,066
Noncurrent liabilities		$	460			$	581			$	733

 

		Years Ended December 31
		2013				2012
Net revenue		$	1,801,619			$	1,869,049
Income from operations		$	474,787			$	522,486
Net income		$	453,536			$	617,084
Other comprehensive income (loss)		$	(78,294	)		$	92,986
Total comprehensive income		$	375,242			$	710,070
Income tax expense		$	64,311			$	135,247
The Company’s share of profits of joint venture		$	453,536			$	617,084
The Company’s share of other comprehensive income (loss) of joint venture		$	(78,294	)		$	92,986

 

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15.	PROPERTY, PLANT AND EQUIPMENT

 

				December 31, 2013				December 31, 2012				January 1, 2012
		Land and land improvements		$	3,582,717			$	1,159,755			$	1,185,573
		Buildings			103,948,570				85,610,120				71,915,740
		Machinery and equipment			404,706,105				404,382,298				294,814,381
		Office equipment			7,836,261				6,907,376				5,148,538
		Assets under finance leases			418,467				438,663				493,945
		Equipment under installation and construction in progress			272,173,793				119,063,976				116,863,976
				$	792,665,913			$	617,562,188			$	490,422,153

 

		Year Ended December 31, 2013
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Effect of Deconsolidation of Subsidiary				Effect of Exchange Rate Changes				Balance, End of Year
Cost
Land and land improvements		$	1,527,124			$	3,212,000			$	—			$	—			$	(772,029	)		$	19,814			$	3,986,909
Buildings			197,411,851				31,869,046				—				3,797				(986,205	)			884,247				229,182,736
Machinery and equipment			1,279,893,177				140,223,121				(2,925,145	)			360				(5,630,854	)			2,359,135				1,413,919,794
Office equipment			20,067,943				3,791,109				(788,080	)			—				(1,055,809	)			46,869				22,062,032
Assets under finance leases			766,732				—				—				—				—				37,698				804,430
			1,499,666,827			$	179,095,276			$	(3,713,225	)		$	4,157			$	(8,444,897	)		$	3,347,763				1,669,955,901
Accumulated depreciation and impairment
Land improvements			367,369			$	27,069			$	—			$	—			$	—			$	9,754				404,192
Buildings			111,801,731				13,183,558				—				—				(226,908	)			475,785				125,234,166
Machinery and equipment			875,510,879				138,314,235				(2,809,185	)			—				(3,656,326	)			1,854,086				1,009,213,689
Office equipment			13,160,567				2,413,652				(786,464	)			—				(599,483	)			37,499				14,225,771
Assets under finance leases			328,069				41,333				—				—				—				16,561				385,963
			1,001,168,615			$	153,979,847			$	(3,595,649	)		$	—			$	(4,482,717	)		$	2,393,685				1,149,463,781
Equipment under installation and construction in progress			119,063,976			$	154,706,858			$	—			$	—			$	(1,632,860	)		$	35,819				272,173,793
		$	617,562,188																							$	792,665,913

 

		Year Ended December 31, 2012
		Balance, Beginning of Year				Additions				Disposals				Impairment				Reclassification				Effect of Exchange Rate Changes				Balance, End of Year
Cost
Land and land improvements		$	1,541,128			$	18,500			$	—			$	—			$	—			$	(32,504	)		$	1,527,124
Buildings			172,997,391				25,183,927				(54,456	)			—				(11,074	)			(703,937	)			197,411,851
Machinery and equipment			1,057,926,529				226,497,664				(2,104,900	)			—				11,040				(2,437,156	)			1,279,893,177
Office equipment			17,041,306				3,680,707				(563,454	)			—				34				(90,650	)			20,067,943
Assets under finance leases			791,480				—				—				—				—				(24,748	)			766,732
			1,250,297,834			$	255,380,798			$	(2,722,810	)		$	—			$	—			$	(3,288,995	)			1,499,666,827
Accumulated depreciation and impairment
Land improvements			355,555			$	26,983			$	—			$	—			$	—			$	(15,169	)			367,369
Buildings			101,081,651				11,154,790				(44,354	)			—				(164	)			(390,192	)			111,801,731
Machinery and equipment			763,112,148				116,070,821				(1,966,751	)			422,323				158				(2,127,820	)			875,510,879
Office equipment			11,892,768				1,875,785				(555,485	)			22,182				6				(74,689	)			13,160,567
Assets under finance leases			297,535				40,135				—				—				—				(9,601	)			328,069
			876,739,657			$	129,168,514			$	(2,566,590	)		$	444,505			$	—			$	(2,617,471	)			1,001,168,615
Equipment under installation and construction in progress			116,863,976			$	2,308,355			$	—			$	—			$	(8,525	)		$	(99,830	)			119,063,976
		$	490,422,153																							$	617,562,188

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 year ended December 31, 2012, the Company recognized impairment loss of NT$444,505 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.

 

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Future minimum lease gross payments were as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Minimum lease payments
Not later than 1 year		$	28,376			$	27,042			$	—
Later than 1 year and not later than 5 years			850,703				108,168				223,296
Later than five years			—				729,566				780,962
			879,079				864,776				1,004,258
Less: Future finance expenses			94,040				108,471				133,265
Present value of minimum lease payments		$	785,039			$	756,305			$	870,993
Present value of minimum lease payments
Not later than 1 year		$	27,684			$	26,382			$	—
Later than 1 year and not later than 5 years			757,355				100,821				213,411
Later than five years			—				629,102				657,582
		$	785,039			$	756,305			$	870,993
Current portion		$	8,809			$	8,190			$	—
Noncurrent portion			776,230				748,115				870,993
		$	785,039			$	756,305			$	870,993

There was no capitalization of borrowing costs for the year ended December 31, 2013. During the year ended December 31, 2012, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. For the year ended December 31, 2012, the amount of capitalized borrowing costs was NT$6,442 thousand and the capitalized interest rate was 1.08%-1.20%.

 

16.	INTANGIBLE ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Goodwill		$	5,627,517			$	5,523,707			$	5,693,999
Technology license fees			1,103,161				1,461,893				1,682,892
Software and system design costs			3,647,670				2,968,942				2,366,483
Patent and others			1,112,035				1,005,027				1,118,189
		$	11,490,383			$	10,959,569			$	10,861,563

 

(Continued)

 

- 35 -

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(Concluded)

 

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

For the years ended December 31, 2013 and 2012, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Tax receivable		$	1,781,376			$	1,565,104			$	708,891
Prepaid expenses			1,081,957				1,080,236				1,436,416
Long-term receivable			820,000				767,800				785,400
Others			770,468				608,412				550,053
		$	4,453,801			$	4,021,552			$	3,480,760
Current portion		$	2,984,224			$	2,786,408			$	2,174,014
Noncurrent portion			1,469,577				1,235,144				1,306,746
		$	4,453,801			$	4,021,552			$	3,480,760

 

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18.	SHORT-TERM LOANS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Unsecured loans
Amount		$	15,645,000			$	34,714,929			$	25,926,528
Original loan content
US$ (in thousands)		$	525,000			$	1,195,500			$	856,000
Annual interest rate			0.38%-0.42%				0.39%-0.58%				0.45%-1.00%
Maturity date			Due in January 2014				Due in January 2013				Due by February 2012

 

19.	PROVISIONS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Sales returns and allowances		$	7,603,781			$	6,038,003			$	5,068,263
Warranties			10,452				4,891				2,889
		$	7,614,233			$	6,042,894			$	5,071,152
Current portion		$	7,603,781			$	6,038,003			$	5,068,263
Noncurrent portion			10,452				4,891				2,889
		$	7,614,233			$	6,042,894			$	5,071,152

 

		Sales Returns and Allowances				Warranties				Total
Year ended December 31, 2013
Balance, beginning of year		$	6,038,003			$	4,891			$	6,042,894
Provision made			6,633,290				6,162				6,639,452
Payment			(5,042,752	)			(890	)			(5,043,642	)
Effect of deconsolidation of subsidiary			(37,748	)			—				(37,748	)
Effect of exchange rate changes			12,988				289				13,277
Balance, end of year		$	7,603,781			$	10,452			$	7,614,233
Year ended December 31, 2012
Balance, beginning of year		$	5,068,263			$	2,889			$	5,071,152
Provision made			7,187,023				2,048				7,189,071
Payment			(6,211,170	)			—				(6,211,170	)
Effect of exchange rate changes			(6,113	)			(46	)			(6,159	)
Balance, end of year		$	6,038,003			$	4,891			$	6,042,894

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 year 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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Domestic unsecured bonds		$	166,200,000			$	80,000,000			$	22,500,000
Overseas unsecured bonds			44,700,000				—				—
			210,900,000				80,000,000				22,500,000
Less: Discounts on bonds payable			132,375				—				—
Total		$	210,767,625			$	80,000,000			$	22,500,000
Current portion		$	—			$	—			$	4,500,000
Noncurrent portion			210,767,625				80,000,000				18,000,000
		$	210,767,625			$	80,000,000			$	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)

 

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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 foreign unsecured bonds are as follows:

 

Issuance Period		Total Amount (US$ in Thousands)				Coupon Rate				Repayment and Interest Payment
April 2013 to April 2016		$	350,000				0.95	%		Bullet repayment; interest payable semi-annually
April 2013 to April 2018			1,150,000				1.625	%		”

 

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21.	LONG-TERM BANK LOANS

 

		December 31, 2013				December 31, 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, however, reflective of a prepayment of NT$100,000 thousand in September 2012, annual interest rate at 1.08%-1.21% in 2012			—				550,000				650,000
Repayable in full in one lump sum payment in March 2015, however, reflective of a prepayment of NT$50,000 thousand in August 2012, annual interest rate at 1.16%-1.18% in 2012			—				450,000				500,000
Repayable from July 2012 in 16 quarterly installments, annual interest rate at 1.21%-1.24% in 2012			—				262,500				300,000
Repayable from September 2012 in 16 quarterly installments, annual interest rate at 1.21%-1.24% in 2012			—				175,000				200,000
Repayable from October 2013 in 16 quarterly installments, annual interest rate at 1.23%-1.24% in 2012			—				50,000				—
		$	40,000			$	1,487,500			$	1,650,000
Current portion		$	—			$	128,125			$	62,500
Noncurrent portion			40,000				1,359,375				1,587,500
		$	40,000			$	1,487,500			$	1,650,000

As of December 31, 2013, in relation to the deconsolidation of Xintec in June 2013 (refer to Note 34), long-term bank loans of Xintec have been derecognized.

 

22.	OTHER LONG-TERM PAYABLES

 

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

 

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TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China purchased in 2004 certain property, plant and equipment. The obligations under the aforementioned agreement were fully paid in July 2013.

 

23.	RETIREMENT BENEFIT PLANS

 

a.

Defined contribution plans

The plan 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$1,590,414 thousand and NT$1,403,507 thousand in the consolidated statements of comprehensive income for the years ended December 31, 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. TSMC revised its defined benefit plan in the fourth quarter of 2013 to set the employee’s mandatory retirement age. Such plan changes have reflected in the actuarial results as of December 31, 2013.

The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

 

		Measurement Date
		December 31, 2013		December 31, 2012		January 1, 2012
Discount rate		2.15%		1.50%-1.75%		1.75%
Future salary rate increase		3.00%		2.00%-3.00%		2.50%-3.00%
Expected rate of return on plan assets		1.25%		1.75%-2.00%		2.00%

The pension costs of the defined benefit plans recognized in profit or loss were as follows:

 

		Years Ended December 31
		2013				2012
Current service cost		$	134,762			$	129,217
Interest cost			175,563				160,018
Expected return on plan assets			(67,324	)			(63,279	)
Past service cost			(7,240	)			(7,239	)
		$	235,761			$	218,717

 

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The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

 

		Years Ended December 31
		2013				2012
Cost of revenue		$	152,512			$	137,857
Research and development expenses			60,864				57,536
General and administrative expenses			18,080				18,923
Marketing expenses			4,305				4,401
		$	235,761			$	218,717

For the years ended December 31, 2013 and 2012, the pre-tax actuarial loss recognized in other comprehensive income were NT$662,074 thousand and NT$685,978 thousand, respectively. As of December 31, 2013 and 2012, the pre-tax accumulated actuarial loss recognized in other comprehensive income were NT$1,348,052 thousand and NT$685,978 thousand, respectively.

The amounts arising from the defined benefit obligation of the Company in the consolidated balance sheets were as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Present value of defined benefit obligation		$	10,329,510			$	10,133,361			$	9,214,125
Fair value of plan assets			(3,527,847	)			(3,352,567	)			(3,120,665	)
Funded status			6,801,663				6,780,794				6,093,460
Unrecognized prior service cost			788,263				140,440				147,564
Accrued pension cost		$	7,589,926			$	6,921,234			$	6,241,024

Movements in the present value of the defined benefit obligation were as follows:

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	10,133,361			$	9,214,125
Current service cost			134,762				129,217
Interest cost			175,563				160,018
Effect of plan changes			(655,179	)			—
Benefits paid from plan assets			(50,508	)			(26,119	)
Benefits paid directly by the Company			(7,011	)			—
Actuarial loss			638,071				656,120
Effect of deconsolidation of subsidiary			(39,549	)			—
Balance, end of year		$	10,329,510			$	10,133,361

 

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Movements in the fair value of the plan assets were as follows:

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	3,352,567			$	3,120,665
Expected return on plan assets			67,324				63,279
Actuarial loss			(24,003	)			(29,858	)
Contributions from employer			219,062				224,600
Benefits paid			(50,508	)			(26,119	)
Effect of deconsolidation of subsidiary			(36,595	)			—
Balance, end of year		$	3,527,847			$	3,352,567

The percentage of the fair value of the plan assets by major categories at the end of reporting period was as follows:

 

		Fair Value of Plan Assets (%)
		December 31, 2013				December 31, 2012				January 1, 2012
Cash			23				25				24
Equity instruments			45				38				41
Debt instruments			32				37				35
			100				100				100

The overall expected rate of return on plan assets was based on the historical return trends, analysts’ predictions of the market over the life of related obligation, reference to the performance of the Funds operated by the Committee and the consideration of the effect that the minimum return should not be less than the average interest rate on a two-year time deposit published by the local banks. For the years ended December 31, 2013 and 2012, the actual return on plan assets were NT$43,321 thousand and NT$33,421 thousand, respectively.

The Company elects to disclose the historical information of experience adjustments from the adoption of Taiwan-IFRSs, which is as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Experience adjustments on plan liabilities		$	1,294,538			$	396,616			$	—
Experience adjustments on plan assets		$	(24,003	)		$	(29,858	)		$	—

The Company expects to make contributions of NT$223,524 thousand to the defined benefit plans in the next year starting from December 31, 2013.

 

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24.

EQUITY

 

a.

Capital stock

 

		December 31, 2013				December 31, 2012				January 1, 2012
Authorized shares (in thousands)			28,050,000				28,050,000				28,050,000
Authorized capital		$	280,500,000			$	280,500,000			$	280,500,000
Issued and paid shares (in thousands)			25,928,617				25,924,435				25,916,222
Issued capital		$	259,286,171			$	259,244,357			$	259,162,226

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

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

As of December 31, 2013, 1,082,959 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,414,794 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

		December 31, 2013				December 31, 2012				January 1, 2012
Additional paid-in capital		$	24,017,363			$	23,934,607			$	23,774,250
From merger			22,804,510				22,804,510				22,804,510
From convertible bonds			8,892,847				8,892,847				8,892,847
From differences between equity purchase price and carrying amount arising from acquisition or disposal of subsidiaries			100,827				40,733				—
From share of changes in equities of associates and joint venture			43,024				2,588				—
Donations			55				55				55
		$	55,858,626			$	55,675,340			$	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 up 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;

 

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2)

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

 

3)

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

 

4)

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

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

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

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$12,634,665 thousand and NT$11,115,240 thousand for the years ended December 31, 2013 and 2012, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If the actual amounts subsequently approved by the shareholders differ from the amounts estimated, the differences are recorded in the year such bonuses are approved by the shareholders 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				For Fiscal				For Fiscal				For Fiscal
		Year 2012				Year 2011				Year 2012				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

 

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TSMC’s profit sharing to employees and bonus to members of the Board of 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 members of the Board of 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 meetings held on June 11, 2013 and June 12, 2012, respectively. The aforementioned approved amount is the same as the one approved by the Board of Directors in its meetings held on February 5, 2013 and February 14, 2012, respectively, and the same amount had been charged against earnings for the years ended December 31, 2012 and 2011, respectively.

The appropriations of earnings, payment of profit sharing to employees and bonus to members of the Board of Directors for the year ended December 31, 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.

TSMC’s appropriations of earnings for 2013 had been approved in the meeting of the Board of Directors held on February 18, 2014. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings				Dividends Per Share (NT$)
		For Fiscal Year 2013				For Fiscal Year 2013
Legal capital reserve		$	18,814,679
Special capital reserve			(2,785,741	)
Cash dividends to shareholders			77,785,851			$	3.00
		$	93,814,789

The Board of Directors of TSMC also approved the profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for payment in 2013, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2013.

The appropriations of earnings, profit sharing to employees and bonus to members of the Board of Directors for 2013 are to be presented for approval in the TSMC’s shareholders’ meeting to be held on June 24, 2014 (expected).

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

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

 

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d.

Others

Changes in others were as follows:

 

		Year Ended December 31, 2013
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of year		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)
Exchange differences arising on translation of foreign operations			3,667,657				—				—				3,667,657
Changes in fair value of available-for-sale financial assets			—				14,554,695				—				14,554,695
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				(1,256,281	)			—				(1,256,281	)
Share of other comprehensive income of associates and joint venture			(54,989	)			2,551				(113	)			(52,551	)
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			776				(44	)			—				732
Income tax effect			—				36,539				—				36,539
Balance, end of year		$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306

 

		Year Ended December 31, 2012
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of year		$	(6,433,364	)		$	(1,172,762	)		$	(93	)		$	(7,606,219	)
Exchange differences arising on translation of foreign operations			(4,375,597	)			—				—				(4,375,597	)
Changes in fair value of hedging instruments for cash flow hedges			—				—				2				2
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			—				7,255,261				—				7,255,261

(Continued)

 

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		Year Ended December 31, 2012
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total
Cumulative 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			—				(394,857	)			—				(394,857	)
Share of other comprehensive income of associates and joint venture			55,155				17,450				—				72,605
Income tax effect			—				(409,300	)			—				(409,300	)
Balance, end of year		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)

(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

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	2,543,226			$	2,436,649
Share of noncontrolling interests
Net loss			(127,853	)			(194,484	)
Exchange differences arising on translation of foreign operations			852				52,900
Changes in fair value of available-for-sale financial assets			2,776				1,077

(Continued)

 

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		Years Ended December 31
		2013				2012
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets		$	(10,805	)		$	(4,741	)
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				6,219
Share of other comprehensive income of associates and joint venture			177				—
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			1				—
Actuarial gain/loss from defined benefit plans			299				—
Income tax expense related to actuarial gain/loss from defined benefit plans			(44	)			—
Adjustments arising from changes in percentage of ownership in subsidiaries			(62,446	)			(40,733	)
Increase in noncontrolling interests			188,488				286,200
Effect of deconsolidation of subsidiary			(2,273,153	)			—
Balance, end of year		$	266,830			$	2,543,226

(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 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 stock 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 stock option eligible to subscribe for one common share of TSMC when exercised. The stock 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 stock 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 stock options are granted at an exercise price equal to the closing price of TSMC’s common shares quoted 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 December 31, 2013.

 

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Information about TSMC’s outstanding stock options for the years ended December 31, 2013 and 2012 was as follows:

 

		Number of Stock Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2013
Balance, beginning of year			5,945			$	34.6
Stock options exercised			(4,182	)			29.8
Balance, end of year			1,763				45.9
Year ended December 31, 2012
Balance, beginning of year			14,293			$	31.4
Stock options exercised			(8,213	)			29.5
Stock options canceled			(135	)			34.6
Balance, end of year			5,945				34.6

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

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

 

As of December 31, 2013, all of the above outstanding stock options were exercisable.

 

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 stock options were fully vested on the grant date.

 

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

 

						Weighted-
		Number of				average
		Stock Options				Exercise Price
		(In Thousands)				(NT$)
Year ended December 31, 2013
Balance, beginning of year			—			$	—
Stock options granted			17,000				10.0
Stock options exercised			(17,000	)			10.0
Balance, end of year			—				—
Year ended December 31, 2012
Balance, beginning of year			—			$	—
Stock options granted			17,175				10.0
Stock options exercised			(17,175	)			10.0
Balance, end of year			—				—

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 stock 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 of TSMC SSL 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 stock option plan for their employees to subscribe to, according to the Company Law. The aforementioned stock options 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:

 

						Weighted-
		Number of				average
		Stock Options				Exercise Price
		(In Thousands)				(NT$)
Year ended December 31, 2012
Balance, beginning of year			—			$	—
Stock options granted			12,341				10.0
Stock options exercised			(12,341	)			10.0
Balance, end of year			—				—

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 stock 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 of TSMC Solar 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:

 

		Years Ended December 31
		2013				2012
Net revenue from sale of goods		$	596,516,949			$	506,248,580
Net revenue from royalties			507,248				496,654
		$	597,024,197			$	506,745,234

 

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27.	OTHER OPERATING INCOME AND EXPENSES, NET

 

		Years Ended December 31
		2013				2012
Income (expenses) of rental assets
Rental income		$	13,385			$	808
Depreciation of rental assets			(25,120	)			(6,656	)
			(11,735	)			(5,848	)
Gain on disposal of property, plant and equipment and intangible assets, net			48,848				103
Impairment loss on property, plant and equipment			—				(444,505	)
Income from receipt of equity securities in settlement of trade receivables			9,977				886
		$	47,090			$	(449,364	)

 

28.	OTHER INCOME

 

		Years Ended December 31
		2013				2012
Interest income
Bank deposits		$	1,808,239			$	1,513,025
Available-for-sale financial assets			5,328				5,964
Held-to-maturity financial assets			22,413				126,047
			1,835,980				1,645,036
Dividend income			506,143				71,057
		$	2,342,123			$	1,716,093

 

29.	FINANCE COSTS

 

		Years Ended December 31
		2013				2012
Interest expense
Corporate bonds		$	2,501,820			$	758,204
Bank loans			110,716				200,907
Finance leases			19,539				20,773
Others			14,701				46,753
			2,646,776				1,026,637
Loss reclassified to profit or loss arising from effective portion for cash flow hedges			—				227
Capitalized interest			—				(6,442	)
		$	2,646,776			$	1,020,422

 

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30.	OTHER GAINS AND LOSSES

 

		Years Ended December 31
		2013				2012
Gain on disposal of financial assets, net
Available-for-sale financial assets		$	1,267,086			$	399,598
Financial assets carried at cost			44,721				141,491
Gain on deconsolidation of subsidiary			293,578				—
Settlement income			899,745				883,845
Other gains			394,330				504,880
Net gain (loss) on financial instruments at FVTPL
Held for trading			196,711				(252,530	)
Impairment loss reversal (accrual) of financial assets
Available-for-sale financial assets			—				(2,677,529	)
Financial assets carried at cost			(1,538,888	)			(367,399	)
Investment accounted for using equity method			1,186,674				(1,186,674	)
Fair value hedges
Loss from hedging instruments			(5,602,779	)			—
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			5,071,118				—
Other losses			(107,375	)			(297,992	)
		$	2,104,921			$	(2,852,310	)

 

31.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

		Years Ended December 31
		2013				2012
Current income tax expense (benefit)
Current tax expense recognized in the current year		$	22,501,143			$	15,201,438
Income tax adjustments on prior years			(1,021,688	)			55,313
Other income tax adjustments			(10,623	)			201,119
			21,468,832				15,457,870
Deferred income tax expense (benefit)
Effect of tax rate changes			—				(543,611	)
The origination and reversal of temporary differences			674,231				(865,386	)
Investment tax credits and operating loss carryforward			5,325,122				1,503,781
			5,999,353				94,784
Income tax expense recognized in profit or loss		$	27,468,185			$	15,552,654

 

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

 

		Years Ended December 31
		2013				2012
Income before tax		$	215,487,122			$	181,676,456
Income tax expense at the statutory rate		$	38,458,611			$	34,085,426
Tax effect of adjusting items:
Nondeductible (deductible) items in determining taxable income			(1,417,976	)			(3,011,224	)
Tax-exempt income			(8,612,025	)			(9,830,280	)
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			674,231				(865,386	)
Income tax credits			(3,136,942	)			(2,828,300	)
Remeasurement of investment tax credits			(3,460,886	)			(4,215,165	)
Remeasurement of operating loss carryforward			(1,663,527	)			(1,688,735	)
Current income tax expense			28,500,496				15,296,222
Income tax adjustments on prior years			(1,021,688	)			55,313
Other income tax adjustments			(10,623	)			201,119
Income tax expense recognized in profit or loss		$	27,468,185			$	15,552,654

For the years ended December 31, 2013 and 2012, the Company applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the Company measures taxes by using the applicable tax rate for each individual jurisdiction.

 

b.

Income tax expense recognized in other comprehensive income

 

		Years Ended December 31
		2013				2012
Deferred income tax expense (benefit)
Related to unrealized gain/loss on available-for-sale financial assets		$	(36,539	)		$	409,300
Related to actuarial gain/loss from defined benefit plans			(78,629	)			(82,358	)
		$	(115,168	)		$	326,942

 

c.

Deferred income tax balance

The analysis of deferred income tax in the consolidated balance sheets was as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Investment tax credits		$	1,955,980			$	7,324,263			$	9,869,024
Temporary differences
Depreciation			644,824				1,502,736				2,056,421
Provision for sales returns and allowance			900,354				717,889				494,914
Accrued pension cost			908,022				824,052				618,336
Available-for-sale financial assets			6,154				224,618				308,929

(Continued)

 

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		December 31, 2013				December 31, 2012				January 1, 2012
Unrealized loss on inventories		$	438,423			$	404,656			$	2,757
Goodwill from business combination			373,682				329,766				—
Deferred compensation cost			267,416				132,286				101,639
Others			684,585				624,609				131,424
Operating loss carryforward			1,060,169				1,043,344				20,774
		$	7,239,609			$	13,128,219			$	13,604,218

(Concluded)

 

						Recognized in
		Balance, Beginning of Year				Profit or Loss				Other Comprehensive Income				Effect of Deconsolidation of Subsidiary				Effect of Exchange Rate Changes				Balance, End of Year
Year Ended December 31, 2013
Investment tax credits		$	7,324,263			$	(5,348,982	)		$	—			$	(19,301	)		$	—			$	1,955,980
Temporary differences
Depreciation			1,502,736				(865,021	)			—				(15,387	)			22,496				644,824
Provision for sales returns and allowance			717,889				188,198				—				(6,417	)			684				900,354
Accrued pension cost			824,052				5,813				78,629				(472	)			—				908,022
Available-for-sale financial assets			224,618				(255,003	)			36,539				—				—				6,154
Unrealized loss on inventory			404,656				32,665				—				—				1,102				438,423
Goodwill from business combination			329,766				35,115				—				—				8,801				373,682
Deferred compensation cost			132,286				131,107				—				—				4,023				267,416
Others			624,609				52,895				—				(3,987	)			11,068				684,585
Operating loss carryforward			1,043,344				23,860				—				(32,910	)			25,875				1,060,169
Deferred income tax assets		$	13,128,219			$	(5,999,353	)		$	115,168			$	(78,474	)		$	74,049			$	7,239,609
Year Ended December 31, 2012
Investment tax credits		$	9,869,024			$	(2,544,761	)		$	—			$	—			$	—			$	7,324,263
Temporary differences
Depreciation			2,056,421				(545,820	)			—				—				(7,865	)			1,502,736
Provision for sales returns and allowance			494,914				223,435				—				—				(460	)			717,889
Accrued pension cost			618,336				123,358				82,358				—				—				824,052
Available-for-sale financial assets			308,929				324,989				(409,300	)			—				—				224,618
Unrealized loss on inventory			2,757				402,707				—				—				(808	)			404,656
Goodwill from business combination			—				335,921				—				—				(6,155	)			329,766
Deferred compensation cost			101,639				35,492												(4,845	)			132,286
Others			131,424				508,915				—				—				(15,730	)			624,609
Operating loss carryforward			20,774				1,040,980				—				—				(18,410	)			1,043,344
Deferred income tax assets		$	13,604,218			$	(94,784	)		$	(326,942	)		$	—			$	(54,273	)		$	13,128,219

 

d.

The investment tax credits, operating loss carryforward and deductible temporary differences for which no deferred income tax assets have been recognized in the consolidated financial statements

The information of the investment tax credits for which no deferred income tax assets have been recognized was as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Expiry year
2012		$	—			$	—			$	11,254
2013			—				33,089				5,493,620
2014			3,019,880				5,830,285				4,915,861
2015			—				22,864				23,590
		$	3,019,880			$	5,886,238			$	10,444,325

 

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The information of the operating loss carryforward for which no deferred tax assets have been recognized was as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Expiry year
2014 - 2018		$	41,894			$	41,894			$	41,894
2019 - 2023			5,773,037				5,402,683				7,558,917
		$	5,814,931			$	5,444,577			$	7,600,811

As of December 31, 2013 and 2012 and January 1, 2012, the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$8,673,160 thousand, NT$13,589,292 thousand and NT$14,893,317 thousand, respectively.

 

e.

Unused investment tax credits, operating loss carryforward and tax-exemption information

As of December 31, 2013, investment tax credits of TSMC and TSMC SSL consisted of the following:

 

				Remaining
				Creditable				Expiry
Law/Statute		Item		Amount				Year
Statute for Upgrading Industries		Purchase of machinery and equipment		$	4,493,509				2014
					482,351				2015
				$	4,975,860

As of December 31, 2013, operating loss carryforward of TSMC Solar, TSMC SSL, Mutual-Pak and WaferTech consisted of the following:

 

Remaining Creditable Amount		Remaining Creditable Amount
Expiry Year
2014 - 2018		$	41,894
2019 - 2023			9,052,631
		$	9,094,525

As of December 31, 2013, the profits generated from the following projects of TSMC are exempt from income tax for a five-year period:

 

		Tax-exemption Period
Construction and expansion of 2005 by TSMC			2010 to 2014
Construction and expansion of 2006 by TSMC			2011 to 2015
Construction and expansion of 2007 by TSMC			2014 to 2018

 

f.

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2013 and 2012 and January 1, 2012, the aggregate taxable temporary differences associated with investments in subsidiaries not unrecognized as deferred income tax liabilities amounted to NT$28,035,340 thousand, NT$20,516,999 thousand and NT$15,074,593 thousand, respectively.

 

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g.

Integrated income tax information

 

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

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2013 and 2012 were 9.80% and 7.75 %, respectively.

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

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

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

 

h.

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

 

		Years Ended December 31
		2013				2012
Basic EPS		$	7.26			$	6.42
Diluted EPS		$	7.26			$	6.41

EPS is computed as follows:

 

		Amounts (Numerator)				Number of Shares (Denominator) (In Thousands)				EPS (NT$)
Year ended December 31, 2013
Basic EPS
Net income available to common shareholders of the parent		$	188,146,790				25,927,778			$	7.26
Effect of dilutive potential common shares			—				1,825
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	188,146,790				25,929,603			$	7.26

(Continued)

 

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		Amounts (Numerator)				Number of Shares (Denominator) (In Thousands)				EPS (NT$)
Year ended December 31, 2012
Basic EPS
Net income available to common shareholders of the parent		$	166,318,286				25,920,735			$	6.42
Effect of dilutive potential common shares			—				7,201
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	166,318,286				25,927,936			$	6.41

(Concluded)

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 end of the reporting period. 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 by the shareholders in the following year.

 

33.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

Net income included the following items:

 

		Years Ended December 31
		2013				2012
a. Depreciation of property, plant and equipment
Recognized in cost of revenue		$	141,002,263			$	118,313,581
Recognized in operating expenses			12,952,464				10,848,277
Recognized in other operating income and expenses			25,120				6,656
		$	153,979,847			$	129,168,514
b. Amortization of intangible assets
Recognized in cost of revenue		$	1,154,698			$	1,344,819
Recognized in operating expenses			1,047,324				835,956
		$	2,202,022			$	2,180,775
c. Research and development costs expensed as incurred		$	48,118,165			$	40,383,195

 

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		Years Ended December 31
		2013				2012
d. Employee benefits expenses
Post-employment benefits (Note 23)
Defined contribution plans		$	1,590,414			$	1,403,507
Defined benefit plans			235,761				218,717
			1,826,175				1,622,224
Equity-settled share-based payments			5,312				6,219
Other employee benefits			65,514,082				59,668,232
		$	67,345,569			$	61,296,675
Employee benefits expense summarized by function
Recognized in cost of revenue		$	40,245,628			$	35,561,523
Recognized in operating expenses			27,099,941				25,735,152
		$	67,345,569			$	61,296,675

 

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 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

 

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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 year ended December 31, 2013.

 

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 acquire additional 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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Financial assets
FVTPL
Held for trading derivatives		$	90,353			$	39,554			$	15,360
Available-for-sale financial assets (Note)			61,628,343				44,766,957				7,623,775
Held-to-maturity financial assets			1,795,949				5,056,973				9,068,847
Loans and receivables
Cash and cash equivalents			242,695,447				143,410,588				143,472,277
Notes and accounts receivables (including related parties)			71,941,634				58,131,397				46,016,052
Other receivables			1,422,795				1,307,473				1,403,694
Refundable deposits			2,519,031				2,426,712				4,518,863
		$	382,093,552			$	255,139,654			$	212,118,868

(Continued)

 

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		December 31, 2013				December 31, 2012				January 1, 2012
Financial liabilities
FVTPL
Held for trading derivatives		$	33,750			$	15,625			$	13,742
Derivative financial instruments in designated hedge accounting relationships			5,481,616				—				232
Amortized cost
Short-term loans			15,645,000				34,714,929				25,926,528
Accounts payable (including related parties)			16,358,716				15,239,042				11,859,008
Payables to contractors and equipment suppliers			89,810,160				44,831,798				35,540,526
Accrued expenses and other current liabilities			13,649,615				9,316,232				7,796,538
Bonds payable			210,767,625				80,000,000				22,500,000
Long-term bank loans			40,000				1,487,500				1,650,000
Other long-term payables			54,000				967,485				3,399,855
Guarantee deposits			151,660				203,890				443,983
		$	351,992,142			$	186,776,501			$	109,130,412

(Concluded)

Note: Including financial assets carried at cost.

 

b.

Financial risk management objectives

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

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

 

c.

Market risk

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

Foreign currency risk

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

 

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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 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 years ended December 31, 2013 and 2012 would have decreased by NT$171,961 thousand and NT$719,882 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$332 thousand and NT$12,346 thousand for the years ended December 31, 2013 and 2012, respectively.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments. To reduce the equity price risk, the Company 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 years ended December 31, 2013 and 2012 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the years ended December 31, 2013 and 2012 would have decreased by NT$931,881 thousand and NT$2,217,457 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 end of the reporting period, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets recognized in the consolidated balance sheet.

Business related credit risk

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

 

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As of December 31, 2013 and 2012 and January 1, 2012, the Company’s ten largest customers accounted for 68%, 68% 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 December 31, 2013 and 2012 and January 1, 2012, the unused of financing facilities of the Company amounted to NT$76,689,543 thousand, NT$53,422,331 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.

 

		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
December 31, 2013
Non-derivative financial liabilities
Short-term loans		$	15,646,783			$	—			$	—			$	—			$	15,646,783
Accounts payable (including related parties)			16,358,716				—				—				—				16,358,716
Payables to contractors and equipment suppliers			89,810,160				—				—				—				89,810,160
Accrued expenses and other current liabilities			13,649,615				—				—				—				13,649,615
Bonds payable			3,036,130				28,388,887				100,830,341				94,360,103				226,615,461
Long-term bank loans			1,450				10,275				21,571				12,746				46,042
Other long-term payables			18,000				36,000				—				—				54,000
Obligations under finance leases			28,376				56,752				793,951				—				879,079
Guarantee deposits			—				151,660				—				—				151,660
			138,549,230				28,643,574				101,645,863				94,372,849				363,211,516
Derivative financial instruments
Forward exchange contracts
Outflows			29,608,952				—				—				—				29,608,952
Inflows			(29,605,246	)			—				—				—				(29,605,246	)
			3,706				—				—				—				3,706
Cross currency swap contracts
Outflows			1,639,215				—				—				—				1,639,215
Inflows			(1,641,384	)			—				—				—				(1,641,384	)
			(2,169	)			—				—				—				(2,169	)
Stock forward contracts
Outflows			—				37,431,626				—				—				37,431,626
Inflows			—				(37,431,626	)			—				—				(37,431,626	)
			—				—				—				—				—
		$	138,550,767			$	28,643,574			$	101,645,863			$	94,372,849			$	363,213,053

(Continued)

 

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

 

		December 31, 2013								December 31, 2012								January 1, 2012
		Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value
Financial assets
Held-to-maturity financial assets
Commercial paper		$	1,795,949			$	1,795,612			$	—			$	—			$	—			$	—
Corporate bonds			—				—				5,056,973				5,066,363				8,614,527				8,674,016
Government bonds			—				—				—				—				454,320				454,047
Financial liabilities
Measured at amortized cost
Bonds payable			210,767,625				208,649,668				80,000,000				80,343,413				22,500,000				22,597,115

 

2)

Fair value measurements recognized in the consolidated balance sheets

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

 

•

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

 

•

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

 

•

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

 

		December 31, 2013
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	90,353			$	—			$	90,353
Available-for-sale financial assets
Publicly traded stocks		$	59,481,569			$	—			$	—			$	59,481,569
Money market funds			1,183				—				—				1,183
		$	59,482,752			$	—			$	—			$	59,482,752
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	33,750			$	—			$	33,750
Hedging derivative financial liabilities
Stock forward contract		$	—			$	5,481,616			$	—			$	5,481,616

 

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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

 

		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

There were no transfers between Level 1 and 2 for the years ended December 31, 2013 and 2012, respectively.

There were no purchases and disposals for assets on Level 3 for the years ended December 31, 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.

 

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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.

Net Revenue

 

		Net Revenue from Sale of Goods								Net Revenue from Royalties
		Years Ended December 31								Years Ended December 31
Related Party Categories		2013				2012				2013				2012
Associates		$	4,093,031			$	5,307,621			$	497,020			$	479,239
Joint venture			1,677				3,410				—				—
		$	4,094,708			$	5,311,031			$	497,020			$	479,239

 

b.

Purchases

 

		Years Ended December 31
Related Party Categories		2013				2012
Associates		$	10,052,359			$	8,114,307

 

c.

Receivables from related parties

 

Related Party Categories		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	291,376			$	353,652			$	185,552
Joint venture			332				159				212
		$	291,708			$	353,811			$	185,764

 

d.

Payables to related parties

 

Related Party Categories		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	1,687,239			$	746,532			$	1,325,791
Joint venture			1,217				2,081				2,730
		$	1,688,456			$	748,613			$	1,328,521

 

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e.

Acquisition of property, plant and equipment and intangible assets

 

		Purchase Price
		Years Ended December 31
Related Party Categories		2013				2012
Associates		$	21,135			$	47,051
Joint venture			—				1,224
		$	21,135			$	48,275

 

f.

Disposal of property, plant and equipment

 

		Years Ended December 31, 2013								Years Ended December 31, 2012
Related Party Categories		Proceeds				Gains (Losses)				Proceeds				Gains (Losses)
Associates		$	69,683			$	6,146			$	20,380			$	(132	)
Joint venture			—				948				9,000				213
		$	69,683			$	7,094			$	29,380			$	81

 

		Deferred Gains (Losses) from Disposal of Property, Plant and Equipment
Related Party Categories		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	—			$	(7,806	)		$	—
Joint venture			—				948				—
		$	—			$	(6,858	)		$	—

 

g.

Others

 

		Manufacturing Expenses								Research and Development Expenses
		Years Ended December 31								Years Ended December 31
Related Party Categories		2013				2012				2013				2012
Associates		$	934,480			$	8,347			$	903			$	4,644
Joint venture			6,582				15,544				6,340				8,911
		$	941,062			$	23,891			$	7,243			$	13,555

 

		Non-operating Income
		Years Ended December 31
Related Party Categories		2013				2012
Associates		$	—			$	6,046

 

		Other Receivables from Related Parties
Related Party Categories		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	221,576			$	185,550			$	121,767
Joint venture			—				—				525
		$	221,576			$	185,550			$	122,292

 

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		Refundable Deposits
Related Party Categories		December 31, 2013				December 31, 2012				January 1, 2012
Associates		$	5,813			$	5,813			$	—
Joint venture			—				4				—
		$	5,813			$	5,817			$	—

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.

 

h.

Compensation of key management personnel

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

 

		Years Ended December 31
		2013				2012
Short-term employee benefits		$	1,356,119			$	1,417,358
Post-employment benefits			9,064				3,896
		$	1,365,183			$	1,421,254

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 December 31, 2013 and 2012 and January 1, 2012, the aforementioned other financial assets amounted to NT$120,566 thousand, NT$119,710 thousand and NT$121,140 thousand, respectively.

 

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.

 

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The Company expensed the lease payments as follows:

 

		Years Ended December 31
		2013				2012
Minimum lease payments		$	902,439			$	689,198

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Not later than 1 year		$	859,070			$	693,758			$	627,882
Later than 1 year and not later than 5 years			3,053,029				2,478,443				2,258,302
Later than 5 years			5,534,848				4,221,524				3,870,728
		$	9,446,947			$	7,393,725			$	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 provided TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. In 2013 and 2012, the R.O.C. Government did not involve such right.

 

b.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. TSMC and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of December 31, 2013.

 

c.

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

 

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d.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of infringing several U.S. patents. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

e.

TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. For the year ended December 31, 2013, TSMC paid EUR55,078 thousand to ASML under the research and development funding agreement.

 

f.

In December 2013, Tela Innovations, Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission accusing TSMC and TSMC North America of infringing one U.S. patent. In January 2014, TSMC filed a lawsuit against Tela for trade secret misappropriation and breach of contract. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

g.

Amounts available under unused letters of credit as of December 31, 2013 and 2012 and January 1, 2012 were NT$89,400 thousand, NT$99,671 thousand and NT$263,880 thousand, respectively.

 

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

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

 

		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Carrying Amount
December 31, 2013
Financial assets
Monetary items
USD		$	2,756,090				29.800			$	82,131,493
EUR			451,162				41.00				18,497,657
JPY			41,386,551				0.2834				11,728,949
Non-monetary items
HKD			168,334				3.84				646,402
Financial liabilities
Monetary items
USD			2,026,958				29.800				60,403,358
EUR			811,202				41.00				33,259,299
JPY			71,931,749				0.2834				20,385,458
											(Continued	)

 

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		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Carrying Amount
December 31, 2012
Financial assets
Monetary items
USD		$	2,442,184				29.038			$	70,916,125
EUR			117,535				38.39-38.49				4,512,154
JPY			35,381,976				0.3352-0.3364				11,860,041
Non-monetary items
HKD			492,014				3.75				1,845,053
Financial liabilities
Monetary items
USD			2,388,832				29.038				69,366,903
EUR			245,481				38.39-38.49				9,424,022
JPY			43,292,238				0.3352-0.3364				14,511,562
January 1, 2012
Financial assets
Monetary items
USD			1,566,212				30.288				47,437,429
EUR			125,490				39.18-39.27				4,927,977
JPY			33,242,609				0.3897-0.3906				12,954,665
Non-monetary items
HKD			671,060				3.90				2,617,134
Financial liabilities
Monetary items
USD			1,772,583				30.288				53,688,005
EUR			109,782				39.18-39.27				4,311,133
JPY			35,364,089				0.3897-0.3906				13,781,403
											(Concluded	)

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.

 

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

 

b.

Segment revenue and operating results

 

		Foundry				Others				Elimination				Total
Year ended December 31, 2013
Net revenue from external customers		$	596,615,439			$	408,758			$	—			$	597,024,197
Net revenue from sales among intersegments			—				33,215				(33,215	)			—
Income (loss) from operations			212,156,627				(2,727,264	)			—				209,429,363
Share of profits of associates and joint venture			4,280,780				(308,749	)			—				3,972,031
Income tax expense			27,468,185				—				—				27,468,185
Year ended December 31, 2012
Net revenue from external customers			506,594,586				150,648				—				506,745,234
Net revenue from sales among intersegments			—				14,678				(14,678	)			—
Income (loss) from operations			183,794,638				(2,617,770	)			—				181,176,868
Share of profits of associates and joint venture			3,470,406				(1,396,677	)			—				2,073,729
Income tax expense			15,553,242				(588	)			—				15,552,654

 

c.

Geographic information

 

		Years Ended December 31
		Net Revenue from External Customers								Non-current Assets
		2013				2012				2013				2012
Taiwan		$	74,150,318			$	68,150,152			$	783,173,768			$	603,844,829
United States			423,265,839				343,707,672				7,691,023				7,699,344
Asia			56,533,399				46,687,358				14,743,733				18,196,790
Europe			41,229,682				46,429,835				17,349				15,938
Others			1,844,959				1,770,217				—				—
		$	597,024,197			$	506,745,234			$	805,625,873			$	629,756,901

The Company categorized the net revenue based on the country in which the customer is headquartered. Non-current assets include property, plant and equipment, intangible assets and other noncurrent assets.

 

d.

Production information

 

		Years Ended December 31
Production		2013				2012
Wafer		$	560,685,213			$	462,970,436
Others			36,338,984				43,774,798
		$	597,024,197			$	506,745,234

 

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e.

Major customers representing at least 10% of net revenue

 

		Years Ended December 31
		2013								2012
		Amount				%				Amount				%
Customer A		$	130,563,982				22			$	85,880,132				17

 

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 year ended December 31, 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 was the same as the carrying amount of goodwill under R.O.C. GAAP as of January 1, 2012.

 

2)

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

 

3)

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

 

c.

Effect of transition to Taiwan-IFRSs

After transition to Taiwan-IFRSs, the effect on the Company’s consolidated balance sheets as of December 31, 2012 and January 1, 2012 (the transition date) as well as the consolidated statements of comprehensive income for the year ended December 31, 2012, is stated as follows:

 

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1)

Reconciliation of consolidated balance sheet as of December 31, 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		$	143,410,588			$	—			$	—			$	143,410,588			Cash and cash equivalents
Financial assets at fair value through profit or loss			39,554				—				—				39,554			Financial assets at fair value through profit or loss
Available-for-sale financial assets			2,410,635				—				—				2,410,635			Available-for-sale financial assets
Held-to-maturity financial assets			5,056,973				—				—				5,056,973			Held-to-maturity financial assets
Notes and accounts receivable			58,257,798				—				(480,212	)			57,777,586			Notes and accounts receivable, net
Receivables from related parties			353,811				—				—				353,811			Receivables from related parties
Allowance for doubtful receivables			(480,212	)			—				480,212				—			—
Allowance for sales returns and others			(6,038,003	)			—				6,038,003				—			—		a)
Other receivables from related parties			185,550				—				—				185,550			Other receivables from related parties
Other financial assets			473,833				—				—				473,833			Other financial assets
Inventories			37,830,498				—				—				37,830,498			Inventories
Deferred income tax assets			8,001,202				—				(8,001,202	)			—			—		b)
Prepaid expenses and other current assets			2,786,408				—				—				2,786,408			Other current assets
Total current assets			252,288,635				—				(1,963,199	)			250,325,436			Total current assets
Long-term investments
Investments accounted for using equity method			23,430,020				(69,102	)			—				23,360,918			Investments accounted for using equity method		e)
Available-for-sale financial assets			38,751,245				—				—				38,751,245			Available-for-sale financial assets
Financial assets carried at cost			3,605,077				—				—				3,605,077			Financial assets carried at cost
Total long-term investments			65,786,342				(69,102	)			—				65,717,240
Net property, plant and equipment			617,529,446				—				32,742				617,562,188			Property, plant and equipment		c)
Intangible assets			10,959,569				—				—				10,959,569			Intangible assets
Other assets
Deferred income tax assets			4,776,015				351,002				8,001,202				13,128,219			Deferred income tax assets		b), d)
Refundable deposits			2,426,712				—				—				2,426,712			Refundable deposits
Others			1,267,886				—				(32,742	)			1,235,144			Other noncurrent assets		c)
Total other assets			8,470,613				351,002				7,968,460				16,790,075
Total		$	955,034,605			$	281,900			$	6,038,003			$	961,354,508			Total
Current liabilities
Short-term loans		$	34,714,929			$	—			$	—			$	34,714,929			Short-term loans
Financial liabilities at fair value through profit or loss			15,625				—				—				15,625			Financial liabilities at fair value through profit or loss
Accounts payable			14,490,429				—				—				14,490,429			Accounts payable
Payables to related parties			748,613				—				—				748,613			Payables to related parties
Income tax payable			15,635,594				—				—				15,635,594			Income tax payable
Salary and bonus payable			7,535,296				—				—				7,535,296			Salary and bonus payable
Accrued profit sharing to employees and bonus to directors and supervisors			11,186,591				—				—				11,186,591			Accrued profit sharing to employees and bonus to directors and supervisors
Payables to contractors and equipment suppliers			44,831,798				—				—				44,831,798			Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities			13,148,944				—				—				13,148,944			Accrued expenses and other current liabilities
Current portion of bonds payable and long-term bank loans			128,125				—				—				128,125			Current portion of bonds payable and long-term bank loans
—			—				—				6,038,003				6,038,003			Provisions		a)
Total current liabilities			142,435,944				—				6,038,003				148,473,947			Total current liabilities

(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
Long-term liabilities
Bonds payable		$	80,000,000			$	—			$	—			$	80,000,000			Bonds payable
Long-term bank loans			1,359,375				—				—				1,359,375			Long-term bank loans
Other long-term payables			54,000				—				—				54,000			Other long-term payables
Obligations under capital leases			748,115				—				—				748,115			Obligations under finance leases
Total long-term liabilities			82,161,490				—				—				82,161,490
Other liabilities
Accrued pension cost			3,979,541				2,941,693				—				6,921,234			Accrued pension cost		d)
Guarantee deposits			203,890				—				—				203,890			Guarantee deposits
—			—				—				4,891				4,891			Provisions
Others			500,041				—				(4,891	)			495,150			Others
Total other liabilities			4,683,472				2,941,693				—				7,625,165
Total liabilities			229,280,906				2,941,693				6,038,003				238,260,602			Total liabilities
Equity attributable to shareholders of the parent
Capital stock			259,244,357				—				—				259,244,357			Capital stock
Capital surplus			56,137,809				(462,469	)			—				55,675,340			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			287,174,942				(2,189,821	)			—				284,985,121			Unappropriated earnings		d), e)
			410,601,289				(2,189,821	)			—				408,411,468
Others
Cumulative translation adjustments			(10,753,763	)			(43	)			—				(10,753,806	)		Foreign currency translation reserve		e)
Net loss not recognized as pension cost			(5,299	)			5,299				—				—			—		d), e)
Unrealized gain/loss on financial instruments			7,973,321				—				—				7,973,321			Unrealized gain/loss from available-for- sale financial assets
			(2,785,741	)			5,256				—				(2,780,485	)
Equity attributable to shareholders of the parent			723,197,714				(2,647,034	)			—				720,550,680			Equity attributable to shareholders of the parent
Minority interests			2,555,985				(12,759	)			—				2,543,226			Noncontrolling interests		d)
Total shareholders’ equity			725,753,699				(2,659,793	)			—				723,093,906			Total equity
Total		$	955,034,605			$	281,900			$	6,038,003			$	961,354,508			Total

(Concluded)

 

2)

Reconciliation of consolidated balance sheet as of January 1, 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		$	143,472,277			$	—			$	—			$	143,472,277			Cash and cash equivalents
Financial assets at fair value through profit or loss			15,360				—				—				15,360			Financial assets at fair value through profit or loss
Available-for-sale financial assets			3,308,770				—				—				3,308,770			Available-for-sale financial assets
Held-to-maturity financial assets			3,825,680				—				—				3,825,680			Held-to-maturity financial assets
Notes and accounts receivable			46,321,240				—				(490,952	)			45,830,288			Notes and accounts receivable, net
Receivables from related parties			185,764				—				—				185,764			Receivables from related Parties
Allowance for doubtful receivables			(490,952	)			—				490,952				—			—
Allowance for sales returns and others			(5,068,263	)			—				5,068,263				—			—		a)
Other receivables from related parties			122,292				—				—				122,292			Other receivables from related parties
Other financial assets			617,142				—				—				617,142			Other financial assets
Inventories			24,840,582				—				—				24,840,582			Inventories
Deferred income tax assets			5,936,490				—				(5,936,490	)			—			—		b)

(Continued)

 

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						Effect of Transition to Taiwan-IFRSs
						Effect of Transition to Taiwan-IFRSs
R.O.C. GAAP						Recognition and Measurement				Presentation				Taiwan-IFRSs
Item		Amount				Difference				Difference				Amount				Item		Note
Prepaid expenses and other current assets		$	2,174,014			$	—			$	—			$	2,174,014			Other current asset
Total current assets			225,260,396				—				(868,227	)			224,392,169			Total current assets
Long-term investments
Investments accounted for using equity method			24,900,332				(13,401	)			—				24,886,931			Investments accounted for using equity method		e)
Held-to-maturity financial assets			5,243,167				—				—				5,243,167			Held-to-maturity financial assets
Financial assets carried at cost			4,315,005				—				—				4,315,005			Financial assets carried at cost
Total long-term investments			34,458,504				(13,401	)			—				34,445,103
Net property, plant and equipment			490,374,916				—				47,237				490,422,153			Property, plant and equipment		c)
Intangible assets			10,861,563				—				—				10,861,563			Intangible assets
Other assets
Deferred income tax assets			7,436,717				231,011				5,936,490				13,604,218			Deferred income tax assets		b), d)
Refundable deposits			4,518,863				—				—				4,518,863			Refundable deposits
Others			1,353,983				—				(47,237	)			1,306,746			Other noncurrent assets		c)
Total other assets			13,309,563				231,011				5,889,253				19,429,827
Total		$	774,264,942			$	217,610			$	5,068,263			$	779,550,815			Total
Current liabilities
Short-term loans		$	25,926,528			$	—			$	—			$	25,926,528			Short-term loans
Financial liabilities at fair value through profit or loss			13,742				—				—				13,742			Financial liabilities at fair value through profit or loss
Hedging derivative financial liabilities			232				—				—				232			Hedging derivative financial liabilities
Accounts payable			10,530,487				—				—				10,530,487			Accounts payable
Payables to related parties			1,328,521				—				—				1,328,521			Payables to related parties
Income tax payable			10,656,124				—				—				10,656,124			Income tax payable
Salary and bonus payable			6,148,499				—				—				6,148,499			Salary and bonus payable
Accrued profit sharing to employees and bonus to directors and supervisors			9,081,293				—				—				9,081,293			Accrued profit sharing to employees and bonus to directors and supervisors
Payables to contractors and equipment suppliers			35,540,526				—				—				35,540,526			Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities			13,218,235				—				—				13,218,235			Accrued expenses and other current liabilities
Current portion of bonds payable and long-term bank loans			4,562,500				—				—				4,562,500			Current portion of bonds payable and long-term bank loans
—			—				—				5,068,263				5,068,263			Provisions		a)
Total current liabilities			117,006,687				—				5,068,263				122,074,950			Total current liabilities
Long-term liabilities
Bonds payable			18,000,000				—				—				18,000,000			Bonds payable
Long-term bank loans			1,587,500				—				—				1,587,500			Long-term bank loans
Obligations under capital leases			870,993				—				—				870,993			Obligations under finance leases
Total long-term liabilities			20,458,493				—				—				20,458,493
Other liabilities
Accrued pension cost			3,908,508				2,332,516				—				6,241,024			Accrued pension cost		d)
Guarantee deposits			443,983				—				—				443,983			Guarantee deposits
—			—				—				2,889				2,889			Provisions
Others			403,720				—				(2,889	)			400,831			Others
Total other liabilities			4,756,211				2,332,516				—				7,088,727
Total liabilities			142,221,391				2,332,516				5,068,263				149,622,170			Total liabilities
Equity attributable to shareholders of the parent
Capital stock			259,162,226				—				—				259,162,226			Capital stock
Capital surplus			55,846,357				(374,695	)			—				55,471,662			Capital surplus		e)
Retained earnings																		Retained earnings
Appropriated as legal capital reserve			102,399,995				—				—				102,399,995			Appropriated as legal capital reserve
Appropriated as special capital reserve			6,433,874				—				—				6,433,874			Appropriated as special capital reserve
Unappropriated earnings			213,357,286				(1,726,828	)			—				211,630,458			Unappropriated earnings		d), e)
			322,191,155				(1,726,828	)			—				320,464,327

(Continued)

 

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						Effect of Transition to Taiwan-IFRSs
						Recognition and
R.O.C. GAAP						Measurement				Presentation				Taiwan-IFRSs
Item		Amount				Difference				Difference				Amount				Item		Note
Others
Cumulative translation adjustments		$	(6,433,369	)		$	5			$	—			$	(6,433,364	)		Foreign currency translation reserve		e)
Unrealized gain/loss on financial instruments			(1,172,855	)			—				93				(1,172,762	)		Unrealized gain/loss from available-for- sale financial assets
—			—				—				(93	)			(93	)		Cash flow hedges reserve
			(7,606,224	)			5				—				(7,606,219	)
Equity attributable to shareholders of the parent			629,593,514				(2,101,518	)			—				627,491,996			Equity attributable to shareholders of the parent
Minority interests			2,450,037				(13,388	)			—				2,436,649			Noncontrolling interests		d)
Total shareholders’ equity			632,043,551				(2,114,906	)			—				629,928,645			Total equity
Total		$	774,264,942			$	217,610			$	5,068,263			$	779,550,815			Total

(Concluded)

 

3)

Reconciliation of consolidated statement of comprehensive income for the year ended December 31, 2012

 

						Effect of Transition to Taiwan-IFRSs
						Recognition and
R.O.C. GAAP						Measurement				Presentation				Taiwan-IFRSs
Item		Amount				Difference				Difference				Amount				Item		Note
Net sales		$	506,248,580			$	—			$	496,654			$	506,745,234			Net revenue		f)
Cost of sales			262,628,681				(45,583	)			—				262,583,098			Cost of revenue		d)
Gross profit before affiliates elimination			243,619,899				45,583				496,654				244,162,136			Gross profit before unrealized gross profit on sales to associates
Unrealized gross profit from affiliates			(25,029	)			—				—				(25,029	)		Unrealized gross profit on sales to associates
Gross profit			243,594,870				45,583				496,654				244,137,107			Gross profit
Operating expenses
Research and development			40,402,138				(18,943	)			—				40,383,195			Research and development		d)
General and administrative			17,638,088				(6,394	)			—				17,631,694			General and administrative		d)
Marketing			4,497,451				(1,465	)			—				4,495,986			Marketing		d)
Total operating expenses			62,537,677				(26,802	)			—				62,510,875
—			—				—				(449,364	)			(449,364	)		Other operating income and expenses, net		f)
Income from operations			181,057,193				72,385				47,290				181,176,868			Income from operations
Non-operating income and gains
Equity in earnings of equity method investees, net			2,028,611				45,118				—				2,073,729			Share of profits of associates and joint venture		e)
Interest income			1,645,036				—				(1,645,036	)			—			—		f)
Settlement income			883,845				—				(883,845	)			—			—		f)
Foreign exchange gain, net			582,498				—				—				582,498			Foreign exchange gain, net
Gain on settlement and disposal of financial assets, net			541,089				—				(541,089	)			—			—		f)
Technical service income			496,654				—				(496,654	)			—			—		f)
Others			604,304				—				(604,304	)			—			—		f)
—			—				—				1,716,093				1,716,093			Other income		f)
—			—				4,977				(2,857,287	)			(2,852,310	)		Other gains and losses		e), f)
Total non-operating income and gains			6,782,037				50,095				(5,312,122	)			1,520,010
Non-operating expenses and losses
Impairment of financial assets			4,231,602				—				(4,231,602	)			—			—		f)
Interest expense			1,020,422				—				—				1,020,422			Finance costs
Impairment loss on idle assets			444,505				—				(444,505	)			—			—		f)
Loss on disposal of property, plant and equipment			31,816				—				(31,816	)			—			—		f)
Others			556,909				—				(556,909	)			—			—		f)
Total non-operating expenses and losses			6,285,254				—				(5,264,832	)			1,020,422

(Continued)

 

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(Concluded)

 

4)

Significant reconciliation differences in consolidated statements of cash flows for the year ended December 31, 2012

The Company prepared the statement of cash flows using the indirect method under R.O.C. GAAP, in which the interest received is not required to be disclosed separately; instead, the interest received and the interest paid are included within the operating activities in the statement of cash flows. However, according to IAS No. 7, “Statement of Cash Flows,” for the year ended December 31, 2012, the interest received of NT$1,719,026 thousand should be disclosed separately in the investing activities; and the interest paid of NT$736,607 thousand should be disclosed in the financing activities based on their nature, respectively.

Except for the above differences, there are no other significant differences between R.O.C. GAAP and Taiwan-IFRSs in the consolidated statement of cash flows.

 

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 year the related revenue is recognized based on historical experience. The corresponding allowance for sales returns and others is presented as a reduction 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 December 31, 2012 and January 1, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$6,038,003 thousand and NT$5,068,263 thousand, respectively.

 

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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.

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 December 31, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to noncurrent assets were NT$8,001,202 thousand and NT$5,936,490 thousand, respectively.

 

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 housing facilities leased to employees and manufacturing facilities leased to suppliers. The housing facilities leased to employees are not classified as investment properties; and manufacturing facilities leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the entire facility.

As of December 31, 2012 and January 1, 2012, the amounts reclassified from assets leased to others and idle assets to property, plant and equipment were NT$32,742 thousand and NT$47,237 thousand, respectively.

 

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 is 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.

 

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

As of December 31, 2012 and January 1, 2012, accrued pension cost of the Company was adjusted for an increase of NT$2,941,693 thousand and NT$2,332,516 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$351,002 thousand and NT$231,011 thousand, respectively; noncontrolling interests were adjusted for a decrease of NT$12,759 thousand and NT$13,388 thousand, respectively. As of December 31, 2012, net loss not recognized as pension cost was adjusted for a decrease of NT$4,416 thousand. For the year ended December 31, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$72,385 thousand and NT$37,633 thousand, respectively; actuarial loss from defined benefit plans and income tax benefit related to components of other comprehensive income were recognized in the amount of NT$685,978 thousand and NT$82,358 thousand, respectively.

 

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

As of December 31, 2012 and January 1, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$69,102 thousand and NT$13,401 thousand, respectively; foreign currency translation reserve was adjusted for a decrease of NT$43 thousand and an increase of NT$5 thousand, respectively; capital surplus was adjusted for a decrease of NT$462,469 thousand and NT$374,695 thousand, respectively. As of December 31, 2012, net loss not recognized as pension cost was adjusted for a decrease of NT$883 thousand. In addition, equity in earnings of equity method investees and share of other comprehensive income of associates and joint venture were adjusted for an increase of NT$45,118 thousand and a decrease of NT$18,905 thousand for the year ended December 31, 2012, respectively; other gains and losses was adjusted for a gain of NT$4,977 thousand for the year ended December 31, 2012.

 

f)

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

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of 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.

 

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Under Taiwan-IFRSs, based on the nature of operating transactions, for the year ended December 31, 2012, the Company reclassified technical service income of NT$496,654 thousand to net revenue, rental revenue of NT$808 thousand, net gain on disposal of property, plant and equipment and other assets of NT$103 thousand, other income of NT$886 thousand, depreciation of rental assets of NT$6,656 thousand and impairment loss on idle assets of NT$444,505 thousand to other operating income and expenses. In addition, interest income of NT$1,645,036 thousand and dividend income of NT$71,057 thousand were also reclassified to other income; settlement income of NT$883,845 thousand, net gain on disposal of financial assets of NT$541,089 thousand, others of NT$499,903 thousand (under non-operating income and gains), net valuation loss on financial instruments of NT$252,530 thousand, impairment loss of financial assets of NT$4,231,602 thousand as well as others of NT$297,992 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the year ended December 31, 2012.

 

44.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for TSMC:

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: Please see Table 2 attached;

 

c.

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

 

d.

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

 

e.

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

 

f.

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

 

g.

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

 

h.

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

 

i.

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

 

j.

Others: The business relationship between the parent and the subsidiaries and 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;

 

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l.

Information on investment in Mainland China

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

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

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2013

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

 

No.		Financing Company		Counter- party		Financial Statement Account		Related Party		Maximum Balance for the Period (US$ in Thousands) (Note 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		Yes		$ (US$	3,874,000 130,000	)		$	—			$	—				—			The need for short-term financing		$	—			Purchase equipment		$	—				—			$	—			$	42,862,161 (Note 1	)		$	42,862,161
				TSMC Solar		Other receivables from related parties		Yes		(US$	2,682,000 90,000	)		(US$	2,682,000 90,000	)		(US$	2,100,900 70,500	)			0.37 0.3805	%-  %		The need for short-term financing			—			Operating capital			—				—				—				17,144,864 (Note 1	)			42,862,161
				TSMC SSL		Other receivables from related parties		Yes		(US$	1,788,000 60,000	)		(US$	1,788,000 60,000	)		( US$	298,000 10,000	)			0.37	%		The need for short-term financing			—			Operating capital			—				—				—				17,144,864 (Note 1	)			42,862,161
2		TSMC Development		TSMC Solar		Other receivables from related parties		Yes		(US$	2,384,000 80,000	)			—				—				—			The need for short-term financing			—			Operating capital			—				—				—				6,503,905 (Notes 1 and 4	)			16,259,762 (Note 4	)
				TSMC SSL		Other receivables from related parties		Yes		(US$	2,682,000 90,000	)			—				—				—			The need for short-term financing			—			Operating capital			—				—				—				6,503,905 (Notes 1 and 4	)			16,259,762 (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 represent the amounts approved by the Board of Directors.

Note 4:

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

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 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 Guaranteed

Maximum Balance for the Period (US$ in

Ending Balance (US$ in

Amount Actually Drawn

Amount of Endorsement/ Guarantee

Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest

Maximum Endorsement/ Guarantee Amount

Guarantee Provided by

Guarantee

Guarantee Provided to Subsidiaries

Name

Nature of Relationship

Party (Notes 1 and 2)

Thousands) (Note 3)

Thousands) (Note 3)

(US$ in Thousands)

Collateralized by Properties

Financial Statements

Allowable (Note 2)

Parent Company

Provided by A Subsidiary

in Mainland China

0

TSMC

TSMC Global

Subsidiary

$

211,877,064

$ (US$

44,700,000 1,500,000

)

$ (US$

44,700,000 1,500,000

)

$ (US$

44,700,000 1,500,000

)

$

—

5.3

%

$

211,877,064

Yes

No

No

 

Note 1:

The total amount of the guarantee provided by TSMC to any individual entity shall not exceed ten percent (10%) of TSMC’s net worth, or the net worth of such entity. However, subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions after the approval of the Board of Directors.

Note 2:

The total amount of guarantee shall not exceed twenty-five percent (25%) of TSMC’s net worth.

Note 3:

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

 

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

DECEMBER 31, 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		December 31, 2013																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
TSMC		Commercial paper
		CPC Corporation, Taiwan			—			Held-to-maturity financial assets			100			$	998,018				N/A			$	997,608
		Taiwan Power Company			—			”			80				797,931				N/A				798,004
		Stock
		Semiconductor Manufacturing International Corporation			—			Available-for-sale financial assets			275,957				646,402				1				646,402				Note 1
		United Industrial Gases Co., Ltd.			—			Financial assets carried at cost			21,230				193,584				10				437,105
		Shin-Etsu Handotai Taiwan Co., Ltd.			—			”			10,500				105,000				7				340,108
		W.K. Technology Fund IV			—			”			4,000				39,280				2				34,919
		Fund
		Horizon Ventures Fund			—			Financial assets carried at cost			—				78,303				12				78,303
		Crimson Asia Capital			—			”			—				53,211				1				53,211
TSMC Global		Stock
		ASML			—			Available-for-sale financial assets			20,993			US$	1,970,536				5			US$	1,970,536				Note 2
		Money market fund
		Ssga Cash Mgmt Global Offshore			—			Available-for-sale financial assets			40			US$	40				N/A			US$	40
TSMC North America		Stock
		Spansion Inc.			—			Available-for-sale financial assets			274			US$	3,799				—			US$	3,799
TSMC Partners		Stock
		Mcube			—			Financial assets carried at cost			6,333				—				17				—
		Fund
		Shanghai Walden Venture Capital Enterprise			—			Financial assets carried at cost			—			US$	5,000				6			US$	5,000
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 3
		QST Holdings, LLC			—			”			—			US$	141				4			US$	141
ISDF		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)

 

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Held Company Name		Marketable Securities Type and Name		Relationship with the Company				Financial Statement Account		December 31, 2013																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
VTAF II		Common stock
		Sentelic			—			Financial assets carried at cost			1,806			US$	2,607				8			US$	2,607
		Aether Systems, Inc.			—			”			2,600			US$	2,243				28			US$	2,243
		RichWave Technology Corp.			—			”			1,267			US$	1,036				3			US$	1,036
		Preferred stock
		5V Technologies, Inc.			—			Financial assets carried at cost			963			US$	2,168				3			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 4
		QST Holdings, LLC			—			”			—			US$	588				13			US$	588
VTAF III		Common stock
		Accton Wireless Broadband Corp.			—			Financial assets carried at cost			2,249			US$	315				6			US$	315
		Preferred stock
		BridgeLux, Inc.			—			Financial assets carried at cost			7,522			US$	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 5
		Powervation, Ltd.			—			”			527			US$	8,238				15			US$	8,238
		Stion Corp.			—			”			8,152				—				15				—				Note 6
		Tilera, Inc.			—			”			3,890			US$	3,025				2			US$	3,025
		Validity Sensors, Inc.			—			”			11,192			US$	4,197				4			US$	4,197

 

Note 1:

The carrying value represents carrying amount less accumulated impairment of NT$412,901 thousand.

Note 2:

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.

Note 3:

The carrying value represents carrying amount less accumulated impairment of US$500 thousand.

Note 4:

The carrying value represents carrying amount less accumulated impairment of US$1,219 thousand.

Note 5:

The carrying value represents carrying amount less accumulated impairment of US$4,672 thousand.

Note 6:

The carrying value represents carrying amount less accumulated impairment of US$55,474 thousand.

(Concluded)

 

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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$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 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			$	983,715			$	846,709				275,957			$	646,402
		TSMC SSL		Investments accounted for using equity method			Note 2				Subsidiary				430,400				2,389,541				124,274				1,242,744				—				—				—				—				554,674				2,154,913
		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets			—				—				—				—				100				998,018				—				—				—				—				100				998,018
		Taiwan Power Company		”			—				—				—				—				80				797,931				—				—				—				—				80				797,931
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				—				—				—
TSMC Development		Stock
		WaferTech		Investments accounted for using equity method			Note 3				Subsidiary				293,637			US$	262,053				—				—				—				—			US$	100,000				—				293,637			US$	248,252

 

Note 1:

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

Note 2:

The acquisition is primarily consisted of cash injection.

Note 3:

The disposal is primarily consisted of capital return.

 

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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$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 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 22, 2013 to August 29, 2013

3,561,600

By the construction progress

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2013 to June 21, 2013

4,373,205

By the construction progress

Da Cin Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 3, 2013 to October 25, 2013

338,948

By the construction progress

I Domain Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

April 3, 2013 to May 15, 2013

2,615,744

By the construction progress

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

May 27, 2013 to June 19, 2013

615,038

By the construction progress

Tasa Construction Corporation

—

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 YEAR ENDED DECEMBER 31, 2013

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

 

		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction								Notes/Accounts Payable or Receivable								Note
Company Name						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
TSMC		TSMC North America		Subsidiary		Sales		$	414,087,565				69			Net 30 days from invoice date			—				—			$	52,750,047				74
		GUC		Associate		Sales			1,970,934				1			Net 30 days from the end of the month of when invoice is issued			—				—				219,424				—
		VIS		Associate		Sales			195,101				—			Net 30 days from the end of the month of when invoice is issued			—				—				—				—
		Mcube		Associate of the Company’s subsidiary (Note 2)		Sales			119,067				—			Net 30 days from invoice date			—				—				—				—
		TSMC China		Subsidiary		Purchases			16,902,114				27			Net 30 days from the end of the month of when invoice is issued			—				—				(1,509,508	)			8
		WaferTech		Indirect subsidiary		Purchases			8,520,337				14			Net 30 days from the end of the month of when invoice is issued			—				—				(685,906	)			4
		VIS		Associate		Purchases			6,993,964				11			Net 30 days from the end of the month of when invoice is issued			—				—				(731,587	)			4
		SSMC		Associate		Purchases			3,056,372				5			Net 30 days from the end of the month of when invoice is issued			—				—				(382,007	)			2
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary		Sales			146,866				57			Net 30 days from the end of the month of when invoice is issued			—				—				16,287				43
TSMC North America		GUC		Associate of TSMC		Sales		(US$	1,714,625 57,780	)			—			Net 30 days from invoice date			—				—			(US$	71,952 2,414	)			—

 

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:

TSMC Partners, the subsidiary of TSMC, did not exercise significant influence over Mcube starting the third quarter of 2013, 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

DECEMBER 31, 2013

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

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days (Note 1)				Overdue								Amounts Received in Subsequent Period				Allowance for Bad Debts
														Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	53,078,207				41			$	16,627,236				—			$	18,782,230			$	—
		GUC		Associate			219,424				42				—				—				—				—
		VIS		Associate			105,881				(Note 2)				—				—				—				—
TSMC Partners		TSMC Solar		The same parent company		(US$	2,102,953 70,569	)			(Note 2)				—				—				—				—
		TSMC SSL		The same parent company		(US$	298,025 10,001	)			(Note 2)				—				—				—				—
TSMC China		TSMC		Parent company		(RMB	1,509,508 308,836	)			31				—				—				—				—
TSMC Technology		TSMC		Parent company		(US$	170,332 5,716	)			(Note 2)				—				—				—				—
WaferTech		TSMC		Parent company		(US$	685,906 23,017	)			27				—				—				—				—

 

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 YEAR ENDED DECEMBER 31, 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 sale of goods		$	414,087,565				—				69	%
								Receivables from related parties			52,750,047				—				4	%
								Other receivables from related parties			328,160				—				—
								Payables to related parties			7,675				—				—
				TSMC China		1		Net revenue from sale of goods			7,798				—				—
								Net revenue from royalty			15,624				—				—
								Purchases			16,902,114				—				3	%
								Marketing expenses - commission			89,129				—				—
								Disposal of property, plant and equipment			67,174				—				—
								Gain on disposal of property, plant and equipment			2,682				—				—
								Purchases of property, plant and equipment			100,298				—				—
								Other receivables from related parties			15,409				—				—
								Payables to related parties			1,509,508				—				—
				TSMC Japan		1		Marketing expenses - commission			240,268				—				—
								Payables to related parties			37,906				—				—
				TSMC Europe		1		Marketing expenses - commission			385,931				—				—
								Research and development expenses			62,070				—				—
								Payables to related parties			55,482				—				—
				TSMC Korea		1		Marketing expenses - commission			21,609				—				—
								Payables to related parties			2,327				—				—
				TSMC Technology		1		Research and development expenses			826,291				—				—
								Payables to related parties			170,332				—				—
				WaferTech		1		Net revenue from sale of goods			12,525				—				—
								Purchases			8,520,337				—				1	%
								Other receivables from related parties			3,009				—				—
								Payables to related parties			685,906				—				—
				TSMC Canada		1		Research and development expenses			217,031				—				—
								Payables to related parties			17,096				—				—
				Xintec		1		Manufacturing expenses			106,290				—				—
								Research and development expenses			1,418				—				—
								Disposal of property, plant and equipment			26,978				—				—
				TSMC SSL		1		Manufacturing expenses			12,956				—				—
								Other gains and losses			8,550				—				—
								Other receivables from related parties			2,160				—				—
								Payables to related parties			3,292				—				—
				TSMC Solar		1		Manufacturing expenses			2,822				—				—
								General and administrative expenses			2,257				—				—
								Other gains and losses			10,086				—				—

(Continued)

 

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										Intercompany Transactions
No.		Company Name		Counter Party		Nature of Relationship (Note 1)				Financial Statements Item		Amount				Terms (Note 2)				Percentage of Consolidated Net Revenue or Total Assets
0		TSMC		TSMC Solar			1			Purchases of property, plant and equipment		$	20,201				—				—
										Other receivables from related parties			2,431				—				—
										Payables to related parties			14,054				—				—
1		TSMC Development		WaferTech			1			Other receivables from related parties			40,485				—				—
2		TSMC North America		TSMC Technology			3			Other receivables from related parties			8,307				—				—
3		TSMC Solar		TSMC Solar Europe GmbH			1			Net revenue from sale of goods			146,866				—				—
										Receivables from related parties			16,287				—				—
				TSMC Development			3			Finance costs			2,613				—				—
				TSMC Partners			3			Finance costs			2,043				—				—
										Other payables to related parties			2,102,953				—				—
4		TSMC SSL		TSMC Partners			3			Other receivables from related parties			298,025				—				—
5		TSMC China		Xintec			3			Disposal of property, plant and equipment			48,193				—				—
				TSMC Partners			3			Finance costs			2,788				—				—

 

Note 1:

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

No. 3 represents the transactions between subsidiaries.

Note 2:

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

(Concluded)

 

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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 YEAR ENDED DECEMBER 31, 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 December 31, 2013												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2013 (Foreign Currencies in Thousands)				December 31, 2012 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	64,953,489			$	(172,392	)		$	(172,392	)		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				42,861,788				3,516,560				3,516,667			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				10,556,348				4,370,988				1,724,819			Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				7,457,733				5,039,563				1,954,847			Associate
		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				4,551,318				(1,554,038	)			(1,516,235	)		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				3,763,194				468,309				468,309			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				2,154,913				(1,663,137	)			(1,550,850	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				1,866,123				288,881				37,942			Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,056,141				289,204				100,746			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,908,912				1,896,914				—				50				892,439				(1,509,593	)			(151,326	)		Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			596,514				704,447				—				98				441,763				(3,662	)			(3,589	)		Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				290,838				37,659				37,659			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			841,757				852,258				—				99.5				144,924				(10,806	)			(10,753	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				124,762				4,717				4,717			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			150,000				100,000				—				100				85,162				(22,899	)			(22,899	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				29,475				1,296				1,296			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				3,887,462				251,864				Note 2			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,806,693				1,801,918				—				49				597				(1,509,593	)			Note 2			Associate
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			504,107				504,107				—				100				89,196				(93,795	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			205,772				205,772				1				100				8,305				(36,733	)			Note 2			Subsidiary
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products			3,133				3,133				1				100				2,873				(65	)			Note 2			Subsidiary

(Continued)

 

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Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2013												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2013 (Foreign Currencies in Thousands)				December 31, 2012 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC Partners		TSMC Development		Delaware, U.S.A.		Investment activities		$ (US$	0.03 0.001	)		$ (US$	0.03 0.001	)			—				100			$ (US$	20,614,259 691,754	)		$ (US$	2,593,196 87,387	)			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$	1,281,400 43,000	)		(US$	1,281,400 43,000	)			43,000				49			(US$	3,492,453 117,196	)		(US$	922,947 31,102	)			Note 2			Jointly     controlled     entity
		TSMC Technology		Delaware, U.S.A.		Engineering support activities		(US$	0.03 0.001	)		(US$	0.03 0.001	)			—				100			(US$	386,971 12,986	)		(US$	37,518 1,264	)			Note 2			Subsidiary
		ISDF II		Cayman Islands		Investing in new start-up technology companies		(US$	421,759 14,153	)		(US$	421,759 14,153	)			14,153				97			(US$	322,518 10,823	)		(US$	73,175 2,466	)			Note 2			Subsidiary
		ISDF		Cayman Islands		Investing in new start-up technology companies		(US$	23,453 787	)		(US$	23,453 787	)			787				97			(US$	248,411 8,336	)		(US$	190,339 6,414	)			Note 2			Subsidiary
		TSMC Canada		Ontario, Canada		Engineering support activities		(US$	68,540 2,300	)		(US$	68,540 2,300	)			2,300				100			(US$	142,773 4,791	)		(US$	15,493 522	)			Note 2			Subsidiary
TSMC Development		WaferTech		Washington, U.S.A.		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices		(US$	2,384,000 80,000	)		(US$	8,344,000 280,000	)			293,637				100			(US$	7,397,902 248,252	)		(US$	2,558,757 86,226	)			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$	155,318 5,212	)		(US$	155,318 5,212	)			15,643				58			(US$	36,404 1,222	)		(US$	(19,129 (645	)  ) )			Note 2			Subsidiary
		Growth Fund		Cayman Islands		Investing in new start-up technology companies		(US$	63,474 2,130	)		(US$	54,534 1,830	)			—				100			(US$	18,075 607	)		(US$	(1,839 (62	)  ) )			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	508,400 12,400	)		(EUR	508,400 12,400	)			—				100			(EUR	85,863 2,094	)		(EUR	(93,917 (2,375	)  ) )			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			52,498				42,945				5,250				—				21,056				(1,554,038	)			Note 2			Associate
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			54,359				34,266				5,436				1				21,011				(1,663,137	)			Note 2			Associate

 

Note 1:

The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.

Note 2:

The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.

Note 3:

Please refer to Table 10 for information on investment in Mainland China.

(Concluded)

 

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TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2013

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

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of Investment				Accumulated Outflow of Investment from Taiwan as of January 1, 2013 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2013 (US$ in Thousands)				Percentage of Ownership				Share of Profits/ Losses				Carrying Amount as of December 31, 2013				Accumulated Inward Remittance of Earnings as of December 31, 2013
																Outflow				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$ (RMB	18,939,667 4,502,080	)			(Note 1	)		$ (US$	18,939,667 596,000	)		$	—			$	—			$ (US$	18,939,667 596,000	)			100	%		$	5,111,975 (Note 2	)		$	23,845,371			$	—

 

Accumulated Investment in Mainland China as of December 31, 2013 (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)				Upper Limit on Investment (US$ in Thousands)
$ 18,939,667 (US$ 596,000)		$ (US$	18,939,667 596,000	)		$ (US$	18,939,667 596,000	)

 

Note 1:

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

Note 2:

Amount was recognized based on the audited financial statements.

 

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Taiwan Semiconductor Manufacturing Company Limited

Parent Company Only Financial Statements for the

Years Ended December 31, 2013 and 2012 and

Independent Auditors’ Report

---

 

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying parent company only balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2013 and 2012 and January 1, 2012 and the related parent company only statements of comprehensive income for the years ended December 31, 2013 and 2012, as well as the parent company only statements of changes in equity and cash flows for the years ended December 31, 2013 and 2012. These parent company only financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the parent company only financial statements referred to above present fairly, in all material respects, the parent company only financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2013 and 2012 and January 1, 2012, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers.

The statements of major accounting items listed in the parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2013 are presented for the purpose of additional analysis. Such statements have been subjected to the auditing procedures applied in our audits of the financial statements mentioned above. In our opinion, such statements are fairly stated in all material respects in relation to the financial statements as a whole.

 

February 18, 2014

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

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

Member of Deloitte Touche Tohmatsu Limited

 

- 1-

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

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

 

- 2 -

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

		2013								2012
		Amount				%				Amount				%
NET REVENUE (Notes 5, 23 and 34)		$	591,087,600				100			$	500,369,525				100
COST OF REVENUE (Notes 11, 30 and 34)			319,407,163				54				265,494,185				53
GROSS PROFIT BEFORE UNREALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES			271,680,437				46				234,875,340				47
UNREALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES			(35,577	)			—				(25,029	)			—
GROSS PROFIT			271,644,860				46				234,850,311				47
OPERATING EXPENSES (Notes 5, 30 and 34)
Research and development			46,922,471				8				38,769,956				8
General and administrative			17,697,411				3				16,324,238				3
Marketing			2,304,472				—				2,386,889				1
Total operating expenses			66,924,354				11				57,481,083				12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 24 and 30)			(66,614	)			—				(549,087	)			—
INCOME FROM OPERATIONS			204,653,892				35				176,820,141				35
NON-OPERATING INCOME AND EXPENSES
Share of profits of subsidiaries and associates (Note 13)			9,530,933				2				8,175,390				2
Other income (Note 25)			1,082,426				—				936,903				—
Foreign exchange gain, net			279,488				—				327,744				—
Finance costs (Note 26)			(2,092,236	)			—				(945,114	)			—
Other gains and losses (Notes 27 and 34)			2,262,047				—				(1,562,677	)			—
Total non-operating income and expenses			11,062,658				2				6,932,246				2
INCOME BEFORE INCOME TAX			215,716,550				37				183,752,387				37
INCOME TAX EXPENSE (Note 28)			27,569,760				5				17,434,101				4
NET INCOME			188,146,790				32				166,318,286				33

(Continued)

 

- 3 -

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

		2013								2012
		Amount				%				Amount				%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 13, 20, 21 and 28)
Exchange differences arising on translation of foreign operations		$	3,655,675				1			$	(4,317,386	)			(1	)
Changes in fair value of available-for-sale financial assets			(214,935	)			—				2,407,647				1
Share of other comprehensive income of subsidiaries and associates			13,472,874				2				7,118,419				1
Actuarial loss from defined benefit plans			(671,774	)			—				(677,413	)			—
Income tax benefit (expense) related to components of other comprehensive income			117,152				—				(328,010	)			—
Other comprehensive income for the year, net of income tax			16,358,992				3				4,203,257				1
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		$	204,505,782				35			$	170,521,543				34
EARNINGS PER SHARE (NT$, Note 29)
Basic earnings per share		$	7.26							$	6.42
Diluted earnings per share		$	7.26							$	6.41

 

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

 

- 4 -

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

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

 

																														Others
																														Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets
		Capital Stock - Common Stock												Retained Earnings
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total												Cash Flow Hedges Reserve				Total				Total Equity
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
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	)
Total			—				—				—				13,420,128				1,172,350				(92,341,146	)			(77,748,668	)			—				—				—				—				(77,748,668	)
Net income in 2012			—				—				—				—				—				166,318,286				166,318,286				—				—				—				—				166,318,286
Other comprehensive income in 2012, net of income tax			—				—				—				—				—				(622,477	)			(622,477	)			(4,320,442	)			9,146,083				93				4,825,734				4,203,257
Total comprehensive income in 2012			—				—				—				—				—				165,695,809				165,695,809				(4,320,442	)			9,146,083				93				4,825,734				170,521,543
Issuance of stock from exercise of employee stock options			8,213				82,131				160,357				—				—				—				—				—				—				—				—				242,488
Adjustments to share of changes in equity of subsidiaries and associates			—				—				2,588				—				—				—				—				—				—				—				—				2,588
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				40,733				—				—				—				—				—				—				—				—				40,733
BALANCE, DECEMBER 31, 2012			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
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	)
Total			—				—				—				16,615,880				(4,820,483	)			(89,568,704	)			(77,773,307	)			—				—				—				—				(77,773,307	)
Net income in 2013			—				—				—				—				—				188,146,790				188,146,790				—				—				—				—				188,146,790
Other comprehensive income in 2013, net of income tax			—				—				—				—				—				(591,799	)			(591,799	)			3,613,444				13,337,460				(113	)			16,950,791				16,358,992
Total comprehensive income in 2013			—				—				—				—				—				187,554,991				187,554,991				3,613,444				13,337,460				(113	)			16,950,791				204,505,782
Issuance of stock from exercise of employee stock options			4,182				41,814				82,756				—				—				—				—				—				—				—				—				124,570
Adjustments to share of changes in equity of subsidiaries and associates			—				—				38,084				—				—				—				—				—				—				—				—				38,084
Adjustments arising from changes in percentage of ownership in subsidiaries			—				—				62,446				—				—				—				—				—				—				—				—				62,446
BALANCE, DECEMBER 31, 2013			25,928,617			$	259,286,171			$	55,858,626			$	132,436,003			$	2,785,741			$	382,971,408			$	518,193,152			$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306			$	847,508,255

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

 

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	215,716,550			$	183,752,387
Adjustments for:
Depreciation expense			147,266,825				122,377,815
Amortization expense			2,072,926				2,022,064
Finance costs			2,092,236				945,114
Share of profits of subsidiaries and associates			(9,530,933	)			(8,175,390	)
Interest income			(1,011,301	)			(867,227	)
Loss on disposal of property, plant and equipment and intangible assets, net			64,753				125,488
Impairment loss on property, plant and equipment			—				418,330
Impairment loss of financial assets			—				2,677,529
Gain on disposal of available-for-sale financial assets, net			(846,709	)			(110,634	)
Loss (gain) on disposal of financial assets carried at cost, net			(42,664	)			269
Loss (gain) on disposal of investments in associates			656				(4,977	)
Gain on deconsolidation of subsidiary			(293,578	)			—
Unrealized gross profit on sales to associates			35,577				25,029
Loss (gain) on foreign exchange, net			315,098				(3,143,506	)
Dividend income			(71,125	)			(69,676	)
Changes in operating assets and liabilities:
Derivative financial instruments			(6,076	)			(17,625	)
Notes and accounts receivable, net			(2,193,483	)			4,156,872
Receivables from related parties			(11,982,359	)			(16,209,910	)
Other receivables from related parties			(257,810	)			(89,347	)
Inventories			53,330				(12,442,994	)
Other current assets			(266,929	)			(363,366	)
Other financial assets			68,313				(18,057	)
Accounts payable			182,965				3,565,949
Payables to related parties			961,579				(67,770	)
Accrued profit sharing to employees and bonus to directors			1,552,210				2,130,887
Accrued expenses and other current liabilities			4,269,512				3,281,875
Provisions			1,484,593				844,859
Accrued pension cost			14,224				(4,442	)
Cash generated from operations			349,648,380				284,739,546
Income taxes paid			(14,365,054	)			(10,312,114	)
Net cash generated by operating activities			335,283,326				274,427,432
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Held to maturity financial assets			(1,795,949	)			—
Financial assets carried at cost			(2,177	)			(1,093	)
Property, plant and equipment			(285,889,575	)			(242,063,668	)
Intangible assets			(2,727,399	)			(1,743,043	)

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

		2013				2012
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	1,830,424			$	612,834
Held-to-maturity financial assets			700,000				700,000
Financial assets carried at cost			59,222				14,900
Property, plant and equipment			162,068				93,984
Interest received			1,057,553				834,314
Other dividends received			71,125				69,676
Dividends received from subsidiaries and associates			2,151,373				1,688,878
Refundable deposits paid			(96,072	)			(508,158	)
Refundable deposits refunded			112,204				2,599,560
Net cash used in investing activities			(284,367,203	)			(237,701,816	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of bonds			86,200,000				62,000,000
Repayment of bonds			—				(4,500,000	)
Increase (decrease) in short-term loans			(19,636,240	)			9,747,093
Interest paid			(1,286,296	)			(670,165	)
Guarantee deposits received			40,729				13,038
Guarantee deposits refunded			(111,313	)			(249,771	)
Proceeds from exercise of employee stock options			124,570				242,488
Payment of partial acquisition of interests in subsidiaries			(1,357,222	)			(2,259,244	)
Proceeds from partial disposal of interests in subsidiaries			170,914				587,902
Cash dividends			(77,773,307	)			(77,748,668	)
Net cash used in financing activities			(13,628,165	)			(12,837,327	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			37,287,958				23,888,289
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			109,150,810				85,262,521
CASH AND CASH EQUIVALENTS, END OF YEAR		$	146,438,768			$	109,150,810

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

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

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. On September 5, 1994, the Company’s shares were listed on the Taiwan Stock Exchange (TWSE). On October 8, 1997, the Company 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.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying parent company only financial statements were approved and authorized for issue by the Board of Directors on February 18, 2014.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

a.

New and revised standards, amendments and interpretations in issue but not yet effective

As of the date that the accompanying parent company only financial statements were authorized for issue, the new, revised or amended International Financial Reporting Standards, International Accounting Standards, 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 standards and interpretations is still subject to the effective date to be published by the Financial Supervisory Commission (FSC) except that the standards and interpretation included in the 2013 Taiwan-IFRSs version should be adopted by the Company starting 2015.

 

		New, Revised or Amended Standards and Interpretations				Effective Date Issued by IASB (Note )
		Included in the 2013 Taiwan-IFRSs version
		Amendments to IFRSs Improvements to IFRSs 2009 - Amendment to IAS 39				January 1, 2009 or January 1, 2010
		Amendment to IAS 39 Embedded Derivatives				Effective in fiscal year ended on or after June 30, 2009
		Improvements to IFRSs 2010				July 1, 2010 or January 1, 2011
		Annual Improvements to IFRSs 2009 - 2011 Cycle				January 1, 2013

(Continued)

 

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		New, Revised or Amended Standards and Interpretations				Effective Date Issued by IASB (Note )
		Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters				July 1, 2010
		Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters				July 1, 2011
		Amendments to IFRS 1 Government Loans				January 1, 2013
		Amendment to IFRS 7 Disclosures-offsetting Financial Assets and Financial Liabilities				January 1, 2013
		Amendment to IFRS 7 Disclosures - Transfers of Financial Assets				July 1, 2011
		IFRS 11 Joint Arrangements				January 1, 2013
		IFRS 12 Disclosure of Interests in Other Entities				January 1, 2013
		Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance				January 1, 2013
		IFRS 13 Fair Value Measurement				January 1, 2013
		Amendment to IAS 1 Presentation of Items of Other Comprehensive Income				July 1, 2012
		Amendment to IAS 12 Deferred Tax: Recovery of Underlying Assets				January 1, 2012
		Amendment to IAS 19 Employee Benefits				January 1, 2013
		Amendment to IAS 27 Separate Financial Statements				January 1, 2013
		Amendment to IAS 28 Investments in Associates and Joint Ventures				January 1, 2013
		Amendment to IAS 32 Offsetting of Financial Assets and Financial Liabilities				January 1, 2014
		IFRIC 20 Stripping Costs in the Production Phase of A Surface Mine				January 1, 2013
		Not included in the 2013 Taiwan-IFRSs version
		Annual Improvements to IFRSs 2010 - 2012 Cycle				July 1, 2014 or transactions on or after July 1, 2014
		Annual Improvements to IFRSs 2011 - 2013 Cycle				July 1, 2014
		IFRS 9 Financial Instruments				Not yet determined
		Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosure				Not yet determined
		IFRS 14 Regulatory Deferral Accounts				January 1, 2016
		Amendment to IAS 19 Defined Benefit Plans: Employee Contributions				July 1, 2014
		Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets				January 1, 2014
		Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting				January 1, 2014
		IFRIC 21 Levies				January 1, 2014

(Concluded)

 

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

 

b.

Significant changes in accounting policy resulted from new and revised standards, amendments and interpretations in issue but not yet effective

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

 

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1)

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 end of the reporting period.

 

2)

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 and associates.

 

3)

IFRS 13, “Fair Value Measurement”

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

 

4)

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.

 

5)

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.

 

6)

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 year 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.

 

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c.

Impact of the application of the new and revised standards, amendments and interpretations in issue but not yet effective on the consolidated financial statements of the Company

As of the date that the accompanying parent company only financial statements were approved and 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 accompanying parent company only financial statements are the first annual parent company only financial statements prepared in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended on December 22, 2011.

For the convenience of readers, the accompanying parent company only 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 parent company only financial statements shall prevail.

Statement of Compliance

The accompanying parent company only financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers (the “Accounting Standards Used in Preparation of the Parent Company Only Financial Statements”).

Basis of Preparation

The accompanying parent company only financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

When preparing the parent company only financial statements, the Company account for subsidiaries and associates by using the equity method. In order to agree with the amount of net income, other comprehensive income and equity attributable to shareholders of the parent in the consolidated financial statements, the differences of the accounting treatment between the parent company only basis and the consolidated basis are adjusted under the heading of investments accounted for using equity method, share of profits of subsidiaries and associates and share of other comprehensive income of subsidiaries and associates in the parent company only financial statements.

Foreign Currencies

In preparing the parent company only financial statements, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

 

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For the purposes of presenting parent company only financial statements, the assets and liabilities of the Company’s foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time deposits and investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial Instruments

Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Fair value is determined in the manner described in Note 33.

Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at fair value through profit or loss” (FVTPL), “held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Derivative financial instruments that do not meet the criteria for hedge accounting are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment.

 

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Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c) financial assets at fair value through profit or loss.

Stocks held by the Company that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value at the end of each reporting period.

Dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Such equity instruments are subsequently remeasured at fair value when their fair value can be reliably measured, and the difference between the carrying amount and fair value is recognized in profit or loss or other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including cash and cash equivalents, notes and accounts receivable and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for those loans and receivables with immaterial discounted effect.

Impairment of financial assets

Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Those financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, their estimated future cash flows have been affected.

For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

For financial assets carried at amortized cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was loss recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the year.

 

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In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gains or losses from available-for-sale financial assets.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are subsequently measured either at amortized cost using effective interest method or at FVTPL.

Financial liabilities measured at FVTPL are derivative financial instruments that do not meet the criteria for hedge accounting, and they are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently measured at amortized cost at the end of each reporting period.

 

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Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative Financial Instruments

The Company enters into a variety of derivative financial instruments to manage its market risk exposure to foreign exchange rate and interest rate, including forward exchange contracts and currency swap contracts.

Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value represents the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Investments Accounted for Using Equity Method

Investments accounted for using the equity method include investments in subsidiaries and associates.

Investment in subsidiaries

A subsidiary is an entity that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the subsidiary as well as the distribution received. The Company also recognized its share in the changes in the equity of subsidiaries.

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. Any difference between the carrying amount of the subsidiary and the fair value of the consideration paid or received is recognized directly in equity.

When the Company loses control of a subsidiary, any retained investment of the former subsidiary is measured at the fair value at that date. A gain or loss is recognized in profit or loss and 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 investments in such subsidiary. In addition, the Company shall account for all amounts previously 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.

When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with the subsidiaries are recognized in the Company’s parent company only financial statements only to the extent of interests in the subsidiaries that are not owned by the Company.

 

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Investment in associates

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The operating results and assets and liabilities of associates are incorporated in these parent company only financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized in the statement of financial position at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate as well as the distribution received. The Company also recognized its share in the changes in the equity of associates.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

When the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate, 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 associate or jointly controlled entity had directly disposed of the related assets or liabilities.

When the Company transacts with an associate, profits and losses resulting from the transactions with the associate are recognized in the Company’ parent company only financial statements only to the extent of interests in the associate that are not owned by the Company.

Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property, plant and equipment.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful lives, and it is computed using the straight-line method over the following estimated useful lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated.

 

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An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Leases

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

The Company as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Intangible Assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Other intangible assets

Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method over the following estimated useful lives: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash-generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units that are expected to benefit. If the recoverable amount of a cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such cash-generating unit and then to the other assets of the cash-generating unit pro rata based on the carrying amount of each asset in the cash-generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Other tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

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Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

 

•

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

•

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

•

The amount of revenue can be measured reliably;

 

•

It is probable that the economic benefits associated with the transaction will flow to the Company; and

 

•

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from the end of when the month of the invoice is issued. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

 

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Royalties, dividend and interest income

Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably).

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Retirement Benefits

For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense when the employees have rendered service entitling them to the contribution. For defined benefit retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at year end. Actuarial gains and losses are reported in retained earnings in the period that they are recognized as other comprehensive income.

Share-based Payment Arrangements

The Company elected to take the optional exemption according to related guidance for the share-based payment transactions granted and vested before the date of transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements. There were no stock options granted prior to but unvested at the date of transition. Please refer to the description in Note 38a.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

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

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

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the parent company only financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

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The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

 

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

In the application of the Company’s accounting policies, which are described in Note 4, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The following are the critical judgments, apart from those involving estimations, that the directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the parent company only financial statements.

Revenue Recognition

The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used.

Impairment of Tangible and Intangible Assets Other than Goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the nature of semiconductor industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

 

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Impairment of Goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the recoverable amount of relevant cash-generating units.

Impairment Assessment on Investment Using Equity Method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable. The Company measures the impairment based on a projected future cash flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate formulated by such investees’ internal management team. The Company also takes into account market conditions and the relevant industry trends to ensure the reasonableness of such assumptions.

Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company use judgment and estimate to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid technological changes, the Company estimates the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon.

Recognition and Measurement of Defined Benefit Plans

Accrued pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

6.	CASH AND CASH EQUIVALENTS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Cash and deposits in banks		$	142,049,643			$	105,873,048			$	81,467,607
Repurchase agreements collateralized by short-term commercial paper			2,395,644				349,341				—
Repurchase agreements collateralized by corporate bonds			1,708,603				2,660,042				—
Repurchase agreements collateralized by government bonds			284,878				268,379				3,794,914
		$	146,438,768			$	109,150,810			$	85,262,521

 

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Derivative financial assets
Forward exchange contracts		$	64,030			$	37,877			$	14,925
Cross currency swap contracts			—				947				—
		$	64,030			$	38,824			$	14,925
Derivative financial liabilities
Forward exchange contracts		$	25,404			$	3,572			$	—
Cross currency swap contracts			—				2,702				—
		$	25,404			$	6,274			$	—

The Company entered into derivative contracts to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

						Contract Amount
		Maturity Date				(In Thousands)
December 31, 2013
Sell NT$/Buy EUR			January 2014			NT$4,514,314/EUR110,000
Sell US$/Buy EUR			January 2014			US$340,134/EUR248,000
Sell US$/Buy JPY			January 2014			US$341,023/JPY35,754,801
December 31, 2012
Sell NT$/Buy EUR			January 2013			NT$9,417,062/EUR246,000
January 1, 2012
Sell EUR/Buy NT$			January 2012			EUR38,600/NT$1,528,206

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

December 31, 2012

January 2013

US$275,000/NT$7,986,190

0.14%-0.17%

—

 

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8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets consisted of investments in foreign publicly traded stocks. In the second quarter of 2012, the Company recognized an impairment loss on such investments in the amount of NT$2,677,529 thousand due to the significant decline in fair value.

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Commercial paper		$	1,795,949			$	—			$	—
Corporate bonds			—				701,146				1,403,427
		$	1,795,949			$	701,146			$	1,403,427
Current portion		$	1,795,949			$	701,146			$	701,136
Noncurrent portion			—				—				702,291
		$	1,795,949			$	701,146			$	1,403,427

 

10.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

		December 31, 2013				December 31, 2012				January 1, 2012
Notes and accounts receivable		$	17,929,379			$	15,726,431			$	19,894,386
Allowance for doubtful receivables			(483,502	)			(474,037	)			(485,120	)
Notes and accounts receivable, net		$	17,445,877			$	15,252,394			$	19,409,266

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

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

Aging analysis of notes and accounts receivable, net

 

		December 31, 2013				December 31, 2012				January 1, 2012
Neither past due nor impaired		$	17,119,920			$	13,984,100			$	16,975,425
Past due but not impaired			325,957				1,268,294				2,433,841
Past due within 30 days
		$	17,445,877			$	15,252,394			$	19,409,266

 

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Movements of the allowance for doubtful receivables

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	474,037			$	485,120
Provision			9,465				—
Write-off			—				(11,083	)
Balance, end of year		$	483,502			$	474,037

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Not past due		$	38			$	160,354			$	81,017
Past due 1-30 days			276				2,863				24,351
Past due 31-60 days			80				—				4,684
Past due 61-120 days			158				—				—
Past due over 121 days			7,824				—				6,611
		$	8,376			$	163,217			$	116,663

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of December 31, 2013 and 2012 and January 1, 2012, the amount of the bank guarantee and other credit enhancements were US$11 thousand, US$1,000 thousand and US$2,962 thousand, respectively.

 

11.	INVENTORIES

 

		December 31, 2013				December 31, 2012				January 1, 2012
Finished goods		$	7,049,813			$	5,936,018			$	3,250,637
Work in process			24,857,927				24,442,123				16,971,209
Raw materials			2,208,291				3,666,048				1,593,393
Supplies and spare parts			1,127,030				1,252,202				1,038,158
		$	35,243,061			$	35,296,391			$	22,853,397

Write-down of inventories to net realizable value in the amount of NT$526,182 thousand and NT$1,341,041 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2013 and 2012.

 

12.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31, 2013				December 31, 2012				January 1, 2012
Non-publicly traded stocks		$	337,864			$	338,584			$	338,584
Mutual funds			131,514				145,175				159,251
		$	469,378			$	483,759			$	497,835

 

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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.

 

13.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Subsidiaries		$	144,139,436			$	121,818,063			$	111,718,691
Associates			20,936,345				17,332,378				16,424,565
		$	165,075,781			$	139,150,441			$	128,143,256

 

a.

Investments in subsidiaries

Subsidiaries consisted of the following:

 

				Place of		Carrying Amount												% of Ownership and Voting Rights Held by the Company
Subsidiaries		Principal Activities		Incorporation and Operation		December 31, 2013				December 31, 2012				January 1, 2012				December 31, 2013				December 31, 2012				January 1, 2012
TSMC Global Ltd. (TSMC Global)		Investment activities		Tortola, British Virgin Islands		$	64,953,489			$	49,954,386			$	44,071,845				100	%			100	%			100	%
TSMC Partners, Ltd. (TSMC Partners)		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry		Tortola, British Virgin Islands			42,861,788				38,635,129				34,986,964				100	%			100	%			100	%
TSMC China Company Limited (TSMC China)		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		Shanghai, China			23,845,371				17,828,683				13,542,181				100	%			100	%			100	%
TSMC Solar Ltd. (TSMC Solar)		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products		Tai-Chung, Taiwan			4,551,318				6,011,397				10,136,237				99	%			99	%			100	%
TSMC North America		Selling and marketing of integrated circuits and semiconductor devices		San Jose, California, U.S.A.			3,763,194				3,209,288				2,981,639				100	%			100	%			100	%
TSMC Solid State Lighting Ltd. (TSMC SSL)		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems		Hsin-Chu, Taiwan			2,154,913				2,389,541				1,725,514				92	%			95	%			100	%
VentureTech Alliance Fund III, L.P. (VTAF III)		Investing in new start-up technology companies		Cayman Islands			892,439				1,047,285				1,311,044				50	%			50	%			53	%
VentureTech Alliance Fund II, L.P. (VTAF II)		Investing in new start-up technology companies		Cayman Islands			441,763				563,056				762,135				98	%			98	%			98	%
TSMC Europe B.V. (TSMC Europe)		Marketing and engineering supporting activities		Amsterdam, the Netherlands			290,838				235,761				205,171				100	%			100	%			100	%
Emerging Alliance Fund, L.P. (Emerging Alliance)		Investing in new start-up technology companies		Cayman Islands			144,924				167,359				213,235				99.5	%			99.5	%			99.5	%
TSMC Japan Limited (TSMC Japan)		Marketing activities		Yokohama, Japan			124,762				142,412				161,601				100	%			100	%			100	%
TSMC Guang Neng Investment, Ltd. (TSMC GN)		Investment activities		Taipei, Taiwan			85,162				65,007				—				100	%			100	%			—
TSMC Korea Limited (TSMC Korea)		Customer service and technical supporting activities		Seoul, Korea			29,475				26,935				23,448				100	%			100	%			100	%
Xintec Inc. (Xintec)		Wafer level chip size packaging service		Taoyuan, Taiwan			—				1,541,824				1,597,677				—				40	%			40	%
						$	144,139,436			$	121,818,063			$	111,718,691

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, but over which the Company still retains significant influence. Accordingly, Xintec is reclassified as an associate. Please refer to Note 31.

 

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In January 2012, the Company invested NT$100,000 thousand and established a wholly-owned subsidiary, TSMC GN, which engages mainly in investment activities. In May 2013 and in February 2012, the Company participated directly or through TSMC GN in the issuance of new shares by TSMC SSL and TSMC Solar for cash. As of December 31, 2013, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were 92% and 99%, respectively.

 

b.

Investments in associates

Associates consisted of the following:

 

				Place of		Carrying Amount												% of Ownership and Voting Rights Held by the Company
Name of Associate		Principal Activities		Incorporation and Operation		December 31, 2013				December 31, 2012				January 1, 2012				December 31, 2013				December 31, 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		$	10,556,348			$	9,406,597			$	8,985,340				39	%			40	%			39	%
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)		Fabrication and supply of integrnated circuits		Singapore			7,457,733				6,710,956				6,289,429				39	%			39	%			39	%
Xintec		Wafer level chip size packaging service		Taoyuan, Taiwan			1,866,123				—				—				40	%			—				—
Global Unichip Corporation (GUC)		Researching, developing, manufacturing, testing and marketing of integrated circuits		Hsinchu, Taiwan			1,056,141				1,214,825				1,149,796				35	%			35	%			35	%
						$	20,936,345			$	17,332,378			$	16,424,565

The summarized financial information in respect of the Company’s associates is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with the Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, which is also adjusted by the Company using the equity method of accounting.

 

		December 31, 2013				December 31, 2012				January 1, 2012
Total assets		$	62,946,717			$	49,240,451			$	46,033,229
Total liabilities			(12,103,610	)			(7,755,433	)			(6,117,893	)
Net assets		$	50,843,107			$	41,485,018			$	39,915,336
The Company’s share of net assets of associates		$	20,936,345			$	17,332,378			$	16,424,565

 

		Years Ended December 31
		2013				2012
Net revenue		$	46,268,485			$	40,583,794
Net income		$	9,946,540			$	7,255,006
Other comprehensive loss		$	(4,148	)		$	(12,969	)
The Company’s share of profits of associates		$	3,827,244			$	2,853,322
The Company’s share of other comprehensive loss of associates		$	(2,190	)		$	(8,624	)

 

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

 

Name of Associate		December 31, 2013				December 31, 2012				January 1, 2012
VIS		$	22,239,112			$	12,658,703			$	6,627,758
GUC		$	3,454,902			$	4,692,130			$	4,645,442

 

14.	PROPERTY, PLANT AND EQUIPMENT

 

		December 31, 2013				December 31, 2012				January 1, 2012
Land		$	3,212,000			$	—			$	—
Buildings			94,121,508				73,699,762				59,268,448
Machinery and equipment			393,907,564				388,186,195				280,093,649
Office equipment			7,423,200				5,974,732				4,242,921
Equipment under installation and construction in progress			271,779,222				118,775,347				110,815,752
		$	770,443,494			$	586,636,036			$	454,420,770

 

		Year Ended December 31, 2013
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Balance, End of Year
Cost
Land		$	—			$	3,212,000			$	—			$	—			$	3,212,000
Buildings			173,442,106				31,812,949				—				3,797				205,258,852
Machinery and equipment			1,203,400,605				139,527,643				(2,400,908	)			—				1,340,527,340
Office equipment			16,683,484				3,631,477				(508,592	)			—				19,806,369
			1,393,526,195			$	178,184,069			$	(2,909,500	)		$	3,797				1,568,804,561
Accumulated depreciation and impairment
Buildings			99,742,344			$	11,395,000			$	—			$	—				111,137,344
Machinery and equipment			815,214,410				133,688,815				(2,283,449	)			—				946,619,776
Office equipment			10,708,752				2,183,010				(508,593	)			—				12,383,169
			925,665,506			$	147,266,825			$	(2,792,042	)		$	—				1,070,140,289
Equipment under installation and construction in progress			118,775,347			$	153,007,821			$	(3,946	)		$	—				271,779,222
		$	586,636,036															$	770,443,494

 

		Year Ended December 31, 2012
		Balance, Beginning of Year				Additions				Disposals				Impairment				Reclassification				Balance, End of Year
Cost
Buildings		$	149,620,319			$	23,886,199			$	(53,338	)		$	—			$	(11,074	)		$	173,442,106
Machinery and equipment			985,232,851				219,868,105				(1,711,425	)			—				11,074				1,203,400,605
Office equipment			13,824,434				3,348,864				(489,814	)			—				—				16,683,484
			1,148,677,604			$	247,103,168			$	(2,254,577	)		$	—			$	—				1,393,526,195
Accumulated depreciation and impairment
Buildings			90,351,871				9,434,868				(44,231	)			—				(164	)			99,742,344
Machinery and equipment			705,139,202				111,325,894				(1,669,180	)			418,330				164				815,214,410
Office equipment			9,581,513				1,617,053				(489,814	)			—				—				10,708,752
			805,072,586			$	122,377,815			$	(2,203,225	)		$	418,330			$	—				925,665,506
Equipment under installation and construction in progress			110,815,752			$	8,004,900			$	(45,305	)		$	—			$	—				118,775,347
		$	454,420,770																			$	586,636,036

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.

 

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For the year ended December 31, 2012, the Company recognized impairment loss of NT$418,330 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.

 

15.	INTANGIBLE ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Goodwill		$	1,567,756			$	1,567,756			$	1,567,756
Technology license fees			980,685				1,226,587				1,617,310
Software and system design costs			3,620,028				2,914,613				2,316,571
Patent and others			900,987				740,881				785,363
		$	7,069,456			$	6,449,837			$	6,287,000

 

		Year Ended December 31, 2013
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Balance, End of Year
Cost
Goodwill		$	1,567,756			$	—			$	—			$	—			$	1,567,756
Technology license fees			4,186,558				—				—				—				4,186,558
Software and system design costs			14,880,058				2,130,713				(2,373	)			(110,745	)			16,897,653
Patent and others			2,646,738				565,901				—				101,007				3,313,646
			23,281,110			$	2,696,614			$	(2,373	)		$	(9,738	)			25,965,613
Accumulated amortization
Technology license fees			2,959,971			$	245,902			$	—			$	—				3,205,873
Software and system design costs			11,965,445				1,320,222				(2,101	)			(5,941	)			13,277,625
Patent and others			1,905,857				506,802				—				—				2,412,659
			16,831,273			$	2,072,926			$	(2,101	)		$	(5,941	)			18,896,157
		$	6,449,837															$	7,069,456

 

		Year Ended December 31, 2012
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Balance, End of Year
Cost
Goodwill		$	1,567,756			$	—			$	—			$	—			$	1,567,756
Technology license fees			4,186,558				—				—				—				4,186,558
Software and system design costs			13,227,136				1,772,958				(26,046	)			(93,990	)			14,880,058
Patent and others			2,140,805				411,943				—				93,990				2,646,738
			21,122,255			$	2,184,901			$	(26,046	)		$	—				23,281,110
Accumulated amortization
Technology license fees			2,569,248			$	390,723			$	—			$	—				2,959,971
Software and system design costs			10,910,565				1,117,478				(26,046	)			(36,552	)			11,965,445
Patent and others			1,355,442				513,863				—				36,552				1,905,857
			14,835,255			$	2,022,064			$	(26,046	)		$	—				16,831,273
		$	6,287,000															$	6,449,837

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

For the years ended December 31, 2013 and 2012, the Company did not recognize any impairment loss on goodwill.

 

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16.	OTHER ASSETS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Tax receivable		$	1,547,706			$	1,382,392			$	569,223
Prepaid expenses			837,425				714,937				1,156,502
Long-term receivable			820,000				767,800				785,400
Others			900				116,477				236,960
		$	3,206,031			$	2,981,606			$	2,748,085
Current portion		$	2,386,031			$	2,097,329			$	1,725,736
Noncurrent portion			820,000				884,277				1,022,349
		$	3,206,031			$	2,981,606			$	2,748,085

 

17.	SHORT-TERM LOANS

 

		December 31, 2013				December 31, 2012				January 1, 2012
Unsecured loans
Amount		$	15,645,000			$	34,714,929			$	25,926,528
Original loan content
US$ (in thousands)		$	525,000			$	1,195,500			$	856,000
Annual interest rate			0.38%-0.42%				0.39%-0.58%				0.45%-1.00%
Maturity date			Due in January 2014				Due in January 2013				Due by February 2012

 

18.	PROVISIONS

 

		December 31, 2013				December 31, 2012
Balance, beginning of year		$	5,732,738			$	4,887,879
Provision made			6,187,344				6,825,851
Payment			(4,702,751	)			(5,980,992	)
Balance, end of year		$	7,217,331			$	5,732,738

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 year of the related product sales.

 

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19.	BONDS PAYABLE

 

		December 31, 2013				December 31, 2012				January 1, 2012
Domestic unsecured bonds		$	166,200,000			$	80,000,000			$	22,500,000
Current portion		$	—			$	—			$	4,500,000
Noncurrent portion			166,200,000				80,000,000				18,000,000
		$	166,200,000			$	80,000,000			$	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	%		”
102-1		A		February 2013 to February 2018			6,200,000				1.23	%		”
		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	%		”

(Continued)

 

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Issuance		Tranche		Issuance Period		Total Amount				Coupon Rate				Repayment and Interest Payment
102-4		A		September 2013 to September 2016		$	1,500,000				1.35	%		Bullet repayment; interest payable annually
		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)

 

20.	RETIREMENT BENEFIT PLANS

 

a.

Defined contribution plans

The plan under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Accordingly, the Company recognized expenses of NT$1,355,947 thousand and NT$1,205,642 thousand in the parent company only statements of comprehensive income for the years ended December 31, 2013 and 2012, respectively.

 

b.

Defined benefit plans

The Company has 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 Company contributes 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 revised its defined benefit plan in the fourth quarter of 2013 to set the employee’s mandatory retirement age. Such plan changes have reflected in the actuarial results as of December 31, 2013.

 

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The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follow:

 

		Measurement Date
		December 31, 2013				December 31, 2012				January 1, 2012
Discount rate			2.15	%			1.75	%			1.75	%
Future salary rate increase			3.00	%			3.00	%			3.00	%
Expected rate of return on plan assets			1.25	%			2.00	%			2.00	%

The pension costs of the defined benefit plans recognized in profit or loss were as follows:

 

		Years Ended December 31
		2013				2012
Current service cost		$	129,749			$	125,895
Interest cost			172,486				156,773
Expected return on plan assets			(66,001	)			(61,664	)
Past service cost			(7,126	)			(7,126	)
		$	229,108			$	213,878

The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

 

		Years Ended December 31
		2013				2012
Cost of revenue		$	148,787			$	135,841
Research and development expenses			59,518				56,014
General and administrative expenses			16,766				17,877
Marketing expenses			4,037				4,146
		$	229,108			$	213,878

For the years ended December 31, 2013 and 2012, the pre-tax actuarial loss recognized in other comprehensive income were NT$671,774 thousand and NT$677,413 thousand, respectively. As of December 31, 2013 and 2012, the pre-tax accumulated actuarial loss recognized in other comprehensive income were NT$1,349,187 thousand and NT$677,413 thousand, respectively.

The amounts arising from the defined benefit obligation of the Company in the parent company only balance sheets were as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Present value of defined benefit obligation		$	10,176,332			$	9,931,695			$	9,026,683
Fair value of plan assets			(3,471,478	)			(3,264,786	)			(3,039,871	)
Funded status			6,704,854				6,666,909				5,986,812
Unrecognized prior service cost			786,186				138,133				145,259
Accrued pension cost		$	7,491,040			$	6,805,042			$	6,132,071

 

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Movements in the present value of the defined benefit obligation were as follows:

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	9,931,695			$	9,026,683
Current service cost			129,749				125,895
Interest cost			172,486				156,773
Benefits paid from plan assets			(50,508	)			(26,119	)
Effect of plan changes			(655,179	)			—
Actuarial loss			648,089				648,463
Balance, end of year		$	10,176,332			$	9,931,695

Movements in the fair value of the plan assets were as follows:

 

		Years Ended December 31
		2013				2012
Balance, beginning of year		$	3,264,786			$	3,039,871
Expected return on plan assets			66,001				61,664
Actuarial loss			(23,685	)			(28,950	)
Contributions from employer			214,884				218,320
Benefits paid from plan assets			(50,508	)			(26,119	)
Balance, end of year		$	3,471,478			$	3,264,786

The percentage of the fair value of the plan assets by major categories at the end of reporting period was as follows:

 

		Fair Value of Plan Assets (%)
		December 31, 2013				December 31, 2012				January 1, 2012
Cash			23				25				24
Equity instruments			45				38				41
Debt instruments			32				37				35
			100				100				100

The overall expected rate of return on plan assets was based on the historical return trends, analysts’ predictions of the market over the life of related obligation, reference to the performance of the Funds operated by the Committee and the consideration of the effect that the minimum return should not be less than the average interest rate on a two-year time deposit published by the local banks. For the years ended December 31, 2013 and 2012, the actual return on plan assets were NT$42,316 thousand and NT$32,714 thousand, respectively.

 

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The Company elects to disclose the historical information of experience adjustments from the adoption of Accounting Standards Used in Preparation of Parent Company Only Financial Statements, which is as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Experience adjustments on plan liabilities		$	1,298,932			$	391,826			$	—
Experience adjustments on plan assets		$	(23,685	)		$	(28,950	)		$	—

The Company expects to make contributions of NT$221,330 thousand to the defined benefit plans in the next year starting from December 31, 2013.

 

21.

EQUITY

 

a.

Capital stock

 

		December 31, 2013				December 31, 2012				January 1, 2012
Authorized shares (in thousands)			28,050,000				28,050,000				28,050,000
Authorized capital		$	280,500,000			$	280,500,000			$	280,500,000
Issued and paid shares (in thousands)			25,928,617				25,924,435				25,916,222
Issued capital		$	259,286,171			$	259,244,357			$	259,162,226

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

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

As of December 31, 2013, 1,082,959 thousand ADSs of the Company were traded on the NYSE. The 5 number of common shares represented by the ADSs was 5,414,794 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

		December 31, 2013				December 31, 2012				January 1, 2012
Additional paid-in capital		$	24,017,363			$	23,934,607			$	23,774,250
From merger			22,804,510				22,804,510				22,804,510
From convertible bonds			8,892,847				8,892,847				8,892,847
From differences between equity purchase price and carrying amount arising from acquisition or disposal of subsidiaries			100,827				40,733				—
From share of changes in equities of subsidiaries and associates			43,024				2,588				—
Donations			55				55				55
		$	55,858,626			$	55,675,340			$	55,471,662

 

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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 up to a certain percentage of the Company’s paid-in capital.

 

c.

Retained earnings and dividend policy

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

 

1)

Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Company’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 the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

4)

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

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

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

The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$12,634,665 thousand and NT$11,115,240 thousand for the years ended December 31, 2013 and 2012, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If the actual amounts subsequently approved by the shareholders differ from the amounts estimated, the differences are recorded in the year such bonuses are approved by the shareholders 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.

 

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The appropriations of 2012 and 2011 earnings have been approved by the Company’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				For Fiscal				For Fiscal				For Fiscal
		Year 2012				Year 2011				Year 2012				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

The Company’s profit sharing to employees and bonus to members of the Board of 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 members of the Board of 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 is the same as the one approved by the Board of Directors in its meetings held on February 5, 2013 and February 14, 2012, respectively, and the same amount had been charged against earnings for the years ended December 31, 2012 and 2011, respectively.

The appropriations of earnings, payment of profit sharing to employees and bonus to members of the Board of Directors for the year ended December 31, 2012 approved by the Board of Directors of the Company 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 Company’s appropriations of earnings for 2013 had been approved in the meeting of the Board of Directors held on February 18, 2014. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings				Dividends Per Share (NT$)
		For Fiscal Year 2013				For Fiscal Year 2013
Legal capital reserve		$	18,814,679
Special capital reserve			(2,785,741	)
Cash dividends to shareholders			77,785,851			$	3.00
		$	93,814,789

The Board of Directors of the Company also approved the profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for payment in 2013, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2013.

The appropriations of earnings, profit sharing to employees and bonus to members of the Board of Directors for 2013 are to be presented for approval in the TSMC’s shareholders’ meeting to be held on June 24, 2014 (expected).

 

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The information about the appropriations of the Company’s profit sharing to employees and bonus to members of the Board of Directors is available at the Market Observation Post System website.

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

 

d.

Others

Changes in others were as follows:

 

		Year Ended December 31, 2013
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of year		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)
Exchange differences arising on translation of foreign operations			3,655,675				—				—				3,655,675
Changes in fair value of available-for-sale financial assets			—				(1,061,644	)			—				(1,061,644	)
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				846,709				—				846,709
Share of other comprehensive income of subsidiaries and associates			(42,930	)			13,515,899				(113	)			13,472,856
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			699				(43	)			—				656
Income tax effect			—				36,539				—				36,539
Balance, end of year		$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306

 

		Year Ended December 31, 2012
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of year		$	(6,433,364	)		$	(1,172,762	)		$	(93	)		$	(7,606,219	)
Exchange differences arising on translation of foreign operations			(4,317,386	)			—				—				(4,317,386	)
Changes in fair value of available-for-sale financial assets			—				(159,248	)			—				(159,248	)

(Continued)

 

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		Year Ended December 31, 2012
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Cumulative 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			—				(110,634	)			—				(110,634	)
Share of other comprehensive income of subsidiaries and associates			(3,056	)			7,147,736				93				7,144,773
Income tax effect			—				(409,300	)			—				(409,300	)
Balance, end of year		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)

(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. 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.

 

22.	SHARE-BASED PAYMENT

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

The Company’s Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 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 stock options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each stock option eligible to subscribe for one common share when exercised. The stock options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The stock 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 stock options are granted at an exercise price equal to the closing price of the Company’s common shares quoted on the TWSE on the grant date.

 

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Stock options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2013.

Information about the Company’s outstanding stock options for the years ended December 31, 2013 and 2012 was as follows:

 

		Number of Stock Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2013
Balance, beginning of year			5,945			$	34.6
Stock options exercised			(4,182	)			29.8
Balance, end of year			1,763				45.9
Year ended December 31, 2012
Balance, beginning of year			14,293			$	31.4
Stock options exercised			(8,213	)			29.5
Stock options canceled			(135	)			34.6
Balance, end of year			5,945				34.6

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

Information about the Company’s outstanding stock options was as follows:

 

December 31, 2013				December 31, 2012				January 1, 2012
Range of Exercise Price		Weighted-average Remaining Contractual Life		Range of Exercise Price		Weighted-average Remaining Contractual Life		Range of Exercise Price		Weighted-average Remaining Contractual Life
(NT$)		(Years)		(NT$)		(Years)		(NT$)		(Years)
$43.2-$47.2		1.0		$20.2-$28.3		0.4		$20.9-$29.3		1.2
				$38.0-$50.1		2.0		$38.0-$50.1		2.9

As of December 31, 2013, all of the above outstanding stock options were exercisable.

 

23.	NET REVENUE

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

 

		Years Ended December 31
		2013				2012
Net revenue from sale of goods		$	590,564,728			$	499,871,887
Net revenue from royalties			522,872				497,638
		$	591,087,600			$	500,369,525

 

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24.	OTHER OPERATING INCOME AND EXPENSES, NET

 

		Years Ended December 31
		2013				2012
Income (expenses) of rental assets
Rental income		$	13,385			$	469
Depreciation of rental assets			(25,120	)			(6,656	)
			(11,735	)			(6,187	)
Loss on disposal of property, plant and equipment and intangible assets, net			(64,753	)			(125,488	)
Impairment loss on property, plant and equipment			—				(418,330	)
Others			9,874				918
		$	(66,614	)		$	(549,087	)

 

25.	OTHER INCOME

 

		Years Ended December 31
		2013				2012
Interest income
Bank deposits		$	996,995			$	836,580
Held-to-maturity financial assets			14,306				30,647
			1,011,301				867,227
Dividend income			71,125				69,676
		$	1,082,426			$	936,903

 

26.	FINANCE COSTS

 

		Years Ended December 31
		2013				2012
Interest expense
Corporate bonds		$	1,991,519			$	758,204
Bank loans			99,722				182,040
Others			995				4,870
		$	2,092,236			$	945,114

 

27.	OTHER GAINS AND LOSSES

 

		Years Ended December 31
		2013				2012
Gain (loss) on disposal of financial assets, net
Available-for-sale financial assets		$	846,709			$	110,634
Financial assets carried at cost			42,664				(269	)
Gain on deconsolidation of subsidiary			293,578				—
Settlement income			899,745				883,845
Other gains			138,612				286,266
Net gain (loss) on financial instruments at FVTPL Held for trading			54,766				(152,814	)
Impairment loss of financial assets Available-for-sale financial assets			—				(2,677,529	)
Other losses			(14,027	)			(12,810	)
		$	2,262,047			$	(1,562,677	)

 

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28.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

		Years Ended December 31
		2013				2012
Current income tax expense (benefit)
Current tax expense recognized in the current year		$	22,297,945			$	14,609,220
Income tax adjustments on prior years			(603,321	)			48,609
Other income tax adjustments			19,589				194,660
			21,714,213				14,852,489
Deferred income tax expense (benefit)
Effect of tax rate changes			—				(543,611	)
The origination and reversal of temporary differences			506,563				588,318
Investment tax credits			5,348,984				2,536,905
			5,855,547				2,581,612
Income tax expense recognized in profit or loss		$	27,569,760			$	17,434,101

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

 

		Years Ended December 31
		2013				2012
Income before tax		$	215,716,550			$	183,752,387
Income tax expense at the statutory rate (17%)		$	36,671,813			$	31,237,906
Tax effect of adjusting items:
Nondeductible (deductible) items in determining taxable income			(2,369,323	)			(2,873,123	)
Tax-exempt income			(7,716,747	)			(8,360,834	)
Additional income tax on unappropriated earnings			7,659,010				4,186,013
Effect of tax rate changes on deferred income tax			—				(543,611	)
Income tax credits			(3,136,942	)			(2,828,300	)
The origination and reversal of temporary differences			506,563				588,318
Remeasurement of investment tax credits			(3,460,882	)			(4,215,537	)
			28,153,492				17,190,832
Income tax adjustments on prior years			(603,321	)			48,609
Other income tax adjustments			19,589				194,660
Income tax expense recognized in profit or loss		$	27,569,760			$	17,434,101

 

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b.

Income tax expense recognized in other comprehensive income

 

		Years Ended December 31
		2013				2012
Deferred income tax expense (benefit)
Related to unrealized gain/loss on available-for-sale financial assets		$	(36,539	)		$	409,300
Related to actuarial gain/loss from defined benefit plans			(80,613	)			(81,290	)
		$	(117,152	)		$	328,010

 

c.

Deferred income tax balance

The analysis of deferred income tax in the parent company only balance sheets was as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Investment tax credits		$	1,955,980			$	7,304,964			$	9,841,869
Temporary differences
Depreciation			366,912				819,231				2,044,680
Provision for sales returns and allowance			866,080				687,929				488,788
Accrued pension cost			900,795				818,502				457,667
Available-for-sale financial assets			6,361				224,694				308,929
Unrealized loss on inventories			387,227				359,823				—
Others			97,113				103,720				86,552
		$	4,580,468			$	10,318,863			$	13,228,485

 

						Recognized in
		Balance,								Other
		Beginning of								Comprehensive				Balance,
		Year				Profit or Loss				Income				End of Year
Year Ended December 31, 2013
Investment tax credits		$	7,304,964			$	(5,348,984	)		$	—			$	1,955,980
Temporary differences
Depreciation			819,231				(452,319	)			—				366,912
Provision for sales returns and allowance			687,929				178,151				—				866,080
Accrued pension cost			818,502				1,680				80,613				900,795
Available-for-sale financial assets			224,694				(254,872	)			36,539				6,361
Unrealized loss on inventories			359,823				27,404				—				387,227
Others			103,720				(6,607	)			—				97,113
Deferred income tax assets		$	10,318,863			$	(5,855,547	)		$	117,152			$	4,580,468

(Continued)

 

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						Recognized in
		Balance,								Other
		Beginning of								Comprehensive				Balance,
		Year				Profit or Loss				Income				End of Year
Year Ended December 31, 2012
Investment tax credits		$	9,841,869			$	(2,536,905	)		$	—			$	7,304,964
Temporary differences
Depreciation			2,044,680				(1,225,449	)			—				819,231
Provision for sales returns and allowance			488,788				199,141				—				687,929
Accrued pension cost			457,667				279,545				81,290				818,502
Available-for-sale financial assets			308,929				325,065				(409,300	)			224,694
Unrealized loss on inventories			—				359,823				—				359,823
Others			86,552				17,168				—				103,720
Deferred income tax assets		$	13,228,485			$	(2,581,612	)		$	(328,010	)		$	10,318,863

(Concluded)

 

d.

The investment tax credits and deductible temporary differences for which no deferred income tax assets have been recognized in the parent company only financial statements

The information of the investment tax credits for which no deferred income tax assets have been recognized was as follows:

 

		December 31, 2013				December 31, 2012				January 1, 2012
Expiry year
2013		$	—			$	—			$	5,456,991
2014			3,015,705				5,807,110				4,881,100
		$	3,015,705			$	5,807,110			$	10,338,091

As of December 31, 2013 and 2012 and January 1, 2012, the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$8,673,160 thousand, NT$13,589,292 thousand and NT$14,893,317 thousand, respectively.

 

e.

Unused investment tax credits and tax-exemption information

As of December 31, 2013, the investment tax credits of the Company consisted of the following:

 

				Remaining
				Creditable				Expiry
Law/Statute		Item		Amount				Year
Statute for Upgrading Industries		Purchase of machinery and equipment		$	4,489,334				2014
					482,351				2015
				$	4,971,685

 

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As of December 31, 2013, the profits generated from the following projects of the Company are exempt from income tax for a five-year period:

 

		Tax-exemption Period
Construction and expansion of 2005			2010 to 2014
Construction and expansion of 2006			2011 to 2015
Construction and expansion of 2007			2014 to 2018

 

f.

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2013 and 2012 and January 1, 2012, the aggregate taxable temporary differences associated with investments in subsidiaries not unrecognized as deferred income tax liabilities amounted to NT$28,035,340 thousand, NT$20,516,999 thousand and NT$15,074,593 thousand, respectively.

 

g.

Integrated income tax information

 

		December 31, 2013				December 31, 2012				January 1, 2012
Balance of the Imputation
Credit Account		$	15,242,724			$	8,130,060			$	4,003,228

The estimated and actual creditable ratio for distribution of the Company’s earnings of 2013 and 2012 were 9.80% and 7.75%, respectively.

Under the Rule No.10204562810 issued by the Ministry of Finance, when calculating the creditable ratio in the year of first-time adoption of Accounting Standards Used in Preparation of Parent Company Only Financial Statements, the Company has included the adjustments to retained earnings from the effect of transition to Parent Company Only Financial Statements Accounting Standards 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 earnings generated prior to December 31, 1997 have been appropriated.

 

h.

Income tax examination

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

 

29.	EARNINGS PER SHARE

 

		Years Ended December 31
		2013				2012
Basic EPS		$	7.26			$	6.42
Diluted EPS		$	7.26			$	6.41

 

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EPS is computed as follows:

 

		Amounts (Numerator)				Number of Shares (Denominator) (In Thousands)				EPS (NT$)
Year ended December 31, 2013
Basic EPS
Net income available to common shareholders		$	188,146,790				25,927,778			$	7.26
Effect of dilutive potential common shares			—				1,825
Diluted EPS
Net income available to common shareholders (including effect of dilutive potential common shares)		$	188,146,790				25,929,603			$	7.26
Year ended December 31, 2012
Basic EPS
Net income available to common shareholders		$	166,318,286				25,920,735			$	6.42
Effect of dilutive potential common shares			—				7,201
Diluted EPS
Net income available to common shareholders (including effect of dilutive potential common shares)		$	166,318,286				25,927,936			$	6.41

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 end of the reporting period. 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 by the shareholders in the following year.

 

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30.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

Net income included the following items:

 

		Years Ended December 31
		2013				2012
a. Depreciation of property, plant and equipment
Recognized in cost of revenue		$	134,545,283			$	111,929,312
Recognized in operating expenses			12,696,422				10,441,847
Recognized in other operating income and expenses			25,120				6,656
		$	147,266,825			$	122,377,815
b. Amortization of intangible assets
Recognized in cost of revenue		$	1,099,542			$	1,273,689
Recognized in operating expenses			973,384				748,375
		$	2,072,926			$	2,022,064
c. Research and development costs expensed as incurred		$	46,922,471			$	38,769,956
d. Employee benefits expenses
Post-employment benefits (Note 20)
Defined contribution plans		$	1,355,947			$	1,205,642
Defined benefit plans			229,108				213,878
			1,585,055				1,419,520
Other employee benefits			56,622,215				50,788,680
		$	58,207,270			$	52,208,200
Employee benefits expense summarized by function
Recognized in cost of revenue		$	35,791,556			$	31,066,533
Recognized in operating expenses			22,415,714				21,141,667
		$	58,207,270			$	52,208,200

 

31.	LOSS OF CONTROL IN 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, but over which the Company still retains significant influence. Accordingly, Xintec is reclassified as an associate. For more information on deconsolidation of subsidiary, please refer to Note 34 to the consolidated financial statements for the year ended December 31, 2013.

 

32.	CAPITAL MANAGEMENT

The Company requires significant amounts of capital to build and expand its production facilities and acquire additional 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.

 

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33.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

		December 31, 2013				December 31, 2012				January 1, 2012
Financial assets
FVTPL
Held for trading derivatives		$	64,030			$	38,824			$	14,925
Available-for-sale financial assets (Note)			1,115,780				2,328,811				3,114,969
Held-to-maturity financial assets			1,795,949				701,146				1,403,427
Loans and receivables
Cash and cash equivalents			146,438,768				109,150,810				85,262,521
Notes and accounts receivables (including related parties)			70,415,680				56,239,838				44,186,800
Other receivables			1,453,842				1,218,024				1,095,438
Refundable deposits			2,496,663				2,394,826				4,491,735
		$	223,780,712			$	172,072,279			$	139,569,815
Financial liabilities
FVTPL
Held for trading derivatives		$	25,404			$	6,274			$	—
Amortized cost
Short-term loans			15,645,000				34,714,929				25,926,528
Accounts payable (including related parties)			17,812,654				16,622,563				12,515,270
Payables to contractors and equipment suppliers			89,555,814				44,371,108				33,811,970
Accrued expenses and other current liabilities			13,035,795				8,689,543				7,112,898
Bonds payable			166,200,000				80,000,000				22,500,000
Other long-term payables			54,000				113,000				—
Guarantee deposits			147,964				199,315				439,032
		$	302,476,631			$	184,716,732			$	102,305,698

Note: Including financial assets carried at cost.

 

b.

Financial risk management objectives

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

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

 

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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 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 years ended December 31, 2013 and 2012 would have decreased by NT$156,590 thousand and NT$707,926 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 fixed 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.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments.

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 years ended December 31, 2013 and 2012 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the years ended December 31, 2013 and 2012 would have decreased by NT$47,150 thousand and NT$97,492 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 end of the reporting period, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets recognized in the parent company only balance sheet.

 

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Business related credit risk

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

As of December 31, 2013 and 2012 and January 1, 2012, the Company’s ten largest customers accounted for 56%, 55% and 59% 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 December 31, 2013 and 2012 and January 1, 2012, the unused of financing facilities of the Company amounted to NT$67,437,805 thousand, NT$46,273,762 thousand and NT$55,424,367 thousand, respectively.

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

 

		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
December 31, 2013
Non-derivative financial liabilities
Short-term loans		$	15,646,783			$	—			$	—			$	—			$	15,646,783
Accounts payable (including related parties)			17,812,654				—				—				—				17,812,654
Payables to contractors and equipment suppliers			89,555,814				—				—				—				89,555,814
Accrued expenses and other current liabilities			13,035,795				—				—				—				13,035,795
Bonds payable			2,380,157				16,720,430				65,859,591				94,360,103				179,320,281
Other long-term payables			18,000				36,000				—				—				54,000
Guarantee deposits			—				147,964				—				—				147,964
			138,449,203				16,904,394				65,859,591				94,360,103				315,573,291
Derivative financial instruments
Forward exchange contracts
Outflows			24,812,803				—				—				—				24,812,803
Inflows			(24,810,910	)			—				—				—				(24,810,910	)
			1,893				—				—				—				1,893
		$	138,451,096			$	16,904,394			$	65,859,591			$	94,360,103			$	315,575,184

(Continued)

 

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		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
December 31, 2012
Non-derivative financial liabilities
Short-term loans		$	34,721,003			$	—			$	—			$	—			$	34,721,003
Accounts payable (including related parties)			16,622,563				—				—				—				16,622,563
Payables to contractors and equipment suppliers			44,371,108				—				—				—				44,371,108
Accrued expenses and other current liabilities			8,689,543				—				—				—				8,689,543
Bonds payable			1,108,150				2,216,300				44,911,191				37,834,474				86,070,115
Other long-term payables			59,000				36,000				18,000				—				113,000
Guarantee deposits			—				199,315				—				—				199,315
			105,571,367				2,451,615				44,929,191				37,834,474				190,786,647
Derivative financial instruments
Forward exchange contracts
Outflows			9,417,062				—				—				—				9,417,062
Inflows			(9,443,940	)			—				—				—				(9,443,940	)
			(26,878	)			—				—				—				(26,878	)
Cross currency swap contracts
Outflows			7,985,450				—				—				—				7,985,450
Inflows			(7,986,190	)			—				—				—				(7,986,190	)
			(740	)			—				—				—				(740	)
		$	105,543,749			$	2,451,615			$	44,929,191			$	37,834,474			$	190,759,029
January 1, 2012
Non-derivative financial liabilities
Short-term loans		$	25,933,177			$	—			$	—			$	—			$	25,933,177
Accounts payable (including related parties)			12,515,270				—				—				—				12,515,270
Payables to contractors and equipment suppliers			33,811,970				—				—				—				33,811,970
Accrued expenses and other current liabilities			7,112,898				—				—				—				7,112,898
Bonds payable			4,775,081				538,500				11,000,933				7,713,258				24,027,772
Guarantee deposits			—				439,032				—				—				439,032
			84,148,396				977,532				11,000,933				7,713,258				103,840,119
Derivative financial instruments
Forward exchange contracts
Outflows			1,515,822				—				—				—				1,515,822
Inflows			(1,528,206	)			—				—				—				(1,528,206	)
			(12,384	)			—				—				—				(12,384	)
		$	84,136,012			$	977,532			$	11,000,933			$	7,713,258			$	103,827,735

(Concluded)

 

f.

Fair value of financial instruments

 

1)

Fair value of financial instruments carried at amortized cost

 

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

 

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		December 31, 2013								December 31, 2012								January 1, 2012
		Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value
Financial assets
Held-to-maturity financial assets
Commercial paper		$	1,795,949			$	1,795,612			$	—			$	—			$	—			$	—
Corporate bonds			—				—				701,146				708,973				1,403,427				1,426,474
Financial liabilities
Measured at amortized cost
Bonds payable			166,200,000				165,476,545				80,000,000				80,343,413				22,500,000				22,597,115

 

2)

Fair value measurements recognized in the parent company only balance sheets

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

 

•

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

 

•

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

 

•

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

 

		December 31, 2013
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	64,030			$	—			$	64,030
Available-for-sale financial assets
Publicly traded stocks		$	646,402			$	—			$	—			$	646,402
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	25,404			$	—			$	25,404
		December 31, 2012
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	38,824			$	—			$	38,824
Available-for-sale financial assets
Publicly traded stocks		$	1,845,052			$	—			$	—			$	1,845,052
Financial liabilities at FVTPL
Derivative financial instruments		$	—			$	6,274			$	—			$	6,274

 

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		January 1, 2012
		Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments		$	—			$	14,925			$	—			$	14,925
Available-for-sale financial assets
Publicly traded stocks		$	2,617,134			$	—			$	—			$	2,617,134

There were no transfers between Level 1 and 2 for the years ended December 31, 2013 and 2012, respectively.

There were no purchases and disposals for assets on Level 3 for the years ended December 31, 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).

 

•

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.

 

•

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.

 

34.	RELATED PARTY TRANSACTIONS

The transactions between the Company and its related parties, other than those disclosed in other notes, are summarized as follows:

 

a.

Net revenue

 

		Net Revenue from Sale of Goods								Net Revenue from Royalties
		Years Ended December 31								Years Ended December 31
		2013				2012				2013				2012
Related Party Categories
Subsidiaries		$	414,108,019			$	326,784,542			$	15,624			$	984
Associates			2,167,467				4,548,173				497,020				479,239
Associates of the Company’s subsidiaries			119,067				—				—				—
Joint venture of the Company’s subsidiaries			1,677				3,410				—				—
		$	416,396,230			$	331,336,125			$	512,644			$	480,223

 

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b.

Purchases

 

		Years Ended December 31
		2013				2012
Related Party Categories
Subsidiaries		$	25,422,634			$	23,734,561
Associates			10,052,170				8,114,307
		$	35,474,804			$	31,848,868

 

c.

Receivables from related parties

 

		December 31, 2013				December 31, 2012				January 1, 2012
Related Party Categories
Subsidiaries		$	52,750,047			$	40,748,905			$	24,661,104
Associates			219,424				238,380				116,218
Joint venture of the Company’s subsidiaries			332				159				212
		$	52,969,803			$	40,987,444			$	24,777,534

 

d.

Payables to related parties

 

		December 31, 2013				December 31, 2012				January 1, 2012
Related Party Categories
Subsidiaries		$	2,503,578			$	2,485,560			$	1,664,623
Associates			1,679,184				742,705				1,325,791
Joint venture of the Company’s subsidiaries			1,217				2,077				2,168
		$	4,183,979			$	3,230,342			$	2,992,582

 

e.

Acquisition of property, plant and equipment and intangible assets

 

		Purchase Price
		Years Ended December 31
		2013				2012
Related Party Categories
Subsidiaries		$	120,499			$	230,532
Associates			21,135				47,051
Joint venture of the Company’s subsidiaries			—				1,224
		$	141,634			$	278,807

 

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f.

Disposal of property, plant and equipment

 

		Years Ended December 31
		2013								2012
		Proceeds				Gains (Losses)				Proceeds				Gains (Losses)
Related Party Categories
Subsidiaries		$	94,152			$	2,570			$	46,951			$	(18,697	)
Associates			58,265				2,787				14,531				(132	)
Joint venture of the Company’s subsidiaries			—				948				9,000				213
		$	152,417			$	6,305			$	70,482			$	(18,616	)

 

		Deferred Gains (Losses) from Disposal of Property, Plant and Equipment
		December 31, 2013				December 31, 2012				January 1, 2012
Related Party Categories
Subsidiaries		$	46,235			$	17,279			$	(1,493	)
Associates			—				(7,806	)			—
Joint venture of the Company’s subsidiaries			—				948				—
		$	46,235			$	10,421			$	(1,493	)

 

g.

Others

 

		Manufacturing Expenses								Research and Development Expenses
		Years Ended December 31								Years Ended December 31
		2013				2012				2013				2012
Related Party Categories
Subsidiaries		$	122,068			$	180,998			$	1,107,059			$	975,455
Associates			908,977				—				903				4,644
Joint venture of the Company’s subsidiaries			5,187				14,586				6,340				8,254
		$	1,036,232			$	195,584			$	1,114,302			$	988,353

 

		Marketing Expenses - Commission								Non-operating Income
		Years Ended December 31								Years Ended December 31
		2013				2012				2013				2012
Related Party Categories
Subsidiaries		$	736,937			$	716,296			$	18,636			$	12,292
Associates			—				—				—				5,990
		$	736,937			$	716,296			$	18,636			$	18,282

 

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		Other Receivables from Related Parties
		December 31, 2013				December 31, 2012				January 1, 2012
Related Party Categories
Subsidiaries		$	351,169			$	95,271			$	65,736
Associates			220,831				179,692				121,767
Joint venture of the Company’s subsidiaries			—				—				525
		$	572,000			$	274,963			$	188,028

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 using equity method, and then recognized such gain/loss over the depreciable lives of the disposed assets.

 

h.

Compensation of key management personnel

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

 

		Years Ended December 31
		2013				2012
Short-term employee benefits		$	1,242,451			$	1,293,052
Post-employment benefits			7,998				3,009
		$	1,250,449			$	1,296,061

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

 

35.	SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land from the Science Park Administration. These operating leases expire between February 2014 and December 2032 and can be renewed upon expiration.

The Company expensed the lease payments as follows:

 

		Years Ended December 31
		2013				2012
Minimum lease payments		$	671,371			$	484,603

 

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

 

		December 31, 2013				December 31, 2012				January 1, 2012
Not later than 1 year		$	666,791			$	485,963			$	453,868
Later than 1 year and not later than 5 years			2,426,891				1,783,197				1,642,683
Later than 5 years			5,110,098				3,655,825				3,255,047
		$	8,203,780			$	5,924,985			$	5,351,598

 

36.	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 the Company can use up to 35% of the Company’s capacity provided the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. In 2013 and 2012, the R.O.C. Government did not involve such right.

 

b.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, the Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. The Company and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of December 31, 2013.

 

c.

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

 

d.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of infringing several U.S. patents. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

- 56 -

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e.

The Company 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 whereby the Company shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. For the year ended December 31, 2013, the Company paid EUR55,078 thousand to ASML under the research and development funding agreement.

 

f.

In December 2013, Tela Innovations, Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission accusing the Company and TSMC North America of infringing one U.S. patent. In January 2014, the Company filed a lawsuit against Tela for trade secret misappropriation and breach of contract. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

g.

As of December 31, 2013, the Company provided financial guarantees of NT$44,700,000 thousand to its subsidiary, TSMC Global, in respect of the issuance of unsecured corporate bonds.

 

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

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

 

		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Carrying Amount
December 31, 2013
Financial assets
Monetary items
USD		$	2,601,226				29.800			$	77,516,527
EUR			450,273				41.00				18,461,200
JPY			41,327,283				0.2834				11,712,152
Non-monetary items
HKD			168,334				3.84				646,402
Financial liabilities
Monetary items
USD			1,926,813				29.800				57,419,016
EUR			810,174				41.00				33,217,114
JPY			71,828,809				0.2834				20,356,284

(Continued)

 

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		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Carrying Amount
December 31, 2012
Financial assets
Monetary items
USD		$	2,255,391				29.038			$	65,492,054
EUR			117,136				38.39				4,496,863
JPY			35,290,837				0.3352				11,829,489
Non-monetary items
HKD			492,014				3.75				1,845,052
Financial liabilities
Monetary items
USD			2,171,316				29.038				63,050,668
EUR			245,237				38.39				9,414,653
JPY			43,052,403				0.3352				14,431,165
January 1, 2012
Financial assets
Monetary items
USD		$	1,566,212				30.288			$	47,437,444
EUR			124,425				39.27				4,886,187
JPY			33,073,336				0.3897				12,888,679
Non-monetary items
HKD			671,060				3.90				2,617,134
Financial liabilities
Monetary items
USD			1,626,129				30.288				49,252,192
EUR			106,931				39.27				4,199,185
JPY			34,942,421				0.3897				13,617,061

(Concluded)

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

 

38.	FIRST-TIME ADOPTION OF PARENT COMPANY ONLY FINANCIAL STATEMENTS ACCOUNTING STANDARDS

The transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements was on January 1, 2012 (the transition date). The effects on the Company’s parent company only balance sheets as of December 31, 2012 and January 1, 2012 as well as the parent company only statements of comprehensive income for the year ended December 31, 2012, were as follows:

 

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a.

Exemptions

Except for optional exemptions and mandatory exceptions, the Company retrospectively applied Accounting Standards Used in Preparation of the Parent Company Only Financial Statements in its opening balance sheet at the date of transition, January 1, 2012.

 

1)

Business combinations. The Company elected not to apply related guidance 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 was the same as the carrying amount of goodwill under R.O.C. GAAP as of January 1, 2012.

 

2)

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

 

3)

Share-based payment. The Company elected to take the optional exemption from applying related guidance retrospectively for the shared-based payment transactions granted and vested before the transition date.

 

b.

Reconciliation of parent company only balance sheet as of December 31, 2012

 

						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Current assets
Cash and cash equivalents		$	109,150,810			$	—			$	—			$	109,150,810			Cash and cash equivalents
Financial assets at fair value through profit or loss			38,824				—				—				38,824			Financial assets at fair value through profit or loss
Available-for-sale financial assets			1,845,052				—				—				1,845,052			Available-for-sale financial assets
Held-to-maturity financial assets			701,146				—				—				701,146			Held-to-maturity financial assets
Notes and accounts receivable			15,726,431				—				(474,037	)			15,252,394			Notes and accounts receivable, net
Receivables from related parties			40,987,444				—				—				40,987,444			Receivables from related parties
Allowance for doubtful receivables			(474,037	)			—				474,037				—			—
Allowance for sales returns and others			(5,732,738	)			—				5,732,738				—			—		a)
Other receivables from related parties			274,963				—				—				274,963			Other receivables from related parties
Other financial assets			175,261				—				—				175,261			Other financial assets
Inventories			35,296,391				—				—				35,296,391			Inventories
Deferred income tax assets			7,728,464				—				(7,728,464	)			—			—		b)
Prepaid expenses and other current assets			2,097,329				—				—				2,097,329			Other current assets
Total current assets			207,815,340				—				(1,995,726	)			205,819,614			Total current assets
Long-term investments
Investments accounted for using equity method			139,264,161				(113,720	)			—				139,150,441			Investments accounted for using equity method		e)
Financial assets carried at cost			483,759				—				—				483,759			Financial assets carried at cost
Total long-term investments			139,747,920				(113,720	)			—				139,634,200
Net property, plant and equipment			586,603,294				—				32,742				586,636,036			Property, plant and equipment		c)
Intangible assets			6,449,837				—				—				6,449,837			Intangible assets

(Continued)

 

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						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Other assets
Deferred income tax assets		$	2,244,947			$	345,452			$	7,728,464			$	10,318,863			Deferred income tax assets		b), d)
Refundable deposits			2,394,826				—				—				2,394,826			Refundable deposits
Others			917,019				—				(32,742	)			884,277			Other noncurrent assets		c)
Total other assets			5,556,792				345,452				7,695,722				13,597,966
Total		$	946,173,183			$	231,732			$	5,732,738			$	952,137,653			Total
Current liabilities
Short-term loans		$	34,714,929			$	—			$	—			$	34,714,929			Short-term loans
Financial liabilities at fair value through profit or loss			6,274				—				—				6,274			Financial liabilities at fair value through profit or loss
Accounts payable			13,392,221				—				—				13,392,221			Accounts payable
Payables to related parties			3,230,342				—				—				3,230,342			Payables to related parties
Income tax payable			15,196,399				—				—				15,196,399			Income tax payable
Accrued profit sharing to employees and bonus to directors			11,186,591				—				—				11,186,591			Accrued profit sharing to employees and bonus to directors
Payables to contractors and equipment suppliers			44,371,108				—				—				44,371,108			Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities			16,698,014				—				—				16,698,014			Accrued expenses and other current liabilities
—			—				—				5,732,738				5,732,738			Provisions		a)
Total current liabilities			138,795,878				—				5,732,738				144,528,616			Total current liabilities
Long-term liabilities
Bonds payable			80,000,000				—				—				80,000,000			Bonds payable
Other long-term payables			54,000				—				—				54,000			Other long-term payables
Total long-term liabilities			80,054,000				—				—				80,054,000
Other liabilities
Accrued pension cost			3,926,276				2,878,766				—				6,805,042			Accrued pension cost		d)
Guarantee deposits			199,315				—				—				199,315			Guarantee deposits
Total other liabilities			4,125,591				2,878,766				—				7,004,357
Total liabilities			222,975,469				2,878,766				5,732,738				231,586,973			Total liabilities
Capital stock			259,244,357				—				—				259,244,357			Capital stock
Capital surplus			56,137,809				(462,469	)			—				55,675,340			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			287,174,942				(2,189,821	)			—				284,985,121			Unappropriated earnings		d), e)
			410,601,289				(2,189,821	)			—				408,411,468
Others
Cumulative translation adjustments			(10,753,763	)			(43	)			—				(10,753,806	)		Foreign currency translation reserve		e)
Net loss not recognized as pension cost			(5,299	)			5,299				—				—			—		e)
Unrealized gain/loss on financial instruments			7,973,321				—				—				7,973,321			Unrealized gain/loss from available-for-sale financial assets
			(2,785,741	)			5,256				—				(2,780,485	)
Total shareholders’ equity			723,197,714				(2,647,034	)			—				720,550,680			Total equity
Total		$	946,173,183			$	231,732			$	5,732,738			$	952,137,653			Total

(Concluded)

 

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c.

Reconciliation of parent company only balance sheet as of January 1, 2012

 

						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Current assets
Cash and cash equivalents		$	85,262,521			$	—			$	—			$	85,262,521			Cash and cash equivalents
Financial assets at fair value through profit or loss			14,925				—				—				14,925			Financial assets at fair value through profit or loss
Available-for-sale financial assets			2,617,134				—				—				2,617,134			Available-for-sale financial assets
Held-to-maturity financial assets			701,136				—				—				701,136			Held-to-maturity financial assets
Notes and accounts receivable			19,894,386				—				(485,120	)			19,409,266			Notes and accounts receivable, net
Receivables from related parties			24,777,534				—				—				24,777,534			Receivables from related Parties
Allowance for doubtful receivables			(485,120	)			—				485,120				—			—
Allowance for sales returns and others			(4,887,879	)			—				4,887,879				—			—		a)
Other receivables from related parties			188,028				—				—				188,028			Other receivables from related parties
Other financial assets			122,010				—				—				122,010			Other financial assets
Inventories			22,853,397				—				—				22,853,397			Inventories
Deferred income tax assets			5,779,544				—				(5,779,544	)			—			—		b)
Prepaid expenses and other current assets			1,725,736				—				—				1,725,736			Other current asset
Total current assets			158,563,352				—				(891,665	)			157,671,687			Total current assets
Long-term investments
Investments accounted for using equity method			128,200,718				(57,462	)			—				128,143,256			Investments accounted for using equity method		e)
Held-to-maturity financial assets			702,291				—				—				702,291			Held-to-maturity financial assets
Financial assets carried at cost			497,835				—				—				497,835			Financial assets carried at cost
Total long-term investments			129,400,844				(57,462	)			—				129,343,382
Net property, plant and equipment			454,373,533				—				47,237				454,420,770			Property, plant and equipment		c)
Intangible assets			6,287,000				—				—				6,287,000			Intangible assets
Other assets
Deferred income tax assets			7,221,824				227,117				5,779,544				13,228,485			Deferred income tax assets		b), d)
Refundable deposits			4,491,735				—				—				4,491,735			Refundable deposits
Others			1,069,586				—				(47,237	)			1,022,349			Other noncurrent assets		c)
Total other assets			12,783,145				227,117				5,732,307				18,742,569
Total		$	761,407,874			$	169,655			$	4,887,879			$	766,465,408			Total
Current liabilities
Short-term loans		$	25,926,528			$	—			$	—			$	25,926,528			Short-term loans
Accounts payable			9,522,688				—				—				9,522,688			Accounts payable
Payables to related parties			2,992,582				—				—				2,992,582			Payables to related parties
Income tax payable			10,647,797				—				—				10,647,797			Income tax payable
Accrued profit sharing to employees and bonus to directors			9,055,704				—				—				9,055,704			Accrued profit sharing to employees and bonus to directors
Payables to contractors and equipment suppliers			33,811,970				—				—				33,811,970			Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities			13,057,161				—				—				13,057,161			Accrued expenses and other current liabilities
Current portion of bonds payable			4,500,000				—				—				4,500,000			Current portion of bonds payable
—			—				—				4,887,879				4,887,879			Provisions		a)
Total current liabilities			109,514,430				—				4,887,879				114,402,309			Total current liabilities
Long-term liabilities
Bonds payable			18,000,000				—				—				18,000,000			Bonds payable
Other liabilities
Accrued pension cost			3,860,898				2,271,173				—				6,132,071			Accrued pension cost		d)
Guarantee deposits			439,032				—				—				439,032			Guarantee deposits
Total other liabilities			4,299,930				2,271,173				—				6,571,103
Total liabilities			131,814,360				2,271,173				4,887,879				138,973,412			Total liabilities
Capital stock			259,162,226				—				—				259,162,226			Capital stock
Capital surplus			55,846,357				(374,695	)			—				55,471,662			Capital surplus		e)

(Continued)

 

- 61 -

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						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Retained earnings																		Retained earnings
Appropriated as legal capital reserve		$	102,399,995			$	—			$	—			$	102,399,995			Appropriated as legal capital reserve
Appropriated as special capital reserve			6,433,874				—				—				6,433,874			Appropriated as special capital reserve
Unappropriated earnings			213,357,286				(1,726,828	)			—				211,630,458			Unappropriated earnings		d), e)
			322,191,155				(1,726,828	)			—				320,464,327
Others
Cumulative translation adjustments			(6,433,369	)			5				—				(6,433,364	)		Foreign currency translation reserve		e)
Unrealized gain/loss on financial instruments			(1,172,855	)			—				93				(1,172,762	)		Unrealized gain/loss from available-for-sale financial assets
—			—				—				(93	)			(93	)		Cash flow hedges reserve
			(7,606,224	)			5				—				(7,606,219	)
Total shareholders’ equity			629,593,514				(2,101,518	)			—				627,491,996			Total equity
Total		$	761,407,874			$	169,655			$	4,887,879			$	766,465,408			Total

(Concluded)

 

d.

Reconciliation of parent company only statement of comprehensive income for the year ended December 31, 2012

 

						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Net sales		$	499,871,887			$	—			$	497,638			$	500,369,525			Net revenue		f)
Cost of sales			265,538,540				(44,355	)			—				265,494,185			Cost of revenue		d)
Gross profit before affiliates elimination			234,333,347				44,355				497,638				234,875,340			Gross profit before unrealized gross profit on sales to associates
Unrealized gross profit from affiliates			(25,029	)			—				—				(25,029	)		Unrealized gross profit on sales to associates
Gross profit			234,308,318				44,355				497,638				234,850,311			Gross profit
Operating expenses
Research and development			38,788,245				(18,289	)			—				38,769,956			Research and development		d)
General and administrative			16,330,060				(5,822	)			—				16,324,238			General and administrative		d)
Marketing			2,388,243				(1,354	)			—				2,386,889			Marketing		d)
Total operating expenses			57,506,548				(25,465	)			—				57,481,083
—			—				—				(549,087	)			(549,087	)		Other operating income and expenses, net		f)
Income from operations			176,801,770				69,820				(51,449	)			176,820,141			Income from operations
Non-operating income and gains
Equity in earnings of equity method investees, net			8,127,748				47,642				—				8,175,390			Share of profits of subsidiaries and associates		e)
Interest income			867,227				—				(867,227	)			—			—		f)
Settlement income			883,845				—				(883,845	)			—			—		f)
—			—				—				327,744				327,744			Foreign exchange gain, net		f)
Technical service income			497,638				—				(497,638	)			—			—		f)
Others			811,619				—				(811,619	)			—			—		f)
—			—				—				936,903				936,903			Other income		f)
—			—				4,977				(1,567,654	)			(1,562,677	)		Other gains and losses		e), f)
Total non-operating income and gains			11,188,077				52,619				(3,363,336	)			7,877,360

(Continued)

 

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						Effect of Transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements								Accounting Standards
						Recognition and								Used in Preparation of the Parent
R.O.C. GAAP						Measurement				Presentation				Company Only Financial Statements
Item		Amount				Difference				Difference				Amount				Item		Note
Non-operating expenses and losses
Impairment of financial assets		$	2,677,529			$	—			$	(2,677,529	)		$	—			—		f)
Interest expense			945,114				—				—				945,114			Finance costs
Impairment loss on idle assets			418,330				—				(418,330	)			—			—		f)
Loss on disposal of property, plant and equipment			146,647				—				(146,647	)			—			—		f)
Others			172,279				—				(172,279	)			—			—		f)
Total non-operating expenses and losses			4,359,899				—				(3,414,785	)			945,114
Income before income tax			183,629,948				122,439				—				183,752,387			Income before income tax
Income tax expense			17,471,146				(37,045	)			—				17,434,101			Income tax expense		d)
Net income		$	166,158,802			$	159,484			$	—				166,318,286			Net income
															(4,317,386	)		Exchange differences arising on translation of foreign operations
															2,407,647			Changes in fair value of available-for-sale financial assets
															7,118,419			Share of other comprehensive income of subsidiaries and associates		e)
															(677,413	)		Actuarial loss from defined benefit plans		d)
															(328,010	)		Income tax expense related to components of other comprehensive income		d)
															4,203,257			Other comprehensive income for the year, net of income tax
														$	170,521,543			Total comprehensive income for the year

(Concluded)

 

e.

Significant reconciliation differences in statement of cash flows for the year ended December 31, 2012

For the year ended December 31, 2012, the Company partially disposed and acquired its interests in subsidiaries without the loss of control with the cash inflows and cash outflows of NT$587,902 thousand and NT$2,259,244 thousand, respectively. Under R.O.C. GAAP, such cash flows were classified as investing activities. However, under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, such cash flows were classified as financing activities.

The Company prepared the statement of cash flows using the indirect method under R.O.C. GAAP, in which the interest received is not required to be disclosed separately; instead, the interest received and the interest paid are included within the operating activities in the statement of cash flows. However, according to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements for the year ended December 31, 2012, the interest received of NT$834,314 thousand should be disclosed separately in the investing activities; and the interest paid of NT$670,165 thousand should be disclosed in the financing activities based on their nature, respectively.

Except for the above differences, there are no other significant differences between R.O.C. GAAP and Accounting Standards Used in Preparation of the Parent Company Only Financial Statements in the parent company only statement of cash flows.

 

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f.

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 year the related revenue is recognized based on historical experience. The corresponding allowance for sales returns and others is presented as a reduction in accounts receivable. Under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, 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 the related guidance.

As of December 31, 2012 and January 1, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$5,732,738 thousand and NT$4,887,879 thousand, respectively.

 

b)

Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset and liability is classified as current or 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 parent company only financial statements, it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, a deferred tax asset and liability is classified as noncurrent asset or liability.

In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with the related guidance, 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 December 31, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to noncurrent assets were NT$7,728,464 thousand and NT$5,779,544 thousand, respectively.

 

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 Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, the aforementioned items are classified as property, plant and equipment according to their nature. In accordance with the related guidance, investment properties are defined as properties held to earn rentals or for capital appreciation; however, the Company’s assets leased to others are mainly housing facilities leased to employees and manufacturing facilities leased to suppliers. The housing facilities leased to employees are not classified as investment properties; and manufacturing facilities leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the entire facility.

As of December 31, 2012 and January 1, 2012, the amounts reclassified from assets leased to others and idle assets to property, plant and equipment were NT$32,742 thousand and NT$47,237 thousand, respectively.

 

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 Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, the Company should carry out actuarial valuation on defined benefit obligation in accordance with the related guidance.

 

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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 is amortized over the expected average remaining working lives of the participating employees.

Under the related guidance, 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 the related guidance and recognized the valuation difference directly to retained earnings. 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, a minimum pension liability should be recognized in the balance sheet. If the accrued pension cost is less than the minimum pension liability, the difference should be recognized as an additional liability. Under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, there is no aforementioned requirement to recognize minimum pension liability.

As of December 31, 2012 and January 1, 2012, accrued pension cost of the Company was adjusted for an increase of NT$2,878,766 thousand and NT$2,271,173 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$345,452 thousand and NT$227,117 thousand, respectively. For the year ended December 31, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$69,820 thousand and NT$37,045 thousand, respectively; actuarial loss from defined benefit plans and income tax benefit related to components of other comprehensive income were recognized in the amount of NT$677,413 thousand and NT$81,290 thousand, respectively.

 

e)

Investments accounted for using the equity method

The Company has evaluated significant differences between current accounting policies and Accounting Standards Used in Preparation of the Parent Company Only Financial Statements for the Company’s subsidiaries and associates accounted for using the equity method. The significant difference is mainly due to the adjustment to employee benefits.

In addition, if the investor subscribes to additional shares of associates and joint ventures that is disproportionate to its existing ownership percentage and results in a decrease in the investor’s ownership percentage in the associate and joint venture, the resulting carrying amount of the investment differs from the amount of the investor’s share in the equity of the associates and joint venture. Under R.O.C. GAAP, the investor records such a difference as an adjustment to the carrying amount of the investment with the corresponding amount charged or credited to capital surplus. Under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, such a difference is still adjusted to carrying amount of the investment and capital surplus. If the investor’s ownership interest in an associate and joint venture decreases, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and joint venture shall be reclassified to profit or loss on the same basis as would be required if the associate and joint venture had directly disposed of the related assets or liabilities.

 

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As of December 31, 2012 and January 1, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$113,720 thousand and NT$57,462 thousand, respectively; foreign currency translation reserve was adjusted for a decrease of NT$43 thousand and an increase of NT$5 thousand, respectively; capital surplus was adjusted for a decrease of NT$462,469 thousand and NT$374,695 thousand, respectively. As of December 31, 2012, net loss not recognized as pension cost was adjusted for a decrease of NT$5,299 thousand. In addition, equity in earnings of equity method investees and share of other comprehensive income of subsidiaries and associates were adjusted for an increase of NT$47,642 thousand and decrease of NT$26,402 thousand respectively for the year ended December 31, 2012; other gains and losses was adjusted for a gain of NT$4,977 thousand for the year ended December 31, 2012.

 

f)

The reclassification of line items in the parent company only 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 Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, income from operations in the income statement only includes net revenue, cost of revenue and operating expenses. Under Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, 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 Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, based on the nature of operating transactions, for the year ended December 31, 2012, the Company also reclassified technical service income of NT$497,638 thousand to net revenue, rental revenue of NT$469 thousand, net loss on disposal of property, plant and equipment and other assets of NT$125,488 thousand, other income of NT$918 thousand, depreciation of rental assets of NT$6,656 thousand and impairment loss on idle assets of NT$418,330 thousand to other operating income and expenses; other income of NT$327,744 thousand was reclassified to net foreign exchange gain. In addition, interest income of NT$867,227 thousand and dividend income of NT$69,676 thousand were also reclassified to other income; settlement income of NT$883,845 thousand, net gain on disposal of financial assets of NT$110,365 thousand, others of NT$286,266 thousand (under non-operating income and gains), net valuation loss on financial instruments of NT$152,814 thousand, impairment loss of financial assets of NT$2,677,529 thousand as well as others of NT$17,787 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the year ended December 31, 2012.

 

39.	ADDITIONAL DISCLOSURES

 

a.

Financings provided: None;

 

b.

Endorsement/guarantee provided: Please see Table 1 attached;

 

c.

Marketable securities held (excluding investments in subsidiaries, associates and jointly controlled entities): Please see Table 2 attached;

 

d.

Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 3 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$300 million or 20% of the paid-in capital: Please see Table 4 attached;

 

f.

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

 

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g.

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

 

h.

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

 

i.

Information about the derivative financial instruments transaction: Please see Note 7;

 

j.

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

 

k.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, income (losses) of the investee, share of profits/losses of investee, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Note 34.

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 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 Guaranteed Party (Notes 1 and  2)

Maximum Balance for the Period (US$ in Thousands) (Note 3)

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

Amount Actually Drawn (US$ in Thousands)

Amount of Endorsement/ Guarantee Collateralized by Properties

Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements

Maximum Endorsement/ Guarantee Amount Allowable (Note 2)

Guarantee Provided by Parent Company

Guarantee Provided by A Subsidiary

Guarantee Provided to Subsidiaries in Mainland China

Name

Nature of Relationship

0

The Company

TSMC Global

Subsidiary

$

211,877,064

$ (US$

44,700,000   1,500,000

)

$ (US$

44,700,000   1,500,000

)

$ (US$

44,700,000   1,500,000

)

$

—

5.3

%

$

211,877,064

Yes

No

No

 

Note 1:

The total amount of the guarantee provided by the Company to any individual entity shall not exceed ten percent (10%) of the Company’s net worth, or the net worth of such entity. However, subsidiaries whose voting shares are 100% owned, directly or indirectly, by the Company 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 the Company’s net worth.

Note 3:

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

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited

MARKETABLE SECURITIES HELD

DECEMBER 31, 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		December 31, 2013																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
The Company		Commercial paper
		CPC Corporation, Taiwan			—			Held-to-maturity financial assets			100			$	998,018				N/A			$	997,608
		Taiwan Power Company			—			”			80				797,931				N/A				798,004
		Stock
		Semiconductor Manufacturing International Corporation			—			Available-for-sale financial assets			275,957				646,402				1				646,402				Note
		United Industrial Gases Co., Ltd.			—			Financial assets carried at cost			21,230				193,584				10				437,105
		Shin-Etsu Handotai Taiwan Co., Ltd.			—			”			10,500				105,000				7				340,108
		W.K. Technology Fund IV			—			”			4,000				39,280				2				34,919
		Fund
		Horizon Ventures Fund			—			Financial assets carried at cost			—				78,303				12				78,303
		Crimson Asia Capital			—			”			—				53,211				1				53,211

 

Note:

The carrying value represents carrying amount less accumulated impairment of NT$412,901 thousand.

 

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 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)
The Company		Stock
		Semiconductor Manufacturing International Corporation		Available-for-sale financial assets			—				—				1,277,958			$	1,845,052				—			$	—				1,002,001			$	1,830,424			$	983,715			$	846,709				275,957			$	646,402
		TSMC SSL		Investments accounted for using equity method			Note 2				Subsidiary				430,400				2,389,541				124,274				1,242,744				—				—				—				—				554,674				2,154,913
		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets			—				—				—				—				100				998,018				—				—				—				—				100				998,018
		Taiwan Power Company		”			—				—				—				—				80				797,931				—				—				—				—				80				797,931

 

Note 1:

The ending balance includes unrealized gains/losses on financial assets, share of profits/losses of investees and other related adjustment to equity.

Note 2:

The acquisition is primarily consisted of cash injection.

 

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 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

The Company

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 22, 2013 to August 29, 2013

3,561,600

By the construction progress

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2013 to June 21, 2013

4,373,205

By the construction progress

Da Cin Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 3, 2013 to October 25, 2013

338,948

By the construction progress

I Domain Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

April 3, 2013 to May 15, 2013

2,615,744

By the construction progress

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

May 27, 2013 to June 19, 2013

615,038

By the construction progress

Tasa Construction Corporation

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

 

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 2013

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

 

		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction								Notes/Accounts Payable or Receivable								Note
Company Name						Purchases/Sales		Amount (Foreign Currencies in Thousands)				% to Total				Payment Terms		Unit Price (Note 1)				Payment Terms (Note 1)				Ending Balance (Foreign Currencies in Thousands)				% to Total
TSMC		TSMC North America		Subsidiary		Sales		$	414,087,565				69			Net 30 days from invoice date			—				—			$	52,750,047				74
		GUC		Associate		Sales			1,970,934				1			Net 30 days from the end of the month of when invoice is issued			—				—				219,424				—
		VIS		Associate		Sales			195,101				—			Net 30 days from the end of the month of when invoice is issued			—				—				—				—
		Mcube Inc. (Mcube)		Associate of the Company’s subsidiary (Note 2)		Sales			119,067				—			Net 30 days from invoice date			—				—				—				—
		TSMC China		Subsidiary		Purchases			16,902,114				27			Net 30 days from the end of the month of when invoice is issued			—				—				(1,509,508	)			8
		WaferTech		Indirect subsidiary		Purchases			8,520,337				14			Net 30 days from the end of the month of when invoice is issued			—				—				(685,906	)			4
		VIS		Associate		Purchases			6,993,964				11			Net 30 days from the end of the month of when invoice is issued			—				—				(731,587	)			4
		SSMC		Associate		Purchases			3,056,372				5			Net 30 days from the end of the month of when invoice is issued			—				—				(382,007	)			2

 

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:

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

 

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TABLE 6

Taiwan Semiconductor Manufacturing Company Limited

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

DECEMBER 31, 2013

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

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days (Note 1)		Overdue								Amounts Received in Subsequent Period				Allowance for Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	53,078,207			41		$	16,627,236				—			$	18,782,230			$	—
		GUC		Associate			219,424			42			—				—				—				—
		VIS		Associate			105,881			(Note 2)			—				—				—				—

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 7

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 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 December 31, 2013												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2013 (Foreign Currencies in Thousands)				December 31, 2012 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	64,953,489			$	(172,392	)		$	(172,392	)			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				42,861,788				3,516,560				3,516,667				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				10,556,348				4,370,988				1,724,819				Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				7,457,733				5,039,563				1,954,847				Associate
		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				4,551,318				(1,554,038	)			(1,516,235	)			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				3,763,194				468,309				468,309				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				2,154,913				(1,663,137	)			(1,550,850	)			Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				1,866,123				288,881				37,942				Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,056,141				289,204				100,746				Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,908,912				1,896,914				—				50				892,439				(1,509,593	)			(151,326	)			Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			596,514				704,447				—				98				441,763				(3,662	)			(3,589	)			Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				290,838				37,659				37,659				Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			841,757				852,258				—				99.5				144,924				(10,806	)			(10,753	)			Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				124,762				4,717				4,717				Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			150,000				100,000				—				100				85,162				(22,899	)			(22,899	)			Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				29,475				1,296				1,296				Subsidiary

 

Note 1:

The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.

Note 2:

Please refer to Table 10 for information on investment in Mainland China.

 

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2013

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

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of Investment				Accumulated Outflow of Investment from Taiwan as of January 1, 2013 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2013 (US$ in Thousands)				Percentage of Ownership				Share of Profits/ Losses				Carrying Amount as of December 31, 2013				Accumulated Inward Remittance of Earnings as of December 31, 2013
																Outflow				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$	18,939,667 (RMB 4,502,080	)			(Note 1	)		$ (US$	18,939,667 596,000	)		$	—			$	—			$ (US$	18,939,667 596,000	)			100	%		$	5,111,975 (Note 2	)		$	23,845,371			$	—

 

Accumulated Investment in Mainland China                 as of December 31, 2013                      (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)				Upper Limit on Investment (US$ in Thousands)
$ 18,939,667                        (US$ 596,000)		$ (US$	18,939,667 596,000	)		$ (US$	18,939,667 596,000	)

 

Note 1:

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

Note 2:

Amount was recognized based on the audited financial statements.

 

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THE CONTENTS OF STATEMENTS OF MAJOR

ACCOUNTING ITEMS

 

ITEM		STATEMENT INDEX
MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND EQUITY
STATEMENT OF CASH AND CASH EQUIVALENTS		1
STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET		2
STATEMENT OF RECEIVABLES FROM RELATED PARTIES		3
STATEMENT OF INVENTORIES		4
STATEMENT OF OTHER CURRENT ASSETS		Note 16
STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD		5
STATEMENT OF CHANGES IN PROPERTY, PLANT AND EQUIPMENT		Note 14
STATEMENT OF CHANGES IN ACCUMULATED DEPRECIATION AND ACCUMULATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT		Note 14
STATEMENT OF CHANGES IN INTANGIBLE ASSETS		Note 15
STATEMENT OF DEFERRED INCOME TAX ASSETS		Note 28
STATEMENT OF SHORT-TERM LOANS		6
STATEMENT OF PAYABLES TO RELATED PARTIES		7
STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS		8
STATEMENT OF PROVISIONS		Note 18
STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES		9
STATEMENT OF BONDS PAYABLE		10
MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS
STATEMENT OF NET REVENUE		11
STATEMENT OF COST OF REVENUE		12
STATEMENT OF OPERATING EXPENSES		13
STATEMENT OF OTHER OPERATING INCOME AND EXPENSES, NET		Note 24
STATEMENT OF FINANCE COSTS		Note 26
STATEMENT OF LABOR, DEPRECIATION AND AMORTIZATION BY FUNCTION		14

 

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STATEMENT 1

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF CASH AND CASH EQUIVALENTS

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Item		Description		Amount
Cash
Petty cash				$	530
Cash in banks
Checking accounts and demand deposits					3,390,420
Foreign currency deposits		Including US$206,545 thousand @29.800, JPY94 thousand @0.2834, EUR54 thousand @41.00			6,157,302
Time deposits		From 2013.09.25 to 2014.04.30, interest rates at 0.35%-1.10%, including NT$ 105,214,460 thousand, US$5,400 thousand @29.800, JPY40,981,458 thousand @0.2834 and EUR378,338 thousand @41.00			132,501,391
Cash equivalents
Repurchase agreements collateralized by corporate bonds		Expired by 2014.01.23, interest rates at 0.65%-0.70%			1,708,603
Repurchase agreements collateralized by short-term commercial paper		Expired by 2014.02.26, interest rates at 0.64%-0.66%			2,395,644
Repurchase agreements collateralized by government bonds		Expired by 2014.01.23, interest rates at 0.65%-0.66%			284,878
Total				$	146,438,768

 

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STATEMENT 2

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Client Name		Amount
MediaTek Inc.		$	2,066,935
Spreadtrum Communications, Inc.			1,380,840
NXP Semiconductors N.V.			1,185,287
STMicroelectronics Pte Ltd.			928,011
Others (Note 1)			12,368,306
			17,929,379
Less: Allowance for doubtful accounts			483,502
Total		$	17,445,877

 

Note 1:

The amount of individual client included in others does not exceed 5% of the account balance.

Note 2:

The accounts receivable past due over one year amounted to NT$20 thousand for which the Company has recognized appropriate allowance for doubtful accounts.

 

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STATEMENT 3

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF RECEIVABLES FROM RELATED PARTIES

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Client Name		Amount
TSMC North America		$	52,750,047
Others (Note)			219,756
Total		$	52,969,803

 

Note:

The amount of individual client included in others does not exceed 5% of the account balance.

 

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STATEMENT 4

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF INVENTORIES

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

		Amount
Item		Cost				Net Realizable Value
Finished goods		$	7,049,813			$	14,607,068
Work in process			24,857,927				68,937,287
Raw materials			2,208,291				2,195,941
Supplies and spare parts			1,127,030				1,315,950
Total		$	35,243,061			$	87,056,246

 

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STATEMENT 5

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

FOR THE YEAR ENDED DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

																																						Adjustments
																														Adjustments to				Adjustments				Resulting
																										Increase				Share of				Arising from				from the
																										(Decrease)				Changes in				Changes in				Transactions
																										in Using the				Equity of				Percentage of				with																Market Value or Net Assets
		Balance, January 1, 2013								Additions								Decrease								Equity Method				Subsidiaries				Ownership in				Subsidiaries				Balance, December 31, 2013												Value
		Shares								Shares								Shares								Amount				and Associates				Subsidiaries				and Associates				Shares												Unit Price
Investees		(In Thousands)				Amount				(In Thousands)				Amount				(In Thousands)				Amount				(Note 3)				Amount				Amount				Amount				(in Thousands)				%				Amount				(NT$)				Total Amount				Collateral
Stocks
TSMC Global			1			$	49,954,386				—			$	—				—			$	—			$	14,999,103			$	—			$	—			$	—				1				100			$	64,953,489							$	64,953,489				Nil
TSMC Partners			988,268				38,635,129				—				—				—				—				4,226,405				—				254				—				988,268				100				42,861,788								42,862,161				Nil
VIS			628,223				9,406,597				—				—				—				—				1,110,938				38,813				—				—				628,223				39				10,556,348				35.40	(Note 1)			22,239,112				Nil
SSMC			314				6,710,956				—				—				—				—				746,777				—				—				—				314				39				7,457,733								7,243,749				Nil
TSMC Solar			1,118,000				6,011,397				—				—				—				—				(1,454,686	)			(2,740	)			(2,647	)			(6	)			1,118,000				99				4,551,318								4,512,306				Nil
TSMC North America			11,000				3,209,288				—				—				—				—				553,906				—				—				—				11,000				100				3,763,194								3,763,194				Nil
TSMC SSL			430,400				2,389,541				124,274				1,242,744				—				—				(1,547,898	)			—				70,526				—				554,674				92				2,154,913								2,154,913				Nil
Xintec			94,950				1,541,824				—				293,578 (Note 4	)			—				—				28,926				1,967				(172	)			—				94,950				40				1,866,123								1,669,922				Nil
GUC			46,688				1,214,825				—				—				—				—				(38,801	)			44				—				(119,927	)			46,688				35				1,056,141				74.00	(Note 2)			3,454,902				Nil
TSMC Europe			—				235,761				—				—				—				—				55,077				—				—				—				—				100				290,838								290,838				Nil
TSMC Japan			6				142,412				—				—				—				—				(17,650	)			—				—				—				6				100				124,762								124,762				Nil
TSMC Korea			80				26,935				—				—				—				—				2,540				—				—				—				80				100				29,475								29,475				Nil
Subtotal							119,479,051								1,536,322								—				18,664,637				38,084				67,961				(119,933	)											139,666,122								153,298,823
Capital
TSMC China			—				17,828,683				—				—				—				—				6,059,284				—				—				(42,596	)			—				100				23,845,371								24,026,559				Nil
VTAF III			—				1,047,285				—				46,945				—				(34,947	)			(168,451	)			—				1,607				—				—				50				892,439								869,955				Nil
VTAF II			—				563,056				—				14,578				—				(122,511	)			(13,360	)			—				—				—				—				98				441,763								435,517				Nil
Emerging Alliance			—				167,359				—				2,955				—				(13,456	)			(11,934	)			—				—				—				—				99.5				144,924								144,924				Nil
TSMC GN			—				65,007				—				50,000				—				—				(22,723	)			—				(7,122	)			—				—				100				85,162								85,162				Nil
Subtotal							19,671,390								114,478								(170,914	)			5,842,816				—				(5,515	)			(42,596	)											25,409,659								25,562,117
Total						$	139,150,441							$	1,650,800							$	(170,914	)		$	24,507,453			$	38,084			$	62,446			$	(162,529	)										$	165,075,781							$	178,860,940

 

Note 1:

The unit price is calculated by closing price of Gre Tai Securities Market as of December 31, 2013.

Note 2:

The unit price is calculated by closing price of the Taiwan Stock Exchange as of December 31, 2013.

Note 3:

Including share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and cash dividends received from subsidiaries and associates.

Note 4:

Please refer to Note 31 for gain on deconsolidation of subsidiary.

 

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STATEMENT 6

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF SHORT-TERM LOANS

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Type		Balance, End of Year				Contract Period				Range of Interest Rates (%)				Loan Commitments				Collateral				Remark
Unsecured loans
JPMorgan Chase Bank N.A.		$	4,321,000				2013.12.26-2014.01.07				0.38			US$	200,000				Nil				—
The Bank Of Nova Scotia			3,337,600				2013.12.16-2014.01.24				0.38			$	3,500,000				Nil				—
Credit Agricole Corporate & Investment Bank			2,384,000				2013.12.16-2014.01.15				0.38			US$	100,000				Nil				—
BNP Paribas			2,235,000				2013.12.16-2014.01.06				0.42			US$	75,000				Nil				—
Citibank Taiwan, Limited			1,788,000				2013.12.06-2014.01.03				0.40			US$	110,000				Nil				—
Citibank			1,579,400				2013.12.06-2014.01.03				0.40			US$	395,000				Nil				—
		$	15,645,000

 

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STATEMENT 7

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF PAYABLES TO RELATED PARTIES

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Vendor Name		Amount
TSMC China		$	1,509,508
VIS			731,587
WaferTech, LLC			685,906
Xintec			565,590
SSMC			382,007
Others (Note)			309,381
Total		$	4,183,979

 

Note:

The amount of individual vendor in others does not exceed 5% of the account balance.

 

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STATEMENT 8

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Vendor Name		Amount
ASML Hong Kong Ltd.		$	31,688,679
Applied Materials South East Asia Pte Ltd.			15,960,433
TOKYO Electron Ltd.			7,240,498
Others (Note)			34,666,204
Total		$	89,555,814

 

Note:

The amount of individual vendor included in others does not exceed 5% of the account balance.

 

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STATEMENT 9

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Item		Amount
Salary and bonus payable		$	6,834,181
Utilities			2,043,803
Receipts in advance			1,653,999
Interest expense			1,300,609
Joint development project expenses			1,153,472
Others (Note)			8,647,345
Total		$	21,633,409

 

Note:

The amount of each item in others does not exceed 5% of the account balance.

 

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STATEMENT 10

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF BONDS PAYABLE

DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

																Amount
Bonds Name		Trustee		Issuance Date				Interest Payment Date				Coupon Rate (%)				Total Amount				Repayment paid				Balance, End of Year				Unamortized Premiums (Discounts)				Carrying Value				Repayment				Collateral
Domestic unsecured bonds-100-1
- A		Mega International Commercial Bank Co., Ltd.			2011.09.28				on 09.28 annually				1.40			$	10,500,000			$	—			$	10,500,000			$	—			$	10,500,000				Bullet repayment				Nil
- B		Mega International Commercial Bank Co., Ltd.			2011.09.28				on 09.28 annually				1.63				7,500,000				—				7,500,000				—				7,500,000				Bullet repayment				Nil
Domestic unsecured bonds-100-2
- A		Mega International Commercial Bank Co., Ltd.			2012.01.11				on 01.11 annually				1.29				10,000,000				—				10,000,000				—				10,000,000				Bullet repayment				Nil
- B		Mega International Commercial Bank Co., Ltd.			2012.01.11				on 01.11 annually				1.46				7,000,000				—				7,000,000				—				7,000,000				Bullet repayment				Nil
Domestic unsecured bonds-101-1
- A		Mega International Commercial Bank Co., Ltd.			2012.08.02				on 08.02 annually				1.28				9,900,000				—				9,900,000				—				9,900,000				Bullet repayment				Nil
- B		Mega International Commercial Bank Co., Ltd.			2012.08.02				on 08.02 annually				1.40				9,000,000				—				9,000,000				—				9,000,000				Bullet repayment				Nil
Domestic unsecured bonds-101-2
- A		Taipei Fubon Commercial Bank Co., Ltd.			2012.09.26				on 09.26 annually				1.28				12,700,000				—				12,700,000				—				12,700,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2012.09.26				on 09.26 annually				1.39				9,000,000				—				9,000,000				—				9,000,000				Bullet repayment				Nil
Domestic unsecured bonds-101-3		Taipei Fubon Commercial Bank Co., Ltd.			2012.10.09				on 10.09 annually				1.53				4,400,000				—				4,400,000				—				4,400,000				Bullet repayment				Nil
Domestic unsecured bonds-101-4
- A		Taipei Fubon Commercial Bank Co., Ltd.			2013.01.04				on 01.04 annually				1.23				10,600,000				—				10,600,000				—				10,600,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2013.01.04				on 01.04 annually				1.35				10,000,000				—				10,000,000				—				10,000,000				Bullet repayment				Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.			2013.01.04				on 01.04 annually				1.49				3,000,000				—				3,000,000				—				3,000,000				Bullet repayment				Nil
Domestic unsecured bonds-102-1
- A		Taipei Fubon Commercial Bank Co., Ltd.			2013.02.06				on 02.06 annually				1.23				6,200,000				—				6,200,000				—				6,200,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2013.02.06				on 02.06 annually				1.38				11,600,000				—				11,600,000				—				11,600,000				Bullet repayment				Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.			2013.02.06				on 02.06 annually				1.50				3,600,000				—				3,600,000				—				3,600,000				Bullet repayment				Nil
Domestic unsecured bonds-102-2
- A		Taipei Fubon Commercial Bank Co., Ltd.			2013.07.16				on 07.16 annually				1.50				10,200,000				—				10,200,000				—				10,200,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2013.07.16				on 07.16 annually				1.70				3,500,000				—				3,500,000				—				3,500,000				Bullet repayment				Nil
Domestic unsecured bonds-102-3
- A		Taipei Fubon Commercial Bank Co., Ltd.			2013.08.09				on 08.09 annually				1.34				4,000,000				—				4,000,000				—				4,000,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2013.08.09				on 08.09 annually				1.52				8,500,000				—				8,500,000				—				8,500,000				Bullet repayment				Nil
Domestic unsecured bonds-102-4
- A		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				1.35				1,500,000				—				1,500,000				—				1,500,000				Bullet repayment				Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				1.45				1,500,000				—				1,500,000				—				1,500,000				Bullet repayment				Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				1.60				1,400,000				—				1,400,000				—				1,400,000				Bullet repayment				Nil
- D		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				1.85				2,600,000				—				2,600,000				—				2,600,000				Bullet repayment				Nil
- E		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				2.05				5,400,000				—				5,400,000				—				5,400,000				Bullet repayment				Nil
- F		Taipei Fubon Commercial Bank Co., Ltd.			2013.09.25				on 09.25 annually				2.10				2,600,000				—				2,600,000				—				2,600,000				Bullet repayment				Nil
TOTAL																$	166,200,000			$	—			$	166,200,000			$	—			$	166,200,000

 

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STATEMENT 11

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF NET REVENUE

FOR THE YEAR ENDED DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Item		Shipments (Piece) (Note)				Amount
Sales of goods
Wafer			15,664,497			$	557,314,791
Other							33,249,937
							590,564,728
Royalty							522,872
Net revenue						$	591,087,600

 

Note:

8-inch equivalent wafers.

 

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STATEMENT 12

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF COST OF REVENUE

FOR THE YEAR ENDED DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Item		Amount
Raw materials used
Balance, beginning of year		$	3,666,048
Raw material purchased			26,515,240
Raw materials, end of year			(2,208,291	)
Transferred to manufacturing or operating expenses			(7,359,525	)
Others			(70,385	)
Subtotal			20,543,087
Direct labor			10,581,290
Manufacturing expenses			261,349,482
Manufacturing cost			292,473,859
Work in process, beginning of year			24,442,123
Work in process, end of year			(24,857,927	)
Transferred to manufacturing or operating expenses			(5,653,705	)
Cost of finished goods			286,404,350
Finished goods, beginning of year			5,936,018
Finished goods purchased			35,468,500
Finished goods, end of year			(7,049,813	)
Transferred to manufacturing or operating expenses			(3,449,307	)
Scrapped			(216,998	)
Subtotal			317,092,750
Others			2,314,413
Total		$	319,407,163

 

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STATEMENT 13

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF OPERATING EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2013

(In thousands of New Taiwan Dollars)

 

Item		Research and Development Expenses				General and Administrative Expenses				Selling Expenses
Payroll and related expense		$	15,998,678			$	5,021,640			$	1,395,396
Depreciation expense			11,925,017				769,735				1,670
Consumables			6,706,174				61,371				1,718
Repair and maintenance expense			2,672,805				1,863,742				1,108
Joint development project expenses			2,562,711				—				—
Utilities			819,391				1,971,997				—
Management fees of the Science Park Administration			—				1,139,662				—
Patents			—				893,054				—
Commission			—				—				736,889
Others (Note)			6,237,695				5,976,210				167,691
Total		$	46,922,471			$	17,697,411			$	2,304,472

 

Note:

The amount of each item in others does not exceed 5% of the account balance.

 

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STATEMENT 14

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF LABOR, DEPRECIATION AND AMORTIZATION BY FUNCTION

FOR THE YEAR ENDED DECEMBER 31, 2013 AND 2012

(In thousands of New Taiwan Dollars)

 

		Year Ended December 31, 2013																Year Ended December 31, 2012
		Classified as Cost of Revenue				Classified as Operating Expenses				Classified as Other Operating Income and Expenses				Total				Classified as Cost of Revenue				Classified as Operating Expenses				Classified as Other Operating Income and Expenses				Total
Labor cost
Salary and bonus		$	31,781,705			$	20,201,521			$	—			$	51,983,226			$	27,681,298			$	19,198,385			$	—			$	46,879,683
Labor and health insurance			1,829,180				1,070,653				—				2,899,833				1,509,487				920,024				—				2,429,511
Pension			1,029,341				555,714				—				1,585,055				901,762				517,758				—				1,419,520
Others			1,151,330				587,826				—				1,739,156				973,986				505,500				—				1,479,486
		$	35,791,556			$	22,415,714			$	—			$	58,207,270			$	31,066,533			$	21,141,667			$	—			$	52,208,200
Depreciation		$	134,545,283			$	12,696,422			$	25,120			$	147,266,825			$	111,929,312			$	10,441,847			$	6,656			$	122,377,815
Amortization		$	1,099,542			$	973,384			$	—			$	2,072,926			$	1,273,689			$	748,375			$	—			$	2,022,064

 

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