1934 Act Registration No. 1-14700

 

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2017

 

 

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  ☒            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  ☒

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

 

 

 

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SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: November 14, 2017				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
		Consolidated Financial Statements for the Nine Months Ended September 30, 2017 and 2016 and Independent Accountants’ Review Report

 

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries (the “Company”) as of September 30, 2017 and 2016 and the related consolidated statements of comprehensive income for the three months ended September 30, 2017 and 2016 and for the nine months ended September 30, 2017 and 2016, as well as the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2017 and 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34, “Interim Financial Reporting,” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

 

Deloitte & Touche

Taipei, Taiwan

Republic of China

November 14, 2017

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		September 30, 2017 (Reviewed)								December 31, 2016 (Audited)								September 30, 2016 (Reviewed)
		Amount				%				Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)		$	408,077,695				22			$	541,253,833				29			$	463,971,657				27
Financial assets at fair value through profit or loss (Note 7)			1,125,668				—				6,451,112				—				1,848,317				—
Available-for-sale financial assets (Notes 8 and 14)			84,953,011				5				67,788,767				4				45,815,003				3
Held-to-maturity financial assets (Note 9)			7,521,216				—				16,610,116				1				5,320,041				—
Hedging derivative financial assets (Notes 4 and 10)			98,879				—				5,550				—				—				—
Notes and accounts receivable, net (Note 11)			117,649,258				7				128,335,271				7				129,118,058				8
Receivables from related parties (Note 29)			1,076,438				—				969,559				—				170,704				—
Other receivables from related parties (Note 29)			165,929				—				146,788				—				149,684				—
Inventories (Notes 12 and 33)			73,893,879				4				48,682,233				3				53,882,144				3
Other financial assets (Notes 30 and 33)			5,209,635				—				4,100,475				—				5,866,961				—
Other current assets (Note 17)			5,090,170				—				3,385,422				—				3,448,916				—
Total current assets			704,861,778				38				817,729,126				44				709,591,485				41
NONCURRENT ASSETS
Held-to-maturity financial assets (Note 9)			18,899,177				1				22,307,561				1				27,430,893				2
Financial assets carried at cost (Note 13)			4,986,046				—				4,102,467				—				3,788,041				—
Investments accounted for using equity method (Note 14)			17,018,500				1				19,743,888				1				18,691,554				1
Property, plant and equipment (Note 15)			1,065,756,867				58				997,777,687				53				934,928,493				54
Intangible assets (Note 16)			14,841,399				1				14,614,846				1				14,630,613				1
Deferred income tax assets (Note 4)			11,237,149				1				8,271,421				—				7,506,051				1
Refundable deposits			1,241,028				—				407,874				—				509,564				—
Other noncurrent assets (Note 17)			2,582,438				—				1,500,432				—				1,610,069				—
Total noncurrent assets			1,136,562,604				62				1,068,726,176				56				1,009,095,278				59
TOTAL		$	1,841,424,382				100			$	1,886,455,302				100			$	1,718,686,763				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)		$	54,430,200				3			$	57,958,200				3			$	37,648,800				2
Financial liabilities at fair value through profit or loss (Note 7)			251,212				—				191,135				—				224,525				—
Hedging derivative financial liabilities (Notes 4 and 10)			7,545				—				—				—				1,039				—
Accounts payable			27,545,477				1				26,062,351				2				24,936,790				1
Payables to related parties (Note 29)			1,442,029				—				1,262,174				—				1,039,778				—
Salary and bonus payable			12,304,052				1				13,681,817				1				12,183,218				1
Accrued profit sharing bonus to employees and compensation to directors and supervisors (Notes 22 and 27)			17,067,133				1				22,894,006				1				16,252,681				1
Payables to contractors and equipment suppliers			47,975,461				3				63,154,514				3				58,789,579				3
Income tax payable (Note 4)			20,663,395				1				40,306,054				2				27,970,532				2
Provisions (Note 19)			14,123,509				1				18,037,789				1				11,512,994				1
Long-term liabilities - current portion (Note 20)			59,071,057				3				38,109,680				2				38,109,680				2
Accrued expenses and other current liabilities (Notes 21 and 29)			43,641,234				2				36,581,553				2				28,885,496				2
Total current liabilities			298,522,304				16				318,239,273				17				257,555,112				15
NONCURRENT LIABILITIES
Bonds payable (Note 20)			91,800,000				5				153,093,557				8				152,138,965				9
Long-term bank loans			14,520				—				21,780				—				24,200				—
Deferred income tax liabilities (Note 4)			120,360				—				141,183				—				37,510				—
Net defined benefit liability (Note 4)			8,574,626				—				8,551,408				—				7,475,381				—
Guarantee deposits (Note 21)			9,243,250				1				14,670,433				1				15,872,972				1
Others			1,736,633				—				1,686,542				—				1,689,974				—
Total noncurrent liabilities			111,489,389				6				178,164,903				9				177,239,002				10
Total liabilities			410,011,693				22				496,404,176				26				434,794,114				25
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 22)			259,303,805				14				259,303,805				14				259,303,805				15
Capital surplus (Note 22)			56,281,271				3				56,272,304				3				56,269,958				3
Retained earnings (Note 22)
Appropriated as legal capital reserve			241,722,663				13				208,297,945				11				208,297,945				12
Unappropriated earnings			892,598,197				49				863,710,224				46				764,460,228				45
			1,134,320,860				62				1,072,008,169				57				972,758,173				57
Others (Note 22)			(19,189,089	)			(1	)			1,663,983				—				(5,218,902	)			—
Equity attributable to shareholders of the parent			1,430,716,847				78				1,389,248,261				74				1,283,113,034				75
NONCONTROLLING INTERESTS			695,842				—				802,865				—				779,615				—
Total equity			1,431,412,689				78				1,390,051,126				74				1,283,892,649				75
TOTAL		$	1,841,424,382				100			$	1,886,455,302				100			$	1,718,686,763				100

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

		For the Three Months Ended September 30																For the Nine Months Ended September 30
		2017								2016								2017								2016
		Amount				%				Amount				%				Amount				%				Amount				%
NET REVENUE (Notes 23, 29 and 35)		$	252,107,345				100			$	260,405,885				100			$	699,876,957				100			$	685,711,092				100
COST OF REVENUE (Notes 12, 27, 29 and 33)			126,230,664				50				128,366,813				49				343,761,367				49				347,960,308				51
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			125,876,681				50				132,039,072				51				356,115,590				51				337,750,784				49
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			3,467				—				11,717				—				(37,152	)			—				(28,181	)			—
GROSS PROFIT			125,880,148				50				132,050,789				51				356,078,438				51				337,722,603				49
OPERATING EXPENSES (Notes 27 and 29)
Research and development			21,045,439				8				18,724,320				7				59,515,288				8				51,246,823				7
General and administrative			5,003,679				2				5,584,814				2				15,178,441				2				14,096,947				2
Marketing			1,487,598				1				1,531,454				1				4,366,284				1				4,383,455				1
Total operating expenses			27,536,716				11				25,840,588				10				79,060,013				11				69,727,225				10
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 16 and 27)			(286,999	)			—				51,921				—				(354,201	)			—				55,059				—
INCOME FROM OPERATIONS (Note 35)			98,056,433				39				106,262,122				41				276,664,224				40				268,050,437				39
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates			751,618				—				881,376				—				2,036,879				—				2,614,537				—
Other income			2,128,556				1				1,521,234				1				6,859,745				1				4,646,589				1
Foreign exchange loss, net (Note 34)			(462,310	)			—				(409,625	)			—				(914,048	)			—				(2,310,461	)			—
Finance costs			(843,214	)			—				(822,667	)			—				(2,499,791	)			—				(2,494,672	)			—
Other gains and losses, net (Note 24)			887,081				—				817,175				—				2,311,121				—				3,405,475				—
Total non-operating income and expenses			2,461,731				1				1,987,493				1				7,793,906				1				5,861,468				1
INCOME BEFORE INCOME TAX			100,518,164				40				108,249,615				42				284,458,130				41				273,911,905				40
INCOME TAX EXPENSE (Notes 4 and 25)			10,568,936				4				11,460,502				5				40,617,342				6				39,801,916				6
NET INCOME			89,949,228				36				96,789,113				37				243,840,788				35				234,109,989				34
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 4, 22 and 25)
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations			(882,654	)			(1	)			(10,123,965	)			(4	)			(20,772,474	)			(3	)			(17,070,485	)			(2	)
Changes in fair value of available-for-sale financial assets			(43,684	)			—				59,051				—				(108,757	)			—				80,327				—
Cash flow hedges			19,522				—				—				—				38,519				—				—				—
Share of other comprehensive income (loss) of associates			1,710				—				(11,372	)			—				(56,920	)			—				(2,743	)			—
Income tax benefit (expense) related to items that may be reclassified subsequently			1,192				—				(33,879	)			—				53,633				—				(6,239	)			—
Other comprehensive loss for the period, net of income tax			(903,914	)			(1	)			(10,110,165	)			(4	)			(20,845,999	)			(3	)			(16,999,140	)			(2	)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		$	89,045,314				35			$	86,678,948				33			$	222,994,789				32			$	217,110,849				32
NET INCOME ATTRIBUTABLE TO:
Shareholders of the parent		$	89,925,437				36			$	96,759,056				37			$	243,825,354				35			$	234,046,870				34
Noncontrolling interests			23,791				—				30,057				—				15,434				—				63,119				—
		$	89,949,228				36			$	96,789,113				37			$	243,840,788				35			$	234,109,989				34
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Shareholders of the parent		$	89,029,620				35			$	86,652,080				33			$	222,984,427				32			$	217,053,855				32
Noncontrolling interests			15,694				—				26,868				—				10,362				—				56,994				—
		$	89,045,314				35			$	86,678,948				33			$	222,994,789				32			$	217,110,849				32
		For the Three Months Ended September 30																For the Nine Months Ended September 30
		2017								2016								2017								2016
		Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 26)
Basic earnings per share		$					3.47			$					3.73			$					9.40			$					9.03
Diluted earnings per share		$					3.47			$					3.73			$					9.40			$					9.03

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																										Others
		Capital Stock - Common Stock												Retained Earnings												Foreign Currency				Unrealized Gain/Loss from Available-								Unearned Stock-Based
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Unappropriated Earnings				Total				Translation Reserve				for-sale Financial Assets				Cash Flow Hedges Reserve				Employee Compensation				Total				Total				Noncontrolling Interests				Total Equity
BALANCE, JANUARY 1, 2017			25,930,380			$	259,303,805			$	56,272,304			$	208,297,945			$	863,710,224			$	1,072,008,169			$	1,661,237			$	2,641			$	105			$	—			$	1,663,983			$	1,389,248,261			$	802,865			$	1,390,051,126
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				33,424,718				(33,424,718	)			—				—				—				—				—				—				—				—				—
Cash dividends to shareholders - NT$7.0 per share			—				—				—				—				(181,512,663	)			(181,512,663	)			—				—				—				—				—				(181,512,663	)			—				(181,512,663	)
Total			—				—				—				33,424,718				(214,937,381	)			(181,512,663	)			—				—				—				—				—				(181,512,663	)			—				(181,512,663	)
Net income for the nine months ended September 30, 2017			—				—				—				—				243,825,354				243,825,354				—				—				—				—				—				243,825,354				15,434				243,840,788
Other comprehensive income (loss) for the nine months ended September 30, 2017, net of income tax			—				—				—				—				—				—				(20,831,019	)			(43,804	)			33,896				—				(20,840,927	)			(20,840,927	)			(5,072	)			(20,845,999	)
Total comprehensive income (loss) for the nine months ended September 30, 2017			—				—				—				—				243,825,354				243,825,354				(20,831,019	)			(43,804	)			33,896				—				(20,840,927	)			222,984,427				10,362				222,994,789
Adjustments to share of changes in equities of associates			—				—				6,206				—				—				—				—				—				—				(12,145	)			(12,145	)			(5,939	)			—				(5,939	)
From share of changes in equities of subsidiaries			—				—				2,761				—				—				—				—				—				—				—				—				2,761				(2,761	)			—
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(114,624	)			(114,624	)
BALANCE, SEPTEMBER 30, 2017			25,930,380			$	259,303,805			$	56,281,271			$	241,722,663			$	892,598,197			$	1,134,320,860			$	(19,169,782	)		$	(41,163	)		$	34,001			$	(12,145	)		$	(19,189,089	)		$	1,430,716,847			$	695,842			$	1,431,412,689
BALANCE, JANUARY 1, 2016			25,930,380			$	259,303,805			$	56,300,215			$	177,640,561			$	716,653,025			$	894,293,586			$	11,039,949			$	734,771			$	(607	)		$	—			$	11,774,113			$	1,221,671,719			$	962,760			$	1,222,634,479
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				30,657,384				(30,657,384	)			—				—				—				—				—				—				—				—				—
Cash dividends to shareholders - NT$6.0 per share			—				—				—				—				(155,582,283	)			(155,582,283	)			—				—				—				—				—				(155,582,283	)			—				(155,582,283	)
Total			—				—				—				30,657,384				(186,239,667	)			(155,582,283	)			—				—				—				—				—				(155,582,283	)			—				(155,582,283	)
Net income for the nine months ended September 30, 2016			—				—				—				—				234,046,870				234,046,870				—				—				—				—				—				234,046,870				63,119				234,109,989
Other comprehensive income (loss) for the nine months ended September 30, 2016, net of income tax			—				—				—				—				—				—				(17,091,106	)			97,601				490				—				(16,993,015	)			(16,993,015	)			(6,125	)			(16,999,140	)
Total comprehensive income (loss) for the nine months ended September 30, 2016			—				—				—				—				234,046,870				234,046,870				(17,091,106	)			97,601				490				—				(16,993,015	)			217,053,855				56,994				217,110,849
Disposal of investments accounted for using equity method			—				—				(56,169	)			—				—				—				—				—				—				—				—				(56,169	)			—				(56,169	)
Adjustments to share of changes in equities of associates			—				—				18,875				—				—				—				—				—				—				—				—				18,875				9				18,884
From share of changes in equities of subsidiaries			—				—				7,037				—				—				—				—				—				—				—				—				7,037				(7,037	)			—
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(231,157	)			(231,157	)
Effect of disposal of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(1,954	)			(1,954	)
BALANCE, SEPTEMBER 30, 2016			25,930,380			$	259,303,805			$	56,269,958			$	208,297,945			$	764,460,228			$	972,758,173			$	(6,051,157	)		$	832,372			$	(117	)		$	—			$	(5,218,902	)		$	1,283,113,034			$	779,615			$	1,283,892,649

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	284,458,130			$	273,911,905
Adjustments for:
Depreciation expense			186,131,944				164,665,319
Amortization expense			3,197,293				2,725,524
Finance costs			2,499,791				2,494,672
Share of profits of associates			(2,036,879	)			(2,614,537	)
Interest income			(6,714,157	)			(4,509,169	)
Loss (gain) on disposal or retirement of property, plant and equipment, net			251,319				(61,491	)
Impairment loss on intangible assets			13,520				—
Impairment loss on financial assets			15,941				55,055
Gain on disposal of available-for-sale financial assets, net			(266,986	)			(83,138	)
Gain on disposal of financial assets carried at cost, net			(12,809	)			(37,831	)
Loss on disposal of investments accounted for using equity method, net			—				259,960
Loss from liquidation of subsidiaries			—				36,105
Unrealized gross profit on sales to associates			37,152				28,181
Gain on foreign exchange, net			(6,624,087	)			(2,542,581	)
Dividend income			(145,588	)			(137,420	)
Loss arising from fair value hedges, net			32,058				129
Changes in operating assets and liabilities:
Financial instruments at fair value through profit or loss			5,260,911				(1,690,376	)
Notes and accounts receivable, net			5,990,086				(48,540,162	)
Receivables from related parties			(106,879	)			335,018
Other receivables from related parties			(19,141	)			(24,666	)
Inventories			(25,211,646	)			13,170,126
Other financial assets			604,831				(1,285,255	)
Other current assets			(1,639,813	)			84,453
Other noncurrent assets			(890,881	)			—
Accounts payable			1,452,987				5,807,444
Payables to related parties			179,855				(82,578	)
Salary and bonus payable			(1,377,765	)			481,176
Accrued profit sharing bonus to employees and compensation to directors and supervisors			(5,826,873	)			(4,706,212	)
Accrued expenses and other current liabilities			9,167,145				1,337,333
Provisions			(3,899,652	)			1,398,158
Net defined benefit liability			23,218				27,355
Cash generated from operations			444,543,025				400,502,497
Income taxes paid			(63,351,167	)			(45,887,694	)
Net cash generated by operating activities			381,191,858				354,614,803

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2017				2016
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets		$	(66,661,656	)		$	(51,587,356	)
Held-to-maturity financial assets			(1,695,771	)			(25,112,300	)
Financial assets carried at cost			(1,190,157	)			(240,743	)
Property, plant and equipment			(269,408,108	)			(215,502,503	)
Intangible assets			(3,677,303	)			(2,989,442	)
Land use right			—				(805,318	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			45,952,054				20,654,629
Held-to-maturity financial assets			12,510,000				7,400,000
Financial assets carried at cost			58,237				160,498
Property, plant and equipment			253,267				93,720
Proceeds from return of capital of financial assets carried at cost			14,828				65,383
Derecognition of hedging derivative financial instruments			(35,790	)			(11,974	)
Interest received			6,776,756				4,679,716
Proceeds from government grants - property, plant and equipment			436,587				—
Other dividends received			145,588				137,420
Dividends received from investments accounted for using equity method			4,245,772				5,478,790
Refundable deposits paid			(1,084,028	)			(140,056	)
Refundable deposits refunded			247,027				74,455
Decrease in receivables for temporary payments			—				706,718
Net cash used in investing activities			(273,112,697	)			(256,938,363	)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans			(290,110	)			(157,064	)
Repayment of bonds			(38,100,000	)			(23,471,600	)
Repayment of long-term bank loans			(7,260	)			(6,120	)
Interest paid			(2,907,017	)			(3,148,821	)
Guarantee deposits received			4,400,240				996,803
Guarantee deposits refunded			(6,810,329	)			(500,835	)
Cash dividends			(181,512,663	)			(155,582,283	)
Decrease in noncontrolling interests			(114,624	)			(231,666	)
Net cash used in financing activities			(225,341,763	)			(182,101,586	)

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2017				2016
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		$	(15,913,536	)		$	(14,292,127	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(133,176,138	)			(98,717,273	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			541,253,833				562,688,930
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	408,077,695			$	463,971,657

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 and 2016

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities of TSMC’s subsidiaries are described in Note 4.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on November 14, 2017.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

a.

Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have a significant effect on TSMC and its subsidiaries’ (collectively as the “Company”) accounting policies:

 

1)

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Company are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Company has transaction. If the transaction or balance with a specific related party is 10% or more of the Company’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

 

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When the amendments are applied retrospectively from January 1, 2017, the disclosure of related party transactions is enhanced, please refer to Note 29.

 

b.

The IFRSs issued by International Accounting Standards Board (IASB) and endorsed by FSC with effective date starting 2018

 

 

Note:

The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

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”

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

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

 

a)

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

 

b)

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

 

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

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

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

When IFRS 9 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application. However, the requirements for general hedge accounting shall be applied prospectively.

 

2)

IFRS 15 “Revenue from Contracts with Customers” and related amendment

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

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

 

•

Identify the contract with the customer;

 

•

Identify the performance obligations in the contract;

 

•

Determine the transaction price;

 

•

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

 

•

Recognize revenue when the entity satisfies a performance obligation.

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

 

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

 

c.

The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC

 

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 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for both the principal and interest portion of the lease liability are classified within financing activities.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2016.

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.

 

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Statement of Compliance

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

Basis of Consolidation

The basis of preparation and the basis for the consolidated financial statements

The basis of preparation and the basis for the consolidated financial statements applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2016.

The subsidiaries in the consolidated financial statements

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

 

(Continued)

 

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(Concluded)

 

Note a:

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

Note b:

Under the investment agreement entered into with the municipal government of Nanjing, China on March 28, 2016, the Company will make an investment in Nanjing in the amount of approximately US$3 billion to establish a subsidiary operating a 300mm wafer fab with the capacity of 20,000 12-inch wafers per month, and a design service center. TSMC Nanjing was established in May 2016.

Note c:

TSMC Solar Europe GmbH is in the process of liquidation.

Note d:

Chi Cherng was incorporated into TSMC in December 2016.

Note e:

To simplify investment structure, VisEra Tech owned by VisEra Holding was transferred to TSMC in the third quarter of 2016. In October 2016, VisEra Holding was incorporated into TSMC Partners, the subsidiary of TSMC.

Note f:

ISDF and ISDF II are in the process of liquidation.

Note g:

VTA Holdings completed the liquidation procedures in April 2017.

Hedge Accounting

Cash Flow Hedge

The Company designates certain hedging instruments, such as forward exchange contracts, to partially hedge its foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. The effective portion of changes in the fair value of hedging instruments is recognized in other comprehensive income. When the forecast transactions actually take place, the associated gains or losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating to the ineffective portion are recognized immediately in profit or loss.

Hedge accounting is discontinued prospectively when the Company revokes the designated hedging relationship, or when the hedging instruments expire or are sold, terminated, or exercised, or no longer meet the criteria for hedge accounting.

Retirement Benefits

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

Taxation

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

 

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

The same critical accounting judgments and key sources of estimates and uncertainty have been followed in these consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2016.

 

6.	CASH AND CASH EQUIVALENTS

 

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

 

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

 

 

- 14 -

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

Outstanding forward exchange contracts consisted of the following:

 

Outstanding cross currency swap contracts consisted of the following:

 

 

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8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

 

- 16 -

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The Company entered into interest rate futures contracts, which are used to hedge against price risk caused by changes in interest rates in the Company’s investments in fixed income securities.

The outstanding interest rate futures contracts consisted of the following:

 

The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. These contracts have maturities of 12 months or less.

Outstanding forward exchange contracts consisted of the following:

 

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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. In addition, the Company has obtained guarantee to certain receivables.

 

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Aging analysis of notes and accounts receivable, net

 

Movements of the allowance for doubtful receivables

 

Aging analysis of accounts receivable that is individually determined as impaired

 

 

12.	INVENTORIES

 

 

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Write-down of inventories to net realizable value (excluding earthquake losses) and reversal of write-down of inventories resulting from the increase in net realizable value (excluding earthquake losses) were included in the cost of revenue, which were as follows. Please refer to related earthquake losses in Note 33.

 

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

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 stock of Impinj, Inc. was listed in July 2016. Accordingly, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Associates consisted of the following:

 

Starting June 2016, the Company has no longer served as Motech’s board of director. As a result, the Company exercises no significant influence over Motech. Therefore, Motech is no longer accounted for using the equity method. Further, such investment was reclassified to available-for-sale financial assets and the Company recognized a disposal loss of NT$259,960 thousand.

 

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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. The closing price represents the quoted price in active markets, the level 1 fair value measurement.

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

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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16.	INTANGIBLE ASSETS

 

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rate of 8.40% in its test of impairment for December 31, 2016 to reflect the relevant specific risk in the cash-generating unit.

The Company assessed goodwill impairment since the operating result of a subsidiary was not as expected and the recoverable amount of goodwill was nil. In the third quarter of 2017, the Company recognized the impairment loss of NT$13,520 thousand related to this cash generating unit. Such impairment loss was recognized in other operating income and expenses.

 

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17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

The Company’s current provisions were provisions for sales returns and allowances.

 

Provisions for sales returns and allowances are estimated based on historical experience and the consideration of varying contractual terms, and are recognized as a reduction of revenue in the same period of the related product sales.

 

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20.	BONDS PAYABLE

 

The major terms of overseas unsecured bonds are as follows:

 

 

21.	GUARANTEE DEPOSITS

 

Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.

 

22.

EQUITY

 

a.

Capital stock

 

 

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

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

As of September 30, 2017, 1,068,165 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,340,823 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

Under the relevant laws, 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 and convertible bonds) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of TSMC’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and associates may be used to offset a deficit; however, when generated from issuance of restricted shares for employees, such capital surplus may not be used for any purpose.

 

c.

Retained earnings and dividend policy

In accordance with the amendments to the R.O.C. Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The amendments to TSMC’s Articles of Incorporation on earnings distribution policy had been approved by TSMC’s shareholders in its meeting held on June 7, 2016. For policy about the profit sharing bonus to employees, please refer to Note 27.

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

 

1)

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

 

2)

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

 

3)

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

 

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

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

The appropriations of 2016 and 2015 earnings have been approved by TSMC’s shareholders in its meetings held on June 8, 2017 and June 7, 2016, respectively. The appropriations and dividends per share were as follows:

 

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

 

d.

Others

Changes in others were as follows:

 

(Continued)

 

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(Concluded)

 

The aforementioned other equity includes the changes in other equities of TSMC and TSMC’s share of its subsidiaries and associates.

 

23.	NET REVENUE

 

 

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24.	OTHER GAINS AND LOSSES

 

 

25.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

 

 

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b.

Income tax expense recognized in other comprehensive income

 

 

c.

Integrated income tax information

 

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2016 and 2015 were 13.90% and 12.57%, respectively; however, the creditable ratio for individual shareholders residing in the R.O.C. is half of the original creditable ratio according to the R.O.C. Income Tax Law.

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

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

 

d.

Income tax examination

The tax authorities have examined income tax returns of TSMC through 2014. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

26.	EARNINGS PER SHARE

 

 

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EPS is computed as follows:

 

 

27.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

 

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In accordance with the amendments to the R.O.C. Company Act in May 2015 and the amended TSMC’s Articles of Incorporation approved by TSMC’s shareholders in its meeting held on June 7, 2016, TSMC shall allocate compensation to directors and profit sharing bonus to employees of TSMC not more than 0.3% and not less than 1% of annual profits during the period, respectively.

TSMC accrued profit sharing bonus to employees based on a percentage of net income before income tax, profit sharing bonus to employees and compensation to directors during the period, which amounted to NT$6,034,054 thousand and NT$6,489,734 thousand for the three months ended September 30, 2017 and 2016, respectively; and NT$16,356,611 thousand and NT$15,697,270 thousand for the nine months ended September 30, 2017 and 2016, respectively. Compensation to directors was expensed based on estimated amount payable. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

The Board of Directors of TSMC held on February 14, 2017 approved the profit sharing bonus to employees and compensation to directors in the amounts of NT$22,418,339 thousand and NT$376,432 thousand in cash for 2016, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2016.

 

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TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of NT$20,556,888 thousand and NT$356,186 thousand in cash for 2015, respectively, had been approved by the Board of Directors on February 2, 2016. The profit sharing bonus to employees and compensation to directors in cash for 2015 had been reported to TSMC’s shareholders in its meeting held on June 7, 2016, after the amended TSMC’s Articles of Incorporation had been approved. The aforementioned approved amount has no difference with the one recognized in the consolidated financial statements for the year ended December 31, 2015.

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

 

28.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments