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 May 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: May 19, 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 Three Months Ended March 31, 2014 and 2013 and Independent Accountants’ Review Report

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of March 31, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the three months ended March 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

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

May 13, 2014

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		March 31, 2014 (Reviewed)												December 31, 2013 (Audited)												March 31, 2013 (Reviewed)
				Amount						%						Amount						%						Amount						%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)				$	231,697,295						18					$	242,695,447						19					$	186,028,798						18
Financial assets at fair value through profit or loss (Note 7)					11,425						-						90,353						-						18,206						-
Available-for-sale financial assets (Note 8)					845,002						-						760,793						-						1,162,904						-
Held-to-maturity financial assets (Note 9)					2,394,178						-						1,795,949						-						2,044,822						-
Notes and accounts receivable, net (Note 11)					73,774,054						6						71,649,926						6						65,472,529						6
Receivables from related parties (Note 35)					558,970						-						291,708						-						434,306						-
Other receivables from related parties (Note 35)					162,444						-						221,576						-						176,298						-
Inventories (Note 12)					43,481,269						3						37,494,893						3						37,833,465						4
Other financial assets (Note 36)					584,364						-						501,785						-						1,240,492						-
Other current assets (Note 17)					2,381,416						-						2,984,224						-						3,339,372						-
Total current assets					355,890,417						27						358,486,654						28						297,751,192						28
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)					59,284,283						5						58,721,959						5						42,087,667						4
Hedging derivative financial assets (Note 10)					-						-						-						-						659,351						-
Financial assets carried at cost (Note 13)					2,055,075						-						2,145,591						-						3,703,593						1
Investments accounted for using equity method (Note 14)					29,507,728						2						28,316,260						2						24,252,070						2
Property, plant and equipment (Note 15)					828,011,580						64						792,665,913						63						666,447,384						63
Intangible assets (Note 16)					12,113,629						1						11,490,383						1						11,478,437						1
Deferred income tax assets (Notes 4 and 30)					7,893,479						1						7,239,609						1						11,610,593						1
Refundable deposits (Note 35)					2,560,988						-						2,519,031						-						2,385,571						-
Other noncurrent assets (Note 17)					1,422,102						-						1,469,577						-						1,253,868						-
Total noncurrent assets					942,848,864						73						904,568,323						72						763,878,534						72
TOTAL				$	1,298,739,281						100					$	1,263,054,977						100					$	1,061,629,726						100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)				$	24,843,645						2					$	15,645,000						1					$	35,842,800						3
Financial liabilities at fair value through profit or loss (Note 7)					188,535						-						33,750						-						4,223						-
Accounts payable					15,380,651						1						14,670,260						1						12,462,978						1
Payables to related parties (Note 35)					1,330,050						-						1,688,456						-						793,133						-
Salary and bonus payable					6,107,014						1						8,330,956						1						5,075,309						1
Accrued profit sharing to employees and bonus to directors and supervisors (Note 23)					16,018,761						1						12,738,801						1						13,864,935						1
Payables to contractors and equipment suppliers					53,461,455						4						89,810,160						7						48,601,349						5
Income tax payable (Notes 4 and 30)					28,433,542						2						22,563,286						2						20,164,514						2
Provisions (Note 19)					9,964,997						1						7,603,781						1						6,350,698						1
Accrued expenses and other current liabilities (Notes 15 and 22)					18,668,514						2						16,693,484						1						14,915,135						1
Current portion of long-term bank loans (Note 21)					-						-						-						-						131,250						-
Total current liabilities					174,397,164						14						189,777,934						15						158,206,324						15
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)					5,279,032						-						5,481,616						-						-						-
Bonds payable (Note 20)					211,798,101						16						210,767,625						17						125,000,000						12
Long-term bank loans (Note 21)					40,000						-						40,000						-						1,325,000						-
Other long-term payables (Note 22)					36,000						-						36,000						-						54,000						-
Obligations under finance leases (Note 15)					783,275						-						776,230						-						768,935						-
Accrued pension cost (Note 4)					7,577,202						1						7,589,926						1						6,904,635						1
Others (Note 19)					830,406						-						810,561						-						721,747						-
Total noncurrent liabilities					226,344,016						17						225,501,958						18						134,774,317						13
Total liabilities					400,741,180						31						415,279,892						33						292,980,641						28
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 23)					259,291,239						20						259,286,171						21						259,282,327						25
Capital surplus (Note 23)					55,835,280						4						55,858,626						4						55,762,572						5
Retained earnings (Note 23)
Appropriated as legal capital reserve					132,436,003						10						132,436,003						11						115,820,123						11
Appropriated as special capital reserve					2,785,741						1						2,785,741						-						7,606,224						1
Unappropriated earnings					430,842,153						33						382,971,408						30						324,561,997						30
					566,063,897						44						518,193,152						41						447,988,344						42
Others (Note 23)					16,583,227						1						14,170,306						1						3,098,025						-
Equity attributable to shareholders of the parent					897,773,643						69						847,508,255						67						766,131,268						72
NONCONTROLLING INTERESTS (Note 23)					224,458						-						266,830						-						2,517,817						-
Total equity					897,998,101						69						847,775,085						67						768,649,085						72
TOTAL				$	1,298,739,281						100					$	1,263,054,977						100					$	1,061,629,726						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)

 

		Three Months Ended March 31
		2014														2013
				Amount						%								Amount						%
NET REVENUE (Notes 25, 35 and 40)				$	148,215,172						100							$	132,754,996						100
COST OF REVENUE (Notes 12, 32 and 35)					77,836,093						53								71,988,726						54
GROSS PROFIT BEFORE REALIZED GROSS PROFIT ON SALES TO ASSOCIATES					70,379,079						47								60,766,270						46
REALIZED GROSS PROFIT ON SALES TO ASSOCIATES					21,017						-								3,540						-
GROSS PROFIT					70,400,096						47								60,769,810						46
OPERATING EXPENSES (Notes 32 and 35)
Research and development					12,066,622						8								10,650,985						8
General and administrative					4,655,671						3								4,695,520						3
Marketing					1,152,702						1								1,029,799						1
Total operating expenses					17,874,995						12								16,376,304						12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 26 and 32)					(2,741	)					-								34,503						-
INCOME FROM OPERATIONS (Note 40)					52,522,360						35								44,428,009						34
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture					955,380						1								654,153						-
Other income (Note 27)					613,699						-								346,321						-
Foreign exchange loss, net					(36,401	)					-								(192,914	)					-
Finance costs (Note 28)					(796,580	)					-								(493,998	)					-
Other gains and losses (Note 29)					43,384						-								1,006,343						1
Total non-operating income and expenses					779,482						1								1,319,905						1
INCOME BEFORE INCOME TAX					53,301,842						36								45,747,914						35
INCOME TAX EXPENSE (Notes 4 and 30)					5,456,064						4								6,212,371						5
NET INCOME					47,845,778						32								39,535,543						30

 

(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)

(Reviewed, Not Audited)

 

		Three Months Ended March 31
		2014														2013
				Amount						%								Amount						%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 23 and 30)
Exchange differences arising on translation of foreign operations				$	2,831,381						2							$	2,903,753						2
Changes in fair value of available-for-sale financial assets					(415,445	)					-								2,825,692						2
Share of other comprehensive income (loss) of associates and joint venture					(4,747	)					-								135,123						-
Income tax benefit related to components of other comprehensive income					2,956						-								43,239						-
Other comprehensive income for the period, net of income tax					2,414,145						2								5,907,807						4
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD				$	50,259,923						34							$	45,443,350						34
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent				$	47,870,745						32							$	39,576,876						30
Noncontrolling interests					(24,967	)					-								(41,333	)					-
				$	47,845,778						32							$	39,535,543						30
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent				$	50,283,666						34							$	45,455,386						34
Noncontrolling interests					(23,743	)					-								(12,036	)					-
				$	50,259,923						34							$	45,443,350						34

 

		2014					2013
		Income Attributable to   Shareholders of the Parent					Income Attributable to   Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 31)
Basic earnings per share			$	1.85				$	1.53
Diluted earnings per share			$	1.85				$	1.53

 

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)

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																														Others
																														Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total				Total				Non- controlling Interests				Total Equity
		Capital Stock - Common Stock												Retained Earnings
		Shares (In								Capital				Legal Capital				Special Capital				Unappro- priated
		Thousands)				Amount				Surplus				Reserve				Reserve				Earnings				Total
BALANCE, JANUARY 1, 2014			25,928,617			$	259,286,171			$	55,858,626			$	132,436,003			$	2,785,741			$	382,971,408			$	518,193,152			$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306			$	847,508,255			$	266,830			$	847,775,085
Net income for the three months ended March 31, 2014			-				-				-				-				-				47,870,745				47,870,745				-				-				-				-				47,870,745				(24,967	)			47,845,778
Other comprehensive income for the three months ended March 31, 2014, net of income tax			-				-				-				-				-				-				-				2,807,924				(395,098	)			95				2,412,921				2,412,921				1,224				2,414,145
Total comprehensive income for the three months ended March 31, 2014			-				-				-				-				-				47,870,745				47,870,745				2,807,924				(395,098	)			95				2,412,921				50,283,666				(23,743	)			50,259,923
Issuance of stock from exercise of employee stock options			507				5,068				17,235				-				-				-				-				-				-				-				-				22,303				-				22,303
Adjustments to share of changes in equity of associates and joint venture			-				-				(29,636	)			-				-				-				-				-				-				-				-				(29,636	)			-				(29,636	)
Adjustments arising from changes in percentage of ownership in subsidiaries			-				-				(10,945	)			-				-				-				-				-				-				-				-				(10,945	)			10,945				-
Decrease in noncontrolling interests			-				-				-				-				-				-				-				-				-				-				-				-				(29,574	)			(29,574	)
BALANCE, MARCH 31, 2014			25,929,124			$	259,291,239			$	55,835,280			$	132,436,003			$	2,785,741			$	430,842,153			$	566,063,897			$	(4,332,438	)		$	20,915,683			$	(18	)		$	16,583,227			$	897,773,643			$	224,458			$	897,998,101
BALANCE, JANUARY 1, 2013			25,924,435			$	259,244,357			$	55,675,340			$	115,820,123			$	7,606,224			$	284,985,121			$	408,411,468			$	(10,753,806	)		$	7,973,321			$	-			$	(2,780,485	)		$	720,550,680			$	2,543,226			$	723,093,906
Net income for the three months ended March 31, 2013			-				-				-				-				-				39,576,876				39,576,876				-				-				-				-				39,576,876				(41,333	)			39,535,543
Other comprehensive income for the three months ended March 31, 2013, net of income tax			-				-				-				-				-				-				-				3,006,684				2,871,826				-				5,878,510				5,878,510				29,297				5,907,807
Total comprehensive income for the three months ended March 31, 2013			-				-				-				-				-				39,576,876				39,576,876				3,006,684				2,871,826				-				5,878,510				45,455,386				(12,036	)			45,443,350
Issuance of stock from exercise of employee stock options			3,797				37,970				69,384				-				-				-				-				-				-				-				-				107,354				-				107,354
Stock option compensation cost of subsidiary			-				-				-				-				-				-				-				-				-				-				-				-				2,701				2,701
Adjustments to share of changes in equity of associates and joint venture			-				-				14,238				-				-				-				-				-				-				-				-				14,238				-				14,238
Adjustments arising from changes in percentage of ownership in subsidiaries			-				-				3,610				-				-				-				-				-				-				-				-				3,610				(3,610	)			-
Decrease in noncontrolling interests			-				-				-				-				-				-				-				-				-				-				-				-				(12,464	)			(12,464	)
BALANCE, MARCH 31, 2013			25,928,232			$	259,282,327			$	55,762,572			$	115,820,123			$	7,606,224			$	324,561,997			$	447,988,344			$	(7,747,122	)		$	10,845,147			$	-			$	3,098,025			$	766,131,268			$	2,517,817			$	768,649,085

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)

(Reviewed, Not Audited)

 

		Three Months Ended March 31
				2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax				$	53,301,842			$	45,747,914
Adjustments for:
Depreciation expense					40,985,942				35,964,677
Amortization expense					636,435				531,513
Stock option compensation cost of subsidiary					-				2,701
Finance costs					796,580				493,998
Share of profits of associates and joint venture					(955,380	)			(654,153	)
Interest income					(613,699	)			(346,321	)
Gain on disposal of property, plant and equipment and intangible assets, net					(497	)			(28,710	)
Gain on disposal of available-for-sale financial assets, net					(20,987	)			(818,315	)
Gain on disposal of financial assets carried at cost, net					(23,758	)			(2,105	)
Loss on disposal of investments in associates					-				484
Realized gross profit on sales to associates					(21,017	)			(3,540	)
Loss on foreign exchange, net					2,665,824				704,013
Income from receipt of equity securities in settlement of trade receivables					-				(8,565	)
Gain from hedging instruments					(325,678	)			(649,991	)
Loss arising from changes in fair value of available-for-sale financial assets in hedge effective portion					327,961				759,175
Changes in operating assets and liabilities:
Derivative financial instruments					233,713				9,946
Notes and accounts receivable, net					(2,124,198	)			(7,695,015	)
Receivables from related parties					(267,262	)			(80,495	)
Other receivables from related parties					4,415				9,252
Inventories					(5,986,376	)			(2,967	)
Other financial assets					(28,952	)			66,064
Other current assets					615,697				(541,426	)
Accounts payable					722,298				(2,065,468	)
Payables to related parties					(358,406	)			69,794
Salary and bonus payable					(2,223,942	)			(2,459,987	)
Accrued profit sharing to employees and bonus to directors and supervisors					3,279,960				2,678,344
Accrued expenses and other current liabilities					2,073,184				1,637,627
Provisions					2,359,196				306,904
Accrued pension cost					(12,724	)			(16,599	)
Cash generated from operations					95,040,171				73,608,749
Income taxes paid					(179,230	)			(39,077	)
Net cash generated by operating activities					94,860,941				73,569,672

 

(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)

 

		Three Months Ended March 31
				2014				2013
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets				$	(5,181	)		$	(4,022	)
Financial assets carried at cost					(3,782	)			(16,511	)
Held-to-maturity financial assets					(1,396,723	)			-
Property, plant and equipment					(114,905,317	)			(80,418,491	)
Intangible assets					(1,178,194	)			(951,989	)
Other assets					-				(11,896	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets					62,843				915,865
Held-to-maturity financial assets					800,000				3,091,725
Financial assets carried at cost					28,533				9,564
Property, plant and equipment					55,255				12,531
Cash refund from long-term receivables					78,060				-
Interest received					596,277				315,163
Refundable deposits paid					(7,869	)			(5,693	)
Refundable deposits refunded					16,506				30,841
Net cash used in investing activities					(115,859,592	)			(77,032,913	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans					8,819,028				230,321
Proceeds from issuance of bonds					-				45,000,000
Repayment of long-term bank loans					-				(31,250	)
Interest paid					(863,834	)			(331,695	)
Guarantee deposits received					3,744				3,436
Guarantee deposits refunded					(1,443	)			(26,382	)
Proceeds from exercise of employee stock options					22,303				107,354
Decrease in noncontrolling interests					(29,574	)			(12,464	)
Net cash generated by financing activities					7,950,224				44,939,320
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS					2,050,275				1,142,131
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					(10,998,152	)			42,618,210
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					242,695,447				143,410,588
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	231,697,295			$	186,028,798

 

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 THREE MONTHS ENDED MARCH 31, 2014 and 2013

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 40.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on May 13, 2014.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “2013 Taiwan-IFRSs version”) should be adopted by the Company starting 2015.

 

 

(Continued)

 

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(Concluded)

 

Except for the following items, the Company believes that the adoption of aforementioned 2013 Taiwan-IFRSs version will not have a significant effect on the Company’s consolidated financial statements.

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

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2)

IFRS 13, “Fair Value Measurement”

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

The measurement requirements of IFRS 13 shall be applied prospectively starting 2015.

 

3)

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

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

Staring 2015, the Company will adopt the aforementioned amendments to prepare the consolidated statements of comprehensive income. The items that will not be reclassified subsequently to profit or loss are expected to include actuarial gains or losses from defined benefit plans, the share of actuarial gains or losses from defined benefit plans of associates and joint venture as well as the related income tax on such items. Items that will be reclassified subsequently to profit or loss are expected to include exchange differences arising on translation of foreign operations, changes in fair value of available-for-sale financial assets, cash flow hedges, the share of other comprehensive income of associates and joint venture as well as the related income tax on items of other comprehensive income (except for the share of actuarial gains or losses from defined benefit plans.)

 

4)

Amendments to IAS 19, “Employee Benefits”

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

According to the retrospective application of aforementioned amendments, as of March 31, 2014 and January 1, 2014, the primary impacts on the Company include the adjustment in accrued pension cost for a decrease of NT$796,305 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$706,285 thousand and NT$698,762 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

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

 

1)

IFRS 9, “Financial Instruments”

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. The other financial assets not met the aforementioned criteria must be measured at the fair value through profit or loss.

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

 

2)

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

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

 

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

The 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

 

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b.

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

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

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

The subsidiaries in the consolidated financial statements

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

 

 

(Continued)

 

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Establishment

Percentage of Ownership

Name of Investor

Name of Investee

Main Businesses and Products

and Operating Location

March 31,   2014

December 31, 2013

March 31,   2013

Note

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%

58%

a)

Growth Fund Limited (Growth Fund)

Investing in new start-up technology companies

Cayman Islands

100%

100%

100%

a)

VTAF III, VTAF II and Emerging Alliance

VentureTech Alliance Holdings, LLC (VTA Holdings)

Investing in new start-up technology companies

Delaware, U.S.A.

100%

100%

100%

a)

TSMC SSL

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

Selling and marketing of solid state lighting related products

Delaware, U.S.A.

100%

100%

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%

49%

-

TSMC Solar Europe

TSMC Solar Europe GmbH

Selling of solar related products and providing customer service

Hamburg, Germany

100%

100%

100%

a)

(Concluded)

 

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.

 

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

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

 

6.	CASH AND CASH EQUIVALENTS

 

 

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

 

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:

 

 

- 15 -

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Outstanding cross currency swap contracts consisted of the following:

 

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

- 16 -

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10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

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

The outstanding stock forward 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 and the amounts are still considered recoverable.

 

- 17 -

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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 to be impaired

 

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of March 31, 2014, December 31, 2013 and March 31, 2013, the amount of the bank guarantee and other credit enhancements were NT$325 thousand (US$11 thousand), NT$318 thousand (US$11 thousand) and nil, respectively.

 

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12.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$590,034 thousand was included in the cost of revenue for the three months ended March 31, 2014. The reserve for inventory write-downs in the amount of NT$94,941 thousand was reversed in the cost of revenue for the three months ended March 31, 2013 when the related inventory items were scrapped or sold.

 

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.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

- 19 -

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a.

Investments in associates

Associates consisted of the following:

 

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 no longer exercises 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 no longer has 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 33.

On April 14, 2014, the Company sold 82,000 thousand common shares of VIS and recognized a disposal gain of NT$2,028,643 thousand in the second quarter of 2014. After the sale, the Company owned approximately 33.7% of the equity interest in VIS.

 

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b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

 

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.

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

Future minimum lease gross payments were as follows:

 

 

(Continued)

 

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(Concluded)

There was no capitalization of borrowing costs for the three months ended March 31, 2014 and 2013.

 

16.	INTANGIBLE ASSETS

 

 

- 22 -

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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 three months ended March 31, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

 

 

(Continued)

 

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(Concluded)

 

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

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

 

20.	BONDS PAYABLE

 

 

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The major terms of overseas unsecured bonds are as follows:

 

 

21.	LONG-TERM BANK LOANS

 

In relation to the deconsolidation of Xintec in June 2013 (refer to Note 33), long-term bank loans of Xintec have been derecognized.

 

22.	OTHER LONG-TERM PAYABLES

 

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.

 

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23.

EQUITY

 

a.

Capital stock

 

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 March 31, 2014, 1,077,434 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,387,171 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

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;

 

2)

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

 

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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$3,200,716 thousand and NT$2,660,482 thousand for the three months ended March 31, 2014 and 2013, 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 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 2013 and 2012 earnings have been approved by TSMC’s Board of Directors in its meeting held on February 18, 2014 and by TSMC’s shareholders in its meeting held on June 11, 2013, respectively. The appropriations and dividends per share were as follows:

 

 

- 27 -

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The Board of Directors of TSMC also approved on February 18, 2014 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 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).

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, had been approved by shareholders in its meeting held on June 11, 2013. The aforementioned approved amounts are the same as the amounts approved by the Board of Directors in its meetings held on February 5, 2013, and the same amounts had been charged against earnings of 2012.

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

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

 

d.

Others

Changes in others were as follows:

 

 

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

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

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

 

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e.

Noncontrolling interests

 

 

24.	SHARE-BASED PAYMENT

The Company did not issue employee stock option plans for the three months ended March 31, 2014 and 2013. Information about TSMC’s outstanding employee stock options is described as follows:

 

a.

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

 

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.

 

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

 

 

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the stock option plans.

Information about Xintec’s outstanding options was as follows:

 

 

b.

Application of IFRS 2

 

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the stock option plan.

 

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As of March 31, 2013, the range of exercise prices for Xintec’s outstanding stock options was NT$22.1; the weighted-average remaining contractual life was 4.2 years.

The grant date of aforementioned stock options was June 14, 2012. Xintec used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

		Xintec
Valuation assumptions:
Stock price on grant date (NT$/share)			$  19.42
Exercise price (NT$/share)			22.30
Expected volatility			43.73%
Expected life			3.875 years
Expected dividend yield			-
Risk free interest rate			0.96%

The stock price on grant date was determined based on the market approach. The expected volatility was calculated based on the historical stock prices of the comparative companies of Xintec.

For the three months ended March 31, 2013, Xintec recognized compensation cost of the above stock option in the amount of NT$2,701 thousand.

 

25.	NET REVENUE

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

 

 

26.	OTHER OPERATING INCOME AND EXPENSES, NET

 

 

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27.	OTHER INCOME

 

 

28.	FINANCE COSTS

 

 

29.	OTHER GAINS AND LOSSES

 

 

- 33 -

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30.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

		Three Months Ended March 31
				2014					2013
Current income tax expense (benefit)
Current tax expense recognized in the current period					$	6,019,953				$	4,988,326
Income tax adjustments on prior years						-					(409,743	)
Other income tax adjustments						26,996					3,798
						6,046,949					4,582,381
Deferred income tax expense (benefit)
The origination and reversal of temporary differences						(673,870	)				1,008,473
Investment tax credits and operating loss carryforward						82,985					621,517
						(590,885	)				1,629,990
Income tax expense recognized in profit or loss					$	5,456,064				$	6,212,371

 

b.

Income tax benefit recognized in other comprehensive income

 

		Three Months Ended March 31
		2014		2013

Deferred income tax benefit
Related to unrealized gain/loss on available-for-sale financial assets				$	2,956					$	43,239

 

c.

Integrated income tax information

 

		March 31, 2014				December 31, 2013				March 31, 2013
Balance of the Imputation
Credit Account - TSMC		$	15,242,724			$	15,242,724			$	8,130,060

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.

 

- 34 -

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d.

Income tax examination

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

 

31.	EARNINGS PER SHARE

 

EPS is computed as follows:

 

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 at the end of the reporting period. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until 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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32.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

Net income included the following items:

 

 

33.	DECONSOLIDATION OF SUBSIDIARY

Starting June 2013, the Company no longer has 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.

 

- 36 -

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b.

Analysis of assets and liabilities over which the Company lost control

 

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

 

c.

Gain on deconsolidation of subsidiary

 

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

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

 

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

 

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34.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

		March 31, 2014				December 31, 2013				March 31, 2013
Financial assets
FVTPL
Held for trading derivatives		$	11,425			$	90,353			$	18,206
Derivative financial instruments in designated hedge accounting relationships			-				-				659,351
Available-for-sale financial assets (Note)			62,184,360				61,628,343				46,954,164
Held-to-maturity financial assets			2,394,178				1,795,949				2,044,822
Loans and receivables
Cash and cash equivalents			231,697,295				242,695,447				186,028,798
Notes and accounts receivables (including related parties)			74,333,024				71,941,634				65,906,835
Other receivables			1,377,629				1,422,795				2,058,132
Refundable deposits			2,560,988				2,519,031				2,385,571
		$	374,558,899			$	382,093,552			$	306,055,879
Financial liabilities
FVTPL
Held for trading derivatives		$	188,535			$	33,750			$	4,223
Derivative financial instruments in designated hedge accounting relationships			5,279,032				5,481,616				-
Amortized cost
Short-term loans			24,843,645				15,645,000				35,842,800
Accounts payable (including related parties)			16,710,701				16,358,716				13,256,111
Payables to contractors and equipment suppliers			53,461,455				89,810,160				48,601,349
Accrued expenses and other current liabilities			15,528,728				13,649,615				10,608,820
Bonds payable			211,798,101				210,767,625				125,000,000
Long-term bank loans			40,000				40,000				1,456,250
Other long-term payables			54,000				54,000				956,160
Guarantee deposits (classified under other noncurrent liabilities)			154,505				151,660				184,780
		$	328,058,702			$	351,992,142			$	235,910,493

Note:    Including financial assets carried at cost.

 

- 38 -

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b.

Financial risk management objectives

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

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

 

c.

Market risk

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

Foreign currency risk

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

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

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items 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 three months ended March 31, 2014 and 2013 would have decreased by NT$306,019 thousand and NT$442,582 thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.

Interest rate risk

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

Assuming the amount of floating interest rate bank loans at the end of the reporting period had been outstanding for the entire period and all other variables were held constant, a hypothetical increase in interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of tax, by approximately NT$83 thousand and NT$3,022 thousand for the three months ended March 31, 2014 and 2013, respectively.

 

- 39 -

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Other price risk

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

Assuming a hypothetical decrease of 5% in equity prices of the equity investments at the end of the reporting period, the net income for the three months ended March 31, 2014 and 2013 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the three months ended March 31, 2014 and 2013 would have decreased by NT$326,779 thousand and NT$1,784,693 thousand, respectively.

 

d.

Credit risk management

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

Business related credit risk

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

As of March 31, 2014, December 31, 2013 and March 31, 2013, the Company’s ten largest customers accounted for 66%, 68% and 69% 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 March 31, 2014, December 31, 2013 and March 31, 2013, the unused of financing facilities of the Company amounted to NT$72,980,416 thousand, NT$76,689,543 thousand and NT$56,979,550 thousand, respectively.

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

 

- 40 -

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		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
March 31, 2014
Non-derivative financial liabilities
Short-term loans		$	24,847,820			$	-			$	-			$	-			$	24,847,820
Accounts payable (including related parties)			16,710,701				-				-				-				16,710,701
Payables to contractors and equipment suppliers			53,461,455				-				-				-				53,461,455
Accrued expenses and other current liabilities			15,528,728				-				-				-				15,528,728
Bonds payable			3,051,998				38,560,734				99,689,272				85,635,101				226,937,105
Long-term bank loans			1,450				12,689				21,390				10,151				45,680
Other long-term payables			18,000				36,000				-				-				54,000
Obligations under finance leases			28,456				56,913				796,191				-				881,560
Guarantee deposits (classified under other noncurrent liabilities)			-				154,505				-				-				154,505
			113,648,608				38,820,841				100,506,853				85,645,252				338,621,554
Derivative financial instruments
Forward exchange contracts
Outflows			28,316,400				-				-				-				28,316,400
Inflows			(28,118,463	)			-				-				-				(28,118,463	)
			197,937				-				-				-				197,937
Cross currency swap contracts
Outflows			2,222,031				-				-				-				2,222,031
Inflows			(2,227,698	)			-				-				-				(2,227,698	)
			(5,667	)			-				-				-				(5,667	)
Stock forward contracts
Outflows			-				50,253,432				-				-				50,253,432
Inflows			-				(50,253,432	)			-				-				(50,253,432	)
			-				-				-				-				-
		$	113,840,878			$	38,820,841			$	100,506,853			$	85,645,252			$	338,813,824
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 (classified under other noncurrent liabilities)			-				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	)

 

(Continued)

 

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		Less Than 1 Year				2-3 Years				4-5 Years				5+ Years				Total
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
March 31, 2013
Non-derivative financial liabilities
Short-term loans		$	35,849,740			$	-			$	-			$	-			$	35,849,740
Accounts payable (including related parties)			13,256,111				-				-				-				13,256,111
Payables to contractors and equipment suppliers			48,601,349				-				-				-				48,601,349
Accrued expenses and other current liabilities			10,608,820				-				-				-				10,608,820
Bonds payable			1,708,570				3,417,140				62,727,592				66,906,447				134,759,749
Long-term bank loans			149,638				749,650				601,313				-				1,500,601
Other long-term payables			902,160				36,000				18,000				-				956,160
Obligations under finance leases			27,622				55,244				55,244				745,222				883,332
Guarantee deposits (classified under other noncurrent liabilities)			-				184,780				-				-				184,780
			111,104,010				4,442,814				63,402,149				67,651,669				246,600,642
Derivative financial instruments
Forward exchange contracts
Outflows			5,350,454				-				-				-				5,350,454
Inflows			(5,333,513	)			-				-				-				(5,333,513	)
			16,941				-				-				-				16,941
Cross currency swap contracts
Outflows			8,975,315				-				-				-				8,975,315
Inflows			(8,976,156	)			-				-				-				(8,976,156	)
			(841	)			-				-				-				(841	)
Stock forward contracts
Outflows			-				11,707,678				-				-				11,707,678
Inflows			-				(11,707,678	)			-				-				(11,707,678	)
			-				-				-				-				-
		$	111,120,110			$	4,442,814			$	63,402,149			$	67,651,669			$	246,616,742
																			(Concluded	)

 

f.

Fair value of financial instruments

 

1)

Fair value of financial instruments carried at amortized cost

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

 

		March 31, 2014								December 31, 2013								March 31, 2013
		Carrying Amount				Fair Value				Carrying Amount				Fair Value				Carrying Amount				Fair Value
Financial assets
Held-to-maturity financial assets
Commercial paper		$	2,394,178			$	2,397,299			$	1,795,949			$	1,795,612			$	-			$	-
Corporate bonds			-				-				-				-				2,044,822				2,053,750
Financial liabilities
Measured at amortized cost
Bonds payable			211,798,101				210,788,163				210,767,625				208,649,668				125,000,000				125,232,890

 

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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).

 

		March 31, 2014
				Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments				$	-			$	11,425			$	-			$	11,425
Available-for-sale financial assets
Publicly traded stocks				$	60,122,854			$	-			$	-			$	60,122,854
Money market funds					6,431				-				-				6,431
				$	60,129,285			$	-			$	-			$	60,129,285
Financial liabilities at FVTPL
Derivative financial instruments				$	-			$	188,535			$	-			$	188,535
Hedging derivative financial liabilities
Stock forward contract				$	-			$	5,279,032			$	-			$	5,279,032
		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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		March 31, 2013
				Level 1				Level 2				Level 3				Total
Financial assets at FVTPL
Derivative financial instruments				$	-			$	18,206			$	-			$	18,206
Hedging derivative financial assets
Stock forward contract				$	-			$	659,351			$	-			$	659,351
Available-for-sale financial assets
Publicly traded stocks				$	43,248,325			$	-			$	-			$	43,248,325
Money market funds					2,246				-				-				2,246
				$	43,250,571			$	-			$	-			$	43,250,571
Financial liabilities at FVTPL
Derivative financial instruments				$	-			$	4,223			$	-			$	4,223

There were no transfers between Level 1 and 2 for the three months ended March 31, 2014 and 2013, respectively.

There were no purchases and disposals for assets on Level 3 for the three months ended March 31, 2014 and 2013, 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; 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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35.	RELATED PARTY TRANSACTIONS

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

 

a.

Net Revenue

 

				Three Months Ended March 31
				2014		2013

Item		Related Party Categories
Net revenue from sale of goods		Associates			$	992,706						$	684,786
		Joint venture				335							528
					$	993,041						$	685,314
Net revenue from royalties		Associates			$	127,490						$	120,416

 

b.

Purchases

 

		Three Months Ended March 31
		2014		2013

Related Party Categories
Associates			$	2,616,635						$	2,096,554

 

c.

Receivables from related parties

 

March 31,     2014

December 31,     2013

March 31,   2013

Item		Related Party Categories
Receivables from related parties		Associates			$	558,757									$	291,376						$	433,950
		Joint venture				213										332							356
					$	558,970									$	291,708						$	434,306
Other receivables from related parties		Associates			$	162,444									$	221,576						$	176,298

 

d.

Payables to related parties

 

				March 31,     2014		December 31,     2013		March 31,   2013

Item		Related Party Categories
Payables to related parties		Associates		$	1,328,422							$	1,687,239					$	791,504
		Joint venture			1,628								1,217						1,629
				$	1,330,050							$	1,688,456					$	793,133

 

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e.

Disposal of property, plant and equipment

 

		Proceeds										Gains (Losses)
		Three Months Ended         March  31										Three Months Ended         March  31
				2014				2013						2014				2013

Related Party Categories
Associates		$	-					$	11,418					$	-					$	2,963
Joint venture			-						-						-						58
		$	-					$	11,418					$	-					$	3,021

 

		Deferred Gains (Losses) from Disposal of Property, Plant and Equipment
				March 31, 2014		December 31, 2013		March 31, 2013

Related Party Categories
Associates				$	-					$	-					$	(7,410	)
Joint venture					-						-						890
				$	-					$	-					$	(6,520	)

 

f.

Others

 

				March 31, 2014		December 31, 2013		March 31, 2013

Item		Related Party Categories
Refundable deposits		Associates		$	5,813					$	5,813					$	5,813
		Joint venture			-						-						4
				$	5,813					$	5,813					$	5,817

 

Three Months Ended March 31

2014

2013

Item		Related Party Categories
Manufacturing expenses		Associates				$	478,338					$	6,372
		Joint venture					2,586						857
						$	480,924					$	7,229
Research and development expenses		Associates				$	8,031					$	-
		Joint venture					608						1,191
						$	8,639					$	1,191

 

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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.

 

g.

Compensation of key management personnel:

The compensation to directors and other key management personnel for the three months ended March 31, 2014 and 2013 were as follows:

 

		Three Months Ended March 31
				2014				2013
Short-term employee benefits				$  332,337				$  167,580
Post-employment benefits				32,954				1,171
				$  365,291				$  168,751

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.

 

36.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for building lease agreements. As of March 31, 2014, December 31, 2013 and March 31, 2013, the aforementioned other financial assets amounted to NT$123,199 thousand, NT$120,566 thousand and NT$122,858 thousand, respectively.

 

37.	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 June 2014 and February 2034 and can be renewed upon expiration.

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

 

 

- 47 -

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38.	SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

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

 

a.

Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity provided TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. As of March 31, 2014, the R.O.C. Government did not invoke such right.

 

b.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. TSMC and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of March 31, 2014.

 

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. In February 2014, the Court entered a final judgment in favor of TSMC, dismissing all of Keranos’ claims against TSMC with prejudice. In March, 2014, Keranos filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

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. As of March 31, 2014, TSMC has paid EUR69,271 thousand to ASML under the research and development funding agreement.

 

f.

In December 2013, Tela Innovations (Tela), Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission (ITC) accusing TSMC and TSMC North America of infringing one U.S. patent. The Delaware case had been stayed since February 2014. In March 2014, the ITC Court granted Tela’s motion to assert an additional U.S. patent against TSMC and TSMC North America.

 

- 48 -

---

In January 2014, TSMC filed a lawsuit in the U.S. District Court for the District of North California 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.

In March 2014, DSS Technology Management, Inc. filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, TSMC Development, Inc., and several other companies infringe one U.S. patent. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

h.

Amounts available under unused letters of credit as of March 31, 2014, December 31, 2013 and March 31, 2013 were NT$91,449 thousand, NT$89,400 thousand and NT$89,607 thousand, respectively.

 

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

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

 

 

(Continued)

 

- 49 -

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(Concluded)

 

Note:

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

 

40.	OPERATING SEGMENTS INFORMATION

 

a.

Operating segments

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

The Company uses the 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.

 

- 50 -

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b.

Segment revenue and operating results

 

 

41.	ADDITIONAL DISCLOSURES

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

 

a.

Financings provided:   Please see Table 1 attached;

 

b.

Endorsement/guarantee provided:   Please see Table 2 attached;

 

c.

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

 

d.

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

 

e.

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

 

f.

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

 

g.

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

 

h.

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

 

i.

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

 

j.

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

 

k.

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

 

- 51 -

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1.

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.

 

- 52 -

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

 

 

 

No.

Finan- cing Company

Counter- party

Financial Statement  Account

Related Party

Maximum Balance for the Period (US$ in Thous- ands) (Note 3)

Ending Balance (US$ in Thous- ands) (Note 3)

Amount Actually Drawn (US$ in Thous- ands)

Interest Rate

Nature for Financing

Transac- tion Amounts

Reason for Financing

Allow- ance for Bad Debt

Collateral

Finan- cing Limits for Each Borrow- ing Company (Note 1)

Finan- cing Company’s Total Financing Amount Limits (Note 2)

Item

Value

1

TSMC    Partners

TSMC    Solar

Other receivables from related parties

Yes

$4,267,620 (US$ 140,000)

$4,267,620 (US$ 140,000)

$2,743,470 (US$ 90,000)

0.37%- 0.3805%

The need for short-term financing

$

-

Operating capital

$

-

-

-

$  17,682,809

$  44,207,023

TSMC    SSL

Other receivables from related parties

Yes

1,828,980 (US$ 60,000)

1,828,980 (US$ 60,000)

609,660 (US$ 20,000)

0.37%

The need for short-term financing

-

Operating capital

-

-

-

17,682,809

44,207,023

 

Note 1:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. The above restriction does not apply to the subsidiaries whose voting shares are 90% and up owned, directly or indirectly, by TSMC (90% and up owned subsidiaries). However, the aggregate amounts lendable to 90% and up owned subsidiaries and the total amount lendable to one such borrower of 90% and up owned subsidiaries shall not exceed forty percent (40%) of the net worth of TSMC Partners.

 

Note 2:

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

 

Note 3:

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

 

- 53 -

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

 

 

 

No.

Endorsement/  Guarantee  Provider

Guaranteed Party

Limits on Endorse- ment/   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 Endorse- ment/ Guarantee Collateralized by Properties

Ratio of Accumulated Endorse- ment/ Guarantee to Net Equity per Latest Financial Statements

Maximum Endorse- ment/ Guarantee Amount Allowable (Note 2)

Guarantee   Provided   by Parent Company

Guarantee   Provided   by A Subsidiary

Guarantee Provided to Subsidiaries in Mainland China

Name

Nature of Relationship

0

TSMC

TSMC    Global

Subsidiary

$

224,443,411

$ (US$

45,724,500  1,500,000

)

$ (US$

45,724,500  1,500,000

)

$ (US$

45,724,500  1,500,000

)

$

-

5.1

%

$

224,443,411

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.

 

- 54 -

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

MARCH 31, 2014

(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		March 31, 2014														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			120			$	1,197,510			N/A		$	1,199,105
		Taiwan Power Company		-		”			120				1,196,668			N/A			1,198,194
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets			275,957				629,017			1			629,017			Note 1
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost			21,230				193,584			10			463,134
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		”			10,500				105,000			7			341,413
		W.K. Technology Fund IV		-		”			4,000				39,280			2			35,555
		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$	1,944,831			5		US$	1,944,831			Note 2
		Money market fund
		Ssga Cash Mgmt Global Offshore		-		Available-for-sale financial assets			211			US$	211			N/A		US$	211
TSMC North America		Stock
		Spansion Inc.		-		Available-for-sale financial assets			270			US$	4,701			-		US$	4,701
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			7,196			US$	3,506			14		US$	3,506
		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)

 

- 55 -

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Held   Company   Name		Marketable Securities   Type and Name		Relationship   with the   Company		Financial Statement     Account		March 31, 2014														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			2		US$	2,168
		Aquantia				”			4,643			US$	4,441			2		US$	4,441
		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
		Synaptics		-		Available-for-sale financial assets			36			US$	2,174			-		US$	2,174
		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			US$	-			15		US$	-			Note 6
		Tilera, Inc.		-		”			3,890			US$	3,025			2		US$	3,025

 

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 THREE MONTHS ENDED MARCH 31, 2014

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

 

 

 

Company Name		Market- able Securities Type and Name		Financial Statement Account		Counter- party		Nature of Relation- ship		Beginning Balance								Acquisition								Disposal																Ending Balance
										Shares/ Units (In Thousands)				Amount				Shares/ Units (In Thousands)				Amount				Shares/ Units (In Thousands)				Amount				Carrying Value				Gain/ Loss on Disposal				Shares/ Units (In Thousands)				Amount
TSMC		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets		-		-			100			$	998,018				60			$	598,817				40			$	400,000			$	399,325			$	675				120			$	1,197,510
		Taiwan Power Company		”		-		-			80				797,931				80				797,906				40				400,000				399,169				831				120				1,196,668

 

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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 THREE MONTHS ENDED MARCH 31, 2014

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name

Types of Property

Transaction Date

Transaction Amount

Payment Term

Counter-party

Nature of Relation- ships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relation- ships

Transfer Date

Amount

TSMC

Fab

April 9, 2013 to February 21, 2014

$      310,469

Monthly settlement by the construction progress and acceptance

Mandartech Interiors Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

 

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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 THREE MONTHS ENDED MARCH 31, 2014

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

 

 

Company   Name		Related Party		Nature of   Relationships		Transaction Details												Abnormal Transaction								Notes/Accounts Payable or Receivable								Note
						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		$	97,588,897				65			Net 30 days from invoice date			-				-			$	47,858,135				66
		GUC		Associate		Sales			611,925				-			Net 30 days from the end of the month of when invoice is issued			-				-				448,216				1
		TSMC China		Subsidiary		Purchases			3,741,378				23			Net 30 days from the end of the month of when invoice is issued			-				-				(1,349,683	)			8
		WaferTech		Indirect subsidiary		Purchases			1,882,094				12			Net 30 days from the end of the month of when invoice is issued			-				-				(543,244	)			3
		VIS		Associate		Purchases			1,621,882				10			Net 30 days from the end of the month of when invoice is issued			-				-				(605,137	)			3
		SSMC		Associate		Purchases			994,753				6			Net 30 days from the end of the month of when invoice is issued			-				-				(420,435	)			2
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary		Sales			101,865				79			Net 30 days from the end of the month of when invoice is issued			-				-				54,888				99
TSMC North America		GUC		Associate of TSMC		Sales		(US$	350,141 11,576	)			-			Net 30 days from invoice date			-				-			(US$	110,541 3,626	)			-

 

Note :

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.

 

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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

MARCH 31, 2014

(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		$	48,217,029			47		$	17,071,703				-			$	19,025,233			$	-
		GUC		Associate			448,216			50			-				-				-				-
		VIS		Associate			104,960			(Note 2)			-				-				-				-
TSMC Partners		TSMC Solar		The same parent company		(US$	2,748,032 90,150	)		(Note 2)			-				-				-				-
		TSMC SSL		The same parent company		(US$	609,992 20,011	)		(Note 2)			-				-				-				-
TSMC China		TSMC		Parent company		(RMB	1,349,683 275,232	)		35			-				-				-				-
TSMC North America		GUC		Associate of TSMC		(US$	110,541 3,626	)		24			48,959				-				55,755				-
TSMC Technology		TSMC		Parent company		(US$	196,835 6,457	)		(Note 2)			-				-				-				-
WaferTech		TSMC		Parent company		(US$	543,244 17,821	)		30			-				-				-				-

 

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

(Amounts in Thousands of New Taiwan Dollars)

 

A. For the three months ended March 31, 2014

 

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		$	97,588,897			-		66%
								Receivables from related parties			47,858,135			-		4%
								Other receivables from related parties			358,894			-		-
								Payables to related parties			5,026			-		-
				TSMC China		1		Net revenue from sale of goods			1,374			-		-
								Purchases			3,741,378			-		3%
								Marketing expenses - commission			22,359			-		-
								Disposal of property, plant and equipment			1,551			-		-
								Gain on disposal of property, plant and equipment			3,540			-		-
								Other receivables from related parties			2,280			-		-
								Payables to related parties			1,349,683			-		-
				TSMC Japan		1		Marketing expenses - commission			58,217			-		-
								Payables to related parties			19,935			-		-
				TSMC Europe		1		Marketing expenses - commission			96,839			-		-
								Research and development expenses			17,752			-		-
								Payables to related parties			47,456			-		-
				TSMC Korea		1		Marketing expenses - commission			5,789			-		-
								Payables to related parties			1,534			-		-
				TSMC Technology		1		Research and development expenses			266,049			-		-
								Payables to related parties			196,835			-		-
				WaferTech		1		Net revenue from sale of goods			2,955			-		-
								Purchases			1,882,094			-		1%
								Other receivables from related parties			2,344			-		-
								Payables to related parties			543,244			-		-
								Disposal of property, plant and equipment			4,212			-		-
				TSMC Canada		1		Research and development expenses			51,819			-		-
								Payables to related parties			16,264			-		-
				TSMC SSL		1		Manufacturing expenses			14,573			-		-
								Other gains and losses			2,025			-		-
								Other receivables from related parties			2,221			-		-
								Payables to related parties			15,059			-		-

 

(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		Other gains and losses		$	2,409			-		-
								Other receivables from related parties			2,594			-		-
1		TSMC Development		WaferTech		1		Other receivables from related parties			48,933			-		-
2		TSMC North America		TSMC Technology		3		Other receivables from related parties			6,706			-		-
3		TSMC Solar		TSMC Solar Europe GmbH		1		Net revenue from sale of goods			101,865			-		-
								Receivables from related parties			54,888			-		-
				TSMC Partners		3		Finance costs			2,452			-		-
								Other payables to related parties			2,748,032			-		-
4		TSMC SSL		TSMC Partners		3		Other payables to related parties			609,992			-		-

 

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 (EXCLUDING INFORMATION ON INVESTMENT IN MAINLAND CHINA)

MARCH 31, 2014

(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 March 31, 2014												Net Income				Share of Profits/ Losses				Note
								March 31, 2014 (Foreign Currencies in Thousands)				December 31, 2013 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)				(Losses) of the Investee (Foreign Currencies in Thousands)				of Investee (Note 1) (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	65,997,205			$	7,986			$	7,986			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				44,202,675				386,026				386,053			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				11,073,716				1,342,928				518,372			Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				8,036,044				1,054,272				408,952			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				4,216,351				(342,118	)			(338,100	)		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				3,777,449				(98,231	)			(98,231	)		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				5,546,744				554,674				92				1,811,086				(372,495	)			(343,888	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				1,863,039				(9,569	)			(3,847	)		Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,127,054				138,434				48,692			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,917,920				1,908,912				-				50				946,953				9,425				9,250			Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			602,454				596,514				-				98				453,643				(4,127	)			(4,044	)		Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				-				100				307,327				10,083				10,083			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			844,775				841,757				-				99.5				150,407				(870	)			(866	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				131,771				1,545				1,545			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			150,000				150,000				-				100				68,219				(6,005	)			(6,005	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				30,378				479				479			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				3,858,653				153,345				Note 2			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,806,693				1,806,693				-				49				-				9,425				Note 2			Associate
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			504,107				504,107				-				100				30,726				(59,531	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			205,772				205,772				1				100				2,877				(5,575	)			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				2,933				(6	)			Note 2			Subsidiary

 

(Continued)

 

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Investor         Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of March 31, 2014												Net Income				Share of Profits/ Losses				Note
								March 31, 2014 (Foreign Currencies in Thousands)				December 31, 2013 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)				(Losses) of the Investee (Foreign Currencies in Thousands)				of Investee (Note 1) (Foreign Currencies in Thousands)
TSMC Partners		TSMC Development		Delaware,     U.S.A.		Investment activities		$ (US$	0.03 0.001	)		$ (US$	0.03 0.001	)			-				100			$ (US$	21,394,198 701,840	)		$ (US$	305,091 10,087	)			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$	1,310,769 43,000	)		(US$	1,310,769 43,000	)			43,000				49			(US$	3,552,814 116,551	)		(US$	35,149 1,162	)			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$	408,836 13,412	)		(US$	12,896 426	)			Note 2			Subsidiary
		ISDF II		Cayman     Islands		Investing in new start-up technology companies		(US$	283,461 9,299	)		(US$	431,426 14,153	)			14,153				97			(US$	201,054 6,596	)		(US$	19,540 646	)			Note 2			Subsidiary
		ISDF		Cayman     Islands		Investing in new start-up technology companies		(US$	17,772 583	)		(US$	23,990 787	)			787				97			(US$	17,072 560	)		(US$	(707 (23	)  ))			Note 2			Subsidiary
		TSMC Canada		Ontario,     Canada		Engineering support activities		(US$	70,111 2,300	)		(US$	70,111 2,300	)			2,300				100			(US$	144,906 4,754	)		(US$	(11,587 (383	)  ))			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$	2,438,640 80,000	)		(US$	2,438,640 80,000	)			293,637				100			(US$	7,855,367 257,697	)		(US$	285,680 9,445	)			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$	158,877 5,212	)		(US$	158,877 5,212	)			11,868				58			(US$	39,207 1,286	)		(US$	4,283 142	)			Note 2			Subsidiary
		Growth Fund		Cayman     Islands		Investing in new start-up technology companies		(US$	64,929 2,130	)		(US$	64,929 2,130	)			-				100			(US$	17,589 577	)		(US$	(894 (30	)  ))			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	519,436 12,400	)		(EUR	519,436 12,400	)			-				100			(EUR	27,320 652	)		(EUR	(59,859) (1,442))				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			53,092				52,498				5,309				-				19,920				(342,118	)			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			72,161				54,359				7,216				1				23,541				(372,495	)			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 THREE MONTHS ENDED MARCH 31, 2014

(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, 2014 (US$ in Thousands)

Investment Flows

Accumulated Outflow of Investment from Taiwan as of March 31, 2014 (US$ in Thousands)

Net Income (Losses) of the Investee Company

Percentage of   Ownership

Share of Profits/Losses

Carrying Amount as of March 31, 2014

Accumulated     Inward     Remittance     of Earnings     as of     March 31, 2014

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)

$        18,939,667 (US$        596,000

)

$                -

$                -

$            18,939,667 (US$           596,000

)

$

1,053,956

100%

$

1,042,892 (Note 2)

$

24,928,058

$

-

 

Accumulated Investment in Mainland China   as of March 31, 2014   (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)		$  18,939,667 (US$  596,000)		$  18,939,667 (US$  596,000)

 

Note 1:

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

 

Note 2:

Amount was recognized based on the reviewed financial statements.

 

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