Form 6-K

1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2015

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 


SIGNATURES

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

 

    Taiwan Semiconductor Manufacturing Company Ltd.
Date: August 14, 2015     By  

/s/ Lora Ho

      Lora Ho
      Senior Vice President & Chief Financial Officer


 

Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

 

Consolidated Financial Statements for the

Six months Ended June 30, 2015 and 2014 and

Independent Accountants’ Review Report

 


LOGO

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries (the “Company”) as of June 30, 2015 and 2014 and the related consolidated statements of comprehensive income for the three months ended June 30, 2015 and 2014 and for the six months ended June 30, 2015 and 2014, as well as the consolidated statements of changes in equity and cash flows for the six months ended June 30, 2015 and 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

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

 

     LOGO

August 11, 2015

Notice to Readers

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

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

 

LOGO

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

   

        June 30, 2015        

(Reviewed)

   

December 31, 2014

(Adjusted and Audited)

   

June 30, 2014

(Adjusted and Reviewed)

   

January 1, 2014

(Adjusted and Audited)

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

ASSETS

               

CURRENT ASSETS

               

Cash and cash equivalents (Note 6)

  $ 528,895,107        33      $ 358,449,029        24      $ 255,053,573        19      $ 242,695,447        19   

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

    58,535               192,045               158,265               90,353          

Available-for-sale financial assets (Note 8)

    14,216,874        1        73,797,476        5        59,082,482        4        760,793          

Held-to-maturity financial assets (Note 9)

    7,180,351               4,485,593               299,230               1,795,949          

Notes and accounts receivable, net (Note 11)

    98,992,354        6        114,734,743        8        86,424,428        7        71,649,926        6   

Receivables from related parties (Note 32)

    744,707               312,955               462,732               291,708          

Other receivables from related parties (Note 32)

    3,565,341               178,625               2,875,842               221,576          

Inventories (Note 12)

    66,278,597        4        66,337,971        5        50,954,265        4        37,494,893        3   

Noncurrent assets held for sale (Note 30)

                  944,208                                      

Other financial assets (Note 33)

    8,408,233        1        3,476,884               957,366               501,785          

Other current assets (Note 17)

    3,028,691               3,656,110               2,931,372               2,984,224          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    731,368,790        45        626,565,639        42        459,199,555        34        358,486,654        28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT ASSETS

               

Available-for-sale financial assets (Note 8)

                                              58,721,959        5   

Financial assets carried at cost (Note 13)

    1,858,376               1,800,542               2,017,528               2,145,591          

Investments accounted for using equity method (Note 14)

    25,915,208        2        28,255,737        2        26,361,220        2        28,321,241        2   

Property, plant and equipment (Note 15)

    829,703,176        52        818,198,801        55        837,167,426        63        792,665,913        63   

Intangible assets (Note 16)

    12,938,507        1        13,531,510        1        11,433,307        1        11,490,383        1   

Deferred income tax assets (Note 4)

    5,342,444               5,138,782               4,915,991               7,145,004        1   

Refundable deposits (Note 32)

    408,585               356,069               2,476,534               2,519,031          

Other noncurrent assets (Note 17)

    1,317,980               1,202,006               1,385,149               1,469,577          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent assets

    877,484,276        55        868,483,447        58        885,757,155        66        904,478,699        72   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,608,853,066        100      $ 1,495,049,086        100      $ 1,344,956,710        100      $ 1,262,965,353        100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

               

CURRENT LIABILITIES

               

Short-term loans (Note 18)

  $ 5,592,600             $ 36,158,520        2      $ 34,705,206        3      $ 15,645,000        1   

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

    780,721               486,214               19,418               33,750          

Hedging derivative financial liabilities (Note 10)

    2,625,763               16,364,241        1        4,282,501                        

Accounts payable

    19,773,550        1        21,878,934        2        20,015,515        1        14,670,260        1   

Payables to related parties (Note 32)

    1,327,345               1,491,490               1,681,781               1,688,456          

Salary and bonus payable

    9,116,649        1        10,573,922        1        7,806,935        1        8,330,956        1   

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

    28,834,956        2        18,052,820        1        20,100,855        1        12,738,801        1   

Payables to contractors and equipment suppliers

    43,610,962        3        26,980,408        2        34,657,746        3        89,810,160        7   

Cash dividends payable (Note 22)

    116,683,481        7                      77,785,851        6                 

Income tax payable (Note 4)

    30,335,340        2        28,616,574        2        17,585,111        1        22,563,286        2   

Provisions (Note 19)

    8,593,075        1        10,445,452        1        7,709,195        1        7,603,781        1   

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

                  219,043                                      

Long-term liabilities - current portion (Note 20)

    10,868,322        1                                             

Accrued expenses and other current liabilities (Note 21)

    31,236,977        2        29,746,011        2        20,284,963        1        16,693,484        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    309,379,741        20        201,013,629        14        246,635,077        18        189,777,934        15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT LIABILITIES

               

Hedging derivative financial liabilities (Note 10)

                                1,277,058               5,481,616          

Bonds payable (Note 20)

    201,856,784        13        213,673,818        14        210,869,059        16        210,767,625        17   

Long-term bank loans

    37,500               40,000               40,000               40,000          

Deferred income tax liabilities (Note 4)

    232,340               199,750                                      

Obligations under finance leases

    766,836               802,108               745,391               776,230          

Net defined benefit liability (Note 4)

    6,585,747               6,567,782               6,810,773        1        6,801,663        1   

Guarantee deposits (Note 21)

    21,916,587        1        25,538,475        2        157,011               151,660          

Others (Note 19)

    1,449,976               885,192               771,334               694,901          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent liabilities

    232,845,770        14        247,707,125        16        220,670,626        17        224,713,695        18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    542,225,511        34        448,720,754        30        467,305,703        35        414,491,629        33   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

               

Capital stock (Note 22)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital surplus (Note 22)

    56,532,959        4        55,989,922        4        56,026,837        4        55,858,626        4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings (Notes 22 and 29)

               

Appropriated as legal capital reserve

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

Appropriated as special capital reserve

                                              2,785,741          

Unappropriated earnings

    569,248,657        35        553,914,592        37        397,420,475        30        383,670,168        30   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    746,889,218        46        705,165,274        47        548,671,157        41        518,891,912        41   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others (Note 22)

    3,854,399               25,749,291        2        13,485,597        1        14,170,306        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to shareholders of the parent

    1,066,580,381        66        1,046,201,111        70        877,477,341        65        848,207,015        67   

NONCONTROLLING INTERESTS (Note 22)

    47,174               127,221               173,666               266,709          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,066,627,555        66        1,046,328,332        70        877,651,007        65        848,473,724        67   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,608,853,066          100      $ 1,495,049,086        100      $ 1,344,956,710        100      $ 1,262,965,353        100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     For the Three Months Ended June 30      For the Six Months Ended June 30  
     2015
(Note 3)
     2014
(Adjusted)
(Note 3)
     2015
(Note 3)
     2014
(Adjusted)
(Note 3)
 
     Amount      %      Amount      %      Amount      %      Amount      %  

NET REVENUE (Notes 24, 32 and 37)

   $ 205,439,752         100       $ 183,020,484         100       $ 427,473,896         100       $ 331,235,656         100   

COST OF REVENUE (Notes 12, 29 and 32)

     105,735,807         51         91,826,284         50         218,321,140         51         169,665,469         51   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

     99,703,945         49         91,194,200         50         209,152,756         49         161,570,187         49   

REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

     1,011                 (4,369              (18,536              16,648           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT

     99,704,956         49         91,189,831         50         209,134,220         49         161,586,835         49   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

OPERATING EXPENSES (Notes 29 and 32)

                       

Research and development

     16,612,213         8         13,610,337         7         33,393,676         8         25,678,229         8   

General and administrative

     4,463,580         2         5,408,174         3         8,829,633         2         10,064,151         3   

Marketing

     1,479,419         1         1,234,897         1         2,870,415         1         2,387,677         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     22,555,212         11         20,253,408         11         45,093,724         11         38,130,057         12   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

OTHER OPERATING INCOME AND EXPENSES, NET (Note 29)

     (80,686              (227,251              (345,315              (229,992        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

INCOME FROM OPERATIONS (Note 37)

     77,069,058         38         70,709,172         39         163,695,181         38         123,226,786         37   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NON-OPERATING INCOME AND EXPENSES

                       

Share of profits of associates and joint venture

     815,749                 1,047,825                 1,950,398                 2,003,434           

Other income

     1,544,750         1         1,316,583         1         2,426,532         1         1,930,282           

Foreign exchange loss, net (Note 36)

     (292,295              (355,207              (244,112              (391,608        

Finance costs (Note 25)

     (783,401              (801,450              (1,577,343              (1,598,030        

Other gains and losses (Note 26)

     19,777,822         9         2,176,649         1         20,140,007         5         2,220,033         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-operating income and expenses

     21,062,625         10         3,384,400         2         22,695,482         6         4,164,111         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAX

     98,131,683         48         74,093,572         41         186,390,663         44         127,390,897         38   

INCOME TAX EXPENSE (Notes 4 and 27)

     18,718,779         9         14,437,693         8         27,993,851         7         19,893,188         6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

     79,412,904         39         59,655,879         33         158,396,812         37         107,497,709         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

                       

Items that may be reclassified subsequently to profit or loss

                       

Exchange differences arising on translation of foreign operations

     (3,368,788      (2      (3,052,142      (2      (5,647,926      (1      (220,761        

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

     (16,627,929      (8      (31,156              (16,832,744      (4      (446,601        

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

     (249,353              (1,274              593,810                 (6,021        

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

     (13,311              (14,079              (18,104              (11,123        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive loss for the period, net of income tax

     (20,259,381      (10      (3,098,651      (2      (21,904,964      (5      (684,506        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

   $ 59,153,523         29       $ 56,557,228         31       $ 136,491,848         32       $ 106,813,203         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO:

                       

Shareholders of the parent

   $ 79,417,514         39       $ 59,698,303         33       $ 158,407,425         37       $ 107,565,096         32   

Noncontrolling interests

     (4,610              (42,424              (10,613              (67,387        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 79,412,904         39       $ 59,655,879         33       $ 158,396,812         37       $ 107,497,709         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

                       

Shareholders of the parent

   $ 59,161,055         29       $ 56,600,673         31       $ 136,512,533         32       $ 106,880,387         32   

Noncontrolling interests

     (7,532              (43,445              (20,685              (67,184        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $        59,153,523         29       $        56,557,228         31       $        136,491,848         32       $        106,813,203         32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     For the Three Months Ended June 30      For the Six Months Ended June 30  
     2015      2014      2015      2014  
    

Income Attributable to

Shareholders of

the Parent

    

Income Attributable to

Shareholders of

the Parent

    

Income Attributable to

Shareholders of

the Parent

    

Income Attributable to

Shareholders of

the Parent

 

EARNINGS PER SHARE (NT$, Note 28)

           

Basic earnings per share

   $ 3.06       $ 2.30       $ 6.11       $ 4.15   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 3.06       $ 2.30       $ 6.11       $ 4.15   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

     Equity Attributable to Shareholders of the Parent                
                                                      Others                       
     Capital Stock -
Common Stock
           

 

Retained Earnings

    

Foreign
Currency

Translation

Reserve

    

Unrealized

Gain/Loss

from Available-

for-sale

Financial
Assets

    

Cash
Flow

Hedges
Reserve

    

Total

    

Total

    

Noncontrolling

Interests

    

Total

Equity

 
    

Shares

(In
Thousands)

    

Amount

    

Capital
Surplus

    

Legal
Capital

Reserve

    

Special
Capital

Reserve

    

Unappropriated

Earnings

    

Total

                      
                                           

BALANCE, JANUARY 1, 2015

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

Effect of retrospective application

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

ADJUSTED BALANCE, JANUARY 1, 2015

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Appropriations of prior year’s earnings

                                         

Legal capital reserve

                             26,389,879                 (26,389,879                                                                

Cash dividends to shareholders - NT$4.50 per share

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income for the six months ended June 30, 2015

                                             158,407,425         158,407,425                                         158,407,425         (10,613      158,396,812   

Other comprehensive income for the six months ended June 30, 2015, net of income tax

                                                             (5,599,519      (16,295,209      (164      (21,894,892      (21,894,892      (10,072      (21,904,964
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the six months ended June 30, 2015

                                             158,407,425         158,407,425         (5,599,519      (16,295,209      (164      (21,894,892      136,512,533         (20,685      136,491,848   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Issuance of stock from exercise of employee stock options

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

Disposal of investments accounted for using equity method

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

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

                     464,471                                                                         464,471         126         464,597   

From share of changes in equities of subsidiaries

                     (25,871                                                                      (25,871      25,871           

Decrease in noncontrolling interests

                                                                                                     (42,719      (42,719

Effect of disposal of subsidiary

                                                                                                     (42,640      (42,640
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, JUNE 30, 2015

     25,930,380       $ 259,303,805       $ 56,532,959       $ 177,640,561       $       $ 569,248,657       $ 746,889,218       $ (1,097,406    $ 4,952,274       $ (469    $ 3,854,399       $ 1,066,580,381       $ 47,174       $ 1,066,627,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, JANUARY 1, 2014

     25,928,617       $ 259,286,171       $ 55,858,626       $ 132,436,003       $ 2,785,741       $ 382,971,408       $ 518,193,152       $ (7,140,362    $ 21,310,781       $ (113    $ 14,170,306       $ 847,508,255       $ 266,830       $ 847,775,085   

Effect of retrospective application

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

ADJUSTED BALANCE, JANUARY 1, 2014

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Appropriations of prior year’s earnings

                                         

Legal capital reserve

                             18,814,679                 (18,814,679                                                                

Reversal of special capital reserve

                                     (2,785,741      2,785,741                                                                   

Cash dividends to shareholders - NT$3.00 per share

                                             (77,785,851      (77,785,851                                      (77,785,851              (77,785,851
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

                             18,814,679         (2,785,741      (93,814,789      (77,785,851                                      (77,785,851              (77,785,851
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income for the six months ended June 30, 2014

                                             107,565,096         107,565,096                                         107,565,096         (67,387      107,497,709   

Other comprehensive income for the six months ended June 30, 2014, net of income tax

                                                             (223,663      (461,136      90         (684,709      (684,709      203         (684,506
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the six months ended June 30, 2014

                                             107,565,096         107,565,096         (223,663      (461,136      90         (684,709      106,880,387         (67,184      106,813,203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Issuance of stock from exercise of employee stock options

     758         7,579         25,908                                                                         33,487                 33,487   

Disposal of investments accounted for using equity method

                     (2,273                                                                      (2,273              (2,273

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

                     164,310                                                                         164,310         (66      164,244   

From share of changes in equities of subsidiaries

                     (19,734                                                                      (19,734      19,734           

Decrease in noncontrolling interests

                                                                                                     (45,527      (45,527
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, JUNE 30, 2014

     25,929,375       $ 259,293,750       $ 56,026,837       $ 151,250,682       $       $ 397,420,475       $ 548,671,157       $ (7,364,025    $ 20,849,645       $ (23    $ 13,485,597       $ 877,477,341       $ 173,666       $ 877,651,007   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

                                 
     Six months Ended June 30  
     2015     

2014

(Adjusted)

 

CASH FLOWS FROM OPERATING ACTIVITIES

     

Income before income tax

   $ 186,390,663       $ 127,390,897   

Adjustments for:

     

Depreciation expense

     108,544,796         86,338,443   

Amortization expense

     1,556,307         1,263,048   

Finance costs

     1,577,343         1,598,030   

Share of profits of associates and joint venture

     (1,950,398      (2,003,434

Interest income

     (1,817,825      (1,292,325

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

     50,368         (15,325

Impairment loss on property, plant and equipment

     31,305         239,864   

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

     (17,642,367      (134,020

Gain on disposal of financial assets carried at cost, net

     (70,597      (52,694

Gain on disposal of investments accounted for using equity method

     (2,305,323      (2,028,643

Unrealized (realized) gross profit on sales to associates

     18,536         (16,648

Loss (gain) on foreign exchange, net

     (2,014,106      1,646,248   

Dividend income

     (608,707      (637,957

Income from receipt of equity securities in settlement of trade receivables

             (1,211

Loss from hedging instruments

     737,305         589,243   

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

     (299,191      (78,109

Changes in operating assets and liabilities:

     

Derivative financial instruments

     428,017         (82,244

Notes and accounts receivable, net

     14,569,490         (14,774,504

Receivables from related parties

     (431,752      (171,024

Other receivables from related parties

     17,984         13,258   

Inventories

     59,374         (13,459,372

Other financial assets

     499,150         (389,931

Other current assets

     731,724         70,323   

Accounts payable

     (1,587,537      5,331,172   

Payables to related parties

     (164,145      (6,675

Salary and bonus payable

     (1,457,273      (524,021

Accrued profit sharing to employees and bonus to directors and supervisors

     10,782,136         7,362,054   

Accrued expenses and other current liabilities

     (232,268      2,915,319   

Provisions

     (1,844,746      113,564   

Net defined benefit liability

     17,965         9,110   
  

 

 

    

 

 

 

Cash generated from operations

     293,586,228         199,212,436   

Income taxes paid

     (26,518,415      (22,602,632
  

 

 

    

 

 

 

Net cash generated by operating activities

     267,067,813         176,609,804   
  

 

 

    

 

 

 

 

(Continued)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

                                 
     Six months Ended June 30  
     2015     

2014

(Adjusted)

 

CASH FLOWS FROM INVESTING ACTIVITIES

     

Acquisitions of:

     

Available-for-sale financial assets

   $ (3,628    $ (91,592

Financial assets carried at cost

     (87,321      (3,773

Held-to-maturity financial assets

     (11,766,723      (1,396,723

Property, plant and equipment

     (102,689,656      (188,233,322

Intangible assets

     (1,589,831      (1,204,154

Proceeds from disposal or redemption of:

     

Available-for-sale financial assets

     39,269,616         473,520   

Held-to-maturity financial assets

     9,100,000         2,900,000   

Financial assets carried at cost

     86,756         62,445   

Investments accounted for using equity method

     3,962,848         3,471,883   

Property, plant and equipment

     30,462         114,987   

Cash received from other long-term receivables

             161,900   

Costs from entering into hedging transactions

     (495,348      (520,856

Interest received

     1,764,337         1,248,110   

Other dividends received

     595,980         629,843   

Refundable deposits paid

     (218,253      (25,460

Refundable deposits refunded

     161,583         59,041   

Net cash inflow from disposal of subsidiary (Note 30)

     601,047           
  

 

 

    

 

 

 

Net cash used in investing activities

     (61,278,131      (182,354,151
  

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

     

Increase (decrease) in short-term loans

     (30,334,110      19,220,278   

Interest paid

     (1,212,515      (889,467

Guarantee deposits received

     454,190         10,374   

Guarantee deposits refunded

     (443,769      (3,742

Decrease in obligations under finance leases

     (29,098      (28,426

Proceeds from exercise of employee stock options

     33,891         33,487   

Decrease in noncontrolling interests

     (42,719      (45,527
  

 

 

    

 

 

 

Net cash generated by (used in) financing activities

     (31,574,130      18,296,977   
  

 

 

    

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     (3,850,952      (194,504
  

 

 

    

 

 

 

 

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

                                 
     Six months Ended June 30  
     2015     

2014

(Adjusted)

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

   $ 170,364,600       $ 12,358,126   

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

     81,478           

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

     358,449,029         242,695,447   
  

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 528,895,107       $ 255,053,573   
  

 

 

    

 

 

 

 

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

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 and 2014

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

(Reviewed, Not Audited)

 

 

1. GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 37.

 

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on August 11, 2015.

 

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

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

According to Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC, the 2013 Taiwan-IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers should be adopted by the Company starting 2015.

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

 

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

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

 

- 8 -


  2) IFRS 13, “Fair Value Measurement”

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

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

 

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

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

The items that may not be reclassified subsequently to profit or loss include actuarial gains or losses from defined benefit plans, the share of actuarial gains or losses from defined benefit plans of associates and joint venture as well as the related income tax on such items. Items that may be reclassified subsequently to profit or loss include exchange differences arising on translation of foreign operations, changes in fair value of available-for-sale financial assets, cash flow hedges, the share of other comprehensive income of associates and joint venture as well as the related income tax on items of other comprehensive income.

 

  4) Amendments to IAS 19, “Employee Benefits”

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

The impact on the current period is summarized as follows:

 

                      
Impact on Assets, Liabilities and Equity   

June 30,

2015

 

Increase in investments accounted for using equity method

   $ 327   

Increase in deferred income tax assets

     1,374   
  

 

 

 

Increase in assets

   $ 1,701   
  

 

 

 

Increase in net defined benefit liability

   $ 11,446   
  

 

 

 

Increase in liabilities

   $ 11,446   
  

 

 

 

Decrease in retained earnings

   $ (9,745
  

 

 

 

Decrease in equity

   $ (9,745
  

 

 

 

 

- 9 -


                                                                          
Impact on Total Comprehensive Income     

Three Months

Ended

June 30, 2015

    

Six Months

Ended

June 30, 2015

 

Increase in cost of revenue

  

   $ (3,676    $ (7,363

Increase in operating expense

  

     (2,047      (4,083

Increase in share of profit of associate and joint venture

  

     160         327   

Decrease in income tax expense

  

     687         1,374   
     

 

 

    

 

 

 

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

   

   $ (4,876    $ (9,745
     

 

 

    

 

 

 
The impact on the prior reporting periods is summarized as follows:   
Impact on Assets, Liabilities and Equity   

As

Originally

Stated

     Adjustments
Arising from
Initial
Application
     Adjusted  

December 31, 2014

        

Noncurrent assets held for sale

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

Investments accounted for using equity method

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

Deferred income tax assets

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

 

 

    

Total effect on assets

      $ (84,759   
     

 

 

    

Liabilities directly associated with noncurrent assets held for sale

     220,191       $ (1,148      219,043   

Net defined benefit liability

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

 

 

    

Total effect on liabilities

      $ (737,344   
     

 

 

    

Retained earnings

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

Noncontrolling interests

     127,246         (25      127,221   
     

 

 

    

Total effect on equity

      $ 652,585      
     

 

 

    

June 30, 2014

        

Investments accounted for using the equity method

     26,355,811       $ 5,409         26,361,220   

Deferred income tax assets

     5,009,457         (93,466      4,915,991   
     

 

 

    

Total effect on assets

      $ (88,057   
     

 

 

    

Net defined benefit liability

     7,589,543       $ (778,770      6,810,773   
     

 

 

    

Total effect on liabilities

      $ (778,770   
     

 

 

    

Retained earnings

     547,980,330       $ 690,827         548,671,157   

Noncontrolling interests

     173,780         (114      173,666   
     

 

 

    

Total effect on equity

      $ 690,713      
     

 

 

    

 

(Continued)

 

- 10 -


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

January 1, 2014

        

Investments accounted for using the equity method

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

Deferred income tax assets

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

 

 

    

Total effect on assets

      $ (89,624   
     

 

 

    

Net defined benefit liability

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

 

 

    

Total effect on liabilities

      $ (788,263   
     

 

 

    

Retained earnings

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

Noncontrolling interests

     266,830         (121      266,709   
     

 

 

    

Total effect on equity

      $ 698,639      
     

 

 

    
(Concluded)   
Impact on Total Comprehensive Income   

As

Originally

Stated

    

Adjustments

Arising from

Initial

Application

     Adjusted  

Three months ended June 30, 2014

        

Cost of revenue

   $ (91,823,190    $ (3,094    $ (91,826,284

Operating expense

     (20,251,755      (1,653      (20,253,408

Share of the profit or loss of associates and joint ventures

     1,047,626         199         1,047,825   

Income tax expense

     (14,438,263      570         (14,437,693
     

 

 

    

Impact on net income for the period

      $ (3,978   
     

 

 

    

Impact on net income attributable to:

        

Shareholders of the parent

   $ 59,702,284       $ (3,981    $ 59,698,303   

Noncontrolling interests

     (42,427      3         (42,424
  

 

 

    

 

 

    

 

 

 
   $ 59,659,857       $ (3,978    $ 59,655,879   
  

 

 

    

 

 

    

 

 

 

Impact on total comprehensive income attributable to:

        

Shareholders of the parent

   $ 56,604,654       $ (3,981    $ 56,600,673   

Noncontrolling interests

     (43,448      3         (43,445
  

 

 

    

 

 

    

 

 

 
   $ 56,561,206       $ (3,978    $ 56,557,228   
  

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 11 -


                                                                          
Impact on Total Comprehensive Income   

As

Originally

Stated

    

Adjustments

Arising from

Initial

Application

     Adjusted  

Six months ended June 30, 2014

        

Cost of revenue

   $ (169,659,283    $ (6,186    $ (169,665,469

Operating expense

     (38,126,750      (3,307      (38,130,057

Share of the profit or loss of associates and joint ventures

     2,003,006         428         2,003,434   

Income tax expense

     (19,894,327      1,139         (19,893,188
     

 

 

    

Impact on net income for the period

      $ (7,926   
     

 

 

    

Impact on net income attributable to:

        

Shareholders of the parent

   $ 107,573,029       $ (7,933    $ 107,565,096   

Noncontrolling interests

     (67,394      7         (67,387
  

 

 

    

 

 

    

 

 

 
   $ 107,505,635       $ (7,926    $ 107,497,709   
  

 

 

    

 

 

    

 

 

 

Impact on total comprehensive income attributable to:

        

Shareholders of the parent

   $ 106,888,320       $ (7,933    $ 106,880,387   

Noncontrolling interests

     (67,191      7         (67,184
  

 

 

    

 

 

    

 

 

 
   $ 106,821,129       $ (7,926    $ 106,813,203   
  

 

 

    

 

 

    

 

 

 

(Concluded)

 

  b. The IFRSs issued by IASB but not endorsed by FSC

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

 

New, Revised or Amended Standards and Interpretations

 

Effective Date Issued by IASB (Note 1)

Annual Improvements to IFRSs 2010 - 2012 Cycle

 

July 1, 2014 or transactions on or after July 1, 2014

Annual Improvements to IFRSs 2011 - 2013 Cycle

 

July 1, 2014

Annual Improvements to IFRSs 2012 - 2014 Cycle

 

January 1, 2016 (Note 2)

IFRS 9 Financial Instruments

 

January 1, 2018

Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosure

 

January 1, 2018

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

 

Prospectively applicable to transactions beginning on or after January 1, 2016

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

 

January 1, 2016

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

 

January 1, 2016

 

(Continued)

 

- 12 -


New, Revised or Amended Standards and Interpretations

 

Effective Date Issued by IASB (Note 1)

IFRS 15 Revenue from Contracts with Customers

 

January 1, 2017

Amendment to IAS 1 Disclosure Initiative

 

January 1, 2016

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

 

January 1, 2016

Amendment to IAS 19 Defined Benefit Plans: Employee Contributions

 

July 1, 2014

Amendment to IAS 27 Equity Method in Separate Financial Statements

 

January 1, 2016

Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets

 

January 1, 2014

Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

 

January 1, 2014

(Concluded)

 

  Note 1: The aforementioned new, revised or amended standards or interpretations are effective after fiscal year beginning on or after the effective dates, unless specified otherwise.
  Note 2: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

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

 

  1) IFRS 9, “Financial Instruments”

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

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

 

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

 

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

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

 

- 13 -


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

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

 

  2) IFRS 15, “Revenue from Contracts with Customers”

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

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

 

    Identify the contract with the customer;

 

    Identify the performance obligations in the contract;

 

    Determine the transaction price;

 

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

 

    Recognize revenue when the entity satisfies a performance obligation.

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

 

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

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

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

 

- 14 -


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2014.

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

The basis for the consolidated financial statements applied in these consolidated financial statements is consistent with those applied in the consolidated financial statements for the year ended December 31, 2014.

The subsidiaries in the consolidated financial statements

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

 

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

and Operating

Location

 

June 30,

2015

    December 31,
2014
   

June 30,

2014

    Note

TSMC

 

TSMC North America

 

Selling and marketing of integrated circuits and semiconductor devices

 

San Jose, California, U.S.A.

    100     100     100  

 

TSMC Japan Limited (TSMC Japan)

 

Marketing activities

 

Yokohama, Japan

    100     100     100   a)
 

TSMC Partners, Ltd. (TSMC Partners)

 

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

 

Tortola, British Virgin Islands

    100     100     100   a)
 

TSMC Korea Limited (TSMC Korea)

 

Customer service and technical supporting activities

 

Seoul, Korea

    100     100     100   a)
 

TSMC Europe B.V. (TSMC Europe)

 

Marketing and engineering supporting activities

 

Amsterdam, the Netherlands

    100     100     100   a)
 

TSMC Global, Ltd. (TSMC Global)

 

Investment activities

 

Tortola, British Virgin Islands

    100     100     100  

 

TSMC China Company Limited (TSMC China)

 

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

 

Shanghai, China

    100     100     100  

 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98     98     98   a)
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98     98     98   a)
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    99.5     99.5     99.5   a)
 

TSMC Solid State Lighting Ltd. (TSMC SSL)

 

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

 

Hsin-Chu, Taiwan

           92     92   b)

 

(Continued)

 

- 15 -


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

and Operating

Location

 

June 30,

2015

    December 31,
2014
   

June 30,

2014

    Note

TSMC

 

TSMC Solar Ltd. (TSMC Solar)

 

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

 

Tai-Chung, Taiwan

    99     99     99  

TSMC and TSMC GN aggregately have a 99.8% controlling interest of in TSMC Solar.

 

TSMC Guang Neng Investment, Ltd. (TSMC GN)

 

Investment activities

 

Taipei, Taiwan

    100     100     100   a)

TSMC Partners

 

TSMC Design Technology Canada Inc. (TSMC Canada)

 

Engineering support activities

 

Ontario, Canada

    100     100     100   a)
 

TSMC Technology, Inc. (TSMC Technology)

 

Engineering support activities

 

Delaware, U.S.A.

    100     100     100   a)
 

TSMC Development, Inc. (TSMC Development)

 

Investment activities

 

Delaware, U.S.A.

    100     100     100  

 

InveStar Semiconductor Development Fund, Inc. (ISDF)

 

Investing in new start-up technology companies

 

Cayman Islands

    97     97     97   a)
 

InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)

 

Investing in new start-up technology companies

 

Cayman Islands

    97     97     97   a)

TSMC Development

 

WaferTech, LLC (WaferTech)

 

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

 

Washington, U.S.A.

    100     100     100  

VTAF III

 

Mutual-Pak Technology Co., Ltd. (Mutual-Pak)

 

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

 

New Taipei, Taiwan

    58     58     58   a)
 

Growth Fund Limited (Growth Fund)

 

Investing in new start-up technology companies

 

Cayman Islands

    100     100     100   a)

VTAF III, VTAF II and Emerging Alliance

 

VentureTech Alliance Holdings, LLC (VTA Holdings)

 

Investing in new start-up technology companies

 

Delaware, U.S.A.

    100     100     100   a)

TSMC SSL

 

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

 

Selling and marketing of solid state lighting related products

 

Delaware, U.S.A.

                  100   a), c)

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   a), d)
 

TSMC Solar Europe GmbH

 

Selling of solar related products and providing customer service

 

Hamburg, Germany

    100                 a), d)

TSMC Solar Europe

 

TSMC Solar Europe GmbH

 

Selling of solar related products and providing customer service

 

Hamburg, Germany

           100     100   a), d)

(Concluded)

 

  Note a: This is an immaterial subsidiary for which the consolidated financial statements are not reviewed by the Company’s independent accountants.
  Note b: TSMC and TSMC GN aggregately have a controlling interest of 94% in TSMC SSL as of December 31, 2014 and June 30, 2014. TSMC and TSMC GN have completed the disposal of TSMC SSL in February 2015. Please refer to Note 30.
  Note c: To simplify overseas investment structure, in the second quarter of 2014, the Board of Directors of TSMC SSL approved to file for the liquidation of TSMC Lighting NA. The liquidation procedure has been completed in the third quarter of 2014.
  Note d: To simplify overseas investments structure, in the second quarter of 2014, the Board of Directors of TSMC Solar approved to file for the liquidation of TSMC Solar Europe After the liquidation, TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, will be held directly by TSMC Solar. The liquidation procedure has been completed in the second quarter of 2015.

Retirement Benefits

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

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

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

 

- 16 -


Taxation

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

 

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

The same critical accounting judgments and key sources of estimates and uncertainty have been followed in these consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2014.

 

6. CASH AND CASH EQUIVALENTS

 

                                                                    
    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Cash and deposits in banks

   $ 522,994,073       $ 352,761,240       $ 243,638,487   

Repurchase agreements collateralized by corporate bonds

     4,155,782         3,920,562         3,613,365   

Repurchase agreements collateralized by short-term commercial paper

     898,859         449,180         1,708,393   

Repurchase agreements collateralized by government bonds

     546,526         158,722         1,056,695   

Commercial paper

     299,867         1,159,325         5,036,633   
  

 

 

    

 

 

    

 

 

 
   $ 528,895,107       $ 358,449,029       $ 255,053,573   
  

 

 

    

 

 

    

 

 

 

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

 

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

 

                                                                    
    

June 30,

2015

     December 31,
2014
     June 30,
2014
 

Derivative financial assets

        

Forward exchange contracts

   $ 31,580       $ 73,117       $ 63,907   

Cross currency swap contracts

     26,955         118,928         94,358   
  

 

 

    

 

 

    

 

 

 
   $          58,535       $        192,045       $        158,265   
  

 

 

    

 

 

    

 

 

 

Derivative financial liabilities

        

Forward exchange contracts

   $ 780,721       $ 126,607       $ 8,667   

Cross currency swap contracts

             359,607         10,751   
  

 

 

    

 

 

    

 

 

 
   $ 780,721       $ 486,214       $ 19,418   
  

 

 

    

 

 

    

 

 

 

 

- 17 -


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

Outstanding forward exchange contracts consisted of the following:

 

          Contract Amount
     Maturity Date    (In Thousands)

June 30, 2015

     

Sell EUR/Buy US$

   July 2015    EUR3,400/US$3,834

Sell NT$/Buy US$

   July 2015    NT$1,868,845/US$60,500

Sell US$/Buy EUR

   July 2015    US$10,153/EUR9,079

Sell US$/Buy JPY

   July 2015    US$40,000/JPY4,947,990

Sell US$/Buy NT$

   July 2015 to August 2015    US$2,345,000/NT$72,072,355

Sell US$/Buy RMB

   July 2015    US$90,000/RMB559,832

December 31, 2014

     

Sell EUR/Buy US$

   January 2015    EUR4,550/US$5,561

Sell NT$/Buy US$

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

Sell US$/Buy EUR

   January 2015    US$29,450/EUR24,100

Sell US$/Buy JPY

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

Sell US$/Buy NT$

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

Sell US$/Buy RMB

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

June 30, 2014

     

Sell EUR/Buy US$

   July 2014    EUR2,130/ US$2,900

Sell NT$/Buy JPY

   July 2014    NT$190,637/JPY650,000

Sell NT$/Buy US$

   July 2014    NT$1,291,583/ US$43,100

Sell US$/Buy EUR

   July 2014    US$81,794/EUR60,000

Sell US$/Buy JPY

   July 2014    US$407,388/JPY41,429,419

Sell US$/Buy NT$

   July 2014    US$60,000/NT$1,801,440

Sell US$/Buy RMB

   July 2014 to August 2014    US$132,000/RMB823,267

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date   

Contract Amount

(In Thousands)

  

Range of

Interest Rates
Paid

    

Range of

Interest Rates
Received

June 30, 2015

          

July 2015

   NT$3,033,613/US$98,500         0.10%

December 31, 2014

          

January 2015

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

January 2015

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

June 30, 2014

          

July 2014

   NT$2,461,848/US$82,080         0.20%-0.48%

July 2014 to August 2014

   US$870,000/NT$26,093,255    0.25%-1.92%     

 

- 18 -


8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Publicly traded stocks

   $ 14,216,491       $ 73,797,085       $ 59,082,115   

Money market funds

     383         391         367   
  

 

 

    

 

 

    

 

 

 
   $       14,216,874       $       73,797,476       $       59,082,482   
  

 

 

    

 

 

    

 

 

 

In the second quarter of 2014, the Company reclassified some publicly traded stocks from non-current asset to current asset since the lock-up period will end within a year.

 

9. HELD-TO-MATURITY FINANCIAL ASSETS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Commercial paper

   $         7,180,351       $         4,485,593       $            299,230   
  

 

 

    

 

 

    

 

 

 

 

10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Financial liabilities- current

        

Fair value hedges

        

Stock forward contracts

   $         2,625,763       $       16,364,241       $         4,282,501   
  

 

 

    

 

 

    

 

 

 

Financial liabilities- noncurrent

        

Fair value hedges

        

Stock forward contracts

   $       $       $ 1,277,058   
  

 

 

    

 

 

    

 

 

 

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:

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Contract amount (US$ in thousands)

   $ 10,575,328       $ 56,172,570       $ 52,874,969   
   (US$ 340,371    (US$ 1,771,000    (US$ 1,771,000

 

- 19 -


11. NOTES AND ACCOUNTS RECEIVABLE, NET

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Notes and accounts receivable

   $ 99,479,058       $ 115,221,473       $ 86,911,018   

Allowance for doubtful receivables

     (486,704      (486,730      (486,590
  

 

 

    

 

 

    

 

 

 

Notes and accounts receivable, net

   $     98,992,354       $   114,734,743       $     86,424,428   
  

 

 

    

 

 

    

 

 

 

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

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

Aging analysis of notes and accounts receivable, net

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Neither past due nor impaired

   $ 84,924,664       $ 102,692,871       $ 78,140,966   

Past due but not impaired

        

Past due within 30 days

     12,393,941         12,041,872         8,283,462   

Past due 31-60 days

     1,466,102                   

Past due 61-120 days

     207,647                   
  

 

 

    

 

 

    

 

 

 
   $     98,992,354       $   114,734,743       $     86,424,428   
  

 

 

    

 

 

    

 

 

 

Movements of the allowance for doubtful receivables

 

     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
     Total  

Balance at January 1, 2015

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

Provision

     10,861         597         11,458   

Reversal

             (11,383      (11,383

Effect of exchange rate changes

             (101      (101
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $ 18,954       $ 467,750       $ 486,704   
  

 

 

    

 

 

    

 

 

 

Balance at January 1, 2014

   $ 8,058       $ 478,530       $ 486,588   

Provision

     17,220         4,495         21,715   

Reversal

             (21,715      (21,715

Effect of exchange rate changes

             2         2   
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2014

   $            25,278       $          461,312       $          486,590   
  

 

 

    

 

 

    

 

 

 

 

- 20 -


Aging analysis of accounts receivable that is individually determined as impaired

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Not past due

   $ 4,984       $       $   

Past due 1-30 days

     4,387                 17,326   

Past due 31-60 days

     1,656                 334   

Past due over 121 days

     7,927         8,093         7,618   
  

 

 

    

 

 

    

 

 

 
   $             18,954       $               8,093       $             25,278   
  

 

 

    

 

 

    

 

 

 

 

12. INVENTORIES

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Finished goods

   $ 14,418,570       $ 9,972,024       $ 5,379,673   

Work in process

     45,538,445         51,027,892         40,510,250   

Raw materials

     4,146,095         3,222,523         3,152,079   

Supplies and spare parts

     2,175,487         2,115,532         1,912,263   
  

 

 

    

 

 

    

 

 

 
   $      66,278,597       $      66,337,971       $      50,954,265   
  

 

 

    

 

 

    

 

 

 

Write-down of inventories to net realizable value or reversal of the reserve for inventory write-downs resulting from the increase in net realizable value was included in the cost of revenue, which were as follows:

 

     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Inventory losses

   $ (401,637    $           933,574       $        1,367,721       $        1,523,608   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13. FINANCIAL ASSETS CARRIED AT COST

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Non-publicly traded stocks

   $ 1,580,737       $ 1,606,659       $ 1,736,734   

Mutual funds

     277,639         193,883         280,794   
  

 

 

    

 

 

    

 

 

 
   $        1,858,376       $        1,800,542       $        2,017,528   
  

 

 

    

 

 

    

 

 

 

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

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

 

- 21 -


14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

                                                                    
    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Associates

   $ 22,446,195       $ 24,968,071       $ 22,790,705   

Joint venture

     3,469,013         3,287,666         3,570,515   
  

 

 

    

 

 

    

 

 

 
   $ 25,915,208       $ 28,255,737       $ 26,361,220   
  

 

 

    

 

 

    

 

 

 

 

  a. Investments in associates

Associates consisted of the following:

 

         

Place of

Incorporation
and Operation

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

Principal

Activities

     

June 30,

2015

     December 31,
2014
    

June 30,

2014

    

June 30,

2015

    December 31,
2014
   

June 30,

2014

 

Vanguard International Semiconductor Corporation (VIS)

  

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

   Hsinchu, Taiwan    $ 8,196,482       $ 10,105,485       $ 9,210,729         28     33     33

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

  

Fabrication and supply of integrated circuits

   Singapore      7,831,408         8,296,955         6,940,820         39     39     39

Motech Industries, Inc. (Motech)

  

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

   New Taipei, Taiwan      3,154,231         3,408,945         3,741,837         18     20     20

Xintec Inc. (Xintec)

  

Wafer level chip size packaging service

   Taoyuan, Taiwan      2,250,809         2,053,982         1,875,214         35     40     40

Global Unichip Corporation (GUC)

  

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

   Hsinchu, Taiwan      1,013,265         1,102,704         1,022,105         35     35     35
        

 

 

    

 

 

    

 

 

        
         $ 22,446,195       $ 24,968,071       $ 22,790,705          
        

 

 

    

 

 

    

 

 

        

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

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

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

 

- 22 -


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

 

                                                                    
Name of Associate   

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

VIS

   $ 22,932,641       $ 28,567,489       $ 26,191,416   
  

 

 

    

 

 

    

 

 

 

Motech

   $ 3,201,760       $ 4,242,769       $ 4,172,786   
  

 

 

    

 

 

    

 

 

 

GUC

   $ 3,571,621       $ 4,327,965       $ 4,341,971   
  

 

 

    

 

 

    

 

 

 

Xintec

   $ 4,082,245         
  

 

 

       

 

  b. Investments in joint venture

Joint venture consisted of the following:

 

         

Place of

Incorporation
and Operation

   Carrying Amount      % of Ownership and Voting Rights
Held by the Company
 
Name of Joint Venture   

Principal

Activities

     

June 30,

2015

     December 31,
2014
    

June 30,

2014

    

June 30,

2015

    December 31,
2014
   

June 30,

2014

 

VisEra Holding Company (VisEra Holding)

  

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

  

Cayman Islands

   $   3,469,013         $      3,287,666       $   3,570,515         49     49     49

In August 2015, the Board of Directors of TSMC approved the acquisition of OmniVision Technologies, Inc.’s (“OVT’s”) 49.1% ownership in VisEra Holding and 100% ownership in Taiwan OmniVision Investment Holding Co. Inc., at an amount not more than US$126 million. The acquisition of shares is conditional on related governments (including the Unites States) approving a Chinese consortium’s acquisition of OVT.

 

15. PROPERTY, PLANT AND EQUIPMENT

 

     Land and Land
Improvements
    Buildings     Machinery and
Equipment
    Office Equipment     Assets under
Finance Leases
    Equipment under
Installation and
Construction in
Progress
    Total  

Cost

              

Balance at January 1, 2015

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

Additions

            4,968,013        77,365,235        1,628,622               36,568,389        120,530,259   

Disposals or retirements

                   (949,684     (709,966                   (1,659,650

Effect of exchange rate changes

     (16,849     (460,203     (1,096,526     (58,461     (16,785     (69,523     (1,718,347
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   $ 4,019,936      $ 273,671,660      $ 1,829,489,252      $ 28,821,030      $ 824,369      $ 145,833,602      $ 2,282,659,849   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

              

Balance at January 1, 2015

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

Additions

     14,224        7,833,137        98,831,428        1,844,552        21,455               108,544,796   

Disposals or retirements

                   (912,589     (666,231                   (1,578,820

Impairment

                   31,305                             31,305   

Effect of exchange rate changes

     (9,433     (325,663     (957,574     (47,778     (8,946            (1,349,394
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   $ 463,931      $ 148,753,387      $ 1,285,380,972      $ 17,898,477      $ 459,906      $      $ 1,452,956,673   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at January 1, 2015

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at June 30, 2015

   $ 3,556,005      $ 124,918,273      $ 544,108,280      $ 10,922,553      $ 364,463      $ 145,833,602      $ 829,703,176   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

              

Balance at January 1, 2014

   $ 3,986,909      $ 229,182,736      $ 1,413,919,794      $ 22,062,032      $ 804,430      $ 272,173,793      $ 1,942,129,694   

Additions

            21,992,818        243,696,287        4,269,496               (138,669,929     131,288,672   

Disposals or retirements

                   (739,238     (426,337                   (1,165,575

Reclassification

            (1,996     1,996                               

Effect of exchange rate changes

     1,457        (224,902     (395,235     (8,766     (12,782     (2,013     (642,241
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   $ 3,988,366      $ 250,948,656      $ 1,656,483,604      $ 25,896,425      $ 791,648      $ 133,501,851      $ 2,071,610,550   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

              

Balance at January 1, 2014

   $ 404,192      $ 125,234,166      $ 1,009,213,689      $ 14,225,771      $ 385,963      $      $ 1,149,463,781   

Additions

     13,767        7,328,768        77,587,232        1,387,716        20,960               86,338,443   

Disposals or retirements

                   (680,321     (426,259                   (1,106,580

Impairment

                   239,864                             239,864   

Reclassification

            (532     532                               

Effect of exchange rate changes

     610        (135,642     (343,389     (7,518     (6,445            (492,384
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   $ 418,569      $ 132,426,760      $ 1,086,017,607      $ 15,179,710      $ 400,478      $      $ 1,234,443,124   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at June 30, 2014

   $ 3,569,797      $ 118,521,896      $ 570,465,997      $ 10,716,715      $ 391,170      $ 133,501,851      $ 837,167,426   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 23 -


The significant part of the Company’s buildings includes main plants, mechanical and electrical power equipment and clean rooms, and the related depreciation is calculated using the estimated useful lives of 20 years, 10 years and 10 years, respectively.

In the second quarter of 2014, the Company recognized impairment losses of NT$239,864 thousand under other operating segments since the carrying amount of some of machinery and equipment was expected to be unrecoverable. Such impairment losses were included in other operating income and expenses for the six months ended June 30, 2014.

 

16. INTANGIBLE ASSETS

 

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

Cost

              

Balance at January 1, 2015

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

Additions

             540,027         202,818         311,139         1,053,984   

Retirements

                     (91,578              (91,578

Effect of exchange rate changes

     (88,279      (5,354      (3,165      (2,802      (99,600
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $ 5,800,534       $ 6,884,926       $ 18,805,173       $ 4,600,892       $ 36,091,525   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization

              

Balance at January 1, 2015

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

Additions

             445,742         830,478         280,087         1,556,307   

Retirements

                     (91,578              (91,578

Effect of exchange rate changes

             (5,354      (2,978      (588      (8,920
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $       $ 4,219,300       $ 15,597,068       $ 3,336,650       $ 23,153,018   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at January 1, 2015

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at June 30, 2015

   $ 5,800,534       $ 2,665,626       $ 3,208,105       $ 1,264,242       $ 12,938,507   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cost

              

Balance at January 1, 2014

   $ 5,627,517       $ 4,444,828       $ 17,086,805       $ 3,729,396       $ 30,888,546   

Additions

             501,134         74,638         624,465         1,200,237   

Retirements

                     (23,315              (23,315

Effect of exchange rate changes

     7,629                 (2,070      (2,153      3,406   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2014

   $ 5,635,146       $ 4,945,962       $ 17,136,058       $ 4,351,708       $ 32,068,874   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization

              

Balance at January 1, 2014

   $       $ 3,341,667       $ 13,439,135       $ 2,617,361       $ 19,398,163   

Additions

             207,843         731,718         323,487         1,263,048   

Retirements

                     (23,315              (23,315

Effect of exchange rate changes

                     (1,922      (407      (2,329
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2014

   $       $ 3,549,510       $ 14,145,616       $ 2,940,441       $ 20,635,567   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at June 30, 2014

   $ 5,635,146       $ 1,396,452       $ 2,990,442       $ 1,411,267       $ 11,433,307   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rate of 8.40% and 8.50% in its test of impairment as of December 31, 2014 and 2013, respectively, to reflect the relevant specific risk in the cash-generating unit.

 

- 24 -


17. OTHER ASSETS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Tax receivable

   $ 1,795,457       $ 2,187,136       $ 1,835,877   

Prepaid expenses

     1,171,189         1,399,810         1,120,915   

Long-term receivable

     347,000         385,700         652,000   

Others

     1,033,025         885,470         707,729   
  

 

 

    

 

 

    

 

 

 
   $ 4,346,671       $ 4,858,116       $ 4,316,521   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 3,028,691       $ 3,656,110       $ 2,931,372   

Noncurrent portion

     1,317,980         1,202,006         1,385,149   
  

 

 

    

 

 

    

 

 

 
   $             4,346,671       $             4,858,116       $             4,316,521   
  

 

 

    

 

 

    

 

 

 

 

18. SHORT-TERM LOANS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Unsecured loans

        

Amount

   $             5,592,600       $           36,158,520       $           34,705,206   
  

 

 

    

 

 

    

 

 

 

Original loan content

        

US$ (in thousands)

   $ 180,000       $ 1,140,000       $ 1,101,000   

EUR (in thousands)

                     45,000   

Annual interest rate

     0.38%-0.44%         0.38%-0.50%         0.38%-0.51%   

Maturity date

    

 

Due in July  

2015  

  

  

    

 

Due in January  

2015  

  

  

    

 

Due by August  

2014  

  

  

 

19. PROVISIONS

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Sales returns and allowances

   $ 8,593,075       $ 10,445,452       $ 7,709,195   

Warranties

     16,756         19,828         14,741   
  

 

 

    

 

 

    

 

 

 
   $ 8,609,831       $ 10,465,280       $ 7,723,936   
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 8,593,075       $ 10,445,452       $ 7,709,195   

Noncurrent portion (classified under other noncurrent liabilities)

     16,756         19,828         14,741   
  

 

 

    

 

 

    

 

 

 
   $             8,609,831       $           10,465,280       $             7,723,936   
  

 

 

    

 

 

    

 

 

 

 

- 25 -


     Sales Returns
and Allowances
     Warranties      Total  

Six months ended June 30, 2015

        

Balance, beginning of period

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

Provision

     6,353,637         6,071         6,359,708   

Payment

     (8,196,055      (8,399      (8,204,454

Effect of exchange rate changes

     (9,959      (744      (10,703
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 8,593,075       $ 16,756       $ 8,609,831   
  

 

 

    

 

 

    

 

 

 

Six months ended June 30, 2014

        

Balance, beginning of period

   $ 7,603,781       $ 10,452       $ 7,614,233   

Provision

     3,504,209         5,549         3,509,758   

Payment

     (3,395,000      (1,194      (3,396,194

Effect of exchange rate changes

     (3,795      (66      (3,861
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 7,709,195       $            14,741       $     7,723,936   
  

 

 

    

 

 

    

 

 

 

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

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Domestic unsecured bonds

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

Overseas unsecured bonds

     46,605,000         47,577,000         44,784,000   
  

 

 

    

 

 

    

 

 

 
     212,805,000         213,777,000         210,984,000   

Less: Discounts on bonds payable

     (82,394      (103,182      (114,941

Less: Current portion

     (10,865,822                
  

 

 

    

 

 

    

 

 

 
   $ 201,856,784       $ 213,673,818       $ 210,869,059   
  

 

 

    

 

 

    

 

 

 

The major terms of overseas unsecured bonds are as follows:

 

Issuance Period   

Total Amount
(US$

in Thousands)

     Coupon Rate     Repayment and Interest Payment

April 2013 to April 2016

   $ 350,000         0.95  

Bullet repayment; interest payable semi-annually

April 2013 to April 2018

     1,150,000         1.625  

The same as above

 

- 26 -


21. GUARANTEE DEPOSITS

 

    

June 30,

2015

    

December 31,

2014

    

June 30,

2014

 

Capacity guarantee

   $ 28,351,375       $ 30,132,100       $   

Others

     167,587         164,075         157,011   
  

 

 

    

 

 

    

 

 

 
   $ 28,518,962       $ 30,296,175       $ 157,011   
  

 

 

    

 

 

    

 

 

 

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

   $ 6,602,375       $ 4,757,700       $   

Noncurrent portion

     21,916,587         25,538,475         157,011   
  

 

 

    

 

 

    

 

 

 
   $   28,518,962       $     30,296,175       $        157,011   
  

 

 

    

 

 

    

 

 

 

Some of guarantee deposits were refunded to customers by offsetting related accounts receivable during the three months ended June 30, 2015.

 

22. EQUITY

 

  a. Capital stock

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Authorized shares (in thousands)

     28,050,000         28,050,000         28,050,000   
  

 

 

    

 

 

    

 

 

 

Authorized capital

   $ 280,500,000       $ 280,500,000       $ 280,500,000   
  

 

 

    

 

 

    

 

 

 

Issued and paid shares (in thousands)

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

 

 

    

 

 

    

 

 

 

Issued capital

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

 

 

    

 

 

    

 

 

 

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

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

As of June 30, 2015, 1,073,071 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,365,357 thousand shares (one ADS represents five common shares).

 

  b. Capital surplus

 

    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Additional paid-in capital

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

From merger

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

From convertible bonds

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

From share of changes in equities of subsidiaries

     78,464         104,335         81,093   

From share of changes in equities of associates and joint venture

     572,144         134,210         205,061   

Donations

     55         55         55   
  

 

 

    

 

 

    

 

 

 
   $   56,532,959       $   55,989,922       $   56,026,837   
  

 

 

    

 

 

    

 

 

 

 

- 27 -


Under the Company Law, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds, the surplus from treasury stock transactions and the differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of TSMC’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries may be used to offset a deficit.

 

  c. Retained earnings and dividend policy

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

 

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

 

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

 

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

 

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

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

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

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

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

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

 

- 28 -


The appropriations of 2014 and 2013 earnings have been approved by TSMC’s shareholders in its meeting held on June 9, 2015 and on June 24, 2014, respectively. The appropriations and dividends per share were as follows:

 

     Appropriation of Earnings      Dividends Per Share
(NT$)
 
     For Fiscal      For Fiscal      For Fiscal      For Fiscal  
     Year 2014      Year 2013      Year 2014      Year 2013  

Legal capital reserve

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

Special capital reserve

             (2,785,741      

Cash dividends to shareholders

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

 

 

    

 

 

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

 

 

    

 

 

       

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

 

  d. Others

Changes in others were as follows:

 

     Six months Ended June 30, 2015  
     Foreign
Currency
Translation
Reserve
     Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
     Cash Flow
Hedges Reserve
     Total  

Balance, beginning of period

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

Exchange differences arising on translation of foreign operations

     (4,654,336                      (4,654,336

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

             (174,880              (174,880

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

     (993,026      (16,649,252              (17,642,278

Share of other comprehensive income of associates and joint venture

     43,487         544,976         (175      588,288   

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

     4,356         2,051         11         6,418   

Income tax effect

             (18,104              (18,104
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $     (1,097,406    $   4,952,274       $ (469    $   3,854,399   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 29 -


     Six months Ended June 30, 2014  
     Foreign
Currency
Translation
Reserve
     Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
     Cash Flow
Hedges Reserve
     Total  

Balance, beginning of period

   $ (7,140,362    $ 21,310,781       $ (113    $ 14,170,306   

Exchange differences arising on translation of foreign operations

     (220,808                      (220,808

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

             (313,697              (313,697

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

             (133,160              (133,160

Share of other comprehensive income of associates and joint venture

     (5,872      (236      90         (6,018

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

     3,017         (2,920              97   

Income tax effect

             (11,123              (11,123
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $     (7,364,025    $ 20,849,645       $ (23    $ 13,485,597   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

- 30 -


  e. Noncontrolling interests

 

     Six months Ended June 30  
     2015        2014  

Balance, beginning of period

   $ 127,221         $ 266,709   

Share of noncontrolling interests

       

Net loss

     (10,613        (67,387

Exchange differences arising on translation of foreign operations

     (564        47   

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

     (8,523        1,116   

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

     (89        (860

Share of other comprehensive income of associates and joint venture

     (899        (100

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

     3             

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

     126           (66

From share of changes in equities of subsidiaries

     25,871           19,734   

Decrease in noncontrolling interests

     (42,719        (45,527

Effect of disposal of subsidiary

     (42,640          
  

 

 

      

 

 

 

Balance, end of period

   $             47,174         $           173,666   
  

 

 

      

 

 

 

 

23. SHARE-BASED PAYMENT

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

 

    

Number of
Stock

Options

(In Thousands)

    

Weighted-

average

Exercise Price

(NT$)

 

Six months ended June 30, 2015

     

Balance, beginning of period

     718       $ 47.2   

Options exercised

     (718      47.2   
  

 

 

    

Balance, end of period

               
  

 

 

    

Balance exercisable, end of period

               
  

 

 

    

Six months ended June 30, 2014

     

Balance, beginning of period

     1,763       $ 45.9   

Options exercised

     (758      44.2   
  

 

 

    

Balance, end of period

     1,005         47.2   
  

 

 

    

Balance exercisable, end of period

     1,005         47.2   
  

 

 

    

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.

 

- 31 -


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

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

 

December 31, 2014     June 30, 2014  
Range of
Exercise Price
(NT$)
    Weighted-average
Remaining
Contractual Life
(Years)
    Range of
Exercise Price
(NT$)
    Weighted-average
Remaining
Contractual Life
(Years)
 
$ 47.2        0.4      $ 47.2        0.9   

 

24. NET REVENUE

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

 

                                                                                                           
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Net revenue from sale of goods

   $ 205,306,861       $ 182,882,159       $ 427,206,385       $ 330,879,781   

Net revenue from royalties

     132,891         138,325         267,511         355,875   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 205,439,752       $ 183,020,484       $ 427,473,896       $ 331,235,656   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25. FINANCE COSTS

 

                                                                                                           
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Interest expense

           

Corporate bonds

   $ 774,417       $ 770,126       $ 1,538,335       $ 1,540,103   

Bank loans

     4,003         26,379         28,958         48,007   

Finance leases

     4,922         4,841         9,929         9,810   

Others

     59         104         121         110   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 783,401       $ 801,450       $ 1,577,343       $ 1,598,030   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26. OTHER GAINS AND LOSSES

 

                                                                                                           
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Gain on disposal of financial assets, net

           

Available-for-sale financial assets

   $ 17,639,406       $ 113,033       $ 17,642,367       $ 134,020   

Financial assets carried at cost

     28,354         28,936         70,597         52,694   

Gain on disposal of investments accounted for using equity method

     2,305,323         2,028,643         2,305,323         2,028,643   

Other gains

     11,240         66,911         27,409         114,524   

 

(Continued)

 

- 32 -


                                                                                                           
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Net gain on financial instruments at FVTPL

           

Held for trading

   $ 243,123       $ 450,728       $ 560,678       $ 554,838   

Fair value hedges

           

Loss from hedging instruments

     (5,329,381      (914,921      (737,305      (589,243

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

     4,901,475         406,070         299,191         78,109   

Other losses

     (21,718      (2,751      (28,253      (153,552
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 19,777,822       $ 2,176,649       $ 20,140,007       $ 2,220,033   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

 

27. INCOME TAX

 

  a. Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

                                                                                                           
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Current income tax expense

           

Current tax expense recognized in the current period

   $ 18,461,370       $ 11,103,041       $ 28,865,330       $ 17,122,994   

Income tax adjustments on prior years

     (793,673      404,566         (793,673      404,566   

Other income tax adjustments

     107,473         111,171         149,512         138,167   
  

 

 

    

 

 

    

 

 

    

 

 

 
     17,775,170         11,618,778         28,221,169         17,665,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred income tax expense (benefit)

           

Temporary differences

     (230,930      619,252         (414,198      (55,187

Investment tax credits and loss carryforward

     1,174,539         2,199,663         186,880         2,282,648   
  

 

 

    

 

 

    

 

 

    

 

 

 
     943,609         2,818,915         (227,318      2,227,461   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense recognized in profit or loss

   $ 18,718,779       $ 14,437,693       $ 27,993,851       $ 19,893,188   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 33 -


  b. Income tax expense recognized in other comprehensive income

 

                                                                                               
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Deferred income tax expense

           

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

   $ 13,311       $ 14,079       $ 18,104       $ 11,123   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  c. Integrated income tax information

 

                                                                       
    

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Balance of the Imputation Credit Account - TSMC

   $ 61,581,277       $ 35,353,150       $ 37,461,918   
  

 

 

    

 

 

    

 

 

 

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

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

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

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

 

  d. Income tax examination

The tax authorities have examined income tax returns of TSMC through 2011. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

28. EARNINGS PER SHARE

 

                                                                                               
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Basic EPS

   $ 3.06       $ 2.30       $ 6.11       $ 4.15   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 3.06       $ 2.30       $ 6.11       $ 4.15   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 34 -


EPS is computed as follows:

 

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

Three months ended June 30, 2015

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 79,417,514         25,930,375       $ 3.06   
        

 

 

 

Effect of dilutive potential common shares

             5      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 79,417,514         25,930,380       $ 3.06   
  

 

 

    

 

 

    

 

 

 

Three months ended June 30, 2014

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 59,698,303         25,929,328       $ 2.30   
        

 

 

 

Effect of dilutive potential common shares

             662      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 59,698,303         25,929,990       $ 2.30   
  

 

 

    

 

 

    

 

 

 

Six months ended June 30, 2015

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 158,407,425         25,930,194       $ 6.11   
        

 

 

 

Effect of dilutive potential common shares

             186      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 158,407,425         25,930,380       $ 6.11   
  

 

 

    

 

 

    

 

 

 

Six months ended June 30, 2014

        

Basic EPS

        

Net income available to common shareholders of the parent

   $ 107,565,096         25,929,089       $ 4.15   
        

 

 

 

Effect of dilutive potential common shares

             880      
  

 

 

    

 

 

    

Diluted EPS

        

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

   $ 107,565,096         25,929,969       $ 4.15   
  

 

 

    

 

 

    

 

 

 

 

- 35 -


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

 

29. ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

         Three Months Ended June 30      Six Months Ended June 30  
         2015      2014      2015      2014  

a.  

 

Depreciation of property, plant and equipment

           
 

Recognized in cost of revenue

   $ 50,147,268       $ 41,804,816       $ 101,188,982       $ 79,262,241   
 

Recognized in operating expenses

     3,685,080         3,541,464         7,343,371         7,063,759   
 

Recognized in other operating income and expenses

     6,221         6,221         12,443         12,443   
    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 53,838,569       $ 45,352,501       $ 108,544,796       $ 86,338,443   
    

 

 

    

 

 

    

 

 

    

 

 

 

b.  

 

Amortization of intangible assets

           
 

Recognized in cost of revenue

   $ 404,092       $ 320,331       $ 811,842       $ 653,798   
 

Recognized in operating expenses

     380,446         306,282         744,465         609,250   
    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 784,538       $ 626,613       $ 1,556,307       $ 1,263,048   
    

 

 

    

 

 

    

 

 

    

 

 

 

c.  

 

Research and development costs expensed as incurred

   $ 16,612,213       $ 13,610,337       $ 33,393,676       $ 25,678,229   
    

 

 

    

 

 

    

 

 

    

 

 

 

d.  

 

Employee benefits expenses

           
 

Post-employment benefits

           
 

Defined contribution plans

   $ 501,747       $ 430,816       $ 977,573       $ 843,268   
 

Defined benefit plans

     79,591         63,832         147,719         152,874   
    

 

 

    

 

 

    

 

 

    

 

 

 
       581,338         494,648         1,125,292         996,142   
 

Other employee benefits

     22,918,891         19,025,491         45,163,630         35,856,007   
    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 23,500,229       $ 19,520,139       $ 46,288,922       $ 36,852,149   
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 36 -


         Three Months Ended June 30      Six Months Ended June 30  
         2015      2014      2015      2014  
 

Employee benefits expense summarized by function

           
 

Recognized in cost of revenue

   $ 13,576,089       $ 11,592,250       $ 26,870,583       $ 22,004,321   
 

Recognized in operating expenses

     9,924,140         7,927,889         19,418,339         14,847,828   
    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 23,500,229       $ 19,520,139       $ 46,288,922       $ 36,852,149   
    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

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

TSMC accrued employee remuneration or profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,338,604 thousand and NT$3,992,231 thousand for the three months ended June 30, 2015 and 2014, respectively; and NT$10,621,290 thousand and NT$7,192,947 thousand for the six months ended June 30, 2015 and 2014, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$17,645,966 thousand and NT$406,854 thousand in cash for 2014, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively, had been approved by the shareholders in its meeting held on June 9, 2015 and June 24, 2014, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 10, 2015 and February 18, 2014 and the same amount had been charged against earnings of 2014 and 2013, respectively.

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

 

30. DISPOSAL OF SUBSIDIARY

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

 

- 37 -


  a. Consideration received from the disposal

 

                     

Total consideration received

   $ 825,000   

Expenditure associated with consideration received

     (142,475
  

 

 

 

Net consideration received

   $ 682,525   
  

 

 

 

 

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

 

                     

Assets

  

Cash and cash equivalents

   $ 81,478   

Inventories

     28,519   

Other current assets

     91,331   

Property, plant and equipment

     643,699   

Intangible assets

     47,373   

Others

     51,808   

Liabilities

  

Salary and bonus payable

     (38,151

Accrued expenses and other current liabilities

     (68,132

Net defined benefit liability

     (35,845

Others

     (76,915
  

 

 

 

Net assets disposed of

   $ 725,165   
  

 

 

 

 

  c. Gain/loss on disposal of subsidiary

 

                     

Net consideration received

   $ 682,525   

Net assets disposed of

     (725,165

Noncontrolling interests

     42,640   
  

 

 

 

Gain/loss on disposal of subsidiary

   $   
  

 

 

 

 

  d. Net cash inflow arising from disposal of subsidiary

 

                     

Net consideration received

   $ 682,525   

Less: balance of cash and cash equivalents disposed of

     81,478   
  

 

 

 
   $ 601,047   
  

 

 

 

 

31. FINANCIAL INSTRUMENTS

 

  a. Categories of financial instruments

 

                                                                                       
         

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Financial assets

           

FVTPL

           

Held for trading derivatives

   a)    $ 58,535       $ 200,364       $ 158,265   

Available-for-sale financial assets

   b)      16,075,250         75,598,018         61,100,010   

Held-to-maturity financial assets

        7,180,351         4,485,593         299,230   

 

(Continued)

 

- 38 -


                                                                                       
         

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Loans and receivables

           

Cash and cash equivalents

   a)    $ 528,895,107       $ 358,530,507       $ 255,053,573   

Notes and accounts receivables (including related parties)

   a)      99,737,061         115,057,965         86,887,160   

Other receivables

   a)      12,320,574         4,051,452         4,364,503   

Refundable deposits

   a)      408,585         356,582         2,476,534   
     

 

 

    

 

 

    

 

 

 
      $ 664,675,463       $ 558,280,481       $ 410,339,275   
     

 

 

    

 

 

    

 

 

 

Financial liabilities

           

FVTPL

           

Held for trading derivatives

   a)    $ 780,721       $ 486,614       $ 19,418   

Derivative financial instruments in designated hedge accounting relationships

        2,625,763         16,364,241         5,559,559   

Amortized cost

           

Short-term loans

        5,592,600         36,158,520         34,705,206   

Accounts payable (including related parties)

   a)      21,100,895         23,379,762         21,697,296   

Payables to contractors and equipment suppliers

   a)      43,610,962         26,983,424         34,657,746   

Cash dividends payable

        116,683,481                 77,785,851   

Accrued expenses and other current liabilities

   a)      21,890,115         22,248,135         17,572,283   

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

        212,722,606         213,673,818         210,869,059   

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

        40,000         40,000         40,000   

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

        18,000         36,000         54,000   

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

   a)      28,518,962         30,297,600         157,011   
     

 

 

    

 

 

    

 

 

 
      $ 453,584,105       $ 369,668,114       $ 403,117,429   
     

 

 

    

 

 

    

 

 

 

(Concluded)

 

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

 

- 39 -


  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 six months ended June 30, 2015 and 2014 would have decreased by NT$1,618,369 thousand and NT$686,238 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$166 thousand for both six months ended June 30, 2015 and 2014, respectively.

 

- 40 -


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 six months ended June 30, 2015 and 2014 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the six months ended June 30, 2015 and 2014 would have decreased by NT$135,538 thousand and NT$128,251 thousand, respectively.

 

  d. Credit risk management

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

Business related credit risk

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

As of June 30, 2015, December 31, 2014 and June 30, 2014, the Company’s ten largest customers accounted for 66%, 76% and 67% 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.

 

- 41 -


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

 

                                                                                                                                      
    

Less Than

1 Year

     2-3 Years      4-5 Years      5+ Years      Total  

June 30, 2015

              

Non-derivative financial liabilities

              

Short-term loans

   $ 5,594,309       $       $       $       $ 5,594,309   

Accounts payable (including related parties)

     21,100,895                                 21,100,895   

Payables to contractors and equipment suppliers

     43,610,962                                 43,610,962   

Accrued expenses and other current liabilities

     21,890,115                                 21,890,115   

Bonds payable

     13,915,132         107,533,065         66,178,944         36,407,035         224,034,176   

Long-term bank loans

     3,931         21,933         18,002                 43,866   

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

     18,000                                 18,000   

Obligations under finance leases

     29,076         58,151         755,364                 842,591   

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

     6,602,375         12,595,587         9,321,000                 28,518,962   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     112,764,795         120,208,736         76,273,310         36,407,035         345,653,876   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

     76,898,431                                 76,898,431   

Inflows

     (76,154,158                              (76,154,158
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     744,273                                 744,273   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     3,033,613                                 3,033,613   

Inflows

     (3,060,582                              (3,060,582
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     (26,969                              (26,969
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     10,575,328                                 10,575,328   

Inflows

     (10,575,328                              (10,575,328
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 113,482,099       $ 120,208,736       $ 76,273,310       $ 36,407,035       $ 346,371,180   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

              

Non-derivative financial liabilities

              

Short-term loans

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

Accounts payable (including related parties)

     23,370,424                                 23,370,424   

Payables to contractors and equipment suppliers

     26,980,408                                 26,980,408   

Accrued expenses and other current liabilities

     22,177,901                                 22,177,901   

Bonds payable

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

Long-term bank loans

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

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

     18,000         18,000                         36,000   

Obligations under finance leases

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

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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Continued)

 

- 42 -


                                                                                                                                      
    

Less Than

1 Year

     2-3 Years      4-5 Years      5+ Years      Total  

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

   $ 17,327,250       $       $       $       $ 17,327,250   

Inflows

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     44,171                                 44,171   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     47,291,943                                 47,291,943   

Inflows

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     321,001                                 321,001   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     56,172,570                                 56,172,570   

Inflows

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2014

              

Non-derivative financial liabilities

              

Short-term loans

   $ 34,713,484       $       $       $       $ 34,713,484   

Accounts payable (including related parties)

     21,697,296                                 21,697,296   

Payables to contractors and equipment suppliers

     34,657,746                                 34,657,746   

Accrued expenses and other current liabilities

     17,572,283                                 17,572,283   

Bonds payable

     3,038,196         38,216,868         98,612,394         85,318,276         225,185,734   

Long-term bank loans

     1,450         15,079         21,208         7,579         45,316   

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

     36,000         18,000                         54,000   

Obligations under finance leases

     27,921         55,843         753,300                 837,064   

Guarantee deposits

             157,011                         157,011   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     111,744,376         38,462,801         99,386,902         85,325,855         334,919,934   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

              

Forward exchange contracts

              

Outflows

     21,906,386                                 21,906,386   

Inflows

     (21,976,316                              (21,976,316
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     (69,930                              (69,930
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cross currency swap contracts

              

Outflows

     28,436,568                                 28,436,568   

Inflows

     (28,543,835                              (28,543,835
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     (107,267                              (107,267
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Stock forward contracts

              

Outflows

     42,712,852         10,162,117                         52,874,969   

Inflows

     (42,712,852      (10,162,117                      (52,874,969
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 111,567,179       $ 38,462,801       $ 99,386,902       $ 85,325,855       $ 334,742,737   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(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.

 

- 43 -


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

Financial assets

                 

Held-to-maturity financial assets

                 

Commercial paper

   $ 7,180,351       $ 7,189,249       $ 4,485,593       $ 4,486,541       $ 299,230       $ 299,857   

Financial liabilities

                 

Measured at amortized cost

                 

Bonds payable

     212,722,606         213,040,105         213,673,818         213,177,122         210,869,059         210,756,224   

 

  2) Valuation techniques and assumptions used in fair value measurement

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

 

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

 

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

 

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

 

  3) Fair value measurements recognized in the consolidated balance sheets

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

 

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

 

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

 

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

 

- 44 -


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

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

 

                                                                                       
     June 30, 2015  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments

   $       $ 58,535       $       $ 58,535   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

   $ 14,216,491       $       $       $ 14,216,491   

Money market funds

     383                         383   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 14,216,874       $       $       $ 14,216,874   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at FVTPL

           

Derivative financial instruments

   $       $ 780,721       $       $ 780,721   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial liabilities

           

Stock forward contract

   $       $   2,625,763       $       $ 2,625,763   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                       
     December 31, 2014  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments (Note)

   $       $ 200,364       $       $ 200,364   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

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

Money market funds

     391                         391   
  

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at FVTPL

           

Derivative financial instruments (Note)

   $       $ 486,614       $       $ 486,614   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial liabilities

           

Stock forward contract

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

- 45 -


                                                                                       
     June 30, 2014  
     Level 1      Level 2      Level 3      Total  

Financial assets at FVTPL

           

Derivative financial instruments

   $       $ 158,265       $       $ 158,265   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale financial assets

           

Publicly traded stocks

   $ 59,082,115       $       $       $ 59,082,115   

Money market funds

     367                         367   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 59,082,482       $       $       $ 59,082,482   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at FVTPL

           

Derivative financial instruments

   $       $ 19,418       $       $ 19,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivative financial liabilities

           

Stock forward contract

   $       $ 5,559,559       $       $ 5,559,559   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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

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

For investments in commercial paper, the fair value is determined at the present value of future cash flows based on the observable yield curves.

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

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

 

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

Assets

           

Held-to-maturity securities

           

Commercial paper

   $       $ 7,189,249       $       $ 7,189,249   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Measured at amortized cost

           

Bonds payable

   $ 213,040,105       $       $       $ 213,040,105   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 46 -


32. RELATED PARTY TRANSACTIONS

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

 

a.     Net revenue            
             Three Months Ended June 30      Six Months Ended June 30  
            

2015

    

2014

    

2015

    

2014

 
 

Item

 

Related Party Categories

           
 

 

Net revenue from sale of
goods

 

 

Associates

   $ 1,171,840       $ 1,000,358       $ 2,186,502       $ 1,993,064   
   

Joint venture

     283         315         667         650   
      

 

 

    

 

 

    

 

 

    

 

 

 
      

 

$

 

1,172,123

 

  

   $ 1,000,673       $ 2,187,169       $ 1,993,714   
      

 

 

    

 

 

    

 

 

    

 

 

 
               
 

Net revenue from royalties

 

Associates

   $ 130,168       $ 127,574       $ 262,144       $ 255,064   
      

 

 

    

 

 

    

 

 

    

 

 

 

 

b.

 

 

Purchases

           
            

 

Three Months Ended June 30

     Six Months Ended June 30  
            

2015

    

2014

    

2015

    

2014

 
 

Related Party Categories

             
 

 

Associates

     $ 2,974,865       $ 3,235,213       $ 5,979,141       $ 5,851,848   
      

 

 

    

 

 

    

 

 

    

 

 

 

 

c.

 

 

Receivables from related parties

           
                   

 

June 30,

2015

    

 

December 31,

2014

    

 

June 30,

2014

 
 

Item

 

Related Party Categories

           
 

 

Receivables from
related parties

 

 

Associates

      $ 744,584       $ 312,641       $ 462,704   
   

Joint venture

        123         314         28   
         

 

 

    

 

 

    

 

 

 
         

 

$

 

744,707

 

  

   $ 312,955       $ 462,732   
         

 

 

    

 

 

    

 

 

 
 

Other receivables from
related parties

 

Associates

      $ 3,164,538       $ 178,625       $ 2,875,842   
   

Joint venture

        400,803                   
         

 

 

    

 

 

    

 

 

 
               
          $ 3,565,341       $ 178,625       $ 2,875,842   
         

 

 

    

 

 

    

 

 

 

 

d.

 

 

Payables to related parties

           
                   

 

June 30,

2015

    

 

December 31,

2014

    

 

June 30,

2014

 
 

Item

 

Related Party Categories

           
 

 

Payables to related parties

 

 

Associates

             $ 1,325,844       $ 1,490,997       $ 1,679,807   
   

Joint venture

        1,501         493         1,974   
         

 

 

    

 

 

    

 

 

 
         

 

$

 

1,327,345

 

  

   $ 1,491,490       $ 1,681,781   
         

 

 

    

 

 

    

 

 

 

 

- 47 -


e     Disposal of property, plant and equipment            
            

 

Proceeds

 
           Three Months Ended June 30      Six Months Ended June 30  
          

2015

    

2014

    

2015

    

2014

 
 

Related Party Categories

             
 

 

Associates

     $       $ 15,817       $       $ 15,817   
      

 

 

    

 

 

    

 

 

    

 

 

 

 

f.     

 

 

Others

           
            

 

Gains

 
           Three Months Ended June 30      Six Months Ended June 30  
          

2015

    

2014

    

2015

    

2014

 
 

Related Party Categories

             
 

 

Associates

     $       $ 15,817       $       $ 15,817   
      

 

 

    

 

 

    

 

 

    

 

 

 
                 

 

June 30,

2015

    

 

December 31,

2014

    

 

June 30,

2014

 
 

Item

 

Related Party Categories

           
 

 

Refundable deposits

 

 

Associates

      $       $       $ 5,813   
         

 

 

    

 

 

    

 

 

 
          

 

Three Months Ended June 30

    

 

Six Months Ended June 30

 
          

2015

    

2014

    

2015

    

2014

 
 

Item

 

Related Party Categories

           
 

 

Manufacturing expenses

 

 

Associates

   $ 680,185       $ 651,522       $ 1,394,699       $ 1,129,860   
   

Joint venture

     3,023         2,109         5,363         4,695   
      

 

 

    

 

 

    

 

 

    

 

 

 
      

 

$

 

683,208

 

  

   $ 653,631       $ 1,400,062       $ 1,134,555   
      

 

 

    

 

 

    

 

 

    

 

 

 
               
 

Research and development expenses

 

Associates

   $ 6,873       $ 45,302       $ 25,926       $ 53,333   
   

Joint venture

     888         233         948         841   
      

 

 

    

 

 

    

 

 

    

 

 

 
               
       $ 7,761       $ 45,535       $ 26,874       $ 54,174   
      

 

 

    

 

 

    

 

 

    

 

 

 
 

 

General and administrative expenses

 

 

Associates

   $ 1,050       $       $ 1,050       $   
      

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

- 48 -


  g. Compensation of key management personnel

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

 

                                                                                                                               
     Three Months Ended June 30      Six Months Ended June 30  
     2015      2014      2015      2014  

Short-term employee benefits

   $ 484,183       $ 430,685       $ 970,226       $ 763,022   

Post-employment benefits

     1,037         976         2,042         33,930   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 485,220       $ 431,661       $ 972,268       $ 796,952   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

33. PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for litigation and building lease agreements. As of June 30, 2015, December 31, 2014 and June 30, 2014, the aforementioned other financial assets amounted to NT$269,032 thousand, NT$293,409 thousand and NT$120,705 thousand, respectively.

 

34. SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land, factory and office premises from the Science Park Administration and entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between August 2015 and December 2034 and can be renewed upon expiration.

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

 

                                                                                                                               
           

June 30,

2015

     December 31,
2014
    

June 30,

2014

 

Not later than 1 year

      $ 1,005,463       $ 891,767       $ 872,608   

Later than 1 year and not later than 5 years

        3,608,378         3,490,783         2,959,087   

Later than 5 years

        7,168,284         6,576,218         5,215,876   
     

 

 

    

 

 

    

 

 

 
                $ 11,782,125       $ 10,958,768       $ 9,047,571   
     

 

 

    

 

 

    

 

 

 

 

35. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

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

 

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

 

- 49 -


  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 June 30, 2015.

 

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

 

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

 

  e. TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012, and the lock-up period expired on May 1, 2015. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of June 30, 2015, TSMC has paid EUR 137,186 thousand to ASML under the research and development funding agreement.

 

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

 

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

 

  h. Amounts available under unused letters of credit as of June 30, 2015, December 31, 2014 and June 30, 2014 were NT$198,848 thousand, NT$222,026 thousand and NT$89,568 thousand, respectively.

 

- 50 -


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

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

 

                                                                                
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note 1)

    Carrying
Amount
 

June 30, 2015

       

Financial assets

       

Monetary items

       

USD

   $ 4,645,790         31.070      $ 144,344,694   

RMB

     2,496,163         0.161 (Note 2)      12,507,023   

EUR

     218,538         34.70        7,583,271   

JPY

     39,072,839         0.2542        9,932,316   

Non-monetary items

       

HKD

     179,390         4.01        719,354   

Financial liabilities

       

Monetary items

       

USD

     2,516,198         31.070        78,178,285   

EUR

     224,175         34.70        7,778,856   

JPY

     41,504,262         0.2542        10,550,383   

December 31, 2014

       

Financial assets

       

Monetary items

       

USD

     5,002,082         31.718        158,656,051   

EUR

     22,887         38.57        882,741   

JPY

     704,925         0.2652        186,946   

Non-monetary items

       

HKD

     149,844         4.09        612,860   

Financial liabilities

       

Monetary items

       

USD

     3,348,306         31.718        106,201,584   

EUR

     44,152         38.57        1,702,926   

JPY

     28,734,248         0.2652        7,620,323   

 

(Continued)

 

- 51 -


                                                                                
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note 1)

     Carrying
Amount
 

June 30, 2014

        

Financial assets

        

Monetary items

        

USD

   $ 3,462,413         29.856       $ 103,373,806   

EUR

     71,378         40.75         2,908,664   

JPY

     739,275         0.2946         217,790   

Non-monetary items

        

HKD

     184,891         3.85         711,832   

Financial liabilities

        

Monetary items

        

USD

     2,299,423         29.856         68,651,575   

EUR

     132,123         40.75         5,383,995   

JPY

     41,879,354         0.2946         12,337,658   

(Concluded)

 

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

 

  Note 2: The exchange rate represents the number of USD dollars for which one RMB could be exchanged.

The realized and unrealized foreign exchange losses were NT$292,295 thousand and NT$355,207 thousand for the three months ended June 30, 2014 and 2015, respectively; NT$244,112 thousand and NT$391,608 thousand for the six months ended June 30, 2014 and 2015, respectively. Since there were varieties of foreign currency transactions and functional currencies within the subsidiaries of the Company, the Company was unable to disclose foreign exchange gain (loss) towards each foreign currency with significant impact.

 

37. OPERATING SEGMENTS INFORMATION

 

  a. Operating segments

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

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

 

- 52 -


  b. Segment revenue and operating results

 

                                                                                       
     Foundry      Others      Elimination      Total  

Three months ended June 30, 2015

           

Net revenue from external customers

   $ 205,167,427       $ 272,325       $       $ 205,439,752   

Income from operations

     77,380,992         (311,934              77,069,058   

Three months ended June 30, 2014

           

Net revenue from external customers

     182,820,998         199,486                 183,020,484   

Net revenue from sales among intersegments

             12,323         (12,323        

Income from operations

     71,369,814         (660,642              70,709,172   

Six months ended June 30, 2015

           

Net revenue from external customers

     427,062,560         411,336                 427,473,896   

Income from operations

     164,356,759         (661,578              163,695,181   

Six months ended June 30, 2014

           

Net revenue from external customers

     330,896,123         339,533                 331,235,656   

Net revenue from sales among intersegments

             26,895         (26,895        

Income from operations

     124,565,538         (1,338,752              123,226,786   

 

38. ADDITIONAL DISCLOSURES

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

 

  a. Financings provided: Please see Table 1 attached;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

- 53 -


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

 

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

 

  l. Information on investment in Mainland China

 

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

 

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

 

- 54 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2015

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

 

 

                                                                Collateral              

No.

  Financing
Company
 

Counter-party

 

Financial Statement

Account

  Related
Party
  Maximum
Balance for  the
Period (US$ in
Thousands)
(Note 4)
    Ending Balance
(US$ in
Thousands)
(Note 4)
    Amount
Actually Drawn
(US$ in
Thousands)
    Interest
Rate
   

Nature

for Financing

  Transaction
Amounts
   

Reason for

Financing

  Allowance
for
Bad Debt
    Item   Value     Financing
Limits  for
Each
Borrowing
Company
    Financing
Company’s
Total
Financing
Amount
Limits

(Note 3)
 

1

  TSMC Partners   TSMC Solar  

Other receivables from related parties

  Yes   $

(US$

5,281,900

170,000

  

  $

(US$

5,281,900

170,000

  

  $

(US$

4,940,130

159,000

  

    0.38  

The need for short-term financing

  $     

Operating capital

  $        $      $

 

19,125,325

(Note 1

  

  $ 47,813,313   
    TSMC SSL  

Other receivables from related parties

  Yes    

(US$

1,553,500

50,000

  

                  0.38  

The need for short-term financing

        

Operating capital

                   

 

19,125,325

(Note 1

  

    47,813,313   

2

  TSMC Solar  

TSMC Solar NA

 

Other receivables from related parties

  Yes    

(US$

18,642

600

  

   

(US$

18,642

600

  

               

The need for short-term financing

        

Operating capital

                   

 

196,389

(Note 2

  

    392,777   

 

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

 

- 55 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2015

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

 

 

       

Guaranteed Party

                                                     

No.

  Endorsement/
Guarantee
Provider
 

Name

  Nature of
Relationship
  Limits on
Endorsement/
Guarantee
Amount
Provided
to Each
Guaranteed
Party
(Notes 1
and 2)
    Maximum
Balance
for  the
Period
(US$ in
Thousands)
(Note 3)
    Ending
Balance
(US$ in
Thousands)
(Note 3)
    Amount
Actually
Drawn
(US$ in
Thousands)
    Amount of
Endorsement/
Guarantee
Collateralized
by  Properties
    Ratio of
Accumulated
Endorsement/
Guarantee
to Net
Equity per
Latest Financial
Statements
    Maximum
Endorsement/
Guarantee
Amount
Allowable
(Note 2)
    Guarantee
Provided by
Parent
Company
  Guarantee
Provided by
A  Subsidiary
  Guarantee
Provided  to
Subsidiaries
in Mainland
China

0

  TSMC  

TSMC Global

  Subsidiary   $ 266,645,095      $

(US$

46,605,000

1,500,000

  

  $

(US$

46,605,000

1,500,000

  

  $

(US$

46,605,000

1,500,000

  

  $        4.37   $ 266,645,095      Yes   No   No
   

TSMC North America

  Subsidiary     266,645,095       

(US$

2,585,437

83,213

  

   

(US$

2,585,437

83,213

  

   

(US$

2,585,437

83,213

  

           0.24     266,645,095      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.

 

- 56 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

JUNE 30, 2015

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

 

 

                June 30, 2015      

Held Company Name

 

Marketable Securities Type and Name

  Relationship with the Company  

Financial Statement Account

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

TSMC

 

Commercial Paper

             
 

Taiwan Power Company

   

Held-to-maturity financial assets

    720      $ 7,180,351        N/A      $ 7,189,249     
 

Stock

             
 

Semiconductor Manufacturing International Corporation

   

Available-for-sale financial assets

    211,047        719,354        1        719,354     
 

United Industrial Gases Co., Ltd.

   

Financial assets carried at cost

    21,230        193,584        10        193,584     
 

Shin-Etsu Handotai Taiwan Co., Ltd.

   

    10,500        105,000        7        105,000     
 

W.K. Technology Fund IV

   

    4,000        39,280        2        39,280     
 

Fund

             
 

Horizon Ventures Fund

   

Financial assets carried at cost

           17,029        12        17,029     
 

Crimson Asia Capital

   

           18,265        1        18,265     

TSMC Global

 

Stock

             
 

ASML

   

Available-for-sale financial assets

    4,109      US$ 424,707        1      US$ 424,707     
 

Money market fund

             
 

Ssga Cash Mgmt Global Offshore

   

Available-for-sale financial assets

    12      US$ 12        N/A      US$ 12     

TSMC Partners

 

Stock

             
 

Mcube Inc.

   

Financial assets carried at cost

    6,333               16            
 

Fund

             
 

Shanghai Walden Venture Capital Enterprise

   

Financial assets carried at cost

         US$ 5,000        6      US$ 5,000     
 

China Walden Venture Investments II, L.P.

   

         US$ 2,800        9      US$ 2,800     

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

             
 

QST Holdings, LLC

   

Financial assets carried at cost

         US$ 141        4      US$ 141     

ISDF

 

Preferred stock

             
 

Sonics, Inc.

   

Financial assets carried at cost

    230               2            

ISDF II

 

Common stock

             
 

Alchip Technologies Limited

   

Available-for-sale financial assets

    6,581      US$ 9,703        11      US$ 9,703     
 

Sonics, Inc.

   

Financial assets carried at cost

    278               3            
 

Goyatek Technology, Corp.

   

    745               6            
 

Preferred stock

             
 

Sonics, Inc.

   

Financial assets carried at cost

    264               3            

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     

 

(Continued)

 

- 57 -


                June 30, 2015      

Held Company Name

 

Marketable Securities Type and Name

  Relationship with the Company  

Financial Statement Account

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

VTAF II

 

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     
 

QST Holdings, LLC

   

         US$ 588        13      US$ 588     

VTAF III

 

Common stock

             
 

Accton Wireless Broadband Corp.

   

Financial assets carried at cost

    2,249      US$ 315        6      US$ 315     
 

Preferred stock

             
 

BridgeLux, Inc.

   

Financial assets carried at cost

    7,522      US$ 9,379        3      US$ 9,379     
 

GTBF, Inc.

   

    1,154      US$ 1,500        N/A      US$ 1,500     
 

LiquidLeds Lighting Corp.

   

    1,600      US$ 800        11      US$ 800     
 

Neoconix, Inc.

   

    4,147      US$ 170             US$ 170     
 

Powervation, Ltd.

   

    568      US$ 8,878        14      US$ 8,878     

(Concluded)

 

- 58 -


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 SIX MONTHS ENDED JUNE 30, 2015

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

 

 

                    Beginning Balance     Acquisition     Disposal     Ending Balance (Note 1)  

Company Name

 

Marketable Securities

Type and Name

 

Financial

Statement

Account

  Counter-
party
  Nature of
Relationship
  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

                         
 

Taiwan Power Company

 

Held-to-maturity financial assets

        220      $ 2,192,014        1,080      $ 10,768,924        580      $ 5,800,000      $ 5,780,587      $ 19,413        720      $ 7,180,351   
 

CPC Corporation, Taiwan

 

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

Stock

                         
 

VIS

 

Investments accounted for using equity method

  Public
Market
  Associate     546,223        10,105,485                      82,000        3,871,910        1,608,371        2,263,539        464,223        8,196,482   
 

TSMC SSL

 

Noncurrent assets held for sale

  EPISTAR   Subsidiary     554,674        669,472                      554,674       

 

782,701

(Note 2

  

    669,472        113,229                 

TSMC Global

 

Stock

                         
 

ASML

 

Available-for-sale financial assets

        20,993      US$ 2,284,919                      16,884      US$ 1,438,279      US$ 873,012      US$ 565,267        4,109      US$ 424,707   

 

Note 1: The ending balance includes share of profits/losses of investees and other related adjustment.
Note 2: The amount of disposal is the selling price less associated expenditure.

 

- 59 -


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 SIX MONTHS ENDED JUNE 30, 2015

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

 

 

                              Prior Transaction of Related Counter-party            

Company

Name

 

Types of

Property

 

Transaction Date

  Transaction
Amount
(Foreign
Currencies in
Thousands)
   

Payment Term

 

Counter-party

  Nature of
Relationships
  Owner   Relationships   Transfer Date   Amount  

Price

Reference

 

Purpose of

Acquisition

  Other
Terms

TSMC

 

Fab

 

July 9, 2014 to May 28, 2015

  $ 2,416,993     

Monthly settlement by the construction progress and acceptance

 

DA CIN Construction Co., Ltd.

    N/A   N/A   N/A   N/A  

Bidding, price comparison and price negotiation

 

Manufacturing purpose

  None
 

Fab

 

November 3, 2014 to June 18, 2015

    1,371,031     

Monthly settlement by the construction progress and acceptance

 

China Steel Structure Co., Ltd.

    N/A   N/A   N/A   N/A  

Bidding, price comparison and price negotiation

 

Manufacturing purpose

  None

 

- 60 -


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 SIX MONTHS ENDED JUNE 30, 2015

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

 

 

            Transaction Details   Abnormal Transaction   Notes/Accounts Payable or
Receivable
     

Company Name

 

Related Party

 

Nature of Relationships

  Purchases/
Sales
  Amount
(Foreign Currencies
in Thousands)
    % to
Total
   

Payment Terms

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

TSMC

 

TSMC North America

 

Subsidiary

  Sales   $ 280,853,604        65     

Net 30 days from invoice date (Note)

         Note   $ 62,756,545        64     
 

GUC

 

Associate

  Sales     1,599,748            

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

             542,764        1     
 

TSMC China

 

Subsidiary

  Purchases     11,475,242        30     

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

             (2,072,310     9     
 

WaferTech

 

Indirect subsidiary

  Purchases     4,600,176        12     

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

             (700,505     3     
 

VIS

 

Associate

  Purchases     3,784,843        10     

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

             (504,352     2     
 

SSMC

 

Associate

  Purchases     2,194,298        6     

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

             (420,321     2     

TSMC Solar

 

TSMC Solar Europe GmbH

 

Subsidiary

  Sales     206,556        58     

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

             125,506        56     

TSMC North America

 

GUC

 

Associate of TSMC

  Sales    

(US$

523,775

16,795

  

        

Net 30 days from invoice date

            

(US$

197,299

6,350

  

        

 

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

 

- 61 -


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

JUNE 30, 2015

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

 

 

                      Overdue            

Company Name

 

Related Party

 

Nature of Relationships

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

Action Taken

  Amounts Received
in Subsequent
Period
    Allowance for
Bad Debts
 

TSMC

 

TSMC North America

 

Subsidiary

  $ 63,048,111      49   $ 6,176,072        $ 11,882,043      $   
 

SSMC

 

Associate

    1,627,246      Note 2                       
 

VIS

 

Associate

    1,293,572      Note 2                       
 

GUC

 

Associate

    684,164      46                       
 

Xintec

 

Associate

    106,414      26                       

TSMC Partners

 

TSMC Solar

 

The same parent company

   

(US$

4,953,605

159,434

  

  Note 2                       
 

VisEra Holding

 

Jointly controlled entity

   

(US$

400,803

12,900

  

  Note 2                       

TSMC China

 

TSMC

 

Parent company

   

(RMB

2,072,310

413,595

  

  32                       

TSMC Technology

 

TSMC

 

Parent company

   

(US$

421,059

13,552

  

  Note 2                       

WaferTech

 

TSMC

 

Parent company

   

(US$

700,505

22,546

  

  28                       

TSMC North America

 

GUC

 

Associate of TSMC

   

(US$

197,299

6,350

  

  42    

(US$

54,265

1,747

  

     

(US$

54,646

1,759

  

      

TSMC Solar

 

TSMC Solar Europe GmbH

 

Subsidiary

    125,506      128     50,289     

Accelerate collection process

    42,351          

 

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.

 

- 62 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(Amounts in Thousands of New Taiwan Dollars)

 

 

                   

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 North America    1    Net revenue from sale of goods    $ 280,853,604                 66
            Receivables from related parties      62,756,545                 4
            Other receivables from related parties      291,566                   
      TSMC China    1    Purchases      11,475,242                 3
            Disposal of property, plant and equipment      109,647                   
            Payables to related parties      2,072,310                   
      TSMC Japan    1    Marketing expenses - commission      114,914                   
      TSMC Europe    1    Marketing expenses - commission      191,368                   
      TSMC Technology    1    Research and development expenses      884,441                   
            Payables to related parties      421,059                   
      WaferTech    1    Purchases      4,600,176                 1
            Payables to related parties      700,505                   
      TSMC Canada    1    Research and development expenses      118,454                   
1    TSMC Solar                TSMC Solar Europe GmbH    1    Net revenue from sale of goods      206,556                   
            Receivables from related parties      125,506                   
      TSMC Partners    3    Other payables to related parties      4,953,605                   

 

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.

 

- 63 -


TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE SIX MONTHS ENDED JUNE 30, 2015

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

 

 

                Original Investment Amount     Balance as of June 30, 2015                  

Investor Company

 

Investee Company

 

Location

 

Main Businesses and Products

  June 30,
2015
(Foreign
Currencies in
Thousands)
    December 31,
2014
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage of
Ownership
(%)
    Carrying
Value
(Foreign
Currencies in
Thousands)
    Net Income
(Losses) of the
Investee
(Foreign
Currencies in
Thousands)
    Share of
Profits/Losses
of Investee
(Note 1)
(Foreign
Currencies in
Thousands)
   

        Note        

TSMC

 

TSMC Global

 

Tortola, British Virgin Islands

 

Investment activities

  $ 103,114,868      $ 103,114,868        3        100      $ 129,842,267      $ 17,853,676      $ 17,853,676     

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        47,749,091        915,556        915,609     

Subsidiary

 

VIS

 

Hsin-Chu, Taiwan

 

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

    10,180,677        11,789,048        464,223        28        8,196,482        2,431,449        793,099     

Associate

 

SSMC

 

Singapore

 

Fabrication and supply of integrated circuits

    5,120,028        5,120,028        314        39        7,831,408        3,261,648        1,265,193     

Associate

 

TSMC North America

 

San Jose, California, U.S.A.

 

Selling and marketing of integrated circuits and semiconductor devices

    333,718        333,718        11,000        100        3,942,656        39,835        39,835     

Subsidiary

 

Xintec

 

Taoyuan, Taiwan

 

Wafer level chip size packaging service

    1,309,969        1,357,890        92,778        35        2,250,809        241,614        90,390     

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

(Note 3

  

    99        1,967,224        (973,486     (961,750  

Subsidiary

 

GUC

 

Hsin-Chu, Taiwan

 

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

    386,568        386,568        46,688        35        1,013,265        200,219        70,679     

Associate

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    1,737,336        1,850,782               98        734,873        50,637        49,624     

Subsidiary

 

VTAF II

 

Cayman Islands

 

Investing in new start-up technology companies

    608,562        605,479               98        459,633        (3,741     (3,666  

Subsidiary

 

TSMC Europe

 

Amsterdam, the Netherlands

 

Marketing and engineering supporting activities

    15,749        15,749               100        299,775        19,280        19,280     

Subsidiary

 

Emerging Alliance

 

Cayman Islands

 

Investing in new start-up technology companies

    844,775        844,775               99.5        150,260        (1,707     (1,698  

Subsidiary

 

TSMC Japan

 

Yokohama, Japan

 

Marketing activities

    83,760        83,760        6        100        118,029        2,969        2,969     

Subsidiary

 

TSMC GN

 

Taipei, Taiwan

 

Investment activities

    270,000        200,000               100        38,011        (72,371     (72,371  

Subsidiary

 

TSMC Korea

 

Seoul, Korea

 

Customer service and technical supporting activities

    13,656        13,656        80        100        34,042        2,036        2,036     

Subsidiary

TSMC Partners

 

TSMC Development

 

Delaware, U.S.A.

 

Investment activities

   

(US$

0.03

0.001

  

   

(US$

0.03

0.001

  

           100       

(US$

24,150,627

777,297

  

   

(US$

826,829

26,513

  

    Note 2     

Subsidiary

 

VisEra Holding

 

Cayman Islands

 

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

   

(US$

1,336,010

43,000

  

   

(US$

1,336,010

43,000

  

    43,000        49       

(US$

3,469,013

111,652

  

   

(US$

74,139

2,377

  

    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$

500,673

16,114

  

   

(US$

34,406

1,103

  

    Note 2     

Subsidiary

 

ISDF II

 

Cayman Islands

 

Investing in new start-up technology companies

   

(US$

288,920

9,299

  

   

(US$

288,920

9,299

  

    9,299        97       

(US$

395,216

12,720

  

   

(US$

(325

(10


)) 

    Note 2     

Subsidiary

 

TSMC Canada

 

Ontario, Canada

 

Engineering support activities

   

(US$

71,461

2,300

  

   

(US$

71,461

2,300

  

    2,300        100       

(US$

151,114

4,864

  

   

(US$

8,914

286

  

    Note 2     

Subsidiary

 

ISDF

 

Cayman Islands

 

Investing in new start-up technology companies

   

(US$

18,114

583

  

   

(US$

18,114

583

  

    583        97       

(US$

3,916

126

  

   

(US$

(376

(12


)) 

    Note 2     

Subsidiary

TSMC Development

 

WaferTech

 

Washington, U.S.A.

 

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

                  293,637        100       

(US$

6,524,666

209,999

  

   

(US$

792,862

25,424

  

    Note 2     

Subsidiary

VTAF III

 

Mutual-Pak

 

New Taipei, Taiwan

 

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

   

(US$

161,958

5,212

  

   

(US$

161,958

5,212

  

    15,643        58       

(US$

23,107

744

  

   

(US$

(10,095

(324


)) 

    Note 2     

Subsidiary

 

Growth Fund

 

Cayman Islands

 

Investing in new start-up technology companies

   

(US$

20,561

662

  

   

(US$

67,733

2,180

  

           100       

(US$

1,497

48

  

   

(US$

31,764

1,019

  

    Note 2     

Subsidiary

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

                         62                      Note 2     

Subsidiary

 

(Continued)

 

- 64 -


                Original Investment Amount     Balance as of June 30, 2015                  

Investor Company

 

Investee Company

 

Location

 

Main Businesses and Products

  June 30,
2015
(Foreign
Currencies in
Thousands)
    December 31,
2014
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage of
Ownership
(%)
    Carrying
Value
(Foreign
Currencies in
Thousands)
    Net Income
(Losses) of the
Investee
(Foreign
Currencies in
Thousands)
    Share of
Profits/Losses
of Investee
(Note 1)
(Foreign
Currencies in
Thousands)
   

        Note        

VTAF II

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

  $      $               31      $      $       
 
Note
2
  
  
 

Subsidiary

Emerging Alliance

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

                         7                     
 
Note
2
  
  
 

Subsidiary

TSMC Solar

 

Motech

 

New Taipei, Taiwan

 

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

    6,228,661        6,228,661        87,480        18        3,154,231        (1,036,142    
 
Note
2
  
  
 

Associate

 

TSMC Solar NA

 

Delaware, U.S.A.

 

Selling and marketing of solar related products

    236,025        236,025        1        100        16,893        1,521       
 
Note
2
  
  
 

Subsidiary

 

TSMC Solar Europe GmbH

 

Hamburg, Germany

 

Selling of solar related products and providing customer service

    25,266               1        100        15,389        (20,914    
 
Note
2
  
  
 

Subsidiary

 

TSMC Solar Europe

 

Amsterdam, the Netherlands

 

Investing in solar related business

           504,107                             (5,081    
 
Note
2
  
  
 

Subsidiary

TSMC GN

 

TSMC Solar

 

Tai-Chung, Taiwan

 

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

    94,586        53,092       

 

13,478

(Note 3

  

    1        23,366        (973,486    
 
Note
2
  
  
 

Associate

TSMC Solar Europe

 

TSMC Solar Europe GmbH

 

Hamburg, Germany

 

Selling of solar related products and providing customer service

          

(EUR

430,280

12,400

  

                        

(EUR

(20,914

 


(595)) 

   
 
Note
2
  
  
 

Subsidiary

 

Note 1: The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.
Note 2: The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.
Note 3: TSMC Solar completed the filing of capital reduction in July 2015 and thereafter, TSMC and TSMC GN hold 289,647 thousand and 3,492 thousand shares of TSMC Solar, respectively.

(Concluded)

 

- 65 -


TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE SIX MONTHS ENDED JUNE 30, 2015

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

 

 

                               Investment Flows                                           
                        Accumulated             Accumulated                                    

Investee
Company

  

Main Businesses
and Products

   Total Amount
of Paid-in
Capital

(Foreign
Currencies in
Thousands)
     Method of
Investment
     Outflow of
Investment
from Taiwan
as of
January 1,
2015
(US$ in
Thousands)
     Outflow      Inflow      Outflow of
Investment
from Taiwan
as of
June 30,
2015
(US$ in
Thousands)
     Net
Income
(Losses)
of the
Investee
Company
     Percentage
of
Ownership
    Share of
Profits/
Losses
     Carrying
Amount

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

June 30,
2015
 

TSMC China

  

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

   $

(RMB

18,939,667

4,502,080

  

     Note 1       $

(US$

18,939,667

596,000

  

   $       $       $

(US$

18,939,667

596,000

  

   $ 4,723,047         100   $

 

4,739,205

(Note 2

  

   $ 35,857,354       $   

 

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

(US$ in Thousands)
     Upper Limit on Investment
(US$ in Thousands)
 
$

(US$

18,939,667

596,000

  

   $

(US$

18,939,667

596,000

  

   $

(US$

18,939,667

596,000

  

 

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

 

- 66 -