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 November 2012

 

 

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: November 2, 2012     By     /s/    Lora Ho                                        
             Lora Ho
             Senior Vice President & Chief Financial Officer


 

 

Taiwan Semiconductor Manufacturing

Company Limited

Financial Statements for the

Nine Months Ended September 30, 2012 and 2011 and

Independent Accountants’ Review Report


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

 

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of September 30, 2012 and 2011, and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these 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 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 financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

We have also reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the nine months ended September 30, 2012 and 2011 on which we have issued an unqualified review report.

October 23, 2012

Notice to Readers

 

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

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

(Reviewed, Not Audited)

 

 

    2012   2011
ASSETS       Amount         %             Amount         %      

CURRENT ASSETS

                   

Cash and cash equivalents (Notes 2 and 4)

    $ 76,017,828          9          $ 67,150,733          9     

Financial assets at fair value through profit or loss (Notes 2, 5 and 23)

      48,169          -            583,010          -     

Available-for-sale financial assets (Notes 2, 6 and 23)

      1,624,700          -            2,735,777          1     

Held-to-maturity financial assets (Notes 2, 7 and 23)

      700,271          -            250,165          -     

Receivables from related parties (Notes 3 and 24)

      44,121,922          5            28,680,784          4     

Notes and accounts receivable (Note 3)

      20,527,231          3            21,894,123          3     

Allowance for doubtful receivables (Notes 2, 3 and 8)

      (483,848       -            (485,120       -     

Allowance for sales returns and others (Notes 2 and 8)

      (6,628,904       (1         (5,916,289       (1  

Other receivables from related parties (Notes 3 and 24)

      241,240          -            1,491,316          -     

Other financial assets

      106,490          -            279,163          -     

Inventories (Notes 2 and 9)

      30,805,123          4            23,262,847          3     

Deferred income tax assets (Notes 2 and 17)

      2,374,646          -            918,938          -     

Prepaid expenses and other current assets

      2,000,563          -            1,730,515          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total current assets

      171,455,431          20            142,575,962          20     
   

 

 

     

 

 

       

 

 

     

 

 

   

LONG-TERM INVESTMENTS (Notes 2, 7, 10, 11 and 23)

                   

Investments accounted for using equity method

      132,018,796          15            124,251,210          17     

Held-to-maturity financial assets

      701,435          -            1,404,002          -     

Financial assets carried at cost

      483,759          -            497,835          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total long-term investments

      133,203,990          15            126,153,047          17     
   

 

 

     

 

 

       

 

 

     

 

 

   

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)

                   

Cost

                   

Buildings

      171,984,186          20            147,429,338          20     

Machinery and equipment

      1,185,755,623          136            967,085,889          133     

Office equipment

      15,988,566          2            13,407,880          2     
   

 

 

     

 

 

       

 

 

     

 

 

   
      1,373,728,375          158            1,127,923,107          155     

Accumulated depreciation

      (891,718,235       (103         (779,461,665       (107  

Advance payments and construction in progress

      65,762,701          8            88,918,961          12     
   

 

 

     

 

 

       

 

 

     

 

 

   

Net property, plant and equipment

      547,772,841          63            437,380,403          60     
   

 

 

     

 

 

       

 

 

     

 

 

   

INTANGIBLE ASSETS

                   

Goodwill (Note 2)

      1,567,756          -            1,567,756          -     

Deferred charges, net (Notes 2 and 13)

      4,755,321          1            4,674,675          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total intangible assets

      6,323,077          1            6,242,431          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

OTHER ASSETS

                   

Deferred income tax assets (Notes 2 and 17)

      8,057,987          1            11,090,792          1     

Refundable deposits

      2,298,614          -            4,689,418          1     

Others (Notes 2 and 24)

      931,066          -            1,152,898          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total other assets

      11,287,667          1            16,933,108          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

TOTAL

    $ 870,043,006          100          $ 729,284,951          100     
   

 

 

     

 

 

       

 

 

     

 

 

   

 

- 2 -


        2012   2011
LIABILITIES AND SHAREHOLDERS’ EQUITY       Amount         %             Amount         %      

CURRENT LIABILITIES

                   

Short-term loans (Note 14)

    $ 29,749,650          3          $ 36,019,654          5     

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23)

      4,045          -            173,829          -     

Accounts payable

      12,710,320          2            8,103,660          1     

Payables to related parties (Note 24)

      3,403,558          -            3,161,048          -     

Income tax payable (Notes 2 and 17)

      10,820,869          1            7,680,498          1     

Other payables to related parties (Note 24)

      -          -            10,693,900          1     

Accrued profit sharing to employees and bonus to directors (Notes 2 and 19)

      8,654,015          1            6,932,701          1     

Payables to contractors and equipment suppliers

      32,003,649          4            19,036,040          3     

Accrued expenses and other current liabilities (Note 23)

      18,367,679          2            12,029,835          2     

Current portion of bonds payable (Notes 15 and 23)

      -          -            4,500,000          1     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total current liabilities

      115,713,785          13            108,331,165          15     
     

 

 

     

 

 

       

 

 

     

 

 

   

LONG-TERM LIABILITIES

                   

Bonds payable (Notes 15 and 23)

      75,600,000          9            18,000,000          2     

Other long-term payables (Note 23)

      54,000          -            -          -     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total long-term liabilities

      75,654,000          9            18,000,000          2     
     

 

 

     

 

 

       

 

 

     

 

 

   

OTHER LIABILITIES

                   

Accrued pension cost (Notes 2 and 16)

      3,907,065          -            3,830,575          1     

Guarantee deposits

      224,965          -            495,013          -     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total other liabilities

      4,132,030          -            4,325,588          1     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total liabilities

      195,499,815          22            130,656,753          18     
     

 

 

     

 

 

       

 

 

     

 

 

   

CAPITAL STOCK - NT$10 PAR VALUE (Note 19)

                   

Authorized:    28,050,000 thousand shares

                   

Issued:

 

   25,922,047 thousand shares in 2012

                   
 

   25,915,149 thousand shares in 2011

      259,220,476          30            259,151,492          35     
     

 

 

     

 

 

       

 

 

     

 

 

   

CAPITAL SURPLUS (Notes 2 and 19)

      56,074,435          7            55,689,739          8     
     

 

 

     

 

 

       

 

 

     

 

 

   

RETAINED EARNINGS (Note 19)

                   

Appropriated as legal capital reserve

      115,820,123          13            102,399,995          14     

Appropriated as special capital reserve

      7,606,224          1            6,433,874          1     

Unappropriated earnings

      245,605,674          28            181,838,097          25     
     

 

 

     

 

 

       

 

 

     

 

 

   
        369,032,021          42            290,671,966          40     
     

 

 

     

 

 

       

 

 

     

 

 

   

OTHERS

                   

Cumulative translation adjustments (Note 2)

      (10,052,181       (1         (5,586,618       (1  

Unrealized gain/loss on financial instruments (Notes 2 and 23)

      268,440          -            (1,226,783       -     

Treasury stock:    1,000 thousand shares (Notes 2 and 21)

      -          -            (71,598       -     
     

 

 

     

 

 

       

 

 

     

 

 

   
      (9,783,741       (1         (6,884,999       (1  
     

 

 

     

 

 

       

 

 

     

 

 

   

Total shareholders’ equity

      674,543,191          78            598,628,198          82     
     

 

 

     

 

 

       

 

 

     

 

 

   

TOTAL

    $ 870,043,006          100          $ 729,284,951          100     
     

 

 

     

 

 

       

 

 

     

 

 

   

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

    2012   2011
        Amount         %             Amount         %      

GROSS SALES (Notes 2 and 24)

    $   376,616,735              $   318,455,856         

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

      6,230,469                3,242,741         
   

 

 

           

 

 

       

NET SALES

      370,386,266          100            315,213,115          100     

COST OF SALES (Notes 9, 18 and 24)

      195,408,944          53            175,237,212          55     
   

 

 

     

 

 

       

 

 

     

 

 

   

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

      174,977,322          47            139,975,903          45     

REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2)

      (129,569       -            346,768          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

GROSS PROFIT

      174,847,753          47            140,322,671          45     
   

 

 

     

 

 

       

 

 

     

 

 

   

OPERATING EXPENSES (Notes 18 and 24)

                   

Research and development

      28,641,998          8            23,347,808          7     

General and administrative

      12,555,530          3            9,130,402          3     

Marketing

      1,818,231          -            1,756,516          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total operating expenses

      43,015,759          11            34,234,726          11     
   

 

 

     

 

 

       

 

 

     

 

 

   

INCOME FROM OPERATIONS

      131,831,994          36            106,087,945          34     
   

 

 

     

 

 

       

 

 

     

 

 

   

NON-OPERATING INCOME AND GAINS

                   

Equity in earnings of equity method investees, net (Notes 2 and 10)

      7,410,841          2            3,531,943          1     

Interest income

      626,009          -            512,604          -     

Settlement income (Note 26)

      448,275          -            492,870          -     

Technical service income (Note 24)

      356,971          -            325,505          -     

Valuation gain on financial instruments, net (Notes 2, 5 and 23)

      117,113          -            782,810          1     

Others (Notes 2 and 24)

      370,044          -            663,413          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total non-operating income and gains

      9,329,253          2            6,309,145          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

(Continued)   

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

    2012   2011
        Amount         %             Amount         %      

NON-OPERATING EXPENSES AND LOSSES

                   

Impairment loss of financial assets (Notes 2, 6 and 23)

    $ 2,677,529          1          $ -          -     

Interest expense (Note 24)

      629,102          -            276,154          -     

Impairment loss on idle assets (Note 2)

      418,330          -            -          -     

Loss on disposal of property, plant and equipment (Notes 2 and 24)

      104,430          -            191,120          -     

Foreign exchange loss, net (Note 2)

      17,001          -            657,798          1     

Others (Note 2)

      13,053          -            138,653          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total non-operating expenses and losses

      3,859,445          1            1,263,725          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

INCOME BEFORE INCOME TAX

      137,301,802          37            111,133,365          35     

INCOME TAX EXPENSE (Notes 2 and 17)

      12,712,268          3            8,510,734          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

NET INCOME

    $   124,589,534            34          $   102,622,631            33     
   

 

 

     

 

 

       

 

 

     

 

 

   
    2012     2011  
        Before
Income
Tax
        After
Income
Tax
            Before
Income
Tax
        After
Income
Tax
     

EARNINGS PER SHARE (NT$, Note 22)

                   

Basic earnings per share

    $ 5.30        $ 4.81          $ 4.29        $ 3.96     
   

 

 

     

 

 

       

 

 

     

 

 

   

Diluted earnings per share

    $ 5.30        $ 4.81          $ 4.29        $ 3.96     
   

 

 

     

 

 

       

 

 

     

 

 

   

 

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

   (Concluded)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $   124,589,534      $   102,622,631   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     90,037,204        76,638,870   

Unrealized (realized) gross profit from affiliates

     129,569        (346,768

Amortization of premium/discount of financial assets

     1,721        9,120   

Gain on disposal of available-for-sale financial assets

     (37,923     (35,151

Loss on disposal of financial assets carried at cost

     269        -   

Equity in earnings of equity method investees, net

     (7,410,841     (3,531,943

Cash dividends received from equity method investees

     1,688,878        2,941,548   

Loss on disposal of property, plant and equipment and other assets, net

     93,515        70,696   

Impairment loss of financial assets

     2,677,529        -   

Impairment loss on idle assets

     418,330        -   

Deferred income tax

     2,235,309        478,443   

Changes in operating assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     (29,199     (417,015

Receivables from related parties

     (19,344,388     (3,003,144

Notes and accounts receivable

     (632,845     356,782   

Allowance for doubtful receivables

     (1,272     (2,880

Allowance for sales returns and others

     1,741,025        (1,425,155

Other receivables from related parties

     (71,114     (100,558

Other financial assets

     15,520        139,043   

Inventories

     (7,951,726     2,366,196   

Prepaid expenses and other current assets

     (274,827     (387,631

Accounts payable

     1,855,509        (2,673,005

Payables to related parties

     207,468        586,598   

Income tax payable

     173,072        571,629   

Accrued profit sharing to employees and bonus to directors

     (401,689     (4,026,768

Accrued expenses and other current liabilities

     5,121,949        (1,489,045

Accrued pension cost

     46,167        66,557   
  

 

 

   

 

 

 

Net cash provided by operating activities

     194,876,744        169,409,050   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Cash contributed related to spin-off

     -        (1,270,340

Acquisitions of:

    

Property, plant and equipment

     (183,020,856     (175,162,624

Investments accounted for using equity method

     (2,241,991     (2,734,568

Financial assets carried at cost

     (1,093     -   

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

Proceeds from return of capital by investees

   $ 450,326      $ -   

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     314,159        1,035,151   

Held-to-maturity financial assets

     -        4,539,000   

Financial assets carried at cost

     14,900        -   

Property, plant and equipment and other assets

     83,739        3,055,991   

Increase in deferred charges

     (1,079,585     (1,069,352

Decrease in refundable deposits

     2,193,121        3,949,331   

Decrease (increase) in other assets

     29,000        (18,200
  

 

 

   

 

 

 

Net cash used in investing activities

     (183,258,280     (167,675,611
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

     3,823,122        5,111,017   

Increase in other payables to related parties

     -        10,693,900   

Cash dividends

     (77,748,668     (77,730,236

Proceeds from issuance of bonds

     57,600,000        18,000,000   

Repayment of bonds

     (4,500,000     -   

Decrease in guarantee deposits

     (214,067     (252,874

Proceeds from exercise of employee stock options

     176,456        155,955   

Acquisition of treasury stock

     -        (71,598
  

 

 

   

 

 

 

Net cash used in financing activities

     (20,863,157     (44,093,836
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (9,244,693     (42,360,397

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     85,262,521        109,511,130   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 76,017,828      $ 67,150,733   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 630,931      $ 292,211   
  

 

 

   

 

 

 

Income tax paid

   $ 10,291,304      $ 7,436,712   
  

 

 

   

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

    

Acquisition of property, plant and equipment

   $ 182,382,575      $ 153,008,625   

Decrease in payables to contractors and equipment suppliers

     827,158        22,154,481   

Increase in payables to related parties

     (188,808     -   

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash paid

   $ 183,020,856      $ 175,162,624   
  

 

 

   

 

 

 

(Continued)

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

                                           
     2012     2011  

Disposal of property, plant and equipment and other assets

   $          65,906      $      3,173,046   

Decrease (increase) in other receivables to related parties

     17,902        (116,573

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash received

   $ 83,739      $ 3,055,991   
  

 

 

   

 

 

 

Acquisition of deferred charges

   $ 1,558,245      $ 1,069,352   

Increase in accounts payable

     (350,960     -   

Increase in payables to related parties

     (14,700     -   

Increase in other long-term payables

     (113,000     -   
  

 

 

   

 

 

 

Cash paid

   $ 1,079,585      $ 1,069,352   
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

    

Idle assets reclassified from property, plant and equipment

   $ 418,330      $ -   
  

 

 

   

 

 

 

Current portion of other long-term payables (under accrued expenses and other current liabilities)

   $ 59,000      $ 816,379   
  

 

 

   

 

 

 

Current portion of bonds payable

   $ -      $ 4,500,000   
  

 

 

   

 

 

 

SUPPLEMENTAL INFORMATION FOR SPIN-OFF BUSINESSES

In August 2011, the Company transferred the solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively. The relevant information about spin-off was as follows:

     TSMC SSL     TSMC Solar     Total  

Acquired investments accounted for using equity method

   $     2,270,000      $     11,180,000      $     13,450,000   
  

 

 

   

 

 

   

 

 

 

Non-cash items transferred

      

Current assets

     36,050        18,807        54,857   

Long-term investments

     2,872        7,912,710        7,915,582   

Property, plant and equipment

     1,929,563        2,372,214        4,301,777   

Other assets

     234,696        201,677        436,373   

Current liabilities

     (292,728     (337,439     (630,167

Other liabilities

     (36,272     (25,218     (61,490

Capital surplus

     -        (56,094     (56,094

Unrealized gain/loss on financial instruments

     -        (3,298     (3,298

Cumulative translation adjustments

     256        221,864        222,120   
  

 

 

   

 

 

   

 

 

 
     (1,874,437     (10,305,223     (12,179,660
  

 

 

   

 

 

   

 

 

 

Cash contributed related to spin-off

   $ 395,563      $ 874,777      $ 1,270,340   
  

 

 

   

 

 

   

 

 

 

 

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

   (Concluded)

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

 

  1. GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, respectively.

On September 5, 1994, its 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).

As of September 30, 2012 and 2011, the Company had 32,459 and 29,920 employees, respectively.

 

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.

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

Significant accounting policies are summarized as follows:

Foreign-currency Transactions

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

Use of Estimates

The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

 

- 9 -


Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Repurchase agreements collateralized by corporate bonds, government bonds and short-term commercial paper acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

The fair value of overseas publicly traded stock is determined using the closing prices at the end of the period.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

 

- 10 -


Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

 

- 11 -


When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are deferred until they are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

 

- 12 -


Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

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

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

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.

 

- 13 -


Treasury Stock

Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. While disposing of the treasury stock, the treasury stock shall be reversed, and if the disposal value is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

Spin-off

For the Company’s organization realignment, when the Company contributes net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries, the net assets transferred are reflected at their net book value without recognizing any gain or loss.

 

  3. ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the nine months ended September 30, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and it only changes the disclosure of segment reporting due to the adoption. The Company has conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements.

 

- 14 -


  4. CASH AND CASH EQUIVALENTS

 

   

September 30

           2012        2011      

Cash and deposits in banks

       $     72,643,880         $     63,280,563     

Repurchase agreements collateralized by corporate bonds

         2,534,741           -     

Repurchase agreements collateralized by government bonds

         439,622           3,089,293     

Repurchase agreements collateralized by short-term commercial paper

         399,585           780,877     
      

 

 

      

 

 

   
       $     76,017,828         $     67,150,733     
      

 

 

      

 

 

   

 

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

 

   

September 30

         2012        2011      

Trading financial assets

           

Forward exchange contracts

     $     45,474         $       583,010     

Cross currency swap contracts

       2,695           -     
    

 

 

      

 

 

   
     $     48,169         $       583,010     
    

 

 

      

 

 

   

Trading financial liabilities

           

Forward exchange contracts

     $ 4,045         $ 66,378     

Cross currency swap contracts

       -           107,451     
    

 

 

      

 

 

   
     $ 4,045         $ 173,829     
    

 

 

      

 

 

   

The Company entered into derivative contracts during the nine months ended September 30, 2012 and 2011 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 its derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

    

September 30, 2012

        

Sell US$/Buy JPY

   October 2012    US$315,000/JPY24,525,215   

Sell US$/Buy NT$

   October 2012    US$85,000/NT$2,500,880   

Sell US$/Buy EUR

   October 2012    US$52,421/EUR40,500   

September 30, 2011

        

Sell NT$/Buy US$

   October 2011    NT$10,093,875/US$350,000   

Sell US$/Buy NT$

   October 2011    US$110,000/NT$3,292,775   

 

- 15 -


Outstanding cross currency swap contracts consisted of the following:

 

            Maturity Date   

Contract Amount

(In Thousands)

   Range of
Interest Rates
Paid
  Range of
Interest Rates
Received

September 30, 2012

       

October 2012

   US$170,000/NT$4,991,030    0.10%-0.11%   -

September 30, 2011

       

October 2011

   US$117,000/NT$3,470,950    1.27%-4.40%   -

For the nine months ended September 30, 2012 and 2011, net gains on derivative financial instruments were NT$117,113 thousand and NT$782,810 thousand, respectively.

 

  6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets held by the Company are overseas publicly traded stock. For the nine months ended September 30, 2012, the Company recognized an impairment loss on available-for-sale financial assets of NT$2,677,529 thousand due to the significant decline in fair value.

 

  7. HELD-TO-MATURITY FINANCIAL ASSETS

 

   

                  September 30                   

         2012      2011      

Corporate bonds

     $ 1,401,706       $ 1,654,167     

Current portion

       (700,271      (250,165  
    

 

 

    

 

 

   
     $ 701,435       $ 1,404,002     
    

 

 

    

 

 

   

 

  8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

    Nine Months Ended September 30 
         2012        2011      

Balance, beginning of period

     $ 485,120         $ 488,000     

Write-off

       (1,272        (2,880  
    

 

 

      

 

 

   

Balance, end of period

     $ 483,848         $ 485,120     
    

 

 

      

 

 

   

 

- 16 -


Movements of the allowance for sales returns and others were as follows:

 

     Nine Months Ended September 30 
         2012     2011      

Balance, beginning of period

 

   

   $ 4,887,879      $ 7,341,444     

Provision

       6,230,469        3,242,741     

Write-off

       (4,489,444     (4,667,896  
    

 

 

   

 

 

   

Balance, end of period

     $   6,628,904      $   5,916,289     
    

 

 

   

 

 

   

 

  9. INVENTORIES

 

                        September 30                     
           2012     2011      

Finished goods

              $ 4,074,123      $ 4,260,884     

Work in process

       23,395,624        16,517,292     

Raw materials

       2,211,453        1,410,292     

Supplies and spare parts

       1,123,923        1,074,379     
    

 

 

   

 

 

   
     $   30,805,123      $   23,262,847     
    

 

 

   

 

 

   

Write-down of inventories to net realizable value in the amount of NT$1,144,223 thousand and NT$300,629 thousand, respectively, were included in the cost of sales for the nine months ended September 30, 2012 and 2011.

 

  10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

         September 30  
         2012          2011  
                 % of                   % of  
        Carrying        Owner-          Carrying        Owner-  
        Amount        ship          Amount        ship  

TSMC Global Ltd. (TSMC Global)

    $   43,089,715           100         $   44,274,921           100   

TSMC Partners, Ltd. (TSMC Partners)

      38,058,989           100           34,888,811           100   

TSMC China Company Limited (TSMC China)

      16,309,653           100           8,460,740           100   

Vanguard International Semiconductor Corporation (VIS)

      9,161,979           41           8,918,553           38   

TSMC Solar

      8,045,131           99           10,847,842           100   

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

      6,253,232           39           6,109,136           39   

TSMC North America

      3,164,974           100           3,001,878           100   

TSMC SSL

      2,822,776           95           2,063,176           100   

Xintec Inc. (Xintec)

      1,573,654           40           1,610,795           40   

Global UniChip Corporation (GUC)

      1,177,159           35           1,117,076           35   

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

      1,056,641           50           1,247,111           52   

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

      654,685           98           1,022,280           98   

TSMC Europe B.V. (TSMC Europe)

      223,125           100           209,723           100   

(Continued)

 

- 17 -


         September 30  
         2012          2011  
        Carrying
Amount
       % of
Owner-
ship
         Carrying
Amount
       % of
Owner-
ship
 

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

    $ 169,756           99         $ 291,196           99   

TSMC Japan Limited (TSMC Japan)

      160,799           100           165,630           100   

TSMC Guang Neng Investment, Ltd. (TSMC GN)

      71,723           100           -           -   

TSMC Korea Limited (TSMC Korea)

      24,805           100           22,342           100   
   

 

 

           

 

 

      
    $   132,018,796              $   124,251,210        
   

 

 

           

 

 

      

(Concluded)

In the second half year of 2011, the Company continually increased its investment in TSMC China for the amount of NT$6,759,300 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs.

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting North America, Inc. (TSMC Lighting NA) to TSMC SSL and transferring Motech Industries Inc. (Motech), TSMC Solar Europe B.V. (TSMC Solar Europe), TSMC Solar North America, Inc. (TSMC Solar NA) and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Company’s certain assets, liabilities and shareholders’ equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.

In January 2012, the Company invested NT$100,000 thousand and established a wholly-owned subsidiary, TSMC GN, which engages mainly in investment activities. In February 2012, the Company participated directly or through TSMC GN in the issuance of new shares by TSMC SSL and TSMC Solar for cash. As of September 30, 2012, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were 95% and 99%, respectively.

For the nine months ended September 30, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$7,410,841 thousand and NT$3,531,943 thousand, respectively.

As of September 30, 2012 and 2011, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$16,809,981 thousand and NT$12,574,108 thousand, respectively.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

      Nine Months Ended September 30  
             2012            2011      

Balance, beginning of period

       $ 275,584           $ 2,504,496     

Amortizations

         (169,943          (641,656  

Effect of spin-off

         -             (1,507,430  
      

 

 

        

 

 

   

Balance, end of period

       $ 105,641           $ 355,410     
      

 

 

        

 

 

   

 

- 18 -


Movements of the difference allocated to goodwill were as follows:

 

            Nine Months Ended September 30        
          2012      2011      
  

Balance, beginning of period

   $ 1,061,885       $ 1,415,565     
  

Effect of spin-off

     -         (353,680 )    
     

 

 

    

 

 

   
  

Balance, end of period

   $ 1,061,885       $ 1,061,885     
     

 

 

    

 

 

   

 

11.  FINANCIAL ASSETS CARRIED AT COST

 

    
                              September 30                         
          2012      2011      
  

Non-publicly traded stocks

   $ 338,584       $ 338,584     
  

Mutual funds

     145,175         159,251     
     

 

 

    

 

 

   
      $ 483,759       $ 497,835     
     

 

 

    

 

 

   

 

  12. PROPERTY, PLANT AND EQUIPMENT

 

    Nine Months Ended September 30, 2012
         Balance,
Beginning of
Period
      

Additions

(Deductions)

       Disposals        Reclassification       

Balance,

End of Period

     

Cost

                          

Buildings

     $ 149,495,478         $ 22,513,410         $ (24,702      $ -         $ 171,984,186     

Machinery and equipment

       984,978,666           202,291,230           (865,831        (648,442        1,185,755,623     

Office equipment

       13,824,434           2,585,681           (421,549        -           15,988,566     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
       1,148,298,578         $ 227,390,321         $ (1,312,082      $ (648,442        1,373,728,375     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Accumulated depreciation

                          

Buildings

       90,274,267         $ 6,962,071         $ (23,435      $ -           97,212,903     

Machinery and equipment

       704,885,017           80,380,237           (857,279        (230,112        784,177,863     

Office equipment

       9,581,513           1,167,505           (421,549        -           10,327,469     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
       804,740,797         $ 88,509,813         $   (1,302,263      $ (230,112        891,718,235     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Advance payments and construction in progress

       110,815,752         $   (45,007,746      $ (45,305      $ -           65,762,701     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
     $ 454,373,533                        $ 547,772,841     
    

 

 

                     

 

 

   

 

    Nine Months Ended September 30, 2011
         Balance,
Beginning of
Period
     Additions      Disposals      Reclassification      Effect of
Spin-off
    

Balance,

End of Period

     

Cost

                     

Buildings

     $ 128,646,942       $ 20,274,732       $ (34,499    $ (388    $   (1,457,449    $ 147,429,338     

Machinery and equipment

       852,733,592         117,352,327         (1,672,870      (27,279      (1,299,881      967,085,889     

Office equipment

       11,730,537         2,016,312         (299,897      -         (39,072      13,407,880     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
       993,111,071       $   139,643,371       $ (2,007,266    $ (27,667    $ (2,796,402      1,127,923,107     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Accumulated depreciation

                     

Buildings

       81,347,877       $ 6,648,533       $ (11,864    $ (55    $ (25,639      87,958,852     

Machinery and equipment

       616,495,207         67,519,124         (1,619,962      (15,623      (192,323      682,186,423     

Office equipment

       8,762,361         857,053         (299,897      -         (3,127      9,316,390     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
       706,605,445       $ 75,024,710       $   (1,931,723    $ (15,678    $ (221,089      779,461,665     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Advance payments and construction in progress

       80,348,673       $ 13,365,254       $ (3,068,502    $ -       $ (1,726,464      88,918,961     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
     $   366,854,299                   $ 437,380,403     
    

 

 

                

 

 

   

No interest was capitalized during the nine months ended September 30, 2012 and 2011.

 

- 19 -


  13. DEFERRED CHARGES, NET

 

    Nine Months Ended September 30, 2012
   

Balance,

Beginning of

Period

   Additions    Amortization    Reclassification   

Balance,

End of Period

   

Technology license fees

    $   1,617,310        $ -        $ (314,765 )      $ -        $   1,302,545    

Software and system design costs

      2,316,571          1,146,302          (826,983 )        (57,438 )        2,578,452    

Patent and others

      785,363          411,943          (380,420 )        57,438          874,324    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    $   4,719,244        $   1,558,245        $   (1,522,168      $ -        $ 4,755,321    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    Nine Months Ended September 30, 2011
   

Balance,

Beginning of

Period

   Additions    Amortization   

Effect of

Spin-off

  

Balance,

End of Period

   

Technology license fees

    $   2,277,832        $ 10,308        $ (502,825 )      $ -        $ 1,785,315    

Software and system design costs

      2,075,935          905,237          (786,921 )        (19,392 )        2,174,859    

Patent and others

      1,102,660          153,807          (318,269 )        (223,697 )        714,501    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    $   5,456,427        $   1,069,352        $   (1,608,015      $   (243,089      $ 4,674,675    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     

 

  14. SHORT-TERM LOANS

 

        September 30
        2012          2011      

Unsecured loans:

          

US$1,015,000 thousand, due in October 2012, and annual interest at 0.42%- 0.65% in 2012; US$1,058,200 thousand and EUR88,725 thousand, due by November 2011, and annual interest at 0.40%-1.50% in 2011

    $   29,749,650         $   36,019,654     
   

 

 

      

 

 

   

 

  15. BONDS PAYABLE

 

        September 30
        2012          2011      

Domestic unsecured bonds:

          

Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually

    $   10,500,000         $   10,500,000     

Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually

      7,500,000           7,500,000     

Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually

      10,000,000           -     

Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually

      7,000,000           -     

Issued in August 2012 and repayable in August 2017, 1.28% interest payable annually

      9,900,000           -     

Issued in August 2012 and repayable in August 2019, 1.40% interest payable annually

      9,000,000           -     

(Continued)

 

- 20 -


        September 30  
        2012          2011  

Issued in September 2012 and repayable in September 2017, 1.28% interest payable annually

    $ 12,700,000         $ -   

Issued in September 2012 and repayable in September 2019, 1.39% interest payable annually

      9,000,000           -   

Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually

      -           4,500,000   
   

 

 

      

 

 

 
      75,600,000           22,500,000   

Current portion

      -           (4,500,000
   

 

 

      

 

 

 
    $   75,600,000         $   18,000,000   
   

 

 

      

 

 

 

(Concluded)

With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$4,400,000 thousand in October 2012.

 

  16. PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$878,763 thousand and NT$843,618 thousand for the nine months ended September 30, 2012 and 2011, respectively.

The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$212,742 thousand and NT$226,549 thousand for the nine months ended September 30, 2012 and 2011, respectively.

Movements of the Fund and accrued pension cost under the defined benefit plan were summarized as follows:

 

     Nine Months Ended September 30 
                2012          2011          

The Fund

                  

Balance, beginning of period

          $ 3,017,351         $ 2,835,231       

Contributions

            163,339           161,157       

Interest

            26,304           27,083       

Payments

            (23,078        (7,339    
         

 

 

      

 

 

     

Balance, end of period

          $ 3,183,916         $ 3,016,132       
         

 

 

      

 

 

     

Accrued pension cost

                  

Balance, beginning of period

          $ 3,860,898         $ 3,824,601       

Accruals

            46,167           66,557       

Effect of spin-off

            -           (60,583    
         

 

 

      

 

 

     

Balance, end of period

          $ 3,907,065         $ 3,830,575       
         

 

 

      

 

 

     

 

- 21 -


  17. INCOME TAX

 

  a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

    Nine Months Ended September 30
    2012    2011    

Income tax expense based on “income before income tax” at statutory rate (17%)

    $   23,341,306        $ 18,892,672    

Tax effect of the following:

          

Tax-exempt income

      (7,327,600 )        (10,599,946 )  

Temporary and permanent differences

      (1,901,636 )        (948,657 )  

Additional income tax under Alternative Minimum Tax Act

      -          116,718    

Additional tax at 10% on unappropriated earnings

      4,186,013          6,259,344    

Income tax credits used

      (7,898,861 )        (6,259,344 )  
   

 

 

      

 

 

   

Income tax currently payable

    $ 10,399,222        $ 7,460,787    
   

 

 

      

 

 

   

 

  b.

Income tax expense consisted of the following:

 

    Nine Months Ended September 30
    2012    2011    

Income tax currently payable

    $   10,399,222        $ 7,460,787    

Income tax adjustments on prior years

      48,609          464,078    

Other income tax adjustments

      29,128          107,426    

Net change in deferred income tax assets

          

Investment tax credits

      6,092,545          2,367,900    

Temporary differences

      (528,448 )        229,708    

Valuation allowance

      (3,328,788 )          (2,118,272  

Effect of spin-off

      -          (893 )  
   

 

 

      

 

 

   

Income tax expense

    $ 12,712,268        $ 8,510,734    
   

 

 

      

 

 

   

 

  c.

Deferred income tax assets consisted of the following:

    September 30
    2012      2011    

Current deferred income tax assets

            

Investment tax credits

    $ 492,501          $ -    

Temporary differences

            

Allowance for sales returns and others

      795,468            502,885    

Unrealized loss on financial instruments, net

      359,110            288,760    

Unrealized loss on inventories

      337,742            -    

Others

      389,825            127,293    
   

 

 

        

 

 

   
    $ 2,374,646          $ 918,938    
   

 

 

        

 

 

   

Noncurrent deferred income tax assets

            

Investment tax credits

    $   13,594,914          $       19,607,314    

Temporary differences

            

Depreciation

      1,177,836            1,829,967    

Others

      294,540            188,001    

Valuation allowance

      (7,009,303 )          (10,534,490 )  
   

 

 

        

 

 

   
    $ 8,057,987          $ 11,090,792    
   

 

 

        

 

 

   

 

- 22 -


Under the Article 10 of the Statute for Industrial Innovation (SII), effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

Under the Income Basic Tax Act amended in August 2012, effective on January 1, 2013, when calculating the security transaction income for the securities held for more than three years as regulated under Article 4-1 of the Income Tax Act, an enterprise could deduct the security transaction losses for the securities held for more than three years. If there is any net gain from the security transactions for the year, 50% of such amount will be exempted from income taxes in the current year; however, if there is a net loss, such loss, after the assessment of the tax authorities, can be carried forward over the next five years to offset the security income generated from the sale of the securities held for more than three years. In addition, the standard deduction and the tax rate were amended to be NT$500 thousand and 12%, respectively. The amendments are effective in 2013. The Company has evaluated the impact from above amendments and adjusted the deferred tax assets with the resulting differences recorded as income tax expense for the nine months ended September 30, 2012.

 

  d.

Integrated income tax information:

The balance of the imputation credit account as of September 30, 2012 and 2011 was NT$8,136,884 thousand and NT$4,016,138 thousand, respectively.

The estimated and actual creditable ratios for distribution of earnings of 2011 and 2010 were 6.69% and 4.96%, respectively.

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.

 

  e.

All earnings generated prior to December 31, 1997 have been appropriated.

 

  f.

As of September 30, 2012, investment tax credits consisted of the following:

 

         Law/Statute                         Item    Total
Creditable
Amount
     Remaining
Creditable
Amount
     Expiry
Year

Statute for Upgrading

 

Purchase of machinery and

   $ 6,503,274       $ 6,503,274       2013

Industries

 

equipment

     7,006,655         7,006,655       2014
       482,351         482,351       2015
    

 

 

    

 

 

    
     $   13,992,280       $   13,992,280      
    

 

 

    

 

 

    

Statute for Upgrading

 

Research and development

   $ 1,148,374       $ -       2012

Industries

 

expenditures

     4,706,569         95,135       2013
    

 

 

    

 

 

    
     $ 5,854,943       $ 95,135      
    

 

 

    

 

 

    

Statute for Upgrading

 

Personnel training expenditures

   $ 17,391       $ -       2012
    

 

 

    

 

 

    

Industries

          

Statute for Industrial

 

Research and development

   $ 2,121,662       $ -       2012
    

 

 

    

 

 

    

Innovation

 

expenditures

        

 

- 23 -


  g.

The profits generated from the following projects are exempt from income tax for a five-year period:

 

     Tax-exemption Period

Construction and expansion of 2004

   2008 to 2012

Construction and expansion of 2005

   2010 to 2014

Construction and expansion of 2006

   2011 to 2015

 

  h.

The tax authorities have examined income tax returns of the Company through 2009. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

  18. LABOR COST, DEPRECIATION AND AMORTIZATION

 

     Nine Months Ended September 30, 2012  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 20,507,961       $ 14,398,187       $   34,906,148   

Labor and health insurance

     1,069,830         655,738         1,725,568   

Pension

     689,476         402,029         1,091,505   

Meal

     499,937         219,643         719,580   

Welfare

     193,499         116,380         309,879   

Others

     29,616         44,087         73,703   
  

 

 

    

 

 

    

 

 

 
   $ 22,990,319       $ 15,836,064       $ 38,826,383   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 80,855,320       $ 7,654,493       $ 88,509,813   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 973,207       $ 548,961       $ 1,522,168   
  

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2011  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 17,952,195       $ 12,634,100       $   30,586,295   

Labor and health insurance

     930,786         531,192         1,461,978   

Pension

     681,369         388,798         1,070,167   

Meal

     486,450         202,667         689,117   

Welfare

     175,648         101,976         277,624   

Others

     33,348         27,488         60,836   
  

 

 

    

 

 

    

 

 

 
   $ 20,259,796       $ 13,886,221       $ 34,146,017   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 70,045,124       $ 4,971,754       $ 75,016,878   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 1,044,257       $ 563,758       $ 1,608,015   
  

 

 

    

 

 

    

 

 

 

 

  19. SHAREHOLDERS’ EQUITY

As of September 30, 2012, 1,091,702 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,458,511 thousand (one ADS represents five common shares).

 

- 24 -


Capital surplus can be used to offset a deficit under the Company Law. However, 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 and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

Capital surplus consisted of the following:

 

    September 30  
    2012     2011  

Additional paid-in capital

  $   23,892,456      $   23,734,158   

From merger

    22,804,510        22,805,390   

From convertible bonds

    8,892,847        8,893,190   

From long-term investments

    484,567        256,946   

Donations

    55        55   
 

 

 

   

 

 

 
  $   56,074,435      $   55,689,739   
 

 

 

   

 

 

 

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

 

  a.

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

 

  b.

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

 

  c.

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

 

  d.

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

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

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

The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$8,333,282 thousand and NT$6,887,967 thousand for the nine months ended September 30, 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

 

- 25 -


The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, 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.

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in the shareholders’ meetings held on June 12, 2012 and June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

     Appropriation of Earnings          

Dividends Per Share

(NT$)

     For Fiscal
Year 2011
     For Fiscal
Year 2010
          For Fiscal
Year 2011
     For Fiscal  
Year 2010  

Legal capital reserve

   $ 13,420,128       $ 16,160,501              

Special capital reserve

     1,172,350         5,120,827              

Cash dividends to shareholders

     77,748,668         77,730,236          $3.00      $3.00
  

 

 

    

 

 

            
   $ 92,341,146       $ 99,011,564              
  

 

 

    

 

 

            

The Company’s profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 12, 2012 and June 9, 2011, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 14, 2012 and February 15, 2011 and same amount had been charged against earnings of 2011 and 2010, respectively.

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

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

 

  20. STOCK-BASED COMPENSATION PLANS

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

 

- 26 -


Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2012.

Information about outstanding options for the nine months ended September 30, 2012 and 2011 was as follows:

 

    

Number of

Options

(In Thousands)

 

Weighted-

average

Exercise Price

(NT$)

Nine months ended September 30, 2012

        

Balance, beginning of period

       14,293       $ 31.4          

Options exercised

       (5,825 )       30.3          

Options canceled

       (135 )       34.6          
    

 

 

     

Balance, end of period

           8,333         32.6          
    

 

 

     

Nine months ended September 30, 2011

        

Balance, beginning of period

       21,437       $ 31.4          

Options exercised

       (5,071 )       30.8          
    

 

 

     

Balance, end of period

       16,366         31.8          
    

 

 

     

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

As of September 30, 2012, information about outstanding options was as follows:

 

                                            Options Outstanding

Range of Exercise Price

              (NT$)

   Number of Options
(In Thousands)
         Weighted-average
Remaining
Contractual Life
(Years)
        

Weighted-average    

Exercise Price    

(NT$)    

            $20.2-$28.3

       5,569         0.6           $  26.0   

              38.0-  50.1

           2,764         2.2           45.8   
    

 

 

                     
       8,333         1.1           32.6   
    

 

 

                     

As of September 30, 2012, all of the above outstanding options were exercisable.

No compensation cost was recognized under the intrinsic value method for the nine months ended September 30, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the nine months ended September 30, 2012 and 2011 would have been as follows:

 

Valuation assumptions:

  

Expected dividend yield

   1.00%-3.44%

Expected volatility

   43.77%-46.15%

Risk free interest rate

   3.07%-3.85%

Expected life

   5 years

 

- 27 -


     Nine Months Ended September 30  
     2012      2011  

Net income:

     

Net income as reported

       $ 124,589,534       $ 102,622,631       

Pro forma net income

     124,442,977         102,618,784       

Earnings per share (EPS) - after income tax (NT$):

     

Basic EPS as reported

     $4.81         $3.96       

Pro forma basic EPS

     4.80         3.96       

Diluted EPS as reported

     4.81         3.96       

Pro forma diluted EPS

     4.80         3.96       

 

  21. TREASURY STOCK

 

     (Shares in Thousands)
          Purpose of Treasury Stock    Number of
Shares,
Beginning of
Period
   Addition    Number of
Shares, End of
Period

Nine months ended September 30, 2011

              

Shareholders executed the appraisal right

                     -                  1,000                  1,000   
    

 

 

      

 

 

      

 

 

 

In August 2011, at the option of the shareholders of the Company, certain shareholders requested the Company to buy back their shares pursuant to the Company Law. As of September 30, 2011, the book value and market value of treasury stock were NT$71,598 thousand and NT$69,998 thousand, respectively. These shares were subsequently retired in November 2011.

 

  22. EARNINGS PER SHARE

EPS is computed as follows:

 

                   Number of     

EPS (NT$)

 
     Amounts (Numerator)      Shares      Before      After  
     Before      After      (Denominator)      Income      Income  
     Income Tax      Income Tax      (In Thousands)      Tax      Tax  

Nine months ended September 30, 2012

              

Basic EPS

              

Earnings available to common shareholders

   $   137,301,802       $   124,589,534         25,919,899       $ 5.30       $ 4.81   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     -         -         7,139         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders (including effect of dilutive potential common shares)

   $   137,301,802       $   124,589,534         25,927,038       $ 5.30       $ 4.81   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 28 -


                   Number of     

EPS (NT$)

 
     Amounts (Numerator)      Shares      Before      After  
     Before      After      (Denominator)      Income      Income  
     Income Tax      Income Tax      (In Thousands)      Tax      Tax  

Nine months ended September 30, 2011

              

Basic EPS

              

Earnings available to common shareholders

   $   111,133,365       $   102,622,631         25,913,755       $ 4.29       $ 3.96   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     -         -         10,178         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

Earnings available to common shareholders (including effect of dilutive potential common shares)

   $   111,133,365       $   102,622,631         25,923,933       $ 4.29       $ 3.96   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

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

 

  23. DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a.

Fair values of financial instruments were as follows:

 

    September 30  
    2012     2011  
    Carrying           Carrying        
    Amount     Fair Value     Amount     Fair Value  

Assets

       

Financial assets at fair value through profit or loss

  $ 48,169      $ 48,169      $ 583,010      $ 583,010   

Available-for-sale financial assets

    1,624,700        1,624,700        2,735,777        2,735,777   

Held-to-maturity financial assets

    1,401,706        1,414,407        1,654,167        1,682,068   

Financial assets carried at cost

    483,759        -        497,835        -   

Liabilities

       

Financial liabilities at fair value through profit or loss

    4,045        4,045        173,829        173,829   

Bonds payable (including current portion)

    75,600,000        75,940,020        22,500,000        22,561,211   

Other long-term payables (including current portion)

    113,000        113,000        816,379        816,379   

 

  b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

  1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

  2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

- 29 -


  3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

  4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

  5)

Fair value of bonds payable was based on their quoted market price.

 

  6)

Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount.

 

  c.

Valuation gains/losses arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as net gains of NT$44,124 thousand and NT$409,181 thousand for the nine months ended September 30, 2012 and 2011, respectively.

 

  d.

As of September 30, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$1,449,875 thousand and NT$2,237,177 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$105,353,695 thousand and NT$58,693,483 thousand, respectively.

 

  e.

Movements of the unrealized gains or losses on financial instruments for the nine months ended September 30, 2012 and 2011 were as follows:

 

       Nine Months Ended September 30, 2012     
     From            
     Available-   Equity-        
     for-sale   method        
     Financial Assets   Investments   Total    

Balance, beginning of period

     $  (1,508,301 )     $  335,446       $  (1,172,855 )  

Recognized directly in shareholders’ equity

       (562,968 )       (186,610 )       (749,578 )  

Removed from shareholders’ equity and recognized in earnings

       2,190,873         -         2,190,873    
    

 

 

     

 

 

     

 

 

      

Balance, end of period

     $ 119,604       $ 148,836       $ 268,440    
    

 

 

     

 

 

     

 

 

   

 

       Nine Months Ended September 30, 2011     
     From            
     Available-   Equity-        
     for-sale   method        
     Financial Assets   Investments   Total    

Balance, beginning of period

     $ (395,306 )     $ 504,595       $ 109,289    

Recognized directly in shareholders’ equity

       (1,035,704 )       (261,919 )       (1,297,623 )  

Removed from shareholders’ equity and recognized in earnings

       (35,151 )       -         (35,151 )  

Effect of spin-off

       -         (3,298 )       (3,298 )  
    

 

 

     

 

 

     

 

 

   

Balance, end of period

     $  (1,466,161 )     $  239,378       $  (1,226,783 )  
    

 

 

     

 

 

     

 

 

   

 

- 30 -


  f.

Information about financial risks

 

  1)

Market risk.    The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities and the fluctuations in market prices will result in changes in fair values of overseas publicly traded stock.

 

  2)

Credit risk.    Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

  3)

Liquidity risk.    The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low.

 

  4)

Cash flow interest rate risk.    The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.

 

  24. RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

 

  a.

Subsidiaries

TSMC North America

TSMC China

TSMC Europe

TSMC Japan

TSMC Global

 

  b.

Investees

Xintec (holding a controlling financial interest)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

GUC (accounted for using the equity method)

 

  c.

Indirect subsidiaries

WaferTech, LLC (WaferTech)

TSMC Technology, Inc. (TSMC Technology)

TSMC Design Technology Canada Inc. (TSMC Canada)

 

  d.

Indirect investees

VisEra Technology Company, Ltd. (VisEra) (accounted for using the equity method)

 

- 31 -


  e.

Others

Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.

Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:

 

     2012           2011  
     Amount      %           Amount      %  

For the nine months ended September 30

              

Sales

              

TSMC North America

   $     238,620,510         63          $     175,631,354         55   

Others

     3,810,675         1            3,003,084         1   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 242,431,185         64          $ 178,634,438         56   
  

 

 

    

 

 

       

 

 

    

 

 

 

Purchases

              

TSMC China

   $ 11,401,736         26          $ 7,576,707         20   

WaferTech

     6,009,695         14            5,753,541         16   

VIS

     3,295,850         8            4,313,015         12   

SSMC

     2,759,305         6            2,963,867         8   

Others

     -         -            126,405         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 23,466,586         54          $ 20,733,535         56   
  

 

 

    

 

 

       

 

 

    

 

 

 

Manufacturing expenses

              

Xintec (outsourcing and rent)

   $ 126,170         -          $ 234,394         -   

VisEra (outsourcing)

     12,437         -            12,807         -   

VIS (rent)

     -         -            5,902         -   

Others

     230         -            -         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 138,837         -          $ 253,103         -   
  

 

 

    

 

 

       

 

 

    

 

 

 

Research and development expenses

              

TSMC Technology (primarily consulting fee)

   $ 549,422         2          $ 379,328         2   

TSMC Canada (primarily consulting fee)

     159,156         1            134,611         1   

TSMC Europe (primarily consulting fee)

     37,138         -            32,781         -   

VIS (rent)

     -         -            1,984         -   

Others

     14,058         -            27,432         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 759,774         3          $ 576,136         3   
  

 

 

    

 

 

       

 

 

    

 

 

 

Marketing expenses - commission

              

TSMC Europe

   $ 253,956         14          $ 278,938         16   

TSMC Japan

     211,785         11            204,379         11   

TSMC China

     52,033         3            48,001         3   

Others

     16,399         1            15,239         1   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 534,173            29          $ 546,557            31   
  

 

 

    

 

 

       

 

 

    

 

 

 

 

- 32 -


     2012           2011  
     Amount      %           Amount      %  

Sales of property, plant and equipment and other assets

              

TSMC China

   $ 45,982         70          $     2,691,880         85   

VisEra

     9,000         13            -         -   

WaferTech

     -         -            72,880         2   

VIS

     -         -            36,008         1   

Others

     10         -            253         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 54,992         83          $ 2,801,021         88   
  

 

 

    

 

 

       

 

 

    

 

 

 

Purchases of property, plant and equipment and other asset

              

TSMC China

   $ 68,455         -          $ 70,491         -   

GUC

     21,768         -            -         -   

Others

     7,961         -            -         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 98,184         -          $ 70,491         -   
  

 

 

    

 

 

       

 

 

    

 

 

 

Non-operating income and gains

              

VIS (primarily technical service income)

   $ 190,436         2          $ 179,067         3   

SSMC (primarily technical service income)

     163,122         2            160,376         2   

TSMC China (primarily technical service income and gains on disposal of property, plant and equipment)

     510         -            99,973         2   

Others

     12,887         -            3,716         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 366,955         4          $ 443,132         7   
  

 

 

    

 

 

       

 

 

    

 

 

 

Non-operating expenses and losses

              

TSMC China (losses on disposal of property, plant and equipment)

   $ 14,025         -          $ -         -   
  

 

 

    

 

 

       

 

 

    

 

 

 

As of September 30

              

Receivables

              

TSMC North America

   $     43,302,832         98          $ 28,158,589         98   

Others

     819,090         2            522,195         2   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 44,121,922          100          $ 28,680,784          100   
  

 

 

    

 

 

       

 

 

    

 

 

 

Other receivables

              

VIS

   $ 102,169         42          $ 85,453         6   

TSMC North America

     78,243         33            22,451         2   

SSMC

     54,975         23            47,921         3   

TSMC China

     508         -            1,318,300         88   

Others

     5,345         2            17,191         1   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 241,240         100          $ 1,491,316         100   
  

 

 

    

 

 

       

 

 

    

 

 

 

 

- 33 -


     2012           2011  
     Amount     %           Amount      %  

Payables

             

TSMC China

   $ 1,593,552        47          $ 878,485         28   

WaferTech

     716,484        21            657,374         21   

VIS

     382,552        11            1,011,671         32   

SSMC

     377,033        11            342,654         11   

Others

     333,937        10            270,864         8   
  

 

 

   

 

 

       

 

 

    

 

 

 
   $       3,403,558        100          $       3,161,048         100   
  

 

 

   

 

 

       

 

 

    

 

 

 

Other assets (deferred credits)

             

TSMC China

   $ (12,532     1          $ 9,048         1   

VisEra

     (1,006     -            -         -   

Others

     (9     -            -         -   
  

 

 

   

 

 

       

 

 

    

 

 

 
   $ (13,547     1          $ 9,048         1   
  

 

 

   

 

 

       

 

 

    

 

 

 

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

The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses. The lease expired in June 2011.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses. The lease expired in April 2011.

The Company deferred the disposal gains/losses (classified under other assets and deferred credits) derived from sales of property, plant and equipment and other assets to TSMC China, VisEra and others, and then recognized such gains/losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets.

The Company borrowed funds from related parties (classified under other payables to related parties). Additional disclosures consisted of the following:

 

     Nine Months Ended September 30, 2012
Financing Name            Maximum        
Balance
   Ending Balance   

Interest

Rate

  Interest Expense   

        Interest        

Payable

TSMC Global

     $   5,862,000        $             -          0.3911 %     $       4,870        $             -  
    

 

 

      

 

 

          

 

 

      

 

 

 
     Nine Months Ended September 30, 2011
Financing Name            Maximum        
Balance
   Ending Balance   

Interest

Rate

  Interest Expense   

        Interest        

Payable

TSMC Global

     $   24,684,000        $  10,693,900          0.3544 %     $     19,771        $     20,398  
    

 

 

      

 

 

          

 

 

      

 

 

 

 

- 34 -


  25. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2012 to July 2032 and can be renewed upon expiration.

As of September 30, 2012, future lease payments were as follows:

 

Year    Amount  

2012 (4th quarter)

   $ 128,258   

2013

     485,239   

2014

     468,057   

2015

     457,737   

2016

     447,573   

2017 and thereafter

     4,066,307   
  

 

 

 
   $   6,053,171   
  

 

 

 

 

  26. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of September 30, 2012, excluding those disclosed in other notes, were as follows:

 

  a.

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

 

  b.

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

 

  c.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

- 35 -


  d.

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

 

  e.

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

 

  f.

The Company joined the Customer Co-Investment Program of ASML Holding N.V. (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. Both parties also signed the research and development funding agreement and the Company will provide EUR277,000 thousand to ASML’s research and development programs from 2013 to 2017.

 

  27. SPIN-OFF BUSINESS INFORMATION

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, on August 1, 2011. As of August 1, 2011, the net book values transferred to TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.

The book values of transferred assets and liabilities were as follows:

 

     TSMC SSL     TSMC Solar     Total  

Current assets

   $ 431,613      $ 893,584      $ 1,325,197   

Long-term investments

     2,872        7,912,710        7,915,582   

Property, plant and equipment

     1,929,563        2,372,214        4,301,777   

Other assets

     234,696        201,677        436,373   

Current liabilities

     (292,728     (337,439     (630,167

Other liabilities

     (36,272     (25,218     (61,490

Capital surplus

     -        (56,094     (56,094

Unrealized gain/loss on financial instruments

     -        (3,298     (3,298

Cumulative translation adjustments

     256        221,864        222,120   
  

 

 

   

 

 

   

 

 

 
   $     2,270,000      $   11,180,000      $   13,450,000   
  

 

 

   

 

 

   

 

 

 

 

- 36 -


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

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

 

     September 30  
     2012           2011  
    

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

         

Foreign
Currencies

(In Thousands)

    

Exchange Rate

(Note)

 

Financial assets

              

Monetary items

              

USD

    $     2,377,871           29.31               $     1,785,057           30.554       

EUR

     72,500           37.82                125,219           41.56       

JPY

     9,536,181           0.3776                21,473,431           0.3996       

Non-monetary items

              

HKD

     429,815           3.78                697,902           3.92       

Investments accounted for using equity method

              

USD

     3,145,905           29.31                2,964,545           30.554       

EUR

     5,900           37.82                5,046           41.56       

JPY

     425,844           0.3776                414,489           0.3996       

RMB

     3,535,149           4.62                1,765,780           4.81       

Financial liabilities

              

Monetary items

              

USD

     1,905,536           29.31                1,909,980           30.554       

EUR

     84,527           37.82                127,408           41.56       

JPY

     30,136,800           0.3776                22,731,973           0.3996       

 

  Note:

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

 

  29. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

 

  a.

Financings provided:    Please see Table 1 attached;

 

  b.

Endorsement/guarantee provided:    None;

 

  c.

Marketable securities held:    Please see Table 2 attached;

 

  d.

Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital:    Please see Table 3 attached;

 

  e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital:    Please see Table 4 attached;

 

  f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital:    None;

 

- 37 -


  g.

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

 

  h.

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

 

  i.

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

 

  j.

Information about derivatives of investees over which the Company has a controlling interest:

Do not meet the criteria for hedge accounting

 

  1)

TSMC China

TSMC China entered into forward exchange contracts during the nine months ended September 30, 2012 to manage exposures due to foreign exchange rate fluctuations. No forward exchange contract was outstanding as of September 30, 2012

For the nine months ended September 30, 2012, net losses arising from forward exchange contracts of TSMC China amounted to NT$1,225 thousand.

 

  2)

Xintec

Xintec entered into forward exchange contracts during the nine months ended September 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of September 30, 2012 consisted of the following:

 

     Maturity Date  

Contract Amount

(In Thousands)

    

Sell US$/Buy NT$

   October 2012 to December 2012   US$21,190/NT$630,894           

For the nine months ended September 30, 2012, net gains arising from forward exchange contracts of Xintec amounted to NT$15,051 thousand.

 

  3)

TSMC Partners

TSMC Partners entered into forward exchange contracts during the nine months ended September 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of September 30, 2012 consisted of the following:

 

     Maturity Date  

Contract Amount

(In Thousands)

    

Sell RMB/Buy US$

   October 2012   RMB685,056/US$108,000           

For the nine months ended September 30, 2012, net losses arising from forward exchange contracts of TSMC Partners amounted to NT$56,096 thousand.

 

- 38 -


  4)

TSMC Solar

TSMC Solar entered into derivative contracts during the nine months ended September 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of September 30, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

    

Sell NT$/Buy US$

   October 2012 to November 2012    NT$380,532/US$12,700   

Sell NT$/Buy JPY

   October 2012    NT$23,915/JPY63,000   

Sell NT$/Buy EUR

   October 2012    NT$7,684/EUR200   

Outstanding cross currency swap contracts as of September 30, 2012 consisted of the following:

 

Maturity Date   

Contract Amount

(In Thousands)

  Range of
Interest Rates
Paid
   Range of
Interest Rates
Received
    

October 2012

   NT$833,013/US$28,280   -    0.04%-0.05%   

For the nine months ended September 30, 2012, net losses arising from derivative financial instruments of TSMC Solar amounted to NT$24,531 thousand.

 

  5)

TSMC SSL

TSMC SSL entered into derivative contracts during the nine months ended September 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of September 30, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

    

Sell NT$/Buy US$

   October 2012    NT$68,880/US$2,300   

Sell NT$/Buy JPY

   October 2012 to November 2012    NT$125,102/JPY330,000   

No cross currency swap contract was outstanding as of September 30, 2012

For the nine months ended September 30, 2012, net losses arising from derivative financial instruments of TSMC SSL amounted to NT$6,470 thousand.

Meet the criteria for hedge accounting

 

  1)

Xintec

Xintec monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, Xintec seeks to reduce the effects of future cash flow related interest rate exposures by primarily using derivative financial instruments.

Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate swap contract to hedge such a cash flow interest rate risk. The interest rate swap contract of Xintec was due in August 2012.

 

- 39 -


For the nine months ended September 30, 2012, the adjustment for current period to shareholder’s equity amounted to a net gain of NT$5 thousand for the above Xintec’s interest rate swap contract. The amount removed from shareholder’s equity and recognized as a loss amounted to NT$227 thousand.

 

  2)

TSMC Global

TSMC Global monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, TSMC Global seeks to reduce the effects of future cash flow related exchange rate exposures by primarily using derivative financial instruments.

TSMC Global entered into derivative contracts during the nine months ended September 30, 2012 to hedge cash flow risk arising from foreign exchange rate fluctuations of an expected equity transaction. Outstanding forward exchange contracts as of September 30, 2012 consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

    

Sell US$/Buy EUR

   October 2012    US$257,759/EUR200,000   

 

Hedged Item  

Hedging Financial

Instrument

  Fair Value
September 30,
2012
  Expected
Cash Flow
Generated Period
 

Expected Timing for the
Recognition of Gains

or Losses from Hedge

    

Expected equity transaction

 

Forward exchange contract

  $28,189   2012   2015 and thereafter   

For the nine months ended September 30, 2012, the adjustment for current period to shareholder’s equity accounted to a net gain of NT$28,189 thousand for the above TSMC Global’s forward exchange contract.

 

  k.

Information on investment in Mainland China

 

  1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee:    Please see Table 8 attached.

 

  2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports:    Please see Note 24.

 

  30. OPERATING SEGMENTS INFORMATION

The Company has provided the operating segments disclosure in the consolidated financial statements.

 

  31. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the management on October 23, 2012.

 

- 40 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Investees

FINANCINGS PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

                                                          Collateral     Financing
Limits for
Each
Borrowing
Company
    Financing
Company’s
Total
Financing
Amount
Limits

(Note 3)
 

No.

 

Financing Company

 

Counter
-party

 

Financial
Statement
Account

  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      

1

  TSMC Partners   TSMC China   Other receivables from related parties   $

(US$

7,327,500

250,000

  

  $

(US$

7,327,500

250,000

  

  $

(US$

5,275,800

180,000

  

  0.25%-0.26%   The need
for
short-
term
financing
  $ -      Purchase
equipment
  $ -        -      $ -      $

 

38,059,496

(Note 1

  

  $ 38,059,496   
    TSMC Solar   Other receivables from related parties    

(US$

1,172,400

40,000

  

    -        -      -   The need
for
short-
term
financing
    -      Operating
capital
    -        -        -       

 

15,223,798

(Note 1

  

    38,059,496   
    TSMC SSL  

Other receivables from related parties

 

   

(US$

 

879,300

30,000

 

  

 

   

(US$

879,300

30,000

  

    -      -   The need
for
short-
term
financing

 

    -      Operating
capital
    -        -        -       

 

 

15,223,798

(Note 1

 

  

 

    38,059,496   

2

  TSMC Development   TSMC Solar  

Other receivables from related parties

 

   

(US$

 

2,344,800

80,000

 

  

 

   

(US$

2,344,800

80,000

  

   

(US$

1,099,125

37,500

  

  0.21%   The need
for
short-
term
financing
    -      Operating
capital
    -        -        -       

 

 

5,111,393

(Notes 1 and 5

 

  

 

   

 

12,778,483

(Note 5

  

3

 

TSMC Global

  TSMC   Other receivables from related parties    

(US$

 

5,862,000

200,000

 

  

 

    -        -      -   The need
for
short-
term
financing
    -      Support the
parent
company’s
short-term
operation
requirement
    -        -        -       

 

43,089,715

(Note 2

  

    43,089,715   

 

 

Note 1:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners and TSMC Development, respectively. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC. However, financing limits for those subsidiaries shall be no more than forty percent (40%) of the lender’s net worth.

 

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 Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions.

 

Note 3:

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

 

Note 4:

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

 

Note 5:

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

 

- 41 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2012

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

 

 

    Held Company    
    Name    

  

    Marketable    
    Securities Type    
    and Name    

  

    Relationship    
    with the    
     Company    

  

    Financial    
    Statement    
     Account    

   September 30, 2012        Note  
                Shares/Units    
    (In    
    Thousands)    
         Carrying Value    
    (Foreign    
    Currencies in    
    Thousands)    
         Percentage    
    of     
    Ownership    
    (%)    
         Market Value or    
    Net Asset Value    

    (Foreign    
    Currencies in    
    Thousands)    
    

TSMC

  

Corporate bond

                    
  

Nan Ya Plastics Corporation

   -         

Held-to-maturity financial assets

     -               $    1,099,841                 N/A                 $    1,111,222             
  

China
Steel Corporation

   -          〃            -               301,865                 N/A                 303,185             
  

Stock

                    
  

Semiconductor Manufacturing International Corporation

   -         

Available-for-sale financial assets

     1,508,122               1,624,700                 5                 1,624,700             
  

TSMC Global

  

Subsidiary

  

Investments accounted for using equity method

     1               43,089,715                 100                 43,089,715             
  

TSMC Partners

  

Subsidiary

   〃            988,268               38,058,989                 100                 38,059,496             
  

VIS

  

Investee accounted for using equity method

   〃            628,223               9,161,979                 41                 11,370,845             
  

TSMC Solar

  

Subsidiary

   〃            1,118,000               8,045,131                 99                 8,032,665             
  

SSMC

  

Investee accounted for using equity method

   〃            314               6,253,232                 39                 6,039,249             
  

TSMC
North America

  

Subsidiary

   〃            11,000               3,164,974                 100                 3,164,974             
  

TSMC SSL

  

Subsidiary

   〃            430,400               2,822,776                 95                 2,822,776             
  

Xintec

  

Investee with a controlling financial interest

   〃            94,950               1,573,654                 40                 1,573,654             
  

GUC

  

Investee accounted for using equity method

   〃            46,688               1,177,159                 35                 5,439,136             
  

TSMC Europe

  

Subsidiary

   〃            -               223,125                 100                 223,125             
  

TSMC Japan

  

Subsidiary

   〃            6               160,799                 100                 160,799             
  

TSMC Korea

  

Subsidiary

   〃            80               24,805                 100                 24,805             
  

United Industrial Gases
Co., Ltd.

  

-      

  

Financial assets carried at cost

     19,300               193,584                 10                 359,925             
  

Shin-Etsu Handotai Taiwan Co., Ltd.

  

-      

   〃            10,500               105,000                 7                 337,945             
  

W.K. Technology Fund IV

  

-      

   〃            4,000               40,000                 2                 35,545             
  

Fund

                    
  

Horizon Ventures Fund

  

-      

  

Financial assets carried at cost

     -               89,916                 12                 89,916             
  

Crimson Asia Capital

  

-      

   〃            -               55,259                 1                 55,259             
  

Capital

                    
  

TSMC China

  

Subsidiary

  

Investments accounted for using equity method

     -               16,309,653                 100                 16,332,387             
  

VTAF III

  

Subsidiary

   〃            -               1,056,641                 50                 1,034,689             
  

VTAF II

  

Subsidiary

   〃            -               654,685                 98                 648,615             
  

Emerging Alliance

  

Subsidiary

   〃            -               169,756                 99                 169,756             
  

TSMC GN

  

Subsidiary

   〃            -               71,723                 100                 71,723             

TSMC Solar

  

Stock

                    
  

Motech

  

Investee accounted for using equity method

  

Investments accounted for using equity method

     87,480               4,452,514                 20                 2,975,843             
  

TSMC Solar Europe

  

Subsidiary

   〃            -               100,243                 100                 100,243             
  

TSMC Solar NA

  

Subsidiary

   〃            1               (736)                100                 (736)            
  

Capital

                    
  

VTAF III

  

Investee accounted for using equity method

 

  

Investments accounted for using equity method

 

     -               1,627,669                 49                 1,627,669             

(Continued)

 

- 42 -


    Held Company    

    Name    

 

    Marketable    

    Securities Type    

    and Name    

 

    Relationship    

    with the    

    Company    

 

    Financial    

    Statement    

    Account    

  September 30, 2012       Note  
            Shares/Units    
    (In    
    Thousands)    
        Carrying Value    
    (Foreign    
    Currencies in    
    Thousands)    
        Percentage    
    of    
    Ownership    

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

TSMC SSL

  Stock              
 

TSMC Lighting NA

  Subsidiary  

Investments accounted for using equity method

    1                    $ 2,890                100                        $ 2,890             

TSMC GN

  Stock              
 

TSMC Solar

 

Investee accounted for using equity method

 

Investments accounted for using equity method

    4,302              30,909                -                  30,909             
 

TSMC SSL

 

Investee accounted for using equity method

  〃           4,680              30,691                1                  30,691             

TSMC Partners

  Corporate bond              
 

General Elec Cap Corp. Mtn

  -        

Held-to-maturity financial assets

    -                    US$ 19,995                N/A                        US$ 20,046             
 

Stock

             
 

TSMC Development, Inc. (TSMC Development)

 

Subsidiary

 

Investments accounted for using equity method

    1                    US$  581,920                100                        US$  581,920             
 

VisEra Holding Company

 

Investee accounted for using equity method

  〃           43,000                    US$ 99,406                49                        US$ 99,406             
 

TSMC Technology

 

Subsidiary

  〃           1                    US$ 11,532                100                        US$ 11,532             
 

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

 

Subsidiary

  〃           14,153                    US$ 8,672                97                        US$ 8,672             
 

InveStar Semiconductor Development Fund, Inc. (ISDF)

 

Subsidiary

  〃           787                    US$ 6,336                97                        US$ 6,336             
 

TSMC Canada

 

Subsidiary

  〃           2,300                    US$ 4,554                100                        US$ 4,554             
 

Mcube Inc.

 

Investee accounted for using equity method

  〃           6,333              -                25                  -             
 

Fund

             
 

Shanghai Walden Venture Capital Enterprise

  -        

Financial assets carried at cost

    -                    US$ 5,000                6                        US$ 5,000             

TSMC North America

  Stock              
 

Spansion Inc.

  -        

Available-for-sale financial assets

    270                    US$ 3,216                -                        US$ 3,216             

TSMC Development

  Corporate bond              
 

GE Capital Corp.

  -        

Held-to-maturity financial assets

    -                    US$ 19,993                N/A                        US$ 20,046             
 

JP Morgan Chase & Co.

  -         〃           -                    US$ 15,000                N/A                        US$ 15,006             
 

Stock

             
 

WaferTech

  Subsidiary  

Investments accounted for using equity method

    293,640                    US$  290,054                100                        US$ 290,054             

Emerging Alliance

  Common stock              
 

Audience, Inc.

  -        

Available-for-sale financial assets

    46                    US$ 286                -                        US$ 286             
 

Global Investment Holding Inc.

  -        

Financial assets carried at cost

    11,124                    US$ 3,065                6                        US$ 3,065             
 

RichWave Technology Corp.

  -         〃           4,074                    US$ 1,545                10                        US$ 1,545             
 

Preferred stock

             
 

Next IO, Inc.

  -        

Financial assets carried at cost

    8                    US$ 500                -                        US$ 500             
 

QST Holdings, LLC

  -         〃           -                    US$ 142                4                        US$ 142             
 

Capital

             
 

VentureTech Alliance Holdings, LLC (VTA Holdings)

  Subsidiary  

Investments accounted for using equity method

    -              -                7                  -             

VTAF II

  Common stock              
 

Audience, Inc.

  -        

Available-for-sale financial assets

    319                    US$ 1,976                2                        US$ 1,976             
 

Sentelic

  -        

Financial assets carried at cost

    1,806                    US$ 2,607                9                        US$ 2,607             
 

Aether Systems, Inc.

  -         〃           1,800                    US$
1,701        
  
    23                        US$ 1,701             
 

RichWave Technology Corp.

 

  -         〃           1,267                    US$ 1,036                3                        US$ 1,036             

(Continued)

 

- 43 -


Held Company

Name

 

Marketable
Securities Type
and Name

 

Relationship

with the

Company

 

Financial

Statement

Account

  September 30, 2012     Note
        Shares/Units
(In
Thousands)
    Carrying Value
(Foreign
Currencies in
Thousands)
    Percentage
of
Ownership
(%)
    Market Value or
Net Asset Value

(Foreign
Currencies in
Thousands)
   

 

VTAF II

 

 

Preferred stock

             
 

5V Technologies, Inc.

  -        

Financial assets carried at cost

    2,890                US$ 2,168              4                    US$ 2,168           
 

Aquantia

  -        

〃      

    4,556                US$ 4,316              2                    US$ 4,316           
 

Cresta Technology Corporation

  -        

〃      

    92                US$ 28              -                    US$ 28           
 

Impinj, Inc.

  -        

〃      

    711                US$ 1,100              -                    US$ 1,100           
 

Next IO, Inc.

  -        

〃      

    179                US$ 1,219              1                    US$ 1,219           
 

Power Analog Microelectronics

  -        

〃      

    7,330                US$ 3,483              21                    US$ 3,483           
 

QST Holdings, LLC

  -        

〃      

    -                US$ 593              13                    US$ 593           
 

 

Capital

             
 

VTA Holdings

  Subsidiary  

Investments accounted for using equity method

    -              -              31                  -           

VTAF III

 

Common stock

             
 

Mutual-Pak Technology Co., Ltd.

  Subsidiary  

Investments accounted for using equity method

    14,168                US$ 1,373              58                    US$ 1,373           
 

InvenSense, Inc.

  -        

Available-for-sale financial assets

    93                US$ 1,115              -                    US$ 1,115           
 

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.

  -        

〃      

    4,031                US$ 4,810              4                    US$ 4,810           
 

Powervation, Ltd.

  -        

〃      

    449                US$ 7,030              16                    US$ 7,030           
 

Stion Corp.

  -        

〃      

    8,152                US$     55,474              17                    US$    55,474           
 

Tilera, Inc.

  -        

〃      

    3,890                US$ 3,025              2                    US$ 3,025           
 

Validity Sensors, Inc.

  -        

〃      

    9,340                US$ 3,456              4                    US$ 3,456           
 

 

Capital

             
 

Growth Fund Limited (Growth Fund)

  Subsidiary  

Investments accounted for using equity method

    -                US$ 424              100                    US$ 424           
 

VTA Holdings

  Subsidiary  

〃      

    -              -              62                  -           

 

Growth Fund

 

 

Common stock

             
 

Veebeam

  -        

Financial assets carried at cost

    10                US$ 25              -                    US$ 25           

 

ISDF

 

 

Common stock

             
 

Integrated Memory Logic, Inc.

  -        

Available-for-sale financial assets

    1,402                US$ 4,772              2                    US$ 4,772           
 

Memsic, Inc.

  -        

〃      

    1,286                US$ 2,044              5                    US$ 2,044           
 

 

Preferred stock

             
 

Sonics, Inc.

  -        

Financial assets carried at cost

    230                US$ 497              2                    US$ 497           

 

ISDF II

 

 

Common stock

             
 

Memsic, Inc.

  -        

Available-for-sale financial assets

    1,072                US$ 1,705              4                    US$ 1,705           
 

Alchip Technologies Limited

  -        

Financial assets carried at cost

    7,520                US$ 3,664              14                    US$ 3,664           
 

Sonics, Inc.

  -        

〃      

    278                US$ 10              3                    US$ 10           
 

Goyatek Technology, Corp.

  -        

〃      

    745                US$ 163              6                    US$ 163           
 

Auden Technology MFG. Co., Ltd.

  -        

〃      

    1,049                US$ 223              3                    US$ 223           
 

 

Preferred stock

             
 

Sonics, Inc.

 

 

-      

 

 

Financial assets carried at cost

 

   

 

264      

 

  

 

      US$

 

455      

 

  

 

   

 

3          

 

  

 

      US$

 

455      

 

  

 

 

(Continued)

 

- 44 -


                    September 30, 2012       

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
(%)
     Market Value or
Net Asset Value

(Foreign
Currencies in
Thousands)
    

Note

Xintec

   Capital                     
  

Compositech Ltd.

   -   

Financial assets carried at cost

     587           $                  -               3                  $              -              

TSMC Solar Europe  

  

Stock

                    
  

TSMC Solar Europe GmbH

   Subsidiary   

Investments accounted for using equity method

     1           EUR    2,554               100                    EUR    2,554            

TSMC Global

  

Corporate bond

                    
  

Aust + Nz Banking Group

   -   

Held-to-maturity financial assets

     20,000           US$  20,000               N/A                    US$  20,041            
  

Commonwealth Bank of Australia

   -         25,000           US$  25,000               N/A                    US$  24,871            
  

Commonwealth Bank of Australia

   -         25,000           US$  25,000               N/A                    US$  24,935            
  

Deutsche Bank AG London

   -         20,000           US$  19,970               N/A                    US$  20,085            
  

JP Morgan Chase + Co.

   -         35,000           US$  35,016               N/A                    US$  35,108            
  

Westpac Banking Corp.

   -         25,000           US$  25,000               N/A                    US$  24,972            
  

Westpac Banking Corp. 12/12 Frn

 

  

-

 

  

 

    

 

5,000  

 

  

 

    

 

US$    5,000      

 

  

 

    

 

N/A         

 

  

 

    

 

  US$    5,003      

 

  

 

  

(Concluded)

 

- 45 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

Company
Name

 

Marketable
Securities

Type and

Name

 

Financial

Statement

Account

  Counter
-party
  Nature of
Relationship
  Beginning Balance     Acquisition     Disposal (Note 1)     Ending Balance (Note 2)  
          Shares/
Units

(In
Thousands)
    Amount
(US$ in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(US$  in
Thousands)
    Share/
Units

(In
Thousands)
    Amount
(US$ in
Thousands)
    Carrying
Value

(US$  in
Thousands)
    Gain/Loss
on Disposal
(US$ in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(US$ in
Thousands)
 

TSMC

  Stock                          
  Semiconductor Manufacturing International Corporation   Available-for-sale financial assets   -   -     1,789,493      $ 2,617,134        -        $ -          281,371      $ 314,159        $ 276,236        $ 37,923          1,508,122        $ 1,624,700     
  TSMC SSL   Investments accounted for using equity method   -   Subsidiary     227,000        1,746,893        203,400        2,034,000          -          -          -          -          430,400          2,822,776     
  Capital                          
  TSMC GN   Investments accounted for using equity method   -   Subsidiary     -        -        -          100,000          -          -          -          -          -          71,723     

VTAF III

  Stock                          
 

InvenSense, Inc.

 

 

Available-for-sale financial assets

 

  -

 

  -

 

   

 

796

 

  

 

  US$

 

7,932

 

  

 

   

 

-  

 

  

 

   

 

-  

 

  

 

   

 

703

 

  

 

  US$

 

7,460  

 

  

 

  US$

 

861  

 

  

 

  US$

 

6,599  

 

  

 

   

 

93  

 

  

 

  US$

 

1,115  

 

  

 

 

Note 1:

The data for marketable securities disposed exclude bonds maturities.

 

Note 2:

The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

- 46 -


TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company 
Name

 

Types of

 Property 

 

Transaction Date

  Transaction
Amount
   

Payment Term

 

Counter-party

 

Nature of
Relationships 

 

Prior Transaction of Related
Counter-party

 

Price
Reference 

 

Purpose of
Acquisition

 

Other
Terms

             

Owner 

 

Relationships 

 

Transfer 
Date

 

Amount 

     

TSMC

 

Fab

 

February 7, 2012 to September 27, 2012

  $ 150,713     

By the construction progress

 

MandarTech Interiors Inc.

  -   N/A   N/A   N/A   N/A  

Public bidding 

 

Manufacturing purpose

  None
 

Fab

 

February 7, 2012 to September 27, 2012

    124,159     

By the construction progress

 

I Domain Industrial Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
 

Fab

 

February 13, 2012 to September 26, 2012

    3,614,272     

By the construction progress

 

Da Cin Construction Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
 

Fab

 

February 13, 2012 to September 27, 2012

    1,481,350     

By the construction progress

 

Fu Tsu Construction Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
 

Fab

 

March 19, 2012 to September 27, 2012

    1,943,723     

By the construction progress

 

China Steel Structure Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
 

Fab

 

March 19, 2012 to July 27, 2012

    185,115     

By the construction progress

 

Toko Steel Structure Corporation

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing purpose

  None
 

Fab

 

May 28, 2012 to September 27, 2012

 

   
279,434
  
 

By the construction progress

 

Tasa Construction Corporation

 

-

 

N/A

 

N/A

 

N/A

 

N/A

 

Public bidding

 

Manufacturing purpose

 

None

 

- 47 -


TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

Company Name  

 

Related Party 

 

Nature of
Relationships 

 

Transaction Details

  Abnormal Transaction   Notes/Accounts Payable
or Receivable
   

Note

     

Purchases/ 

Sales 

  Amount
(US$ in  Thousands)
    % to
Total
   

Payment Terms

  Unit Price 
(Note) 
  Payment Terms 
(Note) 
  Ending Balance
(US$ in Thousands)
    % to
Total
   

TSMC

 

TSMC North America

 

Subsidiary

  Sales        $   238,620,510             63       

Net 30 days after invoice date

  -     -          $ 43,302,832             67       
 

GUC

 

Investee accounted for using equity method

  Sales     3,653,307             1       

Net 30 days after monthly closing

  -     -       818,780             1       
 

VIS

 

Investee accounted for using equity method

  Sales     139,247             -       

Net 30 days after monthly closing

  -     -       -             -       
 

TSMC China

 

Subsidiary

  Purchases     11,401,736             26       

Net 30 days after monthly closing

  -     -       (1,593,552)            10       
 

WaferTech

 

Indirect subsidiary

  Purchases     6,009,695             14       

Net 30 days after monthly closing

  -     -       (716,484)            4       
 

VIS

 

Investee accounted for using equity method

  Purchases     3,295,850             8       

Net 30 days after monthly closing

  -     -       (382,552)            2       
 

SSMC

 

Investee accounted for using equity method

  Purchases     2,759,305             6       

Net 30 days after monthly closing

  -     -       (377,033)            2       

TSMC North America

 

GUC

 

Investee accounted for using equity method by TSMC

  Sales    

    (US$

415,797     

13,989)    

  

  

    -       

Net 30 days after invoice date

  -     -      

    (US$

34,139     

1,165)    

  

  

    -       
 

Mcube Inc.

 

Investee accounted for using equity method by TSMC

  Sales    

    (US$

123,926     

4,169)    

  

  

    -       

Net 60 days after invoice date

  -     -      

    (US$

71,948     

2,455)    

  

  

    -       

Xintec

 

OmniVision

 

Parent company of director (represented for Xintec)

 

  Sales     950,178             40       

Net 30 days after monthly closing

  -     -       242,205             42       

 

Note:

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

 

- 48 -


TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

SEPTEMBER 30, 2012

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

 

 

      Company       
Name 

 

  Related   
  Party   

 

Nature of Relationships 

 

Ending Balance 

(US$ in Thousands) 

 

Turnover 

Days 

(Note 1) 

 

Overdue

 

Amounts 
Received 

in Subsequent 
Period 

 

  Allowance for 

Bad Debts

         

    Amount     

 

    Action Taken     

   

TSMC

 

TSMC North   America

 

Subsidiary

  $  43,381,075   39   $  16,828,556    -     $  17,035,623   $                    -
  GUC  

Investee accounted for using equity method

           818,780   35                       -    -                         -                         -
  VIS  

Investee accounted for using equity method

           102,169   (Note 2)                       -    -                         -                         -

TSMC Partners

  TSMC China  

The same parent company

 

       5,298,835

(US$  180,786)

  (Note 2)                       -    -                         -                         -

TSMC Development  

  TSMC Solar  

The same parent company

 

      1,099,157

(US$    37,501)

  (Note 2)                       -    -                         -                         -

Xintec

  OmniVision  

Parent company of director (represented for Xintec)

          242,205   70                       -    -                         -                         -

TSMC Technology

  TSMC  

Parent company

 

         169,554

(US$      5,785)

  (Note 2)                       -    -                         -                         -

WaferTech

  TSMC  

Parent company

 

         716,484

(US$    24,445)

 

  26                       -    -                         -                         -

 

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.

 

- 49 -


TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Investees

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

SEPTEMBER 30, 2012

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

 

 

        Investor        
Company

 

        Investee        
Company

 

    Location     

 

          Main Businesses           
and Products

  Original Investment
Amount
    Balance as of September 30, 2012     Net Income
(Losses) of
the Investee

(Foreign
Currencies
in
Thousands)
    Equity in
the

Earnings
(Losses)

(Note 1)
(Foreign
Currencies
in
Thousands)
   

        Note        

        September 30,
2012
(Foreign
Currencies in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage 
of 
Ownership 
  Carrying
Value

(Foreign
Currencies
in
Thousands)
       

TSMC

 

TSMC Global

 

Tortola, British Virgin Islands

 

Investment activities

   $  42,327,245       $  42,327,245        1      100    $  43,089,715       $ 418,578       $ 418,578     

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     38,058,989        4,276,782        4,276,275     

Subsidiary

 

TSMC China

 

Shanghai, China

 

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

    18,939,667        18,939,667        -      100     16,309,653        3,342,620        3,360,919     

Subsidiary

 

VIS

 

Hsin-Chu, Taiwan

 

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

    13,232,288        13,232,288        628,223        41     9,161,979        1,591,018        475,957     

Investee accounted for using equity method

 

TSMC Solar

 

Tai-Chung, Taiwan

 

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

    11,180,000        11,180,000        1,118,000        99     8,045,131        (1,992,115     (2,039,091  

Subsidiary

 

SSMC

 

Singapore

 

Fabrication and supply of integrated circuits

    5,120,028        5,120,028        314        39     6,253,232        3,389,373        1,314,751     

Investee accounted for using equity method

 

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     3,164,974        254,278        254,278     

Subsidiary

 

TSMC SSL

 

Hsin-Chu, Taiwan

 

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

    4,304,000        2,270,000        430,400        95     2,822,776        (1,035,798     (988,095  

Subsidiary

 

Xintec

 

Taoyuan, Taiwan

 

Wafer level chip size packaging service

    1,357,890        1,357,890        94,950        40     1,573,654        (30,286     (25,126  

Investee with a controlling financial interest

 

GUC

 

Hsin-Chu, Taiwan

 

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

    386,568        386,568        46,688        35     1,177,159        479,412        161,700     

Investee accounted for using equity method

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    1,891,163        2,074,155        -        50     1,056,641        139,456        141,658     

Subsidiary

 

VTAF II

 

Cayman Islands

 

Investing in new start-up technology companies

    821,890        949,267        -        98     654,685        53,204        52,140     

Subsidiary

 

TSMC Europe

 

Amsterdam, the Netherlands

 

Marketing and engineering supporting activities

    15,749        15,749        -      100     223,125        25,780        25,780     

Subsidiary

 

Emerging Alliance

 

Cayman Islands

 

Investing in new start-up technology companies

    860,889        892,855        -        99     169,756        (7,667     (7,628  

Subsidiary

 

TSMC Japan

 

Yokohama, Japan

 

Marketing activities

    83,760        83,760        6      100     160,799        4,193        4,193     

Subsidiary

 

TSMC GN

 

Taipei, Taiwan

 

Investment activities

    100,000        -        -      100     71,723        (16,617     (16,617  

Subsidiary

 

TSMC Korea

 

Seoul, Korea

 

Customer service and technical supporting activities

    13,656        13,656        80      100     24,805        1,169        1,169     

Subsidiary

TSMC Solar

 

Motech

 

Taipei, Taiwan

 

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

    6,228,661        6,228,661        87,480        20     4,452,514        (3,995,140     Note 2     

Investee accounted for using equity method

 

VTAF III

 

Cayman Islands

 

Investing in new start-up technology companies

    1,800,466        1,795,131        -        49     1,627,669        139,456        Note 2     

Investee accounted for using equity method

 

TSMC Solar Europe

 

Amsterdam, the Netherlands

 

Investing in solar related business

    411,032        411,032        -      100     100,243        (97,325     Note 2     

Subsidiary

 

TSMC Solar NA

 

Delaware, U.S.A.

 

Selling and marketing of solar related products

 

    147,686        147,686        1      100     (736     (51,960     Note 2     

Subsidiary

(Continued)

 

- 50 -


        Investor        
Company

 

        Investee        
Company

 

    Location     

 

          Main Businesses           
and Products

  Original Investment
Amount
    Balance as of September 30, 2012     Net Income
(Losses) of the
Investee

(Foreign
Currencies

in
Thousands)
    Equity in
the

Earnings
(Losses)

(Note 1)
(Foreign
Currencies
in
Thousands)
   

        Note        

        September 30,
2012
(Foreign
Currencies in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage 
of 
Ownership 
  Carrying
Value

(Foreign
Currencies

in
Thousands)
       

TSMC SSL

 

TSMC Lighting NA

 

Delaware, U.S.A.

 

Selling and marketing of solid state lighting related products

   $ 3,133        $ 3,133         1      100    $ 2,890        $ (7     Note 2      

Subsidiary

TSMC Partners

 

TSMC Development

 

Delaware, U.S.A.

 

Investment activities

   US$ 0.001        US$ 0.001         1      100    US$  581,920        US$ 121,886        Note 2      

Subsidiary

 

VisEra Holding Company

 

Cayman Islands

 

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

   US$ 43,000        US$ 43,000         43,000        49    US$ 99,406        US$ 20,894        Note 2      

Investee accounted for using equity method

 

TSMC Technology

 

Delaware, U.S.A.

 

Engineering support activities

   US$ 0.001        US$ 0.001         1      100    US$ 11,532        US$ 917        Note 2      

Subsidiary

 

ISDF II

 

Cayman Islands

 

Investing in new start-up technology companies

   US$ 14,153        US$ 14,153         14,153        97    US$ 8,672        US$ (105     Note 2      

Subsidiary

 

ISDF

 

Cayman Islands

 

Investing in new start-up technology companies

   US$ 787        US$ 787         787        97    US$ 6,336        US$ 2,508        Note 2      

Subsidiary

 

TSMC Canada

 

Ontario, Canada

 

Engineering support activities

   US$ 2,300        US$ 2,300         2,300      100    US$ 4,554        US$ 317        Note 2      

Subsidiary

 

Mcube Inc.

 

Delaware, U.S.A.

 

Research, development, and sale of micro-semiconductor device

   US$ 1,800        US$ 1,800         6,333        25           US$ (9,715     Note 2      

Investee accounted for using equity method

TSMC Development

 

WaferTech

 

Washington, U.S.A.

 

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

   US$  280,000        US$  280,000         293,640      100    US$ 290,054        US$ 120,398        Note 2      

Subsidiary

VTAF III

 

Mutual-Pak Technology Co., Ltd.

 

Taipei, Taiwan

 

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

   US$ 4,718        US$ 3,937         14,168        58    US$ 1,373        US$ (981     Note 2      

Subsidiary

 

Growth Fund

 

Cayman Islands

 

Investing in new start-up technology companies

   US$ 1,830        US$ 1,830              100    US$ 424        US$ (86     Note 2      

Subsidiary

 

VTA Holdings

 

Delaware, U.S.A.

 

Investing in new start-up technology companies

                         62                   Note 2      

Subsidiary

VTAF II

  VTA Holdings  

Delaware, U.S.A.

 

Investing in new start-up technology companies

                         31                   Note 2      

Subsidiary

Emerging Alliance

  VTA Holdings  

Delaware, U.S.A.

 

Investing in new start-up technology companies

                           7                   Note 2      

Subsidiary

TSMC Solar Europe

 

TSMC Solar Europe GmbH

 

Hamburg, Germany

 

Selling of solar related products and providing customer service

   EUR 9,900       EUR 9,900         1      100    EUR 2,554        EUR (2,548     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

    43,022                4,302      -     30,909         (1,992,115     Note 2      

Investee accounted for using equity method

 

TSMC SSL

 

Hsin-Chu, Taiwan

 

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

 

    46,825                4,680          1     30,691         (1,035,798     Note 2      

Investee accounted for using equity method

 

Note 1:

Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.

 

Note 2:

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

 

(Concluded)

 

- 51 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Investees

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

Investee Company

 

Main
Businesses
and Products

  Total  Amount
of  Paid-in
Capital

(Foreign
Currencies
in Thousands)
    Method of
Investment
  Accumulated
Outflow of
Investment

from Taiwan
as of
January 1,
2012
(US$ in
Thousands)
    Investment Flows     Accumulated
Outflow of
Investment

from Taiwan
as of
September 30,
2012 (US$

in Thousands)
    Percentage of
Ownership
  Equity
in  the
Earnings
(Losses)
    Carrying
Value
as of
September 30,
2012
(US$
in Thousands)
    Accumulated
Inward
Remittance
of Earnings

as of
September 30,
2012
 
         

 

Outflow

    Inflow            

TSMC China

 

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

   $

(RMB

18,939,667

4,502,080

  

  (Note 1)    $

(US$

      18,939,667

596,000

  

  $             -      $             -       $

(US$

      18,939,667

596,000

  

  100%    $

 

      3,360,919

(Note 3

  

   $       16,309,653      $             -   

Shanghai Walden Venture Capital Enterprise

 

Investing in new start-up technology companies

 

   

(US$

2,324,062

78,791

  

  (Note 2)    

(US$

147,485

5,000

  

            -                -       

(US$

147,485

5,000

  

      6%     (Note 4    

(US$

146,550

5,000

  

            -   

 

Accumulated Investment
in Mainland China

as of September 30, 2012

(US$ in Thousands)

     Investment Amounts
Authorized  by

Investment Commission, MOEA
(US$ in Thousands)
     Upper Limit on  Investment
(US$ in Thousands)
 
$

(US$

  19,087,152

  601,000)

  

  

   $

(US$

  19,087,152

  601,000

  

   $

(US$

  19,087,152

  601,000

  

 

Note 1:

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

 

Note 2:

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

 

Note 3:

Amount was recognized based on the reviewed financial statements.

 

Note 4:

TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 52 -


 

 

Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2012 and 2011 and

Independent Accountants’ Review Report


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of September 30, 2012 and 2011, and the related consolidated statements of income and cash flows for the nine months then ended. 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 accounting principles generally accepted in the Republic of China.

October 23, 2012

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.

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

(Reviewed, Not Audited)

 

 

    2012     2011  
    Amount     %     Amount     %  

ASSETS

       

CURRENT ASSETS

       

Cash and cash equivalents (Notes 2 and 4)

  $ 138,738,113        16      $ 114,836,459        16   

Financial assets at fair value through profit or loss (Notes 2, 5 and 26)

    58,690        -        606,492        -   

Available-for-sale financial assets (Notes 2, 6 and 26)

    2,067,730        -        3,255,050        -   

Held-to-maturity financial assets (Notes 2, 7 and 26)

    6,854,611        1        1,566,469        -   

Hedging derivative financial assets (Notes 2, 11 and 26)

    28,189        -        -        -   

Receivables from related parties (Notes 3 and 27)

    925,245        -        578,676        -   

Notes and accounts receivable (Note 3)

    64,876,527        8        51,497,741        7   

Allowance for doubtful receivables (Notes 2, 3 and 8)

    (489,590     -        (490,973     -   

Allowance for sales returns and others (Notes 2 and 8)

    (6,900,184     (1     (6,126,174     (1

Other receivables from related parties (Notes 3 and 27)

    157,144        -        133,899        -   

Other financial assets (Note 28)

    469,979        -        960,903        -   

Inventories (Notes 2 and 9)

    33,249,045        4        25,692,239        4   

Deferred income tax assets (Notes 2 and 20)

    2,650,432        -        1,093,295        -   

Prepaid expenses and other current assets

    2,639,414        -        3,332,485        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    245,325,345        28        196,936,561        27   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM INVESTMENTS (Notes 2, 7, 10, 12 and 26)

       

Investments accounted for using equity method

    23,958,462        3        24,864,502        3   

Held-to-maturity financial assets

    701,435        -        7,216,789        1   

Financial assets carried at cost

    3,981,251        -        4,392,806        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

    28,641,148        3        36,474,097        5   
 

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 13 and 27)

       

Cost

       

Land and land improvements

    1,534,197        -        1,548,045        -   

Buildings

    195,773,774        22        170,322,976        23   

Machinery and equipment

    1,261,982,852        144        1,036,774,966        141   

Office equipment

    19,211,920        2        16,498,166        3   

Leased assets

    760,263        -        731,744        -   
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,479,263,006        168        1,225,875,897        167   

Accumulated depreciation

    (965,627,433     (110     (850,006,367     (116

Advance payments and construction in progress

    66,444,314        8        97,083,692        13   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

    580,079,887        66        472,953,222        64   
 

 

 

   

 

 

   

 

 

   

 

 

 

INTANGIBLE ASSETS

       

Goodwill (Note 2)

    5,560,762        1        5,730,237        1   

Deferred charges, net (Notes 2 and 14)

    5,328,092        -        5,133,989        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets

    10,888,854        1        10,864,226        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS

       

Deferred income tax assets, net (Notes 2 and 20)

    10,137,266        1        11,281,440        1   

Refundable deposits (Note 27)

    2,331,966        1        4,716,699        1   

Others (Note 2)

    1,247,304        -        1,414,842        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

    13,716,536        2        17,412,981        2   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 878,651,770        100      $ 734,641,087        100   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

(Reviewed, Not Audited)

 

 

    2012     2011  
    Amount     %     Amount     %  

LIABILITIES AND SHAREHOLDERS’ EQUITY

       

CURRENT LIABILITIES

       

Short-term loans (Note 15)

  $ 29,749,650        3      $ 36,019,654        5   

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 26)

    20,013        -        210,610        -   

Hedging derivative financial liabilities (Notes 2, 11 and 26)

    -        -        356        -   

Accounts payable

    13,773,108        2        9,163,393        1   

Payables to related parties (Note 27)

    783,253        -        1,361,191        -   

Income tax payable (Notes 2 and 20)

    10,855,245        1        7,692,817        1   

Accrued profit sharing to employees and bonus to directors and supervisors (Notes 2 and 22)

    8,654,015        1        6,985,989        1   

Payables to contractors and equipment suppliers

    32,785,881        4        21,179,608        3   

Accrued expenses and other current liabilities (Notes 13, 18, 26 and 30)

    22,306,318        3        21,219,689        3   

Current portion of bonds payable and long-term bank loans (Notes 16, 17 and 26)

    125,000        -        4,531,250        1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    119,052,483        14        108,364,557        15   
 

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM LIABILITIES

       

Bonds payable (Notes 16 and 26)

    75,600,000        9        18,000,000        3   

Long-term bank loans (Notes 17, 26 and 28)

    1,393,750        -        1,618,750        -   

Other long-term payables (Notes 18, 26 and 30)

    54,000        -        -        -   

Obligations under capital leases (Notes 2, 13 and 26)

    737,034        -        725,137        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term liabilities

    77,784,784        9        20,343,887        3   
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER LIABILITIES

  

     

Accrued pension cost (Notes 2 and 19)

    3,955,056        -        3,889,475        -   

Guarantee deposits

    229,212        -        512,224        -   

Others (Note 27)

    484,178        -        407,734        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other liabilities

    4,668,446        -        4,809,433        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    201,505,713        23        133,517,877        18   
 

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

       

Capital stock - NT$10 par value (Note 22)

       

Authorized: 28,050,000 thousand shares

       

Issued:     25,922,047 thousand shares in 2012

       

                25,915,149 thousand shares in 2011

    259,220,476        30        259,151,492        35   
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital surplus (Notes 2 and 22)

    56,074,435        6        55,689,739        8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings (Note 22)

  

     

Appropriated as legal capital reserve

    115,820,123        13        102,399,995        14   

Appropriated as special capital reserve

    7,606,224        1        6,433,874        1   

Unappropriated earnings

    245,605,674        28        181,838,097        25   
 

 

 

   

 

 

   

 

 

   

 

 

 
    369,032,021        42        290,671,966        40   
 

 

 

   

 

 

   

 

 

   

 

 

 

Others

  

     

Cumulative translation adjustments (Note 2)

    (10,052,181     (1     (5,586,618     (1

Unrealized gain/loss on financial instruments (Notes 2, 11 and 26)

    268,440        -        (1,226,783     -   

Treasury stock:    1,000 thousand shares (Notes 2 and 24)

    -        -        (71,598     -   
 

 

 

   

 

 

   

 

 

   

 

 

 
    (9,783,741     (1     (6,884,999     (1
 

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to shareholders of the parent

    674,543,191        77        598,628,198        82   

MINORITY INTERESTS (Note 2)

    2,602,866        -        2,495,012        -   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

    677,146,057        77        601,123,210        82   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $   878,651,770          100      $   734,641,087          100   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

     2012   2011
       Amount       %   Amount   %

GROSS SALES (Notes 2 and 27)

     $   381,406,692           $   325,782,899      

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

       6,462,738             3,413,421      
    

 

 

         

 

 

     

NET SALES (Note 34)

       374,943,954         100         322,369,478         100  

COST OF SALES (Notes 9, 21 and 27)

       193,167,804         52         175,072,145            54  
    

 

 

     

 

 

     

 

 

     

 

 

 

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

       181,776,150         48         147,297,333         46  

UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)

       (129,569 )           -         -         -  
    

 

 

     

 

 

     

 

 

     

 

 

 

GROSS PROFIT

       181,646,581         48         147,297,333         46   
    

 

 

     

 

 

     

 

 

     

 

 

 

OPERATING EXPENSES (Notes 21 and 27)

                

Research and development

       29,897,315         8         25,076,000         8  

General and administrative

       13,505,479         3         10,253,597         3  

Marketing

       3,441,269         1         3,340,375         1  
    

 

 

     

 

 

     

 

 

     

 

 

 

Total operating expenses

       46,844,063             12         38,669,972         12  
    

 

 

     

 

 

     

 

 

     

 

 

 

INCOME FROM OPERATIONS (Note 34)

       134,802,518         36          108,627,361             34  
    

 

 

     

 

 

     

 

 

     

 

 

 

NON-OPERATING INCOME AND GAINS

                

Equity in earnings of equity method investees, net (Notes 2 and 10)

       1,305,776         1         916,644         -  

Interest income

       1,294,864         -         1,011,613         1  

Gain on settlement and disposal of financial assets, net (Notes 2 and 26)

       449,060         -         204,810         -  

Settlement income (Note 30)

       448,275         -         492,870         -  

Technical service income (Note 27)

       356,461         -         325,194         -  

Foreign exchange gain, net (Note 2)

       208,125         -         -         -  

Valuation gain on financial instruments, net (Notes 2, 5 and 26)

       43,842         -         600,902         -  

Gain on disposal of property, plant and equipment and other assets (Notes 2 and 27)

       21,749         -         191,588         -  

Others

       481,489         -         628,659         -  
    

 

 

     

 

 

     

 

 

     

 

 

 

Total non-operating income and gains

       4,609,641         1         4,372,280         1  
    

 

 

     

 

 

     

 

 

     

 

 

 

(Continued)

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

 

     2012   2011
       Amount     %   Amount   %

NON-OPERATING EXPENSES AND LOSSES

                

Impairment loss of financial assets (Notes 2, 6, 12 and 26)

     $ 2,748,616         1       $ 104,981         -  

Interest expense

       685,418         -         420,714         -  

Impairment loss on idle assets (Note 2)

       422,323         -         68,629         -  

Loss on disposal of property, plant and equipment (Note 2)

       21,486         -         194,539         -  

Foreign exchange loss, net (Note 2)

       -         -         384,776         -  

Others (Note 2)

       227,760         -         298,944         -  
    

 

 

     

 

 

     

 

 

     

 

 

 

Total non-operating expenses and losses

       4,105,603         1         1,472,583         -  
    

 

 

     

 

 

     

 

 

     

 

 

 

INCOME BEFORE INCOME TAX

       135,306,556         36         111,527,058         35  

INCOME TAX EXPENSE (Notes 2 and 20)

       10,827,255         3         8,638,264         3  
    

 

 

     

 

 

     

 

 

     

 

 

 

NET INCOME

     $ 124,479,301           33       $ 102,888,794              32  
    

 

 

     

 

 

     

 

 

     

 

 

 

ATTRIBUTABLE TO:

                

Shareholders of the parent

     $ 124,589,534         33       $ 102,622,631         32  

Minority interests

       (110,233 )         -         266,163         -  
    

 

 

     

 

 

     

 

 

     

 

 

 
     $   124,479,301         33        $   102,888,794         32   
    

 

 

     

 

 

     

 

 

     

 

 

 

 

    2012   2011
    Income Attributable  to
Shareholders of the Parent
  Income Attributable  to
Shareholders of the Parent
    Before
Income Tax
 

After

  Income Tax  

  Before
Income Tax
 

After

  Income Tax  

EARNINGS PER SHARE (NT$, Note 25)

               

Basic earnings per share

    $     5.22       $     4.81       $     4.29       $     3.96  
   

 

 

     

 

 

     

 

 

     

 

 

 

Diluted earnings per share

    $ 5.22       $ 4.81       $ 4.29       $ 3.96  
   

 

 

     

 

 

     

 

 

     

 

 

 

 

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

   (Concluded)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012         2011  

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net income attributable to shareholders of the parent

   $  124,589,534         $  102,622,631   

Net income (loss) attributable to minority interests

   (110,233)         266,163   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

   95,144,291         79,939,775   

Unrealized gross profit from affiliates

   129,569         -   

Amortization of premium/discount of financial assets

   5,000         20,134   

Stock option compensation cost

   3,372         -   

Impairment loss of financial assets

   2,748,616         104,981   

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

   (321,580)         (185,381

Gain on disposal of financial assets carried at cost, net

   (127,480)         (19,429

Equity in earnings of equity method investees, net

   (1,305,776)         (916,644

Cash dividends received from equity method investees

   2,088,472         2,848,141   

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

   (263)         2,951   

Income from receiving equity securities

   (886)         (155,548

Impairment loss on idle assets

   422,323         68,629   

Deferred income tax

   260,686         487,181   

Changes in operating assets and liabilities:

        

Financial assets and liabilities at fair value through profit or loss

   (37,059)         (407,998

Receivables from related parties

   (739,481)         (269,647

Notes and accounts receivable

   (18,555,287)         (1,549,391

Allowance for doubtful receivables

   (1,275)         (12,823

Allowance for sales returns and others

   1,838,457         (1,420,090

Other receivables from related parties

   (34,852)         (9,313

Other financial assets

   148,267         104,434   

Inventories

   (8,408,463)         1,759,640   

Prepaid expenses and other current assets

   (465,400)         (1,562,233

Accounts payable

   1,855,503         (2,778,661

Payables to related parties

   (559,968)         495,248   

Income tax payable

   199,121         526,961   

Accrued profit sharing to employees and bonus to directors and supervisors

   (427,278)         (4,020,898

Accrued expenses and other current liabilities

   5,267,949         (1,268,302

Accrued pension cost

   46,548         79,882   
  

 

     

 

 

 

Net cash provided by operating activities

   203,652,427         174,750,393   
  

 

     

 

 

 

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

 

     2012     2011  

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Property, plant and equipment

   $ (186,371,680   $ (184,191,039

Available-for-sale financial assets

     (4,434     (34,741,877

Financial assets carried at cost

     (6,833     (158,302

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     616,757        58,618,498   

Held-to-maturity financial assets

     1,278,089        4,539,000   

Financial assets carried at cost

     236,735        207,425   

Property, plant and equipment and other assets

     116,748        506,912   

Increase in deferred charges

     (1,106,734     (1,110,402

Decrease in refundable deposits

     2,186,897        3,951,707   

Decrease in other assets

     8,259        1,759   
  

 

 

   

 

 

 

Net cash used in investing activities

     (183,046,196     (152,376,319
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

     3,823,122        4,805,710   

Cash dividends

     (77,748,668     (77,730,236

Proceeds from long-term bank loans

     50,000        2,250,000   

Repayment of long-term bank loans

     (181,250     (1,142,968

Proceeds from issuance of bonds

     57,600,000        18,000,000   

Repayment of bonds

     (4,500,000     -   

Decrease in obligations under capital leases

     (124,923     -   

Decrease in other long-term payables

     (2,367,866     (890,000

Decrease in guarantee deposits

     (214,771     (274,001

Proceeds from exercise of employee stock options

     176,456        155,955   

Acquisition of treasury stock

     -        (71,598

Increase (decrease) in minority interests

     273,920        (114,414
  

 

 

   

 

 

 

Net cash used in financing activities

     (23,213,980     (55,011,552
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (2,607,749     (32,637,478

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     (2,126,415     1,059,563   

EFFECT OF CHANGES IN CONSOLIDATED ENTITIES

     -        (1,472,581

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     143,472,277        147,886,955   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $   138,738,113      $   114,836,459   
  

 

 

   

 

 

 

(Continued)

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

 

     2012     2011  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Interest paid

   $ 683,003      $ 424,385   

Capitalized interest

     (6,442     (6,009
  

 

 

   

 

 

 

Interest paid (excluding capitalized interest)

   $ 676,561      $ 418,376   
  

 

 

   

 

 

 

Income tax paid

   $ 10,355,944      $ 7,630,317   
  

 

 

   

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

    

Acquisition of property, plant and equipment

   $ 184,653,262      $ 162,427,539   

Decrease in payables to contractors and equipment suppliers

     1,718,487        21,764,853   

Nonmonetary exchange trade-out price

     (69     (1,353
  

 

 

   

 

 

 

Cash paid

   $   186,371,680      $   184,191,039   
  

 

 

   

 

 

 

Acquisition of available-for-sale financial assets

   $ 4,434      $ 34,679,092   

Decrease in accrued expenses and other current liabilities

     -        62,785   
  

 

 

   

 

 

 

Cash paid

   $ 4,434      $ 34,741,877   
  

 

 

   

 

 

 

Disposal of available-for-sale financial assets

   $ 638,913      $ 58,690,351   

Increase in other financial assets

     (22,156     (71,853
  

 

 

   

 

 

 

Cash received

   $ 616,757      $ 58,618,498   
  

 

 

   

 

 

 

Disposal of property, plant and equipment and other assets

   $ 116,817      $ 508,265   

Nonmonetary exchange trade-out price

     (69     (1,353
  

 

 

   

 

 

 

Cash received

   $ 116,748      $ 506,912   
  

 

 

   

 

 

 

Acquisition of deferred charges

   $ 1,614,959      $ 1,110,402   

Increase in accounts payable

     (350,960     -   

Increase in payables to related parties

     (14,700     -   

Increase in other long-term payables

     (142,565     -   
  

 

 

   

 

 

 

Cash paid

   $ 1,106,734      $ 1,110,402   
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

    

Idle assets reclassified from property, plant and equipment

   $ 422,323      $ 68,629   
  

 

 

   

 

 

 

Current portion of other long-term payables (under accrued expenses and other current liabilities)

   $ 906,671      $ 7,275,104   
  

 

 

   

 

 

 

Current portion of bonds payable

   $ -      $ 4,500,000   
  

 

 

   

 

 

 

Current portion of long-term bank loans

   $ 125,000      $ 31,250   
  

 

 

   

 

 

 

 

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

   (Concluded)

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

  1. GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

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).

As of September 30, 2012 and 2011, TSMC and its subsidiaries had 38,291 and 35,382 employees, respectively.

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.

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

Significant accounting policies are summarized as follows:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation.

 

- 9 -


The consolidated entities were as follows:

 

          Percentage of  Ownership
September 30
    

Name of Investor

  

Name of Investee

   2012    2011   

Remark

TSMC

  

TSMC North America

   100%    100%   

-

  

TSMC Japan Limited (TSMC Japan)

   100%    100%   

-

  

TSMC Partners, Ltd. (TSMC Partners)

   100%    100%   

-

  

TSMC Korea Limited (TSMC Korea)

   100%    100%   

-

  

TSMC Europe B.V. (TSMC Europe)

   100%    100%   

-

  

TSMC Global, Ltd. (TSMC Global)

   100%    100%   

-

  

TSMC China Company Limited (TSMC China)

   100%    100%   

-

  

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

     50%      52%   

(Note 1)

  

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

     98%      98%   

-

  

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

   99.5%     99.5%    

-

  

Global Unichip Corporation (GUC)

   (Note 2)    (Note 2)   

-

  

Xintec Inc. (Xintec)

     40%      40%   

TSMC obtained three out of five director positions and has a controlling interest in Xintec

  

TSMC SSL

     95%    100%   

Established in August 2011

TSMC and TSMC GN aggregately have a controlling interest of 96% in TSMC SSL

  

TSMC Solar

     99%    100%   

Established in August 2011

TSMC and TSMC GN aggregately have a controlling interest of 99% in TSMC Solar

  

TSMC Guang Neng Investment, Ltd. (TSMC GN)

   100%    -   

Established in January 2012

TSMC Partners

  

TSMC Design Technology Canada Inc. (TSMC Canada)

   100%    100%   

-

  

TSMC Technology, Inc. (TSMC Technology)

   100%    100%   

-

  

TSMC Development, Inc. (TSMC Development)

   100%    100%   

-

  

InveStar Semiconductor Development Fund, Inc. (ISDF)

     97%      97%   

-

  

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

     97%      97%   

-

TSMC Development

  

WaferTech, LLC (WaferTech)

   100%    100%   

-

VTAF III

  

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

     58%      57%   

-

  

Growth Fund Limited (Growth Fund)

   100%    100%   

-

VTAF III, VTAF II and Emerging Alliance

  

VentureTech Alliance Holdings, LLC (VTA Holdings)

   100%    100%   

-

GUC

  

Global Unichip Corp.-NA (GUC-NA)

   (Note 2)    (Note 2)   

-

  

Global Unichip Japan Co., Ltd. (GUC-Japan)

   (Note 2)    (Note 2)   

-

  

Global Unichip Europe B.V. (GUC-Europe)

   (Note 2)    (Note 2)   

-

  

Global Unichip (BVI) Corp. (GUC-BVI)

   (Note 2)    (Note 2)   

-

GUC-BVI

  

Global Unichip (Shanghai) Company, Limited (GUC-Shanghai)

   (Note 2)    (Note 2)   

-

(Continued)

 

- 10 -


          Percentage of  Ownership
September 30
    

Name of Investor

  

Name of Investee

   2012    2011   

Remark

TSMC SSL

  

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

     100%       100%     (Note 1)

TSMC Solar

  

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

     100%       100%     (Note 1)
  

TSMC Solar Europe B.V. (TSMC Solar Europe)

     100%       100%     (Note 1)
  

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

       49%         47%     (Note 1)

TSMC Solar Europe

  

TSMC Solar Europe GmbH

     100%       100%     (Note 1)

(Concluded)

 

  Note 1:

In August 2011, TSMC adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.

 

  Note 2:

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of September 30, 2012:

 

LOGO

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

TSMC North America is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC Japan, TSMC Korea and TSMC Europe are engaged mainly in marketing or customer service, engineering and technical supporting activities. TSMC Partners is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global, TSMC Development and TSMC GN are engaged in investing activities. TSMC China is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, VTA Holdings, ISDF, ISDF II and Growth Fund are engaged in investing in new start-up technology companies. TSMC Canada and TSMC Technology are engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. Xintec is engaged in the provision of wafer packaging service. TSMC SSL is engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems. TSMC Lighting NA is engaged in selling and marketing of solid state lighting related products. TSMC Solar is engaged in researching, developing, designing, manufacturing and selling renewable energy and energy saving related technologies and products. TSMC

 

- 11 -


Solar NA is engaged in selling and marketing of solar related products. TSMC Solar Europe is engaged in investing activities of solar related business. TSMC Solar Europe GmbH is engaged in the selling and customer service of solar cell modules and related products. Mutual-Pak is engaged in the manufacturing and selling of electronic parts and researching, developing and testing of RFID.

TSMC together with its subsidiaries are hereinafter referred to collectively as the “Company.”

Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity.

Foreign-currency Transactions and Translation of Foreign-currency Financial Statements

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - spot rates at period-end; shareholders’ equity - historical rates; income and expenses - average rates during the period. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Repurchase agreements collateralized by corporate bonds, government bonds and short-term commercial paper acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

 

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

 

- 12 -


Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is determined as follows:    Money market funds - net asset values at the end of the period; and publicly traded stocks - closing prices at the end of the period.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Hedging Derivative Financial Instruments

Hedge derivatives are mainly derivatives instruments that are for cash flow hedge purposes and determined to be an effective hedge. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in shareholders’ equity. The amount recognized in shareholders’ equity is recognized in profit or loss in the same period or period during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in shareholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.

 

- 13 -


Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

TSMC’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees or from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties.

 

- 14 -


If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

 

- 15 -


Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, net operating loss carryforwards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

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

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

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

Treasury Stock

Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. While disposing of the treasury stock, the treasury stock shall be reversed, and if the disposal value is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock.

 

- 16 -


Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

 

 

  3. ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s consolidated financial statements as of and for the nine months ended September 30, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and the Company conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements accordingly.

 

 

  4. CASH AND CASH EQUIVALENTS

 

     September 30
     2012      2011

Cash and deposits in banks

     $ 135,330,257          $ 110,380,268   

Repurchase agreements collateralized by corporate bonds

       2,534,741            -  

Repurchase agreements collateralized by government bonds

       473,530            3,675,314  

Repurchase agreements collateralized by short-term commercial paper

       399,585            780,877  
    

 

 

        

 

 

 
     $   138,738,113          $   114,836,459  
    

 

 

        

 

 

 

 

- 17 -


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

 

     September 30    
     2012       2011    

Trading financial assets

           

Forward exchange contracts

     $ 55,995          $ 606,492  

Cross currency swap contracts

       2,695            -  
    

 

 

        

 

 

 
     $ 58,690          $ 606,492  
    

 

 

        

 

 

 

Trading financial liabilities

           

Forward exchange contracts

     $ 16,045          $ 103,159  

Cross currency swap contracts

       3,968            107,451       
    

 

 

        

 

 

 
     $     20,013          $   210,610  
    

 

 

        

 

 

 

The Company entered into derivative contracts during the nine months ended September 30, 2012 and 2011 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:

 

    Maturity Date  

Contract Amount         

(In Thousands)         

September 30, 2012

   

Sell US$/Buy JPY

  October 2012   US$315,000/JPY24,525,215

Sell US$/Buy NT$

  October 2012 to December 2012   US$106,190/NT$3,131,774

Sell US$/Buy EUR

  October 2012   US$52,421/EUR40,500

Sell RMB/Buy US$

  October 2012   RMB685,056/US$108,000

Sell NT$/Buy US$

  October 2012 to November 2012   NT$449,412/US$15,000

Sell NT$/Buy JPY

  October 2012 to November 2012   NT$149,017/JPY393,000

Sell NT$/Buy EUR

  October 2012   NT$7,684/EUR200

September 30, 2011

   

Sell NT$/Buy US$

  October 2011 to December 2011   NT$10,500,980/US$363,700

Sell NT$/Buy JPY

  November 2011   NT$92,277/JPY240,000

Sell NT$/Buy EUR

  November 2011   NT$41,400/EUR1,000

Sell US$/Buy JPY

  October 2011   US$7,023/JPY543,111

Sell US$/Buy NT$

  October 2011 to November 2011   US$128,070/NT$3,819,932

Sell US$/Buy EUR

  October 2011   US$10,212/EUR7,412

Sell RMB/Buy US$

  October 2011   RMB1,826,625/US$286,000

Sell EUR/Buy US$

  October 2011   EUR3,530/US$4,955

Sell JPY/Buy NT$

  October 2011 to November 2011   JPY64,300/NT$25,640

 

- 18 -


Outstanding cross currency swap contracts consisted of the following:

 

    Maturity Date   

Contract Amount

(In Thousands)

   Range of
Interest Rates
Paid
  Range of
Interest Rates
Received

September 30, 2012

       

October 2012

   US$170,000/NT$4,991,030    0.10%-0.11%   -

October 2012

   NT$833,013/US$28,280    -   0.04%-0.05%

September 30, 2011

       

October 2011

   US$117,000/NT$3,470,950    1.27%-4.40%   -

Net gains on derivative financial instruments for the nine months ended September 30, 2012 and 2011, were NT$43,842 thousand and NT$600,902 thousand, respectively.

 

 

  6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

              September 30      
          2012                   2011         

Publicly traded stocks

      $ 2,067,730              $ 3,254,034        

Money market funds

        -                1,016        
     

 

 

           

 

 

      
      $   2,067,730              $   3,255,050        
     

 

 

           

 

 

      

For the nine months ended September 30, 2012, the Company recognized an impairment loss on partial overseas publicly traded stocks in the amount of NT$2,677,529 thousand due to the significant decline in fair value.

 

 

  7. HELD-TO-MATURITY FINANCIAL ASSETS

 

               September 30      
           2012                 2011       

Corporate bonds

      $   7,556,046             $ 8,324,948      

Government bonds

        -               458,310      
     

 

 

          

 

 

    
        7,556,046               8,783,258      

Current portion

         (6,854,611            (1,566,469   
     

 

 

          

 

 

    
      $ 701,435             $   7,216,789      
     

 

 

          

 

 

    

 

 

- 19 -


  8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

     Nine Months Ended September 30
     2012   2011 

Balance, beginning of period

       $    490,952          $    504,029   

Reversal

       (3       (3,133

Write-off

       (1,272       (9,707

Effect of changes in consolidated entities

       -          (233 )     

Effect of exchange rate changes

                    (87                     17   

Balance, end of period

       $    489,590          $    490,973   

Movements of the allowance for sales returns and others were as follows:

 

     Nine Months Ended September 30
     2012          2011            

Balance, beginning of period

       $  5,068,263         $  7,546,264  

Provision

       6,462,738         3,413,421  

Write-off

       (4,624,281 )       (4,837,655 )    

Effect of exchange rate changes

                 (6,536                  4,144  

Balance, end of period

       $  6,900,184         $  6,126,174  

 

  9. INVENTORIES

 

                      September 30                  
     2012    2011  

Finished goods

       $    4,255,500          $    4,606,350  

Work in process

       24,686,231          17,566,112  

Raw materials

       2,429,431          1,675,825     

Supplies and spare parts

             1,877,883                1,843,952  
       $  33,249,045          $  25,692,239  

Write-down of inventories to net realizable value in the amount of NT$1,485,371 thousand and NT$388,175 thousand, respectively, were included in the cost of sales for the nine months ended September 30, 2012 and 2011.

 

- 20 -


  10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     September 30
     2012   2011
     Carrying
Amount
  % of
Owner-
ship
  Carrying
Amount
  % of
 Owner- 
ship

Vanguard International Semiconductor Corporation (VIS)

     $ 9,161,979            41          $ 8,918,553            38  

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

       6,253,232         39         6,109,136         39  

Motech Industries Inc. (Motech)

       4,452,514         20         5,999,173         20  

VisEra Holding Company (VisEra Holding)

       2,913,578         49         2,720,564         49  

GUC

       1,177,159         35         1,117,076         35  

Mcube Inc. (Mcube)

       -         25         -         26  
    

 

 

         

 

 

     
     $   23,958,462           $   24,864,502      
    

 

 

         

 

 

     

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

For the nine months ended September 30, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$1,305,776 thousand and NT$916,644 thousand, respectively.

As of September 30, 2012 and 2011, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$16,809,981 thousand and NT$12,574,108 thousand, respectively.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

     Nine Months Ended September 30
     2012   2011

Balance, beginning of period

       $  1,645,810         $    2,491,891   

Amortization

            (416,907              (629,051 )     

Balance, end of period

       $  1,228,903         $    1,862,840   

As of September 30, 2012 and 2011, balance of the aforementioned difference allocated to goodwill was NT$1,415,565 thousand. There was no acquisition or impairment in goodwill for the nine months ended September 30, 2012 and 2011.

 

- 21 -


  11. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

   

    September 30    

         2012           2011       

Hedging derivative financial assets

             

Forward exchange contract

     $   28,189          $ -      
    

 

 

       

 

 

    

Hedging derivative financial liabilities

             

Interest rate swap contract

     $ -          $         356      
    

 

 

       

 

 

    

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

 

                        Contract Amount
    Maturity Date                       (In Thousands)

September 30, 2012

   

Sell US$/Buy EUR

  October 2012                         US$257,759/EUR200,000

For the nine months ended September 30, 2012, the adjustment for current period to shareholder’s equity from the above forward exchange contract amounted to a net gain of NT$28,189 thousand.

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

The outstanding interest rate swap contract consisted of the following:

 

Contract Amount

  (In Thousands)

   Maturity Date        

Range of Interest

Rates Paid

   Range of Interest
Rates Received

September 30, 2011

           

NT$92,000

   August 31, 2012       1.38%    0.63%-0.85%

For the nine months ended September 30, 2012 and 2011, the adjustment for the current period to shareholders’ equity amounted to a net gain of NT$5 thousand and a net loss of NT$106 thousand, respectively; and the amount removed from shareholders’ equity and recognized as a loss from the above interest rate swap contract amounted to NT$227 thousand and NT$564 thousand, respectively.

 

 

  12. FINANCIAL ASSETS CARRIED AT COST

 

     September 30
          2012             2011       

Non-publicly traded stocks

      $   3,689,527          $   4,080,786      

Mutual funds

        291,724            312,020      
     

 

 

       

 

 

    
      $ 3,981,251          $ 4,392,806      
     

 

 

       

 

 

    

 

- 22 -


The common stock of InvenSense, Inc. and Audience, Inc. was listed on the NYSE and NASDAQ in November 2011 and in May 2012, respectively. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

For the nine months ended September 30, 2012 and 2011, the Company recognized impairment on financial assets carried at cost of NT$71,087 thousand and NT$104,981 thousand, respectively.

 

 

  13. PROPERTY, PLANT AND EQUIPMENT

 

   

Nine Months Ended September 30, 2012

        Balance,
Beginning of
Period
          

Additions

(Deductions)

         Disposals          Reclassification          Effect of
Exchange Rate
Changes
        

Balance,

End of Period

     

Cost

                                

Land and land improvements

    $ 1,541,128           $ 18,500         $ -         $ -         $ (25,431      $ 1,534,197     

Buildings

      172,872,550             23,699,216           (25,820        -           (772,172        195,773,774     

Machinery and equipment

      1,057,588,736             208,463,387           (1,045,615        (668,784        (2,354,872        1,261,982,852     

Office equipment

      16,969,266             2,790,915           (472,763        35           (75,533        19,211,920     

Leased asset

      791,480             -           -           -           (31,217        760,263     
   

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
       1,249,763,160           $ 234,972,018         $ (1,544,198      $ (668,749      $ (3,259,225        1,479,263,006     
   

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Accumulated depreciation

                                

Land and land improvements

      355,555           $ 20,335         $ -         $ -         $ (11,764        364,126     

Buildings

      101,004,047             8,242,820           (23,559        -           (398,090        108,825,218     

Machinery and equipment

      762,774,355             83,843,149           (948,360        (246,434        (1,953,326        843,469,384     

Office equipment

      11,820,728             1,359,994           (464,794        8           (62,712        12,653,224     

Leased asset

      297,535             30,166           -           -           (12,220        315,481     
   

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
      876,252,220           $ 93,496,464         $      (1,436,713      $ (246,426      $ (2,438,112        965,627,433     
   

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Advance payments and construction in progress

      116,863,976           $    (50,318,756      $ -         $ (2,086      $ (98,820        66,444,314     
   

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
    $ 490,374,916                               $ 580,079,887     
   

 

 

                            

 

 

   

 

   

Nine Months Ended September 30, 2011

        Balance,
Beginning of
Period
        Additions         Disposals         Reclassification         Effect of Changes
in Consolidated
Entities
        Effect of
Exchange Rate
Changes
       

Balance,

End of Period

     

Cost

                             

Land and land improvements

    $ 891,197        $ 652,011        $ -        $ -        $ -        $ 4,837        $ 1,548,045     

Buildings

      145,966,024          23,937,530          (45,073       (388       (242,718       707,601          170,322,976     

Machinery and equipment

      913,155,252          124,397,892          (1,808,103       (61,121       (375,702       1,466,748          1,036,774,966     

Office equipment

      14,856,582          2,256,434          (349,529       (72,041       (236,153       42,873          16,498,166     

Leased asset

      701,552          -          -          -          -          30,192          731,744     
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
      1,075,570,607        $   151,243,867        $     (2,202,705     $ (133,550     $ (854,573     $ 2,252,251          1,225,875,897     
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Accumulated depreciation

                             

Land and land improvements

      328,792        $ 19,902        $ -        $ -        $ -        $ 3,015          351,709     

Buildings

      90,472,703          7,611,721          (18,913       (55       (32,791       279,706          98,312,371     

Machinery and equipment

      671,268,636          69,471,928          (1,782,567       (39,313       (293,605       901,939          739,527,018     

Office equipment

      10,957,676          1,042,931          (345,382       (13,563       (148,862       34,342          11,527,142     

Leased asset

      250,350          25,297          -          -          -          12,480          288,127     
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
      773,278,157        $ 78,171,779        $ (2,146,862     $ (52,931     $ (475,258     $ 1,231,482          850,006,367     
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Advance payments and construction in progress

      86,151,573        $ 11,183,672        $ (455,373     $ 1,610        $ -        $ 202,210          97,083,692     
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
    $ 388,444,023                            $ 472,953,222     
   

 

 

                         

 

 

   

The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to November 2018.

As of September 30, 2012, future lease payments were as follows:

 

Year    Amount  

2013

   $ 26,809   

2014

     26,809   

2015

     26,809   

2016

     26,809   

2017 and thereafter

     750,112   
  

 

 

 
   $   857,348   
  

 

 

 

 

- 23 -


During the nine months ended September 30, 2012 and 2011, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. Information about capitalized interest was as follows:

 

             Nine Months Ended September 30         
     2012        2011

Capitalized interest

   $    6,442      $    6,009

Capitalization rates

   1.08%-1.20%      1.07%-1.29%

 

 

  14. DEFERRED CHARGES, NET

 

     Nine Months Ended September 30, 2012
     Balance,
Beginning of
Period
     Additions      Amortization    Reclassification    Effect of
Exchange
Rate Changes
  

Balance,

End of Period

    

Technology license fee

     $ 1,682,892          $ 29,565          $ (354,029 )      $ 191,580        $ (1,115 )      $ 1,548,893     

Software and system design costs

       2,366,483            1,162,867            (846,409 )        (55,352 )        (431 )        2,627,158     

Patent and others

       1,118,189            422,527            (442,166 )        57,438          (3,947 )        1,152,041     
    

 

 

        

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      
     $   5,167,564          $   1,614,959          $   (1,642,604      $     193,666        $         (5,493      $   5,328,092     
    

 

 

        

 

 

        

 

 

      

 

 

      

 

 

      

 

 

      

 

     Nine Months Ended September 30, 2011
     Balance,
Beginning of
Period
   Additions    Amortization   Reclassification   Effect of
Changes in
Consolidated
Entities
  Effect of
Exchange
Rate Changes
 

Balance,

End of Period

   

Technology license fees

     $ 2,455,348        $ 10,308        $ (543,192 )     $ -       $ (66,186 )     $ (587 )     $ 1,855,691    

Software and system design costs

       2,333,271          930,821          (868,812 )       (1,610 )       (177,916 )       488         2,216,242    

Patent and others

       1,238,466          169,273          (349,845 )       -         -         4,162         1,062,056    
    

 

 

      

 

 

      

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     
     $   6,027,085        $   1,110,402        $ (1,761,849 )     $       (1,610 )     $    (244,102     $         4,063       $   5,133,989    
    

 

 

      

 

 

      

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  15. SHORT-TERM LOANS

 

     September 30
          2012            2011       

Unsecured loans

               

US$1,015,000 thousand, due in October 2012, and annual interest at 0.42%-0.65% in 2012; US$1,058,200 thousand and EUR88,725 thousand, due by November 2011, and annual interest at 0.40%-1.50% in 2011.

      $    29,749,650          

$

   36,019,654

  

  
     

 

 

        

 

 

    

 

 

  16. BONDS PAYABLE

 

     September 30
          2012          2011    

Domestic unsecured bonds:

                  

Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually

        $    10,500,000            $    10,500,000    

Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually

          7,500,000              7,500,000    
                   (Continue d)  

 

- 24 -


          September 30  
               2012          2011  
  

Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually

      $ 10,000,000         $                   -   
  

Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually

        7,000,000           -   
  

Issued in August 2012 and repayable in August 2017, 1.28% interest payable annually

        9,900,000           -   
  

Issued in August 2012 and repayable in August 2019, 1.40% interest payable annually

        9,000,000           -   
  

Issued in September 2012 and repayable in September 2017, 1.28% interest payable annually

        12,700,000           -   
  

Issued in September 2012 and repayable in September 2019, 1.39% interest payable annually

        9,000,000           -   
  

Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually

        -           4,500,000   
        

 

 

      

 

 

 
           75,600,000           22,500,000   
  

Current portion

        -           (4,500,000
        

 

 

      

 

 

 
         $   75,600,000         $   18,000,000   
        

 

 

      

 

 

 
                (Conclude d) 

With the approval from the Financial Supervisory Commission (FSC), the Company issued domestic unsecured bonds in the amount of NT$4,400,000 thousand in October 2012.

   

 

17.  LONG-TERM BANK LOANS

 

          
          September 30  
               2012          2011  
  

Bank loans for working capital:

          
  

Repayable in full in one lump sum payment in June 2016, annual interest at 1.08%-1.20% in 2012 and 1.00%-1.07% in 2011

      $ 550,000         $ 650,000   
  

Repayable in full in one lump sum payment in March 2014, annual interest at 1.16%-1.18% in 2012 and 1.02%-1.16% in 2011

        450,000           500,000   
  

Repayable from July 2012 in 16 quarterly installments, annual interest at 1.21%-1.24% in 2012 and 1.11%-1.19% in 2011

        281,250           300,000   
  

Repayable from September 2012 in 16 quarterly installments, annual interest at 1.21%-1.24% in 2012 and 1.13%-1.20% in 2011

        187,500           200,000   
  

Repayable from October 2012 in 16 quarterly installments, annual interest at 1.23% in 2012

        50,000           -   
        

 

 

      

 

 

 
           1,518,750           1,650,000   
  

Current portion

        (125,000        (31,250
        

 

 

      

 

 

 
         $   1,393,750         $   1,618,750   
        

 

 

      

 

 

 

Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual financial statements of Xintec must comply with predetermined financial covenants.

 

- 25 -


As of September 30, 2012, future principal repayments for the long-term bank loans were as follows:

 

Year of Repayment    Amount  

2012 (4th quarter)

   $ 31,250   

2013

     128,125   

2014

     587,500   

2015

     137,500   

2016

     625,000   

2017 and thereafter

     9,375   
  

 

 

 
   $   1,518,750   
  

 

 

 

 

 

  18. OTHER LONG-TERM PAYABLES

 

   

September 30

         2012        2011    

Payables for acquisition of property, plant and equipment (Note 30g)

       $      818,361          $   6,458,725    

Payables for technology transfer

         29,310            -    

Payables for royalties

         -            816,379    

Others

         113,000            -    
      

 

 

        

 

 

   
         960,671            7,275,104    

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

         (906,671 )          (7,275,104 )  
      

 

 

        

 

 

   
       $ 54,000          $ -    
      

 

 

        

 

 

   

The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents.

As of September 30, 2012, future payments for other long-term payables were as follows:

 

Year of Payment    Amount  

2012 (4th quarter)

   $ 29,310   

2013

     877,361   

2014

     18,000   

2015

     18,000   

2016

     18,000   
  

 

 

 
   $   960,671   
  

 

 

 

 

 

  19. PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, GUC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Solar NA and TSMC Solar Europe GmbH are required by local regulations to make monthly contributions at certain percentages of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Company recognized pension costs of NT$1,031,294 thousand and NT$963,043 thousand for the nine months ended September 30, 2012 and 2011, respectively.

 

- 26 -


TSMC, GUC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$220,319 thousand and NT$246,249 thousand for the nine months ended September 30, 2012 and 2011, respectively.

Movements of the Funds and accrued pension cost under the defined benefit plans were summarized as follows:

 

     Nine Months Ended September 30 
        2012         2011      

The Funds

         

Balance, beginning of period

    $ 3,098,039        $ 2,888,852     

Contributions

      168,512          163,589     

Interest

      26,304          27,247     

Payments

      (23,078       (7,339  

Effect of changes in consolidated entities

      -          (23,952  
   

 

 

     

 

 

   

Balance, end of period

    $ 3,269,777        $ 3,048,397     
   

 

 

     

 

 

   

Accrued pension cost

         

Balance, beginning of period

    $ 3,908,508        $ 3,812,351     

Accruals

      46,548          79,882     

Effect of changes in consolidated entities

      -          (2,758  
   

 

 

     

 

 

   

Balance, end of period

    $ 3,955,056        $ 3,889,475     
   

 

 

     

 

 

   

 

 

  20. INCOME TAX

 

  a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

     Nine Months Ended September 30 
         2012          2011      

Income tax expense based on “income before income tax” at statutory rates

     $ 25,298,555         $ 20,083,496     

Tax effect of the following:

           

Tax-exempt income

       (8,575,286        (11,148,952  

Temporary and permanent differences

       (2,082,763        (1,066,175  

Additional income tax under the Alternative Minimum Tax Act

       -           116,718     

Additional tax at 10% on unappropriated earnings

       4,193,497           6,293,384     

Net operating loss carryforwards used

       (457,693        (397,791  

Investment tax credits used

       (7,906,345        (6,317,607  
    

 

 

      

 

 

   

Income tax currently payable

     $ 10,469,965         $ 7,563,073     
    

 

 

      

 

 

   

 

- 27 -


  b.

Income tax expense consisted of the following:

 

      Nine Months Ended September 30   
     2012     2011  

Income tax currently payable

     $  10,469,965        $   7,563,073         

Income tax adjustments on prior years

     51,273        470,225         

Other income tax adjustments

     45,331        114,262         

Net change in deferred income tax assets

    

Investment tax credits

     6,096,581        2,835,178         

Net operating loss carryforwards

     59,450        393,582         

Temporary differences

     (490,457     144,921         

Valuation allowance

     (5,404,888     (2,808,008)        

Effect of changes in consolidated entities

                         -                (74,969)        

Income tax expense

     $  10,827,255        $   8,638,264         

 

  c.

Net deferred income tax assets consisted of the following:

 

                       September 30                     
     2012     2011  

Current deferred income tax assets

    

Investment tax credits

     $       521,366        $         31,029         

Temporary differences

    

Allowance for sales returns and others

     821,868        530,745         

Unrealized loss on financial instruments, net

     357,437        288,760         

Unrealized loss on inventories

     383,395        40,659         

Others

     595,231        341,464         

Valuation allowance

              (28,865             (139,362)        
     $    2,650,432        $     1,093,295         

Noncurrent deferred income tax assets

    

Investment tax credits

     $  13,695,402        $   19,760,374         

Net operating loss carryforwards

     2,363,383        2,338,081         

Temporary differences

    

Depreciation

     1,373,603        2,064,547         

Others

     740,927        606,173         

Valuation allowance

         (8,036,049        (13,487,735)        
     $  10,137,266        $   11,281,440         

Under the Article 10 of the Statute for Industrial Innovation (SII), effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

 

- 28 -


Under the Income Basic Tax Act amended in August 2012, effective on January 1, 2013, when calculating the security transaction income for the securities held for more than three years as regulated under Article 4-1 of the Income Tax Act, an enterprise could deduct the security transaction losses for the securities held for more than three years. If there is any net gain from the security transactions for the year, 50% of such amount will be exempted from income taxes in the current year; however, if there is a net loss, such loss, after the assessment of the tax authorities, can be carried forward over the next five years to offset the security income generated from the sale of the securities held for more than three years. In addition, the standard deduction and the tax rate were amended to be NT$500 thousand and 12%, respectively. The amendments are effective in 2013. The Company has evaluated the impact from above amendments and adjusted the deferred tax assets with the resulting differences recorded as income tax expense for the nine months ended September 30, 2012.

As of September 30, 2012, the net operating loss carryforwards generated by WaferTech, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar would expire on various dates through 2023.

 

  d.

Integrated income tax information:

The balance of the imputation credit account of TSMC as of September 30, 2012 and 2011 was NT$8,136,884 thousand and NT$4,016,138 thousand, respectively.

The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2011 and 2010 were 6.69% and 4.96%, respectively.

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.

 

  e.

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

 

  f.

As of September 30, 2012, investment tax credits of TSMC, Xintec, Mutual-Pak and TSMC SSL consisted of the following:

 

Law/Statute    Item    Total
Creditable
Amount
     Remaining
Creditable
Amount
     Expiry 
Year 

Statute for Upgrading

  

Purchase of machinery and

   $ 6,961       $ 6,961       2012

    Industries

  

    equipment

     6,514,324         6,514,324       2013
        7,045,590         7,045,590       2014
        505,215         505,215       2015
     

 

 

    

 

 

    
      $   14,072,090       $   14,072,090      
     

 

 

    

 

 

    

Statute for Upgrading

  

Research and development

   $ 1,179,808       $ 23,950       2012

    Industries

  

    expenditures

     4,732,147         120,713       2013
     

 

 

    

 

 

    
      $ 5,911,955       $ 144,663      
     

 

 

    

 

 

    

Statute for Upgrading

  

Personnel training expenditures

   $ 17,406       $ 15       2012
     

 

 

    

 

 

    

    Industries

           

Statute for Industrial

  

Research and development

   $ 2,121,662       $ -       2012
     

 

 

    

 

 

    

    Innovation

  

    expenditures

        

 

- 29 -


  g.

The profits generated from the following projects of TSMC and Xintec are exempt from income tax for a five-year period:

 

       Tax-exemption Period  

Construction and expansion of 2004 by TSMC

   2008 to 2012

Construction and expansion of 2005 by TSMC

   2010 to 2014

Construction and expansion of 2006 by TSMC

   2011 to 2015

Construction and expansion of 2003 and 2006 by Xintec

   2010 to 2014

 

  h.

The tax authorities have examined income tax returns of TSMC through 2009. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

  21. LABOR COST, DEPRECIATION AND AMORTIZATION

 

    Nine Months Ended September 30, 2012
         Classified as
Cost of Sales
       Classified as
Operating
Expenses
       Total      

Labor cost

                

Salary and bonus

     $ 23,176,906         $ 17,323,329         $ 40,500,235     

Labor and health insurance

       1,148,229           831,278           1,979,507     

Pension

       766,572           485,041           1,251,613     

Meal

       564,226           234,968           799,194     

Welfare

       586,614           219,949           806,563     

Others

       81,267           236,905           318,172     
    

 

 

      

 

 

      

 

 

   
     $ 26,323,814         $ 19,331,470         $   45,655,284     
    

 

 

      

 

 

      

 

 

   

Depreciation

     $ 85,505,984         $ 7,990,480         $ 93,496,464     
    

 

 

      

 

 

      

 

 

   

Amortization

     $ 1,026,093         $ 616,511         $ 1,642,604     
    

 

 

      

 

 

      

 

 

   
    Nine Months Ended September 30, 2011
         Classified as
Cost of Sales
       Classified as
Operating
Expenses
       Total      

Labor cost

                

Salary and bonus

     $ 20,258,717         $ 15,450,048         $ 35,708,765     

Labor and health insurance

       1,000,030           686,043           1,686,073     

Pension

       732,693           476,599           1,209,292     

Meal

       538,041           217,379           755,420     

Welfare

       546,903           201,640           748,543     

Others

       67,183           202,429           269,612     
    

 

 

      

 

 

      

 

 

   
     $ 23,143,567         $ 17,234,138         $ 40,377,705     
    

 

 

      

 

 

      

 

 

   

Depreciation

     $ 72,967,191         $ 5,196,753         $ 78,163,944     
    

 

 

      

 

 

      

 

 

   

Amortization

     $ 1,089,810         $ 672,039         $ 1,761,849     
    

 

 

      

 

 

      

 

 

   

 

- 30 -


  22. SHAREHOLDERS’ EQUITY

As of September 30, 2012, 1,091,702 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,458,511 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, 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 and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of TSMC’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

Capital surplus consisted of the following:

 

    September 30
         2012        2011      

Additional paid-in capital

     $   23,892,456         $   23,734,158     

From merger

       22,804,510           22,805,390     

From convertible bonds

       8,892,847           8,893,190     

From long-term investments

       484,567           256,946     

Donations

       55           55     
    

 

 

      

 

 

   
     $ 56,074,435         $ 55,689,739     
    

 

 

      

 

 

   

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:

 

  a.

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

 

  b.

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

 

  c.

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;

 

  d.

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.

 

- 31 -


TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$8,333,282 thousand and NT$6,887,967 thousand for the nine months ended September 30, 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, 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.

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in the TSMC’s shareholders’ meetings held on June 12, 2012 and June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

    Appropriation of Earnings   Dividends Per  Share
(NT$)
       

For Fiscal

Year 2011

          

For Fiscal

Year 2010

       

For Fiscal

  Year 2011  

 

For Fiscal

  Year 2010  

Legal capital reserve

    $   13,420,128           $   16,160,501         

Special capital reserve

      1,172,350             5,120,827         

Cash dividends to shareholders

      77,748,668             77,730,236        $3.00   $3.00
   

 

 

        

 

 

       
    $   92,341,146           $   99,011,564         
   

 

 

        

 

 

       

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 12, 2012 and June 9, 2011, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 14, 2012 and February 15, 2011 and same amount had been charged against earnings of 2011 and 2010, respectively.

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

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

 

- 32 -


  23. STOCK-BASED COMPENSATION PLANS

 

  a.

Under Intrinsic Value Method

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

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2012.

Information about TSMC’s outstanding options for the nine months ended September 30, 2012 and 2011 was as follows:

 

   

Number of

Options

(In Thousands)

 

Weighted-

average

Exercise Price    

(NT$)

Nine months ended September 30, 2012

     

Balance, beginning of period

      14,293     $31.4

Options exercised

      (5,825 )     30.3

Options canceled

      (135 )     34.6
   

 

 

     

Balance, end of period

              8,333       32.6
   

 

 

     

Nine months ended September 30, 2011

     

Balance, beginning of period

      21,437     $31.4

Options exercised

      (5,071 )     30.8
   

 

 

     

Balance, end of period

      16,366       31.8
   

 

 

     

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

As of September 30, 2012, information about TSMC’s outstanding options was as follows:

 

    Options Outstanding

Range of Exercise Price

               (NT$)

 

    Number of Options

    (In Thousands)

       Weighted-average
Remaining
Contractual Life
(Years)
     Weighted-average    
Exercise Price    
(NT$)    

$20.2-$28.3

    5,569                   0.6      $  26.0    

  38.0-  50.1

         2,764                   2.2          45.8    
           
         8,333                   1.1          32.6    
           

 

- 33 -


As of September 30, 2012, all of the above outstanding options were exercisable.

Xintec’s Employee Stock Option Plans, consisting of the Xintec 2007 Plan and Xintec 2006 Plan, were approved by the SFB on June 26, 2007 and July 3, 2006, respectively. The maximum number of options authorized to be granted under the Xintec 2007 Plan and Xintec 2006 Plan was 6,000 thousand each, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of Xintec 2007 Plan and Xintec 2006 Plan are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

Information about Xintec’s outstanding options for the nine months ended September 30, 2012 and 2011 was as follows:

 

     Number of
Options
(In Thousands)
  Weighted-
average
Exercise
Price (NT$)

Nine months ended September 30, 2012

      

Balance, beginning of period

       825     $15.1

Options exercised

       (287 )     17.2

Options canceled

       (7 )     17.5
    

 

 

     

Balance, end of period

                 531       13.8
    

 

 

     

Nine months ended September 30, 2011

      

Balance, beginning of period

       1,832     $15.1

Options exercised

       (965 )     14.4

Options canceled

       (27 )     17.1
    

 

 

     

Balance, end of period

       840       16.0
    

 

 

     

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

As of September 30, 2012, information about Xintec’s outstanding and exercisable options was as follows:

 

    Options Outstanding    Options Exercisable

Range of            

Exercise            

Price (NT$)            

      Number of
Options (In
Thousands)
       Weighted-
average
Remaining
Contractual
Life (Years)
     Weighted-
average
Exercise
Price
(NT$)
             Number of
Options (In
Thousands)
       Weighted-
average
Exercise
Price
(NT$)
    

$10.7-$ 12.5            

      208            4.0      $  10.7            205            $  10.7   

  14.8-   18.6            

              323            4.9          15.8                    323                15.8   
                              
              531            4.5          13.8                    528                13.8   
                              

 

- 34 -


No compensation cost was recognized under the intrinsic value method for the nine months ended September 30, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the nine months ended September 30, 2012 and 2011 would have been as follows:

 

     TSMC    Xintec

Valuation assumptions:

     

Expected dividend yield

   1.00%- 3.44%    0.80%

Expected volatility

   43.77%- 46.15%    31.79%- 47.42%

Risk free interest rate

   3.07%- 3.85%    1.88%- 2.45%

Expected life

   5 years    3 years
         Nine Months Ended September 30    
     2012    2011

Net income attributable to shareholders of the parent:

     

As reported

   $  124,589,534    $  102,622,631

Pro forma

       124,442,977        102,618,784

Earnings per share (EPS) - after income tax (NT$):

     

Basic EPS as reported

   $4.81    $3.96

Pro forma basic EPS

     4.80      3.96

Diluted EPS as reported

     4.81      3.96

Pro forma diluted EPS

     4.80      3.96

 

  b.

Under Fair Value Method

The Board of Directors of TSMC SSL and TSMC Solar resolved on November 21, 2011 to issue new shares for cash and reserved 17,175 thousand shares and 12,341 thousand shares, respectively, for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

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

 

                          TSMC SSL                                    TSMC Solar                     
         Weighted-        Weighted-
     Number of     average    Number of   average
     Options     Exercise    Options   Exercise
     (In Thousands)         Price (NT$)            (In Thousands)         Price (NT$)  

Nine months ended

    September 30, 2012

                 

Balance, beginning of period

       -       $ -             -       $ -     

Options granted

       17,175         10.0          12,341         10.0  

Options exercised

           (17,175       10.0              (12,341       10.0  
    

 

 

          

 

 

     

Balance, end of period

       -         -             -         -     
    

 

 

          

 

 

     

 

- 35 -


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

 

     TSMC SSL    TSMC Solar

Valuation assumptions:

         

Stock price on grant date (NT$/share)

       $8.9             $9.0     

Exercise price (NT$/share)

       $10.0             $10.0     

Expected volatility

       40.32%             40.32%     

Expected life

       40 days            40 days    

Risk free interest rate

       0.76%              0.76%      

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

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

Xintec’s Employee Stock Option Plan, Xintec 2011 Plan, was approved by the SFB on January 10, 2012. The maximum number of options authorized to be granted under the Xintec 2011 Plan was 6,000 thousand, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of Xintec 2011 Plan are valid for five years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

 

         Weighted-
     Number of   average
     Options   Exercise
     (In Thousands)   Price (NT$)

Nine months ended September 30, 2012

        

Balance, beginning of period

       -       $ -     

Options granted

       6,000           22.3  

Options canceled

       (364 )       22.1  
    

 

 

     

Balance, end of period

           5,636         22.1  
    

 

 

     

Weighted-average fair value of options granted (NT$)

     $ 5.82      
    

 

 

     

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

As of September 30, 2012, information about the outstanding and exercisable options of Xintec 2011 Plan was as follows:

 

                              Options Outstanding                                            Options  Exercisable                
          Weighted-    Weighted-         Weighted-
          average    average         average
Range of    Number of    Remaining    Exercise    Number of    Exercise
Exercise    Options (In    Contractual    Price    Options (In    Price
Price (NT$)    Thousands)    Life (Years)    (NT$)    Thousands)    (NT$)

$  22.1

        5,636    4.7    $  22.1                 -              $    -

 

- 36 -


The grant date of Xintec 2011 Plan was June 14, 2012. Xintec used the Black-Scholes model to determine the fair value of the option. The valuation assumptions were as follow:

 

     Xintec

Valuation assumptions:

  

Stock price on grant date (NT$/share)

   $19.42

Exercise price (NT$/share)

   $22.30

Expected volatility

   43.73%

Expected life

   3.875 years

Expected dividend yield

   -

Risk free interest rate

   0.96%

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

For the nine months ended September 30, 2012, Xintec recognized compensation cost of the above stock option in the amount of NT$3,372 thousand.

 

 

  24. TREASURY STOCK

 

       (Shares in Thousands)

Purpose of Treasury Stock

     Number of
Shares,
Beginning of
Period
     Addition      Number of
Shares, End of
Period

Nine months ended September 30, 2011

                    

Shareholders executed the appraisal right

                      -                  1,000                  1,000  
      

 

 

        

 

 

        

 

 

 

In August 2011, at the option of the shareholders of TSMC, certain shareholders requested TSMC to buy back their shares pursuant to the Company Law. As of September 30, 2011, the book value and market value of treasury stock were NT$71,598 thousand and NT$69,998 thousand, respectively. These shares were subsequently retired in November 2011.

 

  25. EARNINGS PER SHARE

EPS is computed as follows:

 

        Number of               EPS (NT$)             
                Amounts (Numerator)                Shares   Before   After
    Before   After   (Denominator)   Income   Income
    Income Tax   Income Tax   (In Thousands)   Tax   Tax

Nine months ended September 30, 2012

                   

Basic EPS

                   

Earnings available to common shareholders of the parent

    $   135,420,901       $   124,589,534         25,919,899          

Effect of dilutive potential common shares

      -         -         7,139       $     5.22       $     4.81  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Diluted EPS

                   

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

    $ 135,420,901       $ 124,589,534             25,927,038       $ 5.22       $ 4.81  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

(Continued)

 

- 37 -


         Number of    EPS (NT$)
    Amounts (Numerator)    Shares    Before    After
    Before    After    (Denominator)    Income    Income
    Income Tax    Income Tax    (In Thousands)    Tax    Tax

Nine months ended September 30, 2011

                       

Basic EPS

                       

Earnings available to common shareholders of the parent

      $  111,217,377       

 

$  102,622,631

 

       25,913,755          $    4.29          $    3.96  

Effect of dilutive potential common shares

                            -                                -                      10,178            

Diluted EPS

                       

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

      $  111,217,377          $  102,622,631               25,923,933          $    4.29          $    3.96  

(Concluded)

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

 

  26. DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a.

Fair values of financial instruments were as follows:

 

     September 30  
     2012     2011  
           Carrying      
Amount
     Fair Value             Carrying    
Amount
    

     Fair Value    

 

Assets

             

Financial assets at fair value through profit or loss

     $ 58,690           $ 58,690        $ 606,492          $ 606,492     

Available-for-sale financial assets

     2,067,730             2,067,730          3,255,050            3,255,050     

Held-to-maturity financial assets

     7,556,046             7,572,791          8,783,258            8,848,693     

Hedging derivative financial assets

     28,189             28,189          -            -     

Financial assets carried at cost

     3,981,251             -          4,392,806            -     

Liabilities

             

Financial liabilities at fair value through profit or loss

     20,013             20,013          210,610            210,610     

Hedging derivative financial liabilities

     -             -          356            356     

Bonds payable (including current portion)

     75,600,000             75,940,020          22,500,000            22,561,211     

Long-term bank loans (including current portion)

     1,518,750             1,518,750          1,650,000            1,650,000     

Other long-term payables (including current portion)

     960,671             960,671          7,275,104            7,275,104     

Obligations under capital leases (including current portion)

     745,104             745,104          725,137            725,137     

 

- 38 -


  b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

  1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

  2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

  3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

  4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

  5)

Fair value of bonds payable was based on their quoted market price.

 

  6)

Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amounts.

 

  c.

Valuation gains/losses arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as net gains of NT$38,677 thousand and NT$395,882 thousand for the nine months ended September 30, 2012 and 2011, respectively.

 

  d.

As of September 30, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$7,614,736 thousand and NT$9,390,766 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$106,933,128 thousand and NT$65,914,126 thousand, respectively; financial assets exposed to cash flow interest rate and foreign currency risks were NT$28,189 thousand and nil, respectively; and financial liabilities exposed to cash flow interest rate risk were NT$1,518,750 thousand and NT$1,650,356 thousand, respectively.

 

  e.

Movements of the unrealized gains or losses on financial instruments for the nine months ended September 30, 2012 and 2011 were as follows:

 

     Nine Months Ended September 30, 2012
    

From
Available-

for-sale
Financial Assets

  

Equity

Method
Investments

  Gain (Loss) on
Cash Flow
Hedges
  Total

Balance, beginning of period

     $  (1,155,091)         $ (17,671 )     $ (93 )     $ (1,172,855 )

Recognized directly in shareholders’ equity

       (528,053)                   29,202                 28,191         (470,660 )

Removed from shareholders’ equity and recognized in earnings

          1,911,864          -         91            1,911,955  
    

 

 

      

 

 

     

 

 

     

 

 

 

Balance, end of period

     $ 228,720        $ 11,531       $ 28,189       $ 268,440  
    

 

 

      

 

 

     

 

 

     

 

 

 

 

- 39 -


     Nine Months Ended September 30, 2011
    

From
Available-

for-sale
Financial Assets

 

Equity

Method
Investments

  Gain (Loss) on  
Cash Flow  
Hedges  
  Total

Balance, beginning of period

     $ 86,158       $         23,462       $             (331     $ 109,289  

Recognized directly in shareholders’ equity

       (1,113,956 )       (42,035 )       (39 )       (1,156,030 )

Removed from shareholders’ equity and recognized in earnings

       (180,269 )       -         227         (180,042 )

Effect of changes in consolidated entities

       (269 )       269         -         -  
    

 

 

     

 

 

     

 

 

     

 

 

 

Balance, end of period

     $   (1,208,336)        $ (18,304 )     $ (143 )     $   (1,226,783)   
    

 

 

     

 

 

     

 

 

     

 

 

 

 

  f.

Information about financial risks

 

  1)

Market risk.    The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and publicly traded stocks; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities and the fluctuations in market prices will result in changes in fair values of publicly traded stocks.

 

  2)

Credit risk.    Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

  3)

Liquidity risk.    The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments, bonds payable and bank loans. Therefore, the liquidity risk is low.

 

  4)

Cash flow interest rate risk.    The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. The long-term bank loans were floating-rate loans; therefore, changes in the market interest rates will result in changes in the interest rate of the long-term bank loans, which will affect future cash flows.

 

  g.

The Company seeks to reduce the effects of future cash flow related interest rate and currency changes by primarily using derivative financial instruments.

 

- 40 -


In September 2012, the Company entered into derivative contracts to hedge cash flow risk arising from foreign exchange rate fluctuations of an expected equity transaction. Information about outstanding forward exchange contracts consisted of the following:

 

      Hedged Item   Hedging Financial
Instrument
           Fair Value            Expected
Cash Flow
Generated Period
  

Expected Timing for the
Recognition of Gains

or Losses from Hedge

September 30, 2012

          

Expected equity
transaction

 

Forward exchange contract

   $  28,189    2012    2015 and thereafter

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

 

      Hedged Item   Hedging Financial
Instrument
           Fair Value            Expected
Cash Flow
Generated Period
  

Expected Timing for the
Recognition of Gains

or Losses from Hedge

September 30, 2011

          

Long-term bank
loans

 

Interest rate swap contract

   $      (356)    2011 to 2012    2011 to 2012

 

  27. RELATED PARTY TRANSACTIONS

Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions:

 

  a.

Investees of TSMC

GUC (prior to July 2011, GUC was a subsidiary. Since July 2011, GUC is accounted for using the equity method.)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

  b.

Indirect investees

VisEra Technology Company, Ltd. (VisEra) (accounted for using the equity method)

Mcube (accounted for using the equity method)

 

- 41 -


  c.

Others

Related parties over which the Company has significant influence but with which the Company had no material transactions.

 

                         2012                                            2011                    
          Amount          %              Amount          %    

For the nine months ended September 30

                 

Sales

                 

GUC

    $     4,069,104                1       $     1,586,731                -  

VIS

      139,338          -         225,091          -  

Mcube

      123,926          -         -          -  

Others

      3,172          -         26,116          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 4,335,540          1       $ 1,837,938          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

Purchases

                 

VIS

    $ 3,295,850          2       $ 4,333,148          2  

SSMC

      2,759,305          1         2,963,867          2  

Others

      -          -         124,673          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 6,055,155          3       $ 7,421,688          4  
   

 

 

      

 

 

     

 

 

      

 

 

 

Manufacturing expenses

                 

VisEra (primarily outsourcing and rent)

    $ 13,391          -       $ 46,543          -  

VIS (rent)

      4,784          -         5,902          -  

Others

      77          -         -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 18,252          -       $ 52,445          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

Research and development expenses

                 

VisEra

    $ 6,669          -       $ 17,206          -  

VIS (rent)

      -          -         1,984          -  

Others

      4,656          -         -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 11,325          -       $ 19,190          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

Sales of property, plant and equipment and other assets

                 

VisEra

    $ 9,000          8       $ -          -  

VIS

      -          -         36,008          7  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 9,000          8       $ 36,008          7  
   

 

 

      

 

 

     

 

 

      

 

 

 

Purchase of property, plant and equipment and other assets

                 

GUC

    $ 21,768          -       $ -          -  

VisEra

      1,224          -         11,110          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 22,992          -       $ 11,110          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

 

- 42 -


                    2012                                    2011                 
          Amount          %             Amount          %    

Non-operating income and gains

                 

VIS (primarily technical service income)

    $ 190,470          4       $ 179,067          4  

SSMC (primarily technical service income)

      163,122          4         163,131          4  

VisEra (rent)

      -          -         2,200          -  

Others

      2,394          -         -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 355,986          8       $ 344,398          8  
   

 

 

      

 

 

     

 

 

      

 

 

 

As of September 30

                 

Receivables

                 

GUC

    $       852,919          92       $ 569,928          99  

Mcube

      71,948          8         -          -  

Others

      378          -         8,748          1  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 925,245           100       $ 578,676           100  
   

 

 

      

 

 

     

 

 

      

 

 

 

Other receivables

                 

VIS

    $ 102,169          65       $ 85,453          64  

SSMC

      54,975          35         47,921          36  

Others

      -          -         525          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 157,144          100       $ 133,899          100  
   

 

 

      

 

 

     

 

 

      

 

 

 

Refundable deposits

                 

VIS

    $ 5,813          -       $ -          -  

Others

      4          -         -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 5,817          -       $ -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

Payables

                 

VIS

    $ 384,364          49       $ 1,011,671          74  

SSMC

      377,033          48         342,654          25  

Others

      21,856          3         6,866          1  
   

 

 

      

 

 

     

 

 

      

 

 

 
    $ 783,253          100       $     1,361,191          100  
   

 

 

      

 

 

     

 

 

      

 

 

 

Deferred credits

                 

VisEra

    $ 1,006          -       $ -          -  
   

 

 

      

 

 

     

 

 

      

 

 

 

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

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses.

The Company leased certain factory building from VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses. The lease expired in June 2011.

 

- 43 -


The Company deferred the disposal gains (classified deferred credits) derived from sales of property, plant and equipment to VisEra, and then recognized such gains (classified under non-operating gains) over the depreciable lives of the disposed assets.

 

  28. PLEDGED OR MORTGAGED ASSETS

The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows:

 

    

September 30

         2012       2011     

Other financial assets

       $    120,761         $    139,320     
      

 

 

       

 

 

    

 

  29. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land, factory and office premises from the Science Park Administration and Jhongli Industrial Park Service Center. These operating leases expire on various dates from December 2012 to July 2032 and can be renewed upon expiration.

The Company entered into lease agreements for its office premises and certain office equipment located in the United States, Japan, Shanghai and Taiwan. These operating leases expire between 2012 and 2020 and can be renewed upon expiration.

As of September 30, 2012, future lease payments were as follows:

 

Year    Amount  

2012 (4th quarter)

   $ 177,739   

2013

     679,354   

2014

     645,979   

2015

     634,600   

2016

     606,937   

2017 and thereafter

     4,687,683   
  

 

 

 
   $    7,432,292   
  

 

 

 

 

  30. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of September 30, 2012, excluding those disclosed in other notes, were as follows:

 

  a.

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

 

- 44 -


  b.

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

 

  c.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

  d.

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

 

  e.

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

 

  f.

TSMC joined the Customer Co-Investment Program of ASML Holding N.V. (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. Both parties also signed the research and development funding agreement and TSMC will provide EUR277,000 thousand to ASML’s research and development programs from 2013 to 2017.

 

- 45 -


  g.

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled NT$818,361 thousand and NT$6,458,725 thousand as of September 30, 2012 and 2011, respectively, which is included in other long-term payables.

 

  h.

Amounts available under unused letters of credit as of September 30, 2012 were NT$87,930 thousand.

 

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

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

 

     September 30  
     2012     2011  
    

Foreign
Currencies

 (In Thousands) 

    

  Exchange Rate  

  (Note)  

   

Foreign
Currencies

 (In Thousands) 

    

  Exchange Rate  

  (Note)  

 

Financial assets

          

Monetary items

          

USD

    $      4,497,012            29.31          $      3,518,408            30.554      

EUR

     80,269            37.82-37.89           135,214            41.56      

JPY

     10,086,700            0.3776-0.3777           21,799,356            0.3996      

RMB

     66,627            4.62           220,424            4.81      

Non-monetary items

          

USD

     345,383            29.31           135,950            30.554      

HKD

     429,815            3.78           697,902            3.92      

Investments accounted for using equity method

          

USD

     305,453            29.31           281,446            30.554      

Financial liabilities

          

Monetary items

          

USD

     1,919,805            29.31           1,743,088            30.554      

EUR

     86,661            37.82-37.89           135,963            41.56      

JPY

     30,796,781            0.3776-0.3777           23,521,541            0.3996      

RMB

     213,842            4.62           372,707            4.81      

 

  Note:

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

 

- 46 -


  32. PRE-DISCLOSURE OF THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

According to the Rule No. 0990004943 issued by the FSC on February 2, 2010, the Company is required to provide pre-disclosure regarding the adoption of the International Financial Reporting Standards (IFRSs) in the consolidated financial statements as follows.

 

  a.

On May 14, 2009, the FSC announced the roadmap of IFRSs adoption for R.O.C. companies. Accordingly, starting 2013, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations as well as related guidance translated by Accounting Research and Development Foundation (ARDF) and issued by the FSC. To comply with the aforementioned amendments, the Company established a taskforce to monitor and execute the IFRSs adoption plan. The important plan items, responsible divisions and plan progress are listed as follows.

 

Plan Item

 

Responsible Division

 

      Plan Progress      

1) Establish the IFRSs taskforce

 

Accounting division

 

Finished

2) Complete the identification of GAAP differences and impact

 

Accounting division, finance division and employee benefit and payroll section

 

Finished

3) Complete the identification of consolidated entities under IFRSs

 

Accounting division

 

Finished

4) Evaluate potential effect to business operations

 

Accounting division, finance division, employee benefit and payroll section and business system integration division

 

Finished

5) Complete the preliminary evaluation of resources and budget needed for IFRSs adoption

 

Accounting division and business system integration division

 

Finished

6) Set up a work plan for IFRSs adoption

 

Accounting division and business system integration division

 

Finished

7) Personnel training

 

Accounting division

 

Finished

8) Determine IFRSs accounting policies

 

Accounting division, finance division and employee benefit and payroll section

 

Finished

9) Develop financial statement template under IFRSs

 

Accounting division and finance division

 

Finished

(Continued)

 

- 47 -


4Plan Item

 

Responsible Division

 

      Plan Progress      

10) Complete evaluation, configuration and testing of the IT systems

 

Accounting division and business system integration division

 

Finished

11) Communicate with related departments on the impact of IFRSs adoption

 

Accounting division

 

Finished

12) Complete the preparation of opening balance sheet under IFRSs

 

Accounting division

 

Finished

13) Complete modification to the relevant internal controls

 

Accounting division and internal audit division

 

Finished

14) Prepare comparative financial information under IFRSs for 2012

 

Accounting division and finance division

 

In progress according to the plan

(Concluded)

 

  b.

Exemptions from IFRS 1

IFRS 1, “First-time Adoption of International Financial Reporting Standards,” establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under IFRSs and retrospectively apply to those accounting policies in its opening balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date); except for optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows:

 

  1)

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

 

  2)

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

 

  3)

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

 

- 48 -


  c.

As of September 30, 2012, based on the Company’s assessment, the significant differences between the Company’s current accounting policies under R.O.C. GAAP and the ones under IFRSs are stated as follows:

 

  1)

Reconciliation of consolidated balance sheet as of January 1, 2012

 

     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Current assets

                         

Cash and cash equivalents

     $   143,472,277        $ -        $ -        $   143,472,277     

Cash and cash equivalents

  

Financial assets at fair value through profit or loss

       15,360          -          -          15,360     

Financial assets at fair value through profit or loss

  

Available-for-sale financial assets

       3,308,770          -          -          3,308,770     

Available-for-sale financial assets

  

Held-to-maturity financial assets

       3,825,680          -          -          3,825,680     

Held-to-maturity financial assets

  

Receivables from related parties

       185,764          -          -          185,764     

Receivables from related parties

  

Notes and accounts receivable

       46,321,240          -          (490,952 )        45,830,288     

Notes and accounts receivable

  

Allowance for doubtful receivables

       (490,952 )        -          490,952          -      -   

Allowance for sales returns and others

       (5,068,263 )        -          5,068,263          -      -        a)

Other receivables from related parties

       122,292          -          -          122,292     

Other receivables from related parties

  

Other financial assets

       617,142          -          -          617,142     

Other financial assets

  

Inventories

       24,840,582          -          -          24,840,582     

Inventories

  

Deferred income tax assets

       5,936,490          -          (5,936,490 )        -      -        b)

Prepaid expenses and other current assets

       2,174,014          -          -          2,174,014     

Other current asset

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total current assets

       225,260,396          -          (868,227 )        224,392,169     

Total current assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Long-term investments

                         

Investments accounted for using equity method

       24,900,332          (13,401 )        -          24,886,931     

Investments accounted for using equity method

       e)

Held-to-maturity financial assets

       5,243,167          -          -          5,243,167     

Held-to-maturity financial assets

  

Financial assets carried at cost

       4,315,005          -          -          4,315,005     

Financial assets carried at cost

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total long-term investments

       34,458,504          (13,401 )        -          34,445,103     

Total long-term investments

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Net property, plant and equipment

       490,374,916          -          47,237          490,422,153     

Property, plant and equipment

       c)
    

 

 

      

 

 

      

 

 

      

 

 

         

Intangible assets

       10,861,563          -          -          10,861,563     

Intangible assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Other assets

                         

Deferred income tax assets

       7,436,717          231,011          5,936,490          13,604,218     

Deferred income tax assets

       b), d)

Refundable deposits

       4,518,863          -          -          4,518,863     

Refundable deposits

  

Others

       1,353,983          -          (47,237 )        1,306,746     

Others

       c)
    

 

 

      

 

 

      

 

 

      

 

 

         

Total other assets

       13,309,563          231,011          5,889,253          19,429,827     

Total other assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total

     $ 774,264,942        $         217,610        $       5,068,263        $ 779,550,815     

Total

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Current liabilities

                         

Short-term loans

     $ 25,926,528        $ -        $ -        $ 25,926,528     

Short-term loans

  

Financial liabilities at fair value through profit or loss

       13,742          -          -          13,742     

Financial liabilities at fair value through profit or loss

  

Hedging derivative financial liabilities

       232          -          -          232     

Hedging derivative financial liabilities

  

Accounts payable

       10,530,487          -          -          10,530,487     

Accounts payable

  

Payables to related parties

       1,328,521          -          -          1,328,521     

Payables to related parties

  

Income tax payable

       10,656,124          -          -          10,656,124     

Income tax payable

  

Salary and bonus payable

       6,148,499          -          -          6,148,499     

Salary and bonus payable

  

Accrued profit sharing to employees and bonus to directors and supervisors

       9,081,293          -          -          9,081,293     

Accrued profit sharing to employees and bonus to directors and supervisors

  

Payables to contractors and equipment suppliers

       35,540,526          -          -          35,540,526     

Payables to contractors and equipment suppliers

  

(Continued)

 

- 49 -


     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Accrued expenses and other current liabilities

     $ 13,218,235        $ -        $ -        $ 13,218,235     

Accrued expenses and other current liabilities

  

Current portion of bonds payable and long-term bank loans

       4,562,500          -          -          4,562,500     

Current portion of bonds payable and long-term bank loans

  

-

       -          -          5,068,263          5,068,263     

Provisions

       a)
    

 

 

      

 

 

      

 

 

      

 

 

         

Total current liabilities

       117,006,687          -          5,068,263          122,074,950     

Total current liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Long-term liabilities

                         

Bonds payable

       18,000,000          -          -          18,000,000     

Bonds payable

  

Long-term bank loans

       1,587,500          -          -          1,587,500     

Long-term bank loans

  

Obligations under capital leases

       870,993          -          -          870,993     

Obligations under capital leases

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total long-term liabilities

       20,458,493          -          -          20,458,493     

Total long-term liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Other liabilities

                         

Accrued pension cost

       3,908,508          2,332,516          -          6,241,024     

Accrued pension cost

       d)

Guarantee deposits

       443,983          -          -          443,983     

Guarantee deposits

  

-

       -          -          2,889          2,889     

Provisions

  

Others

       403,720          -          (2,889 )        400,831     

Others

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total other liabilities

       4,756,211          2,332,516          -          7,088,727     

Total other liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total liabilities

       142,221,391          2,332,516          5,068,263          149,622,170     

Total liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Equity attributable to shareholders of the parent

                         

Capital stock

       259,162,226          -          -          259,162,226     

Capital stock

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Capital surplus

       55,846,357          (374,695 )        -          55,471,662     

Capital surplus

       e)
    

 

 

      

 

 

      

 

 

      

 

 

         

Retained earnings

       322,191,155          (1,726,828 )        -          320,464,327     

Retained earnings

       d), e)
    

 

 

      

 

 

      

 

 

      

 

 

         

Others

                         

Cumulative translation adjustments

       (6,433,369 )        5          -          (6,433,364 )   

Foreign currency translation reserve

       e)

Unrealized gain (loss) on financial instruments

       (1,172,855 )        -          93          (1,172,762 )   

Unrealized gain (loss) from available-for-sales financial assets

  

-

       -          -          (93 )        (93 )   

Cash flow hedging reserve

  
    

 

 

      

 

 

      

 

 

      

 

 

         
       (7,606,224 )        5          -          (7,606,219 )      
    

 

 

      

 

 

      

 

 

      

 

 

         

Equity attributable to shareholders of the parent

       629,593,514          (2,101,518 )        -          627,491,996     

Equity attributable to shareholders of the parent

  

Minority interests

       2,450,037          (13,388 )        -          2,436,649     

Noncontrolling interests

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total shareholders’ equity

       632,043,551          (2,114,906 )        -          629,928,645     

Total shareholders’ equity

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total

     $     774,264,942        $ 217,610        $       5,068,263        $     779,550,815     

Total

  
    

 

 

      

 

 

      

 

 

      

 

 

         

(Concluded)

 

  2)

Reconciliation of consolidated balance sheet as of September 30, 2012

 

     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Current assets

                         

Cash and cash equivalents

     $     138,738,113          $                        -        $                     -        $     138,738,113     

Cash and cash equivalents

  

Financial assets at fair value through profit or loss

       58,690          -          -          58,690     

Financial assets at fair value through profit or loss

  

Available-for-sale financial assets

       2,067,730          -          -          2,067,730     

Available-for-sale financial assets

  

Held-to-maturity financial assets

       6,854,611          -          -          6,854,611     

Held-to-maturity financial assets

  

Hedging derivative financial assets

       28,189          -          -          28,189     

Hedging derivative financial assets

  

Receivables from related parties

       925,245          -          -          925,245     

Receivables from related parties

  

Notes and accounts receivable

       64,876,527          -          (489,590 )        64,386,937     

Notes and accounts receivable

  

Allowance for doubtful receivables

       (489,590 )        -          489,590          -     

-

  

Allowance for sales returns and others

       (6,900,184 )        -          6,900,184          -     

-

       a)

Other receivables from related parties

       157,144          -          -          157,144     

Other receivables from related parties

  

Other financial assets

       469,979          -          -          469,979     

Other financial assets

  

Inventories

       33,249,045          -          -          33,249,045     

Inventories

  

(Continued)

 

- 50 -


     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Deferred income tax assets

     $ 2,650,432        $ -        $ (2,650,432 )      $ -     

-

       b)

Prepaid expenses and other current assets

       2,639,414          -          -          2,639,414     

Other current assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total current assets

       245,325,345          -          4,249,752          249,575,097     

Total current assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Long-term investments

                         

Investments accounted for using equity method

       23,958,462          (51,304 )        -          23,907,158     

Investments accounted for using equity method

       e)

Held-to-maturity financial assets

       701,435          -          -          701,435     

Held-to-maturity financial assets

  

Financial assets carried at cost

       3,981,251          -          -          3,981,251     

Financial assets carried at cost

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total long-term investments

       28,641,148          (51,304 )        -          28,589,844     

Total long-term investments

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Net property, plant and equipment

       580,079,887          -          34,175          580,114,062     

Property, plant and equipment

       c)
    

 

 

      

 

 

      

 

 

      

 

 

         

Intangible assets

       10,888,854          -          -          10,888,854     

Intangible assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Other assets

                         

Deferred income tax assets

       10,137,266          270,786          2,650,432          13,058,484     

Deferred income tax assets

       b), d)

Refundable deposits

       2,331,966          -          -          2,331,966     

Refundable deposits

  

Others

       1,247,304          -          (34,175 )        1,213,129     

Others

       c)
    

 

 

      

 

 

      

 

 

      

 

 

         

Total other assets

       13,716,536          270,786          2,616,257          16,603,579     

Total other assets

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total

     $   878,651,770        $ 219,482        $       6,900,184        $   885,771,436     

Total

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Current liabilities

                         

Short-term loans

     $ 29,749,650        $ -        $ -        $ 29,749,650     

Short-term loans

  

Financial liabilities at fair value through profit or loss

       20,013          -          -          20,013     

Financial liabilities at fair value through profit or loss

  

Accounts payable

       13,773,108          -          -          13,773,108     

Accounts payable

  

Payables to related parties

       783,253          -          -          783,253     

Payables to related parties

  

Income tax payable

       10,855,245          -          -          10,855,245     

Income tax payable

  

Accrued profit sharing to employees and bonus to directors and supervisors

       8,654,015          -          -          8,654,015     

Accrued profit sharing to employees and bonus to directors and supervisors

  

Payables to contractors and equipment suppliers

       32,785,881          -          -          32,785,881     

Payables to contractors and equipment suppliers

  

Accrued expenses and other current liabilities

       22,306,318          -          -          22,306,318     

Accrued expenses and other current liabilities

  

Current portion of bonds payable and long-term bank loans

       125,000          -          -          125,000     

Current portion of bonds payable and long-term bank loans

  

-

       -          -          6,900,184          6,900,184     

Provisions

       a)
    

 

 

      

 

 

      

 

 

      

 

 

         

Total current liabilities

       119,052,483          -          6,900,184          125,952,667     

Total current liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Long-term liabilities

                         

Bonds payable

       75,600,000          -          -          75,600,000     

Bonds payable

  

Long-term bank loans

       1,393,750          -          -          1,393,750     

Long-term bank loans

  

Other long-term payable

       54,000          -          -          54,000     

Other long-term payable

  

Obligations under capital leases

       737,034          -          -          737,034     

Obligations under capital leases

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total long-term liabilities

       77,784,784          -          -          77,784,784     

Total long-term liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Other liabilities

                         

Accrued pension cost

       3,955,056          2,278,222          -          6,233,278     

Accrued pension cost

       d)

Guarantee deposits

       229,212          -          -          229,212     

Guarantee deposits

  

-

       -          -          3,619          3,619     

Provisions

  

Others

       484,178          -          (3,619 )        480,559     

Others

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total other liabilities

       4,668,446          2,278,222          -          6,946,668     

Total other liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total liabilities

       201,505,713          2,278,222          6,900,184          210,684,119     

Total liabilities

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Equity attributable to shareholders of the parent

                         

Capital stock

       259,220,476          -          -          259,220,476     

Capital stock

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Capital surplus

       56,074,435          (444,010 )        -          55,630,425     

Capital surplus

       e)
    

 

 

      

 

 

      

 

 

      

 

 

         

Retained earnings

       369,032,021          (1,601,756 )        -          367,430,265     

Retained earnings

       d), e)
    

 

 

      

 

 

      

 

 

      

 

 

         

(Continued)

 

- 51 -


     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Others

                         

Cumulative translation adjustments

     $ (10,052,181 )      $ (59 )      $ -        $ (10,052,240 )   

Foreign currency translation reserve

       e)

Unrealized gain (loss) on financial instruments

       268,440          -          (28,189 )        240,251     

Unrealized gain (loss) from available-for-sales financial assets

  

-

       -          -          28,189          28,189     

Cash flow hedging reserve

  
    

 

 

      

 

 

      

 

 

      

 

 

         
       (9,783,741 )        (59 )        -          (9,783,800 )      
    

 

 

      

 

 

      

 

 

      

 

 

         

Equity attributable to shareholders of the parent

       674,543,191          (2,045,825 )        -          672,497,366     

Equity attributable to shareholders of the parent

  

Minority interests

       2,602,866          (12,915 )        -          2,589,951     

Noncontrolling interests

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total shareholders’ equity

       677,146,057          (2,058,740 )        -          675,087,317     

Total shareholders’ equity

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Total

     $   878,651,770        $ 219,482        $       6,900,184        $   885,771,436     

Total

  
    

 

 

      

 

 

      

 

 

      

 

 

         

(Concluded)

 

  3)

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

 

     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Net sales

     $   374,943,954        $                 -        $         356,461        $   375,300,415     

Net sales

       f)

Cost of sales

       193,167,804          (33,945 )        -          193,133,859     

Cost of sales

       d)
    

 

 

      

 

 

      

 

 

      

 

 

         

Gross profit before affiliates elimination

       181,776,150          33,945          356,461          182,166,556     

Gross profit before affiliates elimination

  

Realized gross profit from affiliates

       (129,569 )        -          -          (129,569 )   

Realized profit from affiliates

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Gross profit

       181,646,581          33,945          356,461          182,036,987     

Gross profit

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Operating expenses

                         

Research and development

       29,897,315          (14,218 )        -          29,883,097     

Research and development

       d)

General and administrative

       13,505,479          (5,020 )        -          13,500,459     

General and administrative

       d)

Marketing

       3,441,269          (1,111 )        -          3,440,158     

Marketing

       d)
    

 

 

      

 

 

      

 

 

      

 

 

         

Total operating expenses

       46,844,063          (20,349 )        -          46,823,714        
    

 

 

      

 

 

      

 

 

      

 

 

         

-

       -          -          (426,059 )        (426,059 )   

Other operating gains and losses

       f)
    

 

 

      

 

 

      

 

 

      

 

 

         

Income from operations

       134,802,518          54,294          (69,598 )        134,787,214     

Income from operations

  
    

 

 

      

 

 

      

 

 

      

 

 

         

Non-operating income and gains

                         

Equity in earnings of equity method investees, net

       1,305,776          32,485          -          1,338,261     

Equity in earnings of equity method investees, net

       e)

Interest income

       1,294,864          -          (1,294,864 )        -      -        f)

Disposal of financial assets, net

       449,060          -          (449,060 )        -      -        f)

Settlement income

       448,275          -          (448,275 )        -      -        f)

Technical service income

       356,461          -          (356,461 )        -      -        f)

Foreign exchange gain, net

       208,125          -          -          208,125     

Foreign exchange gain, net

  

Valuation gain on financial instruments, net

       43,842          -          (43,842 )        -      -        f)

Gain on disposal of property, plant and equipment and other assets

       21,749          -          (21,749 )        -      -        f)

Others

       481,489          -          (481,489 )        -      -        f)

-

       -          -          1,364,540          1,364,540     

Other income

       f)

-

       -          (1,009 )        (1,619,387 )        (1,620,396 )   

Other gains and losses

       e), f)
    

 

 

      

 

 

      

 

 

      

 

 

         
       4,609,641          31,476          (3,350,587 )        1,290,530        
    

 

 

      

 

 

      

 

 

      

 

 

         

Non-operating expenses and losses

                         

Impairment of financial assets

       2,748,616          -          (2,748,616 )        -      -        f)

Interest expense

       685,418          -          -          685,418     

Finance cost

  

Impairment loss on idle assets

       422,323          -          (422,323 )        -      -        f)

(Continued)

 

- 52 -


     Effect of Transition to IFRSs          

R.O.C. GAAP

  

Recognition and

Measurement

   Presentation    IFRSs     
Item    Amount    Difference    Difference    Amount    Item        Note

Loss on disposal of property, plant and equipment

     $ 21,486        $ -        $ (21,486 )      $ -      -        f)

Others

       227,760          -          (227,760 )        -      -        f)
    

 

 

      

 

 

      

 

 

      

 

 

         
       4,105,603          -          (3,420,185 )        685,418        
    

 

 

      

 

 

      

 

 

      

 

 

         

Income before income tax

       135,306,556          85,770          -          135,392,326     

Income before income tax

  

Income tax expense

       10,827,255          (39,775 )        -          10,787,480     

Income tax expense

       d)
    

 

 

      

 

 

      

 

 

      

 

 

         

Net income

     $   124,479,301        $     125,545        $ -              124,604,846     

Net income

  
    

 

 

      

 

 

      

 

 

      

 

 

         
                      (3,627,600 )   

Exchange differences on translating foreign operations

  
                      28,421     

Cash flow hedges

  
                      1,376,863     

Net valuation gain on available-for-sale financial assets

  
                      68,461     

Share of other comprehensive income of associates and joint venture

  
                   

 

 

         
                      (2,153,855 )   

Other comprehensive income for the period, net of tax effect

  
                   

 

 

         
                    $ 122,450,991     

Total comprehensive income for the period

  
                   

 

 

         

(Concluded)

 

  4)

Notes to the reconciliation of the significant differences:

 

  a)

Allowance for sales returns and others

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

As of September 30, 2012 and January 1, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$6,900,184 thousand and NT$5,068,263 thousand, respectively.

 

  b)

Classifications of deferred income tax asset/liability and valuation allowance

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

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

 

- 53 -


As of September 30, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to non-current assets were NT$2,650,432 thousand and NT$5,936,490 thousand, respectively.

 

  c)

The classification of leased assets and idle assets

Under R.O.C. GAAP, leased assets and idle assets are classified under other assets. Under IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. Leased assets are mainly dormitories leased to employees and factories leased to suppliers. In accordance with IAS No. 40, “Investment Property,” the dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

As of September 30, 2012 and January 1, 2012, the amounts reclassified from leased assets and idle assets to property, plant and equipment were NT$34,175 thousand and NT$47,237 thousand, respectively.

 

  d)

Employee benefits

The Company had previously applied an actuarial valuation on its defined benefit obligation and recognized the related pension cost and retirement benefit obligation in conformity with R.O.C. GAAP. Under IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

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

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

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1. As of September 30, 2012 and January 1, 2012, accrued pension cost was adjusted for an increase of NT$2,278,222 thousand and NT$2,332,516 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$270,786 thousand and NT$231,011 thousand, respectively. Pension cost and income tax expense for the nine months ended September 30, 2012 were also adjusted for a decrease of NT$54,294 thousand and NT$39,775 thousand, respectively.

 

  e)

Investments accounted for using the equity method

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

 

- 54 -


In addition, if the investing company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage that results in a decrease in the investing company’s holding percentage in the investee, the resulting carrying amount of the investment in the investee differs from the amount of its share in the investee’s equity. Under R.O.C. GAAP, the investing company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Under IFRSs, such transaction is deemed a disposal and aforementioned difference is recognized in earnings accordingly.

As of September 30, 2012 and January 1, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$51,304 thousand and NT$13,401 thousand, respectively; cumulative translation adjustments was adjusted for a decrease of NT$59 thousand and an increase of NT$5 thousand, respectively; capital surplus was adjusted for a decrease of NT$444,010 thousand and NT$374,695 thousand, respectively. In addition, equity in earnings of equity method investees was adjusted for an increase of NT$32,485 thousand; other gains and losses was adjusted for a loss of NT$1,009 thousand due from the deemed disposal for the nine months ended September 30, 2012.

 

  f)

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

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

Under IFRSs, based on the nature of operating transactions, the Company reclassified technical service income of NT$356,461 thousand for the nine months ended September 30, 2012 to net sales, rental revenue of NT$338 thousand, net gain on disposal of property, plant and equipment and other assets of NT$263 thousand, other income of NT$886 thousand, depreciation of rental assets of NT$5,223 thousand and impairment loss on idle assets of NT$422,323 thousand to other operating gains and losses. In addition, interest income of NT$1,294,864 thousand and dividend income of NT$69,676 thousand were also reclassified to other income; settlement income of NT$448,275 thousand, net gain of disposal of financial assets of NT$449,060 thousand, net valuation gain on financial instruments of NT$43,842 thousand, others of NT$410,589 thousand (under non-operating income and gains), impairment of financial assets of NT$2,748,616 thousand as well as others of NT$222,537 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the nine months ended September 30, 2012.

 

  d.

The Company’s aforementioned assessment is based on the 2010 version of IFRSs translated by ARDF and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by FSC on December 22, 2011. However, the assessment result may be impacted as FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with the adoption of IFRSs. Actual results may differ from these assessments.

 

- 55 -


  33. ADDITIONAL DISCLOSURES

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

 

  a.

Financings provided:    Please see Table 1 attached;

 

  b.

Endorsement/guarantee provided:    None;

 

  c.

Marketable securities held:    Please see Table 2 attached;

 

  d.

Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital:    Please see Table 3 attached;

 

  e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital:    Please see Table 4 attached;

 

  f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital:     None;

 

  g.

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

 

  h.

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

 

  i.

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

 

  j.

Information on investment in Mainland China

 

  1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee:     Please see Table 8 attached.

 

  2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports:    Please see Table 9 attached.

 

  k.

Intercompany relationships and significant intercompany transactions:    Please see Table 9 attached.

 

  34. OPERATING SEGMENTS INFORMATION

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, and providing SoC (System on Chip) design and also engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the operating profit as the measurement for segment profit and the basis of performance assessment. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 2.

 

- 56 -


The Company’s operating segments information was as follows:

 

     Foundry      Others     Elimination     Total  

Nine months ended September 30, 2012

         

Sales from external customers

   $ 374,867,846       $ 76,108      $ -      $ 374,943,954   

Sales among intersegments

     -         6,967        (6,967     -   

Operating profit (loss)

     136,723,313         (1,920,795     -        134,802,518   

Nine months ended September 30, 2011

         

Sales from external customers

     318,125,953         4,243,525        -        322,369,478   

Sales among intersegments

     1,588,601         6,224        (1,594,825     -   

Operating profit (loss)

     109,734,169         (1,106,808     -        108,627,361   

 

  35. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the management on October 23, 2012.

 

- 57 -


TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

                                                          Collateral     Financing
Limits for
Each
Borrowing
Company
    Financing
Company’s
Total
Financing
Amount
Limits

(Note 3)
 

No.

 

Financing
Company

 

Counter-

party

 

Financial
Statement
Account

  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      

1

  TSMC Partners   TSMC China   Other receivables from related parties   $

(US$

7,327,500

250,000)

  

  

  $

(US$

7,327,500

250,000)

  

  

  $

(US$

5,275,800

180,000)

  

  

  0.25%-0.26%   The need for short-term financing   $ -      Purchase equipment   $ -        -      $ -      $

 

38,059,496

(Note 1)

  

  

  $ 38,059,496   
    TSMC Solar   Other receivables from related parties    

(US$

1,172,400

40,000)

  

  

    -        -      -   The need for short-term financing     -      Operating capital     -        -        -       

 

15,223,798

(Note 1)

  

  

    38,059,496   
    TSMC SSL  

Other receivables from related parties

 

   

(US$

879,300

30,000)

  

  

   

(US$

879,300

30,000)

  

  

    -      -  

The need for short-term financing

 

    -      Operating capital     -        -        -       

 

15,223,798

(Note 1)

  

  

    38,059,496   

2

  TSMC Development   TSMC Solar  

Other receivables from related parties

 

   

(US$

2,344,800

80,000)

  

  

   

(US$

2,344,800

80,000)

  

  

   

(US$

1,099,125

37,500)

  

  

  0.21%  

The need for short-term financing

 

    -      Operating capital     -        -        -       

 

5,111,393

(Notes 1 and 5)

  

  

   

 

12,778,483

(Note 5)

  

  

3

  TSMC Global   TSMC  

Other receivables from related parties

 

   

(US$

5,862,000

200,000)

  

  

    -        -      -   The need for short-term financing    
-
  
 

Support the parent company’s short-term operation requirement

 

    -        -        -       

 

43,089,715

(Note 2)

  

  

   
43,089,715
  

 

 

Note 1:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners and TSMC Development, respectively. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC. However, financing limits for those subsidiaries shall be no more than forty percent (40%) of the lender’s net worth.

 

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 Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions.

 

Note 3:

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

 

Note 4:

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

 

Note 5:

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

 

- 58 -


TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2012

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

 

 

                September 30, 2012   Note

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 (%)
  Market
Value or Net
Asset Value

(Foreign
Currencies in
Thousands)
 

TSMC

 

Corporate bond

                     
 

Nan Ya Plastics Corporation

  -        

Held-to-maturity financial assets

      -         $    1,099,841         N/A         $    1,111,222    
 

China Steel Corporation

  -         〃             -         301,865         N/A         303,185    
 

Stock

                     
 

Semiconductor Manufacturing International Corporation

  -        

Available-for-sale financial assets

      1,508,122         1,624,700         5         1,624,700    
 

TSMC Global

 

Subsidiary

 

Investments accounted for using equity method

      1         43,089,715         100         43,089,715    
 

TSMC Partners

 

Subsidiary

  〃             988,268         38,058,989         100         38,059,496    
 

VIS

 

Investee accounted for using equity method

  〃             628,223         9,161,979         41         11,370,845    
 

TSMC Solar

 

Subsidiary

  〃             1,118,000         8,045,131         99         8,032,665    
 

SSMC

 

Investee accounted for using equity method

  〃             314         6,253,232         39         6,039,249    
 

TSMC North America

 

Subsidiary

  〃             11,000         3,164,974         100         3,164,974    
 

TSMC SSL

 

Subsidiary

  〃             430,400         2,822,776         95         2,822,776    
 

Xintec

 

Investee with a controlling financial interest

  〃             94,950         1,573,654         40         1,573,654    
 

GUC

 

Investee accounted for using equity method

  〃             46,688         1,177,159         35         5,439,136    
 

TSMC Europe

 

Subsidiary

  〃             -         223,125         100         223,125    
 

TSMC Japan

 

Subsidiary

  〃             6         160,799         100         160,799    
 

TSMC Korea

 

Subsidiary

  〃             80         24,805         100         24,805    
 

United Industrial Gases Co., Ltd.

 

-      

 

Financial assets carried at cost

      19,300         193,584         10         359,925    
 

Shin-Etsu Handotai Taiwan Co., Ltd.

 

-      

  〃             10,500         105,000         7         337,945    
 

W.K. Technology Fund IV

 

-      

  〃             4,000         40,000         2         35,545    
 

Fund

                     
 

Horizon Ventures Fund

 

-      

 

Financial assets carried at cost

      -         89,916         12         89,916    
 

Crimson Asia Capital

 

-      

  〃             -         55,259         1         55,259    
 

Capital

                     
 

TSMC China

 

Subsidiary

 

Investments accounted for using equity method

      -         16,309,653         100         16,332,387    
 

VTAF III

 

Subsidiary

  〃             -         1,056,641         50         1,034,689    
 

VTAF II

 

Subsidiary

  〃             -         654,685         98         648,615    
 

Emerging Alliance

 

Subsidiary

  〃             -         169,756         99         169,756    
 

TSMC GN

 

Subsidiary

  〃             -         71,723         100         71,723    

TSMC Solar

 

Stock

                     
 

Motech

 

Investee accounted for using equity method

 

Investments accounted for using equity method

      87,480         4,452,514         20         2,975,843    
 

TSMC Solar Europe

 

Subsidiary

  〃             -         100,243         100         100,243    
 

TSMC Solar NA

 

Subsidiary

  〃             1         (736)          100         (736)     
 

Capital

                     
 

VTAF III

 

Investee accounted for using equity method

 

 

Investments accounted for using equity method

 

     

 

-

 

 

 

     

 

1,627,669

 

 

 

     

 

49

 

 

 

     

 

1,627,669

 

 

 

 

(Continued)

 

- 59 -


                    September 30, 2012    Note

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 (%)
   Market
Value or Net

Asset Value
(Foreign
Currencies in
Thousands)
  

TSMC SSL

  

Stock

                            
  

TSMC Lighting NA

  

Subsidiary

  

Investments accounted for using equity method

       1        $ 2,890          100        $ 2,890     

TSMC GN

  

Stock

                            
  

TSMC Solar

  

Investee accounted for using equity method

  

Investments accounted for using equity method

       4,302          30,909          -          30,909     
  

TSMC SSL

  

Investee accounted for using equity method

  

〃      

       4,680          30,691          1          30,691     

TSMC Partners

  

Corporate bond

                            
  

General Elec Cap Corp. Mtn

  

-      

  

Held-to-maturity financial assets

       -        US$  19,995          N/A        US$  20,046     
  

Stock

                            
  

TSMC Development, Inc. (TSMC Development)

  

Subsidiary

  

Investments accounted for using equity method

       1        US$  581,920          100        US$  581,920     
  

VisEra Holding Company

  

Investee accounted for using equity method

  

〃      

       43,000        US$ 99,406          49        US$ 99,406     
  

TSMC Technology

  

Subsidiary

  

〃      

       1        US$ 11,532          100        US$ 11,532     
  

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

  

Subsidiary

  

〃      

       14,153        US$ 8,672          97        US$ 8,672     
  

InveStar Semiconductor Development Fund, Inc. (ISDF)

  

Subsidiary

  

〃      

       787        US$ 6,336          97        US$ 6,336     
  

TSMC Canada

  

Subsidiary

  

〃      

       2,300        US$ 4,554          100        US$ 4,554     
  

Mcube Inc.

  

Investee accounted for using equity method

  

〃      

       6,333          -          25          -     
  

Fund

                            
  

Shanghai Walden Venture Capital Enterprise

  

-      

  

Financial assets carried at cost

       -        US$ 5,000          6        US$ 5,000     

TSMC North America

  

Stock

                            
  

Spansion Inc.

  

-      

  

Available-for-sale financial assets

       270        US$ 3,216          -        US$ 3,216     

TSMC Development

  

Corporate bond

                            
  

GE Capital Corp.

  

-      

  

Held-to-maturity financial assets

       -        US$ 19,993          N/A        US$ 20,046     
  

JP Morgan Chase & Co.

  

-      

  

〃      

       -        US$ 15,000          N/A        US$ 15,006     
  

Stock

                            
  

WaferTech

  

Subsidiary

  

Investments accounted for using equity method

       293,640        US$ 290,054          100        US$ 290,054     

Emerging Alliance

  

Common stock

                            
  

Audience, Inc.

  

-      

  

Available-for-sale financial assets

       46        US$ 286          -        US$ 286     
  

Global Investment Holding Inc.

  

-      

  

Financial assets carried at cost

       11,124        US$ 3,065          6        US$ 3,065     
  

RichWave Technology Corp.

  

-      

  

〃      

       4,074        US$ 1,545          10        US$ 1,545     
  

Preferred stock

                            
  

Next IO, Inc.

  

-      

  

Financial assets carried at cost

       8        US$ 500          -        US$ 500     
  

QST Holdings, LLC

  

-      

  

〃      

       -        US$ 142          4        US$ 142     
  

Capital

                            
  

VentureTech Alliance Holdings, LLC (VTA Holdings)

  

Subsidiary

  

Investments accounted for using equity method

       -          -          7          -     

VTAF II

  

Common stock

                            
  

Audience, Inc.

  

-      

  

Available-for-sale financial assets

       319        US$ 1,976          2        US$ 1,976     
  

Sentelic

  

-      

  

Financial assets carried at cost

       1,806        US$ 2,607          9        US$ 2,607     
  

Aether Systems, Inc.

  

-      

  

〃      

       1,800        US$ 1,701          23        US$ 1,701     
  

RichWave Technology Corp.

 

  

-      

  

〃      

       1,267        US$ 1,036          3        US$ 1,036     

(Continued)

 

- 60 -


                September 30, 2012      

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 (%)
  Market Value or Net
Asset Value

(Foreign Currencies
in Thousands)
   

Note

VTAF II

  Preferred stock              
  5V Technologies, Inc.   -  

Financial assets carried at cost

    2,890              US$      2,168                4     US$      2,168            
  Aquantia   -   〃           4,556              US$      4,316                2     US$      4,316            
  Cresta Technology Corporation   -   〃           92              US$           28                -     US$           28            
  Impinj, Inc.   -   〃           711              US$      1,100                -     US$      1,100            
  Next IO, Inc.   -   〃           179              US$      1,219                1     US$      1,219            
  Power Analog Microelectronics   -   〃           7,330              US$      3,483              21     US$      3,483            
  QST Holdings, LLC   -   〃           -              US$         593              13     US$         593            
  Capital              
  VTA Holdings   Subsidiary  

Investments accounted for using equity method

    -              -              31     -            

VTAF III

  Common stock              
  Mutual-Pak Technology Co., Ltd.   Subsidiary  

Investments accounted for using equity method

    14,168              US$      1,373              58     US$      1,373            
  InvenSense, Inc.   -  

Available-for-sale financial assets

    93              US$      1,115                -     US$      1,115            
  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.   -   〃           4,031              US$      4,810                4     US$      4,810            
  Powervation, Ltd.   -   〃           449              US$      7,030              16     US$      7,030            
  Stion Corp.   -   〃           8,152              US$    55,474              17     US$    55,474            
  Tilera, Inc.   -   〃           3,890              US$      3,025                2     US$      3,025            
  Validity Sensors, Inc.   -   〃           9,340              US$      3,456                4     US$      3,456            
  Capital              
  Growth Fund Limited (Growth Fund)   Subsidiary  

Investments accounted for using equity method

    -              US$         424            100     US$         424            
  VTA Holdings   Subsidiary   〃           -              -              62     -            

Growth Fund

  Common stock              
  Veebeam   -  

Financial assets carried at cost

    10              US$           25                -     US$           25            

ISDF

  Common stock              
  Integrated Memory Logic, Inc.   -  

Available-for-sale financial assets

    1,402              US$      4,772                2     US$      4,772            
  Memsic, Inc.   -   〃           1,286              US$      2,044                5     US$      2,044            
  Preferred stock              
  Sonics, Inc.   -  

Financial assets carried at cost

    230              US$         497                2     US$         497            

ISDF II

  Common stock              
  Memsic, Inc.   -  

Available-for-sale financial assets

    1,072              US$      1,705                4     US$      1,705            
  Alchip Technologies Limited   -  

Financial assets carried at cost

    7,520              US$      3,664              14     US$      3,664            
  Sonics, Inc.   -   〃           278              US$           10                3     US$           10            
  Goyatek Technology, Corp.   -   〃           745              US$         163                6     US$         163            
  Auden Technology MFG. Co., Ltd.   -   〃           1,049              US$         223                3     US$         223            
  Preferred stock              
 

Sonics, Inc.

 

 

-

 

 

Financial assets carried at cost

 

    264              US$         455                3     US$         455            
                (Continued)

 

- 61 -


                September 30, 2012      

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 (%)
    Market Value or Net
Asset Value

(Foreign Currencies
in Thousands)
   

Note

Xintec

 

Capital

             
 

Compositech Ltd.

 

-

 

Financial assets carried at cost

    587                  $ -                3                          $ -           

TSMC Solar Europe

 

Stock

             
 

TSMC Solar Europe GmbH

 

Subsidiary

 

Investments accounted for using equity method

    1                  EUR 2,554                100                          EUR 2,554           

TSMC Global

 

Corporate bond

             
 

Aust + Nz Banking Group

 

-

 

Held-to-maturity financial assets

    20,000                  US$ 20,000                N/A                          US$ 20,041           
 

Commonwealth Bank of Australia

 

-

 

〃      

    25,000                  US$ 25,000                N/A                          US$ 24,871           
 

Commonwealth Bank of Australia

 

-

 

〃      

    25,000                  US$ 25,000                N/A                          US$ 24,935           
 

Deutsche Bank AG London

 

-

 

〃      

    20,000                  US$ 19,970                N/A                          US$ 20,085           
 

JP Morgan Chase + Co.

 

-

 

〃      

    35,000                  US$ 35,016                N/A                          US$ 35,108           
 

Westpac Banking Corp.

 

-

 

〃      

    25,000                  US$ 25,000                N/A                          US$ 24,972           
 

Westpac Banking Corp. 12/12 Frn

 

 

-

 

 

〃      

 

    5,000                  US$ 5,000                N/A                          US$ 5,003           

(Concluded)

 

- 62 -


TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

                    Beginning Balance     Acquisition     Disposal (Note 1)     Ending Balance (Note 2)  

Company
Name

 

Marketable
Securities
Type and

Name

 

Financial
Statement
Account

 

Counter-
party

 

Nature of
Relationship

  Shares/
Units

(In
Thousands)
    Amount
(US$  in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(US$  in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(US$  in
Thousands)
    Carrying
Value

(US$  in
Thousands)
    Gain/
Loss

on Disposal
(US$ in
Thousands)
    Shares/
Units

(In
Thousands)
    Amount
(US$  in
Thousands)
 

TSMC

  Stock                          
  Semiconductor Manufacturing International Corporation   Available-for-sale financial assets   -   -     1,789,493        $ 2,617,134            -        $ -        281,371       $ 314,159         $ 276,236       $   37,923         1,508,122         $1,624,700   
  TSMC SSL   Investments accounted for using equity method   -   Subsidiary     227,000          1,746,893            203,400          2,034,000               -                         430,400         2,822,776   
  Capital                          
  TSMC GN   Investments accounted for using equity method   -   Subsidiary     -          -            -          100,000               -                                71,723   

VTAF III

  Stock                          
  InvenSense, Inc.  

Available-for-sale financial assets

 

  -   -     796          US$  7,932            -          -        703         US$ 7,460           US$  861         US$  6,599         93         US$ 1,115   

 

Note 1:

The data for marketable securities disposed exclude bonds maturities.

 

Note 2:

The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

- 63 -


TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company 

Name  

 

Types of 

Property 

 

Transaction
Date

  Transaction
Amount
   

Payment
Term 

 

Counter-party

 

Nature of

Relationships 

 

Prior Transaction of Related Counter-party

 

Price

Reference 

 

Purpose of 

Acquisition 

 

 Other

 Terms

             

Owner 

 

Relationships 

 

Transfer
Date 

 

Amount 

     

TSMC

 

Fab

 

February 7, 2012 to September 27, 2012

  $ 150,713     

By the construction progress

 

MandarTech Interiors Inc.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

February 7, 2012 to September 27, 2012

    124,159     

By the construction progress

 

I Domain Industrial Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

February 13, 2012 to September 26, 2012

    3,614,272     

By the construction progress

 

Da Cin Construction    Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

February 13, 2012 to September 27, 2012

    1,481,350     

By the construction progress

 

Fu Tsu Construction    Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

March 19, 2012 to September 27, 2012

    1,943,723     

By the construction progress

 

China Steel Structure Co., Ltd.

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

March 19, 2012 to July 27, 2012

    185,115     

By the construction progress

 

Toko Steel Structure Corporation

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None
 

Fab

 

May 28, 2012 to September 27, 2012

 

    279,434     

By the construction progress

 

 

Tasa Construction    Corporation

 

  -   N/A   N/A   N/A   N/A  

Public bidding

 

Manufacturing  purpose

   None

 

- 64 -


TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

  Company  

Name

 

    Related    

Party

 

Nature of

    Relationships    

 

Transaction Details

  Abnormal
Transaction
  Notes/Accounts Payable
or  Receivable
    Note
     

 Purchases/  

Sales

  Amount
(US$ in
Thousands)
    % to
Total
   

    Payment     Terms

  Unit
  Price  

(Note)
    Payment  
Terms

(Note)
  Ending Balance
(US$  in
Thousands)
    % to
Total
   

TSMC

 

TSMC North America

 

Subsidiary

  Sales         $ 238,620,510                63         

Net 30 days after invoice date

  -   -         $  43,302,832                67         
 

GUC

 

Investee accounted for using equity method

  Sales     3,653,307                1         

Net 30 days after monthly closing

  -   -     818,780                1         
 

VIS

 

Investee accounted for using equity method

  Sales     139,247                -         

Net 30 days after monthly closing

  -   -     -                -         
 

TSMC China

 

Subsidiary

  Purchases     11,401,736                26         

Net 30 days after monthly closing

  -   -     (1,593,552)              10         
 

WaferTech

 

Indirect subsidiary

  Purchases     6,009,695                14         

Net 30 days after monthly closing

  -   -     (716,484)               4         
 

VIS

 

Investee accounted for using equity method

  Purchases     3,295,850                8         

Net 30 days after monthly closing

  -   -     (382,552)               2         
 

SSMC

 

Investee accounted for using equity method

  Purchases     2,759,305                6         

Net 30 days after monthly closing

  -   -     (377,033)               2         

TSMC North America

 

GUC

 

Investee accounted for using equity method by TSMC

  Sales    

 

415,797    

(US$    13,989)   

  

  

        -         

Net 30 days after invoice date

  -   -    

 

34,139    

(US$    1,165)   

  

  

        -         
 

Mcube Inc.

 

Investee accounted for using equity method by TSMC

  Sales    

 

123,926    

(US$      4,169)   

  

  

        -         

Net 60 days after invoice date

  -   -    

 

71,948    

(US$    2,455)   

  

  

        -         

Xintec

 

OmniVision

 

Parent company of director (represented for Xintec)

  Sales     950,178                40         

Net 30 days after monthly closing

  -   -     242,205                42         
                     

 

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

 

- 65 -


TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

SEPTEMBER 30, 2012

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

 

 

Company Name

 

Related
Party

 

Nature of
Relationships

  Ending Balance
(US$ in
Thousands)
   

Turnover
Days
(Note 1)

  Overdue   Amounts
Received in
Subsequent
Period
      Allowance for  
Bad Debts
 
          Amount    

                Action Taken                 

   

TSMC

 

TSMC North America

 

Subsidiary

    $  43,381,075          39           $16,828,556            -     $  17,035,623              $                     -         
 

GUC

 

Investee accounted for using equity method

    818,780          35     -            -     -              -         
 

VIS

 

Investee accounted for using equity method

    102,169          (Note 2)     -            -     -              -         

TSMC Partners

 

TSMC China

 

The same parent company

   

 

5,298,835    

(US$   180,786)   

  

  

  (Note 2)     -            -     -              -         

TSMC Development

 

TSMC Solar

 

The same parent company

   

 

1,099,157    

(US$     37,501)   

  

  

  (Note 2)     -            -     -              -         

Xintec

 

OmniVision

 

Parent company of director (represented for Xintec)

    242,205          70     -            -     -              -         

TSMC Technology

 

TSMC

 

Parent company

   

 

169,554    

(US$       5,785)   

  

  

  (Note 2)     -            -     -              -         

WaferTech

 

TSMC

 

Parent company

   

 

716,484    

(US$     24,445)   

  

  

  26     -            -     -              -         

 

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.

 

- 66 -


TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

SEPTEMBER 30, 2012

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

 

 

Investor Company

 

Investee
Company

 

Location

 

Main
Businesses
and Products

  Original Investment
Amount
    Balance as of September 30, 2012     Net Income
(Losses) of
the Investee
(Foreign
Currencies in
Thousands)
    Equity in the
Earnings
(Losses)

(Note 1)
(Foreign
Currencies in
Thousands)
   

  Note  

        September 30,
2012
(Foreign
Currencies

in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
  Thousands)  
    Percentage
of
Ownership
  Carrying
Value

(Foreign
Currencies

in
Thousands)
       

TSMC

  TSMC Global   Tortola, British Virgin Islands  

Investment activities

    $  42,327,245        $ 42,327,245          1        100     $  43,089,715          $ 418,578          $ 418,578       

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     38,058,989          4,276,782          4,276,275       

Subsidiary

  TSMC China   Shanghai, China  

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

    18,939,667          18,939,667          -        100     16,309,653          3,342,620          3,360,919       

Subsidiary

  VIS   Hsin-Chu, Taiwan  

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

    13,232,288          13,232,288          628,223        41     9,161,979          1,591,018          475,957       

Investee accounted for using equity method

  TSMC Solar   Tai-Chung, Taiwan  

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

    11,180,000          11,180,000          1,118,000        99     8,045,131          (1,992,115)         (2,039,091)      

Subsidiary

  SSMC   Singapore  

Fabrication and supply of integrated circuits

    5,120,028          5,120,028          314        39     6,253,232          3,389,373          1,314,751       

Investee accounted for using equity method

  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     3,164,974          254,278          254,278       

Subsidiary

  TSMC SSL   Hsin-Chu, Taiwan  

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

    4,304,000          2,270,000          430,400        95     2,822,776          (1,035,798)         (988,095)      

Subsidiary

  Xintec   Taoyuan, Taiwan  

Wafer level chip size packaging service

    1,357,890          1,357,890          94,950        40     1,573,654          (30,286)         (25,126)      

Investee with a controlling financial interest

  GUC   Hsin-Chu, Taiwan  

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

    386,568          386,568          46,688        35     1,177,159          479,412          161,700       

Investee accounted for using equity method

  VTAF III   Cayman Islands  

Investing in new start-up technology companies

    1,891,163          2,074,155          -        50     1,056,641          139,456          141,658       

Subsidiary

  VTAF II   Cayman Islands  

Investing in new start-up technology companies

    821,890          949,267          -        98     654,685          53,204          52,140       

Subsidiary

  TSMC Europe   Amsterdam, the Netherlands  

Marketing and engineering supporting activities

    15,749          15,749          -        100     223,125          25,780          25,780       

Subsidiary

  Emerging Alliance   Cayman Islands  

Investing in new start-up technology companies

    860,889          892,855          -        99     169,756          (7,667)         (7,628)      

Subsidiary

  TSMC Japan   Yokohama, Japan  

Marketing activities

    83,760          83,760          6        100     160,799          4,193          4,193       

Subsidiary

  TSMC GN   Taipei, Taiwan  

Investment activities

    100,000          -          -        100     71,723          (16,617)         (16,617)      

Subsidiary

  TSMC Korea   Seoul, Korea  

Customer service and technical supporting activities

    13,656          13,656          80        100     24,805          1,169          1,169       

Subsidiary

TSMC Solar

  Motech   Taipei, Taiwan  

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

    6,228,661          6,228,661          87,480        20     4,452,514          (3,995,140)         Note 2       

Investee accounted for using equity method

  VTAF III   Cayman Islands  

Investing in new start-up technology companies

    1,800,466          1,795,131          -        49     1,627,669          139,456          Note 2       

Investee accounted for using equity method

  TSMC Solar Europe   Amsterdam, the Netherlands  

Investing in solar related business

    411,032          411,032          -        100     100,243          (97,325)         Note 2       

Subsidiary

  TSMC Solar NA   Delaware, U.S.A.  

Selling and marketing of solar related products

    147,686          147,686          1        100     (736)         (51,960)         Note 2       

Subsidiary

                     

(Continued)

 

- 67 -


Investor Company

 

Investee Company

 

Location

 

Main
Businesses
and Products

  Original Investment
Amount
    Balance as of September 30, 2012     Net Income
(Losses) of

the Investee
(Foreign
Currencies in
Thousands)
    Equity in the
Earnings
(Losses)

(Note 1)
(Foreign
Currencies in
Thousands)
   

Note

        September 30,
2012
(Foreign
Currencies

in
Thousands)
    December 31,
2011
(Foreign
Currencies in
Thousands)
    Shares (In
Thousands)
    Percentage
of
Ownership
    Carrying
Value

(Foreign
Currencies

in
Thousands)
       

TSMC SSL

  TSMC Lighting NA   Delaware, U.S.A.  

Selling and marketing of solid state lighting related products

    $ 3,133          $ 3,133          1          100          $ 2,890          $ (7)         Note 2       

Subsidiary

TSMC Partners

  TSMC Development   Delaware, U.S.A.  

Investment activities

    US$ 0.001          US$ 0.001          1          100          US$ 581,920          US$ 121,886          Note 2       

Subsidiary

 

VisEra Holding Company

  Cayman Islands  

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

    US$ 43,000          US$ 43,000          43,000          49          US$ 99,406          US$ 20,894          Note 2       

Investee accounted for using equity method

 

TSMC Technology

  Delaware, U.S.A.  

Engineering support activities

    US$ 0.001          US$ 0.001          1          100          US$ 11,532          US$ 917          Note 2       

Subsidiary

 

ISDF II

  Cayman Islands  

Investing in new start-up technology companies

    US$ 14,153          US$ 14,153          14,153          97          US$ 8,672          US$ (105)         Note 2       

Subsidiary

 

ISDF

  Cayman Islands  

Investing in new start-up technology companies

    US$ 787          US$ 787          787          97          US$ 6,336          US$ 2,508          Note 2       

Subsidiary

 

TSMC Canada

  Ontario, Canada  

Engineering support activities

    US$ 2,300          US$ 2,300          2,300          100          US$ 4,554          US$ 317          Note 2       

Subsidiary

 

Mcube Inc.

  Delaware, U.S.A.  

Research, development, and sale of micro-semiconductor device

    US$ 1,800          US$ 1,800          6,333          25          -          US$ (9,715)         Note 2       

Investee accounted for using equity method

TSMC Development

  WaferTech   Washington, U.S.A.  

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

    US$ 280,000          US$ 280,000          293,640          100          US$ 290,054          US$ 120,398          Note 2       

Subsidiary

VTAF III

  Mutual-Pak Technology Co., Ltd.   Taipei, Taiwan  

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

    US$ 4,718          US$ 3,937          14,168          58          US$ 1,373          US$ (981)         Note 2       

Subsidiary

 

Growth Fund

  Cayman Islands  

Investing in new start-up technology companies

    US$ 1,830          US$ 1,830          -          100          US$ 424          US$ (86)          Note 2       

Subsidiary

 

VTA Holdings

  Delaware, U.S.A.  

Investing in new start-up technology companies

    -          -          -          62          -          -          Note 2       

Subsidiary

VTAF II

  VTA Holdings   Delaware, U.S.A.  

Investing in new start-up technology companies

    -          -          -          31          -          -          Note 2       

Subsidiary

Emerging Alliance

  VTA Holdings   Delaware, U.S.A.  

Investing in new start-up technology companies

    -          -          -          7          -          -          Note 2       

Subsidiary

TSMC Solar Europe

  TSMC Solar Europe GmbH   Hamburg, Germany  

Selling of solar related products and providing customer service

    EUR 9,900          EUR 9,900          1          100          EUR 2,554            EUR (2,548)         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

    43,022          -          4,302          -          30,909          (1,992,115)         Note 2       

Investee accounted for using equity method

 

TSMC SSL

  Hsin-Chu, Taiwan  

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

    46,825          -          4,680          1          30,691          (1,035,798)         Note 2       

Investee accounted for using equity method

 

Note 1: Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.

 

Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.

(Concluded)

 

- 68 -


TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

 

 

Investee

Company

 

Main

Businesses
and Products

  Total Amount
of
Paid-in  Capital
(Foreign
Currencies in
Thousands)
   

Method of
Investment

  Accumulated
Outflow of
Investment

from Taiwan
as of
January 1,
2012

(US$ in
Thousands)
   

 

 

 

 

Investment Flows

    Accumulated
Outflow of
Investment

from Taiwan
as of

September 30,
2012 (US$ in
Thousands)
    Percentage
of
Ownership
  Equity
in the
Earnings
(Losses)
    Carrying
Value

as of
September 30,
2012

(US$ in
Thousands)
    Accumulated
Inward
Remittance

of Earnings
as of

September 30,
2012
 
          Outflow     Inflow            

TSMC China

 

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

  $

 

18,939,667

(RMB 4,502,080

  

  (Note 1)   $

(US$

18,939,667

596,000

  

   $ -       $ -       $

(US$

18,939,667

596,000

  

  100%   $

 

3,360,919

(Note 3

  

   $ 16,309,653      $ -   

Shanghai Walden Venture Capital Enterprise

 

Investing in new start-up technology companies

   

(US$

2,324,062

78,791

  

  (Note 2)    

(US$

147,485

5,000

  

    -        -       

(US$

147,485

5,000

  

  6%     (Note 4    

(US$

146,550

5,000

  

    -   

 

Accumulated Investment

in Mainland China as of

September 30, 2012

(US$ in Thousands)

     Investment Amounts
Authorized  by Investment
Commission, MOEA
(US$ in Thousands)
    Upper Limit on  Investment
(US$ in Thousands)
 
$

(US$

  19,087,152

  601,000)

  

  

   $

(US$

  19,087,152

  601,000

  

  $

(US$

  19,087,152

  601,000

  

 

Note 1: TSMC directly invested US$596,000 thousand in TSMC China.

 

Note 2: TSMC indirectly invested in China company through third region, TSMC Partners.

 

Note 3: Amount was recognized based on the reviewed financial statements.

 

Note 4: TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 69 -


TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

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

 

 

A. For the nine months ended September 30, 2012

 

No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
 

Intercompany Transactions

       

Financial Statements Item

  Amount     Terms
(Note 2)
  Percentage of
Consolidated Total Gross
Sales or Total Assets

0

 

TSMC

 

TSMC North America

  1  

Sales

        $   238,620,510            -   63%
       

Receivables from related parties

    43,302,832            -   5%
       

Other receivables from related parties

    78,243            -   -
       

Payables to related parties

    28,495            -   -
   

TSMC China

  1  

Sales

    2,204            -   -
       

Purchase

    11,401,736            -   3%
       

Marketing expenses - commission

    52,033            -   -
       

Disposal of property, plant and equipment

    45,982            -   -
       

Purchase of property, plant and equipment

    68,455            -   -
       

Loss on disposal of property, plant and equipment, net

    14,025            -   -
       

Payables to related parties

    1,593,552            -   -
       

Deferred credits

    12,532            -   -
   

TSMC Japan

  1  

Marketing expenses - commission

    211,785            -   -
       

Payables to related parties

    23,425            -   -
   

TSMC Europe

  1  

Marketing expenses - commission

    253,956            -   -
       

Research and development expenses

    37,138            -   -
       

Payables to related parties

    36,630            -   -
   

TSMC Korea

  1  

Marketing expenses - commission

    16,399            -   -
       

Payables to related parties

    1,143            -   -
   

TSMC Technology            

  1  

Research and development expenses

    549,422            -   -
       

Payables to related parties

    169,554            -   -
   

WaferTech

  1  

Sales

    12,372            -   -
       

Purchases

    6,009,695            -   2%
       

Other receivables from related parties

    1,403            -   -
       

Payables to related parties

    716,484            -   -
   

TSMC Canada

  1  

Research and development expenses

    159,156            -   -
       

Payables to related parties

    14,003            -   -
   

Xintec

  1  

Manufacturing expenses

    126,170            -   -
       

Research and development expenses

    3,224            -   -
       

Miscellaneous revenue

    1,042            -   -
       

Payables to related parties

    34,932            -   -
   

TSMC SSL

  1  

Miscellaneous revenue

    4,725            -   -
       

Other receivables from related parties

    1,741            -   -

(Continued)

 

- 70 -


No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
 

Intercompany Transactions

       

Financial Statements Item

  Amount     Terms
(Note 2)
  Percentage of
Consolidated Total Gross
Sales or Total Assets

0

 

TSMC

 

TSMC Solar

  1  

General and administrative expenses

        $ 1,539            -   -
       

Purchases of property, plant and equipment

    6,737            -   -
       

Miscellaneous revenue

    4,725            -   -
       

Other receivables from related parties

    1,741            -   -
       

Payables to related parties

    4,065            -   -
   

TSMC Global

  1  

Interest expenses

    4,870            -   -

1

 

TSMC Partners

 

TSMC China

  3  

Other receivables from related parties

            5,298,835            -   1%
       

Interest income

    13,925            -   -
   

TSMC Solar

  3  

Interest income

    2,570            -   -

2

 

TSMC Solar

 

TSMC Solar Europe GmbH  

  1  

Sales

    7,633            -   -
       

Receivables from related parties

    2,648            -   -
   

TSMC Solar NA

  1  

Sales

    2,310            -   -
       

Receivables from related parties

    2,257            -   -
   

TSMC Development

  3  

Other payable to related parties

    1,099,157            -   -

3

 

TSMC Development

 

WaferTech

  3  

Other receivables from related parties

    42,552            -   -

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.

(Continued)

 

- 71 -


B. For the nine months ended September 30, 2011

 

No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
 

Intercompany Transactions

       

Financial Statements Item

  Amount     Terms
(Note 2)
  Percentage of
Consolidated Total Gross
Sales or Total Assets

0

  TSMC  

TSMC North America

  1  

Sales

      $   175,631,354          -   54%
       

Receivables from related parties

    28,158,589          -   4%
       

Other receivables from related parties

    22,451          -   -
       

Payables to related parties

    18,988          -   -
   

TSMC China

  1  

Sales

    5,412          -   -
       

Purchases

    7,576,707          -   2%
       

Marketing expenses - commission

    48,001          -   -
       

Sales of property, plant and equipment

    2,691,880          -   1%
       

Purchases of property, plant and equipment

    70,491          -   -
       

Gain on disposal of property, plant and equipment

    99,662          -   -
       

Other receivables from related parties

    1,318,300          -   -
       

Payables to related parties

    878,485          -   -
       

Other assets

    9,048          -   -
   

TSMC Japan

  1  

Marketing expenses - commission

    204,379          -   -
       

Payables to related parties

    59,130          -   -
   

TSMC Europe

  1  

Marketing expenses - commission

    278,938          -   -
       

Research and development expenses

    32,781          -   -
       

Payables to related parties

    39,913          -   -
   

TSMC Korea

  1  

Marketing expenses - commission

    15,239          -   -
       

Payables to related parties

    1,407          -   -
   

GUC (Note 3)

  1  

Sales

    1,158,302          -   -
       

Research and development expenses

    5,718          -   -
   

TSMC Technology

  1  

Research and development expenses

    379,328          -   -
       

Payables to related parties

    86,055          -   -
   

WaferTech

  1  

Sales

    12,690          -   -
       

Purchases

    5,753,541          -   2%
       

Sales of property, plant and equipment

    72,880          -   -
       

Gain on disposal of property, plant and equipment

    1,463          -   -
       

Other receivables from related parties

    10,058          -   -
       

Payables to related parties

    657,374          -   -
   

TSMC Canada

  1  

Research and development expenses

    134,611          -   -
       

Payables to related parties

    17,865          -   -
   

Xintec

  1  

Purchases

    1,732          -   -
       

Research and development expenses

    5,868          -   -
       

Manufacturing overhead

    234,394          -   -
       

Payables to related parties

    41,917          -   -
   

TSMC Solar Europe GmbH            

  1  

Sales

    148,898          -   -
   

TSMC Solar

  1  

Other receivables from related parties

    5,754          -   -
   

TSMC Global

  1  

Interest expenses

    19,771          -   -
       

Other payables to related parties

    10,693,900          -   1%
       

Interest payable

    20,398          -   -

(Continued)

 

- 72 -


No.

 

Company Name

 

Counter Party

  Nature of
Relationship

(Note 1)
 

Intercompany Transactions

       

Financial Statements Item

  Amount     Terms
(Note 2)
  Percentage of
Consolidated Total Gross
Sales or Total Assets

1

  GUC (Note 3)   TSMC North America   3  

Purchases

      $       296,462          -   -
       

Manufacturing overhead

    120,408          -   -
    GUC-NA   3  

Operating expenses

    61,369          -   -
       

Manufacturing overhead

    30,583          -   -
    GUC-Japan   3  

Operating expenses

    21,826          -   -
    GUC-Shanghai                                    3  

Operating expenses

    8,568          -   -

2

  TSMC Partners   TSMC China   3  

Long-term receivables from related parties

    7,653,143          -   1%
    TSMC Solar   3  

Other receivables from related parties

    168,047          -   -

Note 1:    

  No. 1 represents the transactions from parent company to subsidiary.       
  No. 3 represents the transactions between subsidiaries.       

Note 2:    

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

Note 3:    

  The Company has no controlling interest over the financial, operating and personnel hiring policy decisions of GUC and its subsidiaries since July 2011. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

(Concluded)

 

- 73 -