TSM Taiwan Semiconductor Manufacturing Co Ltd

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 2015

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

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SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: November 13, 2015				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
		Consolidated Financial Statements for the Nine months Ended September 30, 2015 and 2014 and Independent Accountants’ Review Report

 

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

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

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

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

November 10, 2015

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		September 30, 2015 (Reviewed)								December 31, 2014 (Adjusted and Audited)								September 30, 2014 (Adjusted and Reviewed)								January 1, 2014 (Adjusted and Audited)
		(Note 3)								(Note 3)								(Note 3)								(Note 3)
		Amount				%				Amount				%				Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)		$	515,731,398				33			$	358,449,029				24			$	225,884,318				17			$	242,695,447				19
Financial assets at fair value through profit or loss (Note 7)			98,835				—				192,045				—				69,164				—				90,353				—
Available-for-sale financial assets (Note 8)			1,597,602				—				73,797,476				5				64,391,337				5				760,793				—
Held-to-maturity financial assets (Note 9)			7,362,003				1				4,485,593				—				—				—				1,795,949				—
Hedging derivative financial assets (Note 10)			96,153				—				—				—				—				—				—				—
Notes and accounts receivable, net (Note 11)			96,611,632				6				114,734,743				8				113,999,433				8				71,649,926				6
Receivables from related parties (Note 32)			511,008				—				312,955				—				532,767				—				291,708				—
Other receivables from related parties (Note 32)			128,490				—				178,625				—				161,962				—				221,576				—
Inventories (Note 12)			65,066,214				4				66,337,971				5				65,336,989				5				37,494,893				3
Noncurrent assets held for sale (Note 30)			—				—				944,208				—				—				—				—				—
Other financial assets (Note 33)			3,613,680				—				3,476,884				—				2,989,824				—				501,785				—
Other current assets (Note 17)			2,844,481				—				3,656,110				—				2,864,405				—				2,984,224				—
Total current assets			693,661,496				44				626,565,639				42				476,230,199				35				358,486,654				28
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)			—				—				—				—				—				—				58,721,959				5
Held-to-maturity financial assets (Note 9)			2,571,357				—				—				—				—				—				—				—
Financial assets carried at cost (Notes 13 and 31)			1,507,749				—				1,800,542				—				1,866,008				—				2,145,591				—
Investments accounted for using equity method (Note 14)			26,935,985				2				28,255,737				2				26,985,165				2				28,321,241				2
Property, plant and equipment (Note 15)			830,825,109				53				818,198,801				55				824,309,879				61				792,665,913				63
Intangible assets (Note 16)			13,196,292				1				13,531,510				1				11,942,249				1				11,490,383				1
Deferred income tax assets (Note 4)			5,743,803				—				5,138,782				—				4,940,633				1				7,145,004				1
Refundable deposits (Note 32)			400,263				—				356,069				—				2,359,756				—				2,519,031				—
Other noncurrent assets (Note 17)			1,376,756				—				1,202,006				—				1,273,661				—				1,469,577				—
Total noncurrent assets			882,557,314				56				868,483,447				58				873,677,351				65				904,478,699				72
TOTAL		$	1,576,218,810				100			$	1,495,049,086				100			$	1,349,907,550				100			$	1,262,965,353				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)		$	33,564,120				2			$	36,158,520				2			$	35,883,358				3			$	15,645,000				1
Financial liabilities at fair value through profit or loss (Note 7)			179,363				—				486,214				—				691,062				—				33,750				—
Hedging derivative financial liabilities (Note 10)			—				—				16,364,241				1				9,769,897				1				—				—
Accounts payable			18,057,750				1				21,878,934				2				20,418,733				1				14,670,260				1
Payables to related parties (Note 32)			1,128,121				—				1,491,490				—				1,290,677				—				1,688,456				—
Salary and bonus payable			10,428,126				1				10,573,922				1				9,505,689				1				8,330,956				1
Accrued compensation/profit sharing to employees and bonus to directors and supervisors (Notes 22 and 29)			16,105,423				1				18,052,820				1				12,959,725				1				12,738,801				1
Payables to contractors and equipment suppliers			34,338,079				2				26,980,408				2				28,683,936				2				89,810,160				7
Income tax payable (Note 4)			24,464,158				2				28,616,574				2				19,412,953				1				22,563,286				2
Provisions (Note 19)			9,898,270				1				10,445,452				1				7,677,524				1				7,603,781				1
Liabilities directly associated with noncurrent assets held for sale (Note 30)			—				—				219,043				—				—				—				—				—
Long-term liabilities - current portion (Note 20)			23,515,931				1				—				—				—				—				—				—
Accrued expenses and other current liabilities (Note 21)			30,010,029				2				29,746,011				2				25,954,613				2				16,693,484				1
Total current liabilities			201,689,370				13				201,013,629				14				172,248,167				13				189,777,934				15
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)			—				—				—				—				5,821				—				5,481,616				—
Bonds payable (Note 20)			191,970,754				12				213,673,818				14				211,796,805				15				210,767,625				17
Long-term bank loans			35,000				—				40,000				—				40,000				—				40,000				—
Deferred income tax liabilities (Note 4)			153,932				—				199,750				—				—				—				—				—
Obligations under finance leases (Note 15)			—				—				802,108				—				773,743				—				776,230				—
Net defined benefit liability (Note 4)			6,611,531				—				6,567,782				—				6,838,838				1				6,801,663				1
Guarantee deposits (Note 21)			23,208,034				2				25,538,475				2				160,419				—				151,660				—
Others (Note 19)			1,555,245				—				885,192				—				798,772				—				694,901				—
Total noncurrent liabilities			223,534,496				14				247,707,125				16				220,414,398				16				224,713,695				18
Total liabilities			425,223,866				27				448,720,754				30				392,662,565				29				414,491,629				33
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 22)			259,303,805				16				259,296,624				17				259,293,750				19				259,286,171				21
Capital surplus (Note 22)			56,298,728				4				55,989,922				4				55,944,799				4				55,858,626				4
Retained earnings (Note 22)
Appropriated as legal capital reserve			177,640,561				11				151,250,682				10				151,250,682				12				132,436,003				11
Appropriated as special capital reserve			—				—				—				—				—				—				2,785,741				—
Unappropriated earnings			644,577,881				41				553,914,592				37				473,751,730				35				383,670,168				30
			822,218,442				52				705,165,274				47				625,002,412				47				518,891,912				41
Others (Note 22)			13,138,191				1				25,749,291				2				16,865,491				1				14,170,306				1
Equity attributable to shareholders of the parent			1,150,959,166				73				1,046,201,111				70				957,106,452				71				848,207,015				67
NONCONTROLLING INTERESTS (Note 22)			35,778				—				127,221				—				138,533				—				266,709				—
Total equity			1,150,994,944				73				1,046,328,332				70				957,244,985				71				848,473,724				67
TOTAL		$	1,576,218,810				100			$	1,495,049,086				100			$	1,349,907,550				100			$	1,262,965,353				100

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

		For the Three Months Ended September 30																For the Nine Months Ended September 30
		2015 (Note 3)								2014 (Adjusted) (Note 3)								2015 (Note 3)								2014 (Adjusted) (Note 3)
		Amount				%				Amount				%				Amount				%				Amount				%
NET REVENUE (Notes 24, 32 and 37)		$	212,504,909				100			$	209,049,734				100			$	639,978,805				100			$	540,285,390				100
COST OF REVENUE (Notes 12, 29 and 32)			110,188,424				52				103,471,256				49				328,509,564				51				273,136,725				51
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			102,316,485				48				105,578,478				51				311,469,241				49				267,148,665				49
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			19,271				—				(3,206	)			—				735				—				13,442				—
GROSS PROFIT			102,335,756				48				105,575,272				51				311,469,976				49				267,162,107				49
OPERATING EXPENSES (Notes 29 and 32)
Research and development			16,486,365				8				15,207,282				8				49,880,041				8				40,885,511				7
General and administrative			4,296,668				2				4,612,193				2				13,126,301				2				14,676,344				3
Marketing			1,377,131				1				1,323,259				1				4,247,546				1				3,710,936				1
Total operating expenses			22,160,164				11				21,142,734				11				67,253,888				11				59,272,791				11
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 15,16 and 29)			(1,786,668	)			—				(5,300	)			—				(2,131,983	)			—				(235,292	)			—
INCOME FROM OPERATIONS (Note 37)			78,388,924				37				84,427,238				40				242,084,105				38				207,654,024				38
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture			925,854				—				1,036,725				—				2,876,252				—				3,040,159				1
Other income			1,066,001				—				688,325				—				3,492,533				1				2,618,607				—
Foreign exchange gain, net (Note 36)			2,571,011				1				1,150,993				1				2,326,899				—				759,385				—
Finance costs (Note 25)			(792,941	)			—				(816,054	)			—				(2,370,284	)			—				(2,414,084	)			—
Other gains and losses (Note 26)			1,235,770				1				(1,110,583	)			—				21,375,777				3				1,109,450				—
Total non-operating income and expenses			5,005,695				2				949,406				1				27,701,177				4				5,113,517				1
INCOME BEFORE INCOME TAX			83,394,619				39				85,376,644				41				269,785,282				42				212,767,541				39
INCOME TAX EXPENSE (Notes 4 and 27)			8,077,319				4				9,076,017				4				36,071,170				5				28,969,205				5
NET INCOME			75,317,300				35				76,300,627				37				233,714,112				37				183,798,336				34
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 22 and 27)
Items that may be reclassified subsequently to profit or loss
Exchange differences arising on translation of foreign operations			13,245,566				6				3,410,878				1				7,597,640				1				3,190,117				1
Changes in fair value of available-for-sale financial assets			(3,622,659	)			(1	)			8,120				—				(20,455,403	)			(3	)			(438,481	)			—
Share of other comprehensive income (loss) of associates and joint venture			(354,145	)			—				(36,019	)			—				239,665				—				(42,040	)			—
Income tax benefit (expense) related to components of other comprehensive income that may be reclassified subsequently			15,553				—				(2,622	)			—				(2,551	)			—				(13,745	)			—
Other comprehensive income (loss) for the period, net of income tax			9,284,315				5				3,380,357				1				(12,620,649	)			(2	)			2,695,851				1
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		$	84,601,615				40			$	79,680,984				38			$	221,093,463				35			$	186,494,187				35
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	75,329,224				35			$	76,331,255				37			$	233,736,649				37			$	183,896,351				34
Noncontrolling interests			(11,924	)			—				(30,628	)			—				(22,537	)			—				(98,015	)			—
		$	75,317,300				35			$	76,300,627				37			$	233,714,112				37			$	183,798,336				34
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	84,613,016				40			$	79,711,149				38			$	221,125,549				35			$	186,591,536				35
Noncontrolling interests			(11,401	)			—				(30,165	)			—				(32,086	)			—				(97,349	)			—
		$	84,601,615				40			$	79,680,984				38			$	221,093,463				35			$	186,494,187				35
		For the Three Months Ended September 30																For the Nine Months Ended September 30
		2015								2014								2015								2014
		Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 28)
Basic earnings per share		$					2.91			$					2.94			$					9.01			$					7.09
Diluted earnings per share		$					2.91			$					2.94			$					9.01			$					7.09

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																														Others
		Capital Stock - Common Stock												Retained Earnings																Foreign Currency				Unrealized Gain/Loss from Available-
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total				Translation Reserve				for-sale Financial Assets				Cash Flow Hedges Reserve				Total				Total				Noncontrolling Interests				Total Equity
BALANCE, JANUARY 1, 2015			25,929,662			$	259,296,624			$	55,989,922			$	151,250,682			$	—			$	553,261,982			$	704,512,664			$	4,502,113			$	21,247,483			$	(305	)		$	25,749,291			$	1,045,548,501			$	127,246			$	1,045,675,747
Effect of retrospective application			—				—				—				—				—				652,610				652,610				—				—				—				—				652,610				(25	)			652,585
ADJUSTED BALANCE, JANUARY 1, 2015			25,929,662				259,296,624				55,989,922				151,250,682				—				553,914,592				705,165,274				4,502,113				21,247,483				(305	)			25,749,291				1,046,201,111				127,221				1,046,328,332
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				26,389,879				—				(26,389,879	)			—				—				—				—				—				—				—				—
Cash dividends to shareholders - NT$4.50 per share			—				—				—				—				—				(116,683,481	)			(116,683,481	)			—				—				—				—				(116,683,481	)			—				(116,683,481	)
Total			—				—				—				26,389,879				—				(143,073,360	)			(116,683,481	)			—				—				—				—				(116,683,481	)			—				(116,683,481	)
Net income for the nine months ended September 30, 2015			—				—				—				—				—				233,736,649				233,736,649				—				—				—				—				233,736,649				(22,537	)			233,714,112
Other comprehensive income for the nine months ended September 30, 2015, net of income tax			—				—				—				—				—				—				—				7,507,537				(20,118,301	)			(336	)			(12,611,100	)			(12,611,100	)			(9,549	)			(12,620,649	)
Total comprehensive income for the nine months ended September 30, 2015			—				—				—				—				—				233,736,649				233,736,649				7,507,537				(20,118,301	)			(336	)			(12,611,100	)			221,125,549				(32,086	)			221,093,463
Issuance of stock from exercise of employee stock options			718				7,181				130,974				—				—				—				—				—				—				—				—				138,155				—				138,155
Disposal of investments accounted for using equity method			—				—				(26,537	)			—				—				—				—				—				—				—				—				(26,537	)			—				(26,537	)
Adjustments to share of changes in equities of associates and joint venture			—				—				230,222				—				—				—				—				—				—				—				—				230,222				149				230,371
From share of changes in equities of subsidiaries			—				—				(25,853	)			—				—				—				—				—				—				—				—				(25,853	)			25,853				—
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(42,719	)			(42,719	)
Effect of disposal of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(42,640	)			(42,640	)
BALANCE, September 30, 2015			25,930,380			$	259,303,805			$	56,298,728			$	177,640,561			$	—			$	644,577,881			$	822,218,442			$	12,009,650			$	1,129,182			$	(641	)		$	13,138,191			$	1,150,959,166			$	35,778			$	1,150,994,944
BALANCE, JANUARY 1, 2014			25,928,617			$	259,286,171			$	55,858,626			$	132,436,003			$	2,785,741			$	382,971,408			$	518,193,152			$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306			$	847,508,255			$	266,830			$	847,775,085
Effect of retrospective application			—				—				—				—				—				698,760				698,760				—				—				—				—				698,760				(121	)			698,639
ADJUSTED BALANCE, JANUARY 1, 2014			25,928,617				259,286,171				55,858,626				132,436,003				2,785,741				383,670,168				518,891,912				(7,140,362	)			21,310,781				(113	)			14,170,306				848,207,015				266,709				848,473,724
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				18,814,679				—				(18,814,679	)			—				—				—				—				—				—				—				—
Reversal of special capital reserve			—				—				—				—				(2,785,741	)			2,785,741				—				—				—				—				—				—				—				—
Cash dividends to shareholders -NT$3.00 per share			—				—				—				—				—				(77,785,851	)			(77,785,851	)			—				—				—				—				(77,785,851	)			—				(77,785,851	)
Total			—				—				—				18,814,679				(2,785,741	)			(93,814,789	)			(77,785,851	)			—				—				—				—				(77,785,851	)			—				(77,785,851	)
Net income for the nine months ended September 30, 2014			—				—				—				—				—				183,896,351				183,896,351				—				—				—				—				183,896,351				(98,015	)			183,798,336
Other comprehensive income for the nine months ended September 30, 2014, net of income tax			—				—				—				—				—				—				—				3,150,962				(455,751	)			(26	)			2,695,185				2,695,185				666				2,695,851
Total comprehensive income for the nine months ended September 30, 2014			—				—				—				—				—				183,896,351				183,896,351				3,150,962				(455,751	)			(26	)			2,695,185				186,591,536				(97,349	)			186,494,187
Issuance of stock from exercise of employee stock options			758				7,579				25,908				—				—				—				—				—				—				—				—				33,487				—				33,487
Disposal of investments accounted for using equity method			—				—				(2,273	)			—				—				—				—				—				—				—				—				(2,273	)			—				(2,273	)
Adjustments to share of changes in equities of associates and joint venture			—				—				90,327				—				—				—				—				—				—				—				—				90,327				(45	)			90,282
From share of changes in equities of subsidiaries			—				—				(27,789	)			—				—				—				—				—				—				—				—				(27,789	)			27,789				—
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(58,571	)			(58,571	)
BALANCE, September 30, 2014			25,929,375			$	259,293,750			$	55,944,799			$	151,250,682			$	—			$	473,751,730			$	625,002,412			$	(3,989,400	)		$	20,855,030			$	(139	)		$	16,865,491			$	957,106,452			$	138,533			$	957,244,985

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2015				2014 (Adjusted)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	269,785,282			$	212,767,541
Adjustments for:
Depreciation expense			163,884,425				141,919,819
Amortization expense			2,365,320				1,914,239
Finance costs			2,370,284				2,414,084
Share of profits of associates and joint venture			(2,876,252	)			(3,040,159	)
Interest income			(2,875,858	)			(1,974,366	)
Loss (gain) on disposal of property, plant and equipment and intangible assets, net			49,503				(13,482	)
Impairment loss on property, plant and equipment			2,317,424				239,864
Impairment loss on intangible assets			58,514				—
Impairment loss on financial assets			132,015				176,920
Gain on disposal of available-for-sale financial assets, net			(21,482,011	)			(260,908	)
Gain on disposal of financial assets carried at cost, net			(82,128	)			(65,819	)
Gain on disposal of investments accounted for using equity method			(2,305,323	)			(2,028,643	)
Loss from liquidation of subsidiaries			—				90
Realized gross profit on sales to associates			(735	)			(13,442	)
Loss on foreign exchange, net			2,492,659				1,200,859
Dividend income			(616,675	)			(644,241	)
Income from receipt of equity securities in settlement of trade receivables			—				(1,211	)
Loss from hedging instruments			137,124				4,643,145
Loss (gain) arising from changes in fair value of available-for-sale financial assets in hedge effective portion			298,751				(4,163,555	)
Gain from lease agreement modification			(428,388	)			—
Changes in operating assets and liabilities:
Derivative financial instruments			(213,641	)			678,501
Notes and accounts receivable, net			15,780,788				(42,349,537	)
Receivables from related parties			(198,053	)			(241,059	)
Other receivables from related parties			51,115				4,897
Inventories			1,271,757				(27,842,096	)
Other financial assets			1,049,004				(2,244,906	)
Other current assets			925,665				137,831
Accounts payable			(3,106,992	)			5,726,261
Payables to related parties			(363,369	)			(397,779	)
Salary and bonus payable			(145,796	)			1,174,733
Accrued compensation/profit sharing to employees and bonus to directors and supervisors			(1,947,397	)			220,924
Accrued expenses and other current liabilities			198,533				9,654,733
Provisions			(540,919	)			73,286
Net defined benefit liability			43,749				37,175

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2015				2014 (Adjusted)
Cash generated from operations		$	426,028,375			$	297,703,699
Income taxes paid			(40,821,123	)			(29,848,815	)
Net cash generated by operating activities			385,207,252				267,854,884
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(3,628	)			(91,405	)
Financial assets carried at cost			(87,970	)			(3,765	)
Held-to-maturity financial assets			(19,301,111	)			(1,396,723	)
Property, plant and equipment			(172,993,344	)			(236,115,030	)
Intangible assets			(2,657,499	)			(2,268,872	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			53,990,941				663,433
Held-to-maturity financial assets			13,900,000				3,200,000
Financial assets carried at cost			357,993				68,919
Investments accounted for using equity method			3,962,848				3,471,883
Property, plant and equipment			70,433				163,250
Cash received from other long-term receivables			—				83,840
Costs from entering into hedging transactions			(495,348	)			(520,856	)
Interest received			2,606,926				1,874,722
Other dividends received			616,675				644,241
Dividends received from investments accounted for using equity method			3,407,126				3,223,090
Refundable deposits paid			(267,994	)			(49,868	)
Refundable deposits refunded			227,253				73,851
Net cash inflow from disposal of subsidiary (Note 30)			601,047				—
Net cash used in investing activities			(116,065,652	)			(226,979,290	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			(2,628,330	)			20,610,319
Interest paid			(2,704,853	)			(2,743,513	)
Guarantee deposits received			557,639				13,213
Guarantee deposits refunded			(552,993	)			(4,981	)
Decrease in obligations under finance leases			(29,098	)			(28,426	)
Proceeds from exercise of employee stock options			33,891				33,487
Cash dividends			(116,683,481	)			(77,785,851	)
Decrease in noncontrolling interests			(42,719	)			(58,571	)
Net cash used in financing activities			(122,049,944	)			(59,964,323	)

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2015				2014 (Adjusted)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		$	10,109,235			$	2,277,600
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			157,200,891				(16,811,129	)
CASH AND CASH EQUIVALENTS INCLUDED IN NONCURRENT ASSETS HELD FOR SALE, BEGINNING OF PERIOD			81,478				—
CASH AND CASH EQUIVALENT ON CONSOLIDATED BALANCE SHEET, BEGINNING OF PERIOD			358,449,029				242,695,447
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	515,731,398			$	225,884,318

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 and 2014

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

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

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on November 10, 2015.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

a.

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

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

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

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

- 8 -

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2)

IFRS 13, “Fair Value Measurement”

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

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

 

3)

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

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

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

 

4)

Amendments to IAS 19, “Employee Benefits”

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

The impact on the current period is summarized as follows:

 

 

- 9 -

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The impact on the prior reporting periods is summarized as follows:

 

(Continued)

 

- 10 -

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(Continued)

 

- 11 -

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(Concluded)

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

(Continued)

 

- 12 -

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(Concluded)

 

Note 1:

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

Note 2:

The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

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

 

1)

IFRS 9, “Financial Instruments”

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

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

 

a)

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

 

b)

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

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

 

- 13 -

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

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

 

2)

IFRS 15, “Revenue from Contracts with Customers”

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

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

 

•

Identify the contract with the customer;

 

•

Identify the performance obligations in the contract;

 

•

Determine the transaction price;

 

•

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

 

•

Recognize revenue when the entity satisfies a performance obligation.

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

 

3)

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

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

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

 

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4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

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

The subsidiaries in the consolidated financial statements

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

 

(Continued)

 

- 15 -

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(Concluded)

 

Note a:

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

Note b:

TSMC and TSMC GN aggregately had a controlling interest of 94% in TSMC SSL as of December 31, 2014 and September 30, 2014. TSMC and TSMC GN completed the disposal of TSMC SSL in February 2015. Please refer to Note 30.

Note c:

In August 2015, TSMC Solar ceased its manufacturing operations. In November 2015, the Board of Directors of TSMC approved that TSMC Solar will be incorporated into TSMC.

Note d:

To simplify overseas investments structure, in the second quarter of 2014, the Board of Directors of TSMC Solar approved to file for the liquidation of TSMC Solar Europe. The liquidation procedure was completed in the second quarter of 2015 and TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, is held directly by TSMC Solar.

Retirement Benefits

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

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

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

 

- 16 -

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Taxation

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

 

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

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

 

6.	CASH AND CASH EQUIVALENTS

 

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

 

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

 

 

- 17 -

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

Outstanding forward exchange contracts consisted of the following:

 

Outstanding cross currency swap contracts consisted of the following:

 

 

- 18 -

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8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

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

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

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

 

- 19 -

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The outstanding stock forward contracts consisted of the following:

 

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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

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

Aging analysis of notes and accounts receivable, net

 

Movements of the allowance for doubtful receivables

 

(Continued)

 

- 20 -

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(Concluded)

Aging analysis of accounts receivable that is individually determined as impaired

 

 

12.	INVENTORIES

 

Write-down of inventories to net realizable value was included in the cost of revenue, which were as follows:

 

 

- 21 -

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13.	FINANCIAL ASSETS CARRIED AT COST

 

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

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

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

a.

Investments in associates

Associates consisted of the following:

 

 

- 22 -

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

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

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

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

 

 

b.

Investments in joint venture

Joint venture consisted of the following:

 

In August 2015, the Board of Directors of TSMC approved the acquisition of OmniVision Technologies, Inc.’s (“OVT’s”) 49.1% ownership in VisEra Holding and 100% ownership in Taiwan OmniVision Investment Holding Co. Inc., at an amount not more than US$126 million. The acquisition of shares is pending upon the regulatory approval from related governments.

 

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15.	PROPERTY, PLANT AND EQUIPMENT

 

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

In August 2015, TSMC Solar ceased its manufacturing operations. The Company recognized an impairment loss of NT$2,286,016 thousand since the carrying amounts of some of machinery and equipment, office equipment and mechanical and electrical power equipment were expected to be unrecoverable. Such impairment loss was included in other operating income and expenses for the nine months ended September 30, 2015.

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

The Company had a building lease agreement with leasing terms from December 2003 to November 2018 and such lease was accounted for as a finance lease. In August 2015, the lease was determined to be an operating lease due to a modification on lease conditions; as such, the Company recognized a gain of NT$428,388 thousand from the modification. Such gain was included in other operating income and expenses for the nine months ended September 30, 2015.

 

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16.	INTANGIBLE ASSETS

 

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

In August 2015, TSMC Solar ceased its manufacturing operation and the Company recognized an impairment loss of NT$58,514 thousand since the carrying amounts of technology license fees, software and system design costs were expected to be unrecoverable. Such impairment loss was included in other operating income and expenses for the nine months ended September 30, 2015.

 

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17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

 

 

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

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

 

20.	BONDS PAYABLE

 

The major terms of overseas unsecured bonds are as follows:

 

 

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21.	GUARANTEE DEPOSITS

 

Starting from the second quarter of 2015, some of guarantee deposits were refunded to customers by offsetting related accounts receivable.

 

22.

EQUITY

 

a.

Capital stock

 

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

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

As of September 30, 2015, 1,072,645 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,363,225 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

 

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

 

c.

Retained earnings and dividend policy

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

 

1)

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

 

2)

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

 

3)

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

 

4)

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

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

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

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

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

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

 

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

 

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

 

d.

Others

Changes in others were as follows:

 

 

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

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

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

 

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e.	Noncontrolling interests

 

 

23.	SHARE-BASED PAYMENT

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

 

 

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

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

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

 

 

24.	NET REVENUE

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

 

 

25.	FINANCE COSTS

 

 

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26.	OTHER GAINS AND LOSSES

 

 

27.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

(Continued)

 

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(Concluded)

 

b.

Income tax expense recognized in other comprehensive income

 

 

c.

Integrated income tax information

 

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

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

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

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

 

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d.

Income tax examination

The tax authorities have examined income tax returns of TSMC through 2012. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

28.	EARNINGS PER SHARE

 

EPS is computed as follows:

 

(Continued)

 

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(Concluded)

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

 

29.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

 

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

TSMC accrued employees’ compensation based on a percentage of net income before income tax, employees’ compensation and bonuses to members of the Board of Directors during the period, which amounted to NT$5,051,196 thousand for the three months ended September 30, 2015, and NT$15,672,486 thousand for the nine months ended September 30, 2015. TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,104,785 thousand for the three months ended September 30, 2014, and NT$12,297,732 thousand for the nine months ended September 30, 2014. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

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

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

 

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30.	DISPOSAL OF SUBSIDIARY

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

 

a.

Consideration received from the disposal

 

 

b.

Analysis of assets and liabilities over which the control was lost

 

 

c.

Gain/loss on disposal of subsidiary

 

 

d.

Net cash inflow arising from disposal of subsidiary

 

 

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31.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

(Continued)

 

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(Concluded)

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

Note b:     Including financial assets carried at cost.

 

b.

Financial risk management objectives

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

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

 

c.

Market risk

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

Foreign currency risk

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

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

 

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The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the nine months ended September 30, 2015 and 2014 would have decreased by NT$415,074 thousand and NT$698,942 thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.

Interest rate risk

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

Assuming the amount of floating interest rate bank loans at the end of the reporting period had been outstanding for the entire period and all other variables were held constant, a hypothetical increase in interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of tax, by approximately NT$249 thousand for both nine months ended September 30, 2015 and 2014, respectively.

Other price risk

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

Assuming a hypothetical decrease of 5% in equity prices of the equity investments at the end of the reporting period, the net income for the nine months ended September 30, 2015 and 2014 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the nine months ended September 30, 2015 and 2014 would have decreased by NT$111,752 thousand and NT$120,713 thousand, respectively.

 

d.

Credit risk management

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

Business related credit risk

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

As of September 30, 2015, December 31, 2014 and September 30, 2014, the Company’s ten largest customers accounted for 70%, 76% and 72% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

 

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Financial credit risk

The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts the concentration limit according to market conditions and the credit standing of the counterparties. The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.

 

e.

Liquidity risk management

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements associated with existing operations over the next 12 months. The Company manages its liquidity risk by maintaining adequate cash.

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

 

 

(Continued)

 

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(Continued)

 

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(Concluded)

 

f.

Fair value of financial instruments

 

1)

Fair value of financial instruments carried at amortized cost

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

 

 

2)

Valuation techniques and assumptions used in fair value measurement

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

 

•

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

 

•

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

 

•

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

 

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3)

Fair value measurements recognized in the consolidated balance sheets

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

 

•

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

 

•

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

 

•

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

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

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

 

 

(Continued)

 

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

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

Assets and liabilities measured at fair value on a nonrecurring basis

The Company measures certain financial assets at fair value on a nonrecurring basis when they are deemed to be impaired. The valuation processes include controls that are designed to ensure appropriate fair values are recorded. These controls include valuation technique validation, review of key inputs, and analysis of period-over-period fluctuations where appropriate. Due to significant unobservable inputs used, the Company classified these measurements as Level 3.

The Company reviews investments in non-publicly traded stocks and mutual funds for impairment quarterly and records an impairment charge when the Company believes an investment has experienced a significant or prolonged decline in the fair value and carrying value may not be recovered. The Company recognized impairment loss on financial assets carried at cost in the amount of NT$132,015 thousand and NT$176,920 thousand for the three months ended September 30, 2015 and 2014, respectively; and of NT$132,015 thousand and NT$176,920 thousand for the nine months ended September 30, 2015 and 2014, respectively.

 

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Determining whether a significant or prolonged decline in fair value of the investment below its carrying amount has occurred is highly subjective. Factors the Company considers include the fair value of the investment in relation to its carrying amount and the duration of the decline in fair value below the carrying amount of the investment. Due to the absence of quoted market prices, the fair values are determined significantly based on management judgment with the best information available. The Company calculates these fair values using the market approach which includes recent financing activities, valuation of comparable companies, technology development stage, market condition and other economic factors as their inputs.

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

For investments in bonds and commercial paper, the fair value is determined using active market prices and the present value of future cash flows based on the observable yield curves, respectively.

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

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

 

 

32.	RELATED PARTY TRANSACTIONS

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

 

a.

Net revenue

 

 

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b.

Purchases

 

 

c.

Receivables from related parties

 

 

d.

Payables to related parties

 

 

e

Disposal of property, plant and equipment

 

 

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f.

Others

 

 

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

The Company leased machinery and equipment from Xintec and office from VIS, respectively. The lease terms and prices were both determined in accordance with mutual agreements. The rental expenses were paid to Xintec and VIS quarterly and monthly, respectively; the related expenses were both classified under manufacturing expenses.

The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to related parties (transactions with associates and joint venture), and then recognized such gain/loss over the depreciable lives of the disposed assets.

 

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g.

Compensation of key management personnel

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

 

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

 

33.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for litigation and building lease agreements. As of September 30, 2015, December 31, 2014 and September 30, 2014, the aforementioned other financial assets amounted to NT$177,490 thousand, NT$293,409 thousand and NT$283,678 thousand, respectively.

 

34.	SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land, factory and office premises from the Science Park Administration and entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between October 2015 and March 2035 and can be renewed upon expiration.

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

 

 

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35.	SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

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

 

a.

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

 

b.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. TSMC and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of September 30, 2015.

 

c.

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

 

d.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of infringing several U.S. patents. In September 2014, the Court granted summary judgment of noninfringement in favor of TSMC and TSMC North America. Ziptronix, Inc. can appeal the Court’s order. In August 2015, Tessera Technologies, Inc. announced it had acquired Ziptronix. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

e.

TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012, and the lock-up period expired on May 1, 2015. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of September 30, 2015, TSMC has paid EUR150,193 thousand to ASML under the research and development funding agreement.

 

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f.

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

 

g.

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

 

h.

Amounts available under unused letters of credit as of September 30, 2015, December 31, 2014 and September 30, 2014 were NT$144,786 thousand, NT$222,026 thousand and NT$213,290 thousand, respectively.

 

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

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

 

(Continued)

 

- 53 -

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(Concluded)

 

Note 1:

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

Note 2:

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

Note 3:

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

 

- 54 -

---

The realized and unrealized foreign exchange gain and loss was a net gain of NT$2,571,011 thousand and NT$1,150,993 thousand for the three months ended September 30, 2015 and 2014, respectively, and NT$2,326,899 thousand and NT$759,385 thousand for the nine months ended September 30, 2015 and 2014, respectively. Since there were varieties of foreign currency transactions and functional currencies within the subsidiaries of the Company, the Company was unable to disclose foreign exchange gain (loss) towards each foreign currency with significant impact.

 

37.	OPERATING SEGMENTS INFORMATION

 

a.

Operating segments

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

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

 

b.

Segment revenue and operating results

 

 

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38.	ADDITIONAL DISCLOSURES

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

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: Please see Table 2 attached;

 

c.

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

 

d.

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

 

e.

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

 

f.

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

 

g.

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

 

h.

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

 

i.

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

 

j.

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

 

k.

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

 

l.

Information on investment in Mainland China

 

1)

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

 

2)

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

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

No.		Financing Company		Counter- party		Financial Statement Account		Related Party		Maximum Balance for the Period (US$ in Thousands) (Note 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				Collateral								Financing Limits for Each Borrowing Company				Financing Company’s Total Financing Amount Limits (Note 3)
																																						Item				Value
1		TSMC Partners		TSMC Solar		Other receivables from related parties		Yes		$ (US$	5,594,020 170,000	)		$ (US$	5,594,020 170,000	)		$ (US$	5,297,866 161,000	)			0.38	%		The need for short-term financing		$	—			Operating capital		$	—				—			$	—			$	20,236,121 (Note 1	)		$	50,590,303
				TSMC SSL		Other receivables from related parties		Yes		(US$	1,645,300 50,000	)			—				—				0.38	%		The need for short-term financing			—			Operating capital			—				—				—				20,236,121 (Note 1	)			50,590,303
2		TSMC Solar		TSMC Solar NA		Other receivables from related parties		Yes		(US$	19,744 600	)			—				—				—			The need for short-term financing			—			Operating capital			—				—				—				— (Note 2	)			—

 

Note 1:

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

Note 2:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Solar. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth; however, this restriction does not apply to the subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC Solar.

Note 3:

The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and twenty percent (20%) of the net worth of TSMC Solar.

Note 4:

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

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

No.		Endorsement/ Guarantee Provider		Guaranteed Party				Limits on Endorsement/ Guarantee Amount Provided to Each Guaranteed Party (Notes 1 and 2)				Maximum Balance for the Period (US$ in Thousands) (Note 3)				Ending Balance (US$ in Thousands) (Note 3)				Amount Actually Drawn (US$ in Thousands)				Amount of Endorsement/ Guarantee Collateralized by Properties				Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements				Maximum Endorsement/ Guarantee Amount Allowable (Note 2)				Guarantee Provided by Parent Company				Guarantee Provided by A Subsidiary				Guarantee Provided to Subsidiaries in Mainland China
				Name		Nature of Relationship
0		TSMC		TSMC Global		Subsidiary		$	287,739,792			$ (US$	49,359,000 1,500,000	)		$ (US$	49,359,000   1,500,000	)		$ (US$	49,359,000  1,500,000	)		$	—				4.29	%		$	287,739,792				Yes				No				No
				TSMC North America		Subsidiary			287,739,792			(US$	2,738,217 83,213	)		(US$	2,738,217 83,213	)		(US$	2,738,217 83,213	)			—				0.24	%			287,739,792				Yes				No				No

 

Note 1:

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

Note 2:

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

Note 3:

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

 

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2015

(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, 2015																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
TSMC		Bank debentures
		HSBC Bank (Taiwan) Limited			—			Held-to-maturity financial assets			—			$	3,312,027				N/A			$	3,311,653
		The Export-Import Bank of ROC			—			”			—				149,999				N/A				150,000
		Corporate bond
		Taiwan Power Company			—			Held-to-maturity financial assets			—				1,006,080				N/A				1,006,280
		Hon Hai Precision Ind. Co., Ltd.			—			”			—				1,005,233				N/A				1,005,733
		CPC Corporation, Taiwan			—			”			—				854,286				N/A				854,293
		Formosa Plastics Corporation			—			”			—				351,063				N/A				350,964
		Formosa Petrochemical Corporation			—			”			—				300,975				N/A				301,521
		China Steel Corporation			—			”			—				200,624				N/A				200,624
		Commercial Paper
		Taiwan Power Company			—			Held-to-maturity financial assets			240				2,393,956				N/A				2,398,449
		Stock
		Semiconductor Manufacturing International Corporation			—			Available-for-sale financial assets			211,047				627,865				1				627,865
		United Industrial Gases Co., Ltd.			—			Financial assets carried at cost			21,230				193,584				10				193,584
		Shin-Etsu Handotai Taiwan Co., Ltd.			—			”			10,500				105,000				7				105,000
		W.K. Technology Fund IV			—			”			4,000				31,280				2				31,280
		Fund
		Crimson Asia Capital			—			Financial assets carried at cost			—				18,265				1				18,265
		Horizon Ventures Fund			—			”			—				17,029				12				17,029
TSMC Partners		Stock
		Mcube Inc.			—			Financial assets carried at cost			6,333				—				14				—
		Fund
		Shanghai Walden Venture Capital Enterprise			—			Financial assets carried at cost			—			US$	5,000				6			US$	5,000
		China Walden Venture Investments II, L.P.			—			”			—			US$	2,800				9			US$	2,800
TSMC Global		Corporate bond
		JPMorgan Chase & Co.			—			Held-to-maturity financial assets			—			US$	10,913				N/A			US$	10,920
		Stock
		ASML			—			Available-for-sale financial assets			250			US$	21,819				—			US$	21,819
		Money market fund
		Ssga Cash Mgmt Global Offshore			—			Available-for-sale financial assets			12			US$	12				N/A			US$	12
VTAF III		Common stock
		Accton Wireless Broadband Corp.			—			Financial assets carried at cost			2,249			US$	315				6			US$	315
		Preferred stock
		BridgeLux, Inc.			—			Financial assets carried at cost			7,522			US$	5,177				3			US$	5,177
		GTBF, Inc.			—			”			1,154			US$	1,500				N/A			US$	1,500
		LiquidLeds Lighting Corp.			—			”			1,600			US$	800				11			US$	800
		Neoconix, Inc.			—			”			4,147			US$	170				—			US$	170

(Continued)

 

- 59 -

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Held Company Name		Marketable Securities Type and Name		Relationship with the Company				Financial Statement Account		September 30, 2015																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
VTAF II		Common stock
		Sentelic			—			Financial assets carried at cost			1,806			US$	2,607				8			US$	2,607
		Aether Systems, Inc.			—			”			2,600			US$	2,243				28			US$	2,243
		RichWave Technology Corp.			—			”			1,267			US$	1,036				3			US$	1,036
		Preferred stock
		Aquantia			—			Financial assets carried at cost			4,643			US$	4,441				2			US$	4,441
		5V Technologies, Inc.			—			”			963			US$	2,168				2			US$	2,168
		Impinj, Inc.			—			”			711			US$	1,100				—			US$	1,100
		QST Holdings, LLC			—			”			—			US$	588				13			US$	588
		Cresta Technology Corporation			—			”			92			US$	28				—			US$	28
Emerging Alliance		Common stock
		Global Investment Holding Inc.			—			Financial assets carried at cost			11,124			US$	3,065				6			US$	3,065
		RichWave Technology Corp.			—			”			4,074			US$	1,545				9			US$	1,545
		Preferred stock
		QST Holdings, LLC			—			Financial assets carried at cost			—			US$	141				4			US$	141
ISDF		Preferred stock
		Sonics, Inc.			—			Financial assets carried at cost			230				—				3				—
ISDF II		Common stock
		Alchip Technologies Limited			—			Available-for-sale financial assets			6,581			US$	7,638				11			US$	7,638
		Sonics, Inc.			—			Financial assets carried at cost			278				—				4				—
		Goyatek Technology, Corp.			—			”			745				—				6				—
		Preferred stock
		Sonics, Inc.			—			Financial assets carried at cost			264				—				4				—

(Concluded)

 

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Beginning Balance								Acquisition								Disposal																Ending Balance (Note 1)
														Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Carrying Value				Gain/Loss on Disposal				Shares/Units (In Thousands)				Amount
TSMC		Bank debentures
		HSBC Bank (Taiwan) Limited		Held-to-maturity financial assets			—				—				—			$	—				—			$	3,316,906				—			$	—			$	—			$	—				—			$	3,312,027
		Corporate bond
		Taiwan Power Company		Held-to-maturity financial assets			—				—				—				—				—				1,006,690				—				—				—				—				—				1,006,080
		Hon Hai Precision Ind. Co., Ltd.		”			—				—				—				—				—				1,006,244				—				—				—				—				—				1,005,233
		CPC Corporation, Taiwan		”			—				—				—				—				—				855,145				—				—				—				—				—				854,286
		Formosa Plastics Corporation		”			—				—				—				—				—				351,464				—				—				—				—				—				351,063
		Formosa Petrochemical Corporation		”			—				—				—				—				—				301,625				—				—				—				—				—				300,975
		Commercial Paper
		Taiwan Power Company		Held-to-maturity financial assets			—				—				220				2,192,014				1,080				10,768,924				1,060				10,600,000				10,566,982				33,018				240				2,393,956
		CPC Corporation, Taiwan		”			—				—				230				2,293,579				100				997,799				330				3,300,000				3,291,378				8,622				—				—
		Stock
		VIS		Investments accounted for using equity method			Public Market				Associate				546,223				10,105,485				—				—				82,000				3,871,910				1,608,371				2,263,539				464,223				8,201,681
		TSMC Global		Prepayments for Investments (Note 2)			—				Subsidary				—				—				—				43,639,503				—				—				—				—				—				43,639,503
		TSMC SSL		Noncurrent assets held for sale			EPISTAR				Subsidary				554,674				669,472				—				—				554,674				782,701 (Note 3	)			669,472				113,229				—				—
TSMC Global		Corporate bond
		JPMorgan Chase & Co.		Held-to-maturity financial assets			—				—				—				—				—			US$	11,002				—				—				—				—				—			US$	10,913
		Stock
		ASML		Available-for-sale financial assets			—				—				20,993			US$	2,284,919				—				—				20,743			US$	1,755,849			US$	1,072,547			US$	683,302				250			US$	21,819

 

Note 1:

The ending balance includes the amortization of premium/discount on bonds investments, share of profits/losses of investees and other related adjustment.

Note 2:

To lower the hedging cost, in June 2015, the Board of Directors of TSMC approved to inject US$2,000,000 thousand of capital into TSMC Global. This project was approved by the Investment Commission, MOEA. The prepayment for investment was US$1,359,100 thousand as of September 30, 2015 and the total injection is expected to be finished in the fourth quarter of 2015.

Note 3:

The amount of disposal is the selling price less associated expenditure.

 

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

Company Name

Types of Property

Transaction Date

Transaction Amount (Foreign Currencies in Thousands)

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

July 09, 2014 to July 06, 2015

$3,222,693

Monthly settlement by the construction progress and acceptance

DA CIN Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

August 13, 2014 to July 15, 2015

3,245,091

Monthly settlement by the construction progress and acceptance

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

September 26, 2014 to July 17, 2015

323,819

Monthly settlement by the construction progress and acceptance

Mandartech Interiors Inc.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

November 03, 2014 to June 18, 2015

1,371,031

Monthly settlement by the construction progress and acceptance

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

 

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TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

 

 

						Transaction Details												Abnormal Transaction				Notes/Accounts Payable or Receivable
Company Name		Related Party		Nature of Relationships		Purchases/Sales		Amount (Foreign Currencies in Thousands)				% to Total				Payment Terms		Unit Price		Payment Terms		Ending Balance (Foreign Currencies in Thousands)				% to Total				Note
TSMC		TSMC North America		Subsidiary		Sales		$	425,960,417				66			Net 30 days from invoice date (Note)		—		Note		$	65,932,970				69
		GUC		Associate		Sales			2,373,020				—			Net 30 days from the end of the month of when invoice is issued		—		—			492,185				1
		TSMC China		Subsidiary		Purchases			17,288,312				31			Net 30 days from the end of the month of when invoice is issued		—		—			(1,867,158	)			9
		WaferTech		Indirect subsidiary		Purchases			6,706,115				12			Net 30 days from the end of the month of when invoice is issued		—		—			(525,748	)			3
		VIS		Associate		Purchases			5,427,373				10			Net 30 days from the end of the month of when invoice is issued		—		—			(492,028	)			2
		SSMC		Associate		Purchases			3,232,402				6			Net 30 days from the end of the month of when invoice is issued		—		—			(429,391	)			2
TSMC North America		GUC		Associate of TSMC		Sales			723,796				—			Net 30 days from invoice date		—		—			17,012				—
								( US$	23,038	)												( US$	517	)
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary		Sales			410,357				66			Net 90 days from the end of the month of when invoice is issued		—		—			128,466				49

 

Note:

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

 

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TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

SEPTEMBER 30, 2015

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

 

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days (Note 1)		Overdue								Amounts Received in Subsequent Period				Allowance for Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	66,229,269			50		$	2,387,454				—			$	2,709,224			$	—
		GUC		Associate			492,185			44			—				—				—				—
TSMC Partners		TSMC Solar		The same parent company			5,298,313			Note 2			—				—				—				—
						(US$	161,014	)
TSMC China		TSMC		Parent company			1,867,158			30			—				—				—				—
						(RMB	360,716	)
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary			128,466			98			—				—				—				—
TSMC Technology		TSMC		Parent company			165,782			Note 2			—				—				—				—
						(US$	5,038	)
WaferTech		TSMC		Parent company			525,748			24			—				—				—				—
						(US$	15,978	)

 

Note 1:

The calculation of turnover days excludes other receivables from related parties.

Note 2:

The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Net Revenue or Total Assets
0		TSMC		TSMC North America		1		Net revenue from sale of goods		$	425,960,417			—		67%
								Receivables from related parties			65,932,970			—		4%
								Other receivables from related parties			296,299			—		—
				TSMC Japan		1		Marketing expenses - commission			170,894			—		—
				TSMC Europe		1		Marketing expenses - commission			293,736			—		—
				TSMC China		1		Purchases			17,288,312			—		3%
								Disposal of property, plant and equipment			115,270			—		—
								Payables to related parties			1,867,158			—		—
				TSMC Canada		1		Research and development expenses			173,266			—		—
				TSMC Technology		1		Research and development expenses			1,326,684			—		—
								Payables to related parties			165,782			—		—
				WaferTech		1		Purchases			6,706,115			—		1%
								Payables to related parties			525,748			—		—
1		TSMC Solar		TSMC Solar Europe GmbH		1		Net revenue from sale of goods			410,357			—		—
								Receivables from related parties			128,466			—		—
				TSMC Partners		3		Other payables to related parties			5,298,313			—		—

 

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.

 

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TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(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, 2015												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								September 30, 2015 (Foreign Currencies in Thousands)				December 31, 2014 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership (%)				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	146,754,371 (Note 3	)		$	103,114,868				3				100			$	182,062,864			$	21,528,153			$	21,528,153			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				50,529,423				1,318,094				1,318,174			Subsidiary
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				8,961,566				4,955,540				1,922,254			Associate
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			10,180,677				11,789,048				464,223				28				8,201,681				3,282,753				1,032,965			Associate
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				4,168,152				32,985				32,985			Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,309,969				1,357,890				92,778				35				2,240,223				223,191				83,986			Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,079,023				323,394				114,036			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,737,336				1,850,782				—				98				638,771				(83,198	)			(81,534	)		Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			608,562				605,479				—				98				483,968				(6,162	)			(6,039	)		Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				329,649				29,333				29,333			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			844,775				844,775				—				99.5				158,066				(2,749	)			(2,735	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				128,829				4,412				4,412			Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				34,975				2,948				2,948			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			270,000				200,000				—				100				1,942				(108,748	)			(108,748	)		Subsidiary
		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				289,647				99				(1,022,041	)			(4,030,736	)			(3,976,630	)		Subsidiary
TSMC Partners		TSMC Development		Delaware, U.S.A.		Investment activities		( US$	0.03 0.001	)		( US$	0.03 0.001	)			—				100			( US$	25,893,581 786,895	)		( US$	1,134,534 36,111	)			Note 2			Subsidiary
		VisEra Holding		Cayman Islands		Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry		( US$	1,414,958 43,000	)		( US$	1,414,958 43,000	)			43,000				49			( US$	3,350,741 101,828	)		( US$	213,319 6,790	)			Note 2			Jointly controlled entity
		TSMC Technology		Delaware, U.S.A.		Engineering support activities		( US$	0.03 0.001	)		( US$	0.03 0.001	)			—				100			( US$	520,354 15,813	)		( US$	25,181 801	)			Note 2			Subsidiary
		ISDF II		Cayman Islands		Investing in new start-up technology companies		( US$	305,993 9,299	)		( US$	305,993 9,299	)			9,299				97			( US$	366,186 11,128	)		( US$	3,302 105	)			Note 2			Subsidiary
		TSMC Canada		Ontario, Canada		Engineering support activities		( US$	75,684 2,300	)		( US$	75,684 2,300	)			2,300				100			( US$	153,500 4,665	)		( US$	14,375 458	)			Note 2			Subsidiary
		ISDF		Cayman Islands		Investing in new start-up technology companies		( US$	19,184 583	)		( US$	19,184 583	)			583				97			( US$	4,116 125	)		( US$	(409 (13	)  ) )			Note 2			Subsidiary

 

(Continued)

 

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Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of September 30, 2015												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								September 30, 2015 (Foreign Currencies in Thousands)				December 31, 2014 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership (%)				Carrying Value (Foreign Currencies in Thousands)
VTAF III		Mutual-Pak		New Taipei, Taiwan		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		$ (US$	171,528 5,212	)		$ (US$	171,528 5,212	)			15,643				58			$ (US$	20,754 631	)		$ (US$	(15,535 (494	)  ))			Note 2			Subsidiary
		Growth Fund		Cayman Islands		Investing in new start-up technology companies		(US$	21,776 662	)		(US$	71,735 2,180	)			—				100			(US$	785 24	)		(US$	31,235 994	)			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		Motech		New Taipei, Taiwan		Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems			6,228,661				6,228,661				87,480				18				3,102,751				(991,600	)			Note 2			Associate
		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service			25,266				—				1				100				10,055				(27,052	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			236,025				236,025				1				100				325				(15,240	)			Note 2			Subsidiary
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			—				504,107				—				100				—				(5,102	)			Note 2			Subsidiary
TSMC GN		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			94,586				53,092				3,492				1				(12,707	)			(4,030,736	)			Note 2			Associate
TSMC Development		WaferTech		Washington, U.S.A.		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices			—				—				293,637				100			(US$	7,210,363 219,120	)		(US$	1,085,327 34,545	)			Note 2			Subsidiary
TSMC Solar Europe		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service			—			(EUR	458,180 12,400	)			—				—				—			(EUR	(27,052 (766	)  ))			Note 2			Subsidiary

 

Note 1:

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

Note 2:

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

Note 3:

To lower the hedging cost, in June 2015, the Board of Directors of TSMC approved to inject US$2,000,000 thousand of capital into TSMC Global. This project was approved by the Investment Commission, MOEA. The prepayment for investment was US$1,359,100 thousand as of September 30, 2015 and the total injection is expected to be finished in the fourth quarter of 2015.

(Concluded)

 

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TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(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, 2015 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of September 30, 2015 (US$ in Thousands)				Net Income (Losses) of the Investee Company				Percentage of Ownership				Share of Profits/Losses				Carrying Amount as of September 30, 2015				Accumulated Inward Remittance of Earnings as of September 30, 2015
																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	)		$	7,235,242				100	%		$	7,249,333 (Note 2	)		$	39,621,695			$	—

 

Accumulated Investment in Mainland China as of September 30, 2015 (US$ in Thousands)				Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)				Upper Limit on Investment (US$ in Thousands)
$ (US$	18,939,667 596,000	)		$ (US$	18,939,667 596,000	)		$ (US$	18,939,667 596,000	)

 

Note 1:

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

Note 2:

Amount was recognized based on the reviewed financial statements.

 

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