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 March 2015

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

---

SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: March 3, 2015				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

---

		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
		Consolidated Financial Statements for the Years Ended December 31, 2014 and 2013 and Independent Auditors’ Report

---

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2014, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the International Accounting Standard No. 27, “Consolidated and Separate Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements.

 

Very truly yours,
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED
By
/s/ MORRIS CHANG
MORRIS CHANG
Chairman
February 10, 2015

 

- 1 -

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2014 and 2013, and the results of their consolidated operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the International Financial Reporting Standards, International Accounting Standards, interpretation as well as related guidance translated by Accounting Research and Development Foundation endorsed by the Financial Supervisory Commission of the Republic of China with the effective dates.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the years ended December 31, 2014 and 2013 on which we have issued an unqualified opinion.

 

  

February 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 audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ 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 auditors’ report and consolidated financial statements shall prevail.

 

Member of Deloitte Touche Tohmatsu Limited		- 2 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

 

		December 31, 2014										December 31, 2013
ASSETS				Amount				%						Amount				%
CURRENT ASSETS
Cash and cash equivalents (Note 6)				$	358,449,029			24						$	242,695,447				19
Financial assets at fair value through profit or loss (Note 7)					192,045			-							90,353				-
Available-for-sale financial assets (Note 8)					73,797,476			5							760,793				-
Held-to-maturity financial assets (Note 9)					4,485,593			-							1,795,949				-
Notes and accounts receivable, net (Note 11)					114,734,743			8							71,649,926				6
Receivables from related parties (Note 37)					312,955			-							291,708				-
Other receivables from related parties (Note 37)					178,625			-							221,576				-
Inventories (Notes 5 and 12)					66,337,971			5							37,494,893				3
Noncurrent assets held for sale (Note 13)					945,356			-							-				-
Other financial assets (Note 38)					3,476,884			-							501,785				-
Other current assets (Note 18)					3,656,110			-							2,984,224				-
Total current assets					626,566,787			42							358,486,654				28
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)					-			-							58,721,959				5
Financial assets carried at cost (Note 14)					1,800,542			-							2,145,591				-
Investments accounted for using equity method (Notes 5 and 15)					28,251,002			2							28,316,260				2
Property, plant and equipment (Notes 5 and 16)					818,198,801			55							792,665,913				63
Intangible assets (Notes 5 and 17)					13,531,510			1							11,490,383				1
Deferred income tax assets (Notes 5 and 31)					5,227,128			-							7,239,609				1
Refundable deposits (Note 37)					356,069			-							2,519,031				-
Other noncurrent assets (Note 18)					1,202,006			-							1,469,577				-
Total noncurrent assets					868,567,058			58							904,568,323				72
TOTAL				$	1,495,133,845			100						$	1,263,054,977				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 19)				$	36,158,520			2						$	15,645,000				1
Financial liabilities at fair value through profit or loss (Note 7)					486,214			-							33,750				-
Hedging derivative financial liabilities (Note 10)					16,364,241			1							-				-
Accounts payable					21,878,934			2							14,670,260				1
Payables to related parties (Note 37)					1,491,490			-							1,688,456				-
Salary and bonus payable					10,573,922			1							8,330,956				1
Accrued profit sharing to employees and bonus to directors and supervisors (Note 24)					18,052,820			1							12,738,801				1
Payables to contractors and equipment suppliers					26,980,408			2							89,810,160				7
Income tax payable (Note 31)					28,616,574			2							22,563,286				2
Provisions (Note 20)					10,445,452			1							7,603,781				1
Liabilities directly associated with noncurrent assets held for sale (Note 13)					220,191			-							-				-
Accrued expenses and other current liabilities (Notes 16 and 23)					29,746,011			2							16,693,484				1
Total current liabilities					201,014,777			14							189,777,934				15
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)					-			-							5,481,616				-
Bonds payable (Note 21)					213,673,818			14							210,767,625				17
Long-term bank loans					40,000			-							40,000				-
Deferred income tax liabilities (Note 31)					199,750			-							-				-
Obligations under finance leases(Note 16)					802,108			-							776,230				-
Accrued pension cost (Notes 5 and 22)					7,303,978			-							7,589,926				1
Guarantee deposits (Note 23)					25,538,475			2							151,660				-
Others (Note 20)					885,192			-							694,901				-
Total noncurrent liabilities					248,443,321			16							225,501,958				18
Total liabilities					449,458,098			30							415,279,892				33
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 24)					259,296,624			17							259,286,171				21
Capital surplus (Note 24)					55,989,922			4							55,858,626				4
Retained earnings (Note 24)
Appropriated as legal capital reserve					151,250,682			10							132,436,003				11
Appropriated as special capital reserve					-			-							2,785,741				-
Unappropriated earnings					553,261,982			37							382,971,408				30
					704,512,664			47							518,193,152				41
Others (Note 24)					25,749,291			2							14,170,306				1
Equity attributable to shareholders of the parent					1,045,548,501			70							847,508,255				67
NONCONTROLLING INTERESTS (Note 24)					127,246			-							266,830				-
Total equity					1,045,675,747			70							847,775,085				67
TOTAL				$	1,495,133,845			100						$	1,263,054,977				100

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

 

- 3 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

		2014												2013
				Amount				%								Amount				%
NET REVENUE (Notes 5, 26, 37 and 42)				$	762,806,465				100							$	597,024,197				100
COST OF REVENUE (Notes 12, 33 and 37)					385,100,646				50								316,057,820				53
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES					377,705,819				50								280,966,377				47
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES					28,556				-								(20,870	)			-
GROSS PROFIT					377,734,375				50								280,945,507				47
OPERATING EXPENSES (Notes 5, 33 and 37)
Research and development					56,823,732				8								48,118,165				8
General and administrative					18,932,100				2								18,928,544				3
Marketing					5,087,112				1								4,516,525				1
Total operating expenses					80,842,944				11								71,563,234				12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 13, 27 and 33)					(1,001,138	)			-								47,090				-
INCOME FROM OPERATIONS (Note 42)					295,890,293				39								209,429,363				35
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture (Notes 15 and 42)					3,949,674				1								3,972,031				1
Other income (Note 28)					3,380,407				-								2,342,123				-
Foreign exchange gain, net					2,111,310				-								285,460				-
Finance costs (Note 29)					(3,236,345	)			-								(2,646,776	)			-
Other gains and losses (Note 30)					2,207				-								2,104,921				-
Total non-operating income and expenses					6,207,253				1								6,057,759				1
INCOME BEFORE INCOME TAX					302,097,546				40								215,487,122				36
INCOME TAX EXPENSE (Notes 31 and 42)					38,316,677				5								27,468,185				5
NET INCOME					263,780,869				35								188,018,937				31

(Continued)

 

- 4 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

		2014														2013
				Amount				%										Amount				%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 15, 24 and 31)
Exchange differences arising on translation of foreign operations					$    11,771,129				1										$      3,668,509				1
Changes in fair value of available-for-sale financial assets					(36,559	)			-										13,290,385				2
Share of other comprehensive loss of associates and joint venture					(149,907	)			-										(59,740	)			-
Actuarial gain (loss) from defined benefit plans					290,416				-										(662,074	)			-
Income tax benefit (expense) related to components of other comprehensive income					(40,915	)			-										115,168				-
Other comprehensive income for the year, net of income tax					11,834,164				1										16,352,248				3
TOTAL COMPREHENSIVE INCOME FOR THE YEAR					$  275,615,033				36										$  204,371,185				34
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent					$  263,898,794				35										$  188,146,790				31
Noncontrolling interests					(117,925	)			-										(127,853	)			-
					$  263,780,869				35										$  188,018,937				31
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent					$  275,717,141				36										$  204,505,782				34
Noncontrolling interests					(102,108	)			-										(134,597	)			-
					$  275,615,033				36										$  204,371,185				34
		2014														2013
		Income Attributable to Shareholders of the Parent														Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 32)
Basic earnings per share		$    10.18														$    7.26
Diluted earnings per share		$    10.18														$    7.26

 

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

 

- 5 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

 

 

		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, 2013					25,924,435			$	259,244,357					$	55,675,340					$	115,820,123			$	7,606,224			$	284,985,121			$	408,411,468							$	(10,753,806	)		$	7,973,321			$	-			$	(2,780,485	)				$	720,550,680					$	2,543,226			$	723,093,906
Appropriations of prior year’s earnings
Legal capital reserve					-				-						-						16,615,880				-				(16,615,880	)			-								-				-				-				-						-						-				-
Reversal of special capital reserve					-				-						-						-				(4,820,483	)			4,820,483				-								-				-				-				-						-						-				-
Cash dividends to shareholders - NT$3.00 per share					-				-						-						-				-				(77,773,307	)			(77,773,307	)							-				-				-				-						(77,773,307	)					-				(77,773,307	)
Total					-				-						-						16,615,880				(4,820,483	)			(89,568,704	)			(77,773,307	)							-				-				-				-						(77,773,307	)					-				(77,773,307	)
Net income in 2013					-				-						-						-				-				188,146,790				188,146,790								-				-				-				-						188,146,790						(127,853	)			188,018,937
Other comprehensive income in 2013, net of income tax					-				-						-						-				-				(591,799	)			(591,799	)							3,613,444				13,337,460				(113	)			16,950,791						16,358,992						(6,744	)			16,352,248
Total comprehensive income in 2013					-				-						-						-				-				187,554,991				187,554,991								3,613,444				13,337,460				(113	)			16,950,791						204,505,782						(134,597	)			204,371,185
Issuance of stock from exercise of employee stock options					4,182				41,814						82,756						-				-				-				-								-				-				-				-						124,570						-				124,570
Stock option compensation cost of subsidiary					-				-						-						-				-				-				-								-				-				-				-						-						5,312				5,312
Adjustments to share of changes in equities of associates and joint venture					-				-						38,084						-				-				-				-								-				-				-				-						38,084						-				38,084
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries					-				-						62,446						-				-				-				-								-				-				-				-						62,446						(62,446	)			-
Increase in noncontrolling interests					-				-						-						-				-				-				-								-				-				-				-						-						188,488				188,488
Effect of deconsolidation of subsidiary					-				-						-						-				-				-				-								-				-				-				-						-						(2,273,153	)			(2,273,153	)
BALANCE, DECEMBER 31, 2013					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
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 in 2014					-				-						-						-				-				263,898,794				263,898,794								-				-				-				-						263,898,794						(117,925	)			263,780,869
Other comprehensive income in 2014, net of income tax					-				-						-						-				-				239,362				239,362								11,642,475				(63,298	)			(192	)			11,578,985						11,818,347						15,817				11,834,164
Total comprehensive income in 2014					-				-						-						-				-				264,138,156				264,138,156								11,642,475				(63,298	)			(192	)			11,578,985						275,717,141						(102,108	)			275,615,033
Issuance of stock from exercise of employee stock options					1,045				10,453						36,602						-				-				-				-								-				-				-				-						47,055						-				47,055
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					-				-						93,459						-				-				-				-								-				-				-				-						93,459						(26	)			93,433
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries					-				-						(8	)					-				-				(32,793	)			(32,793	)							-				-				-				-						(32,801	)					32,801				-
From share of changes in equities of subsidiaries					-				-						3,516						-				-				-				-								-				-				-				-						3,516						(3,516	)			-
Decrease in noncontrolling interests					-				-						-						-				-				-				-								-				-				-				-						-						(66,735	)			(66,735	)
BALANCE, DECEMBER 31, 2014					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

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

 

- 6 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

 

		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	302,097,546			$	215,487,122
Adjustments for:
Depreciation expense			197,645,186				153,979,847
Amortization expense			2,606,349				2,202,022
Stock option compensation cost of subsidiary			-				5,312
Finance costs			3,236,345				2,646,776
Share of profits of associates and joint venture			(3,949,674	)			(3,972,031	)
Interest income			(2,730,674	)			(1,835,980	)
Gain on disposal of property, plant and equipment and intangible assets, net			(14,518	)			(48,848	)
Impairment loss of noncurrent assets held for sale			734,467				-
Impairment loss of property, plant and equipment			239,864				-
Impairment loss of financial assets			211,477				352,214
Gain on disposal of available-for-sale financial assets, net			(280,956	)			(1,267,086	)
Gain on disposal of financial assets carried at cost, net			(81,449	)			(44,721	)
Loss (gain) on disposal of investments accounted for using equity method			(2,028,643	)			733
Loss from liquidation of subsidiary			90				-
Gain on deconsolidation of subsidiary			-				(293,578	)
Unrealized (realized) gross profit on sales to associates			(28,556	)			20,870
Loss on foreign exchange, net			3,615,493				317,547
Dividend income			(649,733	)			(506,143	)
Income from receipt of equity securities in settlement of trade receivables			(1,211	)			(9,977	)
Loss from hedging instruments			10,577,714				5,602,779
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			(10,088,628	)			(5,071,118	)
Changes in operating assets and liabilities:
Derivative financial instruments			342,853				(32,189	)
Notes and accounts receivable, net			(43,090,068	)			(14,131,066	)
Receivables from related parties			(26,405	)			(204,278	)
Other receivables from related parties			(11,766	)			50,589
Inventories			(28,871,597	)			122,472
Other financial assets			(2,612,158	)			18,578
Other current assets			(744,868	)			(312,251	)
Accounts payable			6,634,198				346,401
Payables to related parties			(194,866	)			850,094
Salary and bonus payable			2,281,117				883,925
Accrued profit sharing to employees and bonus to directors and supervisors			5,314,019				1,552,210
Accrued expenses and other current liabilities			8,432,511				3,531,017
Provisions			2,836,910				1,595,810
Accrued pension cost			41,461				9,554
Cash generated from operations			451,441,830				361,846,606
Income taxes paid			(29,918,099	)			(14,463,069	)
Net cash generated by operating activities			421,523,731				347,383,537
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(91,909	)			(21,303	)
Financial assets carried at cost			(23,151	)			(27,165	)
Held-to-maturity financial assets			(5,882,316	)			(1,795,949	)
Property, plant and equipment			(288,540,028	)			(287,594,773	)
Intangible assets			(3,859,486	)			(2,750,361	)

(Continued)

 

- 7 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

 

		2014				2013
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	689,420			$	2,418,578
Held-to-maturity financial assets			3,200,000				5,145,850
Financial assets carried at cost			87,501				67,986
Investments accounted for using equity method			3,471,883				-
Property, plant and equipment			200,263				173,554
Cash received from other long-term receivables			161,900				-
Costs from entering into hedging transactions			(520,856	)			(143,982	)
Interest received			2,578,663				1,790,725
Other dividends received			645,585				506,143
Dividends received from investments accounted for using equity method			3,223,090				2,141,881
Refundable deposits paid			(57,988	)			(98,888	)
Refundable deposits refunded			2,296,872				113,399
Net cash outflow from deconsolidation of subsidiary (Note 34)			-				(979,910	)
Net cash used in investing activities			(282,420,557	)			(281,054,215	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			18,563,525				(19,636,240	)
Proceeds from issuance of bonds			-				130,844,821
Increase in long-term bank loans			-				690,000
Repayment of long-term bank loans			-				(62,500	)
Repayment of other long-term payables			-				(853,788	)
Interest paid			(3,192,971	)			(1,330,886	)
Guarantee deposits received			30,142,823				41,519
Guarantee deposits refunded			(7,704	)			(113,087	)
Decrease in obligations under finance leases			(28,426	)			(27,796	)
Proceeds from exercise of employee stock options			47,055				124,570
Cash dividends			(77,785,851	)			(77,773,307	)
Increase (decrease) in noncontrolling interests			(66,735	)			202,619
Net cash generated by (used in) financing activities			(32,328,284	)			32,105,925
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			9,060,170				849,612
NET INCREASE IN CASH AND CASH EQUIVALENTS			115,835,060				99,284,859
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			242,695,447				143,410,588
CASH AND CASH EQUIVALENTS, END OF YEAR			358,530,507				242,695,447
CASH AND CASH EQUIVALENTS INCLUDED IN NONCURRENT ASSETS HELD FOR SALE			(81,478	)			-
CASH AND CASH EQUIVALENT ON CONSOLIDATED BALANCE SHEET		$	358,449,029			$	242,695,447

 

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

 

- 8 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

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

 

 

 

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 42.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors on February 10, 2015.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The Guidelines Governing the Preparation of Financial Reports by Securities Issuers and 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030029342 and Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “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.

 

 

- 9 -

---

 

Except for the following items, the Company believes that the adoption of aforementioned 2013 Taiwan-IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers will not have a significant effect on the Company’s consolidated financial statements.

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

IFRS 12 is a 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 are more extensive than in the current standards.

 

2)

IFRS 13, “Fair Value Measurement”

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

The measurement requirements of IFRS 13 shall be applied prospectively.

 

- 10 -

---

3)

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

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

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

 

4)

Amendments to IAS 19, “Employee Benefits”

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

According to the retrospective application of aforementioned amendments, as of December 31, 2014 and January 1, 2014, the primary impacts on the Company would include the adjustment in accrued pension cost for a decrease of NT$737,344 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$653,708 thousand and NT$698,710 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

 

- 11 -

---

(Concluded)

 

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.

 

- 12 -

---

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

IFRS 9 adds a new expected loss impairment model to measure the impairment of financial assets. A loss allowance for expected credit losses should be recognized on financial assets measured at amortized cost and 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 year 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.

 

- 13 -

---

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, the IFRSs, IASs, interpretations as well as related guidance translated by the Accounting Research and Development Foundation (ARDF) endorsed by the FSC with the effective dates.

Basis of Preparation

The accompanying consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

Basis of Consolidation

The basis for the consolidated financial statements

The consolidated financial statements incorporate the financial statements of TSMC and entities controlled by TSMC (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Income and expenses of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the shareholders of the parent and to the noncontrolling interests even if this results in the noncontrolling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to shareholders of the parent.

 

- 14 -

---

When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between:

 

a.

the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and

 

b.

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

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

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

The subsidiaries in the consolidated financial statements

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

 

(Continued)

 

- 15 -

---

(Concluded)

 

Foreign Currencies

The financial statements of each individual consolidated entity were expressed in the currency which reflected its primary economic environment (functional currency). The functional currency of TSMC and presentation currency of the consolidated financial statements are both New Taiwan Dollars (NT$). In preparing the consolidated financial statements, the operating results and financial positions of each consolidated entity are translated into NT$.

In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to noncontrolling interests as appropriate).

Classification of Current and Noncurrent Assets and Liabilities

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

 

- 16 -

---

Cash Equivalents

Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time deposits and investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial Instruments

Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Fair value is determined in the manner described in Note 36.

Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at fair value through profit or loss” (FVTPL), “held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Derivative financial instruments that do not meet the criteria for hedge accounting are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c) financial assets at fair value through profit or loss.

Stocks and money market funds held by the Company that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value at the end of each reporting period.

Interest income from available-for-sale monetary financial assets and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

 

- 17 -

---

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Such equity instruments are subsequently remeasured at fair value when their fair value can be reliably measured, and the difference between the carrying amount and fair value is recognized in profit or loss or other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including cash and cash equivalents, notes and accounts receivable and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for those loans and receivables with immaterial discounted effect.

Impairment of financial assets

Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Those financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, their estimated future cash flows have been affected.

For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

For financial assets carried at amortized cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the year.

In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gains or losses from available-for-sale financial assets.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

 

 

- 18 -

---

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are subsequently measured either at amortized cost using effective interest method or at FVTPL.

Financial liabilities measured at FVTPL are derivative financial instruments that do not meet the criteria for hedge accounting, and they are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently measured at amortized cost at the end of each reporting period.

Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative Financial Instruments

The Company enters into a variety of derivative financial instruments to manage its market risk exposure to foreign exchange rate, interest rate and equity price fluctuation, including forward exchange contracts, cross currency swap contracts and forward stock contracts.

Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative financial instrument is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

 

- 19 -

---

Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the period when the hedged item is recognized in profit or loss.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value represents the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Noncurrent Assets Held for Sale

Noncurrent assets or disposal groups are classified as noncurrent assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the noncurrent asset held for sale is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the committed sale plan involves loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale, regardless of whether a noncontrolling interest in its former subsidiary is retained after the sale.

Noncurrent assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation would cease.

Investments Accounted for Using Equity Method

Investments accounted for using the equity method include investments in associates and interests in joint ventures.

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control). Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The operating results and assets and liabilities of associates and jointly controlled entities are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a jointly controlled entity is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate and jointly controlled entity as well as the distribution received. The Company also recognizes its share in the changes in the associates and jointly controlled entity.

 

- 20 -

---

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate or a jointly controlled entity recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date when the Company ceases to have significant influence over an associate. When the Company retains an interest in the former associate, the Company measures the retained interest at fair value at that date. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Company shall account for all amounts recognized in other comprehensive income in relation to that associate on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. If the Company’s ownership interest in an associate is reduced as a result of disposal, but the investment continues to be an associate, the Company should reclassify to profit or loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income.

When the Company subscribes to additional shares in an associate or jointly controlled entity at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate or jointly controlled entity. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate or joint controlled entity by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate or jointly controlled entity shall be reclassified to profit or loss on the same basis as would be required if the associate or jointly controlled entity had directly disposed of the related assets or liabilities.

When a consolidated entity transacts with an associate or a joint controlled entity, profits and losses resulting from the transactions with the associate or jointly controlled entity are recognized in the Company’ consolidated financial statements only to the extent of interests in the associate or jointly controlled entity that are not owned by the Company.

Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property, plant and equipment.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

 

- 21 -

---

Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful lives, and it is computed using the straight-line method over the following estimated useful lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 2 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Leases

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

The Company as lessee

Assets held under finance lease are initially recognized as assets of the Company at the fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated balance sheet as an obligation under finance lease.

Lease payments are apportioned between finance expense and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Intangible Assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Other intangible assets

Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method over the following estimated useful lives: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

 

- 22 -

---

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination. If the recoverable amount of a cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such cash generating unit and then to the other assets of the cash generating unit pro rata based on the carrying amount of each asset in the cash generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Other tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

 

- 23 -

---

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

 

—

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

—

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

—

The amount of revenue can be measured reliably;

 

—

It is probable that the economic benefits associated with the transaction will flow to the Company; and

 

—

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

In principle, 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. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

Royalties, dividend and interest income

Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably).

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Retirement Benefits

For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense when the employees have rendered service entitling them to the contribution. For defined benefit retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at year end. Actuarial gains and losses are reported in retained earnings in the period that they are recognized as other comprehensive income.

Share-based Payment Arrangements

The Company elected to take the optional exemption under IFRS 1 for the share-based payment transactions granted and vested before January 1, 2012, the date of transition to Taiwan-IFRSs. There were no stock options granted prior to but unvested at the date of transition.

The compensation costs of employee stock options that were granted after January 1, 2012 are measured at the fair value of the stock options at the grant date. The fair value of the stock option granted determined at the grant date of the stock options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the number of stock options that will eventually vest, with a corresponding increase in capital surplus - employee stock option. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from original estimates.

 

- 24 -

---

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

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

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

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, net operating loss carryforwards and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

 

- 25 -

---

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

In the application of the Company’s accounting policies, which are described in Note 4, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The following are the critical judgments, apart from those involving estimations, that the directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used.

Impairment of Tangible and Intangible Assets Other than Goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the nature of semiconductor industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

Impairment of Goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the recoverable amount of relevant cash-generating units.

Impairment Assessment on Investment Using Equity Method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable. The Company measures the impairment based on a projected future cash flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate formulated by such investees’ internal management team. The Company also takes into account market conditions and the relevant industry trends to ensure the reasonableness of such assumptions.

 

- 26 -

---

Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company use judgment and estimate to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid technological changes, the Company estimates the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon.

Recognition and Measurement of Defined Benefit Plans

Accrued pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

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.

 

- 27 -

---

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

 

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

Outstanding forward exchange contracts consisted of the following:

 

 

- 28 -

---

Outstanding cross currency swap contracts consisted of the following:

 

 

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 will end within a year.

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

(Continued)

 

- 29 -

---

(Concluded)

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

The outstanding stock forward contracts consisted of the following:

 

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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

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

Aging analysis of notes and accounts receivable, net

 

 

- 30 -

---

Movements of the allowance for doubtful receivables

 

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

 

12.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$1,964,544 thousand and NT$664,662 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2014 and 2013.

 

- 31 -

---

13.	NONCURRENT ASSETS HELD FOR SALE

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 Corp. with the expectation to complete the sale within twelve months. Accordingly, the Company has 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. TSMC SSL is classified in the other operating segment of the Company. The major classes of assets and liabilities classified as held for sale were disclosed as follows:

 

 

14.	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.

The Company recognized impairment loss on financial assets carried at cost in the amount of NT$211,477 thousand and NT$1,538,888 thousand for the years ended December 31, 2014 and 2013, respectively.

 

- 32 -

---

15.	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:

 

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

In the fourth quarter of 2012, the Company recognized an impairment loss in the amount of NT$1,186,674 thousand, due to the lower estimated recoverable amount compared with the carrying amount of its investments in stocks traded on the Taiwan GreTai Securities Market. Subsequently, as the recoverable amount of the aforementioned investments was higher than its carrying amount, the impairment loss of NT$1,186,674 thousand recognized in 2012 was reversed in the fourth quarter of 2013.

Since TSMC did not participate in Mcube Inc.’s issuance of new shares in the third quarter of 2013, the Company’s percentage of ownership in Mcube Inc. decreased to 18%. As a result, the Company evaluated and concluded that the Company no longer exercises significant influence over Mcube Inc. Therefore Mcube Inc. is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost. The Company also measured the fair value of retained interest in Mcube Inc. when the significant influence was lost, which has no difference with the carrying amount; accordingly, the Company did not recognize any gain or loss.

 

- 33 -

---

TSMC has no power to govern the financial and operating policies of Xintec starting June 2013 due to the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method. Please refer to Note 34.

The summarized financial information in respect of the Company’s associates is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRSs, IASs, interpretations as well as related guidance translated by the ARDF endorsed by the FSC with the effective dates, which is also adjusted by the Company using the equity method of accounting.

 

 

b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

The summarized financial information in respect of the Company’s jointly controlled entity is set out below. The summarized financial information below represents amounts shown in the jointly controlled entity’s financial statements prepared in accordance with IFRSs, IASs, interpretations as well as related guidance translated by the ARDF endorsed by the FSC with the effective dates, which is also adjusted by the Company using the equity method of accounting.

 

- 34 -

---

 

16.	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.

 

- 35 -

---

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 is expected to be unrecoverable. Such impairment losses were included in other operating income and expenses for the year ended December 31, 2014.

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

Future minimum lease gross payments were as follows:

 

There was no capitalization of borrowing costs for the years ended December 31, 2014 and 2013.

 

17.	INTANGIBLE ASSETS

 

(Continued)

 

- 36 -

---

(Concluded)

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.

For the years ended December 31, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

18.	OTHER ASSETS

 

		December 31, 2014				December 31, 2013
Tax receivable			$  2,187,136				$  1,781,376
Prepaid expenses			1,399,810				1,081,957
Long-term receivable			385,700				820,000
Others			885,470				770,468
			$  4,858,116				$  4,453,801
Current portion			$  3,656,110				$  2,984,224
Noncurrent portion			1,202,006				1,469,577
			$  4,858,116				$  4,453,801

 

- 37 -

---

19.	SHORT-TERM LOANS

 

 

20.	PROVISIONS

 

 

 

- 38 -

---

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 year 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.

 

21.	BONDS PAYABLE

 

The major terms of domestic unsecured bonds are as follows:

 

(Continued)

 

- 39 -

---

(Concluded)

The major terms of overseas unsecured bonds are as follows:

 

 

- 40 -

---

22.	RETIREMENT BENEFIT PLANS

 

a.

Defined contribution plans

The plan under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Technology, TSMC Solar NA and TSMC Solar Europe GmbH also make monthly contributions at certain percentages of the basic salary of their employees. Accordingly, the Company recognized expenses of NT$1,743,626 thousand and NT$1,590,414 thousand in the consolidated statements of comprehensive income for the years ended December 31, 2014 and 2013, respectively.

 

b.

Defined benefit plans

TSMC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. TSMC revised its defined benefit plan in the fourth quarter of 2013 to set the employee’s mandatory retirement age. Such plan changes have reflected in the actuarial results as of December 31, 2013.

The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

 

 

- 41 -

---

The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

 

For the years ended December 31, 2014 and 2013, the pre-tax actuarial benefit NT$290,416 thousand and the pre-tax actuarial loss NT$662,074 thousand were recognized in other comprehensive income (loss), respectively. As of December 31, 2014 and 2013, the pre-tax accumulated actuarial loss recognized in other comprehensive income were NT$1,057,636 thousand and NT$1,348,052 thousand, respectively.

The amounts arising from the defined benefit obligation of the Company in the consolidated balance sheets were as follows:

 

 

- 42 -

---

Movements in the fair value of the plan assets were as follows:

 

The percentage of the fair value of the plan assets by major categories at the end of reporting period was as follows:

 

The overall expected rate of return on plan assets was based on the historical return trends, analysts’ predictions of the market over the life of related obligation, reference to the performance of the Funds operated by the Committee and the consideration of the effect that the minimum return should not be less than the average interest rate on a two-year time deposit published by the local banks. For the years ended December 31, 2014 and 2013, the actual return on plan assets were NT$83,283 thousand and NT$43,321 thousand, respectively.

The Company elects to disclose the historical information of experience adjustments from the adoption of Taiwan-IFRSs, which is as follows:

 

The Company expects to make contributions of NT$228,653 thousand to the defined benefit plans in the next year starting from December 31, 2014.

 

- 43 -

---

23.	GUARANTEE DEPOSITS

 

 

24.

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 December 31, 2014, 1,073,361 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,366,803 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

 

- 44 -

---

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.

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$17,645,966 thousand and NT$12,634,665 thousand for the years ended December 31, 2014 and 2013, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If the actual amounts subsequently approved by the shareholders differ from the amounts estimated, the differences are recorded in the year such bonuses are approved by the shareholders as a change in accounting estimate. If profit sharing approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

 

- 45 -

---

The appropriations of 2013 and 2012 earnings have been approved by TSMC’s shareholders in its meetings held on June 24, 2014 and on June 11, 2013, respectively. The appropriations and dividends per share were as follows:

 

TSMC’s profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively, and profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, had been approved by the shareholders in its meetings held on June 24, 2014 and June 11, 2013, respectively. The aforementioned approved amount is the same as the one approved by the Board of Directors in its meetings held on February 18, 2014 and February 5, 2013, respectively, and the same amount had been charged against earnings for the years ended December 31, 2013 and 2012, respectively.

TSMC’s appropriations of earnings for 2014 had been approved in the meeting of the Board of Directors held on February 10, 2015. The appropriations and dividends per share were as follows:

 

The Board of Directors of TSMC also approved the profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$17,645,966 thousand and NT$406,854 thousand in cash for payment in 2014, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2014.

The appropriations of earnings, profit sharing to employees and bonus to members of the Board of Directors for 2014 are to be presented for approval in the TSMC’s shareholders’ meeting to be held on June 9, 2015 (expected).

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

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

 

- 46 -

---

d.

Others

Changes in others were as follows:

 

 

(Continued)

 

- 47 -

---

(Concluded)

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.

 

e.

Noncontrolling interests

 

(Continued)

 

- 48 -

---

(Concluded)

 

25.	SHARE-BASED PAYMENT

 

a.

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

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

Information about TSMC’s outstanding stock options for the years ended December 31, 2014 and 2013 were as follows:

 

(Continued)

 

- 49 -

---

(Concluded)

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.

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

 

 

b.

Application of IFRS 2

The Board of Directors of TSMC SSL approved on December 18, 2012 the issuance of new shares and allocated 17,000 thousand shares for 2013 stock option plan, for their employees to subscribe to, according to the Company Law. The aforementioned stock options were fully vested on the grant date.

Information about TSMC SSL’s employee stock options related to the aforementioned new shares issued was as follows:

 

 

- 50 -

---

The grant date of aforementioned stock options was April 10, 2013. TSMC SSL used the Black-Scholes model to determine the fair value of the stock options. The valuation assumptions were as follows:

 

The stock price of TSMC SSL on grant date was determined based on the cost approach. The expected volatility was calculated using the historical rate of return based on the TWSE Optoelectronic Index.

The fair value of the aforementioned stock options was close to nil, and accordingly, no compensation cost was recognized.

 

26.	NET REVENUE

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

 

 

27.	OTHER OPERATING INCOME AND EXPENSES, NET

 

 

- 51 -

---

28.	OTHER INCOME

 

 

29.	FINANCE COSTS

 

 

30.	OTHER GAINS AND LOSSES

 

 

- 52 -

---

31.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:

 

For the years ended December 31, 2014 and 2013, the Company applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the Company measures taxes by using the applicable tax rate for each individual jurisdiction.

 

- 53 -

---

b.

Income tax expense recognized in other comprehensive income

 

 

c.

Deferred income tax balance

The analysis of deferred income tax assets and liabilities in the consolidated balance sheets was as follows:

 

 

- 54 -

---

 

d.

The investment operating loss carryforward, tax credits and deductible temporary differences for which no deferred income tax assets have been recognized in the consolidated financial statements

The information of the operating loss carryforward for which no deferred tax assets have been recognized was as follows:

 

 

- 55 -

---

As of December 31, 2014 and 2013, unrecognized investment tax credits for which no deferred income tax assets have been recognized amounted to nil and NT$3,019,880 thousand, respectively; the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$2,088,394 thousand and NT$8,673,160 thousand, respectively.

 

e.

Unused operating loss carryforward and tax-exemption information

As of December 31, 2014, operating loss carryforward of TSMC Solar, TSMC SSL, Mutual-Pak and WaferTech consisted of the following:

 

Remaining Creditable Amount		Remaining Creditable Amount
Expiry Year
2015 - 2018			$	41,894
2019 - 2024 (Note)				8,691,071
			$	8,732,965

Note:    Including NT$4,329,833 thousand of TSMC SSL.

As of December 31, 2014, the profits generated from the following projects of TSMC are exempt from income tax for a five-year period:

 

 

f.

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2014 and 2013, the aggregate taxable temporary differences associated with investments in subsidiaries not unrecognized as deferred income tax liabilities amounted to NT$41,365,515 thousand and NT$28,035,340 thousand, respectively.

 

g.

Integrated income tax information

 

The estimated creditable ratio for distribution of TSMC’s earnings of 2014 was 11.29%; 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.

 

- 56 -

---

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.

 

h.

Income tax examination

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

 

32.	EARNINGS PER SHARE

 

EPS is computed as follows:

 

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

 

- 57 -

---

33.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

				Years Ended December 31
				2014				2013
a.		Depreciation of property, plant and equipment
		Recognized in cost of revenue		$	183,750,945			$	141,002,263
		Recognized in operating expenses			13,869,354				12,952,464
		Recognized in other operating income and expenses			24,887				25,120
				$	197,645,186			$	153,979,847
b.		Amortization of intangible assets
		Recognized in cost of revenue		$	1,356,858			$	1,154,698
		Recognized in operating expenses			1,249,491				1,047,324
				$	2,606,349			$	2,202,022
c.		Research and development costs expensed as incurred		$	56,823,732			$	48,118,165
d.		Employee benefits expenses
		Post-employment benefits (Note 22)
		Defined contribution plans		$	1,743,626			$	1,590,414
		Defined benefit plans			286,702				235,761
					2,030,328				1,826,175
		Equity-settled share-based payments			-				5,312
		Other employee benefits			79,385,093				65,514,082
				$	81,415,421			$	67,345,569
		Employee benefits expense summarized by function
		Recognized in cost of revenue		$	48,187,438			$	40,245,628
		Recognized in operating expenses			33,227,983				27,099,941
				$	81,415,421			$	67,345,569

 

34.	DECONSOLIDATION OF SUBSIDIARY

Starting June 2013, the Company no longer has power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors; accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Xintec.

 

a.

Consideration received

The Company did not receive any consideration in the deconsolidation of Xintec.

 

- 58 -

---

b.

Analysis of assets and liabilities over which the Company lost control

 

 

c.

Gain on deconsolidation of subsidiary

 

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

 

d.

Net cash outflow arising from deconsolidation of the subsidiary

 

 

35.	CAPITAL MANAGEMENT

The Company requires significant amounts of capital to build and expand its production facilities and acquire additional equipment. In consideration of the industry dynamics, the Company manages its capital in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital needs, capital asset purchases, research and development activities, dividend payments, debt service requirements and other business requirements associated with its existing operations over the next 12 months.

 

- 59 -

---

36.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

 

Note a:

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

 

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.

 

- 60 -

---

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

 

c.

Market risk

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

Foreign currency risk

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

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

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the years ended December 31, 2014 and 2013 would have decreased by NT$331,517 thousand and NT$171,961 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$332 thousand for the years ended December 31, 2014 and 2013.

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 years ended December 31, 2014 and 2013 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the years ended December 31, 2014 and 2013 would have decreased by NT$148,712 thousand and NT$931,881 thousand, respectively.

 

- 61 -

---

d.

Credit risk management

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

Business related credit risk

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

As of December 31, 2014 and 2013, the Company’s ten largest customers accounted for 76% and 68% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

Financial credit risk

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

 

e.

Liquidity risk management

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

As of December 31, 2014 and 2013, the unused of financing facilities of the Company amounted to NT$73,534,805 thousand and NT$76,689,543 thousand, respectively.

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

 

(Continued)

 

- 62 -

---

(Concluded)

 

- 63 -

---

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)

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).

 

(Continued)

 

- 64 -

---

(Concluded)

 

Note:

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

 

There were no transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013, respectively.

There were no purchases and disposals for assets on Level 3 for the years ended December 31, 2014 and 2013, respectively.

 

3)

Valuation techniques and assumptions used in fair value measurement

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

 

—

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

 

—

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

 

—

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

 

- 65 -

---

37.	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

 

 

b.

Purchases

 

 

c.

Receivables from related parties

 

 

d.

Payables to related parties

 

 

- 66 -

---

e.

Acquisition of property, plant and equipment and intangible assets

 

 

f.

Disposal of property, plant and equipment

 

 

 

g.

Others

 

 

- 67 -

---

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

The Company leased machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid quarterly and the related expense was classified under manufacturing expenses.

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

 

h.

Compensation of key management personnel

The compensation to directors and other key management personnel for the years ended December 31, 2014 and 2013 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.

 

38.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for litigation and building lease agreements. As of December 31, 2014 and 2013, the aforementioned other financial assets amounted to NT$293,409 thousand and NT$120,566 thousand, respectively.

 

39.	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 February 2015 and July 2034 and can be renewed upon expiration.

The Company expensed the lease payments as follows:

 

 

- 68 -

---

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

 

 

40.	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 December 31, 2014, the R.O.C. Government did not invoke such right.

 

b.

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

 

c.

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

 

d.

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

 

- 69 -

---

e.

TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of December 31, 2014, TSMC has paid EUR 109,730 thousand to ASML under the research and development funding agreement.

 

f.

In September 2013, Zond Inc. filed a complaint in U.S. District Court for the District of Massachusetts against TSMC, certain TSMC subsidiaries and other companies alleging infringing of several U.S. patents. That case is currently stayed as of June 2014. Subsequent to the stay, 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. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

g.

In December 2013, Tela Innovations (Tela), Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission (ITC) accusing TSMC and TSMC North America of infringing one U.S. patent. In January 2014, TSMC filed a lawsuit in the U.S. District Court for the District of North California against Tela for trade secret misappropriation and breach of contract. In September 2014, all pending litigations between the parties in the U.S. District Court for the District of Delaware, the ITC and the U.S. District Court for the District of North California were dismissed.

 

h.

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

 

i.

Amounts available under unused letters of credit as of December 31, 2014 and 2013 were NT$222,026 thousand and NT$89,400 thousand, respectively.

 

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

 

The significant

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

 

(Continued)

 

- 70 -

---

(Concluded)

 

Note:

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

 

42.	OPERATING SEGMENTS INFORMATION

 

a.

Operating segments

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

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

 

- 71 -

---

b.

Segment revenue and operating results

 

 

c.

Geographic information

 

The Company categorized the net revenue mainly based on the country in which the customer is headquartered. Non-current assets include property, plant and equipment, intangible assets and other noncurrent assets.

 

d.

Production information

 

 

- 72 -

---

e.

Major customers representing at least 10% of net revenue

 

 

43.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the 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.

 

- 73 -

---

TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2014

(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$	5,392,060 170,000	)		$ (US$	5,392,060 170,000	)		$ (US$	4,440,520 140,000	)		0.38%		The need for short-term financing		$	-			Operating capital		$	-			-		$	-			$	18,981,202 (Note 1	)		$	47,453,005
				TSMC SSL		Other receivables from related parties		Yes		(US$	1,903,080 60,000	)		(US$	1,110,130 35,000	)		( US$	824,668 26,000	)		0.38%		The need for short-term financing			-			Operating capital			-			-			-				18,981,202 (Note 1	)			47,453,005
2		TSMC Solar		TSMC Solar NA		Other receivables from related parties		Yes		(US$	19,031 600	)		(US$	19,031 600	)			-			-		The need for short-term financing			-			Operating capital			-			-			-				287,656 (Note 2	)			575,312

 

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.

 

- 74 -

---

TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2014

(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		$	261,387,125			$ ( US$	47,577,000 1,500,000	)		$ ( US$	47,577,000 1,500,000	)		$ ( US$	47,577,000 1,500,000	)		$	-			4.55%		$	261,387,125			Yes		No		No
				TSMC North America		Subsidiary			261,387,125			( US$	2,639,350 83,213	)		( US$	2,639,350 83,213	)		( US$	2,639,350 83,213	)			-			0.25%			261,387,125			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.

 

- 75 -

---

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

DECEMBER 31, 2014

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

 

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2014														Note
								Shares/Units   (In Thousands)				Carrying Value   (Foreign Currencies   in Thousands)				Percentage of   Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC		Commercial Paper
		CPC Corporation, Taiwan		-		Held-to-maturity financial assets			230			$	2,293,579			N/A		$	2,293,942
		Taiwan Power Company		-		”			220				2,192,014			N/A			2,192,599
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets			211,047				612,860			1			612,860			Note 1
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost			21,230				193,584			10			447,998
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		”			10,500				105,000			7			341,694
		W.K. Technology Fund IV		-		”			4,000				39,280			2			34,633
		Fund
		Horizon Ventures Fund		-		Financial assets carried at cost			-				17,029			12			17,029			Note 2
		Crimson Asia Capital		-		”			-				18,265			1			18,265			Note 3
TSMC Global		Stock
		ASML		-		Available-for-sale financial assets			20,993			US$	2,284,919			5		US$	2,284,919			Note 4
		Money market fund
		Ssga Cash Mgmt Global Offshore		-		Available-for-sale financial assets			12			US$	12			N/A		US$	12
TSMC Partners		Stock
		Mcube Inc.		-		Financial assets carried at cost			6,333				-			16			-
		Fund
		Shanghai Walden Venture Capital Enterprise		-		Financial assets carried at cost			-			US$	5,000			6		US$	5,000
Emerging Alliance		Common stock
		Global Investment Holding Inc.		-		Financial assets carried at cost			11,124			US$	3,065			6		US$	3,065
		RichWave Technology Corp.		-		”			4,074			US$	1,545			10		US$	1,545
		Preferred stock
		Next IO, Inc.		-		Financial assets carried at cost			8				-			-			-			Note 5
		QST Holdings, LLC		-		”			-			US$	141			4		US$	141
ISDF		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost			230				-			2			-			Note 6
ISDF II		Common stock
		Alchip Technologies Limited		-		Available-for-sale financial assets			6,581			US$	21,001			11		US$	21,001
		Sonics, Inc.		-		Financial assets carried at cost			278				-			3			-
		Goyatek Technology, Corp.		-		”			745				-			6			-
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost			264				-			3			-			Note 7
VTAF II		Common stock
		Sentelic		-		Financial assets carried at cost			1,806			US$	2,607			8		US$	2,607
		Aether Systems, Inc.		-		”			2,600			US$	2,243			28		US$	2,243
		RichWave Technology Corp.		-		”			1,267			US$	1,036			3		US$	1,036

(Continued)

 

- 76 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2014														Note
								Shares/Units   (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of   Ownership (%)		Fair Value   (Foreign Currencies   in Thousands)
VTAF II		Preferred stock
		5V Technologies, Inc.		-		Financial assets carried at cost			963			US$	2,168			2		US$	2,168
		Aquantia		-		”			4,643			US$	4,441			2		US$	4,441
		Cresta Technology Corporation		-		”			92			US$	28			-		US$	28
		Impinj, Inc.		-		”			711			US$	1,100			-		US$	1,100
		Next IO, Inc.		-		”			179				-			1			-			Note 8
		QST Holdings, LLC		-		”			-			US$	588			13		US$	588
VTAF III		Common stock
		Synaptics		-		Available-for-sale financial assets			21			US$	1,420			-		US$	1,420
		Accton Wireless Broadband Corp.		-		Financial assets carried at cost			2,249			US$	315			6		US$	315
		Preferred stock
		BridgeLux, Inc.		-		Financial assets carried at cost			7,522			US$	9,379			3		US$	9,379
		GTBF, Inc.		-		”			1,154			US$	1,500			N/A		US$	1,500
		LiquidLeds Lighting Corp.		-		”			1,600			US$	800			11		US$	800
		Neoconix, Inc.		-		”			4,147			US$	170			-		US$	170			Note 9
		Preferred stock
		Powervation, Ltd.		-		Financial assets carried at cost			568			US$	8,878			14		US$	8,878

Note 1:    The carrying value represents carrying amount less accumulated impairment of NT$315,787 thousand.

Note 2:    The carrying value represents carrying amount less accumulated impairment of NT$61,274 thousand.

Note 3:    The carrying value represents carrying amount less accumulated impairment of NT$29,500 thousand.

Note 4:    In October 2012, TSMC Global acquired 5% of the outstanding equity of ASML with a lock-up period of 2.5 years starting from the acquisition date.

Note 5:    The carrying value represents carrying amount less accumulated impairment of US$500 thousand.

Note 6:    The carrying value represents carrying amount less accumulated impairment of US$497 thousand.

Note 7:    The carrying value represents carrying amount less accumulated impairment of US$456 thousand.

Note 8:    The carrying value represents carrying amount less accumulated impairment of US$1,219 thousand.

 

Note 9:    The carrying value represents carrying amount less accumulated impairment of US$4,672 thousand.		(Concluded)

 

- 77 -

---

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 YEAR ENDED DECEMBER 31, 2014

(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		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets		-		-			100				$    998,018				290				$  2,892,396				160				$  1,600,000				$  1,596,835				$          3,165				230				$  2,293,579
		Taiwan Power Company		”		-		-			80				797,931				300				2,989,920				160				1,600,000				1,595,837				4,163				220				2,192,014
		Stock
		VIS		Investments accounted for using equity method		Public Market		Associate			628,223				10,556,348				-				-				82,000				3,471,883				1,443,240				2,028,643				546,223				10,100,750
		TSMC Global		”		-		Subsidiary			1				64,953,489				2				60,787,623				-				-				-				-				3				132,330,833
TSMC		Stock
Development		WaferTech		Investments accounted for using equity method		Note 2		Subsidiary			293,637				US$248,252				-				-				-				-				US$  80,000				-				293,637				US$  221,219

 

Note 1:

The ending balance includes share of profits/losses of investees and other related adjustment to equity.

 

Note 2:

The disposal is primarily consisted of capital return.

 

- 78 -

---

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 YEAR ENDED DECEMBER 31, 2014

(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

April 9, 2013 to February 21, 2014

$

310,469

Monthly settlement by the construction progress and acceptance

Mandartech Interiors Inc.

-

N/A

N/A

N/A

N/A

Bidding, price   comparison   and price   negotiation

Manufacturing   purpose

None

Fab

November 25, 2013 to September 24, 2014

459,000

Monthly settlement by the construction progress and acceptance

Mega Facade Inc.

-

N/A

N/A

N/A

N/A

Bidding, price   comparison   and price   negotiation

Manufacturing   purpose

None

Fab

January 13, 2014 to June 18, 2014

491,470

Monthly settlement by the construction progress and acceptance

Tasa Construction Inc.

-

N/A

N/A

N/A

N/A

Bidding, price   comparison   and price   negotiation

Manufacturing   purpose

None

Fab

August 5, 2014

308,500

Monthly settlement by the construction progress and acceptance

Tung Kang Steel Inc.

-

N/A

N/A

N/A

N/A

Bidding, price   comparison   and price   negotiation

Manufacturing   purpose

None

Fab

October 3, 2014

333,330

Monthly settlement by the construction progress and acceptance

Pan Asia Corp.

-

N/A

N/A

N/A

N/A

Bidding, price   comparison   and price   negotiation

Manufacturing   purpose

None

Fab

November 19, 2014

(US$

2,696,030 85,000

)

By the contract

Qualcomm Panel Manufacturing Ltd.

-

N/A

N/A

N/A

N/A

Appraisal   report

Manufacturing   purpose

None

 

- 79 -

---

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 YEAR ENDED DECEMBER 31, 2014

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

 

 

Company Name		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction				Notes/Accounts Payable or Receivable								Note
						Purchases/   Sales		Amount (Foreign Currencies in Thousands)				% to Total				Payment Terms		Unit Price   (Note 2)		Payment Terms   (Note 2)		Ending Balance (Foreign Currencies in Thousands)				% to Total
TSMC		TSMC North America		Subsidiary		Sales		$	523,431,292				68			Net 30 days from invoice date (Note 1)		-		(Note 1)		$	88,149,347				79
		GUC		Associate		Sales			2,613,127				1			Net 30 days from the end of the month of when invoice is issued		-		-			269,978				-
		VIS		Associate		Sales			122,706				-			Net 30 days from the end of the month of when invoice is issued		-		-			-				-
		TSMC China		Subsidiary		Purchases			19,374,227				26			Net 30 days from the end of the month of when invoice is issued		-		-			(2,003,878	)			8
		WaferTech		Indirect subsidiary		Purchases			8,753,334				12			Net 30 days from the end of the month of when invoice is issued		-		-			(699,230	)			3
		VIS		Associate		Purchases			7,424,566				10			Net 30 days from the end of the month of when invoice is issued		-		-			(710,950	)			3
		SSMC		Associate		Purchases			4,219,527				6			Net 30 days from the end of the month of when invoice is issued		-		-			(313,578	)			1
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary		Sales			439,926				60			Net 90 days from the end of the month of when invoice is issued		-		-			164,006				89
TSMC North America		GUC		Associate of TSMC		Sales		( US$	1,028,346 33,952	)			-			Net 30 days from invoice date		-		-		( US$	42,389 1,336	)			-

 

Note 1:

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

 

Note 2:

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

 

- 80 -

---

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

DECEMBER 31, 2014

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

 

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days     (Note 1)		Overdue						Amounts Received in Subsequent Period				Allowance for Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	88,526,636			49		$        7	,163,353			-		$	7,529,983			$	-
		GUC		Associate			269,978			34			1,101			-			113,953				-
		VIS		Associate			108,916			(Note 2)			78			-			27,124				-
TSMC Partners		TSMC Solar		The same parent company		( US$	4,445,008 140,141	)		(Note 2)			-			-			-				-
TSMC China		TSMC		Parent company		( RMB	2,003,878 391,956	)		33			-			-			-				-
TSMC Technology		TSMC		Parent company		( US$	258,947 8,164	)		(Note 2)			-			-			-				-
WaferTech		TSMC		Parent company									-			-			-				-
						( US$	699,230 22,045	)		28
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary			164,006			75			-			-			-				-

 

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.

 

- 81 -

---

TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

(Amounts in Thousands of New Taiwan Dollars)

 

A.    For the year ended December 31, 2014

 

No.		Company Name		Counter Party		Nature of     Relationship     (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms         (Note 2)		Percentage of Consolidated Net Revenue or Total Assets
0		TSMC		TSMC North America		1		Net revenue from sale of goods		$	523,431,292			-		69%
								Receivables from related parties			88,149,347			-		6%
								Other receivables from related parties			377,289			-		-
								Payables to related parties			174,806			-		-
				TSMC China		1		Net revenue from sale of goods			6,186			-		-
								Purchases			19,374,227			-		3%
								Marketing expenses - commission			103,471			-		-
								Disposal of property, plant and equipment			21,833			-		-
								Gain on disposal of property, plant and equipment			14,282			-		-
								Purchases of property, plant and equipment			9,520			-		-
								Other receivables from related parties			13,948			-		-
								Payables to related parties			2,003,878			-		-
				TSMC Japan		1		Marketing expenses - commission			235,432			-		-
								Payables to related parties			35,527			-		-
				TSMC Europe		1		Marketing expenses - commission			414,779			-		-
								Research and development expenses			67,262			-		-
								Payables to related parties			64,551			-		-
				TSMC Korea		1		Purchases			2,528			-		-
								Marketing expenses - commission			24,382			-		-
								Payables to related parties			3,700			-		-
				TSMC Technology		1		Research and development expenses			1,284,049			-		-
								Payables to related parties			258,947			-		-
				WaferTech		1		Net revenue from sale of goods			7,679			-		-
								Purchases			8,753,334			-		1%
								Manufacturing expenses			1,219			-		-
								Disposal of property, plant and equipment			4,212			-		-
								Other receivables from related parties			2,242			-		-
								Payables to related parties			699,230			-		-
				TSMC Canada		1		Research and development expenses			217,635			-		-
								Payables to related parties			19,139			-		-
				TSMC SSL		1		Manufacturing expenses			35,719			-		-
								Other gains and losses			5,766			-		-
								Purchases of property, plant and equipment			54,035			-		-
								Payables to related parties			5,158			-		-
				TSMC Solar		1		Other gains and losses			8,886			-		-
								Disposal of property, plant and equipment			1,535			-		-
								Other receivables from related parties			3,618			-		-

(Continued)

 

- 82 -

---

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
1		TSMC Development		WaferTech		1		Other receivables from related parties		$	44,745			-		-
2		TSMC North America		TSMC Technology		3		Disposal of property, plant and equipment			2,264			-		-
								Other receivables from related parties			5,915			-		-
3		TSMC Solar		TSMC Solar Europe GmbH		1		Net revenue from sale of goods			439,926			-		-
								Receivables from related parties			164,006			-		-
				TSMC Solar NA		1		Net revenue from sale of goods			25,162			-		-
								Receivables from related parties			14,839			-		-
				TSMC Partners		3		Finance costs			12,867			-		-
								Other payables to related parties			4,445,008			-		-
				TSMC SSL		3		Other payables to related parties			1,008			-		-
4		TSMC SSL		TSMC Partners		3		Finance costs			2,293			-		-
				TSMC China		3		Net revenue from sale of goods			3,197			-		-
5		TSMC Europe		TSMC Solar Europe GmbH		3		Marketing expenses			3,373			-		-

 

Note 1:

No. 1 represents the transactions from parent company to subsidiary.

No. 3 represents the transactions between subsidiaries.

 

Note 2:

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

(Concluded)

 

- 83 -

---

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)

DECEMBER 31, 2014

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

 

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2014												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31 2014 (Foreign Currencies in Thousands)				December 31, 2013 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	103,114,868			$	42,327,245				3				100			$	132,330,833			$	338,151			$	338,151			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry			31,456,130				31,456,130				988,268				100				47,449,368				1,465,573				1,465,679			Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			11,789,048				13,232,288				546,223				33				10,100,750				5,437,889				1,879,076			Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				8,296,955				4,853,776				1,882,779			Associate
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				11,180,000				1,118,000				99				2,877,245				(1,722,175	)			(1,701,691	)		Subsidiary
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				3,984,370				(60,200	)			(60,200	)		Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			5,546,744				5,546,744				554,674				92				-				(1,618,784	)			(1,494,462	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				2,053,982				628,653				233,473			Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,102,704				438,443				154,599			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,850,782				1,908,912				-				98				810,958				(67,776	)			(66,407	)		Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			605,479				596,514				-				98				469,709				(9,169	)			(8,985	)		Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				-				100				312,052				40,265				40,265			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			844,775				841,757				-				99.5				155,122				(2,194	)			(2,183	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				120,116				3,655				3,655			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			200,000				150,000				-				100				65,560				(37,069	)			(37,069	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				33,427				3,086				3,086			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				20				3,408,945				(1,055,637	)			Note 2			Associate
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			504,107				504,107				-				100				987				(86,518	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			236,025				205,772				1				100				15,698				(23,738	)			Note 2			Subsidiary
TSMC Partners		TSMC Development		Delaware, U.S.A.		Investment activities		(US$	0.03 0.001	)		(US$	0.03 0.001	)			-				100			(US$	23,706,943 747,429	)		(US$	1,686,286 55,675	)			Note 2			Subsidiary
		VisEra Holding		Cayman Islands		Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry		(US$	1,363,874 43,000	)		(US$	1,363,874 43,000	)			43,000				49			(US$	3,287,666 103,653	)		(US$	520,799 17,195	)			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$	476,122 15,011	)		(US$	61,349 2,026	)			Note 2			Subsidiary
		ISDF II		Cayman Islands		Investing in new start-up technology companies		(US$	294,946 9,299	)		(US$	448,905 14,153	)			9,299				97			(US$	699,517 22,054	)		(US$	43,693 1,443	)			Note 2			Subsidiary

(Continued)

 

- 84 -

---

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2014												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31 2014 (Foreign Currencies in Thousands)				December 31, 2013 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC Partners		ISDF		Cayman Islands		Investing in new start-up technology companies		$ (US$	18,492 583	)		$ (US$	24,962 787	)			583				97			$ (US$	4,369 138	)		$ (US$	(13,876 (458)	)  )			Note 2			Subsidiary
		TSMC Canada		Ontario, Canada		Engineering support activities		(US$	72,951 2,300	)		(US$	72,951 2,300	)			2,300				100			(US$	155,348 4,898	)		(US$	15,868 524	)			Note 2			Subsidiary
TSMC Development		WaferTech		Washington, U.S.A.		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices			- - (Note 3	)		(US$	2,537,440 80,000	)			293,637				100			(US$	7,016,640 221,219	)		(US$	1,604,287 52,968	)			Note 2			Subsidiary
VTAF III		Mutual-Pak		New Taipei, Taiwan		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		(US$	165,314 5,212	)		(US$	165,314 5,212	)			15,643				58			(US$	29,285 923	)		(US$	(13,673 (451)	)  )			Note 2			Subsidiary
		Growth Fund		Cayman Islands		Investing in new start-up technology companies		(US$	69,145 2,180	)		(US$	67,559 2,130	)			-				100			(US$	17,378 548	)		(US$	(3,291 (109)	)  )			Note 2			Subsidiary
		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				62				-				-				Note 2			Subsidiary
VTAF II		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				31				-				-				Note 2			Subsidiary
Emerging Alliance		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				7				-				-				Note 2			Subsidiary
TSMC Solar Europe		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service		(EUR	478,268 12,400	)		(EUR	478,268 12,400	)			-				100			(EUR	(1,540 (40)	)  )		(EUR	(85,880 (2,126)	)  )			Note 2			Subsidiary
TSMC GN		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			53,092				52,498				5,309				-				13,558				(1,722,175	)			Note 2			Associate
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			108,061				54,359				10,806				2				-				(1,618,784	)			Note 2			Associate

 

Note 1:

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

 

Note 2:

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

 

Note 3:

The original investment amount is reduced to nil due to capital return.

 

Note 4:      Please refer to Table 10 for information on investment in Mainland China.		(Concluded)

 

- 85 -

---

TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR YEAR ENDED DECEMBER 31, 2014

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

 

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of  Investment		Accumulated Outflow of Investment from Taiwan as of January 1, 2014 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2014 (US$ in Thousands)				Net Income (Losses) of the Investee Company				Percentage of  Ownership		Share of Profits/Losses				Carrying Amount as of December 31, 2014				Accumulated Inward Remittance of Earnings as of December 31, 2014
														Outflow				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$ (RMB	18,939,667 4,502,080	)		(Note 1)		$ (US$	18,939,667 596,000	)		$	-			$	-			$ (US$	18,939,667 596,000	)		$	6,587,991			100%		$	6,662,384 (Note 2	)		$	31,853,813			$	-

 

Accumulated Investment in Mainland China as of December 31, 2014 (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)		Upper Limit on Investment (US$ in Thousands)
$   18,939,667 (US$   596,000)		$  18,939,667 (US$   596,000)		$  18,939,667 (US$   596,000)

Note 1:     TSMC directly invested US$596,000 thousand in TSMC China.

Note 2:     Amount was recognized based on the audited financial statements.

 

- 86 -

---

		Taiwan Semiconductor Manufacturing Company Limited
		Parent Company Only Financial Statements for the Years Ended December 31, 2014 and 2013 and Independent Auditors’ Report

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying parent company only balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2014 and 2013 and the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2014 and 2013. These parent company only financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the parent company only financial statements referred to above present fairly, in all material respects, the parent company only financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers.

The statements of major accounting items listed in the parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2014 are presented for the purpose of additional analysis. Such statements have been subjected to the auditing procedures applied in our audits of the financial statements mentioned above. In our opinion, such statements are fairly stated in all material respects in relation to the financial statements as a whole.

 

February 10, 2015

Notice to Readers

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

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

 

Member of Deloitte Touche Tohmatsu Limited		- 1 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		December 31, 2014								December 31, 2013
ASSETS		Amount				%				Amount				%
CURRENT ASSETS
Cash and cash equivalents (Note 6)		$	184,859,232				13			$	146,438,768				12
Financial assets at fair value through profit or loss (Note 7)			134,824				-				64,030				-
Available-for-sale financial assets			612,860				-				646,402				-
Held-to-maturity financial assets (Note 8)			4,485,593				-				1,795,949				-
Notes and accounts receivable, net (Note 9)			22,806,184				2				17,445,877				2
Receivables from related parties (Note 33)			88,419,913				6				52,969,803				4
Other receivables from related parties (Note 33)			576,592				-				572,000				-
Inventories (Notes 5 and 10)			63,523,287				5				35,243,061				3
Noncurrent assets held for sale (Note 12)			669,472				-				-				-
Other financial assets (Note 34)			2,069,874				-				61,842				-
Other current assets (Note 15)			2,791,666				-				2,386,031				-
Total current assets			370,949,497				26				257,623,763				21
NONCURRENT ASSETS
Financial assets carried at cost (Note 11)			373,158				-				469,378				-
Investments accounted for using equity method (Notes 5 and 12)			242,016,964				17				165,075,781				14
Property, plant and equipment (Notes 5 and 13)			796,684,361				56				770,443,494				64
Intangible assets (Notes 5 and 14)			8,996,810				1				7,069,456				1
Deferred income tax assets (Notes 5 and 27)			3,297,924				-				4,580,468				-
Refundable deposits			340,010				-				2,496,663				-
Other noncurrent assets (Note 15)			385,700				-				820,000				-
Total noncurrent assets			1,052,094,927				74				950,955,240				79
TOTAL		$	1,423,044,424				100			$	1,208,579,003				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 16)		$	36,158,520				3			$	15,645,000				1
Financial liabilities at fair value through profit or loss (Note 7)			477,268				-				25,404				-
Accounts payable			19,310,737				1				13,628,675				1
Payables to related parties (Note 33)			4,756,426				-				4,183,979				-
Salary and bonus payable			8,983,879				1				6,834,181				-
Accrued profit sharing to employees and bonus to directors (Note 21)			18,052,820				1				12,738,801				1
Payables to contractors and equipment suppliers			25,911,719				2				89,555,814				8
Income tax payable (Note 27)			28,616,392				2				22,567,331				2
Provisions (Notes 5 and 17)			9,959,817				1				7,217,331				1
Accrued expenses and other current liabilities (Note 20)			26,033,514				2				14,799,228				2
Total current liabilities			178,261,092				13				187,195,744				16
NONCURRENT LIABILITIES
Bonds payable (Note 18)			166,200,000				12				166,200,000				14
Deferred income tax liabilities (Note 27)			199,750				-				-				-
Accrued pension cost (Notes 5 and 19)			7,282,230				-				7,491,040				-
Guarantee deposits (Note 20)			25,534,851				2				147,964				-
Others			18,000				-				36,000				-
Total noncurrent liabilities			199,234,831				14				173,875,004				14
Total liabilities			377,495,923				27				361,070,748				30
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 21)			259,296,624				18				259,286,171				21
Capital surplus (Note 21)			55,989,922				4				55,858,626				5
Retained earnings (Note 21)
Appropriated as legal capital reserve			151,250,682				10				132,436,003				11
Appropriated as special capital reserve			-				-				2,785,741				-
Unappropriated earnings			553,261,982				39				382,971,408				32
			704,512,664				49				518,193,152				43
Others (Note 21)			25,749,291				2				14,170,306				1
Total equity			1,045,548,501				73				847,508,255				70
TOTAL		$	1,423,044,424				100			$	1,208,579,003				100

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

 

- 2 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

		2014												2013
				Amount				%								Amount				%
NET REVENUE (Notes 5, 23 and 33)				$	757,152,389				100							$	591,087,600				100
COST OF REVENUE (Notes 10, 29 and 33)					390,272,233				51								319,407,163				54
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES					366,880,156				49								271,680,437				46
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES					31,547				-								(35,577	)			-
GROSS PROFIT					366,911,703				49								271,644,860				46
OPERATING EXPENSES (Notes 5, 29 and 33)
Research and development					55,813,561				8								46,922,471				8
General and administrative					17,761,799				2								17,697,411				3
Marketing					2,685,734				-								2,304,472				-
Total operating expenses					76,261,094				10								66,924,354				11
OTHER OPERATING INCOME AND EXPENSES, NET (Note 29)					9,049				-								(66,614	)			-
INCOME FROM OPERATIONS					290,659,658				39								204,653,892				35
NON-OPERATING INCOME AND EXPENSES
Share of profits of subsidiaries and associates (Note 12)					9,292,150				1								9,530,933				2
Other income (Note 24)					1,141,884				-								1,082,426				-
Foreign exchange gain, net					2,142,565				-								279,488				-
Finance costs (Note 25)					(2,512,231	)			-								(2,092,236	)			-
Other gains and losses (Notes 26 and 33)					299,137				-								2,262,047				-
Total non-operating income and expenses					10,363,505				1								11,062,658				2
INCOME BEFORE INCOME TAX					301,023,163				40								215,716,550				37
INCOME TAX EXPENSE (Note 27)					37,124,369				5								27,569,760				5
NET INCOME					263,898,794				35								188,146,790				32

(Continued)

 

- 3 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

		2014												2013
				Amount				%								Amount				%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 12, 19, 21 and 27)
Exchange differences arising on translation of foreign operations					$    11,784,245				1								$3,655,675				1
Changes in fair value of available-for-sale financial assets					30,183				-								(214,935	)			-
Share of other comprehensive income (loss) of subsidiaries and associates					(227,390	)			-								13,472,874				2
Actuarial gain (loss) from defined benefit plans					268,682				-								(671,774	)			-
Income tax benefit (expense) related to components of other comprehensive income					(37,373	)			-								117,152				-
Other comprehensive income for the year, net of income tax					11,818,347				1								16,358,992				3
TOTAL COMPREHENSIVE INCOME FOR THE YEAR					$  275,717,141				36								$  204,505,782				35
EARNINGS PER SHARE (NT$, Note 28)
Basic earnings per share					$  10.18												$    7.26
Diluted earnings per share					$  10.18												$    7.26

 

The accompanying notes are an integral part of the parent company only financial statements.		(Concluded)

 

- 4 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

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

 

 

																														Others
		Capital Stock - Common Stock												Retained Earnings																Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total				Total Equity
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total
BALANCE, JANUARY 1, 2013			25,924,435			$	259,244,357			$	55,675,340			$	115,820,123			$	7,606,224			$	284,985,121			$	408,411,468			$	(10,753,806	)		$	7,973,321			$	-			$	(2,780,485	)		$	720,550,680
Appropriations of prior year’s earnings
Legal capital reserve			-				-				-				16,615,880				-				(16,615,880	)			-				-				-				-				-				-
Reversal of special capital reserve			-				-				-				-				(4,820,483	)			4,820,483				-				-				-				-				-				-
Cash dividends to shareholders - NT$3.00 per share			-				-				-				-				-				(77,773,307	)			(77,773,307	)			-				-				-				-				(77,773,307	)
Total			-				-				-				16,615,880				(4,820,483	)			(89,568,704	)			(77,773,307	)			-				-				-				-				(77,773,307	)
Net income in 2013			-				-				-				-				-				188,146,790				188,146,790				-				-				-				-				188,146,790
Other comprehensive income in 2013, net of income tax			-				-				-				-				-				(591,799	)			(591,799	)			3,613,444				13,337,460				(113	)			16,950,791				16,358,992
Total comprehensive income in 2013			-				-				-				-				-				187,554,991				187,554,991				3,613,444				13,337,460				(113	)			16,950,791				204,505,782
Issuance of stock from exercise of employee stock options			4,182				41,814				82,756				-				-				-				-				-				-				-				-				124,570
Adjustments to share of changes in equities of associates			-				-				38,084				-				-				-				-				-				-				-				-				38,084
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries			-				-				62,446				-				-				-				-				-				-				-				-				62,446
BALANCE, DECEMBER 31, 2013			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
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	)
Total			-				-				-				18,814,679				(2,785,741	)			(93,814,789	)			(77,785,851	)			-				-				-				-				(77,785,851	)
Net income in 2014			-				-				-				-				-				263,898,794				263,898,794				-				-				-				-				263,898,794
Other comprehensive income in 2014, net of income tax			-				-				-				-				-				239,362				239,362				11,642,475				(63,298	)			(192	)			11,578,985				11,818,347
Total comprehensive income in 2014			-				-				-				-				-				264,138,156				264,138,156				11,642,475				(63,298	)			(192	)			11,578,985				275,717,141
Issuance of stock from exercise of employee stock options			1,045				10,453				36,602				-				-				-				-				-				-				-				-				47,055
Disposal of investments accounted for using equity method			-				-				(2,273	)			-				-				-				-				-				-				-				-				(2,273	)
Adjustments to share of changes in equities of associates			-				-				93,459				-				-				-				-				-				-				-				-				93,459
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries			-				-				(8	)			-				-				(32,793	)			(32,793	)			-				-				-				-				(32,801	)
From share of changes in equities of subsidiaries			-				-				3,516				-				-				-				-				-				-				-				-				3,516
BALANCE, DECEMBER 31, 2014			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

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

 

- 5 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	301,023,163			$	215,716,550
Adjustments for:
Depreciation expense			191,590,059				147,266,825
Amortization expense			2,487,860				2,072,926
Finance costs			2,512,231				2,092,236
Share of profits of subsidiaries and associates			(9,292,150	)			(9,530,933	)
Interest income			(1,029,508	)			(1,011,301	)
Loss (gain) on disposal of property, plant and equipment and intangible assets, net			(21,331	)			64,753
Impairment loss of financial assets			90,774				-
Gain on disposal of available-for-sale financial assets, net			(127,161	)			(846,709	)
Gain on disposal of financial assets carried at cost, net			(5,397	)			(42,664	)
Loss (gain) on disposal of investments accounted for using equity method			(2,028,643	)			656
Gain on deconsolidation of subsidiary			-				(293,578	)
Unrealized (realized) gross profit on sales to subsidiaries and associates			(31,547	)			35,577
Loss on foreign exchange, net			3,615,493				315,098
Dividend income			(112,376	)			(71,125	)
Changes in operating assets and liabilities:
Derivative financial instruments			381,070				(6,076	)
Notes and accounts receivable, net			(5,360,307	)			(2,193,483	)
Receivables from related parties			(35,450,110	)			(11,982,359	)
Other receivables from related parties			(44,800	)			(257,810	)
Inventories			(28,280,226	)			53,330
Other financial assets			(1,797,351	)			68,313
Other current assets			(399,739	)			(266,929	)
Accounts payable			5,095,232				182,965
Payables to related parties			596,749				961,579
Salary and bonus payable			2,149,698				847,330
Accrued profit sharing to employees and bonus to directors			5,314,019				1,552,210
Accrued expenses and other current liabilities			6,469,226				3,422,182
Provisions			2,742,486				1,484,593
Accrued pension cost			59,872				14,224
Cash generated from operations			440,147,286				349,648,380
Income taxes paid			(29,636,283	)			(14,365,054	)
Net cash generated by operating activities			410,511,003				335,283,326
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Financial assets carried at cost			-				(2,177	)
Held to maturity financial assets			(5,882,316	)			(1,795,949	)
Property, plant and equipment			(283,231,097	)			(285,889,575	)
Intangible assets			(3,846,384	)			(2,727,399	)

(Continued)

 

- 6 -

---

Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

		2014				2013
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	190,886			$	1,830,424
Held-to-maturity financial assets			3,200,000				700,000
Financial assets carried at cost			10,843				59,222
Investments accounted for using equity method			3,471,883				-
Property, plant and equipment			117,578				162,068
Cash received from other long-term receivables			161,900				-
Interest received			1,043,898				1,057,553
Other dividends received			112,376				71,125
Dividends received from investments accounted for using equity method			2,664,207				2,151,373
Refundable deposits paid			(57,351	)			(96,072	)
Refundable deposits refunded			2,290,791				112,204
Net cash used in investing activities			(279,752,786	)			(284,367,203	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			18,563,525				(19,636,240	)
Proceeds from issuance of bonds			-				86,200,000
Interest paid			(2,504,871	)			(1,286,296	)
Guarantee deposits received			30,140,940				40,729
Guarantee deposits refunded			(7,075	)			(111,313	)
Proceeds from exercise of employee stock options			47,055				124,570
Payment of partial acquisition of interests in subsidiaries			(60,904,793	)			(1,357,222	)
Proceeds from partial disposal of interests in subsidiaries			113,317				170,914
Cash dividends			(77,785,851	)			(77,773,307	)
Net cash used in financing activities			(92,337,753	)			(13,628,165	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			38,420,464				37,287,958
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			146,438,768				109,150,810
CASH AND CASH EQUIVALENTS, END OF YEAR		$	184,859,232			$	146,438,768

 

The accompanying notes are an integral part of the parent company only financial statements.		(Concluded)

 

- 7 -

---

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

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

 

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. On September 5, 1994, the Company’s shares were listed on the Taiwan Stock Exchange (TWSE). On October 8, 1997, the Company 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.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying parent company only financial statements were approved and authorized for issue by the Board of Directors on February 10, 2015.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The Guidelines Governing the Preparation of Financial Reports by Securities Issuers and 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030029342 and Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “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.

 

(Continued)

 

- 8 -

---

(Concluded)

 

Note:

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

Except for the following items, the Company believes that the adoption of aforementioned 2013 Taiwan-IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers will not have a significant effect on the Company’s parent company only 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 and associates. In general, the disclosure requirements in IFRS 12 for standalone financial statements are more extensive than in the current standards.

 

2)

IFRS 13, “Fair Value Measurement”

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

The measurement requirements of IFRS 13 shall be applied prospectively.

 

3)

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

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

 

- 9 -

---

The items that will not be reclassified subsequently to profit or loss are expected to include actuarial gains or losses from defined benefit plans, the share of actuarial gains or losses from defined benefit plans of subsidiaries and associates as well as the related income tax on such items. Items that will be reclassified subsequently to profit or loss are expected to include exchange differences arising on translation of foreign operations, changes in fair value of available-for-sale financial assets, cash flow hedges, the share of other comprehensive income of subsidiaries and associates 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, required to recognize all actuarial gains and losses immediately through other comprehensive income. The past service cost, on the other hand, will be expensed immediately when it incurs and no longer be amortized over the average period before vested on a straight-line basis. In addition, the amendments also require a broader disclosure in defined benefit plans.

According to the retrospective application of aforementioned amendments, as of December 31, 2014 and January 1, 2014, the primary impacts on the Company would include the adjustment in accrued pension cost for a decrease of NT$735,381 thousand and NT$786,186 thousand, respectively, and the adjustment in retained earnings (including adjustment to share of profits of equity method investees) for an increase of NT$653,708 thousand and NT$698,710 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

The Company has not applied the following IFRSs issued by the IASB but not endorsed by the FSC. As of the date that the parent company only 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)

 

- 10 -

---

(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.

 

- 11 -

---

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.

 

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 year 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 parent company only financial statements were authorized for issue, the Company continues in evaluating the impact on its financial position and financial performance as a result of the initial adoption of the above standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 

- 12 -

---

Statement of Compliance

The accompanying parent company only financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers (the “Accounting Standards Used in Preparation of the Parent Company Only Financial Statements”).

Basis of Preparation

The accompanying parent company only financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

When preparing the parent company only financial statements, the Company account for subsidiaries and associates by using the equity method. In order to agree with the amount of net income, other comprehensive income and equity attributable to shareholders of the parent in the consolidated financial statements, the differences of the accounting treatment between the parent company only basis and the consolidated basis are adjusted under the heading of investments accounted for using equity method, share of profits of subsidiaries and associates and share of other comprehensive income of subsidiaries and associates in the parent company only financial statements.

Foreign Currencies

In preparing the parent company only financial statements, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

For the purposes of presenting parent company only financial statements, the assets and liabilities of the Company’s foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time deposits and investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

- 13 -

---

Financial Instruments

Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Fair value is determined in the manner described in Note 32.

Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at fair value through profit or loss” (FVTPL), “held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Derivative financial instruments that do not meet the criteria for hedge accounting are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c) financial assets at fair value through profit or loss.

Stocks held by the Company that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value at the end of each reporting period.

Dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Such equity instruments are subsequently remeasured at fair value when their fair value can be reliably measured, and the difference between the carrying amount and fair value is recognized in profit or loss or other comprehensive income.

 

- 14 -

---

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including cash and cash equivalents, notes and accounts receivable and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for those loans and receivables with immaterial discounted effect.

Impairment of financial assets

Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Those financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, their estimated future cash flows have been affected.

For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

For financial assets carried at amortized cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the year.

In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gains or losses from available-for-sale financial assets.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

 

- 15 -

---

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are subsequently measured either at amortized cost using effective interest method or at FVTPL.

Financial liabilities measured at FVTPL are derivative financial instruments that do not meet the criteria for hedge accounting, and they are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently measured at amortized cost at the end of each reporting period.

Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative Financial Instruments

The Company enters into a variety of derivative financial instruments to manage its market risk exposure to foreign exchange rate and interest rate, including forward exchange contracts and currency swap contracts.

Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value represents the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

 

 

- 16 -

---

Noncurrent Assets Held for Sale

Noncurrent assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the noncurrent asset held for sale is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the committed sale plan involves loss of control of a subsidiary, all of the investments of that subsidiary are classified as held for sale and still using equity methods, regardless of whether investments in its former subsidiary is retained after the sale.

Noncurrent assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation would cease.

Investments Accounted for Using Equity Method

Investments accounted for using the equity method include investments in subsidiaries and associates.

Investment in subsidiaries

A subsidiary is an entity that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the subsidiary as well as the distribution received. The Company also recognized its share in the changes in the equity of subsidiaries.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amount of the subsidiary and the fair value of the consideration paid or received is recognized directly in equity.

When the Company loses control of a subsidiary, any retained investment of the former subsidiary is measured at the fair value at that date. A gain or loss is recognized in profit or loss and calculated as the difference between (a) the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and (b) the previous carrying amount of the investments in such subsidiary. In addition, the Company shall account for all amounts previously recognized in other comprehensive income in relation to the subsidiary on the same basis as would be required if the Company had directly disposed of the related assets and liabilities.

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

When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with the subsidiaries are recognized in the Company’s parent company only financial statements only to the extent of interests in the subsidiaries that are not owned by the Company.

Investment in associates

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The operating results and assets and liabilities of associates are incorporated in these parent company only financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized in the statement of financial position at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate as well as the distribution received. The Company also recognizes its share in the changes in the equity of associates.

 

- 17 -

---

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

If the Company’s ownership interest in an associate is reduced as a result of disposal, but the investment continues to be an associate, the Company should account for the investments on the same basis as would be required if the associate had directly disposed of the related assets or liabilities; in addition, the Company should reclassify to profit or loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income.

When the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the associate or jointly controlled entity had directly disposed of the related assets or liabilities.

When the Company transacts with an associate, profits and losses resulting from the transactions with the associate are recognized in the Company’ parent company only financial statements only to the extent of interests in the associate that are not owned by the Company.

Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property, plant and equipment.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful lives, and it is computed using the straight-line method over the following estimated useful lives: buildings - 10 to 20 years; machinery and equipment - 2 to 5 years; and office equipment - 3 to 5 years. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

 

- 18 -

---

Leases

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

The Company as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Intangible Assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Other intangible assets

Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method over the following estimated useful lives: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash-generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units that are expected to benefit. If the recoverable amount of a cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such cash-generating unit and then to the other assets of the cash-generating unit pro rata based on the carrying amount of each asset in the cash-generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Other tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

- 19 -

---

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

 

—

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

—

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

—

The amount of revenue can be measured reliably;

 

—

It is probable that the economic benefits associated with the transaction will flow to the Company; and

 

—

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

In principle, 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. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

 

- 20 -

---

Royalties, dividend and interest income

Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably).

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Retirement Benefits

For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense when the employees have rendered service entitling them to the contribution. For defined benefit retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at year end. Actuarial gains and losses are reported in retained earnings in the period that they are recognized as other comprehensive income.

Share-based Payment Arrangements

The Company elected to take the optional exemption according to related guidance for the share-based payment transactions granted and vested before January 1, 2012, the date of transition to Accounting Standards Used in Preparation of the Parent Company Only Financial Statements. There were no stock options granted prior to but unvested at the date of transition.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

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

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

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the parent company only financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

- 21 -

---

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

 

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

In the application of the Company’s accounting policies, which are described in Note 4, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The following are the critical judgments, apart from those involving estimations, that the directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the parent company only financial statements.

Revenue Recognition

The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used.

Impairment of Tangible and Intangible Assets Other than Goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the nature of semiconductor industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

 

- 22 -

---

Impairment of Goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the recoverable amount of relevant cash-generating units.

Impairment Assessment on Investment Using Equity Method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable. The Company measures the impairment based on a projected future cash flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate formulated by such investees’ internal management team. The Company also takes into account market conditions and the relevant industry trends to ensure the reasonableness of such assumptions.

Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company use judgment and estimate to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid technological changes, the Company estimates the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon.

Recognition and Measurement of Defined Benefit Plans

Accrued pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

6.	CASH AND CASH EQUIVALENTS

 

 

- 23 -

---

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

 

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:

 

 

- 24 -

---

8.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

9.	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)

 

- 25 -

---

(Concluded)

Aging analysis of accounts receivable that is individually determined as impaired

 

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

 

10.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$1,810,449 thousand and NT$526,182 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2014 and 2013.

 

- 26 -

---

11.	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 Company recognized impairment loss on financial assets carried at cost in the amount of NT$90,774 thousand and nil for the years ended December 31, 2014 and 2013, respectively.

 

12.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

a.

Investments in subsidiaries

Subsidiaries consisted of the following:

 

(Continued)

 

- 27 -

---

(Concluded)

In January 2015, the Board of Directors of the Company approved a sale of TSMC SSL common shares of 565,480 thousand held by the Company and TSMC Guang Neng with the expectation to complete the sale within twelve months. Accordingly, the Company has reclassified TSMC SSL as a disposal group held for sale by using equity methods with NT$669,472 thousand in the parent company only balance sheet as of December 31, 2014.

To lower the hedging cost, in the second half of 2014, the Company continually increased its investment in TSMC Global for the amount of NT$60,787,623 thousand. This project was approved by the Investment Commission, MOEA.

According to the agreement among the Company, TSMC Solar and VTAF III, each of the investment held by VTAF III is separately owned by the Company and TSMC Solar. As the investment owned by VTAF III, which is indirectly owned by TSMC Solar, has entered into liquidation process due to bankruptcy and the bankruptcy trustee confirmed that no residual assets could be reimbursed to the shareholders, in the second quarter of 2014, TSMC Solar’s percentage of ownership over VTAF III has decreased to nil. Consequently, the Company’s percentage of ownership over VTAF III has been adjusted to 98%.

In January 2012, the Company invested NT$100,000 thousand and established a wholly-owned subsidiary, TSMC GN, which engages mainly in investment activities. In May 2013 and in February 2012, the Company participated directly or through TSMC GN in the issuance of new shares by TSMC SSL and TSMC Solar for cash. As of December 31, 2013, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were 92% and 99%, respectively.

 

b.

Investments in associates

Associates consisted of the following:

 

 

- 28 -

---

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

Starting June 2013, the Company has no power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors, but over which the Company still retains significant influence. Accordingly, Xintec is reclassified as an associate. Please refer to Note 30.

The summarized financial information in respect of the Company’s associates is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with the Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, which is also adjusted by the Company using the equity method of accounting.

 

 

13.	PROPERTY, PLANT AND EQUIPMENT

 

(Continued)

 

- 29 -

---

(Concluded)

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.

 

14.	INTANGIBLE ASSETS

 

(Continued)

 

- 30 -

---

(Concluded)

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.

For the years ended December 31, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

15.	OTHER ASSETS

 

 

16.	SHORT-TERM LOANS

 

 

- 31 -

---

17.	PROVISIONS

 

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 year of the related product sales.

 

18.	BONDS PAYABLE

 

The major terms of domestic unsecured bonds are as follows:

 

Issuance		Tranche		Issuance Period		Total Amount				Coupon Rate		Repayment and Interest Payment
100-1		A		September 2011 to September 2016		$	10,500,000			1.40%		Bullet repayment; interest payable annually
		B		September 2011 to September 2018			7,500,000			1.63%		The same as above
100-2		A		January 2012 to January 2017			10,000,000			1.29%		The same as above
		B		January 2012 to January 2019			7,000,000			1.46%		The same as above
101-1		A		August 2012 to August 2017			9,900,000			1.28%		The same as above
		B		August 2012 to August 2019			9,000,000			1.40%		The same as above
101-2		A		September 2012 to September 2017			12,700,000			1.28%		The same as above
		B		September 2012 to September 2019			9,000,000			1.39%		The same as above
101-3		-		October 2012 to October 2022			4,400,000			1.53%		The same as above
101-4		A		January 2013 to January 2018			10,600,000			1.23%		The same as above
		B		January 2013 to January 2020			10,000,000			1.35%		The same as above
		C		January 2013 to January 2023			3,000,000			1.49%		The same as above

(Continued)

 

- 32 -

---

Issuance		Tranche		Issuance Period		Total Amount				Coupon Rate		Repayment and Interest Payment
102-1		A		February 2013 to February 2018		$	6,200,000			1.23%		Bullet repayment; interest payable annually
		B		February 2013 to February 2020			11,600,000			1.38%		The same as above
		C		February 2013 to February 2023			3,600,000			1.50%		The same as above
102-2		A		July 2013 to July 2020			10,200,000			1.50%		The same as above
		B		July 2013 to July 2023			3,500,000			1.70%		The same as above
102-3		A		August 2013 to August 2017			4,000,000			1.34%		The same as above
		B		August 2013 to August 2019			8,500,000			1.52%		The same as above
102-4		A		September 2013 to September 2016			1,500,000			1.35%		The same as above
		B		September 2013 to September 2017			1,500,000			1.45%		The same as above
		C		September 2013 to March 2019			1,400,000			1.60%		Bullet repayment; interest payable annually (interest for the six months prior to maturity will accrue on the basis of actual days and be repayable at maturity)
		D		September 2013 to March 2021			2,600,000			1.85%		The same as above
		E		September 2013 to March 2023			5,400,000			2.05%		The same as above
		F		September 2013 to September 2023			2,600,000			2.10%		Bullet repayment; interest payable annually

(Concluded)

 

19.	RETIREMENT BENEFIT PLANS

 

a.

Defined contribution plans

The plan under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Accordingly, the Company recognized expenses of NT$1,465,336 thousand and NT$1,355,947 thousand in the parent company only statements of comprehensive income for the years ended December 31, 2014 and 2013, respectively.

 

- 33 -

---

b.

Defined benefit plans

The Company has defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company revised its defined benefit plan in the fourth quarter of 2013 to set the employee’s mandatory retirement age. Such plan changes have reflected in the actuarial results as of December 31, 2013.

The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

 

For the years ended December 31, 2014 and 2013, the pre-tax actuarial benefit NT$268,682 thousand and the pre-tax actuarial loss NT$671,774 thousand were recognized in other comprehensive income (loss), respectively. As of December 31, 2014 and 2013, the pre-tax accumulated actuarial loss recognized in other comprehensive income were NT$1,080,505 thousand and NT$1,349,187 thousand, respectively.

 

- 34 -

---

The amounts arising from the defined benefit obligation of the Company in the parent company only balance sheets were as follows:

 

Movements in the present value of the defined benefit obligation were as follows:

 

Movements in the fair value of the plan assets were as follows:

 

The percentage of the fair value of the plan assets by major categories at the end of reporting period was as follows:

 

 

- 35 -

---

The overall expected rate of return on plan assets was based on the historical return trends, analysts’ predictions of the market over the life of related obligation, reference to the performance of the Funds operated by the Committee and the consideration of the effect that the minimum return should not be less than the average interest rate on a two-year time deposit published by the local banks. For the years ended December 31, 2014 and 2013, the actual return on plan assets were NT$82,060 thousand and NT$42,316 thousand, respectively.

The Company elects to disclose the historical information of experience adjustments from the adoption of Accounting Standards Used in Preparation of Parent Company Only Financial Statements, which is as follows:

 

The Company expects to make contributions of NT$226,663 thousand to the defined benefit plans in the next year starting from December 31, 2014.

 

20.	GUARANTEE DEPOSITS

 

 

21.

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.

 

- 36 -

---

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

As of December 31, 2014, 1,073,361 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,366,803 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

Under the Company Law, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds, the surplus from treasury stock transactions and the differences between equity purchase price and carrying amount arising from 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 the Company’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

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

 

1)

Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Company’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 the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

4)

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

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

 

- 37 -

---

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

The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$17,645,966 thousand and NT$12,634,665 thousand for the years ended December 31, 2014 and 2013, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If the actual amounts subsequently approved by the shareholders differ from the amounts estimated, the differences are recorded in the year such bonuses are approved by the shareholders as a change in accounting estimate. If profit sharing approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

The appropriations of 2013 and 2012 earnings have been approved by the Company’s shareholders in its meetings held on June 24, 2014 and on June 11, 2013, respectively. The appropriations and dividends per share were as follows:

 

The Company’s profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively, and profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, had been approved by the shareholders in its meetings held on June 24, 2014 and June 11, 2013, respectively. The aforementioned approved amount is the same as the one approved by the Board of Directors in its meetings held on February 18, 2014 and February 5, 2013, respectively, and the same amount had been charged against earnings for the years ended December 31, 2013 and 2012, respectively.

 

- 38 -

---

The Company’s appropriations of earnings for 2014 had been approved in the meeting of the Board of Directors held on February 10, 2015. The appropriations and dividends per share were as follows:

 

The Board of Directors of the Company also approved the profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$17,645,966 thousand and NT$406,854 thousand in cash for payment in 2014, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2014.

The appropriations of earnings, profit sharing to employees and bonus to members of the Board of Directors for 2014 are to be presented for approval in the Company’s shareholders’ meeting to be held on June 9, 2015 (expected).

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

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

 

d.

Others

Changes in others were as follows:

 

(Continued)

 

- 39 -

---

The exchange differences arising on translation of foreign operation’s net assets from its functional currency to the Company’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. 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.

 

- 40 -

---

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.

 

22.	SHARE-BASED PAYMENT

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

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

 

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

 

- 41 -

---

Information about the Company’s outstanding stock options was as follows:

 

 

23.	NET REVENUE

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

 

 

24.	OTHER INCOME

 

 

25.	FINANCE COSTS

 

 

- 42 -

---

26.	OTHER GAINS AND LOSSES

 

 

27.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:

 

(Continued)

 

- 43 -

---

 

c.

Deferred income tax balance

The analysis of deferred income tax assets and liabilities in the parent company only balance sheets was as follows:

 

 

- 44 -

---

 

d.

The investment tax credits and deductible temporary differences for which no deferred income tax assets have been recognized in the parent company only financial statements

As of December 31, 2014 and 2013, unrecognized investment tax credits for which no deferred income tax assets have been recognized amounted to nil and NT$3,015,705 thousand, respectively; the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$2,088,394 thousand and NT$8,673,160 thousand, respectively.

 

- 45 -

---

e.

Unused tax-exemption information

As of December 31, 2014, the profits generated from the following projects of the Company are exempt from income tax for a five-year period:

 

 

f.

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2014 and 2013, the aggregate taxable temporary differences associated with investments in subsidiaries not unrecognized as deferred income tax liabilities amounted to NT$41,365,515 thousand and NT$28,035,340 thousand, respectively.

 

g.

Integrated income tax information

 

The estimated creditable ratio for distribution of the Company’s earnings of 2014 was 11.29%; 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 the Company’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 Parent Company Only Financial Statements Accounting Standards in the accumulated unappropriated earnings in the year of first-time adoption of Accounting Standards Used in Preparation of Parent Company Only Financial Statements.

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

 

h.

Income tax examination

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

 

- 46 -

---

28.	EARNINGS PER SHARE

 

EPS is computed as follows:

 

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

 

- 47 -

---

29.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

 

30.	LOSS OF CONTROL IN SUBSIDIARY

Starting June 2013, the Company no longer has power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors, but over which the Company still retains significant influence. Accordingly, Xintec is reclassified as an associate. For more information on deconsolidation of subsidiary, please refer to Note 34 to the consolidated financial statements for the year ended December 31, 2014.

 

31.	CAPITAL MANAGEMENT

The Company requires significant amounts of capital to build and expand its production facilities and acquire additional equipment. In consideration of the industry dynamics, the Company manages its capital in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital needs, capital asset purchases, research and development activities, dividend payments, debt service requirements and other business requirements associated with its existing operations over the next 12 months.

 

- 48 -

---

32.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

Note:    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.

 

- 49 -

---

c.

Market risk

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

Foreign currency risk

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

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

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the years ended December 31, 2014 and 2013 would have decreased by NT$324,058 thousand and NT$156,590 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 fixed 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.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments.

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 years ended December 31, 2014 and 2013 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the years ended December 31, 2014 and 2013 would have decreased by NT$41,764 thousand and NT$47,150 thousand, respectively.

 

d.

Credit risk management

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

 

- 50 -

---

As of December 31, 2014 and 2013, the Company’s ten largest customers accounted for 57% and 56% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

Financial credit risk

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

 

e.

Liquidity risk management

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

As of December 31, 2014 and 2013, the unused of financing facilities of the Company amounted to NT$63,414,089 thousand and NT$67,437,805 thousand, respectively.

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

 

(Continued)

 

- 51 -

---

(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 parent company only financial statements approximate their fair values.

 

 

2)

Fair value measurements recognized in the parent company only 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;

 

- 52 -

---

—

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).

 

There were no transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013, respectively.

There were no purchases and disposals for assets on Level 3 for the years ended December 31, 2014 and 2013, respectively.

 

3)

Valuation techniques and assumptions used in fair value measurement

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

 

—

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

 

—

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.

 

—

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.

 

- 53 -

---

33.	RELATED PARTY TRANSACTIONS

The transactions between the Company and its related parties, other than those disclosed in other notes, are summarized as follows:

 

a.

Net revenue

 

 

b.

Purchases

 

 

c.

Receivables from related parties

 

 

- 54 -

---

d.

Payables to related parties

 

 

e.

Acquisition of property, plant and equipment and intangible assets

 

 

f.

Disposal of property, plant and equipment

 

 

 

- 55 -

---

 

g.

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. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid quarterly and the related expense was classified under manufacturing expenses.

The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to related parties using equity method, and then recognized such gain/loss over the depreciable lives of the disposed assets.

 

- 56 -

---

h.

Compensation of key management personnel

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

 

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

 

34.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for litigation. As of December 31, 2014 and 2013, the aforementioned other financial assets amounted to NT$39,100 thousand and nil, respectively.

 

35.	SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land from the Science Park Administration. These operating leases expire between June 2015 and July 2034 and can be renewed upon expiration.

The Company expensed the lease payments as follows:

 

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

 

 

- 57 -

---

36.	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 the Company can use up to 35% of the Company’s capacity provided the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. As of December 31, 2014, the R.O.C. Government did not invoke such right.

 

b.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’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, the Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. The Company and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC 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 December 31, 2014.

 

c.

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

 

d.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing the Company, 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 the Company and TSMC North America. Ziptronix, Inc. can appeal the Court’s order. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

e.

The Company joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012. Both parties also signed the research and development funding agreement whereby the Company shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of December 31, 2014, the Company has paid EUR109,730 thousand to ASML under the research and development funding agreement.

 

f.

In September 2013, Zond Inc. filed a complaint in U.S. District Court for the District of Massachusetts against the Company, certain TSMC subsidiaries and other companies alleging infringing of several U.S. patents. That case is currently stayed as of June 2014. Subsequent to the stay, the Company 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. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

- 58 -

---

g.

In December 2013, Tela Innovations (Tela), Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission (ITC) accusing the Company and TSMC North America of infringing one U.S. patent. In January 2014, the Company filed a lawsuit in the U.S. District Court for the District of North California against Tela for trade secret misappropriation and breach of contract. In September 2014, all pending litigations between the parties in the U.S. District Court for the District of Delaware, the ITC and the U.S. District Court for the District of North California were dismissed.

 

h.

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

 

i.

As of December 31, 2014, the Company provided financial guarantees of NT$47,577,000 thousand to its subsidiary, TSMC Global, in respect of the issuance of unsecured corporate bonds.

 

j.

As of December 31, 2014, the Company provided endorsement guarantees of NT$2,639,350 thousand to its subsidiary, TSMC North America, in respect of providing endorsement guarantees for office leasing contract.

 

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

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

 

(Continued)

 

- 59 -

---

(Concluded)

 

Note:

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

 

38.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company:

 

a.

Financings provided:    None;

 

b.

Endorsement/guarantee provided:    Please see Table 1 attached;

 

c.

Marketable securities held (excluding investments in subsidiaries, associates and jointly controlled entities):    Please see Table 2 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 3 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 4 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 5 attached;

 

h.

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

 

i.

Information about the derivative financial instruments transaction:    Please see Note 7;

 

j.

Names, locations, and related information of investees over which the Company exercises significant influence (excluding information on investment in Mainland China):    Please see Table 7 attached;

 

k.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, 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 8 attached.

 

- 60 -

---

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports:    Please see Note 33.

 

39.	OPERATING SEGMENTS INFORMATION

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

 

- 61 -

---

TABLE 1

Taiwan Semiconductor Manufacturing Company

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2014

(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		The Company		TSMC Global		Subsidiary		$	261,387,125			$  (US$	47,577,000  1,500,000	)		$  (US$	47,577,000  1,500,000	)		$  (US$	47,577,000  1,500,000	)		$	-			4.55%		$	261,387,125			Yes		No		No
				TSMC North America		Subsidiary			261,387,125			(US$	2,639,350  83,213	)		(US$	2,639,350  83,213	)		(US$	2,639,350 83,213	)			-			0.25%			261,387,125			Yes		No		No

 

Note 1:

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

 

Note 3:

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

 

- 62 -

---

TABLE 2

Taiwan Semiconductor Manufacturing Company Limited

MARKETABLE SECURITIES HELD

DECEMBER 31, 2014

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

 

 

Held Company Name		Marketable Securities Type and Name		Relationship with   the Company		Financial Statement Account		December 31, 2014														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of  Ownership (%)		Fair Value (Foreign Currencies in Thousands)
The Company		Commercial Paper
		CPC Corporation, Taiwan		-		Held-to-maturity financial assets			230			$	2,293,579			N/A		$	2,293,942
		Taiwan Power Company		-		〃			220				2,192,014			N/A			2,192,599
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets			211,047				612,860			1			612,860			Note 1
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost			21,230				193,584			10			447,998
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		〃			10,500				105,000			7			341,694
		W.K. Technology Fund IV		-		〃			4,000				39,280			2			34,633
		Fund
		Horizon Ventures Fund		-		Financial assets carried at cost			-				17,029			12			17,029			Note 2
		Crimson Asia Capital		-		〃			-				18,265			1			18,265			Note 3

 

Note 1:

The carrying value represents carrying amount less accumulated impairment of NT$315,787 thousand.

 

Note 2:

The carrying value represents carrying amount less accumulated impairment of NT$61,274 thousand.

 

Note 3:

The carrying value represents carrying amount less accumulated impairment of NT$29,500 thousand.

 

- 63 -

---

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited

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 YEAR ENDED DECEMBER 31, 2014

(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 )
										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
The Company		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets		-		-		100		$     998,018		290		$    2,892,396		160		$  1,600,000		$  1,596,835		$       3,165		230		$    2,293,579
		Taiwan Power Company		〃		-		-		80		797,931		300		2,989,920		160		1,600,000		1,595,837		4,163		220		2,192,014
		Stock
		VIS		Investments accounted for using equity method		Public Market		Associate		628,223		10,556,348		-		-		82,000		3,471,883		1,443,240		2,028,643		546,223		10,100,750
		TSMC Global		〃		-		Subsidiary		1		64,953,489		2		60,787,623		-		-		-		-		3		132,330,833

 

Note :

The ending balance includes share of profits/losses of investees and other related adjustment to equity.

 

- 64 -

---

TABLE 4

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 2014

(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

The Company

Fab

April 9, 2013 to February 21, 2014

$

310,469

Monthly settlement by the construction progress and acceptance

Mandartech Interiors Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

November 25, 2013 to September 24, 2014

459,000

Monthly settlement by the construction progress and acceptance

Mega Facade Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

January 13, 2014 to June 18, 2014

491,470

Monthly settlement by the construction progress and acceptance

Tasa Construction Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

August 5, 2014

308,500

Monthly settlement by the construction progress and acceptance

Tung Kang Steel Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

October 3, 2014

333,330

Monthly settlement by the construction progress and acceptance

Pan Asia Corp.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

November 19, 2014

(US$

2,696,030 85,000

)

By the contract

Qualcomm Panel Manufacturing Ltd.

-

N/A

N/A

N/A

N/A

Appraisal report

Manufacturing purpose

None

 

- 65 -

---

TABLE 5

Taiwan Semiconductor Manufacturing Company Limited

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

FOR THE YEAR ENDED DECEMBER 31, 2014

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

 

 

Company Name		Related Party		Nature of Relationships		Transaction Details										Abnormal Transaction				Notes/Accounts Payable or Receivable						Note
						Purchases/  Sales		Amount (Foreign Currencies in Thousands)				% to   Total		Payment Terms		Unit Price   (Note 2)		Payment Terms   (Note 2)		Ending Balance (Foreign Currencies in Thousands)				% to   Total
The Company		TSMC North America		Subsidiary		Sales			$ 523,431,292			68		Net 30 days from invoice date (Note 1)		-		(Note 1)			$    88,149,347			79
		GUC		Associate		Sales			2,613,127			1		Net 30 days from the end of the month of when invoice is issued		-		-			269,978			-
		VIS		Associate		Sales			122,706			-		Net 30 days from the end of the month of when invoice is issued		-		-			-			-
		TSMC China		Subsidiary		Purchases			19,374,227			26		Net 30 days from the end of the month of when invoice is issued		-		-			(2,003,878)			8
		WaferTech		Indirect subsidiary		Purchases			8,753,334			12		Net 30 days from the end of the month of when invoice is issued		-		-			(699,230)			3
		VIS		Associate		Purchases			7,424,566			10		Net 30 days from the end of the month of when invoice is issued		-		-			(710,950)			3
		SSMC		Associate		Purchases			4,219,527			6		Net 30 days from the end of the month of when invoice is issued		-		-			(313,578)			1

Note 1:     The tenor is 30 days from the Company’s invoice date or determined by the payment terms granted to its clients by TSMC North America.

Note 2:     The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 66 -

---

TABLE 6

Taiwan Semiconductor Manufacturing Company Limited

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

DECEMBER 31, 2014

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

 

 

										Overdue
Company Name		Related Party		Nature of Relationships		Ending Balance  (Foreign Currencies  in Thousands)		Turnover Days (Note 1)		Amount		Action Taken		Amounts Received in Subsequent Period		Allowance for Bad Debts
The Company		TSMC North America		Subsidiary		$    88,526,636		49		$    7,163,353		-		$    7,529,983		$	-
		GUC		Associate		269,978		34		1,101		-		113,953			-
		VIS		Associate		108,916		(Note 2)		78		-		27,124			-

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.

 

- 67 -

---

TABLE 7

Taiwan Semiconductor Manufacturing Company Limited

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

DECEMBER 31, 2014

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

 

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2014												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31 2014 (Foreign Currencies in Thousands)				December 31, 2013 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
The Company		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	103,114,868			$	42,327,245				3				100			$	132,330,833			$	338,151			$	338,151			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry			31,456,130				31,456,130				988,268				100				47,449,368				1,465,573				1,465,679			Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			11,789,048				13,232,288				546,223				33				10,100,750				5,437,889				1,879,076			Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				8,296,955				4,853,776				1,882,779			Associate
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				11,180,000				1,118,000				99				2,877,245				(1,722,175	)			(1,701,691	)		Subsidiary
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				3,984,370				(60,200	)			(60,200	)		Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			5,546,744				5,546,744				554,674				92				-				(1,618,784	)			(1,494,462	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950				40				2,053,982				628,653				233,473			Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,102,704				438,443				154,599			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,850,782				1,908,912				-				98				810,958				(67,776	)			(66,407	)		Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			605,479				596,514				-				98				469,709				(9,169	)			(8,985	)		Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				-				100				312,052				40,265				40,265			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			844,775				841,757				-				99.5				155,122				(2,194	)			(2,183	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				120,116				3,655				3,655			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			200,000				150,000				-				100				65,560				(37,069	)			(37,069	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				33,427				3,086				3,086			Subsidiary

 

Note 1:

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

 

Note 2:

Please refer to Table 8 for information on investment in Mainland China.

 

- 68 -

---

TABLE 8

Taiwan Semiconductor Manufacturing Company Limited

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2014

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

 

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of  Investment		Accumulated Outflow of Investment from Taiwan as of January 1, 2014 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2014 (US$ in Thousands)				Net Income (Losses) of the Investee Company				Percentage of  Ownership		Share of Profits/Losses				Carrying Amount as of December 31, 2014				Accumulated Inward Remittance of Earnings as of December 31, 2014
														Outflow				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$ (RMB	18,939,667  4,502,080	)		(Note 1)		$ (US$	18,939,667 596,000	)		$	-			$	-			$ (US$	18,939,667 596,000	)		$	6,587,991			100%		$	6,662,384 (Note 2	)		$	31,853,813			$	-

 

Accumulated Investment in Mainland China as of December 31, 2014 (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)		Upper Limit on Investment (US$ in Thousands)
$   18,939,667 (US$   596,000)		$  18,939,667 (US$   596,000)		$  18,939,667 (US$   596,000)

Note 1:     The Company directly invested US$596,000 thousand in TSMC China.

Note 2:     Amount was recognized based on the audited financial statements.

 

- 69 -

---

THE CONTENTS OF STATEMENTS OF MAJOR

ACCOUNTING ITEMS

 

ITEM		STATEMENT INDEX
MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND EQUITY
STATEMENT OF CASH AND CASH EQUIVALENTS		1
STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET		2
STATEMENT OF RECEIVABLES FROM RELATED PARTIES		3
STATEMENT OF INVENTORIES		4
STATEMENT OF OTHER CURRENT ASSETS		Note 15
STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD		5
STATEMENT OF CHANGES IN PROPERTY, PLANT AND EQUIPMENT		Note 13
STATEMENT OF CHANGES IN ACCUMULATED DEPRECIATION AND ACCUMULATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT		Note 13
STATEMENT OF CHANGES IN INTANGIBLE ASSETS		Note 14
STATEMENT OF GUARANTEE DEPOSITS		Note 20
STATEMENT OF DEFERRED INCOME TAX ASSETS / LIABILITIES		Note 27
STATEMENT OF SHORT-TERM LOANS		6
STATEMENT OF ACCOUNTS PAYABLES		7
STATEMENT OF PAYABLES TO RELATED PARTIES		8
STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS		9
STATEMENT OF PROVISIONS		Note 17
STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES		10
STATEMENT OF BONDS PAYABLE		11
MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS
STATEMENT OF NET REVENUE		12
STATEMENT OF COST OF REVENUE		13
STATEMENT OF OPERATING EXPENSES		14
STATEMENT OF OTHER OPERATING INCOME AND EXPENSES, NET		15
STATEMENT OF FINANCE COSTS		Note 25
STATEMENT OF LABOR, DEPRECIATION AND AMORTIZATION BY FUNCTION		16

 

- 70 -

---

STATEMENT 1

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF CASH AND CASH EQUIVALENTS

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Item		Description		Amount
Cash
Petty cash				$	530
Cash in banks
Checking accounts and demand deposits					6,232,085
Foreign currency deposits		Including US$1,141,369 thousand @31.718, JPY615 thousand @0.2652 and EUR3 thousand @38.57			36,202,228
Time deposits		From 2014.10.30 to 2015.06.30, interest rates at 0.22%-1.13%, including NT$135,229,504 thousand, US$46,100 thousand @31.718, JPY154,500 thousand @0.2652 and EUR361 thousand @38.57			136,746,600
Cash equivalents
Repurchase agreements collateralized by corporate bonds		Expired by 2015.01.22 , interest rates at 0.62%-0.67%			3,920,562
Commercial paper		Expired by 2015.01.22 , interest rates at 0.66%-0.78%			1,159,325
Repurchase agreements collateralized by short-term commercial paper		Expired by 2015.01.16 , interest rates at 0.64%			449,180
Repurchase agreements collateralized by government bonds		Expired by 2015.01.09 , interest rates at 0.63%-0.64%			148,722
Total				$	184,859,232

 

- 71 -

---

STATEMENT 2

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Client Name		Amount
NXP Semiconductors N.V.		$	3,028,969
Spreadtrum Communications, Inc.			2,180,411
MediaTek Inc.			1,753,893
Sony Electronics Inc.			1,345,228
Others (Note 1)			14,981,185
			23,289,686
Less:    Allowance for doubtful accounts			(483,502	)
Total		$	22,806,184

 

Note 1:

The amount of individual client included in others does not exceed 5% of the account balance.

 

Note 2:

The accounts receivable past due over one year amounted to NT$8,131 thousand for which the Company has recognized appropriate allowance for doubtful accounts.

 

- 72 -

---

STATEMENT 3

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF RECEIVABLES FROM RELATED PARTIES

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Client Name		Amount
TSMC North America		$	88,149,347
Others (Note)			270,566
Total		$	88,419,913

 

Note:

The amount of individual client included in others does not exceed 5% of the account balance.

 

- 73 -

---

STATEMENT 4

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF INVENTORIES

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

		Amount
Item		Cost					Net Realizable   Value
Finished goods			$	9,443,538				$	11,185,423
Work in process				49,701,123					146,246,308
Raw materials				3,014,795					2,939,753
Supplies and spare parts				1,363,831					2,201,140
Total			$	63,523,287				$	162,572,624

 

- 74 -

---

STATEMENT 5

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

		Balance, January 1, 2014								Additions								Decrease								Increase (Decrease) in Using the Equity Method				Adjustments to Share of Changes in Equity of Subsidiaries				Adjustments Arising from Changes in Percentage of Ownership in				Adjustments Resulting from the Transactions with Subsidiaries				Noncurrent Assets				Balance, December 31, 2014												Market Value or Net Assets Value
		Shares								Shares								Shares								Amount				and Associates				Subsidiaries				and Associates				Held for Sale				Shares												Unit Price		Total
Investees		(In Thousands)				Amount				(In Thousands)				Amount				(In Thousands)				Amount				(Note 3)				Amount				Amount				Amount				Amount				(In Thousands)				%				Amount				(NT$)		Amount				Collateral
Stocks
TSMC Global			1			$	64,953,489				2			$	60,787,623				-			$	-			$	6,589,721			$	-			$	-			$	-			$	-				3				100			$	132,330,833					$	132,330,833			Nil
TSMC Partners			988,268				42,861,788				-				-				-				-				4,590,961				-				(11	)			(3,370	)			-				988,268				100				47,449,368						47,453,005			Nil
VIS			628,223				10,556,348				-				-				(82,000	)			(1,443,240	)			900,309				87,333				-				-				-				546,223				33				10,100,750			52.3 (Note 1)			28,567,489			Nil
SSMC			314				7,457,733				-				-				-				-				839,222				-				-				-				-				314				39				8,296,955						8,082,972			Nil
TSMC North America			11,000				3,763,194				-				-				-				-				221,176				-				-				-				-				11,000				100				3,984,370						3,984,370			Nil
TSMC Solar			1,118,000				4,551,318				-				-				-				-				(1,673,482	)			(2,664	)			3,541				(1,468	)			-				1,118,000				99				2,877,245						2,843,672			Nil
Xintec			94,950				1,866,123				-				-				-				-				181,324				6,535				-				-				-				94,950				40				2,053,982						1,855,646			Nil
GUC			46,688				1,056,141				-				-				-				-				18,011				(5	)			-				28,557				-				46,688				35				1,102,704			92.7 (Note 2)			4,327,965			Nil
TSMC Europe			-				290,838				-				-				-				-				21,214				-				-				-				-				-				100				312,052						312,052			Nil
TSMC Japan			6				124,762				-				-				-				-				(4,646	)			-				-				-				-				6				100				120,116						120,116			Nil
TSMC Korea			80				29,475				-				-				-				-				3,952				-				-				-				-				80				100				33,427						33,427			Nil
TSMC SSL			554,674				2,154,913				-				-				-				-				(1,485,441	)			-				-				-				(669,472	)			554,674				92				-						-			Nil
Subtotal							139,666,122								60,787,623								(1,443,240	)			10,202,321				91,199				3,530				23,719				(669,472	)											208,661,802						229,911,547
Capital
TSMC China			-				23,845,371				-				-				-				-				8,016,441				-				-				(7,999	)			-				-				100				31,853,813						31,968,607			Nil
VTAF III			-				892,439				-				55,187				-				(113,317	)			(23,351	)			-				-				-				-				-				98				810,958						788,322			Nil
VTAF II			-				441,763				-				8,965				-				-				18,981				-				-				-				-				-				98				469,709						463,463			Nil
Emerging Alliance			-				144,924				-				3,018				-				-				7,180				-				-				-				-				-				99.5				155,122						155,121			Nil
TSMC GN			-				85,162				-				50,000				-				-				(36,774	)			(13	)			(32,815	)			-				-				-				100				65,560						65,560			Nil
Subtotal							25,409,659								117,170								(113,317	)			7,982,477				(13	)			(32,815	)			(7,999	)			-												33,355,162						33,441,073
Total						$	165,075,781							$	60,904,793							$	(1,556,557	)		$	18,184,798			$	91,186			$	(29,285	)		$	15,720			$	(669,472	)										$	242,016,964					$	263,352,620

 

Note 1:

The unit price is calculated by closing price of Gre Tai Securities Market as of December 31, 2014.

 

Note 2:

The unit price is calculated by closing price of the Taiwan Stock Exchange as of December 31, 2014.

 

Note 3:

Including share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and cash dividends received from subsidiaries and associates.

 

- 75 -

---

STATEMENT 6

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF SHORT-TERM LOANS

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Type		Balance, End of Year				Contract Period				Range of Interest Rates (%)		Loan Commitments				Collateral		Remark
Unsecured loans
Bank Of America		$	9,356,810				2014.12.01-2015.01.22			0.48		US$	300,000			Nil		-
Mizuho Bank, Ltd.			5,677,522				2014.11.28-2015.01.27			0.41-0.49		US$	200,000			Nil		-
Credit Agricole Corporate & Investment Bank			5,614,086				2014.12.10-2015.01.20			0.50		US$	200,000			Nil		-
JPMorgan Chase Bank N.A.			5,487,214				2014.12.08-2015.01.23			0.43-0.44		US$	200,000			Nil		-
Sumitomo Mitsui Banking Corporation			5,328,624				2014.12.05-2015.01.14			0.45-0.46		US$	200,000			Nil		-
The Bank Of Nova Scotia			3,013,210				2014.12.19-2015.01.16			0.38		$	3,500,000			Nil		-
HSBC, Taiwan			1,681,054				2014.12.10-2015.01.12			0.50		US$	53,000			Nil		-
		$	36,158,520

 

- 76 -

---

STATEMENT 7

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF ACCOUNTS PAYABLES

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Vendor Name		Amount
Sumitronics Taiwan Co., Ltd.		$	1,246,985
IBIDEN Co., Ltd.			1,017,147
Others (Note)			17,046,605
Total		$	19,310,737

 

Note:

The amount of individual vendor in others does not exceed 5% of the account balance.

 

- 77 -

---

STATEMENT 8

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF PAYABLES TO RELATED PARTIES

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Vendor Name		Amount
TSMC China		$	2,003,878
VIS			710,950
WaferTech, LLC			699,230
Xintec			463,158
SSMC			313,578
TSMC Technology, Inc.			258,947
Others (Note)			306,685
Total		$	4,756,426

 

Note:

The amount of individual vendor in others does not exceed 5% of the account balance.

 

- 78 -

---

STATEMENT 9

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Vendor Name		Amount
Applied Materials South East Asia Pte Ltd.		$	5,538,455
Lam Research International Sarl			2,823,675
TOKYO Electron Ltd.			2,473,212
Others (Note)			15,076,377
Total		$	25,911,719

 

Note:

The amount of individual vendor included in others does not exceed 5% of the account balance.

 

- 79 -

---

STATEMENT 10

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Item		Amount
Guarantee deposit		$	4,757,700
Utilities			2,814,479
Repair and maintenance expense			1,500,213
Interest expense			1,307,969
Others (Note)			15,653,153
Total		$	26,033,514

 

Note:

The amount of each item in others does not exceed 5% of the account balance.

 

- 80 -

---

STATEMENT 11

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF BONDS PAYABLE

DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

										Amount
																Unamortized
						Interest		Coupon				Repayment		Balance,		Premiums
Bonds Name		Trustee		Issuance Date		Payment Date		Rate (%)		Total Amount		paid		End of Year		(Discounts)		Carrying Value		Repayment		Collateral
Domestic unsecured bonds-100-1
- A		Mega International Commercial Bank Co., Ltd.		2011.09.28		on 09.28 annually		1.40		$    10,500,000		$        -		$    10,500,000		$        -		$    10,500,000		Bullet repayment		Nil
- B		Mega International Commercial Bank Co., Ltd.		2011.09.28		on 09.28 annually		1.63		7,500,000		-		7,500,000		-		7,500,000		Bullet repayment		Nil
Domestic unsecured bonds-100-2
- A		Mega International Commercial Bank Co., Ltd.		2012.01.11		on 01.11 annually		1.29		10,000,000		-		10,000,000		-		10,000,000		Bullet repayment		Nil
- B		Mega International Commercial Bank Co., Ltd.		2012.01.11		on 01.11 annually		1.46		7,000,000		-		7,000,000		-		7,000,000		Bullet repayment		Nil
Domestic unsecured bonds-101-1
- A		Mega International Commercial Bank Co., Ltd.		2012.08.02		on 08.02 annually		1.28		9,900,000		-		9,900,000		-		9,900,000		Bullet repayment		Nil
- B		Mega International Commercial Bank Co., Ltd.		2012.08.02		on 08.02 annually		1.40		9,000,000		-		9,000,000		-		9,000,000		Bullet repayment		Nil
Domestic unsecured bonds-101-2
- A		Taipei Fubon Commercial Bank Co., Ltd.		2012.09.26		on 09.26 annually		1.28		12,700,000		-		12,700,000		-		12,700,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2012.09.26		on 09.26 annually		1.39		9,000,000		-		9,000,000		-		9,000,000		Bullet repayment		Nil
Domestic unsecured bonds-101-3		Taipei Fubon Commercial Bank Co., Ltd.		2012.10.09		on 10.09 annually		1.53		4,400,000		-		4,400,000		-		4,400,000		Bullet repayment		Nil
Domestic unsecured bonds-101-4
- A		Taipei Fubon Commercial Bank Co., Ltd.		2013.01.04		on 01.04 annually		1.23		10,600,000		-		10,600,000		-		10,600,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2013.01.04		on 01.04 annually		1.35		10,000,000		-		10,000,000		-		10,000,000		Bullet repayment		Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.		2013.01.04		on 01.04 annually		1.49		3,000,000		-		3,000,000		-		3,000,000		Bullet repayment		Nil
Domestic unsecured bonds-102-1
- A		Taipei Fubon Commercial Bank Co., Ltd.		2013.02.06		on 02.06 annually		1.23		6,200,000		-		6,200,000		-		6,200,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2013.02.06		on 02.06 annually		1.38		11,600,000		-		11,600,000		-		11,600,000		Bullet repayment		Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.		2013.02.06		on 02.06 annually		1.50		3,600,000		-		3,600,000		-		3,600,000		Bullet repayment		Nil
Domestic unsecured bonds-102-2
- A		Taipei Fubon Commercial Bank Co., Ltd.		2013.07.16		on 07.16 annually		1.50		10,200,000		-		10,200,000		-		10,200,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2013.07.16		on 07.16 annually		1.70		3,500,000		-		3,500,000		-		3,500,000		Bullet repayment		Nil
Domestic unsecured bonds-102-3
- A		Taipei Fubon Commercial Bank Co., Ltd.		2013.08.09		on 08.09 annually		1.34		4,000,000		-		4,000,000		-		4,000,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2013.08.09		on 08.09 annually		1.52		8,500,000		-		8,500,000		-		8,500,000		Bullet repayment		Nil
Domestic unsecured bonds-102-4
- A		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		1.35		1,500,000		-		1,500,000		-		1,500,000		Bullet repayment		Nil
- B		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		1.45		1,500,000		-		1,500,000		-		1,500,000		Bullet repayment		Nil
- C		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		1.60		1,400,000		-		1,400,000		-		1,400,000		Bullet repayment		Nil
- D		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		1.85		2,600,000		-		2,600,000		-		2,600,000		Bullet repayment		Nil
- E		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		2.05		5,400,000		-		5,400,000		-		5,400,000		Bullet repayment		Nil
- F		Taipei Fubon Commercial Bank Co., Ltd.		2013.09.25		on 09.25 annually		2.10		2,600,000		-		2,600,000		-		2,600,000		Bullet repayment		Nil
TOTAL										$  166,200,000		$        -		$  166,200,000		$        -		$  166,200,000

 

- 81 -

---

STATEMENT 12

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF NET REVENUE

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Item		Shipments        (Piece) (Note)						Amount
Sales of goods
Wafer			8,261,431					$	720,639,419
Other									35,882,583
									756,522,002
Royalty									630,387
Net revenue								$	757,152,389

 

Note:

12-inch equivalent wafers.

 

- 82 -

---

STATEMENT 13

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF COST OF REVENUE

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Item		Amount
Raw materials used
Balance, beginning of year		$	2,208,291
Raw material purchased			34,246,378
Raw materials, end of year			(3,014,795	)
Transferred to manufacturing or operating expenses			(8,615,731	)
Others			(35,346	)
Subtotal			24,788,797
Direct labor			11,898,266
Manufacturing expenses			354,476,389
Manufacturing cost			391,163,452
Work in process, beginning of year			24,857,927
Work in process, end of year			(49,701,123	)
Transferred to manufacturing or operating expenses			(9,670,731	)
Cost of finished goods			356,649,525
Finished goods, beginning of year			7,049,813
Finished goods purchased			39,766,497
Finished goods, end of year			(9,443,538	)
Transferred to manufacturing or operating expenses			(5,587,283	)
Scrapped			(474,164	)
Subtotal			387,960,850
Others			2,311,383
Total		$	390,272,233

 

- 83 -

---

STATEMENT 14

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF OPERATING EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Item		Research and Development Expenses					General and Administrative Expenses					Selling Expenses
Payroll and related expense			$	20,451,431				$	6,015,348				$	1,755,064
Depreciation expense				12,799,410					805,678					2,744
Consumables				8,861,973					16,601					484
Joint development project expenses				3,240,057					-					-
Repair and maintenance expense				2,118,507					1,754,202					794
Utilities				1,066,129					1,125,611					-
Relocation Fee				73,533					1,411,024					-
Service Fee				55,366					960,509					16,310
Patents				-					1,322,546					-
Management fees of the Science Park Administration				-					1,318,937					-
Commission				-					-					778,020
Others (Note)				7,147,155					3,031,343					132,318
Total			$	55,813,561				$	17,761,799				$	2,685,734

 

Note:

The amount of each item in others does not exceed 5% of the account balance.

 

- 84 -

---

STATEMENT 15

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF OTHER OPERATING INCOME AND EXPENSES, NET

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars)

 

 

Item		Amount
Income (expenses) of rental assets
Rental income		$	11,406
Depreciation of rental assets			(24,887	)
			(13,481	)
Gain on disposal of property, plant and equipment, net			21,331
Others			1,199
Total		$	9,049

 

- 85 -

---

STATEMENT 16

Taiwan Semiconductor Manufacturing Company Limited

STATEMENT OF LABOR, DEPRECIATION AND AMORTIZATION BY FUNCTION

FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

		Year Ended December 31, 2014																				Year Ended December 31, 2013
		Classified as Cost of Revenue					Classified as Operating Expenses					Classified as Other Operating Income and Expenses					Total					Classified as Cost of Revenue					Classified as Operating Expenses					Classified as Other Operating Income and Expenses					Total
Labor cost (Note)
Salary and bonus			$	39,235,966				$	25,677,719				$	-				$	64,913,685				$	31,781,705				$	20,201,521				$	-				$	51,983,226
Labor and health insurance				2,094,985					1,254,245					-					3,349,230					1,829,180					1,070,653					-					2,899,833
Pension				1,134,568					610,701					-					1,745,269					1,029,341					555,714					-					1,585,055
Others				1,298,749					679,178					-					1,977,927					1,151,330					587,826					-					1,739,156
			$	43,764,268				$	28,221,843				$	-				$	71,986,111				$	35,791,556				$	22,415,714				$	-				$	58,207,270
Depreciation			$	177,957,340				$	13,607,832				$	24,887				$	191,590,059				$	134,545,283				$	12,696,422				$	25,120				$	147,266,825
Amortization			$	1,304,885				$	1,182,975				$	-				$	2,487,860				$	1,099,542				$	973,384				$	-				$	2,072,926

 

Note:

As of December 31, 2014 and 2013, the Company had 38,545 and 35,812 employees, respectively.

 

- 86 -