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 October 2011
Taiwan Semiconductor Manufacturing
Company Ltd.
(Translation of Registrants 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: October 27, 2011 | By | /s/ Lora Ho | ||||
Lora Ho | ||||||
Senior Vice President & Chief Financial Officer |
Taiwan Semiconductor Manufacturing
Company Limited
Financial Statements for the
Nine Months Ended September 30, 2011 and 2010 and
Independent Accountants Review Report
INDEPENDENT ACCOUNTANTS REVIEW REPORT
The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited
We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of September 30, 2011 and 2010, and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to issue a report on these financial statements based on our reviews.
We conducted our reviews in accordance with Statement on Auditing Standards No. 36, Review of Financial Statements, issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.
We have also reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the nine months ended September 30, 2011 and 2010 on which we have issued an unqualified review report.
October 21, 2011
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the accountants review report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants review report and financial statements shall prevail.
- 1 -
Taiwan Semiconductor Manufacturing Company Limited
BALANCE SHEETS
SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
ASSETS |
||||||||||||||||
CURRENT ASSETS |
||||||||||||||||
Cash and cash equivalents (Notes 2 and 4) |
$ | 67,150,733 | 9 | $ | 90,399,569 | 14 | ||||||||||
Financial assets at fair value through profit or loss (Notes 2, 5 and 24) |
583,010 | | 14,383 | | ||||||||||||
Available-for-sale financial assets (Notes 2, 6 and 24) |
2,735,777 | 1 | 4,048,549 | 1 | ||||||||||||
Held-to-maturity financial assets (Notes 2, 7 and 24) |
250,165 | | 5,598,471 | 1 | ||||||||||||
Receivables from related parties (Notes 3 and 25) |
28,680,784 | 4 | 25,218,595 | 4 | ||||||||||||
Notes and accounts receivable (Note 3) |
21,894,123 | 3 | 27,263,732 | 4 | ||||||||||||
Allowance for doubtful receivables (Notes 2, 3 and 8) |
(485,120 | ) | | (540,000 | ) | | ||||||||||
Allowance for sales returns and others (Notes 2 and 8) |
(5,916,289 | ) | (1 | ) | (6,590,121 | ) | (1 | ) | ||||||||
Other receivables from related parties (Notes 3 and 25) |
1,491,316 | | 657,787 | | ||||||||||||
Other financial assets (Note 26) |
279,163 | | 282,002 | | ||||||||||||
Inventories (Notes 2 and 9) |
23,262,847 | 3 | 23,773,530 | 4 | ||||||||||||
Deferred income tax assets (Notes 2 and 18) |
918,938 | | 1,965,666 | | ||||||||||||
Prepaid expenses and other current assets |
1,730,515 | 1 | 1,243,888 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
142,575,962 | 20 | 173,336,051 | 27 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 24) |
||||||||||||||||
Investments accounted for using equity method |
124,251,210 | 17 | 115,519,229 | 18 | ||||||||||||
Available-for-sale financial assets |
| | 1,036,502 | | ||||||||||||
Held-to-maturity financial assets |
1,404,002 | | 1,658,671 | | ||||||||||||
Financial assets carried at cost |
497,835 | | 497,835 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total long-term investments |
126,153,047 | 17 | 118,712,237 | 18 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 25) |
||||||||||||||||
Cost |
||||||||||||||||
Buildings |
147,429,338 | 20 | 127,695,671 | 19 | ||||||||||||
Machinery and equipment |
967,085,889 | 133 | 836,615,885 | 129 | ||||||||||||
Office equipment |
13,407,880 | 2 | 11,310,109 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,127,923,107 | 155 | 975,621,665 | 150 | |||||||||||||
Accumulated depreciation |
(779,461,665 | ) | (107 | ) | (685,650,928 | ) | (105 | ) | ||||||||
Advance payments and construction in progress |
88,918,961 | 12 | 40,621,708 | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net property, plant and equipment |
437,380,403 | 60 | 330,592,445 | 51 | ||||||||||||
|
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|
|
|
|
|
|||||||||
INTANGIBLE ASSETS |
||||||||||||||||
Goodwill (Note 2) |
1,567,756 | | 1,567,756 | | ||||||||||||
Deferred charges, net (Notes 2 and 13) |
4,674,675 | 1 | 5,608,464 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intangible assets |
6,242,431 | 1 | 7,176,220 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
OTHER ASSETS |
||||||||||||||||
Deferred income tax assets (Notes 2 and 18) |
11,090,792 | 1 | 10,200,761 | 2 | ||||||||||||
Refundable deposits |
4,689,418 | 1 | 9,059,889 | 1 | ||||||||||||
Others (Notes 2 and 25) |
1,152,898 | | 437,617 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other assets |
16,933,108 | 2 | 19,698,267 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
$ | 729,284,951 | 100 | $ | 649,515,220 | 100 | ||||||||||
|
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|
|
|
|
- 2 -
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||
CURRENT LIABILITIES |
||||||||||||||||
Short-term loans (Note 14) |
$ | 36,019,654 | 5 | $ | 37,596,000 | 6 | ||||||||||
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 24) |
173,829 | | 73,530 | | ||||||||||||
Accounts payable |
8,103,660 | 1 | 9,645,148 | 1 | ||||||||||||
Payables to related parties (Note 25) |
3,161,048 | | 3,451,537 | 1 | ||||||||||||
Income tax payable (Notes 2 and 18) |
7,680,498 | 1 | 5,252,509 | 1 | ||||||||||||
Other payables to related parties (Note 25) |
10,693,900 | 1 | | | ||||||||||||
Accrued profit sharing to employees and bonus to directors (Notes 2 and 20) |
6,932,701 | 1 | 8,201,440 | 1 | ||||||||||||
Payables to contractors and equipment suppliers |
19,036,040 | 3 | 26,017,941 | 4 | ||||||||||||
Accrued expenses and other current liabilities (Notes 16, 24 and 25) |
12,029,835 | 2 | 13,471,370 | 2 | ||||||||||||
Current portion of bonds payable (Notes 15 and 24) |
4,500,000 | 1 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
108,331,165 | 15 | 103,709,475 | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
LONG-TERM LIABILITIES |
||||||||||||||||
Bonds payable (Notes 15 and 24) |
18,000,000 | 2 | 4,500,000 | 1 | ||||||||||||
Other long-term payables (Notes 16 and 24) |
| | 156,650 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total long-term liabilities |
18,000,000 | 2 | 4,656,650 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
OTHER LIABILITIES |
||||||||||||||||
Accrued pension cost (Notes 2 and 17) |
3,830,575 | 1 | 3,815,765 | | ||||||||||||
Guarantee deposits (Note 28) |
495,013 | | 809,698 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other liabilities |
4,325,588 | 1 | 4,625,463 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
130,656,753 | 18 | 112,991,588 | 17 | ||||||||||||
|
|
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|
|
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|
|||||||||
CAPITAL STOCK - NT$10 PAR VALUE (Note 20) |
||||||||||||||||
Authorized: 28,050,000 thousand shares |
||||||||||||||||
Issued: 25,915,149 thousand shares in 2011 |
||||||||||||||||
25,907,344 thousand shares in 2010 |
259,151,492 | 35 | 259,073,440 | 40 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
CAPITAL SURPLUS (Notes 2 and 20) |
55,689,739 | 8 | 55,634,070 | 9 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
RETAINED EARNINGS (Note 20) |
||||||||||||||||
Appropriated as legal capital reserve |
102,399,995 | 14 | 86,239,494 | 14 | ||||||||||||
Appropriated as special capital reserve |
6,433,874 | 1 | 1,313,047 | | ||||||||||||
Unappropriated earnings |
181,838,097 | 25 | 137,506,581 | 21 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
290,671,966 | 40 | 225,059,122 | 35 | |||||||||||||
|
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|
|
|
|||||||||
OTHERS (Notes 2, 22 and 24) |
||||||||||||||||
Cumulative translation adjustments |
(5,586,618 | ) | (1 | ) | (3,761,669 | ) | (1 | ) | ||||||||
Unrealized gain (loss) on financial instruments |
(1,226,783 | ) | | 518,669 | | |||||||||||
Treasury stock: 1,000 thousand shares |
(71,598 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
(6,884,999 | ) | (1 | ) | (3,243,000 | ) | (1 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shareholders equity |
598,628,198 | 82 | 536,523,632 | 83 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
$ | 729,284,951 | 100 | $ | 649,515,220 | 100 | ||||||||||
|
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|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
- 3 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
GROSS SALES (Notes 2 and 25) |
$ | 318,455,856 | $ | 308,832,522 | ||||||||||||
SALES RETURNS AND ALLOWANCES (Notes 2 and 8) |
3,242,741 | 8,715,191 | ||||||||||||||
|
|
|
|
|||||||||||||
NET SALES |
315,213,115 | 100 | 300,117,331 | 100 | ||||||||||||
COST OF SALES (Notes 9, 19 and 25) |
175,237,212 | 55 | 154,784,733 | 52 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
GROSS PROFIT |
139,975,903 | 45 | 145,332,598 | 48 | ||||||||||||
REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2) |
346,768 | | (136,536 | ) | | |||||||||||
|
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|
|
|
|
|
|||||||||
REALIZED GROSS PROFIT |
140,322,671 | 45 | 145,196,062 | 48 | ||||||||||||
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|
|||||||||
OPERATING EXPENSES (Notes 19 and 25) |
||||||||||||||||
Research and development |
23,347,808 | 7 | 20,084,456 | 6 | ||||||||||||
General and administrative |
9,130,402 | 3 | 8,168,276 | 3 | ||||||||||||
Marketing |
1,756,516 | 1 | 2,175,006 | 1 | ||||||||||||
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|
|
|
|||||||||
Total operating expenses |
34,234,726 | 11 | 30,427,738 | 10 | ||||||||||||
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|
|||||||||
INCOME FROM OPERATIONS |
106,087,945 | 34 | 114,768,324 | 38 | ||||||||||||
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|
|
|||||||||
NON-OPERATING INCOME AND GAINS |
||||||||||||||||
Equity in earnings of equity method investees, net (Notes 2 and 10) |
3,531,943 | 1 | 4,677,062 | 2 | ||||||||||||
Valuation gain on financial instruments, net (Notes 2, 5 and 24) |
782,810 | 1 | 156,175 | | ||||||||||||
Interest income |
512,604 | | 555,085 | | ||||||||||||
Settlement income (Note 28) |
492,870 | | 6,343,524 | 2 | ||||||||||||
Technical service income (Note 25) |
325,505 | | 354,756 | | ||||||||||||
Others (Notes 2 and 25) |
663,413 | | 266,309 | | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Total non-operating income and gains |
6,309,145 | 2 | 12,352,911 | 4 | ||||||||||||
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|
|
(Continued)
- 4 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
NON-OPERATING EXPENSES AND LOSSES |
||||||||||||||||
Foreign exchange loss, net (Note 2) |
$ | 657,798 | 1 | $ | | | ||||||||||
Interest expense (Note 25) |
276,154 | | 142,824 | | ||||||||||||
Loss on disposal of property, plant and equipment (Note 2) |
191,120 | | 38 | | ||||||||||||
Casualty loss (Note 9) |
| | 190,992 | | ||||||||||||
Others |
138,653 | | 113,881 | | ||||||||||||
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|
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|
|||||||||
Total non-operating expenses and losses |
1,263,725 | 1 | 447,735 | | ||||||||||||
|
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|
|||||||||
INCOME BEFORE INCOME TAX |
111,133,365 | 35 | 126,673,500 | 42 | ||||||||||||
INCOME TAX EXPENSE (Notes 2 and 18) |
8,510,734 | 2 | 5,788,940 | 2 | ||||||||||||
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|||||||||
NET INCOME |
$ | 102,622,631 | 33 | $ | 120,884,560 | 40 | ||||||||||
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2011 | 2010 | |||||||||||||||
Before Income Tax |
After Income Tax |
Before Income Tax |
After Income Tax |
|||||||||||||
EARNINGS PER SHARE (NT$, Note 23) |
||||||||||||||||
Basic earnings per share |
$ | 4.29 | $ | 3.96 | $ | 4.89 | $ | 4.67 | ||||||||
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|
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Diluted earnings per share |
$ | 4.29 | $ | 3.96 | $ | 4.89 | $ | 4.66 | ||||||||
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The accompanying notes are an integral part of the financial statements. | (Concluded) |
- 5 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 102,622,631 | $ | 120,884,560 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
76,638,870 | 61,013,582 | ||||||
Unrealized (realized) gross profit from affiliates |
(346,768 | ) | 136,536 | |||||
Amortization of premium/discount of financial assets |
9,120 | 13,756 | ||||||
Gain on disposal of available-for-sale financial assets, net |
(35,151 | ) | | |||||
Loss on disposal of financial assets carried at cost |
| 1,263 | ||||||
Equity in earnings of equity method investees, net |
(3,531,943 | ) | (4,677,062 | ) | ||||
Cash dividends received from equity method investees |
2,941,548 | 422,490 | ||||||
Loss (gain) on disposal of property, plant and equipment and other assets, net |
70,696 | (40,510 | ) | |||||
Settlement income from receiving equity securities |
| (4,434,364 | ) | |||||
Deferred income tax |
478,443 | (273,785 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Decrease (increase) in: |
||||||||
Financial assets and liabilities at fair value through profit or loss |
(417,015 | ) | 240,890 | |||||
Receivables from related parties |
(3,003,144 | ) | (2,676,822 | ) | ||||
Notes and accounts receivable |
356,782 | (7,379,212 | ) | |||||
Allowance for doubtful receivables |
(2,880 | ) | 109,000 | |||||
Allowance for sales returns and others |
(1,425,155 | ) | (1,993,511 | ) | ||||
Other receivables from related parties |
(100,558 | ) | 23,875 | |||||
Other financial assets |
139,043 | 822,070 | ||||||
Inventories |
2,366,196 | (4,943,314 | ) | |||||
Prepaid expenses and other current assets |
(387,631 | ) | (339,265 | ) | ||||
Increase (decrease) in: |
||||||||
Accounts payable |
(2,673,005 | ) | 456,994 | |||||
Payables to related parties |
586,598 | 1,412,195 | ||||||
Income tax payable |
571,629 | (3,508,611 | ) | |||||
Accrued profit sharing to employees and bonus to directors |
(4,026,768 | ) | 1,430,102 | |||||
Accrued expenses and other current liabilities |
(1,489,045 | ) | (3,522,931 | ) | ||||
Accrued pension cost |
66,557 | 8,589 | ||||||
Deferred credits |
| (47,873 | ) | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
169,409,050 | 153,138,642 | ||||||
|
|
|
|
(Continued)
- 6 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)
2011 | 2010 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Cash contributed related to spin-off |
$ | (1,270,340 | ) | $ | | |||
Acquisitions of: |
||||||||
Property, plant and equipment |
(175,162,624 | ) | (138,922,267 | ) | ||||
Investments accounted for using equity method |
(2,734,568 | ) | (8,125,980 | ) | ||||
Financial assets carried at cost |
| (480 | ) | |||||
Proceeds from disposal or redemption of: |
||||||||
Available-for-sale financial assets |
1,035,151 | | ||||||
Held-to-maturity financial assets |
4,539,000 | 14,893,000 | ||||||
Financial assets carried at cost |
| 3,370 | ||||||
Property, plant and equipment and other assets |
3,055,991 | 62,293 | ||||||
Increase in deferred charges |
(1,069,352 | ) | (1,177,741 | ) | ||||
Decrease (increase) in refundable deposits |
3,949,331 | (6,361,773 | ) | |||||
Increase in other assets |
(18,200 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(167,675,611 | ) | (139,629,578 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Increase in short-term loans |
5,111,017 | 37,596,000 | ||||||
Increase in other payables to related parties |
10,693,900 | | ||||||
Proceeds from issuance of bonds |
18,000,000 | | ||||||
Decrease in guarantee deposits |
(252,874 | ) | (191,678 | ) | ||||
Proceeds from exercise of employee stock options |
155,955 | 150,760 | ||||||
Acquisition of treasury stock |
(71,598 | ) | | |||||
Cash dividends |
(77,730,236 | ) | (77,708,120 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(44,093,836 | ) | (40,153,038 | ) | ||||
|
|
|
|
|||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(42,360,397 | ) | (26,643,974 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
109,511,130 | 117,043,543 | ||||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 67,150,733 | $ | 90,399,569 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||
Interest paid |
$ | 292,211 | $ | 171,888 | ||||
|
|
|
|
|||||
Income tax paid |
$ | 7,436,712 | $ | 9,477,093 | ||||
|
|
|
|
|||||
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS |
||||||||
Acquisition of property, plant and equipment |
$ | 153,008,625 | $ | 135,815,549 | ||||
Decrease in payables to contractors and equipment suppliers |
22,154,481 | 3,229,638 | ||||||
Nonmonetary exchange trade-out price |
(482 | ) | (122,920 | ) | ||||
|
|
|
|
|||||
Cash paid |
$ | 175,162,624 | $ | 138,922,267 | ||||
|
|
|
|
(Continued)
- 7 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)
2011 | 2010 | |||||||
Disposal of property, plant and equipment and other assets |
$ | 3,173,046 | $ | 620,872 | ||||
Increase in other receivables from related parties |
(116,573 | ) | (435,659 | ) | ||||
Nonmonetary exchange trade-out price |
(482 | ) | (122,920 | ) | ||||
|
|
|
|
|||||
Cash received |
$ | 3,055,991 | $ | 62,293 | ||||
|
|
|
|
|||||
NON-CASH FINANCING ACTIVITIES |
||||||||
Current portion of bonds payable |
$ | 4,500,000 | $ | | ||||
|
|
|
|
|||||
Current portion of other long-term payables (under accrued expenses and other current liabilities) |
$ | 816,379 | $ | 614,061 | ||||
|
|
|
|
SUPPLEMENTAL INFORMATION FOR SPIN-OFF BUSINESSES
In August 2011, the Company transferred the solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively. The relevant information about spin-off was as follows:
TSMC SSL | TSMC Solar | Total | ||||||||||
Acquired investments accounted for using equity method |
$ | 2,270,000 | $ | 11,180,000 | $ | 13,450,000 | ||||||
|
|
|
|
|
|
|||||||
Non-cash items transferred |
||||||||||||
Current assets |
36,050 | 18,807 | 54,857 | |||||||||
Long-term investments |
2,872 | 7,912,710 | 7,915,582 | |||||||||
Property, plant and equipment |
1,929,563 | 2,372,214 | 4,301,777 | |||||||||
Other assets |
234,696 | 201,677 | 436,373 | |||||||||
Current liabilities |
(292,728 | ) | (337,439 | ) | (630,167 | ) | ||||||
Other liabilities |
(36,272 | ) | (25,218 | ) | (61,490 | ) | ||||||
Capital surplus |
| (56,094 | ) | (56,094 | ) | |||||||
Unrealized gain (loss) on financial instruments |
| (3,298 | ) | (3,298 | ) | |||||||
Cumulative translation adjustments |
256 | 221,864 | 222,120 | |||||||||
|
|
|
|
|
|
|||||||
(1,874,437 | ) | (10,305,223 | ) | (12,179,660 | ) | |||||||
|
|
|
|
|
|
|||||||
Cash contributed related to spin-off |
$ | 395,563 | $ | 874,777 | $ | 1,270,340 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements. | (Concluded) |
- 8 -
Taiwan Semiconductor Manufacturing Company Limited
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)
1. | GENERAL |
Taiwan Semiconductor Manufacturing Company Limited (the Company or TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, respectively.
On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
As of September 30, 2011 and 2010, the Company had 29,920 and 28,953 employees, respectively.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.
For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.
Significant accounting policies are summarized as follows:
Foreign-currency Transactions
Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.
At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.
Use of Estimates
The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from managements estimates.
- 9 -
Classification of Current and Noncurrent Assets and Liabilities
Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.
Cash Equivalents
Repurchase agreements collateralized by government bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.
Financial Assets/Liabilities at Fair Value Through Profit or Loss
Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.
Available-for-sale Financial Assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
The fair value of overseas publicly traded stock is determined using the closing prices at the end of the period. The fair value of debt securities is determined using the average of bid and asked prices at the end of the period.
Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.
Held-to-maturity Financial Assets
Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
- 10 -
If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.
Financial Assets Carried at Cost
Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.
Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.
Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.
The Companys provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement (SFAS No. 34). One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Companies are required to evaluate for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.
Because of the Companys short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.
Inventories
Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.
Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.
- 11 -
Investments Accounted for Using Equity Method
Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Companys share of the net income or net loss of an investee is recognized in the equity in earnings/losses of equity method investees, net account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.
When the Company subscribes for additional investees shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Companys share of the investees equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.
Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Companys ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Companys ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Companys weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Companys weighted-average ownership percentages in the investees. Such gains or losses are deferred until they are realized through transactions with third parties.
If an investees functional currency is a foreign currency, differences will result from the translation of the investees financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders equity.
Property, Plant and Equipment and Assets Leased to Others
Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years.
Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.
- 12 -
Intangible Assets
Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.
Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.
Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.
Pension Costs
For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.
Income Tax
The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.
Adjustments of prior years tax liabilities are added to or deducted from the current periods tax provision.
Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.
Stock-based Compensation
Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, Accounting for Share-based Payment. The Company did not grant or modify any employee stock options since January 1, 2008.
- 13 -
Treasury Stock
Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. While disposing of the treasury stock, the treasury stock shall be reversed, and if the disposal value is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock.
Revenue Recognition and Allowance for Sales Returns and Others
The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, managements judgment, and any known factors that would significantly affect the allowance.
Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.
Spin-off
In accordance with the Companys organization realignment, the Company contributed net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries. The net assets transferred are reflected at their net book value without recognizing any gain or loss.
3. | ACCOUNTING CHANGES |
On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, Financial Instruments: Recognition and Measurement. The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Companys financial statements as of and for the nine months ended September 30, 2011.
On January 1, 2011, the Company adopted the newly issued SFAS No. 41, Operating Segments. The statement requires identification and disclosure of operating segments on the basis of how the Companys chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, Segment Reporting. The Company conformed to the disclosure requirements as of and for the nine months ended September 30, 2011. The information for the nine months ended September 30, 2010 has been recast to reflect the new segment reporting requirement.
- 14 -
4. | CASH AND CASH EQUIVALENTS |
September 30 | ||||||||
2011 | 2010 | |||||||
Cash and deposits in banks |
$ | 63,280,563 | $ | 87,348,689 | ||||
Repurchase agreements collateralized by government bonds |
3,870,170 | 3,050,880 | ||||||
|
|
|
|
|||||
$ | 67,150,733 | $ | 90,399,569 | |||||
|
|
|
|
5. | FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS |
September 30 | ||||||||
2011 | 2010 | |||||||
Trading financial assets |
||||||||
Forward exchange contracts |
$ | 583,010 | $ | 3,241 | ||||
Cross currency swap contracts |
| 11,142 | ||||||
|
|
|
|
|||||
$ | 583,010 | $ | 14,383 | |||||
|
|
|
|
|||||
Trading financial liabilities |
||||||||
Forward exchange contracts |
$ | 66,378 | $ | 73,530 | ||||
Cross currency swap contracts |
107,451 | | ||||||
|
|
|
|
|||||
$ | 173,829 | $ | 73,530 | |||||
|
|
|
|
The Company entered into derivative contracts during the nine months ended September 30, 2011 and 2010 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.
Outstanding forward exchange contracts consisted of the following:
Maturity Date | Contract Amount (In Thousands) | |||
September 30, 2011 |
||||
Sell NT$/Buy US$ |
October 2011 | NT$10,093,875/US$350,000 | ||
Sell US$/Buy NT$ |
October 2011 | US$110,000/NT$3,292,775 | ||
September 30, 2010 |
||||
Sell EUR/Buy NT$ |
October 2010 | EUR139,000/NT$5,851,568 | ||
Sell US$/Buy NT$ |
October 2010 | US$30,000/NT$939,400 |
- 15 -
Outstanding cross currency swap contracts consisted of the following:
Maturity Date | Contract Amount (In Thousands) |
Range of Interest Rates Paid |
Range of Interest Rates Received |
|||||||
September 30, 2011 |
||||||||||
October 2011 |
US$117,000/NT$3,470,950 | 1.27%-4.40 | % | 0.00%-0.00 | % | |||||
September 30, 2010 |
||||||||||
October 2010 |
US$90,000/NT$2,830,540 | 0.46 | % | 0.00%-0.00 | % |
For the nine months ended September 30, 2011 and 2010, changes in fair value related to derivative financial instruments recognized in earnings was a net gain of NT$782,810 thousand and NT$156,175 thousand, respectively.
6. | AVAILABLE-FOR-SALE FINANCIAL ASSETS |
September 30 | ||||||||
2011 | 2010 | |||||||
Overseas publicly traded stock |
$ | 2,735,777 | $ | 4,048,549 | ||||
Corporate bonds |
| 1,036,502 | ||||||
|
|
|
|
|||||
2,735,777 | 5,085,051 | |||||||
Current portion |
(2,735,777 | ) | (4,048,549 | ) | ||||
|
|
|
|
|||||
$ | | $ | 1,036,502 | |||||
|
|
|
|
7. | HELD-TO-MATURITY FINANCIAL ASSETS |
September 30 | ||||||||
2011 | 2010 | |||||||
Corporate bonds |
$ | 1,654,167 | $ | 7,257,142 | ||||
Current portion |
(250,165 | ) | (5,598,471 | ) | ||||
|
|
|
|
|||||
$ | 1,404,002 | $ | 1,658,671 | |||||
|
|
|
|
8. | ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS |
Movements of the allowance for doubtful receivables were as follows:
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Balance, beginning of period |
$ | 488,000 | $ | 431,000 | ||||
Provision |
| 109,000 | ||||||
Write-off |
(2,880 | ) | | |||||
|
|
|
|
|||||
Balance, end of period |
$ | 485,120 | $ | 540,000 | ||||
|
|
|
|
- 16 -
Movements of the allowance for sales returns and others were as follows:
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Balance, beginning of period |
$ | 7,341,444 | $ | 8,583,632 | ||||
Provision |
3,242,741 | 8,715,191 | ||||||
Write-off |
(4,667,896 | ) | (10,708,702 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 5,916,289 | $ | 6,590,121 | ||||
|
|
|
|
9. | INVENTORIES |
September 30 | ||||||||
2011 | 2010 | |||||||
Finished goods |
$ | 4,260,884 | $ | 3,007,453 | ||||
Work in process |
16,517,292 | 18,087,605 | ||||||
Raw materials |
1,410,292 | 1,490,972 | ||||||
Supplies and spare parts |
1,074,379 | 1,187,500 | ||||||
|
|
|
|
|||||
$ | 23,262,847 | $ | 23,773,530 | |||||
|
|
|
|
Write-down of inventories to net realizable value in the amount of NT$300,629 thousand and NT$582,149 thousand, respectively, were included in the cost of sales for the nine months ended September 30, 2011 and 2010. Inventory losses related to earthquake in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the nine months ended September 30, 2010.
10. | INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD |
September 30 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Carrying Amount |
% of Ownership |
Carrying Amount |
% of Ownership |
|||||||||||||
TSMC Global Ltd. (TSMC Global) |
$ | 44,274,921 | 100 | $ | 44,892,711 | 100 | ||||||||||
TSMC Partners, Ltd. (TSMC Partners) |
34,888,811 | 100 | 33,943,317 | 100 | ||||||||||||
TSMC Solar |
10,847,842 | 100 | | | ||||||||||||
Vanguard International Semiconductor Corporation (VIS) |
8,918,553 | 38 | 9,424,817 | 38 | ||||||||||||
TSMC China Company Limited (TSMC China) |
8,460,740 | 100 | 3,654,158 | 100 | ||||||||||||
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) |
6,109,136 | 39 | 6,890,171 | 39 | ||||||||||||
TSMC North America |
3,001,878 | 100 | 2,827,009 | 100 | ||||||||||||
TSMC SSL |
2,063,176 | 100 | | | ||||||||||||
Xintec Inc. (Xintec) |
1,610,795 | 40 | 1,618,701 | 41 | ||||||||||||
VentureTech Alliance Fund III, L.P. (VTAF III) |
1,247,111 | 52 | 2,852,802 | 99 | ||||||||||||
Global UniChip Corporation (GUC) |
1,117,076 | 35 | 1,061,303 | 35 |
(Continued)
- 17 -
September 30 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Carrying Amount |
% of Ownership |
Carrying Amount |
% of Ownership |
|||||||||||||
VentureTech Alliance Fund II, L.P. (VTAF II) |
$ | 1,022,280 | 98 | $ | 1,093,417 | 98 | ||||||||||
Emerging Alliance Fund, L.P. (Emerging Alliance) |
291,196 | 99 | 320,426 | 99 | ||||||||||||
TSMC Europe B.V. (TSMC Europe) |
209,723 | 100 | 182,022 | 100 | ||||||||||||
TSMC Japan Limited (TSMC Japan) |
165,630 | 100 | 150,896 | 100 | ||||||||||||
TSMC Korea Limited (TSMC Korea) |
22,342 | 100 | 20,559 | 100 | ||||||||||||
Motech Industries Inc. (Motech) |
| | 6,533,432 | 20 | ||||||||||||
TSMC Solar Europe B.V. (TSMC Solar Europe) |
| | 25,638 | 100 | ||||||||||||
TSMC Solar North America, Inc. (TSMC Solar NA) |
| | 24,717 | 100 | ||||||||||||
TSMC Lighting North America, Inc. (TSMC Lighting NA) |
| | 3,133 | 100 | ||||||||||||
|
|
|
|
|||||||||||||
$ | 124,251,210 | $ | 115,519,229 | |||||||||||||
|
|
|
|
(Concluded)
In the third quarter of 2011, the Company increased its investment in TSMC China for the amount of NT$2,176,000 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs.
For the renewable energy and efficiency related businesses development, the Company established wholly-owned subsidiaries, TSMC Solar NA, TSMC Solar Europe and TSMC Lighting NA, in the third quarter of 2010. In addition, to foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Companys certain assets, liabilities and shareholders equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.
For the year ended December 31, 2010, the Company increased its investment in VTAF III for the amount of NT$1,862,278 thousand, and the Companys percentage of ownership in VTAF III increased from 98% to 99%. Primarily due to the aforementioned transfer, the Companys percentage of ownership further decreased to 52%.
In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Companys percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited unless permitted by other related regulations.
- 18 -
For the nine months ended September 30, 2011 and 2010, equity in earnings/losses of equity method investees was a net gain of NT$3,531,943 thousand and NT$4,677,062 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the reviewed financial statements, except those of Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea for the nine months ended September 30, 2011 and those of VTAF II, Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea for the nine months ended September 30, 2010. The Company believes that, had the aforementioned equity method investees financial statements been reviewed, any adjustments arising would have no material effect on the Companys financial statements.
As of September 30, 2011 and 2010, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$12,574,108 thousand and NT$13,789,014 thousand, respectively.
Movements of the difference between the cost of investments and the Companys share in investees net assets allocated to depreciable assets were as follows:
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Balance, beginning of period |
$ | 2,504,496 | $ | 1,429,118 | ||||
Additions |
| 2,055,660 | ||||||
Amortizations |
(641,656 | ) | (726,392 | ) | ||||
Effect of spin-off |
(1,507,430 | ) | | |||||
|
|
|
|
|||||
Balance, end of period |
$ | 355,410 | $ | 2,758,386 | ||||
|
|
|
|
Movements of the difference allocated to goodwill were as follows:
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Balance, beginning of period |
$ | 1,415,565 | $ | 1,061,885 | ||||
Additions |
| 353,680 | ||||||
Effect of spin-off |
(353,680 | ) | | |||||
|
|
|
|
|||||
Balance, end of period |
$ | 1,061,885 | $ | 1,415,565 | ||||
|
|
|
|
11. | FINANCIAL ASSETS CARRIED AT COST |
September 30 | ||||||||
2011 | 2010 | |||||||
Non-publicly traded stocks |
$ | 338,584 | $ | 338,584 | ||||
Mutual funds |
159,251 | 159,251 | ||||||
|
|
|
|
|||||
$ | 497,835 | $ | 497,835 | |||||
|
|
|
|
- 19 -
12. | PROPERTY, PLANT AND EQUIPMENT |
Nine Months Ended September 30, 2011 | ||||||||||||||||||||||||
Balance, Beginning of Period |
Additions | Disposals | Reclassification | Effect of Spin-off |
Balance, End of Period |
|||||||||||||||||||
Cost |
||||||||||||||||||||||||
Buildings |
$ | 128,646,942 | $ | 20,274,732 | $ | (34,499 | ) | $ | (388 | ) | $ | (1,457,449 | ) | $ | 147,429,338 | |||||||||
Machinery and equipment |
852,733,592 | 117,352,327 | (1,672,870 | ) | (27,279 | ) | (1,299,881 | ) | 967,085,889 | |||||||||||||||
Office equipment |
11,730,537 | 2,016,312 | (299,897 | ) | | (39,072 | ) | 13,407,880 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
993,111,071 | $ | 139,643,371 | $ | (2,007,266 | ) | $ | (27,667 | ) | $ | (2,796,402 | ) | 1,127,923,107 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Accumulated depreciation |
||||||||||||||||||||||||
Buildings |
81,347,877 | $ | 6,648,533 | $ | (11,864 | ) | $ | (55 | ) | $ | (25,639 | ) | 87,958,852 | |||||||||||
Machinery and equipment |
616,495,207 | 67,519,124 | (1,619,962 | ) | (15,623 | ) | (192,323 | ) | 682,186,423 | |||||||||||||||
Office equipment |
8,762,361 | 857,053 | (299,897 | ) | | (3,127 | ) | 9,316,390 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
706,605,445 | $ | 75,024,710 | $ | (1,931,723 | ) | $ | (15,678 | ) | $ | (221,089 | ) | 779,461,665 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Advance payments and construction in progress |
80,348,673 | $ | 13,365,254 | $ | (3,068,502 | ) | $ | | $ | (1,726,464 | ) | 88,918,961 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 366,854,299 | $ | 437,380,403 | |||||||||||||||||||||
|
|
|
|
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
Balance, Beginning of |
Additions | Disposals | Reclassification | Balance, End of Period |
||||||||||||||||
Cost |
||||||||||||||||||||
Buildings |
$ | 124,522,047 | $ | 3,309,121 | $ | (135,497 | ) | $ | | $ | 127,695,671 | |||||||||
Machinery and equipment |
713,426,126 | 124,067,387 | (1,017,470 | ) | 139,842 | 836,615,885 | ||||||||||||||
Office equipment |
10,781,099 | 1,185,072 | (655,620 | ) | (442 | ) | 11,310,109 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
848,729,272 | $ | 128,561,580 | $ | (1,808,587 | ) | $ | 139,400 | 975,621,665 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accumulated depreciation |
||||||||||||||||||||
Buildings |
73,525,160 | $ | 6,012,896 | $ | (128,466 | ) | $ | | 79,409,590 | |||||||||||
Machinery and equipment |
545,693,910 | 52,869,076 | (1,017,066 | ) | 139,842 | 597,685,762 | ||||||||||||||
Office equipment |
8,545,253 | 666,347 | (655,582 | ) | (442 | ) | 8,555,576 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
627,764,323 | $ | 59,548,319 | $ | (1,801,114 | ) | $ | 139,400 | 685,650,928 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Advance payments and construction in progress |
33,786,577 | $ | 7,253,969 | $ | (418,838 | ) | $ | | 40,621,708 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 254,751,526 | $ | 330,592,445 | |||||||||||||||||
|
|
|
|
No interest was capitalized during the nine months ended September 30, 2011 and 2010.
13. | DEFERRED CHARGES, NET |
Nine Months Ended September 30, 2011 | ||||||||||||||||||||
Balance, Beginning of Period |
Additions | Amortization | Effect of Spin-off |
Balance, End of Period |
||||||||||||||||
Technology license fees |
$ | 2,277,832 | $ | 10,308 | $ | (502,825 | ) | $ | | $ | 1,785,315 | |||||||||
Software and system design costs |
2,075,935 | 905,237 | (786,921 | ) | (19,392 | ) | 2,174,859 | |||||||||||||
Patent and others |
1,102,660 | 153,807 | (318,269 | ) | (223,697 | ) | 714,501 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 5,456,427 | $ | 1,069,352 | $ | (1,608,015 | ) | $ | (243,089 | ) | $ | 4,674,675 | |||||||||
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 | ||||||||||||||||
Balance, Beginning of Period |
Additions | Amortization | Balance, End of Period |
|||||||||||||
Technology license fees |
$ | 2,979,801 | $ | | $ | (534,476 | ) | $ | 2,445,325 | |||||||
Software and system design costs |
1,646,973 | 966,623 | (652,432 | ) | 1,961,164 | |||||||||||
Patent and others |
1,264,911 | 211,118 | (274,054 | ) | 1,201,975 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,891,685 | $ | 1,177,741 | $ | (1,460,962 | ) | $ | 5,608,464 | ||||||||
|
|
|
|
|
|
|
|
- 20 -
14. | SHORT-TERM LOANS |
September 30 | ||||||||
2011 | 2010 | |||||||
Unsecured loans: |
||||||||
US$1,058,200 thousand and EUR88,725 thousand, due by November 2011, and annual interest at 0.40%-1.50% in 2011; US$1,200,000 thousand, due by October 2010, and annual interest at 0.39%-0.54% in 2010 |
$ | 36,019,654 | $ | 37,596,000 | ||||
|
|
|
|
15. | BONDS PAYABLE |
September 30 | ||||||||
2011 | 2010 | |||||||
Domestic unsecured bonds: |
||||||||
Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually |
$ | 10,500,000 | $ | | ||||
Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually |
7,500,000 | | ||||||
Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually |
4,500,000 | 4,500,000 | ||||||
|
|
|
|
|||||
22,500,000 | 4,500,000 | |||||||
Current portion |
(4,500,000 | ) | | |||||
|
|
|
|
|||||
$ | 18,000,000 | $ | 4,500,000 | |||||
|
|
|
|
16. | OTHER LONG-TERM PAYABLES |
The Companys other long-term payables mainly resulted from license agreements for certain semiconductor-related patents.
As of September 30, 2011, future payments for other long-term payables (classified under accrued expenses and other current liabilities) due within one year amounted to NT$816,379 thousand.
17. | PENSION PLANS |
The pension mechanism under the Labor Pension Act (the Act) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employees monthly salary to employees pension accounts and recognized pension costs of NT$843,618 thousand and NT$672,785 thousand for the nine months ended September 30, 2011 and 2010, respectively.
The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employees length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committees name in the Bank of Taiwan. The Company recognized pension costs of NT$226,549 thousand and NT$177,084 thousand for the nine months ended September 30, 2011 and 2010, respectively.
- 21 -
Movements of the Fund and accrued pension cost under the defined benefit plan were summarized as follows:
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
The Fund |
||||||||
Balance, beginning of period |
$ | 2,835,231 | $ | 2,595,717 | ||||
Contributions |
161,157 | 159,705 | ||||||
Interest |
27,083 | 41,105 | ||||||
Payments |
(7,339 | ) | (11,050 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 3,016,132 | $ | 2,785,477 | ||||
|
|
|
|
|||||
Accrued pension cost |
||||||||
Balance, beginning of period |
$ | 3,824,601 | $ | 3,807,176 | ||||
Accruals |
66,557 | 8,589 | ||||||
Effect of spin-off |
(60,583 | ) | | |||||
|
|
|
|
|||||
Balance, end of period |
$ | 3,830,575 | $ | 3,815,765 | ||||
|
|
|
|
18. | INCOME TAX |
a. | A reconciliation of income tax expense based on income before income tax at the statutory rate and income tax currently payable was as follows: |
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Income tax expense based on income before income tax at statutory rate (17%) |
$ | 18,892,672 | $ | 21,534,495 | ||||
Tax effect of the following: |
||||||||
Tax-exempt income |
(10,599,946 | ) | (12,295,454 | ) | ||||
Temporary and permanent differences |
(948,657 | ) | (616,048 | ) | ||||
Additional income tax under Alternative Minimum Tax Act |
116,718 | | ||||||
Additional tax at 10% on unappropriated earnings |
6,259,344 | 127,489 | ||||||
Income tax credits used |
(6,259,344 | ) | (3,678,333 | ) | ||||
|
|
|
|
|||||
Income tax currently payable |
$ | 7,460,787 | $ | 5,072,149 | ||||
|
|
|
|
b. | Income tax expense consisted of the following: |
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Income tax currently payable |
$ | 7,460,787 | $ | 5,072,149 | ||||
Income tax adjustments on prior years |
464,078 | 980,428 | ||||||
Other income tax adjustments |
107,426 | 10,148 | ||||||
Net change in deferred income tax assets |
||||||||
Investment tax credits |
2,367,900 | (6,965,003 | ) | |||||
Temporary differences |
229,708 | 65,697 | ||||||
Valuation allowance |
(2,118,272 | ) | 6,625,521 | |||||
Effect of spin-off |
(893 | ) | | |||||
|
|
|
|
|||||
Income tax expense |
$ | 8,510,734 | $ | 5,788,940 | ||||
|
|
|
|
- 22 -
c. | Net deferred income tax assets consisted of the following: |
September 30 | ||||||||
2011 | 2010 | |||||||
Current deferred income tax assets |
||||||||
Investment tax credits |
$ | | $ | 1,096,995 | ||||
Temporary differences |
||||||||
Allowance for sales returns and others |
502,885 | 566,750 | ||||||
Unrealized gain/loss on financial instruments |
288,760 | 65,589 | ||||||
Others |
127,293 | 236,332 | ||||||
|
|
|
|
|||||
$ | 918,938 | $ | 1,965,666 | |||||
|
|
|
|
|||||
Noncurrent deferred income tax assets |
||||||||
Investment tax credits |
$ | 19,607,314 | $ | 20,599,749 | ||||
Temporary differences |
||||||||
Depreciation |
1,829,967 | 1,990,080 | ||||||
Others |
188,001 | 35,785 | ||||||
Valuation allowance |
(10,534,490 | ) | (12,424,853 | ) | ||||
|
|
|
|
|||||
$ | 11,090,792 | $ | 10,200,761 | |||||
|
|
|
|
Effective in May 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 20% to 17%. The last amended income tax rate of 17% is retroactively applied on January 1, 2010. The Company recalculated its deferred tax assets in accordance with the new amended Article and adjusted the resulting difference as an income tax expense in 2010.
Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the period in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that period. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.
d. | Integrated income tax information: |
The balance of the imputation credit account as of September 30, 2011 and 2010 was NT$4,016,138 thousand and NT$1,669,533 thousand, respectively.
The estimated and actual creditable ratios for distribution of earnings of 2010 and 2009 were 4.95% and 9.85%, respectively.
The imputation credit allocated to shareholders is based on its balance as of the date of the dividend distribution. The estimated creditable ratio may change when the actual distribution of the imputation credit is made.
e. | All earnings generated prior to December 31, 1997 have been appropriated. |
- 23 -
f. | As of September 30, 2011, investment tax credits consisted of the following: |
Law/Statute | Item | Total Creditable Amount |
Remaining Creditable Amount |
Expiry Year | ||||||||
Statute for Upgrading Industries |
Purchase of machinery and equipment |
$ | 3,202,253 | $ | 597,292 | 2012 | ||||||
6,513,605 | 6,513,605 | 2013 | ||||||||||
7,002,482 | 7,002,482 | 2014 | ||||||||||
482,351 | 482,351 | 2015 | ||||||||||
|
|
|
|
|||||||||
$ |
17,200,691 |
|
$ |
14,595,730 |
|
|||||||
|
|
|
|
|||||||||
Statute for Upgrading Industries |
Research and development expenditures |
$ | 1,772,824 | $ | | 2012 | ||||||
4,994,463 | 4,994,463 | 2013 | ||||||||||
|
|
|
|
|||||||||
$ |
6,767,287 |
|
$ |
4,994,463 |
|
|||||||
|
|
|
|
|||||||||
Statute for Upgrading Industries |
Personnel training expenditures |
$ | 17,391 | $ | | 2012 | ||||||
17,121 | 17,121 | 2013 | ||||||||||
|
|
|
|
|||||||||
$ |
34,512 |
|
$ | 17,121 | ||||||||
|
|
|
|
|||||||||
Statute for Industrial Innovation |
Research and development expenditures |
$ | 1,864,168 | $ | | 2011 | ||||||
|
|
|
|
g. | The profits generated from the following projects are exempt from income tax for a five-year period: |
Tax-exemption Period | ||
Construction and expansion of 2003 |
2007 to 2011 | |
Construction and expansion of 2004 |
2008 to 2012 | |
Construction and expansion of 2005 |
2010 to 2014 | |
Construction and expansion of 2006 |
2011 to 2015 |
h. | The tax authorities have examined income tax returns of the Company through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly. |
19. | LABOR COST, DEPRECIATION AND AMORTIZATION |
Nine Months Ended September 30, 2011 | ||||||||||||
Classified as Cost of Sales |
Classified as Operating Expenses |
Total | ||||||||||
Labor cost |
||||||||||||
Salary and bonus |
$ | 17,952,195 | $ | 12,634,100 | $ | 30,586,295 | ||||||
Labor and health insurance |
930,786 | 531,192 | 1,461,978 | |||||||||
Pension |
681,369 | 388,798 | 1,070,167 | |||||||||
Meal |
486,450 | 202,667 | 689,117 |
(Continued)
- 24 -
Nine Months Ended September 30, 2011 | ||||||||||||
Classified as Cost of Sales |
Classified as Operating Expenses |
Total | ||||||||||
Welfare |
$ | 175,648 | $ | 101,976 | $ | 277,624 | ||||||
Others |
33,348 | 27,488 | 60,836 | |||||||||
|
|
|
|
|
|
|||||||
$ | 20,259,796 | $ | 13,886,221 | $ | 34,146,017 | |||||||
|
|
|
|
|
|
|||||||
Depreciation |
$ | 70,045,124 | $ | 4,971,754 | $ | 75,016,878 | ||||||
|
|
|
|
|
|
|||||||
Amortization |
$ | 1,044,257 | $ | 563,758 | $ | 1,608,015 | ||||||
|
|
|
|
|
|
(Concluded)
Nine Months Ended September 30, 2010 | ||||||||||||
Classified as Cost of Sales |
Classified as Operating Expenses |
Total | ||||||||||
Labor cost |
||||||||||||
Salary and bonus |
$ | 17,941,777 | $ | 13,265,190 | $ | 31,206,967 | ||||||
Labor and health insurance |
670,276 | 382,460 | 1,052,736 | |||||||||
Pension |
540,957 | 308,912 | 849,869 | |||||||||
Meal |
403,413 | 163,910 | 567,323 | |||||||||
Welfare |
161,132 | 95,271 | 256,403 | |||||||||
Others |
50,792 | 18,560 | 69,352 | |||||||||
|
|
|
|
|
|
|||||||
$ | 19,768,347 | $ | 14,234,303 | $ | 34,002,650 | |||||||
|
|
|
|
|
|
|||||||
Depreciation |
$ | 55,796,317 | $ | 3,739,803 | $ | 59,536,120 | ||||||
|
|
|
|
|
|
|||||||
Amortization |
$ | 933,660 | $ | 527,302 | $ | 1,460,962 | ||||||
|
|
|
|
|
|
20. | SHAREHOLDERS EQUITY |
As of September 30, 2011, 1,092,313 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,461,567 thousand (one ADS represents five common shares).
Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Companys paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose.
- 25 -
Capital surplus consisted of the following:
September 30 | ||||||||
2011 | 2010 | |||||||
Additional paid-in capital |
$ | 23,734,158 | $ | 23,562,191 | ||||
From merger |
22,805,390 | 22,805,390 | ||||||
From convertible bonds |
8,893,190 | 8,893,190 | ||||||
From long-term investments |
256,946 | 373,244 | ||||||
Donations |
55 | 55 | ||||||
|
|
|
|
|||||
$ | 55,689,739 | $ | 55,634,070 | |||||
|
|
|
|
The Companys Articles of Incorporation provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly:
a. | Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Companys paid-in capital; |
b. | Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; |
c. | Bonus to directors and profit sharing to employees of the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; |
d. | Any balance left over shall be allocated according to the resolution of the shareholders meeting. |
The Companys Articles of Incorporation also provide that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.
Any appropriations of the profits are subject to shareholders approval in the following year.
The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$6,887,967 thousand and NT$8,162,440 thousand for the nine months ended September 30, 2011 and 2010, respectively. Bonuses to directors were accrued based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders meeting.
The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.
The appropriation for legal capital reserve shall be made until the reserve equals the Companys paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Companys paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Companys paid-in capital, up to 50% of the reserve may be transferred to capital.
- 26 -
A special capital reserve equivalent to the net debit balance of the other components of shareholders equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.
The appropriations of earnings for 2010 and 2009 had been approved in the shareholders meetings held on June 9, 2011 and June 15, 2010, respectively. The appropriations and dividends per share were as follows:
Appropriation of Earnings | Dividends Per
Share (NT$) |
|||||||||||||||
For Fiscal Year 2010 |
For Fiscal Year 2009 |
For Fiscal Year 2010 |
For Fiscal Year 2009 |
|||||||||||||
Legal capital reserve |
$ | 16,160,501 | $ | 8,921,784 | ||||||||||||
Special capital reserve |
5,120,827 | 1,313,047 | ||||||||||||||
Cash dividends to shareholders |
77,730,236 | 77,708,120 | $ | 3.00 | $ | 3.00 | ||||||||||
|
|
|
|
|||||||||||||
$ | 99,011,564 | $ | 87,942,951 | |||||||||||||
|
|
|
|
TSMCs profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand for 2010, respectively, and profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, had been approved in the shareholders meeting held on June 9, 2011 and June 15, 2010, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and February 9, 2010 and same amount had been charged against earnings of 2010 and 2009, respectively.
The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website.
Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998.
21. | STOCK-BASED COMPENSATION PLANS |
The Companys Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Companys shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Companys common shares listed on the TSE on the grant date.
Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2011.
- 27 -
Information about outstanding options for the nine months ended September 30, 2011 and 2010 was as follows:
Number of Options (In Thousands) |
Weighted- average Exercise Price (NT$) |
|||||||
Nine months ended September 30, 2011 | ||||||||
Balance, beginning of period |
21,437 | $ | 31.4 | |||||
Options exercised |
(5,071 | ) | 30.8 | |||||
|
|
|||||||
Balance, end of period |
16,366 | 31.8 | ||||||
|
|
|||||||
Nine months ended September 30, 2010 | ||||||||
Balance, beginning of period |
28,810 | $ | 32.4 | |||||
Options exercised |
(4,638 | ) | 32.5 | |||||
|
|
|||||||
Balance, end of period |
24,172 | 32.5 | ||||||
|
|
The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans.
As of September 30, 2011, information about outstanding options was as follows:
Options Outstanding | ||||||||||||||
Range of Exercise Price | Number of Options | Weighted-average Remaining Contractual Life |
Weighted-average Exercise Price |
|||||||||||
(NT$) | (In Thousands) | (Years) | (NT$) | |||||||||||
$20.9-$29.3 | 12,361 | 1.5 | $ | 27.3 | ||||||||||
38.0- 50.1 | 4,005 | 3.2 | 45.7 | |||||||||||
|
|
|||||||||||||
16,366 | 1.9 | 31.8 | ||||||||||||
|
|
As of September 30, 2011, all of the above outstanding options were exercisable.
No compensation cost was recognized under the intrinsic value method for the nine months ended September 30, 2011 and 2010. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions at the various grant dates and pro forma results of the Company for the nine months ended September 30, 2011 and 2010 would have been as follows:
Assumptions: |
||
Expected dividend yield |
1.00%-3.44% | |
Expected volatility |
43.77%-46.15% | |
Risk free interest rate |
3.07%-3.85% | |
Expected life |
5 years |
- 28 -
Nine Months Ended September 30 | ||||||||
2011 | 2010 | |||||||
Net income: |
||||||||
Net income as reported |
$ | 102,622,631 | $ | 120,884,560 | ||||
Pro forma net income |
102,618,784 | 120,871,974 | ||||||
Earnings per share (EPS) - after income tax (NT$): |
||||||||
Basic EPS as reported |
$ | 3.96 | $ | 4.67 | ||||
Pro forma basic EPS |
3.96 | 4.67 | ||||||
Diluted EPS as reported |
3.96 | 4.66 | ||||||
Pro forma diluted EPS |
3.96 | 4.66 |
22. | TREASURY STOCK |
(Shares in Thousands) | ||||||||||||
Purpose of Treasury Stock | Number of Shares, Beginning of Period |
Addition | Number of Shares, End of Period |
|||||||||
Nine months ended September 30, 2011 | ||||||||||||
Shareholders executed the appraisal right |
| 1,000 | 1,000 | |||||||||
|
|
|
|
|
|
In August 2011, at the option of the shareholders of the Company, certain shareholders requested the Company to buy back their shares pursuant to the Company Law. As of September 30, 2011, the book value and market value of treasury stock were NT$71,598 thousand and NT$69,998 thousand, respectively.
Under the Securities and Exchange Act, the Company shall neither pledge treasury stock nor exercise shareholders rights on these shares, such as rights to dividends and to vote.
23. | EARNINGS PER SHARE |
EPS is computed as follows:
Number of Shares (Denominator) (In Thousands) |
EPS (NT$) | |||||||||||||||||||
Amounts (Numerator) | Before Income Tax |
After Income Tax |
||||||||||||||||||
Before Income Tax |
After Income Tax |
|||||||||||||||||||
Nine months ended September 30, 2011 | ||||||||||||||||||||
Basic EPS |
||||||||||||||||||||
Earnings available to common shareholders |
$ | 111,133,365 | $ | 102,622,631 | 25,913,755 | $ | 4.29 | $ | 3.96 | |||||||||||
|
|
|
|
|||||||||||||||||
Effect of dilutive potential common shares |
| | 10,178 | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Diluted EPS |
||||||||||||||||||||
Earnings available to common shareholders (including effect of dilutive potential common shares) |
$ | 111,133,365 | $ | 102,622,631 | 25,923,933 | $ | 4.29 | $ | 3.96 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(Continued)
- 29 -
Number of Shares (Denominator) (In Thousands) |
EPS (NT$) | |||||||||||||||||||
Amounts (Numerator) | Before Income Tax |
After Income Tax |
||||||||||||||||||
Before Income Tax |
After Income Tax |
|||||||||||||||||||
Nine months ended September 30, 2010 | ||||||||||||||||||||
Basic EPS |
||||||||||||||||||||
Earnings available to common shareholders |
$ | 126,673,500 | $ | 120,884,560 | 25,904,889 | $ | 4.89 | $ | 4.67 | |||||||||||
|
|
|
|
|||||||||||||||||
Effect of dilutive potential common shares |
| | 12,923 | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Diluted EPS |
||||||||||||||||||||
Earnings available to common shareholders (including effect of dilutive potential common shares) |
$ | 126,673,500 | $ | 120,884,560 | 25,917,812 | $ | 4.89 | $ | 4.66 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(Concluded)
If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders meeting in the following year.
The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the nine months ended September 30, 2010 to remain at NT$4.67 and NT$4.66, respectively.
24. | DISCLOSURES FOR FINANCIAL INSTRUMENTS |
a. | Fair values of financial instruments were as follows: |
September 30 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
Assets |
||||||||||||||||
Financial assets at fair value through profit or loss |
$ | 583,010 | $ | 583,010 | $ | 14,383 | $ | 14,383 | ||||||||
Available-for-sale financial assets |
2,735,777 | 2,735,777 | 5,085,051 | 5,085,051 | ||||||||||||
Held-to-maturity financial assets |
1,654,167 | 1,682,068 | 7,257,142 | 7,348,294 | ||||||||||||
Financial assets carried at cost |
497,835 | | 497,835 | | ||||||||||||
Liabilities |
||||||||||||||||
Financial liabilities at fair value through profit or loss |
173,829 | 173,829 | 73,530 | 73,530 | ||||||||||||
Bonds payable (including current portion) |
22,500,000 | 22,561,211 | 4,500,000 | 4,547,696 | ||||||||||||
Other long-term payables (including current portion) |
816,379 | 816,379 | 770,711 | 770,711 |
- 30 -
b. | Methods and assumptions used in the estimation of fair values of financial instruments |
1) | The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities. |
2) | Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices. |
3) | The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. |
4) | Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented. |
5) | Fair value of bonds payable was based on their quoted market price. |
6) | Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount. |
c. | The changes in fair value of derivatives contracts for the nine months ended September 30, 2011 and 2010 estimated using valuation techniques were recognized as a net gain of NT$409,181 thousand and a net loss of NT$59,147 thousand, respectively. |
d. | As of September 30, 2011 and 2010, financial assets exposed to fair value interest rate risk were NT$2,237,177 thousand and NT$8,308,027 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$58,693,483 thousand and NT$42,169,530 thousand, respectively. |
e. | Movements of the unrealized gains or losses on financial instruments for the nine months ended September 30, 2011 and 2010 were as follows: |
Nine Months Ended September 30, 2011 | ||||||||||||
From Available- for-sale Financial Assets |
Equity- method Investments |
Total | ||||||||||
Balance, beginning of period |
$ | (395,306 | ) | $ | 504,595 | $ | 109,289 | |||||
Recognized directly in shareholders equity |
(1,035,704 | ) | (261,919 | ) | (1,297,623 | ) | ||||||
Removed from shareholders equity and recognized in earnings |
(35,151 | ) | | (35,151 | ) | |||||||
Effect of spin-off |
(3,298 | ) | | (3,298 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, end of period |
$ | (1,469,459 | ) | $ | 242,676 | $ | (1,226,783 | ) | ||||
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2010 | ||||||||||||
From Available- for-sale Financial Assets |
Equity- method Investments |
Total | ||||||||||
Balance, beginning of period |
$ | 46,672 | $ | 406,949 | $ | 453,621 | ||||||
Recognized directly in shareholders equity |
(330,396 | ) | 395,444 | 65,048 | ||||||||
|
|
|
|
|
|
|||||||
Balance, end of period |
$ | (283,724 | ) | $ | 802,393 | $ | 518,669 | |||||
|
|
|
|
|
|
- 31 -
f. | Information about financial risks |
1) | Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities. |
2) | Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Companys exposure to credit risk was not significant. |
3) | Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low. |
4) | Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. |
25. | RELATED PARTY TRANSACTIONS |
The Company engages in business transactions with the following related parties:
a. | Subsidiaries |
TSMC North America
TSMC China
TSMC Europe
TSMC Japan
TSMC Global
b. | Investees |
Xintec (holding a controlling financial interest)
GUC (accounted for using the equity method, as the Company had no controlling interest in GUC since July 2011)
VIS (accounted for using the equity method)
SSMC (accounted for using the equity method)
c. | Indirect subsidiaries |
WaferTech, LLC (WaferTech)
TSMC Technology, Inc. (TSMC Technology)
TSMC Design Technology Canada Inc. (TSMC Canada)
- 32 -
d. | Indirect investee |
VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method.
e. | Others |
Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.
Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
For the nine months ended September 30 | ||||||||||||||||
Sales |
||||||||||||||||
TSMC North America |
$ | 175,631,354 | 55 | $ | 160,415,902 | 52 | ||||||||||
Others |
3,003,084 | 1 | 2,094,763 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 178,634,438 | 56 | $ | 162,510,665 | 53 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Purchases |
||||||||||||||||
TSMC China |
$ | 7,576,707 | 20 | $ | 6,206,526 | 17 | ||||||||||
WaferTech |
5,753,541 | 16 | 5,958,529 | 17 | ||||||||||||
VIS |
4,313,015 | 12 | 3,643,305 | 10 | ||||||||||||
SSMC |
2,963,867 | 8 | 3,383,596 | 10 | ||||||||||||
Others |
126,405 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 20,733,535 | 56 | $ | 19,191,956 | 54 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Manufacturing expenses |
||||||||||||||||
Xintec (rent and outsourcing) |
$ | 234,394 | | $ | 214,590 | | ||||||||||
VisEra (outsourcing) |
12,807 | | 34,434 | | ||||||||||||
VIS (rent) |
5,902 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 253,103 | | $ | 249,024 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Marketing expenses - commission |
||||||||||||||||
TSMC Europe |
$ | 278,938 | 16 | $ | 321,483 | 15 | ||||||||||
TSMC Japan |
204,379 | 11 | 196,939 | 9 | ||||||||||||
TSMC China |
48,001 | 3 | 42,140 | 2 | ||||||||||||
Others |
15,239 | 1 | 14,362 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 546,557 | 31 | $ | 574,924 | 26 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Research and development expenses |
||||||||||||||||
TSMC Technology (primarily consulting fee) |
$ | 379,328 | 2 | $ | 425,892 | 2 | ||||||||||
TSMC Canada (primarily consulting fee) |
134,611 | 1 | 141,212 | 1 | ||||||||||||
TSMC Europe |
32,781 | | 18,989 | | ||||||||||||
VIS (primarily rent) |
1,984 | | 8,730 | | ||||||||||||
Others |
27,432 | | 19,961 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 576,136 | 3 | $ | 614,784 | 3 | |||||||||||
|
|
|
|
|
|
|
|
- 33 -
2011 | 2010 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Sales of property, plant and equipment and other assets |
||||||||||||||||
TSMC China |
$ | 2,691,880 | 85 | $ | 383,473 | 62 | ||||||||||
WaferTech |
72,880 | 2 | 31,679 | 5 | ||||||||||||
VIS |
36,008 | 1 | 37,011 | 6 | ||||||||||||
Others |
253 | | 10,660 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 2,801,021 | 88 | $ | 462,823 | 75 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Purchases of property, plant and equipment |
||||||||||||||||
TSMC China |
$ | 70,491 | | $ | 66,097 | | ||||||||||
VIS |
| | 15,865 | | ||||||||||||
WaferTech |
| | 9,624 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 70,491 | | $ | 91,586 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-operating income and gains |
||||||||||||||||
VIS (primarily technical service income) |
$ | 179,067 | 3 | $ | 226,256 | 2 | ||||||||||
SSMC (primarily technical service income) |
160,376 | 2 | 145,625 | 1 | ||||||||||||
TSMC China |
99,973 | 2 | 42,425 | | ||||||||||||
VisEra (rent) |
2,200 | | | | ||||||||||||
Others |
1,516 | | 9,655 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 443,132 | 7 | $ | 423,961 | 3 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
As of September 30 | ||||||||||||||||
Receivables |
||||||||||||||||
TSMC North America |
$ | 28,158,589 | 98 | $ | 24,574,148 | 97 | ||||||||||
Others |
522,195 | 2 | 644,447 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 28,680,784 | 100 | $ | 25,218,595 | 100 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other receivables |
||||||||||||||||
TSMC China |
$ | 1,318,300 | 88 | $ | 383,334 | 58 | ||||||||||
VIS |
85,453 | 6 | 150,589 | 23 | ||||||||||||
SSMC |
47,921 | 3 | 49,752 | 8 | ||||||||||||
WaferTech |
10,058 | 1 | 39,956 | 6 | ||||||||||||
Others |
29,584 | 2 | 34,156 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,491,316 | 100 | $ | 657,787 | 100 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Payables |
||||||||||||||||
VIS |
$ | 1,011,671 | 32 | $ | 1,122,687 | 33 | ||||||||||
TSMC China |
878,485 | 28 | 873,981 | 25 | ||||||||||||
WaferTech |
657,374 | 21 | 671,004 | 19 | ||||||||||||
SSMC |
342,654 | 11 | 434,236 | 13 | ||||||||||||
Others |
270,864 | 8 | 349,629 | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 3,161,048 | 100 | $ | 3,451,537 | 100 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other assets |
||||||||||||||||
TSMC China |
$ | 9,048 | 1 | $ | 20,821 | 5 | ||||||||||
|
|
|
|
|
|
|
|
- 34 -
The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.
The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses.
The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses.
The Company leased certain machinery and equipment to VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental income was received monthly and the related income was classified under non-operating income and gains.
The Company deferred the disposal losses (classified under other assets) derived from sales of property, plant and equipment to TSMC China, and then recognized such losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets.
The Company borrowed funds from related parties (classified under other payable from related parties) in July 2011. Additional disclosures consisted of the following:
Nine Months Ended September 30, 2011 | ||||||||||||||||||||||
Financing Name | Maximum Balance |
Date | Ending Balance |
Interest Rate |
Interest Expense |
Interest Payable |
||||||||||||||||
TSMC Global |
$ | 24,684,000 | July 2011 to December 2011 | $ | 10,693,900 | 0.3544 | % | $ | 19,771 | $ | 20,398 | |||||||||||
|
|
|
|
|
|
|
|
26. | PLEDGED OR MORTGAGED ASSETS |
As of September 30, 2011, the Company had no assets set aside as collateral. As of September 30, 2010, the Company had pledged time deposits of NT$25,864 thousand (classified as other financial assets) as collateral for land lease agreements and customs duty guarantee.
27. | SIGNIFICANT LONG-TERM LEASES |
The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2011 to September 2030 and can be renewed upon expiration.
As of September 30, 2011, future lease payments were as follows:
Year | Amount | |||
2011 (4th quarter) |
$ | 108,337 | ||
2012 |
470,829 | |||
2013 |
446,091 | |||
2014 |
431,747 | |||
2015 |
421,426 | |||
2016 and thereafter |
3,886,798 | |||
|
|
|||
$ | 5,765,228 | |||
|
|
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28. | SIGNIFICANT COMMITMENTS AND CONTINGENCIES |
Significant commitments and contingencies of the Company as of September 30, 2011, excluding those disclosed in other notes, were as follows:
a. | Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Companys capacity if the Companys outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. |
b. | Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of September 30, 2011, the Company had a total of US$14,051 thousand of guarantee deposits. |
c. | 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 Companys equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMCs capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. |
d. | In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as SMIC) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing Peoples High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing Peoples High Court ruled in favor of TSMC and dismissed SMICs lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMCs trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMICs appeal against the Beijing High Courts finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010 and obtained the subsequent cash settlement income in accordance with the agreement. |
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e. | In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time. |
f. | In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time. |
29. | SPIN-OFF BUSINESS INFORMATION |
To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, on August 1, 2011. As of August 1, 2011, the net book values transferred to TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.
The book values of transferred assets and liabilities were as follows:
TSMC SSL | TSMC Solar | Total | ||||||||||
Current assets |
$ | 431,613 | $ | 893,584 | $ | 1,325,197 | ||||||
Long-term investments |
2,872 | 7,912,710 | 7,915,582 | |||||||||
Property, plant and equipment |
1,929,563 | 2,372,214 | 4,301,777 | |||||||||
Other assets |
234,696 | 201,677 | 436,373 | |||||||||
Current liabilities |
(292,728 | ) | (337,439 | ) | (630,167 | ) | ||||||
Other liabilities |
(36,272 | ) | (25,218 | ) | (61,490 | ) | ||||||
Capital surplus |
| (56,094 | ) | (56,094 | ) | |||||||
Unrealized gain (loss) on financial instruments |
| (3,298 | ) | (3,298 | ) | |||||||
Cumulative translation adjustments |
256 | 221,864 | 222,120 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,270,000 | $ | 11,180,000 | $ | 13,450,000 | |||||||
|
|
|
|
|
|
30. | OTHERS |
The significant financial assets and liabilities denominated in foreign currencies were as follows:
September 30 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Foreign (In Thousands) |
Exchange Rate (Note) |
Foreign (In Thousands) |
Exchange Rate (Note) |
|||||||||||||
Financial assets | ||||||||||||||||
Monetary items |
||||||||||||||||
USD |
$ | 1,785,057 | 30.554 | 1,900,339 | 31.330 | |||||||||||
EUR |
125,219 | 41.56 | 205,287 | 42.73 | ||||||||||||
JPY |
21,473,431 | 0.3996 | 19,229,106 | 0.3766 |
(Continued)
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September 30 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Foreign (In Thousands) |
Exchange Rate (Note) |
Foreign (In Thousands) |
Exchange Rate (Note) |
|||||||||||||
Non-monetary items |
||||||||||||||||
HKD |
$ | 697,902 | 3.92 | $ | 1,002,116 | 4.04 | ||||||||||
Investments accounted for using equity method |
||||||||||||||||
USD |
2,964,545 | 30.554 | 2,949,112 | 31.330 | ||||||||||||
EUR |
5,046 |