1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2014

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x             Form 40-F  ¨

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

Yes  ¨             No  x

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

 

 

 

---

SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: November 14, 2014				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

---

Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2014 and 2013 and

Independent Accountants’ Review Report

---

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of September 30, 2014 and 2013 and the related consolidated statements of comprehensive income for the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013, as well as the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

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

November 11, 2014

Notice to Readers

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

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

 

- 1 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		September 30, 2014 (Reviewed)								December 31, 2013 (Audited)								September 30, 2013 (Reviewed)
		Amount				%				Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)		$	225,884,318				17			$	242,695,447				19			$	216,603,697				19
Financial assets at fair value through profit or loss (Note 7)			69,164				—				90,353				—				188,970				—
Available-for-sale financial assets (Note 8)			64,391,337				5				760,793				—				672,179				—
Held-to-maturity financial assets (Note 9)			—				—				1,795,949				—				700,285				—
Notes and accounts receivable, net (Note 11)			113,999,433				8				71,649,926				6				78,844,389				7
Receivables from related parties (Note 31)			532,767				—				291,708				—				827,480				—
Other receivables from related parties (Note 31)			161,962				—				221,576				—				194,408				—
Inventories (Note 12)			65,336,989				5				37,494,893				3				36,916,527				3
Other financial assets (Note 32)			2,989,824				—				501,785				—				522,137				—
Other current assets (Note 17)			2,864,405				—				2,984,224				—				2,740,765				—
Total current assets			476,230,199				35				358,486,654				28				338,210,837				29
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)			—				—				58,721,959				5				61,145,097				5
Financial assets carried at cost (Note 13)			1,866,008				—				2,145,591				—				2,124,507				—
Investments accounted for using equity method (Note 14)			26,979,558				2				28,316,260				2				25,903,920				2
Property, plant and equipment (Note 15)			824,309,879				61				792,665,913				63				727,716,024				62
Intangible assets (Note 16)			11,942,249				1				11,490,383				1				11,393,280				1
Deferred income tax assets (Note 4)			5,033,530				1				7,239,609				1				7,165,944				1
Refundable deposits (Note 31)			2,359,756				—				2,519,031				—				2,464,658				—
Other noncurrent assets (Note 17)			1,273,661				—				1,469,577				—				1,415,948				—
Total noncurrent assets			873,764,641				65				904,568,323				72				839,329,378				71
TOTAL		$	1,349,994,840				100			$	1,263,054,977				100			$	1,177,540,215				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)		$	35,883,358				3			$	15,645,000				1			$	18,053,096				2
Financial liabilities at fair value through profit or loss (Note 7)			691,062				—				33,750				—				18,876				—
Hedging derivative financial liabilities (Note 10)			9,769,897				1				—				—				—				—
Accounts payable			20,418,733				1				14,670,260				1				13,478,598				1
Payables to related parties (Note 31)			1,290,677				—				1,688,456				—				1,594,104				—
Salary and bonus payable			9,505,689				1				8,330,956				1				7,668,518				1
Accrued profit sharing to employees and bonus to directors and supervisors (Note 21)			12,959,725				1				12,738,801				1				9,946,700				1
Payables to contractors and equipment suppliers			28,683,936				2				89,810,160				7				58,381,100				5
Income tax payable (Note 4)			19,412,953				1				22,563,286				2				17,025,992				1
Provisions (Note 19)			7,677,524				1				7,603,781				1				6,720,214				1
Accrued expenses and other current liabilities			25,954,613				2				16,693,484				1				15,396,990				1
Total current liabilities			172,248,167				13				189,777,934				15				148,284,188				13
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)			5,821				—				5,481,616				—				6,144,025				—
Bonds payable (Note 20)			211,796,805				15				210,767,625				17				210,416,434				18
Long-term bank loans			40,000				—				40,000				—				40,000				—
Obligations under finance leases			773,743				—				776,230				—				758,732				—
Accrued pension cost (Note 4)			7,612,862				1				7,589,926				1				6,931,366				1
Others (Note 19)			959,191				—				846,561				—				790,709				—
Total noncurrent liabilities			221,188,422				16				225,501,958				18				225,081,266				19
Total liabilities			393,436,589				29				415,279,892				33				373,365,454				32
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 21)			259,293,750				19				259,286,171				21				259,283,910				22
Capital surplus (Note 21)			55,944,799				4				55,858,626				4				55,841,716				5
Retained earnings (Note 21)
Appropriated as legal capital reserve			151,250,682				12				132,436,003				11				132,436,003				11
Appropriated as special capital reserve			—				—				2,785,741				—				2,785,741				—
Unappropriated earnings			473,064,885				35				382,971,408				30				338,752,961				29
			624,315,567				47				518,193,152				41				473,974,705				40
Others (Note 21)			16,865,491				1				14,170,306				1				14,776,668				1
Equity attributable to shareholders of the parent			956,419,607				71				847,508,255				67				803,876,999				68
NONCONTROLLING INTERESTS (Note 21)			138,644				—				266,830				—				297,762				—
Total equity			956,558,251				71				847,775,085				67				804,174,761				68
TOTAL		$	1,349,994,840				100			$	1,263,054,977				100			$	1,177,540,215				100

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

 

- 2 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

		For the Three Months Ended September 30																For the Nine Months Ended September 30
		2014								2013								2014								2013
		Amount				%				Amount				%				Amount				%				Amount				%
NET REVENUE (Notes 23, 31 and 36)		$	209,049,734				100			$	162,577,034				100			$	540,285,390				100			$	451,218,350				100
COST OF REVENUE (Notes 12, 28 and 31)			103,468,164				49				83,636,464				51				273,127,447				51				235,092,710				52
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			105,581,570				51				78,940,570				49				267,157,943				49				216,125,640				48
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES			(3,206	)			—				(49,759	)			—				13,442				—				(42,833	)			—
GROSS PROFIT			105,578,364				51				78,890,811				49				267,171,385				49				216,082,807				48
OPERATING EXPENSES (Notes 28 and 31)
Research and development			15,206,014				8				13,357,075				8				40,881,706				7				35,949,931				8
General and administrative			4,611,885				2				4,738,276				3				14,675,420				3				15,119,366				3
Marketing			1,323,181				1				1,164,881				1				3,710,704				1				3,359,373				1
Total operating expenses			21,141,080				11				19,260,232				12				59,267,830				11				54,428,670				12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 15 and 28)			(5,300	)			—				(12,525	)			—				(235,292	)			—				21,008				—
INCOME FROM OPERATIONS (Note 36)			84,431,984				40				59,618,054				37				207,668,263				38				161,675,145				36
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture			1,036,527				—				1,113,243				1				3,039,533				1				2,826,900				1
Other income			688,325				—				433,395				—				2,618,607				—				1,788,780				—
Foreign exchange gain (loss), net			1,150,993				1				(314,948	)			—				759,385				—				133,136				—
Finance costs (Note 24)			(816,054	)			—				(732,326	)			—				(2,414,084	)			—				(1,861,664	)			—
Other gains and losses (Note 25)			(1,110,583	)			—				(767,534	)			(1	)			1,109,450				—				552,180				—
Total non-operating income and expenses			949,208				1				(268,170	)			—				5,112,891				1				3,439,332				1
INCOME BEFORE INCOME TAX			85,381,192				41				59,349,884				37				212,781,154				39				165,114,477				37
INCOME TAX EXPENSE (Notes 4 and 26)			9,076,586				4				7,415,132				5				28,970,913				5				21,882,679				5
NET INCOME			76,304,606				37				51,934,752				32				183,810,241				34				143,231,798				32
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 21 and 26)
Exchange differences arising on translation of foreign operations			3,410,878				1				(1,740,459	)			(1	)			3,190,117				1				2,335,435				1
Changes in fair value of available-for-sale financial assets			8,120				—				7,685,269				5				(438,481	)			—				15,180,754				3
Share of other comprehensive income (loss) of associates and joint venture			(36,019	)			—				37,947				—				(42,040	)			—				(18,924	)			—
Income tax benefit (expense) related to components of other comprehensive income			(2,622	)			—				10,274				—				(13,745	)			—				53,484				—
Other comprehensive income (loss) for the period, net of income tax			3,380,357				1				5,993,031				4				2,695,851				1				17,550,749				4
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		$	79,684,963				38			$	57,927,783				36			$	186,506,092				35			$	160,782,547				36
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	76,335,237				37			$	51,951,943				32			$	183,908,266				34			$	143,336,544				32
Noncontrolling interests			(30,631	)			—				(17,191	)			—				(98,025	)			—				(104,746	)			—
		$	76,304,606				37			$	51,934,752				32			$	183,810,241				34			$	143,231,798				32
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent		$	79,715,131				38			$	57,951,263				36			$	186,603,451				35			$	160,893,697				36
Noncontrolling interests			(30,168	)			—				(23,480	)			—				(97,359	)			—				(111,150	)			—
		$	79,684,963				38			$	57,927,783				36			$	186,506,092				35			$	160,782,547				36

 

		For the Three Months Ended September 30								For the Nine Months Ended September 30
		2014				2013				2014				2013
		Income Attributable to Shareholders of the Parent				Income Attributable to Shareholders of the Parent				Income Attributable to Shareholders of the Parent				Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 27)
Basic earnings per share		$	2.94			$	2.00			$	7.09			$	5.53
Diluted earnings per share		$	2.94			$	2.00			$	7.09			$	5.53

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

 

- 3 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																																					Others
		Capital Stock - Common Stock															Retained Earnings																				Foreign Currency Translation Reserve					Unrealized Gain/Loss from Available- for-sale Financial Assets
		Shares (In Thousands)					Amount					Capital Surplus					Legal Capital Reserve					Special Capital Reserve					Unappropriated Earnings					Total															Cash Flow Hedges Reserve					Total					Total					Noncontrolling Interests					Total Equity
BALANCE, JANUARY 1, 2014				25,928,617				$	259,286,171				$	55,858,626				$	132,436,003				$	2,785,741				$	382,971,408				$	518,193,152				$	(7,140,362	)			$	21,310,781				$	(113	)			$	14,170,306				$	847,508,255				$	266,830				$	847,775,085
Appropriations of prior year’s earnings
Legal capital reserve				—					—					—					18,814,679					—					(18,814,679	)				—					—					—					—					—					—					—					—
Reversal of special capital reserve				—					—					—					—					(2,785,741	)				2,785,741					—					—					—					—					—					—					—					—
Cash dividends to shareholders - NT$3.00 per share				—					—					—					—					—					(77,785,851	)				(77,785,851	)				—					—					—					—					(77,785,851	)				—					(77,785,851	)
Total				—					—					—					18,814,679					(2,785,741	)				(93,814,789	)				(77,785,851	)				—					—					—					—					(77,785,851	)				—					(77,785,851	)
Net income for the nine months ended September 30, 2014				—					—					—					—					—					183,908,266					183,908,266					—					—					—					—					183,908,266					(98,025	)				183,810,241
Other comprehensive income for the nine months ended September 30, 2014, net of income tax				—					—					—					—					—					—					—					3,150,962					(455,751	)				(26	)				2,695,185					2,695,185					666					2,695,851
Total comprehensive income for the nine months ended September 30, 2014				—					—					—					—					—					183,908,266					183,908,266					3,150,962					(455,751	)				(26	)				2,695,185					186,603,451					(97,359	)				186,506,092
Issuance of stock from exercise of employee stock options				758					7,579					25,908					—					—					—					—					—					—					—					—					33,487					—					33,487
Disposal of investments accounted for using equity method				—					—					(2,273	)				—					—					—					—					—					—					—					—					(2,273	)				—					(2,273	)
Adjustments to share of changes in equities of associates and joint venture				—					—					90,327					—					—					—					—					—					—					—					—					90,327					(45	)				90,282
From share of changes in equities of subsidiaries				—					—					(27,789	)				—					—					—					—					—					—					—					—					(27,789	)				27,789					—
Decrease in noncontrolling interests				—					—					—					—					—					—					—					—					—					—					—					—					(58,571	)				(58,571	)
BALANCE, SEPTEMBER 30, 2014				25,929,375				$	259,293,750				$	55,944,799				$	151,250,682				$	—				$	473,064,885				$	624,315,567				$	(3,989,400	)			$	20,855,030				$	(139	)			$	16,865,491				$	956,419,607				$	138,644				$	956,558,251
BALANCE, JANUARY 1, 2013				25,924,435				$	259,244,357				$	55,675,340				$	115,820,123				$	7,606,224				$	284,985,121				$	408,411,468				$	(10,753,806	)			$	7,973,321				$	—				$	(2,780,485	)			$	720,550,680				$	2,543,226				$	723,093,906
Appropriations of prior year’s earnings
Legal capital reserve				—					—					—					16,615,880					—					(16,615,880	)				—					—					—					—					—					—					—					—
Reversal of special capital reserve				—					—					—					—					(4,820,483	)				4,820,483					—					—					—					—					—					—					—					—
Cash dividends to shareholders - NT$3.00 per share				—					—					—					—					—					(77,773,307	)				(77,773,307	)				—					—					—					—					(77,773,307	)				—					(77,773,307	)
Total				—					—					—					16,615,880					(4,820,483	)				(89,568,704	)				(77,773,307	)				—					—					—					—					(77,773,307	)				—					(77,773,307	)
Net income for the nine months ended September 30, 2013				—					—					—					—					—					143,336,544					143,336,544					—					—					—					—					143,336,544					(104,746	)				143,231,798
Other comprehensive income for the nine months ended September 30, 2013, net of income tax				—					—					—					—					—					—					—					2,315,276					15,241,944					(67	)				17,557,153					17,557,153					(6,404	)				17,550,749
Total comprehensive income for the nine months ended September 30, 2013				—					—					—					—					—					143,336,544					143,336,544					2,315,276					15,241,944					(67	)				17,557,153					160,893,697					(111,150	)				160,782,547
Issuance of stock from exercise of employee stock options				3,956					39,553					74,613					—					—					—					—					—					—					—					—					114,166					—					114,166
Stock option compensation cost of subsidiary				—					—					—					—					—					—					—					—					—					—					—					—					5,312					5,312
Adjustments to share of changes in equities of associates and joint venture				—					—					27,011					—					—					—					—					—					—					—					—					27,011					—					27,011
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries				—					—					64,752					—					—					—					—					—					—					—					—					64,752					(64,752	)				—
Increase in noncontrolling interests				—					—					—					—					—					—					—					—					—					—					—					—					198,279					198,279
Effect of deconsolidation of subsidiary				—					—					—					—					—					—					—					—					—					—					—					—					(2,273,153	)				(2,273,153	)
BALANCE, SEPTEMBER 30, 2013				25,928,391				$	259,283,910				$	55,841,716				$	132,436,003				$	2,785,741				$	338,752,961				$	473,974,705				$	(8,438,530	)			$	23,215,265				$	(67	)			$	14,776,668				$	803,876,999				$	297,762				$	804,174,761

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

 

- 4 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	212,781,154			$	165,114,477
Adjustments for:
Depreciation expense			141,919,819				113,400,781
Amortization expense			1,914,239				1,629,482
Stock option compensation cost of subsidiary			—				5,312
Finance costs			2,414,084				1,861,664
Share of profits of associates and joint venture			(3,039,533	)			(2,826,900	)
Interest income			(1,974,366	)			(1,282,220	)
Gain on disposal of property, plant and equipment and intangible assets, net			(13,482	)			(19,554	)
Impairment loss of property, plant and equipment			239,864				—
Impairment loss of financial assets			176,920				1,541,170
Gain on disposal of available-for-sale financial assets, net			(260,908	)			(1,239,442	)
Gain on disposal of financial assets carried at cost, net			(65,819	)			(32,199	)
Loss (gain) on disposal of investments accounted for using equity method			(2,028,643	)			733
Loss from liquidation of subsidiary			90				—
Gain on deconsolidation of subsidiary			—				(293,578	)
Unrealized (realized) gross profit on sales to associates			(13,442	)			42,833
Loss on foreign exchange, net			1,200,859				353,755
Dividend income			(644,241	)			(506,560	)
Income from receipt of equity securities in settlement of trade receivables			(1,211	)			(9,590	)
Loss from hedging instruments			4,643,145				6,319,146
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			(4,163,555	)			(5,989,610	)
Changes in operating assets and liabilities:
Derivative financial instruments			678,501				(145,680	)
Notes and accounts receivable, net			(42,349,537	)			(21,325,495	)
Receivables from related parties			(241,059	)			(740,050	)
Other receivables from related parties			4,897				77,757
Inventories			(27,842,096	)			700,838
Other financial assets			(2,244,906	)			39,939
Other current assets			137,831				(79,924	)
Accounts payable			5,726,261				(959,796	)
Payables to related parties			(397,779	)			755,742
Salary and bonus payable			1,174,733				221,487
Accrued profit sharing to employees and bonus to directors and supervisors			220,924				(1,239,891	)
Accrued expenses and other current liabilities			9,654,733				2,906,280
Provisions			73,286				714,527
Accrued pension cost			22,936				13,068

(Continued)

 

- 5 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2014				2013
Cash generated from operations		$	297,703,699			$	259,008,502
Income taxes paid			(29,848,815	)			(14,398,067	)
Net cash generated by operating activities			267,854,884				244,610,435
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(91,405	)			(16,496	)
Financial assets carried at cost			(3,765	)			(18,059	)
Held-to-maturity financial assets			(1,396,723	)			—
Property, plant and equipment			(236,115,030	)			(213,640,001	)
Intangible assets			(2,268,872	)			(2,013,354	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			663,433				2,370,217
Held-to-maturity financial assets			3,200,000				4,445,850
Financial assets carried at cost			68,919				53,857
Investments accounted for using equity method			3,471,883				—
Property, plant and equipment			163,250				97,368
Cash received from other long-term receivables			83,840				—
Costs from entering into hedging transactions			(520,856	)			(143,982	)
Interest received			1,874,722				1,194,967
Other dividends received			644,241				506,560
Dividends received from investments accounted for using equity method			3,223,090				2,141,881
Refundable deposits paid			(49,868	)			(67,513	)
Refundable deposits refunded			73,851				81,922
Net cash outflow from deconsolidation of subsidiary			—				(979,910	)
Net cash used in investing activities			(226,979,290	)			(205,986,693	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			20,610,319				(17,314,261	)
Proceeds from issuance of bonds			—				130,844,821
Increase in long-term bank loans			—				690,000
Repayment of long-term bank loans			—				(62,500	)
Repayment of other long-term payables			—				(853,788	)
Interest paid			(2,743,513	)			(1,242,377	)
Guarantee deposits received			13,213				14,916
Guarantee deposits refunded			(4,981	)			(71,982	)
Decrease in obligations under finance leases			(28,426	)			(27,796	)
Proceeds from exercise of employee stock options			33,487				114,166

(Continued)

 

- 6 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Nine Months Ended September 30
		2014				2013
Cash dividends		$	(77,785,851	)		$	(77,773,307	)
Increase (decrease) in noncontrolling interests			(58,571	)			212,410
Net cash generated by (used in) financing activities			(59,964,323	)			34,530,302
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			2,277,600				39,065
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(16,811,129	)			73,193,109
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			242,695,447				143,410,588
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	225,884,318			$	216,603,697

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

 

- 7 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 and 2013

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 36.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on November 11, 2014.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030029342 and Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “2013 Taiwan-IFRSs version”) and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers should be adopted by the Company starting 2015.

 

New, Revised or Amended Standards and Interpretations		Effective Date Issued by IASB (Note)
Amendments to IFRSs Improvements to IFRSs 2009 - Amendment to IAS 39		January 1, 2009 or January 1, 2010
Amendment to IAS 39 Embedded Derivatives		Effective in fiscal year ended on or after June 30, 2009

(Continued)

 

- 8 -

---

New, Revised or Amended Standards and Interpretations		Effective Date Issued by IASB (Note)
Improvements to IFRSs 2010		July 1, 2010 or January 1, 2011
Annual Improvements to IFRSs 2009 - 2011 Cycle		January 1, 2013
Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First - time Adopters		July 1, 2010
Amendment to IFRS 7 Disclosures - offsetting Financial Assets and Financial Liabilities		January 1, 2013
Amendment to IFRS 7 Disclosures - Transfers of Financial Assets		July 1, 2011
IFRS 10 Consolidated Financial Statements		January 1, 2013
IFRS 11 Joint Arrangements		January 1, 2013
IFRS 12 Disclosure of Interests in Other Entities		January 1, 2013
Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance		January 1, 2013
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities		January 1, 2014
IFRS 13 Fair Value Measurement		January 1, 2013
Amendment to IAS 1 Presentation of Items of Other Comprehensive Income		July 1, 2012
Amendment to IAS 12 Deferred Tax: Recovery of Underlying Assets		January 1, 2012
IAS 19 (Revised 2011) “Employee Benefits”		January 1, 2013
IAS 27 (Revised 2011) “Separate Financial Statements”		January 1, 2013
IAS 28 (Revised 2011) “Investments in Associates and Joint Ventures”		January 1, 2013
Amendment to IAS 32 Offsetting of Financial Assets and Financial Liabilities		January 1, 2014

(Concluded)

 

Note:

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

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

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

IFRS 12 is a standard that requires a broader disclosure in an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated entities. The objective of IFRS 12 is to specify the disclosure information provided by the entity that enables the users of financial statements in evaluating the nature of, and risks associated with, its interests in other entities and the effects of those interests on the entity’s financial assets and liabilities, as well as the involvement of the owners of noncontrolling interests towards the entity. The Company expects the application of IFRS 12 will result in more extensive disclosures of interests in other entities in the financial statements.

 

2)

IFRS 13, “Fair Value Measurement”

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

 

- 9 -

---

The measurement requirements of IFRS 13 shall be applied prospectively.

 

3)

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

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

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

 

4)

Amendments to IAS 19, “Employee Benefits”

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

According to the retrospective application of aforementioned amendments, as of September 30, 2014 and January 1, 2014, the primary impacts on the Company include the adjustment in accrued pension cost for a decrease of NT$774,528 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$687,216 thousand and NT$698,762 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

(Continued)

 

- 10 -

---

New, Revised or Amended Standards and Interpretations		Effective Date Issued by IASB (Note 1)
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture		Prospectively applicable to transactions beginning on or after January 1, 2016
Amendment to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations		January 1, 2016
IFRS 15 Revenue from Contracts with Customers		January 1, 2017
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization		January 1, 2016
Amendment to IAS 19 Defined Benefit Plans: Employee Contributions		July 1, 2014
Amendment to IAS 27 Equity Method in Separate Financial Statements		January 1, 2016
Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets		January 1, 2014
Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting		January 1, 2014

(Concluded)

 

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

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

 

1)

IFRS 9, “Financial Instruments”

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

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

 

a)

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

 

b)

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

 

- 11 -

---

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

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

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

 

2)

IFRS 15, “Revenue from Contracts with Customers”

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

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

 

•

Identify the contract with the customer;

 

•

Identify the performance obligations in the contract;

 

•

Determine the transaction price;

 

•

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

 

•

Recognize revenue when the entity satisfies a performance obligation.

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

 

3)

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

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

 

- 12 -

---

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2013.

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

The basis for the consolidated financial statements applied in these consolidated financial statements is consistent with those applied in the consolidated financial statements for the year ended December 31, 2013.

The subsidiaries in the consolidated financial statements

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

 

(Continued)

 

- 13 -

---

						Establishment and Operating Location		Percentage of Ownership
Name of Investor		Name of Investee		Main Businesses and Products				September 30, 2014				December 31, 2013				September 30, 2013				Note
TSMC		TSMC Solid State Lighting Ltd. (TSMC SSL)		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems		Hsin-Chu, Taiwan			92	%			92	%			92	%		TSMC and TSMC GN aggregately have a controlling interest of 94% in TSMC SSL.
		TSMC Solar Ltd. (TSMC Solar)		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products		Tai-Chung, Taiwan			99	%			99	%			99	%		TSMC and TSMC GN aggregately have a controlling interest of 99% in TSMC Solar.
		TSMC Guang Neng Investment, Ltd. (TSMC GN)		Investment activities		Taipei, Taiwan			100	%			100	%			100	%		a)
TSMC Partners		TSMC Design Technology Canada Inc. (TSMC Canada)		Engineering support activities		Ontario, Canada			100	%			100	%			100	%		a)
		TSMC Technology, Inc. (TSMC Technology)		Engineering support activities		Delaware, U.S.A.			100	%			100	%			100	%		a)
		TSMC Development, Inc. (TSMC Development)		Investment activities		Delaware, U.S.A.			100	%			100	%			100	%		—
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Investing in new start-up technology companies		Cayman Islands			97	%			97	%			97	%		a)
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Investing in new start-up technology companies		Cayman Islands			97	%			97	%			97	%		a)
TSMC Development		WaferTech, LLC (WaferTech)		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices		Washington, U.S.A.			100	%			100	%			100	%		—
VTAF III		Mutual-Pak Technology Co., Ltd. (Mutual-Pak)		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		New Taipei, Taiwan			58	%			58	%			58	%		a)
		Growth Fund Limited (Growth Fund)		Investing in new start-up technology companies		Cayman Islands			100	%			100	%			100	%		a)
VTAF III, VTAF II and Emerging Alliance		VentureTech Alliance Holdings, LLC (VTA Holdings)		Investing in new start-up technology companies		Delaware, U.S.A.			100	%			100	%			100	%		a)
TSMC SSL		TSMC Lighting North America, Inc. (TSMC Lighting NA)		Selling and marketing of solid state lighting related products		Delaware, U.S.A.			—				100	%			100	%		a), c)
TSMC Solar		TSMC Solar North America, Inc. (TSMC Solar NA)		Selling and marketing of solar related products		Delaware, U.S.A.			100	%			100	%			100	%		a)
		TSMC Solar Europe B.V. (TSMC Solar Europe)		Investing in solar related business		Amsterdam, the Netherlands			100	%			100	%			100	%		a), d)
		VentureTech Alliance Fund III, L.P. (VTAF III)		Investing in new start-up technology companies		Cayman Islands			—				49	%			49	%		b)
TSMC Solar Europe		TSMC Solar Europe GmbH		Selling of solar related products and providing customer service		Hamburg, Germany			100	%			100	%			100	%		a), d)

(Concluded)

 

Note a:		This is an immaterial subsidiary for which the consolidated financial statements are not reviewed by the Company’s independent accountants.
Note b:		According to the agreement among TSMC, TSMC Solar and VTAF III, each of the investment held by VTAF III is separately owned by TSMC and TSMC Solar. As the investment owned by VTAF III, which is indirectly owned by TSMC Solar, has entered into liquidation process due to bankruptcy and the bankruptcy trustee confirmed that no residual assets could be reimbursed to the shareholders, in the second quarter of 2014, TSMC Solar’s percentage of ownership over VTAF III has decreased to nil. Consequently, TSMC’s percentage of ownership over VTAF III has been adjusted to 98%.
Note c:		To simplify overseas investment structure, in the second quarter of 2014, the Board of Directors of TSMC SSL approved to file for the liquidation of TSMC Lighting NA. The liquidation procedure has been completed in the third quarter of 2014.
Note d:		To simplify overseas investments structure, in the second quarter of 2014, the Board of Directors of TSMC Solar approved to file for the liquidation of TSMC Solar Europe After the liquidation, TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, will be held directly by TSMC Solar. The liquidation procedure is expected to be processed starting from the third quarter of 2014.

Retirement Benefits

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

Taxation

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

 

- 14 -

---

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

The same critical accounting judgments and key sources of estimates and uncertainty have been followed in these consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2013.

 

6.	CASH AND CASH EQUIVALENTS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Cash and deposits in banks		$	222,381,793			$	238,014,580			$	213,978,108
Repurchase agreements collateralized by corporate bonds			2,680,979				1,809,344				2,052,723
Commercial paper			499,744				—				—
Repurchase agreements collateralized by government bonds			321,802				475,879				123,063
Repurchase agreements collateralized by short-term commercial paper			—				2,395,644				449,803
		$	225,884,318			$	242,695,447			$	216,603,697

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

 

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

 

		September 30, 2014				December 31, 2013				September 30, 2013
Derivative financial assets
Cross currency swap contracts		$	37,840			$	—			$	162,919
Forward exchange contracts			31,324				90,353				26,051
		$	69,164			$	90,353			$	188,970
Derivative financial liabilities
Cross currency swap contracts		$	613,747			$	4,177			$	16,790
Forward exchange contracts			77,315				29,573				2,086
		$	691,062			$	33,750			$	18,876

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

 

- 15 -

---

Outstanding forward exchange contracts consisted of the following:

 

				Contract Amount
		Maturity Date		(In Thousands)
September 30, 2014
Sell EUR/Buy US$		October 2014		EUR3,580/US$4,568
Sell NT$/Buy JPY		October 2014		NT$55,560/JPY200,000
Sell NT$/Buy US$		October 2014		NT$1,613,044/US$53,600
Sell US$/Buy EUR		October 2014		US$20,060/EUR15,800
Sell US$/Buy JPY		October 2014		US$291,612/JPY31,673,300
Sell US$/Buy NT$		October 2014		US$90,000/NT$2,713,420
Sell US$/Buy RMB		October 2014 to November 2014		US$152,000/RMB936,402
December 31, 2013
Sell NT$/Buy EUR		January 2014		NT$4,514,314/EUR110,000
Sell NT$/Buy US$		January 2014		NT$683,749/US$22,800
Sell US$/Buy EUR		January 2014		US$340,134/EUR248,000
Sell US$/Buy JPY		January 2014		US$341,023/JPY35,754,801
Sell US$/Buy RMB		January 2014 to February 2014		US$138,000/RMB841,492
September 30, 2013
Sell NT$/Buy JPY		October 2013		NT$14,344/JPY48,000
Sell NT$/Buy US$		October 2013		NT$639,824/US$21,650
Sell US$/Buy EUR		October 2013		US$428,345/EUR317,000
Sell US$/Buy JPY		October 2013		US$64,418/JPY6,352,719
Sell US$/Buy RMB		October 2013 to December 2013		US$117,000/RMB718,331

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, 2014
October 2014		NT$2,947,561/US$98,080		—		0.20%-0.33%
October 2014 to November 2014		US$1,800,000/NT$54,200,290		0.19%-1.91%		—
December 31, 2013
January 2014		NT$1,639,215/US$55,080		—		1.03%-2.00%
September 30, 2013
October 2013		NT$1,366,150/US$46,080		—		0.32%-0.60%
October 2013 to November 2013		US$1,199,000/NT$35,692,006		0.31%-3.51%		—

 

- 16 -

---

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Publicly traded stocks		$	64,390,960			$	59,481,569			$	61,802,636
Money market funds			377				1,183				14,640
		$	64,391,337			$	59,482,752			$	61,817,276
Current portion		$	64,391,337			$	760,793			$	672,179
Noncurrent portion			—				58,721,959				61,145,097
		$	64,391,337			$	59,482,752			$	61,817,276

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

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Current portion
Commercial paper		$	—			$	1,795,949			$	—
Corporate bonds			—				—				700,285
		$	—			$	1,795,949			$	700,285

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Financial liabilities- current
Fair value hedges
Stock forward contracts		$	9,769,897			$	—			$	—
Financial liabilities- noncurrent
Fair value hedges
Stock forward contracts		$	5,821			$	5,481,616			$	6,144,025

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

 

- 17 -

---

The outstanding stock forward contracts consisted of the following:

 

		September 30, 2014				December 31, 2013				September 30, 2013
Contract amount (US$ in thousands)		$	53,962,363			$	37,431,626			$	18,012,420
			(US$1,771,000	)			(US$1,256,095	)			(US$609,124	)

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

		September 30, 2014				December 31, 2013				September 30, 2013
Notes and accounts receivable		$	114,486,051			$	72,136,514			$	79,330,887
Allowance for doubtful receivables			(486,618	)			(486,588	)			(486,498	)
Notes and accounts receivable, net		$	113,999,433			$	71,649,926			$	78,844,389

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

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

Aging analysis of notes and accounts receivable, net

 

		September 30, 2014				December 31, 2013				September 30, 2013
Neither past due nor impaired		$	103,429,104			$	64,112,564			$	71,148,159
Past due but not impaired
Past due within 30 days			10,570,329				7,537,362				7,696,230
		$	113,999,433			$	71,649,926			$	78,844,389

Movements of the allowance for doubtful receivables

 

		Individually Assessed for Impairment				Collectively Assessed for Impairment				Total
Balance at January 1, 2014		$	8,058			$	478,530			$	486,588
Provision			—				22,071				22,071
Reversal			(284	)			(21,787	)			(22,071	)
Effect of exchange rate changes			—				30				30
Balance at September 30, 2014		$	7,774			$	478,844			$	486,618

(Continued)

 

- 18 -

---

		Individually Assessed for Impairment				Collectively Assessed for Impairment				Total
Balance at January 1, 2013		$	137,336			$	342,876			$	480,212
Provision			—				126,740				126,740
Reversal			(117,360	)			—				(117,360	)
Effect of deconsolidation of subsidiary			(3,157	)			—				(3,157	)
Effect of exchange rate changes			1,881				(1,818	)			63
Balance at September 30, 2013		$	18,700			$	467,798			$	486,498

(Concluded)

Aging analysis of accounts receivable that is individually determined as impaired

 

		September 30, 2014				December 31, 2013				September 30, 2013
Not past due		$	—			$	38			$	7,557
Past due 1-30 days			—				276				6,832
Past due 31-60 days			—				80				4,576
Past due 61-120 days			—				158				—
Past due over 121 days			7,774				7,824				—
		$	7,774			$	8,376			$	18,965

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of September 30, 2014, December 31, 2013 and September 30, 2013, the amount of the bank guarantee and other credit enhancements were nil, NT$318 thousand (US$11 thousand) and NT$265 thousand (US$9 thousand), respectively.

 

12.	INVENTORIES

 

		September 30, 2014				December 31, 2013				September 30, 2013
Finished goods		$	5,043,513			$	7,245,209			$	6,696,080
Work in process			55,142,160				26,033,625				25,528,912
Raw materials			3,160,203				2,435,269				2,889,113
Supplies and spare parts			1,991,113				1,780,790				1,802,422
		$	65,336,989			$	37,494,893			$	36,916,527

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

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Inventory losses		$	691,557			$	252,245			$	2,215,165			$	489,414

 

- 19 -

---

13.	FINANCIAL ASSETS CARRIED AT COST

 

		September 30, 2014				December 31, 2013				September 30, 2013
Non-publicly traded stocks		$	1,678,365			$	1,865,078			$	1,844,469
Mutual funds			187,643				280,513				280,038
		$	1,866,008			$	2,145,591			$	2,124,507

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

The Company recognized impairment loss on financial assets carried at cost in the amount of NT$176,920 thousand and NT$1,495,454 thousand for the three months ended September 30, 2014 and 2013, respectively; and of NT$176,920 thousand and NT$1,541,170 thousand for the nine months ended September 30, 2014 and 2013, respectively.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

		September 30, 2014				December 31, 2013				September 30, 2013
Associates		$	23,799,583			$	24,823,807			$	22,459,686
Jointly controlled entities			3,179,975				3,492,453				3,444,234
		$	26,979,558			$	28,316,260			$	25,903,920

 

a.

Investments in associates

Associates consisted of the following:

 

 

- 20 -

---

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

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

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

 

b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

 

- 21 -

---

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

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

There was no capitalization of borrowing costs for the nine months ended September 30, 2014 and 2013.

 

16.	INTANGIBLE ASSETS

 

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rate of 8.50% and 9.00% in its test of impairment as of December 31, 2013 and 2012, respectively, to reflect the relevant specific risk in the cash-generating unit.

 

- 22 -

---

For the nine months ended September 30, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Tax receivable		$	1,787,749			$	1,781,376			$	1,471,795
Prepaid expenses			1,070,833				1,081,957				1,258,358
Long-term receivable			537,880				820,000				796,400
Others			741,604				770,468				630,160
		$	4,138,066			$	4,453,801			$	4,156,713
Current portion		$	2,864,405			$	2,984,224			$	2,740,765
Noncurrent portion			1,273,661				1,469,577				1,415,948
		$	4,138,066			$	4,453,801			$	4,156,713

 

18.	SHORT-TERM LOANS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Unsecured loans
Amount		$	35,883,358			$	15,645,000			$	18,053,096
Original loan content
US$ (in thousands)		$	1,147,400			$	525,000			$	610,500
EUR (in thousands)			24,000				—				—
Annual interest rate			0.35%-0.51%				0.38%-0.42%				0.38%-0.40%
Maturity date			Due by November 2014				Due in January 2014				Due in October 2013

 

19.	PROVISIONS

 

		September 30, 2014				December 31, 2013				September 30, 2013
Sales returns and allowances		$	7,677,524			$	7,603,781			$	6,720,214
Warranties			16,148				10,452				7,344
		$	7,693,672			$	7,614,233			$	6,727,558
Current portion		$	7,677,524			$	7,603,781			$	6,720,214
Noncurrent portion (classified under other noncurrent liabilities)			16,148				10,452				7,344
		$	7,693,672			$	7,614,233			$	6,727,558

 

- 23 -

---

		Sales Returns and Allowances				Warranties				Total
Nine months ended September 30, 2014
Balance, beginning of period		$	7,603,781			$	10,452			$	7,614,233
Provision			5,747,340				7,416				5,754,756
Payment			(5,680,243	)			(1,227	)			(5,681,470	)
Effect of exchange rate changes			6,646				(493	)			6,153
Balance, end of period		$	7,677,524			$	16,148			$	7,693,672
Nine months ended September 30, 2013
Balance, beginning of period		$	6,038,003			$	4,891			$	6,042,894
Provision			3,798,683				3,687				3,802,370
Payment			(3,086,482	)			(1,361	)			(3,087,843	)
Effect of deconsolidation of subsidiary			(37,748	)			—				(37,748	)
Effect of exchange rate changes			7,758				127				7,885
Balance, end of period		$	6,720,214			$	7,344			$	6,727,558

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

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

 

20.	BONDS PAYABLE

 

		September 30, 2014				December 31, 2013				September 30, 2013
Noncurrent portion
Domestic unsecured bonds		$	166,200,000			$	166,200,000			$	166,200,000
Overseas unsecured bonds			45,705,000				44,700,000				44,356,500
			211,905,000				210,900,000				210,556,500
Less: Discounts on bonds payable			(108,195	)			(132,375	)			(140,066	)
		$	211,796,805			$	210,767,625			$	210,416,434

The major terms of overseas unsecured bonds are as follows:

 

Issuance Period		Total Amount (US$ in Thousands)				Coupon Rate				Repayment and Interest Payment
April 2013 to April 2016		$	350,000				0.95	%		Bullet repayment; interest payable semi-annually
April 2013 to April 2018			1,150,000				1.625	%		The same as above

 

- 24 -

---

21.

EQUITY

 

a.

Capital stock

 

		September 30, 2014				December 31, 2013				September 30, 2013
Authorized shares (in thousands)			28,050,000				28,050,000				28,050,000
Authorized capital		$	280,500,000			$	280,500,000			$	280,500,000
Issued and paid shares (in thousands)			25,929,375				25,928,617				25,928,391
Issued capital		$	259,293,750			$	259,286,171			$	259,283,910

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

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

As of September 30, 2014, 1,076,263 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,381,317 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

		September 30, 2014				December 31, 2013				September 30, 2013
Additional paid-in capital		$	24,043,271			$	24,017,363			$	24,009,220
From merger			22,804,510				22,804,510				22,804,510
From convertible bonds			8,892,847				8,892,847				8,892,847
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries			—				100,827				105,485
From share of changes in equities of subsidiaries			73,038				—				—
From share of changes in equities of associates and joint venture			131,078				43,024				29,599
Donations			55				55				55
		$	55,944,799			$	55,858,626			$	55,841,716

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

 

- 25 -

---

c.

Retained earnings and dividend policy

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

 

1)

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

 

2)

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

 

3)

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

 

4)

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

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

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

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,104,785 thousand and NT$3,492,973 thousand for the three months ended September 30, 2014 and 2013, respectively; and NT$12,297,732 thousand and NT$9,637,364 thousand for the nine months ended September 30, 2014 and 2013, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently approved 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 approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

 

- 26 -

---

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

 

		Appropriation of Earnings								Dividends Per Share (NT$)
		For Fiscal				For Fiscal				For Fiscal				For Fiscal
		Year 2013				Year 2012				Year 2013				Year 2012
Legal capital reserve		$	18,814,679			$	16,615,880
Special capital reserve			(2,785,741	)			(4,820,483	)
Cash dividends to shareholders			77,785,851				77,773,307			$	3.00			$	3.00
		$	93,814,789			$	89,568,704

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, had been approved by the shareholders in its meeting held on June 24, 2014 and June 11, 2013, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 18, 2014 and February 5, 2013 and the same amount had been charged against earnings of 2013 and 2012, respectively.

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

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

 

d.

Others

Changes in others were as follows:

 

		Nine Months Ended September 30, 2014
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of period		$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306
Exchange differences arising on translation of foreign operations			3,189,480				—				—				3,189,480
Other comprehensive income/losses reclassified to profit or loss upon disposal of subsidiaries			84				—				—				84
Changes in fair value of available-for-sale financial assets			—				(178,550	)			—				(178,550	)
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				(260,050	)			—				(260,050	)
Share of other comprehensive income of associates and joint venture			(41,619	)			(486	)			(26	)			(42,131	)

(Continued)

 

- 27 -

---

		Nine Months Ended September 30, 2014
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates		$	3,017			$	(2,920	)		$	—			$	97
Income tax effect			—				(13,745	)			—				(13,745	)
Balance, end of period		$	(3,989,400	)		$	20,855,030			$	(139	)		$	16,865,491

(Concluded)

 

		Nine Months Ended September 30, 2013
		Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available-for- sale Financial Assets				Cash Flow Hedges Reserve				Total
Balance, beginning of period		$	(10,753,806	)		$	7,973,321			$	—			$	(2,780,485	)
Exchange differences arising on translation of foreign operations			2,334,714				—				—				2,334,714
Changes in fair value of available-for-sale financial assets			—				16,417,454				—				16,417,454
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			—				(1,229,330	)			—				(1,229,330	)
Share of other comprehensive income of associates and joint venture			(20,214	)			380				(67	)			(19,901	)
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			776				(44	)			—				732
Income tax effect			—				53,484				—				53,484
Balance, end of period		$	(8,438,530	)		$	23,215,265			$	(67	)		$	14,776,668

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

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

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

 

- 28 -

---

e.

Noncontrolling interests

 

		Nine Months Ended September 30
		2014				2013
Balance, beginning of period		$	266,830			$	2,543,226
Share of noncontrolling interests
Net loss			(98,025	)			(104,746	)
Exchange differences arising on translation of foreign operations			547				721
Other comprehensive income/losses reclassified to profit or loss upon disposal of subsidiaries			6				—
Changes in fair value of available-for-sale financial assets			977				2,741
Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets			(858	)			(10,111	)
Stock option compensation cost of subsidiary			—				5,312
Share of other comprehensive income of associates and joint venture			(6	)			244
The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates			—				1
Adjustments to share of changes in capital surplus of associations and joint venture			(45	)			—
From share of changes in equities of subsidiaries			27,789				—
From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries			—				(64,752	)
Increase (decrease) in noncontrolling interests			(58,571	)			198,279
Effect of deconsolidation of subsidiary			—				(2,273,153	)
Balance, end of period		$	138,644			$	297,762

 

22.	SHARE-BASED PAYMENT

The Company did not issue employee stock option plans for the nine months ended September 30, 2014 and 2013. Information about TSMC’s outstanding employee stock options is described as follows:

 

a.

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

 

TSMC		Number of Stock Options (In Thousands)				Weighted- average Exercise Price (NT$)
Nine months ended September 30, 2014
Balance, beginning of period			1,763			$	45.9
Options exercised			(758	)			44.2
Balance, end of period			1,005				47.2
Balance exercisable, end of period			1,005				47.2

(Continued)

 

- 29 -

---

TSMC		Number of Stock Options (In Thousands)				Weighted- average Exercise Price (NT$)
Nine months ended September 30, 2013
Balance, beginning of period			5,945			$	34.6
Options exercised			(3,956	)			28.9
Balance, end of period			1,989				45.9
Balance exercisable, end of period			1,989				45.9

(Concluded)

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

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

 

 

b.

Application of IFRS 2

 

						Weighted-
		Number of				average
		Options				Exercise
TSMC SSL		(In Thousands)				Price (NT$)
Nine months ended September 30, 2013
Balance, beginning of period			—			$	—
Options granted			17,000				10.0
Options exercised			(17,000	)			10.0
Balance, end of period			—				—
Balance exercisable, end of period			—				—
Weighted-average fair value of options granted (NT$/share)		$	—

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

 

		2013 Stock Option Plan
Valuation assumptions:
Stock price on grant date (NT$/share)		$	4.6
Exercise price (NT$/share)		$	10.0
Expected volatility			51.68	%
Expected life			31 days
Risk free interest rate			0.60	%

 

- 30 -

---

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

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

 

23.	NET REVENUE

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

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Net revenue from sale of goods		$	208,916,301			$	162,446,219			$	539,796,082			$	450,836,794
Net revenue from royalties			133,433				130,815				489,308				381,556
		$	209,049,734			$	162,577,034			$	540,285,390			$	451,218,350

 

24.	FINANCE COSTS

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Interest expense
Corporate bonds		$	768,796			$	699,980			$	2,308,899			$	1,734,861
Bank loans			42,285				26,668				90,292				98,788
Finance leases			4,871				4,940				14,681				14,637
Others			102				738				212				13,378
		$	816,054			$	732,326			$	2,414,084			$	1,861,664

 

25.	OTHER GAINS AND LOSSES

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Gain on disposal of financial assets, net
Available-for-sale financial assets		$	126,888			$	248,729			$	260,908			$	1,239,442
Financial assets carried at cost			13,125				27,626				65,819				32,199
Gain (loss) on disposal of investments accounted for using equity method			—				—				2,028,643				(733	)
Loss on disposal of subsidiary			(90	)			—				(90	)			—
Gain on deconsolidation of subsidiary			—				—				—				293,578
Settlement income			—				—				—				451,050
Other gains			55,558				94,444				170,082				281,054

(Continued)

 

- 31 -

---

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Net gain/(loss) on financial instruments at FVTPL
Held for trading		$	(1,159,262	)		$	484,154			$	(604,424	)		$	333,860
Impairment loss of financial assets
Financial assets carried at cost			(176,920	)			(1,495,454	)			(176,920	)			(1,541,170	)
Fair value hedges
Loss from hedging instruments			(4,053,902	)			(4,381,780	)			(4,643,145	)			(6,319,146	)
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			4,085,446				4,331,786				4,163,555				5,989,610
Other losses			(1,426	)			(77,039	)			(154,978	)			(207,564	)
		$	(1,110,583	)		$	(767,534	)		$	1,109,450			$	552,180

(Concluded)

 

26.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Current income tax expense (benefit)
Current tax expense recognized in the current period		$	9,012,932			$	5,909,113			$	26,135,926			$	16,927,948
Income tax adjustments on prior years			—				23,357				404,566				(1,020,806	)
Other income tax adjustments			48,759				(7,121	)			186,926				(19,405	)
			9,061,691				5,925,349				26,727,418				15,887,737
Deferred income tax expense (benefit)
Temporary differences			(185,576	)			137,229				(239,624	)			1,178,359
Investment tax credits and loss carryforward			200,471				1,352,554				2,483,119				4,895,057
Effect of deconsolidation of subsidiary			—				—				—				(78,474	)
			14,895				1,489,783				2,243,495				5,994,942
Income tax expense recognized in profit or loss		$	9,076,586			$	7,415,132			$	28,970,913			$	21,882,679

 

- 32 -

---

b.

Income tax expense recognized in other comprehensive income

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Deferred income tax expense (benefit)
Related to unrealized gain/loss on available-for-sale financial assets		$	2,622			$	(10,274	)		$	13,745			$	(53,484	)

 

c.

Integrated income tax information

 

		September 30, 2014				December 31, 2013				September 30, 2013
Balance of the Imputation
Credit Account - TSMC		$	28,263,046			$	15,242,724			$	15,242,724

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2013 and 2012 were 9.78% and 7.75 %, respectively.

Under the Rule No.10204562810 issued by the Ministry of Finance, when calculating the creditable ratio in the year of first-time adoption of Taiwan-IFRSs, the Company has included the adjustments to retained earnings from the effect of transition to Taiwan-IFRSs in the accumulated unappropriated earnings.

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

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

 

d.

Income tax examination

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

 

27.	EARNINGS PER SHARE

 

		Three Months Ended September 30								Nine Months Ended September 30
		2014				2013				2014				2013
Basic EPS		$	2.94			$	2.00			$	7.09			$	5.53
Diluted EPS		$	2.94			$	2.00			$	7.09			$	5.53

 

- 33 -

---

EPS is computed as follows:

 

		Amounts (Numerator)				Number of Shares (Denominator) (In Thousands)				EPS (NT$)
Three months ended September 30,2014
Basic EPS
Net income available to common shareholders of the parent		$	76,335,237				25,929,375			$	2.94
Effect of dilutive potential common shares			—				627
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	76,335,237				25,930,002			$	2.94
Three months ended September 30,2013
Basic EPS
Net income available to common shareholders of the parent		$	51,951,943				25,928,322			$	2.00
Effect of dilutive potential common shares			—				1,162
Diluted EPS
Net income available to common shareholders of the parent (including effect of dilutive potential common shares)		$	51,951,943				25,929,484			$	2.00