Form 6-K

1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2015

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 


SIGNATURES

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

 

Taiwan Semiconductor Manufacturing Company Ltd.
Date: March 3, 2015 By

/s/ Lora Ho

Lora Ho
Senior Vice President & Chief Financial Officer


Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2014 and 2013 and

Independent Auditors’ Report


REPRESENTATION LETTER

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

 

Very truly yours,
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED
By

/s/ MORRIS CHANG

MORRIS CHANG
Chairman
February 10, 2015

 

- 1 -


LOGO

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

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

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

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

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

 

   LOGO

February 10, 2015

Notice to Readers

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

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

 

Member of Deloitte Touche Tohmatsu Limited - 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

 

 

December 31, 2014  

December 31, 2013    

ASSETS   Amount   %       Amount   %    

CURRENT ASSETS

Cash and cash equivalents (Note 6)

$ 358,449,029    24 $ 242,695,447      19   

Financial assets at fair value through profit or loss (Note 7)

  192,045    -   90,353      -   

Available-for-sale financial assets (Note 8)

  73,797,476    5   760,793      -   

Held-to-maturity financial assets (Note 9)

  4,485,593    -   1,795,949      -   

Notes and accounts receivable, net (Note 11)

  114,734,743    8   71,649,926      6   

Receivables from related parties (Note 37)

  312,955    -   291,708      -   

Other receivables from related parties (Note 37)

  178,625    -   221,576      -   

Inventories (Notes 5 and 12)

  66,337,971    5   37,494,893      3   

Noncurrent assets held for sale (Note 13)

  945,356    -   -      -   

Other financial assets (Note 38)

  3,476,884    -   501,785      -   

Other current assets (Note 18)

  3,656,110    -   2,984,224      -   
   

 

 

      

 

     

 

 

      

 

 

   

Total current assets

  626,566,787    42   358,486,654      28   
   

 

 

      

 

     

 

 

      

 

 

   

NONCURRENT ASSETS

Available-for-sale financial assets (Note 8)

  -    -   58,721,959      5   

Financial assets carried at cost (Note 14)

  1,800,542    -   2,145,591      -   

Investments accounted for using equity method (Notes 5 and 15)

  28,251,002    2   28,316,260      2   

Property, plant and equipment (Notes 5 and 16)

  818,198,801    55   792,665,913      63   

Intangible assets (Notes 5 and 17)

  13,531,510    1   11,490,383      1   

Deferred income tax assets (Notes 5 and 31)

  5,227,128    -   7,239,609      1   

Refundable deposits (Note 37)

  356,069    -   2,519,031      -   

Other noncurrent assets (Note 18)

  1,202,006    -   1,469,577      -   
   

 

 

      

 

     

 

 

      

 

 

   

Total noncurrent assets

  868,567,058    58   904,568,323      72   
   

 

 

      

 

     

 

 

      

 

 

   

TOTAL

$   1,495,133,845        100 $   1,263,054,977          100   
   

 

 

      

 

     

 

 

      

 

 

   

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term loans (Note 19)

$ 36,158,520    2 $ 15,645,000      1   

Financial liabilities at fair value through profit or loss (Note 7)

  486,214    -   33,750      -   

Hedging derivative financial liabilities (Note 10)

  16,364,241    1   -      -   

Accounts payable

  21,878,934    2   14,670,260      1   

Payables to related parties (Note 37)

  1,491,490    -   1,688,456      -   

Salary and bonus payable

  10,573,922    1   8,330,956      1   

Accrued profit sharing to employees and bonus to directors and supervisors (Note 24)

  18,052,820    1   12,738,801      1   

Payables to contractors and equipment suppliers

  26,980,408    2   89,810,160      7   

Income tax payable (Note 31)

  28,616,574    2   22,563,286      2   

Provisions (Note 20)

  10,445,452    1   7,603,781      1   

Liabilities directly associated with noncurrent assets held for sale (Note 13)

  220,191    -   -      -   

Accrued expenses and other current liabilities (Notes 16 and 23)

  29,746,011    2   16,693,484      1   
   

 

 

      

 

     

 

 

      

 

 

   

Total current liabilities

  201,014,777    14   189,777,934      15   
   

 

 

      

 

     

 

 

      

 

 

   

NONCURRENT LIABILITIES

Hedging derivative financial liabilities (Note 10)

  -    -   5,481,616      -   

Bonds payable (Note 21)

  213,673,818    14   210,767,625      17   

Long-term bank loans

  40,000    -   40,000      -   

Deferred income tax liabilities (Note 31)

  199,750    -   -      -   

Obligations under finance leases(Note 16)

  802,108    -   776,230      -   

Accrued pension cost (Notes 5 and 22)

  7,303,978    -   7,589,926      1   

Guarantee deposits (Note 23)

  25,538,475    2   151,660      -   

Others (Note 20)

  885,192    -   694,901      -   
   

 

 

      

 

     

 

 

      

 

 

   

Total noncurrent liabilities

  248,443,321    16   225,501,958      18   
   

 

 

      

 

     

 

 

      

 

 

   

Total liabilities

  449,458,098    30   415,279,892      33   
   

 

 

      

 

     

 

 

      

 

 

   

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

Capital stock (Note 24)

  259,296,624    17   259,286,171      21   
   

 

 

      

 

     

 

 

      

 

 

   

Capital surplus (Note 24)

  55,989,922    4   55,858,626      4   
   

 

 

      

 

     

 

 

      

 

 

   

Retained earnings (Note 24)

Appropriated as legal capital reserve

  151,250,682    10   132,436,003      11   

Appropriated as special capital reserve

  -    -   2,785,741      -   

Unappropriated earnings

  553,261,982    37   382,971,408      30   
   

 

 

      

 

     

 

 

      

 

 

   
  704,512,664    47   518,193,152      41   
   

 

 

      

 

     

 

 

      

 

 

   

Others (Note 24)

  25,749,291    2   14,170,306      1   
   

 

 

      

 

     

 

 

      

 

 

   

Equity attributable to shareholders of the parent

  1,045,548,501    70   847,508,255      67   

NONCONTROLLING INTERESTS (Note 24)

  127,246    -   266,830      -   
   

 

 

      

 

     

 

 

      

 

 

   

Total equity

  1,045,675,747    70   847,775,085      67   
   

 

 

      

 

     

 

 

      

 

 

   

TOTAL

$ 1,495,133,845    100 $ 1,263,054,977      100   
   

 

 

      

 

     

 

 

      

 

 

   

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

 

2014

2013

    Amount   %       Amount   %    

NET REVENUE (Notes 5, 26, 37 and 42)

$   762,806,465      100    $   597,024,197      100   

COST OF REVENUE (Notes 12, 33 and 37)

  385,100,646      50      316,057,820      53   
    

 

 

    

 

 

          

 

 

    

 

 

    

GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

  377,705,819      50      280,966,377      47   

REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

  28,556      -      (20,870   -   
    

 

 

    

 

 

          

 

 

    

 

 

    

GROSS PROFIT

  377,734,375      50      280,945,507      47   
    

 

 

    

 

 

          

 

 

    

 

 

    

OPERATING EXPENSES (Notes 5, 33 and 37)

Research and development

  56,823,732      8      48,118,165      8   

General and administrative

  18,932,100      2      18,928,544      3   

Marketing

  5,087,112      1      4,516,525      1   
    

 

 

    

 

 

          

 

 

    

 

 

    

Total operating expenses

  80,842,944      11      71,563,234      12   
    

 

 

    

 

 

          

 

 

    

 

 

    

OTHER OPERATING INCOME AND EXPENSES, NET (Notes 13, 27 and 33)

  (1,001,138   -      47,090      -   
    

 

 

    

 

 

          

 

 

    

 

 

    

INCOME FROM OPERATIONS (Note 42)

  295,890,293      39      209,429,363      35   
    

 

 

    

 

 

          

 

 

    

 

 

    

NON-OPERATING INCOME AND EXPENSES

Share of profits of associates and joint venture (Notes 15 and 42)

  3,949,674      1      3,972,031      1   

Other income (Note 28)

  3,380,407      -      2,342,123      -   

Foreign exchange gain, net

  2,111,310      -      285,460      -   

Finance costs (Note 29)

  (3,236,345   -      (2,646,776   -   

Other gains and losses (Note 30)

  2,207      -      2,104,921      -   
    

 

 

    

 

 

          

 

 

    

 

 

    

Total non-operating income and expenses

  6,207,253      1      6,057,759      1   
    

 

 

    

 

 

          

 

 

    

 

 

    

INCOME BEFORE INCOME TAX

  302,097,546      40      215,487,122      36   

INCOME TAX EXPENSE (Notes 31 and 42)

  38,316,677      5      27,468,185      5   
    

 

 

    

 

 

          

 

 

    

 

 

    

NET INCOME

  263,780,869      35      188,018,937      31   
    

 

 

    

 

 

          

 

 

    

 

 

    

(Continued)

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

   

2014

      2013
        Amount     %                 Amount     %      

OTHER COMPREHENSIVE INCOME (LOSS) (Notes 15, 24 and 31)

                 

Exchange differences arising on translation of foreign operations

      $    11,771,129        1              $      3,668,509        1     

Changes in fair value of available-for-sale financial assets

      (36,559     -              13,290,385        2     

Share of other comprehensive loss of associates and joint venture

      (149,907     -              (59,740     -     

Actuarial gain (loss) from defined benefit plans

      290,416        -              (662,074     -     

Income tax benefit (expense) related to components of other comprehensive income

                  (40,915           -                         115,168              -     

Other comprehensive income for the year, net of income tax

            11,834,164              1                    16,352,248              3     

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

      $  275,615,033            36              $  204,371,185            34     

NET INCOME (LOSS) ATTRIBUTABLE TO:

                 

Shareholders of the parent

      $  263,898,794        35              $  188,146,790        31     

Noncontrolling interests

                (117,925           -                        (127,853           -     
      $  263,780,869            35              $  188,018,937            31     

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

                 

Shareholders of the parent

      $  275,717,141        36              $  204,505,782        34     

Noncontrolling interests

                (102,108           -                        (134,597           -     
      $  275,615,033            36              $  204,371,185            34     
   

2014

      2013
   

Income Attributable to
Shareholders of

the Parent

     

Income Attributable to

Shareholders of

the Parent

EARNINGS PER SHARE (NT$, Note 32)

                 

Basic earnings per share

    $    10.18         $    7.26  

Diluted earnings per share

    $    10.18         $    7.26  

 

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

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

 

 

 

Equity Attributable to Shareholders of the Parent

       
                                     

Others

             

Capital Stock - Common Stock

Retained Earnings

 
 
Foreign
Currency
  
  
 
 
 
Unrealized
Gain/Loss
from Available-
  
  
  
 
 
Shares
(In Thousands)
  
  
  Amount      Capital Surplus     
 
Legal Capital
Reserve
  
  
 
 
Special Capital
Reserve
  
  
 
 
Unappropriated
Earnings
  
  
  Total     
 
Translation
Reserve
  
  
 
 
for-sale
Financial Assets
  
  
 
 
Cash Flow
Hedges Reserve
  
  
  Total      Total     
 
Noncontrolling
Interests
  
  
  Total Equity   

BALANCE, JANUARY 1, 2013

  25,924,435    $ 259,244,357    $ 55,675,340    $ 115,820,123    $ 7,606,224    $ 284,985,121    $ 408,411,468    $ (10,753,806 $ 7,973,321    $ -    $ (2,780,485 $ 720,550,680    $ 2,543,226    $ 723,093,906   

Appropriations of prior year’s earnings

Legal capital reserve

  -      -      -      16,615,880      -      (16,615,880   -      -      -      -      -      -      -      -   

Reversal of special capital reserve

  -      -      -      -      (4,820,483   4,820,483      -      -      -      -      -      -      -      -   

Cash dividends to shareholders - NT$3.00 per share

  -      -      -      -      -      (77,773,307   (77,773,307   -      -      -      -      (77,773,307   -      (77,773,307
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Total

  -      -      -      16,615,880      (4,820,483   (89,568,704   (77,773,307   -      -      -      -      (77,773,307   -      (77,773,307
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Net income in 2013

  -      -      -      -      -      188,146,790      188,146,790      -      -      -      -      188,146,790      (127,853   188,018,937   

Other comprehensive income in 2013, net of income tax

  -      -      -      -      -      (591,799   (591,799   3,613,444      13,337,460      (113   16,950,791      16,358,992      (6,744   16,352,248   
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Total comprehensive income in 2013

  -      -      -      -      -      187,554,991      187,554,991      3,613,444      13,337,460      (113   16,950,791      204,505,782      (134,597   204,371,185   
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Issuance of stock from exercise of employee stock options

  4,182      41,814      82,756      -      -      -      -      -      -      -      -      124,570      -      124,570   

Stock option compensation cost of subsidiary

  -      -      -      -      -      -      -      -      -      -      -      -      5,312      5,312   

Adjustments to share of changes in equities of associates and joint venture

  -      -      38,084      -      -      -      -      -      -      -      -      38,084      -      38,084   

From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries

  -      -      62,446      -      -      -      -      -      -      -      -      62,446      (62,446   -   

Increase in noncontrolling interests

  -      -      -      -      -      -      -      -      -      -      -      -      188,488      188,488   

Effect of deconsolidation of subsidiary

  -      -      -      -      -      -      -      -      -      -      -      -      (2,273,153   (2,273,153
     

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2013

  25,928,617      259,286,171      55,858,626      132,436,003      2,785,741      382,971,408      518,193,152      (7,140,362   21,310,781      (113   14,170,306      847,508,255      266,830      847,775,085   

Appropriations of prior year’s earnings

Legal capital reserve

  -      -      -      18,814,679      -      (18,814,679   -      -      -      -      -      -      -      -   

Reversal of special capital reserve

  -      -      -      -      (2,785,741   2,785,741      -      -      -      -      -      -      -      -   

Cash dividends to shareholders - NT$3.00 per share

  -      -      -      -      -      (77,785,851   (77,785,851   -      -      -      -      (77,785,851   -      (77,785,851
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Total

  -      -      -      18,814,679      (2,785,741   (93,814,789   (77,785,851   -      -      -      -      (77,785,851   -      (77,785,851
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Net income in 2014

  -      -      -      -      -      263,898,794      263,898,794      -      -      -      -      263,898,794      (117,925   263,780,869   

Other comprehensive income in 2014, net of income tax

  -      -      -      -      -      239,362      239,362      11,642,475      (63,298   (192   11,578,985      11,818,347      15,817      11,834,164   
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Total comprehensive income in 2014

  -      -      -      -      -      264,138,156      264,138,156      11,642,475      (63,298   (192   11,578,985      275,717,141      (102,108   275,615,033   
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

Issuance of stock from exercise of employee stock options

  1,045      10,453      36,602      -      -      -      -      -      -      -      -      47,055      -      47,055   

Disposal of investments accounted for using equity method

  -      -      (2,273   -      -      -      -      -      -      -      -      (2,273   -      (2,273

Adjustments to share of changes in equities of associates and joint venture

  -      -      93,459      -      -      -      -      -      -      -      -      93,459      (26   93,433   

From differences between equity purchase price and carrying amount arising from actual acquisition or disposal of subsidiaries

  -      -      (8   -      -      (32,793   (32,793   -      -      -      -      (32,801   32,801      -   

From share of changes in equities of subsidiaries

  -      -      3,516      -      -      -      -      -      -      -      -      3,516      (3,516   -   

Decrease in noncontrolling interests

  -      -      -      -      -      -      -      -      -      -      -      -      (66,735   (66,735
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2014

  25,929,662    $ 259,296,624    $ 55,989,922    $ 151,250,682    $ -    $ 553,261,982    $ 704,512,664    $ 4,502,113    $ 21,247,483    $ (305 $ 25,749,291    $ 1,045,548,501    $ 127,246    $ 1,045,675,747   
   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     

 

 

   

 

 

 

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

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

 

  2014   2013  

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax

$     302,097,546    $     215,487,122   

Adjustments for:

Depreciation expense

  197,645,186      153,979,847   

Amortization expense

  2,606,349      2,202,022   

Stock option compensation cost of subsidiary

  -      5,312   

Finance costs

  3,236,345      2,646,776   

Share of profits of associates and joint venture

  (3,949,674   (3,972,031

Interest income

  (2,730,674   (1,835,980

Gain on disposal of property, plant and equipment and intangible assets, net

  (14,518   (48,848

Impairment loss of noncurrent assets held for sale

  734,467      -   

Impairment loss of property, plant and equipment

  239,864      -   

Impairment loss of financial assets

  211,477      352,214   

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

  (280,956   (1,267,086

Gain on disposal of financial assets carried at cost, net

  (81,449   (44,721

Loss (gain) on disposal of investments accounted for using equity method

  (2,028,643   733   

Loss from liquidation of subsidiary

  90      -   

Gain on deconsolidation of subsidiary

  -      (293,578

Unrealized (realized) gross profit on sales to associates

  (28,556   20,870   

Loss on foreign exchange, net

  3,615,493      317,547   

Dividend income

  (649,733   (506,143

Income from receipt of equity securities in settlement of trade receivables

  (1,211   (9,977

Loss from hedging instruments

  10,577,714      5,602,779   

Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion

  (10,088,628   (5,071,118

Changes in operating assets and liabilities:

Derivative financial instruments

  342,853      (32,189

Notes and accounts receivable, net

  (43,090,068   (14,131,066

Receivables from related parties

  (26,405   (204,278

Other receivables from related parties

  (11,766   50,589   

Inventories

  (28,871,597   122,472   

Other financial assets

  (2,612,158   18,578   

Other current assets

  (744,868   (312,251

Accounts payable

  6,634,198      346,401   

Payables to related parties

  (194,866   850,094   

Salary and bonus payable

  2,281,117      883,925   

Accrued profit sharing to employees and bonus to directors and supervisors

  5,314,019      1,552,210   

Accrued expenses and other current liabilities

  8,432,511      3,531,017   

Provisions

  2,836,910      1,595,810   

Accrued pension cost

  41,461      9,554   
  

 

 

   

 

 

 

Cash generated from operations

  451,441,830      361,846,606   

Income taxes paid

  (29,918,099   (14,463,069
  

 

 

   

 

 

 

Net cash generated by operating activities

  421,523,731      347,383,537   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of:

Available-for-sale financial assets

  (91,909   (21,303

Financial assets carried at cost

  (23,151   (27,165

Held-to-maturity financial assets

  (5,882,316   (1,795,949

Property, plant and equipment

  (288,540,028   (287,594,773

Intangible assets

  (3,859,486   (2,750,361

(Continued)

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

 

  2014   2013  

Proceeds from disposal or redemption of:

Available-for-sale financial assets

$ 689,420    $ 2,418,578   

Held-to-maturity financial assets

  3,200,000      5,145,850   

Financial assets carried at cost

  87,501      67,986   

Investments accounted for using equity method

  3,471,883      -   

Property, plant and equipment

  200,263      173,554   

Cash received from other long-term receivables

  161,900      -   

Costs from entering into hedging transactions

  (520,856   (143,982

Interest received

  2,578,663      1,790,725   

Other dividends received

  645,585      506,143   

Dividends received from investments accounted for using equity method

  3,223,090      2,141,881   

Refundable deposits paid

  (57,988   (98,888

Refundable deposits refunded

  2,296,872      113,399   

Net cash outflow from deconsolidation of subsidiary (Note 34)

  -      (979,910
  

 

 

   

 

 

 

Net cash used in investing activities

      (282,420,557       (281,054,215
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term loans

  18,563,525      (19,636,240

Proceeds from issuance of bonds

  -      130,844,821   

Increase in long-term bank loans

  -      690,000   

Repayment of long-term bank loans

  -      (62,500

Repayment of other long-term payables

  -      (853,788

Interest paid

  (3,192,971   (1,330,886

Guarantee deposits received

  30,142,823      41,519   

Guarantee deposits refunded

  (7,704   (113,087

Decrease in obligations under finance leases

  (28,426   (27,796

Proceeds from exercise of employee stock options

  47,055      124,570   

Cash dividends

  (77,785,851   (77,773,307

Increase (decrease) in noncontrolling interests

  (66,735   202,619   
  

 

 

   

 

 

 

Net cash generated by (used in) financing activities

  (32,328,284   32,105,925   
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

  9,060,170      849,612   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

  115,835,060      99,284,859   

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

  242,695,447      143,410,588   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

  358,530,507      242,695,447   

CASH AND CASH EQUIVALENTS INCLUDED IN NONCURRENT ASSETS HELD FOR SALE

  (81,478   -   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENT ON CONSOLIDATED BALANCE SHEET

$ 358,449,029    $ 242,695,447   
  

 

 

   

 

 

 

 

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

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

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

 

 

 

  1. GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 42.

 

  2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

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

 

  3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

  a.

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

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

 

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)

 

- 9 -


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 new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than in the current standards.

 

  2)

IFRS 13, “Fair Value Measurement”

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

The measurement requirements of IFRS 13 shall be applied prospectively.

 

- 10 -


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

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

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

 

  4) Amendments to IAS 19, “Employee Benefits”

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

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

 

  b. The IFRSs issued by IASB but not endorsed by FSC

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

 

New, Revised or Amended Standards and Interpretations

 

Effective Date Issued

by IASB (Note 1)

Annual Improvements to IFRSs 2010 - 2012 Cycle

July 1, 2014 or transactions on or after July 1, 2014

Annual Improvements to IFRSs 2011 - 2013 Cycle

July 1, 2014

Annual Improvements to IFRSs 2012 - 2014 Cycle

January 1, 2016 (Note 2)

IFRS 9 Financial Instruments

January 1, 2018

Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosure

January 1, 2018

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

(Continued)

 

- 11 -


New, Revised or Amended Standards and Interpretations

 

Effective Date Issued
by IASB (Note 1)

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

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

Amendment to IAS 1 Disclosure Initiative

January 1, 2016

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.

 

- 12 -


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

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

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

 

  2) IFRS 15, “Revenue from Contracts with Customers”

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

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

 

  Identify the contract with the customer;
  Identify the performance obligations in the contract;
  Determine the transaction price;
  Allocate the transaction price to the performance obligations in the contracts; and
  Recognize revenue when the entity satisfies a performance obligation.

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

 

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

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

 

- 13 -


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

 

  4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, IASs, interpretations as well as related guidance translated by the Accounting Research and Development Foundation (ARDF) endorsed by the FSC with the effective dates.

Basis of Preparation

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

Basis of Consolidation

The basis for the consolidated financial statements

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

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

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

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

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

 

- 14 -


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

 

  a.

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

 

  b.

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

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

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

The subsidiaries in the consolidated financial statements

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

 

    Name of Investor

Name of Investee

Main Businesses and Products

Establishment

and Operating

Location

Percentage of
Ownership

Note

    December 31,    
2014
    December 31,    
2013

TSMC

TSMC North America

Selling and marketing of integrated circuits and semiconductor devices

San Jose, California, U.S.A.

  100   100 -

TSMC Japan Limited (TSMC Japan)

Marketing activities

Yokohama, Japan

  100   100 a)

TSMC Partners, Ltd. (TSMC Partners)

Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry

Tortola, British Virgin Islands

  100   100 -

TSMC Korea Limited (TSMC Korea)

Customer service and technical supporting activities

Seoul, Korea

  100   100 a)

TSMC Europe B.V. (TSMC Europe)

Marketing and engineering supporting activities

Amsterdam, the Netherlands

  100   100 a)

TSMC Global, Ltd. (TSMC Global)

Investment activities

Tortola, British Virgin Islands

  100   100 -

TSMC China Company Limited (TSMC China)

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

Shanghai, China

  100   100 -

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

Investing in new start-up technology companies

Cayman Islands

  98   50 b)

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

Investing in new start-up technology companies

Cayman Islands

  98   98 -

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

Investing in new start-up technology companies

Cayman Islands

  99.5   99.5 a)

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

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

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 a)

TSMC Partners

TSMC Design Technology Canada Inc. (TSMC Canada)

Engineering support activities

Ontario, Canada

  100   100 a)

TSMC Technology, Inc. (TSMC Technology)

Engineering support activities

Delaware, U.S.A.

  100   100 a)

TSMC Development, Inc. (TSMC Development)

Investment activities

Delaware, U.S.A.

  100   100 -

InveStar Semiconductor Development Fund, Inc. (ISDF)

Investing in new start-up technology companies

Cayman Islands

  97   97 a)

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

Investing in new start-up technology companies

Cayman Islands

  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 -

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 a)

Growth Fund Limited (Growth Fund)

Investing in new start-up technology companies

Cayman Islands

  100   100 a)

(Continued)

 

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      Establishment Percentage of Ownership  
    Name of Investor Name of Investee Main Businesses and Products

and Operating

Location

    December 31,    
2014
    December 31,    
2013
Note

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 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 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 a)

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

Investing in solar related business

Amsterdam, the Netherlands

  100%      100 a), d)

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

Investing in new start-up technology companies

Cayman Islands

  -      49 b)

TSMC Solar Europe

TSMC Solar Europe GmbH

Selling of solar related products and providing customer service

Hamburg, Germany

  100%      100 a), d)

(Concluded)

 

Note a:

This is an immaterial subsidiary for which the consolidated financial statements are not audited 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. TSMC Solar Europe has started their liquidation procedures in the third quarter of 2014.

Foreign Currencies

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

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

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

Classification of Current and Noncurrent Assets and Liabilities

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

 

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Cash Equivalents

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

Financial Instruments

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

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

Financial Assets

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

Financial assets at fair value through profit or loss

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

Held-to-maturity financial assets

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

Available-for-sale financial assets

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

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

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

 

- 17 -


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

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

Loans and receivables

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

Impairment of financial assets

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

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

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

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

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

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

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

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

 

 

- 18 -


Derecognition of financial assets

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

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

Financial Liabilities and Equity Instruments

Classification as debt or equity

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

Equity instruments

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

Financial liabilities

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

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

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

Derecognition of financial liabilities

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

Derivative Financial Instruments

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

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

 

- 19 -


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

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

Inventories

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

Noncurrent Assets Held for Sale

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

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

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

Investments Accounted for Using Equity Method

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

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

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

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

 

- 20 -


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

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

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

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

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

Property, Plant and Equipment

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

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

 

- 21 -


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

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

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

Leases

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

The Company as lessor

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

The Company as lessee

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

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

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

Intangible Assets

Goodwill

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

Other intangible assets

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

 

- 22 -


Impairment of Tangible and Intangible Assets

Goodwill

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

Other tangible and intangible assets

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

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

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

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

Provision

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

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

Revenue Recognition

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

 

- 23 -


Sale of goods

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

 

 

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

 

 

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

 

 

The amount of revenue can be measured reliably;

 

 

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

 

 

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

In principle, payment term granted to customers is due 30 days from the invoice date or 30 days from the end of the month of when the invoice is issued. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

Royalties, dividend and interest income

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

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

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

Retirement Benefits

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

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

Share-based Payment Arrangements

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

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

 

- 24 -


Taxation

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

Current tax

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

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

Deferred tax

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

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

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

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

Current and deferred tax for the year

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

 

- 25 -


  5.

CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

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

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

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

Revenue Recognition

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

Impairment of Tangible and Intangible Assets Other than Goodwill

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

Impairment of Goodwill

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

Impairment Assessment on Investment Using Equity Method

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

 

- 26 -


Realization of Deferred Income Tax Assets

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

Valuation of Inventory

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

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

Recognition and Measurement of Defined Benefit Plans

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

 

  6. CASH AND CASH EQUIVALENTS

 

 

December 31,

2014

  December 31,
2013
 

Cash and deposits in banks

$ 352,761,240    $ 238,014,580   

Repurchase agreements collateralized by corporate bonds

  3,920,562      1,809,344   

Commercial paper

  1,159,325      -   

Repurchase agreements collateralized by short-term commercial paper

  449,180      2,395,644   

Repurchase agreements collateralized by government bonds

  158,722      475,879   
  

 

 

    

 

 

 
$ 358,449,029    $ 242,695,447   
  

 

 

    

 

 

 

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

 

- 27 -


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

 

 

December 31,

2014

December 31,
2013

Derivative financial assets

Cross currency swap contracts

$  118,928 $             -

Forward exchange contracts

      73,117       90,353
$  192,045 $    90,353

Derivative financial liabilities

Cross currency swap contracts

$  359,607 $      4,177

Forward exchange contracts

    126,607       29,573
$  486,214 $    33,750

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

Outstanding forward exchange contracts consisted of the following:

 

  Maturity Date

Contract Amount

(In Thousands)

December 31, 2014

Sell EUR/Buy US$

January 2015 EUR4,550/US$5,561

Sell NT$/Buy US$

January 2015 NT$1,632,401/US$51,900

Sell US$/Buy EUR

January 2015 US$29,450/EUR24,100

Sell US$/Buy JPY

January 2015 US$226,003/JPY27,150,983

Sell US$/Buy NT$

January 2015 US$170,000/NT$5,276,500

Sell US$/Buy RMB

January 2015 US$181,000/RMB1,129,243

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

 

- 28 -


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

December 31, 2014

January 2015

NT$2,511,905/ US$80,080 - 0.05%~0.13%

January 2015

US$1,460,000/ NT$45,974,755 0.16%~1.92% -

December 31, 2013

January 2014

NT$1,639,215/US$55,080 - 1.03%~2.00%

 

  8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

December 31,

2014

  December 31,
2013
 

Publicly traded stocks

$ 73,797,085    $ 59,481,569   

Money market funds

  391      1,183   
  

 

 

    

 

 

 
$ 73,797,476    $ 59,482,752   
  

 

 

    

 

 

 

Current portion

$ 73,797,476    $ 760,793   

Noncurrent portion

  -      58,721,959   
  

 

 

    

 

 

 
$ 73,797,476    $ 59,482,752   
  

 

 

    

 

 

 

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

 

 

December 31,

2014

  December 31,
2013
 

Current portion

Commercial paper

$ 4,485,593    $ 1,795,949   
  

 

 

    

 

 

 

 

10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

 

December 31,

2014

  December 31,
2013
 

Financial liabilities - current

Fair value hedges
Stock forward contracts

$ 16,364,241    $ -   
  

 

 

    

 

 

 

(Continued)

 

- 29 -


 

December 31,

2014

  December 31,
2013
 

Financial liabilities - noncurrent

Fair value hedges
Stock forward contracts

$ -    $ 5,481,616   
  

 

 

    

 

 

 

(Concluded)

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

The outstanding stock forward contracts consisted of the following:

 

 

December 31,

2014

 

December 31,

2013

 

Contract amount (US$ in thousands)

 $ 56,172,570     $ 37,431,626   
(US$ 1,771,000 (US$ 1,256,095

 

11. NOTES AND ACCOUNTS RECEIVABLE, NET

 

 

December 31,

2014

  December 31,
2013
 

Notes and accounts receivable

$ 115,221,473    $ 72,136,514   

Allowance for doubtful receivables

  (486,730   (486,588
  

 

 

   

 

 

 

Notes and accounts receivable, net

$ 114,734,743    $ 71,649,926   
  

 

 

   

 

 

 

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

 

 

December 31,

2014

  December 31,
2013
 

Neither past due nor impaired

$ 102,692,871    $ 64,112,564   

Past due but not impaired
Past due within 30 days

  12,041,872      7,537,362   
  

 

 

    

 

 

 
$ 114,734,743    $ 71,649,926   
  

 

 

    

 

 

 

 

- 30 -


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

  35        23,374        23,409     

Reversal

  -        (23,409)       (23,409)    

Effect of exchange rate changes

                  -                     142                     142     

Balance at December 31, 2014

  $      8,093        $    478,637        $    486,730     

Balance at January 1, 2013

  $  137,336        $    342,876        $    480,212     

Provision

  -        137,317        137,317     

Reversal

  (127,881)       -        (127,881)    

Effect of deconsolidation of subsidiary

  (3,157)       -        (3,157)    

Effect of exchange rate changes

          1,760                (1,663                    97     

Balance at December 31, 2013

  $      8,058        $    478,530        $    486,588     

 

Aging analysis of accounts receivable that is individually determined as impaired

 

 
     

December 31,

2014

  December 31,
2013
 

Not past due

  $             -          $           38       

Past due 1-30 days

  -          276       

Past due 31-60 days

  -          80       

Past due 61-120 days

  -          158       

Past due over 121 days

          8,093                  7,824       
  $      8,093          $      8,376       

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

 

12.

INVENTORIES

 

 

December 31,

2014

  December 31,
2013
 

Finished goods

$ 9,972,024    $ 7,245,209   

Work in process

  51,027,892      26,033,625   

Raw materials

  3,222,523      2,435,269   

Supplies and spare parts

  2,115,532      1,780,790   
 

 

 

    

 

 

 
$ 66,337,971    $ 37,494,893   
 

 

 

    

 

 

 

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

 

- 31 -


13. NONCURRENT ASSETS HELD FOR SALE

In January 2015, the Board of Directors of TSMC approved a sale of TSMC SSL common shares of 565,480 thousand held by TSMC and TSMC Guang Neng to Epistar Corp. with the expectation to complete the sale within twelve months. Accordingly, the Company has reclassified TSMC SSL as a disposal group held for sale in its consolidated balance sheet as of December 31, 2014. The expected fair value less costs to sell is substantially lower than the carrying amount of the related net assets of TSMC SSL; as such, impairment losses of NT$734,467 thousand were recognized under other operating gains and losses in the Company’s consolidated statement of comprehensive income for the year ended December 31, 2014. TSMC SSL is classified in the other operating segment of the Company. The major classes of assets and liabilities classified as held for sale were disclosed as follows:

 

 

December 31,

2014

Noncurrent assets held for sale

 

Cash and cash equivalents

  $ 81,478  

Inventories

    28,519  

Other current assets

    91,331  

Property, plant and equipment

    644,698  

Intangible assets

    47,373  

Others

    51,957  
    

 

 

 
  $   945,356  
    

 

 

 

Liabilities directly associated with noncurrent assets held for sale

 

Salary and bonus payable

  $ 38,151  

Accrued expenses and other current liabilities

    68,132  

Accrued pension cost

    36,993  

Others

    76,915  
    

 

 

 
  $ 220,191  
    

 

 

 

 

14. FINANCIAL ASSETS CARRIED AT COST

 

 

December 31,

2014

December 31,
2013

Non-publicly traded stocks

  $   1,606,659     $   1,865,078  

Mutual funds

    193,883       280,513  
    

 

 

         

 

 

    
  $   1,800,542     $   2,145,591  
    

 

 

         

 

 

    

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

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

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

 

- 32 -


15. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

December 31,

2014

  December 31,
2013
 

Associates

$ 24,963,336    $ 24,823,807   

Jointly controlled entities

  3,287,666      3,492,453   
  

 

 

    

 

 

 
$ 28,251,002    $ 28,316,260   
  

 

 

    

 

 

 

 

  a.

Investments in associates

Associates consisted of the following:

 

Name of Associate

  

Principal Activities

  

Place of

Incorporation
and Operation

   Carrying Amount      % of Ownership and Voting
Rights Held by the Company
         December 31,
2014
     December 31,
2013
     December 31,
2014
   December 31,
2013

Vanguard International Semiconductor Corporation (VIS)

  

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

  

Hsinchu, Taiwan

   $ 10,100,750       $ 10,556,348              33%           39%

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

  

Fabrication and supply of integrated circuits

  

Singapore

     8,296,955         7,457,733              39%           39%

Motech Industries, Inc. (Motech)

  

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

  

Taipei, Taiwan

     3,408,945         3,887,462              20%           20%

Xintec Inc. (Xintec)

  

Wafer level chip size packaging service

  

Taoyuan, Taiwan

     2,053,982         1,866,123              40%           40%

Global Unichip Corporation (GUC)

  

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

  

Hsinchu, Taiwan

     1,102,704         1,056,141              35%           35%
        

 

 

    

 

 

       
         $ 24,963,336       $ 24,823,807         
        

 

 

    

 

 

       

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

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

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

 

- 33 -


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

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

 

    

December 31,

2014

   December 31,
2013

Total assets

     $   101,074,142        $    96,689,523  

Total liabilities

       (28,484,295 )        (28,141,625 )
    

 

 

      

 

 

 

Net assets

  $ 72,589,847     $ 68,547,898  
    

 

 

      

 

 

 

The Company’s share of net assets of associates

  $ 24,963,336     $ 24,823,807  
    

 

 

      

 

 

 
      Years Ended December 31    
  2014 2013

Net revenue

  $   70,466,409     $   67,752,079  
    

 

 

      

 

 

 

Net income

  $ 9,477,112     $ 8,325,722  
    

 

 

      

 

 

 

Other comprehensive income

  $ 48,121     $ 168,081  
    

 

 

      

 

 

 

The Company’s share of profits of associates

  $ 3,693,723     $ 3,518,495  
    

 

 

      

 

 

 

The Company’s share of other comprehensive income of associates

  $ 5,285     $ 18,554  
    

 

 

      

 

 

 

 

The market prices of the investments accounted for using the equity method in publicly traded stocks calculated
by the closing price at the end of the reporting period are summarized as follows:

 

Name of Associate

December 31,

2014

December 31,
2013

VIS

  $   28,567,489     $   22,239,112  
    

 

 

      

 

 

 

Motech

  $ 4,242,769     $ 5,345,015  
    

 

 

      

 

 

 

GUC

  $ 4,327,965     $ 3,454,902  
    

 

 

      

 

 

 

 

  b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

Name of Jointly

Controlled Entity

  

Principal Activities

  

Place of

Incorporation
and Operation

   Carrying Amount      % of Ownership and Voting
Rights Held by the Company
           December 31,
2014
     December 31,  
2013
       December 31,
2014
   December 31,  
2013

VisEra Holding Company (VisEra Holding)

  

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

   Cayman Islands      $      3,287,666         $      3,492,453       49%    49%

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

 

- 34 -


 

December 31,

2014

December 31,
2013

Current assets

  $   2,177,294     $   2,335,612  
    

 

 

      

 

 

 

Noncurrent assets

  $ 1,449,719     $ 1,564,485  
    

 

 

      

 

 

 

Current liabilities

  $ 338,850     $ 407,184  
    

 

 

      

 

 

 

Noncurrent liabilities

  $ 497     $ 460  
    

 

 

      

 

 

 
      Years Ended December 31    
  2014 2013

Net revenue

  $   1,517,845     $ 1,801,619  
    

 

 

      

 

 

 

Income from operations

  $ 295,719     $ 474,787  
    

 

 

      

 

 

 

Net income

  $ 255,951     $ 453,536  
    

 

 

      

 

 

 

Other comprehensive loss

  $ (155,192 )   $ (78,294 )
    

 

 

      

 

 

 

Total comprehensive income

  $ 100,759     $ 375,242  
    

 

 

      

 

 

 

Income tax expense

  $ 14,535     $ 64,311  
    

 

 

      

 

 

 

The Company’s share of profits of joint venture

  $ 255,951     $ 453,536  
    

 

 

      

 

 

 

The Company’s share of other comprehensive loss of joint venture

  $ (155,192 )   $ (78,294 )
    

 

 

      

 

 

 

 

16. PROPERTY, PLANT AND EQUIPMENT

 

  Land and Land
Improvements
Buildings Machinery and
Equipment
Office Equipment Assets under
Finance Leases
Equipment under
Installation and
Construction in
Progress
Total

Cost

             

Balance at January 1, 2014

  $ 3,986,909     $ 229,182,736     $ 1,413,919,794     $ 22,062,032     $ 804,430     $ 272,173,793     $ 1,942,129,694  

Additions (decrease)

    -       39,833,068       340,660,987       6,499,009       -       (162,974,350  )     224,018,714  

Disposals or retirements

    -       (108,660  )     (2,128,065  )     (645,936  )     -       -       (2,882,661  )

Reclassification

    -       (1,996  )     1,996       -       -       -       -  

Reclassification as held for sale

    -       (854,949  )     (2,231,405  )     (67,820  )     -       (2,550  )     (3,156,724  )

Effect of exchange rate changes

    49,876       1,113,651       3,946,920       113,550       36,724       137,843       5,398,564  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Balance at December 31, 2014

  $ 4,036,785     $ 269,163,850     $ 1,754,170,227     $ 27,960,835     $ 841,154     $ 109,334,736     $ 2,165,507,587  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Accumulated depreciation and impairment

             

Balance at January 1, 2014

  $ 404,192     $ 125,234,166     $ 1,009,213,689     $ 14,225,771     $ 385,963     $ -     $ 1,149,463,781  

Additions

    27,628       15,589,023       178,850,625       3,135,825       42,085       -       197,645,186  

Disposals or retirements

    -       (107,699  )     (1,998,255  )     (645,679  )     -       -       (2,751,633  )

Impairment

    -       -       239,864       -       -       -       239,864  

Reclassification

    -       (532  )     532       -       -       -       -  

Reclassification as held for sale

    -       (257,690  )     (1,476,511  )     (43,358  )     -       -       (1,777,559  )

Effect of exchange rate changes

    27,320       788,645       3,558,458       95,375       19,349       -       4,489,147  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Balance at December 31, 2014

  $ 459,140     $ 141,245,913     $ 1,188,388,402     $ 16,767,934     $ 447,397     $ -     $ 1,347,308,786  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Carrying amounts at December 31, 2014

  $ 3,577,645     $ 127,917,937     $ 565,781,825     $ 11,192,901     $ 393,757     $ 109,334,736     $ 818,198,801  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Cost

             

Balance at January 1, 2013

  $ 1,527,124     $ 197,411,851     $ 1,279,893,177     $ 20,067,943     $ 766,732     $ 119,063,976     $ 1,618,730,803  

Additions

    3,212,000       31,869,046       140,223,121       3,791,109       -       154,706,858       333,802,134  

Disposals or retirements

    -       -       (2,925,145  )     (788,080  )     -       -       (3,713,225  ) 

Reclassification

    -       3,797       360       -       -       -       4,157  

Effect of deconsolidation of subsidiary

    (772,029  )     (986,205  )     (5,630,854  )     (1,055,809  )     -       (1,632,860  )     (10,077,757  )

Effect of exchange rate changes

    19,814       884,247       2,359,135       46,869       37,698       35,819       3,383,582  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Balance at December 31, 2013

  $ 3,986,909     $ 229,182,736     $ 1,413,919,794     $ 22,062,032     $ 804,430     $ 272,173,793     $ 1,942,129,694  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Accumulated depreciation and impairment

             

Balance at January 1, 2013

  $ 367,369     $ 111,801,731     $ 875,510,879     $ 13,160,567     $ 328,069     $ -     $ 1,001,168,615  

Additions

    27,069       13,183,558       138,314,235       2,413,652       41,333       -       153,979,847  

Disposals or retirements

    -       -       (2,809,185  )     (786,464  )     -       -       (3,595,649  )

Effect of deconsolidation of subsidiary

    -       (226,908  )     (3,656,326  )     (599,483  )     -       -       (4,482,717  )

Effect of exchange rate changes

    9,754       475,785       1,854,086       37,499       16,561       -       2,393,685  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Balance at December 31, 2013

  $ 404,192     $ 125,234,166     $ 1,009,213,689     $ 14,225,771     $ 385,963     $ -     $ 1,149,463,781  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

Carrying amounts at December 31, 2013

  $         3,582,717     $     103,948,570     $     404,706,105     $       7,836,261     $       418,467     $     272,173,793         $ 792,665,913  
      

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

        

 

 

 

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

 

- 35 -


In the second quarter of 2014, the Company recognized impairment losses of NT$239,864 thousand under other operating segments since the carrying amount of some of machinery and equipment is expected to be unrecoverable. Such impairment losses were included in other operating income and expenses for the year ended December 31, 2014.

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

Future minimum lease gross payments were as follows:

 

 

December 31,

2014

December 31,
2013

Minimum lease payments

   

Not later than 1 year

  $ 29,667     $ 28,376  

Later than 1 year and not later than 5 years

    859,744       850,703  
    

 

 

      

 

 

 
    889,411       879,079  

Less:    Future finance expenses

    77,862       94,040  
    

 

 

      

 

 

 

Present value of minimum lease payments

  $   811,549     $   785,039  
    

 

 

      

 

 

 

Present value of minimum lease payments

   

Not later than 1 year

  $ 28,944     $ 27,684  

Later than 1 year and not later than 5 years

    782,605       757,355  
    

 

 

      

 

 

 
  $ 811,549     $ 785,039  
    

 

 

      

 

 

 

Current portion (classified under accrued expenses and other current liabilities)

  $ 9,441     $ 8,809  

Noncurrent portion

    802,108       776,230  
    

 

 

      

 

 

 
  $ 811,549     $   785,039  
    

 

 

      

 

 

 

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

 

17. INTANGIBLE ASSETS

 

     Goodwill        Technology
License Fees
     Software and
System Design
Costs
     Patent and
Others
     Total  

Cost

                

Balance at January 1, 2014

   $ 5,627,517         $ 4,444,828       $ 17,086,805       $ 3,729,396       $ 30,888,546   

Additions

     -           1,906,892         1,695,201         826,223         4,428,316   

Retirements

     -           -         (51,405      -         (51,405

Reclassification as held for sale

     -           -         (39,622      (269,174      (308,796

Effect of exchange rate changes

     261,296           (1,467      6,119         6,110         272,058   
  

 

 

      

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2014

   $     5,888,813         $     6,350,253       $     18,697,098       $      4,292,555       $     35,228,719   
  

 

 

      

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 36 -


       Goodwill      Technology
License Fees
   Software and
System Design
Costs
   Patent and
Others
   Total

Accumulated amortization

                            

Balance at January 1, 2014

       $ -          $ 3,341,667        $ 13,439,135        $ 2,617,361        $ 19,398,163  

Additions

         -            438,712          1,499,677          667,960          2,606,349  

Retirements

         -            -          (51,405 )        -          (51,405 )

Reclassification as held for sale

         -            -          (32,009 )        (229,414 )        (261,423 )

Effect of exchange rate changes

         -            (1,467 )        5,748          1,244          5,525  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Balance at December 31, 2014

       $ -          $ 3,778,912        $ 14,861,146        $ 3,057,151        $ 21,697,209  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Carrying amounts at December 31, 2014

       $ 5,888,813          $ 2,571,341        $ 3,835,952        $ 1,235,404        $ 13,531,510  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Cost

                            

Balance at January 1, 2013

       $ 5,523,707          $ 4,590,548        $ 15,095,421        $ 3,094,664        $ 28,304,340  

Additions

         -            -          2,140,675          578,901          2,719,576  

Retirements

         -            -          (18,246 )        (23,549 )        (41,795 )

Reclassification

         -            (29,564 )        (111,105 )        101,007          (39,662 )

Effect of deconsolidation of subsidiary

         -            (113,340 )        (25,335 )        (42,089 )        (180,764 )

Effect of exchange rate changes

         103,810            (2,816 )        5,395          20,462          126,851  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Balance at December 31, 2013

       $ 5,627,517          $ 4,444,828        $ 17,086,805        $ 3,729,396        $ 30,888,546  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Accumulated amortization

                            

Balance at January 1, 2013

       $ -          $ 3,128,655        $ 12,126,479        $ 2,089,637        $ 17,344,771  

Additions

         -            282,414          1,344,339          575,269          2,202,022  

Retirements

         -            -          (17,974 )        (23,549 )        (41,523 )

Reclassification

         -            -          (5,941 )        -          (5,941 )

Effect of deconsolidation of subsidiary

         -            (66,587 )        (12,661 )        (25,195 )        (104,443 )

Effect of exchange rate changes

         -            (2,815 )        4,893          1,199          3,277  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Balance at December 31, 2013

       $ -          $ 3,341,667        $ 13,439,135        $ 2,617,361        $ 19,398,163  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

Carrying amounts at December 31, 2013

       $      5,627,517          $      1,103,161        $      3,647,670        $      1,112,035        $      11,490,383  
      

 

 

        

 

 

      

 

 

      

 

 

      

 

 

 

(Concluded)

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

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

 

18. OTHER ASSETS

 

 

December 31,

2014

  December 31,
2013
 

Tax receivable

  $  2,187,136       $  1,781,376    

Prepaid expenses

  1,399,810       1,081,957    

Long-term receivable

  385,700       820,000    

Others

         885,470              770,468    
  $  4,858,116       $  4,453,801    

Current portion

  $  3,656,110       $  2,984,224    

Noncurrent portion

      1,202,006           1,469,577    
  $  4,858,116       $  4,453,801    

 

- 37 -


19. SHORT-TERM LOANS

 

 

December 31, 

    2014 

December 31, 

    2013 

Unsecured loans

   

Amount

    $  36,158,520       $  15,645,000  

Original loan content

   

US$ (in thousands)

    $    1,140,000       $       525,000  

Annual interest rate

    0.38%-0.50%        0.38%-0.42%   

Maturity date

   

 

Due in January

    2015

 

 

   

 

Due in January

    2014

 

 

 

20. PROVISIONS

 

 

December 31,

2014

  December 31,
2013
 

Sales returns and allowances

$ 10,445,452    $ 7,603,781   

Warranties

  19,828      10,452   
  

 

 

    

 

 

 
$ 10,465,280    $ 7,614,233   
  

 

 

    

 

 

 

Current portion

$ 10,445,452    $ 7,603,781   

Noncurrent portion (classified under other noncurrent liabilities)

  19,828      10,452   
  

 

 

    

 

 

 
$   10,465,280    $    7,614,233   
  

 

 

    

 

 

 

 

  Sales Returns
and Allowances
Warranties Total

Year ended December 31, 2014

     

Balance, beginning of year

  $ 7,603,781     $ 10,452     $ 7,614,233  

Provision

    10,506,398       11,365       10,517,763  

Payment

    (7,679,321 )     (1,532 )     (7,680,853 )

Reclassification as held for sale

    (7,601 )     -       (7,601 )

Effect of exchange rate changes

    22,195       (457 )     21,738  
    

 

 

     

 

 

     

 

 

 

Balance, end of year

  $   10,445,452     $ 19,828     $     10,465,280  
    

 

 

     

 

 

     

 

 

 

Year ended December 31, 2013

     

Balance, beginning of year

  $ 6,038,003     $ 4,891     $ 6,042,894  

Provision

    6,633,290       6,162       6,639,452  

Payment

    (5,042,752 )     (890 )     (5,043,642 )

Effect of deconsolidation of subsidiary

    (37,748 )     -       (37,748 )

Effect of exchange rate changes

    12,988       289       13,277  
    

 

 

     

 

 

     

 

 

 

Balance, end of year

  $ 7,603,781     $          10,452     $ 7,614,233  
    

 

 

     

 

 

     

 

 

 

 

- 38 -


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

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

 

21. BONDS PAYABLE

 

 

December 31,

2014

  December 31,
2013
 

Noncurrent portion

Domestic unsecured bonds

$ 166,200,000    $ 166,200,000   

Overseas unsecured bonds

  47,577,000      44,700,000   
  

 

 

   

 

 

 
  213,777,000      210,900,000   

Less:    Discounts on bonds payable

  (103,182   (132,375
  

 

 

   

 

 

 
$ 213,673,818    $ 210,767,625   
  

 

 

   

 

 

 

The major terms of domestic unsecured bonds are as follows:

 

  Issuance     Tranche Issuance Period Total Amount   Coupon
Rate

Repayment and

Interest Payment

100-1

A

September 2011 to
September 2016

  $ 10,500,000     1.40%

Bullet repayment;
interest payable
annually

B

September 2011 to
September 2018

  7,500,000     1.63%

The same as above

100-2

A

January 2012 to
January 2017

  10,000,000     1.29%

The same as above

B

January 2012 to
January 2019

  7,000,000     1.46%

The same as above

101-1

A

August 2012 to
August 2017

  9,900,000     1.28%

The same as above

B

August 2012 to
August 2019

  9,000,000     1.40%

The same as above

101-2

A

September 2012 to
September 2017

  12,700,000     1.28%

The same as above

B

September 2012 to
September 2019

  9,000,000     1.39%

The same as above

101-3

-

October 2012 to
October 2022

  4,400,000     1.53%

The same as above

101-4

A

January 2013 to
January 2018

  10,600,000     1.23%

The same as above

B

January 2013 to
January 2020

  10,000,000     1.35%

The same as above

C

January 2013 to
January 2023

  3,000,000     1.49%

The same as above

(Continued)

 

- 39 -


  Issuance     Tranche Issuance Period Total Amount   Coupon
Rate

Repayment and

Interest Payment

102-1

A

February 2013 to
February 2018

 $ 6,200,000     1.23%

Bullet repayment;
interest payable annually

B

February 2013 to
February 2020

  11,600,000     1.38%

The same as above

C

February 2013 to
February 2023

  3,600,000     1.50%

The same as above

102-2

A

July 2013 to July 2020

  10,200,000     1.50%

The same as above

B

July 2013 to July 2023

  3,500,000     1.70%

The same as above

102-3

A

August 2013 to
August 2017

  4,000,000     1.34%

The same as above

B

August 2013 to
August 2019

  8,500,000     1.52%

The same as above

102-4

A

September 2013 to
September 2016

  1,500,000     1.35%

The same as above

B

September 2013 to
September 2017

  1,500,000     1.45%

The same as above

C

September 2013 to
March 2019

  1,400,000     1.60%

Bullet repayment;
interest payable annually (interest for the six months prior to maturity will accrue on the basis of actual days and be repayable at maturity)

D

September 2013 to
March 2021

  2,600,000     1.85%

The same as above

E

September 2013 to
March 2023

  5,400,000     2.05%

The same as above

F

September 2013 to
September 2023

  2,600,000     2.10%

Bullet repayment;
interest payable annually

(Concluded)

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

 

- 40 -


22. RETIREMENT BENEFIT PLANS

 

  a.

Defined contribution plans

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

 

  b.

Defined benefit plans

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

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

 

  Measurement Date
 

    December 31,

2014

December 31,    
2013

Discount rate

    2.25%       2.15%  

Future salary rate increase

    3.00%       3.00%  

Expected rate of return on plan assets

    1.50%       1.25%  

The pension costs of the defined benefit plans recognized in profit or loss were as follows:

  

          Years Ended December 31        
      2014     2013

Current service cost

    $  161,854       $  134,762  

Interest cost

    220,121       175,563  

Expected return on plan assets

    (44,353 )     (67,324 )

Past service cost

        (50,920 )            (7,240 )
    $  286,702       $  235,761  

 

- 41 -


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

 

      Years Ended December 31        
      2014       2013  

Cost of revenue

    $  186,055        $  152,512   

Research and development expenses

    75,595        60,864   

General and administrative expenses

 

 

19,860

  

    18,080   

Marketing expenses

            5,192                4,305   
    $  286,702        $  235,761   

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

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

 

 

December 31,

2014

December 31,
2013

Present value of defined benefit obligation

  $ 10,265,284     $ 10,329,510  

Fair value of plan assets

    (3,697,501 )     (3,527,847 )
    

 

 

     

 

 

 

Funded status

    6,567,783       6,801,663  

Unrecognized prior service cost

    737,343       788,263  

Unrecognized prior service cost reclassified as held for sale

    (1,148 )     -  
    

 

 

     

 

 

 

Accrued pension cost

  $ 7,303,978     $ 7,589,926  
    

 

 

     

 

 

 

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

  

 
          Years Ended December 31        
  2014 2013

Balance, beginning of year

  $ 10,329,510     $ 10,133,361  

Current service cost

    161,854       134,762  

Interest cost

    220,121       175,563  

Effect of plan changes

    -       (655,179 )

Benefits paid from plan assets

    (104,980 )     (50,508 )

Benefits paid directly by the Company

    (23,247 )     (7,011 )

Actuarial loss (gain)

    (251,486 )     638,071  

Reclassification as held for sale

    (66,488 )     -  

Effect of deconsolidation of subsidiary

    -       (39,549 )
    

 

 

     

 

 

 

Balance, end of year

  $   10,265,284     $   10,329,510  
    

 

 

     

 

 

 

 

- 42 -


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

 

        Years Ended December 31      
  2014 2013

Balance, beginning of year

    $  3,527,847        $  3,352,567   

Expected return on plan assets

    44,353        67,324   

Actuarial gain (loss)

    38,930        (24,003

Contributions from employer

    221,994        219,062   

Benefits paid from plan assets

    (104,980     (50,508

Reclassification as held for sale

    (30,643     -   

Effect of deconsolidation of subsidiary

                      -              (36,595

Balance, end of year

    $  3,697,501        $  3,527,847   

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

 

  Fair Value of Plan Assets (%)
 

  December 31,

2014

December 31,  
2013

Cash

    19       23  

Equity instruments

    50       45  

Debt instruments

    31       32  
    

 

 

      

 

 

 
    100       100  
    

 

 

      

 

 

 

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

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

 

 

December 31,

2014

December 31,
2013

December 31,

2012

January 1,
2012

Experience adjustments on plan liabilities

  $ (101,499 )   $   1,294,538     $     396,616     $             -  
    

 

 

     

 

 

     

 

 

     

 

 

 

Experience adjustments on plan assets

  $         38,930     $ (24,003 )   $ (29,858 )   $ -  
    

 

 

     

 

 

     

 

 

     

 

 

 

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

 

- 43 -


23. GUARANTEE DEPOSITS

 

 

December 31,

2014

December 31,
2013

Capacity guarantee

  $ 30,132,100     $ -  

Others

    164,075       151,660  
    

 

 

      

 

 

 
  $ 30,296,175     $ 151,660  
    

 

 

      

 

 

 

Current portion (classified under accrued expenses and other current liabilities)

  $ 4,757,700     $ -  

Noncurrent portion

    25,538,475       151,660  
    

 

 

      

 

 

 
  $   30,296,175     $        151,660  
    

 

 

      

 

 

 

 

24. EQUITY

 

  a.

Capital stock

 

 

December 31,

2014

December 31,
2013

Authorized shares (in thousands)

    28,050,000       28,050,000  
    

 

 

      

 

 

 

Authorized capital

  $ 280,500,000     $ 280,500,000  
    

 

 

      

 

 

 

Issued and paid shares (in thousands)

    25,929,662       25,928,617  
    

 

 

      

 

 

 

Issued capital

  $   259,296,624     $   259,286,171  
    

 

 

      

 

 

 

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

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

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

 

  b.

Capital surplus

 

 

December 31,

2014

December 31,
2013

Additional paid-in capital

  $   24,053,965     $   24,017,363  

From merger

    22,804,510       22,804,510  

From convertible bonds

    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  

From share of changes in equities of subsidiaries

    104,335       -  

From share of changes in equities of associates and joint venture

    134,210       43,024  

Donations

    55       55  
    

 

 

      

 

 

 
  $ 55,989,922     $ 55,858,626  
    

 

 

      

 

 

 

 

- 44 -


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

 

  c.

Retained earnings and dividend policy

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

 

  1)

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

 

  2)

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

 

  3)

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

 

  4)

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

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

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

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

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

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

 

- 45 -


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

 

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

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

 

  Appropriation
of Earnings
Dividends Per
Share (NT$)
   For Fiscal Year 
2014
 For Fiscal Year 
2014

Legal capital reserve

  $ 26,389,879    

Cash dividends to shareholders

    116,683,481     $               4.50  
    

 

 

      
  $  143,073,360    
    

 

 

      

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

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

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

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

 

- 46 -


  d.

Others

Changes in others were as follows:

 

                                     Year Ended December 31, 2014                                   
  Foreign
Currency
Translation
Reserve

Unrealized
Gain/Loss from
Available-for-

sale Financial
Assets

Cash Flow

Hedges Reserve

Total

Balance, beginning of year

  $ (7,140,362 )   $ 21,310,781     $ (113 )   $ 14,170,306  

Exchange differences arising on translation of foreign operations

    11,769,466       -       -       11,769,466  

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

    -       229,571       -       229,571  

Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets

    -       (279,531 )     -       (279,531 )

Share of other comprehensive income of associates and joint venture

    (130,092 )     (5,287 )     (192 )     (135,571 )

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

    -       (5,131 )     -       (5,131 )
    

 

 

      

 

 

      

 

 

      

 

 

 

Balance, end of year

  $    4,502,113     $   21,247,483     $             (305 )   $   25,749,291  
    

 

 

      

 

 

      

 

 

      

 

 

 

 

                                     Year Ended December 31, 2013                                   
  Foreign
Currency
Translation
Reserve

Unrealized
Gain/Loss from
Available-for-

sale Financial

Assets

Cash Flow
Hedges Reserve
Total

Balance, beginning of year

  $ (10,753,806 )   $   7,973,321     $                   -     $   (2,780,485 )

Exchange differences arising on translation of foreign operations

    3,667,657       -       -       3,667,657  

Changes in fair value of available-for-sale financial assets

    -       14,554,695       -       14,554,695  

Cumulative (gain)/loss reclassified to profit or loss upon disposal of available-for-sale financial assets

    -       (1,256,281 )     -       (1,256,281 )

(Continued)

 

- 47 -


  Year Ended December 31, 2013  
  Foreign
Currency
Translation
Reserve

Unrealized
Gain/Loss from
Available-for-

sale Financial

Assets

Cash Flow
Hedges Reserve
Total

Share of other comprehensive income of associates and joint venture

  $ (54,989 )   $ 2,551     $ (113 )   $ (52,551 )

The proportionate share of other comprehensive income/losses reclassified to profit or loss upon partial disposal of associates

    776       (44 )     -       732  

Income tax effect

    -       36,539       -       36,539  
    

 

 

      

 

 

      

 

 

      

 

 

 

Balance, end of year

  $   (7,140,362 )   $   21,310,781     $         (113 )   $   14,170,306  
    

 

 

      

 

 

      

 

 

      

 

 

 

(Concluded)

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

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