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 February 2018

 

 

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  ☒            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  ☒

(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: Feb 26, 2018     By  

/s/ Lora Ho

      Lora Ho
      Senior Vice President & Chief Financial Officer


   Taiwan Semiconductor Manufacturing Company Limited   
  

Parent Company Only Financial Statements for the

Years Ended December 31, 2017 and 2016 and

Independent Auditors’ Report

  


INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

Opinion

We have audited the accompanying parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited (the “Company”), which comprise the parent company only balance sheets as of December 31, 2017 and 2016, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as of December 31, 2017 and 2016, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters for the Company’s parent company only financial statements for the year ended December 31, 2017 are stated as follows:

Provision for sales returns and allowances

In consideration of business volume and market conditions, the Company provides a variety of business incentives to specific customers or products. The provision for sales returns and allowance is based on historical experience and the varying contractual terms. Please refer to Notes 4, 5 and 17 to the parent company only financial statements for the details of the information about provision for sales returns and allowances. Since the provision for sales returns and allowances is subject to accounting judgment and estimation, and the result could also affect the net revenue in the parent company only financial statements, it has been identified as a key audit matter.

 

- 1 -


Our key audit procedures performed in respect of the above area included the following:

 

1. Understood and tested the design and operating effectiveness of the key controls over provision for sales returns and allowances;

 

2. Understood and assessed the reasonableness of assumptions made and methodology used in estimating provision for sales returns and allowances;

 

3. Sampled and inspected the sales contracts of main products by agreeing the contractual terms and performed an analysis to challenge the estimation on possibility that specific products could meet business incentives condition to verify the reasonableness of the accrual of the provision;

 

4. Performed a retrospective review to comparatively analyze the historical accuracy of judgments with reference to actual sales returns and allowance paid.

Timing to commence depreciation of property, plant and equipment (PP&E)

The Company continues to invest in capital expenditures to develop and build capacity in leading-edge technologies to meet customers’ demand. Please refer to Notes 4 and 13 to the parent company only financial statements for the details of the information and accounting policy about the depreciation of PP&E. According to International Accounting Standards 16, depreciation of PP&E should commence when the assets are available for their intended use. Due to the significant capital expenditures incurred by the Company, the appropriateness of the timing to commerce depreciation of PP&E could have a material impact on its financial performance. Consequently, the validity of the timing to commence depreciation of PP&E is identified as a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

 

1. Understood and tested the design and operating effectiveness of the key controls over the timing to commence depreciation of PP&E;

 

2. Understood the criteria the assets are defined as available for their intended use and the corresponding accounting treatments;

 

3. Sampled and reviewed the appropriateness of the timing for commencing depreciation after the assets met the criteria of available for use in current year;

 

4. Performed an observation on the physical count of equipment under installation and construction in progress; sampled and inspected the supporting documentation to verify that the status of equipment under installation and construction in progress are not available for use;

 

5. Sampled equipment under installation and construction in progress which met the criteria of available for use and were transferred in the subsequent period to evaluate the reasonableness of the timing for commencing depreciation;

 

6. Sampled and reviewed the appropriateness of the equipment under installation and construction in progress which are not available for their intended use.

Responsibilities of Management and Those Charged with Governance for the Parent Company Only Financial Statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

 

- 2 -


In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including members of the Audit Committee) are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

- 3 -


We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Yih-Shin Kao and Yu Feng Huang.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 13, 2018

Notice to Readers

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

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

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

    December 31, 2017     December 31, 2016  
    Amount     %     Amount     %  

ASSETS

       

CURRENT ASSETS

       

Cash and cash equivalents (Note 6)

  $ 239,176,841       12     $ 249,878,563       14  

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

    373,351             151,070        

Available-for-sale financial assets

    2,393,555             2,843,952        

Held-to-maturity financial assets (Note 8)

                11,447,538       1  

Hedging derivative financial assets (Note 9)

    7,378                    

Notes and accounts receivable, net (Note 10)

    26,655,427       2       40,017,297       2  

Receivables from related parties (Note 32)

    92,141,837       5       86,845,570       5  

Other receivables from related parties (Note 32)

    3,143,872             948,800        

Inventories (Notes 5, 11 and 35)

    70,297,445       4       46,504,346       2  

Other financial assets (Note 35)

    94,839             2,139,366        

Other current assets (Note 15)

    2,484,792             3,004,662        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    436,769,337       23       443,781,164       24  
 

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT ASSETS

       

Financial assets carried at cost

    415,051             435,268        

Investments accounted for using equity method (Notes 5 and 12)

    463,986,364       24       396,855,708       22  

Property, plant and equipment (Notes 5 and 13)

    1,016,355,970       52       979,401,337       53  

Intangible assets (Notes 5 and 14)

    9,870,127             10,047,991       1  

Deferred income tax assets (Notes 5 and 27)

    10,829,473       1       6,446,781        

Refundable deposits

    1,163,069             369,895        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent assets

    1,502,620,054       77       1,393,556,980       76  
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,939,389,391       100     $ 1,837,338,144       100  
 

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

       

CURRENT LIABILITIES

       

Short-term loans (Note 16)

  $ 63,766,850       3     $ 57,958,200       3  

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

    18,764             62,441        

Hedging derivative financial liabilities (Note 9)

    15,562                    

Accounts payable

    25,605,223       1       24,533,924       1  

Payables to related parties (Note 32)

    4,829,664             4,840,001        

Salary and bonus payable

    12,283,321       1       11,570,505       1  

Accrued profit sharing bonus to employees and compensation to directors (Notes 21 and 29)

    23,388,002       1       22,794,771       1  

Payables to contractors and equipment suppliers

    50,363,976       3       62,449,143       4  

Income tax payable (Notes 5 and 27)

    32,950,667       2       40,256,148       2  

Provisions (Notes 5 and 17)

    13,174,825       1       16,991,612       1  

Long-term liabilities - current portion (Note 18)

    24,300,000       1       38,100,000       2  

Accrued expenses and other current liabilities (Note 20)

    57,686,386       3       28,620,469       2  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    308,383,240       16       308,177,214       17  
 

 

 

   

 

 

   

 

 

   

 

 

 

NONCURRENT LIABILITIES

       

Bonds payable (Note 18)

    91,800,000       5       116,100,000       6  

Deferred income tax liabilities (Notes 5 and 27)

    302,205             141,183        

Net defined benefit liability (Notes 5 and 19)

    8,850,704       1       8,551,408        

Guarantee deposits (Note 20)

    7,582,479             14,666,542       1  

Others

    413,230             453,536        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total noncurrent liabilities

    108,948,618       6       139,912,669       7  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    417,331,858       22       448,089,883       24  
 

 

 

   

 

 

   

 

 

   

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

       

Capital stock (Note 21)

    259,303,805       13       259,303,805       14  
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital surplus (Note 21)

    56,309,536       3       56,272,304       3  
 

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings (Note 21)

       

Appropriated as legal capital reserve

    241,722,663       12       208,297,945       12  

Unappropriated earnings

    991,639,347       51       863,710,224       47  
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,233,362,010       63       1,072,008,169       59  
 

 

 

   

 

 

   

 

 

   

 

 

 

Others (Note 21)

    (26,917,818     (1     1,663,983        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,522,057,533       78       1,389,248,261       76  
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 1,939,389,391       100     $ 1,837,338,144       100  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

    2017     2016  
    Amount     %     Amount     %  

NET REVENUE (Notes 5, 22 and 32)

  $ 969,136,109       100     $ 936,387,291       100  

COST OF REVENUE (Notes 5, 11, 29, 32 and 35)

    490,196,856       51       474,552,913       51  
 

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT BEFORE UNREALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES

    478,939,253       49       461,834,378       49  

UNREALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES

    (1,562           (26,082      
 

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

    478,937,691       49       461,808,296       49  
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES (Notes 5, 29, and 32)

       

Research and development

    79,887,723       8       70,366,179       8  

General and administrative

    20,049,405       2       18,697,463       2  

Marketing

    3,048,781       1       3,098,086        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    102,985,909       11       92,161,728       10  
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER OPERATING INCOME AND EXPENSES, NET (Notes 23 and 29)

    (1,261,665           83,965        
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS

    374,690,117       38       369,730,533       39  
 

 

 

   

 

 

   

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

       

Share of profits of subsidiaries and associates (Note 12)

    18,757,236       2       14,941,372       2  

Other income (Note 24)

    1,696,595             1,816,803        

Foreign exchange gain (loss), net (Note 36)

    (670,371           609,345        

Finance costs (Note 25)

    (2,749,640           (2,643,193      

Other gains and losses, net (Note 26)

    1,592,239             734,100        
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income and expenses

    18,626,059       2       15,458,427       2  
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

    393,316,176       40       385,188,960       41  

INCOME TAX EXPENSE (Notes 5 and 27)

    50,204,700       5       50,941,780       5  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    343,111,476       35       334,247,180       36  
 

 

 

   

 

 

   

 

 

   

 

 

 

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

    2017     2016  
    Amount     %     Amount     %  

OTHER COMPREHENSIVE INCOME (LOSS) (Notes 12, 19, 21 and 27)

       

Items that will not be reclassified subsequently to profit or loss:

       

Remeasurement of defined benefit obligation

  $ (254,681         $ (1,057,220      

Share of other comprehensive loss of subsidiaries and associates

    (20,853           (19,961      

Income tax benefit related to items that will not be reclassified subsequently

    30,562             126,867        
 

 

 

   

 

 

   

 

 

   

 

 

 
    (244,972           (950,314      
 

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

       

Exchange differences arising on translation of foreign operations

    (28,270,770     (3     (9,439,776     (1

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

    (425,692           47,506        

Cash flow hedges

    4,683                    

Share of other comprehensive income (loss) of subsidiaries and associates

    123,804             (656,684      

Income tax expense related to items that may be reclassified subsequently

    (3,536           (61,176      
 

 

 

   

 

 

   

 

 

   

 

 

 
    (28,571,511     (3     (10,110,130     (1
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss for the year, net of income tax

    (28,816,483     (3     (11,060,444     (1
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

  $ 314,294,993       32     $ 323,186,736       35  
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE (NT$, Note 28)

       

Basic earnings per share

  $ 13.23       $ 12.89    
 

 

 

     

 

 

   

Diluted earnings per share

  $ 13.23       $ 12.89    
 

 

 

     

 

 

   

 

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

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

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

 

 

                                        Others        
    Capital Stock - Common
Stock
          Retained Earnings    

Foreign

Currency

    Unrealized
Gain/Loss
from Available-
          Unearned
Stock-Based
             
    Shares
(In Thousands)
    Amount     Capital
Surplus
   

Legal Capital

Reserve

   

Unappropriated

Earnings

    Total    

Translation

Reserve

    for-sale
Financial Assets
    Cash Flow
Hedges Reserve
    Employee
Compensation
    Total    

Total

Equity

 

BALANCE, JANUARY 1, 2016

    25,930,380     $ 259,303,805     $ 56,300,215     $ 177,640,561     $ 716,653,025     $ 894,293,586     $ 11,039,949     $ 734,771     $ (607   $     $ 11,774,113     $ 1,221,671,719  

Appropriations of prior year’s earnings

                       

Legal capital reserve

                      30,657,384       (30,657,384                                          

Cash dividends to shareholders - NT$6 per share

                            (155,582,283     (155,582,283                                   (155,582,283
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

                      30,657,384       (186,239,667     (155,582,283                                   (155,582,283
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income in 2016

                            334,247,180       334,247,180                                     334,247,180  

Other comprehensive income (loss) in 2016, net of income tax

                            (950,314     (950,314     (9,378,712     (732,130     712             (10,110,130     (11,060,444
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) in 2016

                            333,296,866       333,296,866       (9,378,712     (732,130     712             (10,110,130     323,186,736  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Disposal of investments accounted for using equity method

                (56,169                                                     (56,169

Adjustments to share of changes in equities of associates

                21,221                                                       21,221  

From share of changes in equities of subsidiaries

                7,037                                                       7,037  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2016

    25,930,380       259,303,805       56,272,304       208,297,945       863,710,224       1,072,008,169       1,661,237       2,641       105             1,663,983       1,389,248,261  

Appropriations of prior year’s earnings

                       

Legal capital reserve

                      33,424,718       (33,424,718                                          

Cash dividends to shareholders - NT$7 per share

                            (181,512,663     (181,512,663                                   (181,512,663
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

                      33,424,718       (214,937,381     (181,512,663                                   (181,512,663
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income in 2017

                            343,111,476       343,111,476                                     343,111,476  

Other comprehensive income (loss) in 2017, net of income tax

                            (244,972     (244,972     (28,358,917     (216,715     4,121             (28,571,511     (28,816,483
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) in 2017

                            342,866,504       342,866,504       (28,358,917     (216,715     4,121             (28,571,511     314,294,993  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to share of changes in equities of associates

                7,085                                           (10,290     (10,290     (3,205

From share of changes in equities of subsidiaries

                10,994                                                       10,994  

Donation from shareholders

                19,153                                                       19,153  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2017

    25,930,380     $ 259,303,805     $ 56,309,536     $ 241,722,663     $ 991,639,347     $ 1,233,362,010     $ (26,697,680   $ (214,074   $ 4,226     $ (10,290   $ (26,917,818   $ 1,522,057,533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

     2017      2016  

CASH FLOWS FROM OPERATING ACTIVITIES

     

Income before income tax

   $ 393,316,176      $ 385,188,960  

Adjustments for:

     

Depreciation expense

     250,597,135        213,977,324  

Amortization expense

     4,325,028        3,724,066  

Finance costs

     2,749,640        2,643,193  

Share of profits of subsidiaries and associates

     (18,757,236      (14,941,372

Interest income

     (1,554,792      (1,683,150

Loss (gain) on disposal or retirement of property, plant and equipment, net

     1,008,989        (100,503

Gain on disposal of intangible assets, net

     (3,198       

Impairment loss on financial assets

     6,137        4,537  

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

     (115,690      (101,411

Loss on disposal of investments accounted for using equity method, net

            296,065  

Unrealized gross profit on sales to subsidiaries and associates

     1,562        26,082  

Gain on foreign exchange, net

     (9,118,776      (2,656,406

Dividend income

     (141,803      (133,653

Changes in operating assets and liabilities:

     

Financial instruments at fair value through profit or loss

     (196,337      (127,857

Notes and accounts receivable, net

     7,253,120        (20,448,337

Receivables from related parties

     (5,296,267      (29,562,888

Other receivables from related parties

     (733,023      (493,473

Inventories

     (23,793,099      17,833,842  

Other financial assets

     2,029,903        (22,662

Other current assets

     510,739        18,337  

Accounts payable

     1,275,185        7,639,380  

Payables to related parties

     (10,337      1,108,002  

Salary and bonus payable

     712,816        1,966,597  

Accrued profit sharing bonus to employees and compensation to directors

     593,231        1,881,697  

Accrued expenses and other current liabilities

     29,615,847        3,891,345  

Provisions

     (3,823,540      7,961,632  

Net defined benefit liability

     44,615        46,163  
  

 

 

    

 

 

 

Cash generated from operations

     630,496,025        577,935,510  

Income taxes paid

     (61,695,694      (45,387,724
  

 

 

    

 

 

 

Net cash generated by operating activities

     568,800,331        532,547,786  
  

 

 

    

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

     

Acquisitions of:

     

Available-for-sale financial assets

            (172

Held to maturity financial assets

     (1,695,771      (11,242,766

Investments accounted for using equity method

            (445,012

Equity interest in subsidiary

            (1,630,700

Property, plant and equipment

     (311,763,999      (323,009,940

Intangible assets

     (4,351,050      (4,207,065

 

(Continued)

 

- 9 -


Taiwan Semiconductor Manufacturing Company Limited

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

     2017      2016  

Proceeds from disposal or redemption of:

     

Available-for-sale financial assets

     $140,395        $126,289  

Held-to-maturity financial assets

     13,160,000        10,550,000  

Equity interest in subsidiary

            2,325  

Property, plant and equipment

     13,226,816        104,020  

Intangible assets

     27,409         

Proceeds from return of capital of financial assets carried at cost

     14,080        7,493  

Derecognition of hedging derivative financial instruments

     38,097         

Interest received

     1,552,725        1,748,570  

Other dividends received

     141,803        133,653  

Dividends received from investments accounted for using equity method

     5,005,132        5,469,549  

Refundable deposits paid

     (1,227,010)        (138,204)  

Refundable deposits refunded

     416,600        169,464  

Decrease in receivables for temporary payments

            47,924  

Cash inflow from incorporation of subsidiary

            396,262  
  

 

 

    

 

 

 

Net cash used in investing activities

     (285,314,773)        (321,918,310)  
  

 

 

    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

     

Increase in short-term loans

     10,394,485        18,968,936  

Repayment of bonds

     (38,100,000)        (12,000,000)  

Interest paid

     (2,916,969)        (2,644,187)  

Guarantee deposits received

     205,075        420,719  

Guarantee deposits refunded

     (89,507)        (421,002)  

Cash dividends

     (181,512,663)        (155,582,283)  

Payment of partial acquisition of interests in subsidiaries

     (82,433,287)        (74,130,714)  

Proceeds from partial disposal of interests in subsidiaries

     257,648        144,035  

Donation from shareholders

     7,938         
  

 

 

    

 

 

 

Net cash used in financing activities

     (294,187,280)        (225,244,496)  
  

 

 

    

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (10,701,722)        (14,615,020)  

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

     249,878,563        264,493,583  
  

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

     $239,176,841        $249,878,563  
  

 

 

    

 

 

 

 

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

 

- 10 -


Taiwan Semiconductor Manufacturing Company Limited

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

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

 

 

1. GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan.

 

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying parent company only financial statements were approved and authorized for issue by the Board of Directors on February 13, 2018.

 

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

  a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have a significant effect on the Company’s accounting policies:

 

  1) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Company are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Company has transaction. If the transaction or balance with a specific related party is 10% or more of the Company’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

When the amendments are applied retrospectively from January 1, 2017, the disclosure of related party transactions is enhanced, please refer to Note 32.

 

- 11 -


  b. The IFRSs issued by International Accounting Standards Board (IASB) and endorsed by FSC with effective date starting 2018

 

New, Revised or Amended Standards and Interpretations

   Effective Date Issued
by IASB

Annual Improvements to IFRSs 2014-2016 Cycle

   Note 1

Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions”

   January 1, 2018

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

IFRS 15 “Revenue from Contracts with Customers”

   January 1, 2018

Amendment to IFRS 15 “Clarifications to IFRS 15”

   January 1, 2018

Amendment to IAS 7 “Disclosure Initiative”

   January 1, 2017

Amendment to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

   January 1, 2017

IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

   January 1, 2018

 

  Note 1: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

Except for the following items, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company’s accounting policies.

 

  1) IFRS 9 “Financial Instruments” and related amendments

Classification, measurement and impairment of financial assets

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.

The invested equity instruments should be measured at the fair value through profit or loss (FVTPL). However, the entity may irrevocably designate an investment in equity instruments that is not held for trading as measured at fair value through other comprehensive income (FVTOCI). 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. If the credit risk on a financial instrument has not increased significantly since initial recognition, the loss allowance for that financial instrument should be measured 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 loss allowance for that financial instrument should be measured at an amount equal to the lifetime expected credit losses. A simplified approach is allowed for accounts receivables and the loss allowance could be measured at an amount equal to lifetime expected credit losses.

 

- 12 -


The Company elects not to restate prior reporting period when applying the requirements for the classification, measurement and impairment of financial assets and financial liabilities under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application.

The anticipated impact on measurement categories, carrying amount and related reconciliation for each class of the Company’s financial assets and financial liabilities when retrospectively applying IFRS 9 on January 1, 2018 is detailed below:

 

     Measurement Category    Carrying Amount       
Financial Assets    IAS 39    IFRS 9    IAS 39      IFRS 9      Note

Cash and cash equivalents

   Loans and receivables    Amortized cost    $ 239,176,841      $ 239,176,841      (1)

Derivatives

   Held for trading    Mandatorily at FVTPL      373,351        373,351     
   Hedging instruments    Hedging instruments      7,378        7,378     

Equity securities

   Available-for-sale    FVTOCI      2,808,606        3,377,145      (2)

Notes and accounts receivable (including related parties), other receivables and refundable deposits

   Loans and receivables    Amortized cost      123,199,044        123,443,817      (1)
Financial Liabilities                             

Derivatives

   Held for trading    Mandatorily at FVTPL      18,764        18,764     
   Hedging instruments    Hedging instruments      15,562        15,562     

Short-term loans, accounts payable (including related parties), payables to contractors and equipment suppliers, accrued expenses and other current liabilities, bonds payable and guarantee deposits

   Amortized cost    Amortized cost      294,856,247        294,856,247     

 

Financial Assets   

Carrying

Amount as of

December 31,
2017 (IAS
39)

    

Reclassifi-

cations

    

Remea-

surements

    

Carrying

Amount as
of

January 1,
2018 (IFRS
9)

    

Retained

Earnings

Effect on

January 1,

2018

    

Other
Equity

Effect on

January 1,

2018

     Note

FVTPL

   $ 373,351      $      $      $ 373,351      $      $     

FVTOCI

                                            

- Equity instruments

                    

Add: From available for sale

            2,808,606        568,539        3,377,145        534,270        34,269      (2)
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
            2,808,606        568,539        3,377,145        534,270        34,269     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Amortized cost

                                            

Add: From loans and receivables

            362,375,885        244,773        362,620,658        244,773             (1)
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
            362,375,885        244,773        362,620,658        244,773            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Hedging instruments

     7,378                      7,378                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total

   $ 380,729      $ 365,184,491      $ 813,312      $ 366,378,532      $ 779,043      $ 34,269     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

    

Carrying

Amount as of

December 31,
2017

(IAS 39)

     Adjustments
Arising from
Initial
Application
    

Carrying

Amount as
of

January 1,
2018

(IFRS 9)

    

Retained

Earnings

Effect on

January 1,

2018

    

Other
Equity

Effect on

January 1,

2018

     Note

Investments accounted for using equity method

   $ 463,986,364      $ 400,137      $ 464,386,501      $ 745,247      $ (345,110    (3)

 

  (1) Cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and refundable deposits were classified as loans and receivables under IAS 39 are now classified at amortized cost with assessment of future 12-month or lifetime expected credit loss under IFRS 9. As a result of retrospective application, the adjustments for accounts receivable would result in a decrease in loss of allowance of NT$244,773 thousand and an increase in retained earnings of NT$244,773 thousand on January 1, 2018.

 

- 13 -


  (2) As equity investments that were previously classified as available-for-sale financial assets under IAS 39 are not held for trading, the Company elected to designate all of these investments as at FVTOCI under IFRS 9. As a result, the related other equity-unrealized gain/loss on available-for-sale financial assets of NT$206,015 thousand is reclassified to increase other equity - unrealized gain/loss on financial assets at FVTOCI.

As equity investments previously measured at cost under IAS 39 are remeasured at fair value under IFRS 9, the adjustments would result in an increase in financial assets at FVTOCI of NT$568,539 thousand and an increase in other equity-unrealized gain/loss on financial assets at FVTOCI of NT$568,539 thousand on January 1, 2018.

For those equity investments previously classified as available-for-sale financial assets (including measured at cost financial assets) under IAS 39, the impairment losses that the Company had recognized have been accumulated in retained earnings. Since these investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is required, the adjustments would result in a decrease in other equity - unrealized gain/loss on financial assets at FVTOCI of NT$534,270 thousand and an increase in retained earnings of NT$534,270 thousand on January 1, 2018.

 

  (3) With the retrospective adoption of IFRS 9 by associates accounted for using equity method, the corresponding adjustments made by the Company would result in an increase in investments accounted for using equity method of NT$400,137 thousand, a decrease in other equity- unrealized gain/loss on financial assets at FVTOCI of NT$765,199 thousand, an increase in other equity- unrealized gain/loss on available-for-sale financial assets of NT$420,089 thousand and an increase in retained earnings of NT$745,247 thousand on January 1, 2018.

Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

A preliminary assessment of the Company’s current hedging relationships indicates that they will qualify as continuing hedging relationships under IFRS 9. The Company will prospectively apply the requirements for hedge accounting upon initial application of IFRS 9.

 

  2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

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 contract; and

 

    Recognize revenue when the entity satisfies a performance obligation.

 

- 14 -


The Company elects only to retrospectively apply IFRS 15 to contracts that were not completed on January 1, 2018 and elects not to restate prior reporting period with the cumulative effect of the initial application recognized at the date of initial application.

The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed below:

 

    

Carrying
Amount as of
December 31,
2017

(IAS 18 and
revenue-related
interpretations)

     Adjustments
Arising
from Initial
Application
     Carrying
Amount as of
January 1,
2018 (IFRS
15)
     Note

Investments accounted for using equity method

   $ 463,986,364      $ 32,029      $ 464,018,393      (1)
     

 

 

       

Total effect on assets

      $ 32,029        
     

 

 

       

Provisions - current

     13,174,825      $ (13,174,825           (2)

Accrued expenses and other current liabilities

     57,686,386        13,174,825        70,861,211      (2)
     

 

 

       

Total effect on liabilities

      $        
     

 

 

       

Retained earnings

     1,233,362,010      $ 32,029        1,233,394,039      (1)
     

 

 

       

Total effect on equity

      $ 32,029        
     

 

 

       

 

  (1) Prior to the application of IFRS 15, the Company recognizes revenue based on the accounting treatment of the sales of goods. Under IFRS 15, certain subsidiaries and associates accounted for using equity method will change to recognize revenue over time because customers are deemed to have control over the products when the products are manufactured. As a result, the Company will adjust related investments and equity accordingly.

 

  (2) Prior to the application of IFRS 15, the Company recognized the estimation of sales returns and allowance as provisions. Under IFRS 15, the Company recognizes such estimation as refund liability (classified under accrued expenses and other current liabilities).

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

 

  c. The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC

 

New, Revised or Amended Standards and Interpretations

   Effective Date Issued by
IASB

Annual Improvements to IFRSs 2015-2017 Cycle

   January 1, 2019

Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

   January 1, 2019

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

   To be determined by IASB

(Continued)

 

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New, Revised or Amended Standards and Interpretations

   Effective Date Issued
by IASB

IFRS 16 “Leases”

   January 1, 2019 (Note 2)

Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”

   January 1, 2019

Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”

   January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments”

   January 1, 2019

(Concluded)

 

  Note 2: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting January 1, 2019.

Except for the following items, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company’s accounting policies.

 

  1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the parent company only balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the parent company only statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the parent company only statements of cash flows, cash payments for both the principal and interest portion of the lease liability are classified within financing activities.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

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

 

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Statement of Compliance

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

 

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Basis of Preparation

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

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

Foreign Currencies

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

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

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

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

Financial Instruments

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

 

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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.

Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at 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. Regular way purchases or sales of financial assets are recognized and derecognized on a trade date or settlement date basis for which financial assets were classified in the same way, respectively. 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

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss 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.

Available-for-sale financial assets are measured at fair value. 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.

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.

 

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Loans and receivables

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

Impairment of financial assets

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

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

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

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

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

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

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

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

Derecognition of financial assets

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

 

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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 are classified as at fair value through profit or loss when the financial liability is either held for trading or is designated as at fair value through profit or loss.

Financial liabilities at fair value through profit or loss 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

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.

Financial Instruments Designated as at Fair Value through Profit or Loss

A financial instrument may be designated as at FVTPL upon initial recognition. The financial instrument forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.

 

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Hedge Accounting

Cash Flow Hedge

The Company designates certain hedging instruments, such as forward exchange contracts, to partially hedge its foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. The effective portion of changes in the fair value of hedging instruments is recognized in other comprehensive income. When the forecast transactions actually take place, the associated gains or losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating to the ineffective portion are recognized immediately in profit or loss.

Hedge accounting is discontinued prospectively when the Company revokes the designated hedging relationship, or when the hedging instruments expire or are sold, terminated, or exercised, or no longer meet the criteria for hedge accounting.

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.

Investments Accounted for Using Equity Method

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

Investment in subsidiaries

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

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

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

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

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

 

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Investment in associates

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

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

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

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

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

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

Property, Plant and Equipment

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

 

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

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

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

Leases

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

The Company as lessor

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

The Company as lessee

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

Intangible Assets

Goodwill

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

Other intangible assets

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

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash generating units or groups of cash-generating units that are expected to benefit. If the recoverable amount of a cash generating unit is less than its carrying

 

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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 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.

Guarantee Deposit

Guarantee deposit mainly consists of cash received under deposit agreements with customers to ensure they have access to the Company’s specified capacity; and as guarantee of accounts receivable to ensure payment from customers. Cash received from customers is recorded as guarantee deposit upon receipt. Guarantee deposits are refunded to customers when terms and conditions set forth in the deposit agreements have been satisfied.

 

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Revenue Recognition

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

Sale of goods

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

 

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

 

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

 

    The amount of revenue can be measured reliably;

 

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

 

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

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

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 Company 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.

Employee Benefits

Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for service rendered by employees.

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.

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

 

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Net defined benefit liability represents the actual deficit in the Company’s defined benefit plan.

Taxation

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

Current tax

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

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

Deferred tax

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

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

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.

Insurance Claim

The Company recognizes insurance claim reimbursement for losses incurred related to disaster damages. Insurance claim reimbursements are recorded, net of any deductible amounts, at the time while there is evidence that the claim reimbursement is virtually certain to be received.

 

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

In the application of the aforementioned Company’s accounting policies, the Company is 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.

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 based on historical experience and the consideration of varying contractual terms, and the Company periodically reviews the adequacy of the estimation 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.

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.

 

- 27 -


Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company uses 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

Net defined benefit liability and the resulting defined benefit costs under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and future salary increase rate. 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,

2017

     December 31,
2016
 

Cash and deposits in banks

   $ 239,176,841      $ 245,520,074  

Repurchase agreements collateralized by corporate bonds

            2,361,250  

Commercial paper

            1,997,239  
  

 

 

    

 

 

 
   $ 239,176,841      $ 249,878,563  
  

 

 

    

 

 

 

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

 

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

 

    

December 31,

2017

     December 31,
2016
 

Financial assets

     

Held for trading

     

Forward exchange contracts

   $ 373,351      $ 140,094  

Cross currency swap contracts

            10,976  
  

 

 

    

 

 

 
   $ 373,351      $ 151,070  
  

 

 

    

 

 

 

Financial liabilities

     

Held for trading

     

Forward exchange contracts

   $ 18,764      $ 62,441  
  

 

 

    

 

 

 

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

 

- 28 -


Outstanding forward exchange contracts consisted of the following:

 

            Contract Amount  
     Maturity Date      (In Thousands)  

December 31, 2017

     

Sell NT$/Buy EUR

     January 2018 to February 2018        NT$6,002,786/EUR169,000  

Sell NT$/Buy JPY

     February 2018        NT$996,294/JPY3,800,000  

Sell US$/Buy NT$

     January 2018        US$1,643,000/NT$49,120,205  

December 31, 2016

     

Sell NT$/Buy EUR

     January 2017        NT$5,393,329/EUR159,400  

Sell NT$/Buy JPY

     January 2017        NT$7,314,841/JPY26,501,800  

Sell US$/Buy EUR

     January 2017        US$4,180/EUR4,000  
Sell US$/Buy NT$      January 2017 to February 2017        US$420,000/NT$13,531,450  

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, 2016

        

January 2017

           US$170,000/NT$5,487,600              3.98%         

 

8. HELD-TO-MATURITY FINANCIAL ASSETS

 

          December 31,     
2016
 

Commercial paper

   $ 8,628,176  

Corporate bonds

     2,819,362  
  

 

 

 
   $ 11,447,538  
  

 

 

 

 

9. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

    

     December 31,     

2017

 

Financial assets- current

  

Cash flow hedges

  

Forward exchange contracts

   $ 7,378  
  

 

 

 

Financial liabilities- current

  

Cash flow hedges

  

Forward exchange contracts

   $ 15,562  
  

 

 

 

 

-29-


The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. These contracts have maturities of 12 months or less.

Outstanding forward exchange contracts consisted of the following:

 

            Contract Amount  
     Maturity Date      (In Thousands)  

December 31, 2017

     

Sell NT$/Buy EUR

     February 2018 to May 2018        NT$2,649,104/EUR75,000  

 

10. NOTES AND ACCOUNTS RECEIVABLE, NET

 

    

      December 31,      

2017

           December 31,      
2016
 

Notes and accounts receivable

   $ 27,124,552      $ 40,492,727  

Allowance for doubtful receivables

     (469,125      (475,430
  

 

 

    

 

 

 

Notes and accounts receivable, net

   $ 26,655,427      $ 40,017,297  
  

 

 

    

 

 

 

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. There was no impairment concern for the accounts receivable that were past due without recognizing a specific allowance for doubtful receivables since there was no significant change in the credit quality of its customers after the assessment. In addition, the Company’s subsidiary has obtained guarantee of NT$2,427,548 thousand against certain receivables.

Aging analysis of notes and accounts receivable, net

 

    

December 31,

2017

     December 31,
2016
 

Neither past due nor impaired

   $ 19,632,314      $ 28,511,717  

Past due but not impaired

     

Past due within 30 days

     5,169,209        6,755,262  

Past due 31-60 days

     929,672        1,693,463  

Past due 61-120 days

     582,821        3,056,855  

Past due over 121 days

     341,411         
  

 

 

    

 

 

 
   $ 26,655,427      $ 40,017,297  
  

 

 

    

 

 

 

 

-30-


Movements of the allowance for doubtful receivables

 

     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
     Total  

Balance at January 1, 2017

   $      $ 475,430      $ 475,430  

Reversal/Write-off

            (6,305      (6,305
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2017

   $      $ 469,125      $ 469,125  
  

 

 

    

 

 

    

 

 

 

Balance at January 1, 2016

   $ 8,393      $ 475,109      $ 483,502  

Provision

            321        321  

Reversal/Write-off

     (8,393             (8,393
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2016

   $      $ 475,430      $ 475,430  
  

 

 

    

 

 

    

 

 

 

 

11. INVENTORIES

 

    

  December 31,  

2017

       December 31,  
2016
 

Finished goods

   $ 9,596,837      $ 8,324,267  

Work in process

     52,166,234        32,317,210  

Raw materials

     6,566,716        3,864,429  

Supplies and spare parts

     1,967,658        1,998,440  
  

 

 

    

 

 

 
   $ 70,297,445      $ 46,504,346  
  

 

 

    

 

 

 

Reversal of write-down of inventories resulting from the increase in net realizable value (excluding earthquake losses) and write-down of inventories to net realizable value (excluding earthquake losses) in the amount of NT$878,346 thousand and NT$1,508,452 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2017 and 2016. Please refer to related earthquake losses in Note 35.

 

12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

    

  December 31,  

2017

    

  December 31,  

2016

 

Subsidiaries

   $ 446,148,086      $ 377,111,820  

Associates

     17,838,278        19,743,888  
  

 

 

    

 

 

 
   $ 463,986,364      $ 396,855,708  
  

 

 

    

 

 

 

 

- 31 -


  a. Investments in subsidiaries

Subsidiaries consisted of the following:

 

         Place of   Carrying Amount     % of Ownership and Voting
Rights Held by the Company
Subsidiaries    Principal Activities   Incorporation
and Operation
  December 31,
2017
    December 31,
2016
    December 31,
2017
  December 31,
2016

TSMC Global Ltd. (TSMC Global)

  

Investment activities

 

Tortola, British Virgin Islands

  $ 309,211,877     $ 265,634,729     100%   100%

TSMC China Company Limited (TSMC China)

  

Manufacturing, selling, testing and computer-aided design of integrated circuits and other semiconductor devices

 

Shanghai, China

    51,060,885       42,618,308     100%   100%

TSMC Partners, Ltd. (TSMC Partners)

  

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

 

Tortola, British Virgin Islands

    49,684,287       51,749,910     100%   100%

TSMC Nanjing Company Limited (TSMC Nanjing)

  

Manufacturing, selling, testing and computer-aided design of integrated circuits and other semiconductor devices

 

Nanjing, China

    26,493,740       6,331,094     100%   100%

VisEra Technologies Company Ltd. (VisEra Tech)

  

Engaged in manufacturing electronic spare parts and in researching, developing, designing, manufacturing, selling, packaging and testing of color filter

 

Hsinchu, Taiwan

    4,667,162       5,234,883       87%    87%

TSMC North America

  

Selling and marketing of integrated circuits and other semiconductor devices

 

San Jose, California, U.S.A.

    4,001,003       4,340,303     100%   100%

TSMC Europe B.V. (TSMC Europe)

  

Customer service and supporting activities

 

Amsterdam, the Netherlands

    407,324       353,695     100%   100%

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

  

Investing in new start-up technology companies

 

Cayman Islands

    320,533       467,171       98%   98%

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

  

Investing in new start-up technology companies

 

Cayman Islands

    152,836       219,350       98%   98%

TSMC Japan Limited (TSMC Japan)

  

Customer service and supporting activities

 

Yokohama, Japan

    129,446       132,999     100%   100%

TSMC Korea Limited (TSMC Korea)

  

Customer service and supporting activities

 

Seoul, Korea

    39,210       35,706     100%   100%

TSMC Solar Europe GmbH

  

Selling of solar related products and providing customer service

 

Hamburg, Germany

    (20,217     (6,328   100%   100%

Venture Tech Alliance Holdings, LLC (VTA Holdings)

  

Investing in new start-up technology companies

 

Delaware, U.S.A.

                   7%
      

 

 

   

 

 

     
       $ 446,148,086     $ 377,111,820      
      

 

 

   

 

 

     

TSMC Solar Europe GmbH is under liquidation procedures.

VTA Holdings completed the liquidation procedures in April 2017.

To simplify investment structure, the Company acquired 253,120 thousand shares of VisEra Tech previously held by VisEra Holding Company (VisEra Holding) by NT$4,874,231 thousand in August 2016. The percentage of ownership held by the Company was 87%.

Under the investment agreement entered into with the municipal government of Nanjing, China on March 28, 2016, the Company and its subsidiaries will make an investment in Nanjing in the amount of approximately US$3 billion to establish a subsidiary operating a 300mm wafer fab with the capacity of 20,000 12-inch wafers per month, and a design service center. TSMC Nanjing was established in May 2016. In both 2017 and 2016, the Company continually increased its investment in TSMC Nanjing for the amount of NT$21,724,892 thousand and NT$6,435,200 thousand. This project was approved by the Investment Commission, Ministry of Economic Affairs, R.O.C. (MOEA).

To lower the hedging cost, in both of 2017 and 2016, the Company continually increased its investment in TSMC Global for the amount of NT$60,683,010 thousand and NT$64,451,983 thousand, respectively. This project was approved by the Investment Commission, MOEA.

 

- 32 -


  b. Investments in associates

Associates consisted of the following:

 

         Place of   Carrying Amount     % of Ownership and
Voting

Rights Held by the
Company
 
Name of Associate    Principal Activities   Incorporation
and Operation
  December 31,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 

Vanguard International Semiconductor Corporation (VIS)

  

Manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing and design service of masks

 

Hsinchu, Taiwan

  $ 8,568,344     $ 8,806,384       28%       28%  

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

  

Manufacturing and selling of integrated circuits and other semiconductor devices

 

Singapore

    5,677,640       7,163,516       39%       39%  

Xintec Inc. (Xintec)

  

Wafer level chip size packaging and wafer level post passivation interconnection service

 

Taoyuan, Taiwan

    2,292,100       2,599,807       41%       41%  

Global Unichip Corporation (GUC)

  

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

 

Hsinchu, Taiwan

            1,300,194               1,174,181       35%       35%  
         $   17,838,278       $    19,743,888      

Starting June 2016, the Company has no longer served as Motech’s board of director. As a result, the Company exercises no significant influence over Motech. Therefore, Motech is no longer accounted for using the equity method. Further, such investment was reclassified to available-for-sale financial assets and the Company recognized a disposal loss of NT$259,960 thousand.

To simplify investment structure, the Company acquired 18,504 thousand shares of Xintec previously held by VisEra Holding by NT$445,012 thousand in August 2016. The percentage of ownership held by the Company increased to 41.4%.

As of December 31, 2017, no investments in associates are individually material to the Company. As of December 31, 2016, the summarized financial information in respect of each of the Company’s material associates is set out below. The summarized financial information below represents amounts shown in the associate’s financial statements prepared in accordance with the Accounting Standards Used in Preparation of the Parent Company Only Financial Statements, which is adjusted by the Company using the equity method of accounting.

 

  1) VIS

 

    

  December 31,  

2016

 

Current assets

   $ 25,662,921  
  

 

 

 

Noncurrent assets

   $ 9,501,442  
  

 

 

 

Current liabilities

   $ 5,476,672  
  

 

 

 

Noncurrent liabilities

   $ 804,107  
  

 

 

 
     Year Ended
December 31,
 
     2016  

Net revenue

   $ 25,828,634  
  

 

 

 

Income from operations

   $ 6,083,625  
  

 

 

 

Net income

   $ 5,520,645  
  

 

 

 

Other comprehensive income

   $ 5,592  
  

 

 

 

Total comprehensive income

   $ 5,526,237  
  

 

 

 

Cash dividends received

   $ 1,206,981  
  

 

 

 

 

- 33 -


Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate was as follows:

 

    

   December 31,   

2016

 

Net assets

   $     28,883,584   

Percentage of ownership

     28%  
  

 

 

 

The Company’s share of net assets of the associate

     8,179,830  

Goodwill

     626,554  
  

 

 

 

Carrying amount of the investment

   $ 8,806,384  
  

 

 

 

 

  2) SSMC

 

    

   December 31,   

2016

 

Current assets

   $     14,585,150   
  

 

 

 

Noncurrent assets

   $ 5,360,076  
  

 

 

 

Current liabilities

   $ 1,746,602  
  

 

 

 

Noncurrent liabilities

   $ 286,340  
  

 

 

 

 

     Year Ended
   December 31,   
 
     2016  

Net revenue

   $     14,045,927  
  

 

 

 

Income from operations

   $ 4,921,735  
  

 

 

 

Net income

   $ 4,918,140  
  

 

 

 

Total comprehensive income

   $ 4,918,140  
  

 

 

 

Cash dividends received

   $ 4,076,170  
  

 

 

 

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate was as follows:

 

    

 December 31, 

2016

 

Net assets

   $ 17,912,284  

Percentage of ownership

     39%  
  

 

 

 

The Company’s share of net assets of the associate

     6,948,175  

Goodwill

     213,984  

Other adjustments

     1,357  
  

 

 

 

Carrying amount of the investment

   $ 7,163,516  
  

 

 

 

 

- 34 -


Aggregate information of associates that are not individually material was summarized as follows:

 

     Year Ended
   December 31,   
 
     2016  

The Company’s share of profits of associates

   $ 42,457  
  

 

 

 

The Company’s share of other comprehensive loss of associates

   $ (17,777
  

 

 

 

The Company’s share of total comprehensive income of associates

   $ 24,680  
  

 

 

 

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. The closing price represents the quoted price in active markets, the level 1 fair value measurement.

 

Name of Associate   

 December 31, 

2017

    

 December 31, 

2016

 

VIS

   $ 30,638,751      $ 26,089,360  
  

 

 

    

 

 

 

GUC

   $ 11,905,404      $ 3,664,997  
  

 

 

    

 

 

 

Xintec

   $ 9,180,759      $ 3,622,227  
  

 

 

    

 

 

 

 

13. PROPERTY, PLANT AND EQUIPMENT

 

    Land     Buildings     Machinery and
Equipment
    Office Equipment     Equipment under
Installation and
Construction in
Progress
    Total  

Cost

           

Balance at January 1, 2017

  $ 3,212,000     $ 281,936,412     $ 1,960,457,480     $ 31,830,657     $ 384,197,526     $ 2,661,634,075  

Additions (Deductions)

          75,491,595       458,690,837       7,888,336       (239,420,648     302,650,120  

Disposals or retirements

          (36,957     (49,921,595     (315,776           (50,274,328
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

  $ 3,212,000     $ 357,391,050     $ 2,369,226,722     $ 39,403,217     $ 144,776,878     $ 2,914,009,867  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

           

Balance at January 1, 2017

  $     $ 156,854,513     $ 1,504,061,808     $ 21,316,417     $     $ 1,682,232,738  

Additions

          19,798,087       226,251,816       4,547,232             250,597,135  

Disposals or retirements

          (28,816     (34,831,423     (315,737           (35,175,976
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

  $     $ 176,623,784     $ 1,695,482,201     $ 25,547,912     $     $ 1,897,653,897  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at December 31, 2017

  $ 3,212,000     $ 180,767,266     $ 673,744,521     $ 13,855,305     $ 144,776,878     $ 1,016,355,970  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

           

Balance at January 1, 2016

  $ 3,212,000     $ 272,949,721     $ 1,807,955,631     $ 27,809,576     $ 191,052,758     $ 2,302,979,686  

Additions

          9,000,012       155,226,807       4,264,166       193,144,768       361,635,753  

Disposals or retirements

          (13,321     (2,724,958     (243,085           (2,981,364
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

  $ 3,212,000     $ 281,936,412     $ 1,960,457,480     $ 31,830,657     $ 384,197,526     $ 2,661,634,075  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

           

Balance at January 1, 2016

  $     $ 140,493,396     $ 1,313,095,298     $ 17,606,080     $     $ 1,471,194,774  

Additions

          16,368,395       193,655,507       3,953,422             213,977,324  

Disposals or retirements

          (7,278     (2,688,997     (243,085           (2,939,360
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

  $     $ 156,854,513     $ 1,504,061,808     $ 21,316,417     $     $ 1,682,232,738  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amounts at December 31, 2016

  $ 3,212,000     $ 125,081,899     $ 456,395,672     $ 10,514,240     $ 384,197,526     $ 979,401,337  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 -


14. INTANGIBLE ASSETS

 

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

Cost

              

Balance at January 1, 2017

   $ 1,567,756      $ 9,490,320      $ 22,063,589      $ 5,241,203      $ 38,362,868  

Additions

            897,855        2,900,120        349,189        4,147,164  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2017

   $ 1,567,756      $ 10,388,175      $ 24,963,709      $ 5,590,392      $ 42,510,032  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

              

Balance at January 1, 2017

   $      $ 6,091,513      $ 17,991,500      $ 4,231,864      $ 28,314,877  

Additions

            1,548,262        2,290,957        485,809        4,325,028  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2017

   $      $ 7,639,775      $ 20,282,457      $ 4,717,673      $ 32,639,905  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at December 31, 2017

   $ 1,567,756      $ 2,748,400      $ 4,681,252      $ 872,719      $ 9,870,127  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cost

              

Balance at January 1, 2016

   $ 1,567,756      $ 8,399,059      $ 19,297,534      $ 4,722,667      $ 33,987,016  

Additions

            1,091,261        2,770,842        518,536        4,380,639  

Retirements

                   (4,787             (4,787
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2016

   $ 1,567,756      $ 9,490,320      $ 22,063,589      $ 5,241,203      $ 38,362,868  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

              

Balance at January 1, 2016

   $      $ 4,724,143      $ 16,279,451      $ 3,592,004      $ 24,595,598  

Additions

            1,367,370        1,716,836        639,860        3,724,066  

Retirements

                   (4,787             (4,787
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at December 31, 2016

   $      $ 6,091,513      $ 17,991,500      $ 4,231,864      $ 28,314,877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at December 31, 2016

   $ 1,567,756      $ 3,398,807      $ 4,072,089      $ 1,009,339      $ 10,047,991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 rates of 8.5% and 8.4% in its test of impairment as of December 31, 2017 and 2016, respectively, to reflect the relevant specific risk in the cash-generating unit.

For the years ended December 31, 2017 and 2016, the Company did not recognize any impairment loss on goodwill.

 

15. OTHER ASSETS

 

    

December 31,

2017

     December 31,
2016
 

Tax receivable

   $ 1,992,258      $ 2,182,159  

Prepaid expenses

     492,247        821,648  

Others

     287        855  
  

 

 

    

 

 

 
   $ 2,484,792      $ 3,004,662  
  

 

 

    

 

 

 

 

- 36 -


16. SHORT-TERM LOANS

 

    

December 31,

2017

     December 31,
2016
 

Unsecured loans

     

Amount

   $ 63,766,850      $ 57,958,200  
  

 

 

    

 

 

 

Original loan content

     

US$ (in thousands)

   $ 2,150,000      $ 1,800,000  

Annual interest rate

     1.54%-1.82%        0.87%-1.07%  

Maturity date

    
Due by
February 2018
 
 
    
Due by
January 2017
 
 

 

17. PROVISIONS

The Company’s current provisions were provisions for sales returns and allowances.

 

     Sales Returns
and Allowances
 

Year ended December 31, 2017

  

Balance, beginning of year

   $ 16,991,612  

Provision

     44,244,876  

Payment

     (48,061,663
  

 

 

 

Balance, end of year

   $ 13,174,825  
  

 

 

 
Year ended December 31, 2016       

Balance, beginning of year

   $ 9,011,863  

Provision

     35,699,912  

Payment

     (27,720,163
  

 

 

 

Balance, end of year

   $ 16,991,612  
  

 

 

 

Provisions for sales returns and allowances are estimated based on historical experience and the consideration of varying contractual terms, and are recognized as a reduction of revenue in the same year of the related product sales.

 

18. BONDS PAYABLE

 

    

December 31,

2017

     December 31,
2016
 

Domestic unsecured bonds

   $ 116,100,000      $ 154,200,000  

Less: Current portion

     (24,300,000      (38,100,000
  

 

 

    

 

 

 
   $      91,800,000      $    116,100,000  
  

 

 

    

 

 

 

 

- 37 -


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

102-1    A   

February 2013 to February 2018

     6,200,000      1.23%  

The same as above

   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

 

(Continued)

 

- 38 -


Issuance    Tranche    Issuance Period    Total Amount               Coupon         
Rate
 

Repayment and

Interest Payment

102-4    C   

September 2013 to March 2019

   $ 1,400,000      1.60%  

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

   D   

September 2013 to March 2021

     2,600,000      1.85%  

The same as above

   E   

September 2013 to March 2023

     5,400,000      2.05%  

The same as above

   F   

September 2013 to September 2023

     2,600,000      2.10%  

Bullet repayment; interest payable annually

(Concluded)

 

19. RETIREMENT BENEFIT PLANS

 

  a. Defined contribution plans

The plan under the R.O.C. Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Accordingly, the Company recognized expenses of NT$1,905,444 thousand and NT$1,735,492 thousand for the years ended December 31, 2017 and 2016, respectively.

 

  b. Defined benefit plans

The Company has defined benefit plans under the R.O.C. Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. Before the end of each year, the Company assesses the balance in the Funds. If the amount of the balance in the Funds is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The Funds are operated and managed by the government’s designated authorities; as such, the Company does not have any right to intervene in the investments of the Funds.

 

- 39 -


Amounts recognized in respect of these defined benefit plans were as follows:

 

     Years Ended December 31  
     2017      2016  

Current service cost

   $ 145,026      $ 132,786  

Net interest expense

     126,525        139,355  
  

 

 

    

 

 

 

Components of defined benefit costs recognized in profit or loss

     271,551        272,141  
  

 

 

    

 

 

 

Remeasurement on the net defined benefit liability:

     

Return on plan assets (excluding amounts included in net interest expense)

     29,290        45,721  

Actuarial loss arising from experience adjustments

     483,846        38,195  

Actuarial loss(gain) arising from changes in financial assumptions

     (258,455      694,632  

Actuarial loss arising from changes in demographic assumptions

            278,672  
  

 

 

    

 

 

 

Components of defined benefit costs recognized in other comprehensive income

     254,681        1,057,220  
  

 

 

    

 

 

 

Total

   $          526,232      $      1,329,361  
  

 

 

    

 

 

 

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

 

     Years Ended December 31  
     2017      2016  

Cost of revenue

   $          175,357      $         176,977  

Research and development expenses

     75,340        73,395  

General and administrative expenses

     16,669        17,367  

Marketing expenses

     4,185        4,402  
  

 

 

    

 

 

 
   $ 271,551      $ 272,141  
  

 

 

    

 

 

 

The amounts arising from the defined benefit obligation of the Company were as follows:

 

    

December 31,

2017

     December 31,
2016
 

Present value of defined benefit obligation

   $ 12,774,593      $ 12,480,480  

Fair value of plan assets

     (3,923,889      (3,929,072
  

 

 

    

 

 

 

Net defined benefit liability

   $ 8,850,704      $ 8,551,408  
  

 

 

    

 

 

 

 

- 40 -


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

 

     Years Ended December 31  
     2017      2016  

Balance, beginning of year

   $ 12,480,480      $ 11,318,174  

Current service cost

     145,026        132,786  

Interest expense

     185,561        212,909  

Remeasurement losses (gains):

     

Actuarial loss arising from experience adjustments

     483,846        38,195  

Actuarial loss (gain) arising from changes in financial assumptions

     (258,455      694,632  

Actuarial loss arising from changes in demographic assumptions

            278,672  

Benefits paid from plan assets

     (261,865      (194,888
  

 

 

    

 

 

 

Balance, end of year

   $            12,774,593      $           12,480,480  
  

 

 

    

 

 

 

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

 

     Years Ended December 31  
     2017      2016  

Balance, beginning of year

   $ 3,929,072      $ 3,870,148  

Interest income

     59,036        73,554  

Remeasurement losses:

     

Return on plan assets (excluding amounts included in net interest expense)

     (29,290      (45,721

Contributions from employer

     226,936        225,979  

Benefits paid from plan assets

     (261,865      (194,888
  

 

 

    

 

 

 

Balance, end of year

   $             3,923,889      $             3,929,072  
  

 

 

    

 

 

 

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

 

    

December 31,

2017

     December 31,
2016
 

Cash

   $ 707,477      $ 818,426  

Equity instruments

     1,993,336        1,852,950  

Debt instruments

     1,223,076        1,257,696  
  

 

 

    

 

 

 
   $             3,923,889      $             3,929,072  
  

 

 

    

 

 

 

The actuarial valuations of 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,   

2017

     December 31,   
2016

Discount rate

   1.65%   1.50%

Future salary increase rate

   3.00%   3.00%

 

- 41 -


Through the defined benefit plans under the R.O.C. Labor Standards Law, the Company is exposed to the following risks:

 

  1) Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the government’s designated authorities or under the mandated management. However, under the R.O.C. Labor Standards Law, the rate of return on assets shall not be less than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return.

 

  2) Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the debt investments of the plan assets.

Assuming a hypothetical decrease in interest rate at the end of the reporting period contributed to a decrease of 0.5% in the discount rate and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$890,116 thousand and NT$970,282 thousand as of December 31, 2017 and 2016, respectively.

 

  3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

Assuming the expected salary rate increases by 0.5% at the end of the reporting period and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$873,801 thousand and NT$951,424 thousand as of December 31, 2017 and 2016, respectively.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability.

The Company expects to make contributions of NT$233,745 thousand to the defined benefit plans in the next year starting from December 31, 2017. The weighted average duration of the defined benefit obligation is 13 years.

 

20. GUARANTEE DEPOSITS

 

    

December 31,

2017

     December 31,
2016
 

Capacity guarantee

   $ 13,346,550      $ 20,929,350  

Others

     282,572        176,992  
  

 

 

    

 

 

 
   $ 13,629,122      $ 21,106,342  
  

 

 

    

 

 

 

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

   $ 6,046,643      $ 6,439,800  

Noncurrent portion

     7,582,479        14,666,542  
  

 

 

    

 

 

 
   $ 13,629,122      $ 21,106,342  
  

 

 

    

 

 

 

 

- 42 -


Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.

 

21. EQUITY

 

  a. Capital stock

 

                                         
    

December 31,

2017

     December 31,
2016
 

Authorized shares (in thousands)

     28,050,000        28,050,000  
  

 

 

    

 

 

 

Authorized capital

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

 

 

    

 

 

 

Issued and paid shares (in thousands)

     25,930,380        25,930,380  
  

 

 

    

 

 

 

Issued capital

   $ 259,303,805      $ 259,303,805  
  

 

 

    

 

 

 

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, 2017, 1,068,165 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,340,823 thousand shares (one ADS represents five common shares).

 

  b. Capital surplus

 

                                         
    

December 31,

2017

     December 31,
2016
 

Additional paid-in capital

   $ 24,184,939      $ 24,184,939  

From merger

     22,804,510        22,804,510  

From convertible bonds

     8,892,847        8,892,847  

From share of changes in equities of subsidiaries

     118,792        107,798  

From share of changes in equities of associates

     289,240        282,155  

Donations

     19,208        55  
  

 

 

    

 

 

 
   $ 56,309,536      $ 56,272,304  
  

 

 

    

 

 

 

Under the relevant laws, 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 and convertible bonds) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of the Company’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and associates and dividend of a claim extinguished by a prescription may be used to offset a deficit; however, when generated from issuance of restricted shares for employees, such capital surplus may not be used for any purpose.

 

  c. Retained earnings and dividend policy

In accordance with the amendments to the R.O.C. Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The amendments to the Company’s Articles of Incorporation on earnings distribution policy had been approved by the Company’s shareholders in its meeting held on June 7, 2016. For policy about the profit sharing bonus to employees, please refer to Note 29.

 

- 43 -


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

 

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

 

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

 

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

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

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

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

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

The appropriations of 2016 and 2015 earnings have been approved by the Company’s shareholders in its meetings held on June 8, 2017 and June 7, 2016, 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 2016      Year 2015      Year 2016      Year 2015  

Legal capital reserve

   $ 33,424,718      $ 30,657,384        

Cash dividends to shareholders

     181,512,663        155,582,283      $ 7      $ 6  
  

 

 

    

 

 

       
   $ 214,937,381      $ 186,239,667        
  

 

 

    

 

 

       

The Company’s appropriations of earnings for 2017 had been approved in the meeting of the Board of Directors held on February 13, 2018. The appropriations and dividends per share were as follows:

 

                                             
       Appropriation  
of Earnings
       Dividends Per  
Share (NT$)
 
    

For Fiscal

Year 2017

    

For Fiscal

Year 2017

 

Legal capital reserve

   $ 34,311,148     

Special capital reserve

     26,907,527     

Cash dividends to shareholders

     207,443,044      $ 8  
  

 

 

    
   $ 268,661,719     
  

 

 

    

 

- 44 -


The appropriations of earnings for 2017 are to be presented for approval in the Company’s shareholders’ meeting to be held on June 5, 2018 (expected).

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

 

  d. Others

Changes in others were as follows:

 

                                                                                                                  
     Year Ended December 31, 2017  
     Foreign
Currency
Translation
Reserve
    Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
   

Cash Flow

Hedges

Reserve

   

Unearned
Stock-Based

Employee

Compensation

    Total  

Balance, beginning of year

   $ 1,661,237     $ 2,641     $ 105     $     $ 1,663,983  

Exchange differences arising on translation of foreign operations

     (28,270,770                       (28,270,770

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

           (310,002                 (310,002

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

           (115,690                 (115,690

Gain/(loss) arising on changes in the fair value of hedging instruments

                 99,534             99,534  

Transferred to initial carrying amount of hedged items

                 (94,851           (94,851

Share of other comprehensive income (loss) of associates

     (88,147     211,951                   123,804  

Share of unearned stock-based employee compensation of associates

                       (10,290     (10,290

Income tax effect

           (2,974     (562           (3,536
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ (26,697,680   $ (214,074   $ 4,226     $ (10,290   $         26,917,818  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                                                                           
     Year Ended December 31, 2016  
     Foreign
Currency
Translation
Reserve
     Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
     Cash Flow
Hedges Reserve
     Total  

Balance, beginning of year

   $ 11,039,949      $ 734,771      $ (607    $ 11,774,113  

Exchange differences arising on translation of foreign operations

     (9,439,776                    (9,439,776

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

            148,917               148,917  

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

            (101,411             (101,411

Share of other comprehensive income (loss) of subsidiaries and associates

     65,776        (714,991      712        (648,503

Other comprehensive loss reclassified to profit or loss upon disposal of associates

     (4,712      (3,469             (8,181

Income tax effect

            (61,176             (61,176
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of year

   $ 1,661,237      $ 2,641      $ 105      $ 1,663,983  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 45 -


The aforementioned other equity includes the changes in other equities of the Company and the Company’s share of its subsidiaries and associates.

 

22. NET REVENUE

 

                                             
     Years Ended December 31  
     2017      2016  

Net revenue from sale of goods

   $ 968,611,860      $ 935,864,491  

Net revenue from royalties

     524,249        522,800  
  

 

 

    

 

 

 
   $ 969,136,109      $ 936,387,291  
  

 

 

    

 

 

 

 

23. OTHER OPERATING INCOME AND EXPENSES, NET

 

                                             
     Years Ended December 31  
     2017      2016  

Gain (loss) on disposal or retirement of property, plant and equipment, net

   $ (1,008,989    $ 100,503  

Others

     (252,676      (16,538
  

 

 

    

 

 

 
   $ (1,261,665    $ 83,965  
  

 

 

    

 

 

 

 

24. OTHER INCOME

 

     Years Ended December 31  
     2017      2016  

Interest income

     

Bank deposits

   $ 1,522,579      $ 1,634,873  

Held-to-maturity financial assets

     32,213        48,277  
  

 

 

    

 

 

 
     1,554,792        1,683,150  

Dividend income

     141,803        133,653  
  

 

 

    

 

 

 
   $ 1,696,595      $ 1,816,803  
  

 

 

    

 

 

 

 

25. FINANCE COSTS

 

     Years Ended December 31  
     2017      2016  

Interest expense

     

Corporate bonds

   $ 1,967,750      $ 2,353,251  

Bank loans

     766,001        289,942  

Related parties

     15,889         
  

 

 

    

 

 

 
   $ 2,749,640      $ 2,643,193  
  

 

 

    

 

 

 

 

- 46 -


26. OTHER GAINS AND LOSSES, NET

 

     Years Ended December 31  
     2017      2016  

Gain on disposal of financial assets, net

     

Available-for-sale financial assets

   $ 115,690      $ 101,411  

Other gains

     245,483        125,282  

Net gain (loss) on financial instruments at FVTPL

     

Held for trading

     1,252,759        899,991  

Designated as at FVTPL

            (76,691

Loss on disposal of investments accounted for using equity method, net

            (296,065

Impairment loss of financial assets

     

Financial assets carried at cost

     (6,137      (4,537

Other losses

     (15,556      (15,291
  

 

 

    

 

 

 
   $ 1,592,239      $ 734,100  
  

 

 

    

 

 

 

 

27. INCOME TAX

 

  a. Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

     Years Ended December 31  
     2017      2016  

Current income tax expense

     

Current tax expense recognized in the current year

   $ 55,187,468      $ 53,577,418  

Income tax adjustments on prior years

     (938,292      (1,039,175

Other income tax adjustments

     150,168        168,040  
  

 

 

    

 

 

 
     54,399,344        52,706,283  
  

 

 

    

 

 

 

Deferred income tax benefit

     

The origination and reversal of temporary differences

     (4,194,644      (1,764,503
  

 

 

    

 

 

 

Income tax expense recognized in profit or loss

   $ 50,204,700      $ 50,941,780  
  

 

 

    

 

 

 

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

 

     Years Ended December 31  
     2017      2016  

Income before tax

   $ 393,316,176      $ 385,188,960  
  

 

 

    

 

 

 

Income tax expense at the statutory rate (17%)

   $ 66,863,750      $ 65,482,123  

Tax effect of adjusting items:

     

Nondeductible (deductible) items in determining taxable income

     (1,438,813      121,152  

Tax-exempt income

     (16,467,720      (19,075,801

Additional income tax on unappropriated earnings

     11,835,948        11,957,213  

 

(Continued)

 

- 47 -


                                                         
     Years Ended December 31  
     2017      2016  

The origination and reversal of temporary differences

   $ (4,194,644    $ (1,764,503

Income tax credits

     (5,605,697      (4,907,269
  

 

 

    

 

 

 
     50,992,824        51,812,915  

Income tax adjustments on prior years

     (938,292      (1,039,175

Other income tax adjustments

     150,168        168,040  
  

 

 

    

 

 

 

Income tax expense recognized in profit or loss

   $ 50,204,700      $ 50,941,780  
  

 

 

    

 

 

 

(Concluded)

In January 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as of December 31, 2017 are expected to be adjusted and would increase by NT$1,464,963 thousand and NT$15,096 thousand, respectively, in 2018.

 

  b. Income tax expense recognized in other comprehensive income

 

                                                         
     Years Ended December 31  
     2017      2016  

Deferred income tax benefit (expense)

     

Related to remeasurement of defined benefit obligation

   $ 30,562      $ 126,867  

Related to unrealized gain/loss on available-for-sale financial assets

     (2,974      (61,176

Related to gain/loss on cash flow hedges

     (562       
  

 

 

    

 

 

 
   $ 27,026      $ 65,691  
  

 

 

    

 

 

 

 

  c. Deferred income tax balance

The analysis of deferred income tax assets and liabilities was as follows:

 

                                                     
    

December 31,

2017

     December 31,
2016
 

Deferred income tax assets

     

Temporary differences

     

Depreciation

   $ 7,668,535      $ 3,284,735  

Provision for sales returns and allowance

     1,580,979        1,428,787  

Net defined benefit liability

     975,324        939,543  

Unrealized loss on inventories

     604,635        698,858  

Others

            94,858  
  

 

 

    

 

 

 
   $ 10,829,473      $ 6,446,781  
  

 

 

    

 

 

 

Deferred income tax liabilities

     

Temporary differences

     

Unrealized exchange gains

   $ (169,480    $ (48,736

Available-for-sale financial assets

     (95,421      (92,447

Cash flow hedges

     (37,304       
  

 

 

    

 

 

 
   $ (302,205    $ (141,183
  

 

 

    

 

 

 

 

- 48 -


                                                                           
          Recognized in        
   

Balance,

Beginning of

Year

    Profit or Loss    

Other

Comprehensive

Income

   

Balance, End of

Year

 

Year Ended December 31, 2017

       

Deferred income tax assets

       

Temporary differences

       

Depreciation

  $ 3,284,735     $ 4,383,800     $     $ 7,668,535  

Provision for sales returns and allowance

    1,428,787       152,192             1,580,979  

Net defined benefit liability

    939,543       5,219       30,562       975,324  

Unrealized loss on inventories

    698,858       (94,223           604,635  

Others

    94,858       (94,858            
 

 

 

   

 

 

   

 

 

   

 

 

 
    $ 6,446,781     $4,352,130     $30,562     $10,829,473  
 

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax liabilities

       

Temporary differences

       

Unrealized exchange gains

  $ (48,736   $ (120,744   $     $ (169,480

Available-for-sale financial assets

    (92,447           (2,974     (95,421

Cash flow hedges

          (36,742     (562     (37,304
 

 

 

   

 

 

   

 

 

   

 

 

 
    $(141,183)     $ (157,486   $ (3,536   $ (302,205
 

 

 

   

 

 

   

 

 

   

 

 

 

Year Ended December 31, 2016

       

Deferred income tax assets

       

Temporary differences

       

Depreciation

  $ 1,874,632     $ 1,410,103     $     $ 3,284,735  

Provision for sales returns and allowance

    1,081,423       347,364             1,428,787  

Net defined benefit liability

    895,486       (82,810     126,867       939,543  

Unrealized loss on inventories

    573,243       125,615             698,858  

Others

    81,891       12,967             94,858  
 

 

 

   

 

 

   

 

 

   

 

 

 
    $4,506,675     $ 1,813,239     $ 126,867     $ 6,446,781  
 

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax liabilities