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 May 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: May 7, 2018     By  

/s/ Lora Ho

      Lora Ho
      Senior Vice President & Chief Financial Officer


  

Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

 

Consolidated Financial Statements for the

Three Months Ended March 31, 2018 and 2017 and

Independent Auditors’ Review Report

  


LOGO   LOGO

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

Introduction

We have reviewed the accompanying consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and its subsidiaries (the “Company”) as of March 31, 2018 and 2017 and the consolidated statements of comprehensive income, changes in equity and cash flows for the three-month periods then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34, “Interim Financial Reporting,” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

We conducted our reviews in accordance with Statement of Auditing Standards No. 65 “Review of Financial Information Performed by the Independent Auditor of the Entity”. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects the financial position of the entity as at March 31, 2018 and 2017, and of its consolidated financial performance and its consolidated cash flows for the three-month periods then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34, “Interim Financial Reporting,” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

 

- 1 -


The engagement partners on the reviews resulting in this independent auditors’ review report are Mei Yen Chiang and Yu Feng Huang.

 

LOGO    LOGO

Deloitte & Touche

Taipei, Taiwan

Republic of China

April 20, 2018

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated 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 review such consolidated financial statements are those generally applied in the Republic of China.

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

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

     March 31, 2018
(Reviewed)
     December 31, 2017
(Audited)
     March 31, 2017
(Reviewed)
 
     Amount      %      Amount      %      Amount      %  
                 

ASSETS

                 

CURRENT ASSETS

                 

Cash and cash equivalents (Note 6)

   $ 577,782,963        28      $ 553,391,696        28      $ 564,725,266        29  

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

     963,915               569,751               5,374,003         

Financial assets at fair value through other comprehensive income (Note 8)

     95,713,446        4                              

Available-for-sale financial assets (Note 9)

                   93,374,153        5        71,083,797        4  

Held-to-maturity financial assets (Note 10)

                   1,988,385               18,140,374        1  

Financial assets at amortized cost (Note 11)

     9,888,741        1                              

Hedging derivative financial assets (Note 13)

                   34,394                       

Hedging financial assets (Note 13)

     26,357                                     

Notes and accounts receivable, net (Note 14)

     106,601,372        5        121,133,248        6        108,532,829        6  

Receivables from related parties (Note 32)

     1,179,312               1,184,124               494,839         

Other receivables from related parties (Note 32)

     130,070               171,058               135,051         

Inventories (Note 15)

     85,215,899        4        73,880,747        4        50,389,022        3  

Other financial assets (Note 33)

     11,667,264        1        7,253,114               3,761,484         

Other current assets (Note 19)

     39,947,321        2        4,222,440               3,025,168         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     929,116,660        45        857,203,110        43        825,661,833        43  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT ASSETS

                 

Financial assets at fair value through other comprehensive income (Note 8)

     6,035,904                                     

Held-to-maturity financial assets (Note 10)

                   18,833,329        1        20,499,458        1  

Financial assets at amortized cost (Note 11)

     10,033,241        1                              

Financial assets carried at cost (Note 12)

                   4,874,257               4,079,292         

Investments accounted for using equity method (Note 16)

     18,307,517        1        17,861,488        1        19,940,062        1  

Property, plant and equipment (Note 17)

     1,055,366,207        51        1,062,542,322        53        1,037,364,143        54  

Intangible assets (Note 18)

     13,674,295        1        14,175,140        1        14,278,436        1  

Deferred income tax assets (Note 4)

     12,987,042        1        12,105,463        1        10,644,401         

Refundable deposits

     2,121,209               1,283,414               572,005         

Other noncurrent assets (Note 19)

     1,513,731               2,983,120               1,624,131         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent assets

     1,120,039,146        55        1,134,658,533        57        1,109,001,928        57  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 2,049,155,806        100      $ 1,991,861,643        100      $ 1,934,663,761        100  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

                 

CURRENT LIABILITIES

                 

Short-term loans (Notes 20 and 30)

   $ 56,731,350        3      $ 63,766,850        3      $ 54,666,000        3  

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

     170,673               26,709               124,935         

Hedging derivative financial liabilities (Note 13)

                   15,562               3,908         

Hedging financial liabilities (Note 13)

     79,182                                     

Accounts payable

     27,817,670        1        28,412,807        1        23,081,567        1  

Payables to related parties (Note 32)

     1,224,307               1,656,356               1,171,195         

Salary and bonus payable

     10,201,325        1        14,254,871        1        10,703,656        1  

Accrued profit sharing bonus to employees and compensation to directors and supervisors (Notes 24 and 29)

     29,529,009        1        23,419,135        1        28,857,625        1  

Payables to contractors and equipment suppliers

     47,828,289        2        55,723,774        3        57,671,953        3  

Income tax payable (Note 4)

     44,096,800        2        33,479,311        2        52,874,433        3  

Provisions (Note 21)

                   13,961,787        1        11,298,320        1  

Long-term liabilities - current portion (Note 22)

     49,356,740        2        58,401,122        3        44,909,680        2  

Accrued expenses and other current liabilities (Notes 23, 30 and 32)

     75,199,897        4        65,588,396        3        36,217,252        2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     342,235,242        16        358,706,680        18        321,580,524        17  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT LIABILITIES

                 

Bonds payable (Notes 22 and 30)

     83,400,000        4        91,800,000        5        134,198,769        7  

Long-term bank loans

                                 19,360         

Deferred income tax liabilities (Note 4)

     285,644               302,205               90,944         

Net defined benefit liability (Note 4)

     8,818,705        1        8,850,704        1        8,537,369         

Guarantee deposits (Notes 23 and 30)

     5,991,361               7,586,790               12,321,468        1  

Others

     1,819,825               1,855,621               1,605,302         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent liabilities

     100,315,535        5        110,395,320        6        156,773,212        8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     442,550,777        21        469,102,000        24        478,353,736        25  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT

                 

Capital stock (Note 24)

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Capital surplus (Note 24)

     56,305,751        3        56,309,536        3        56,282,118        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retained earnings (Note 24)

                 

Appropriated as legal capital reserve

     241,722,663        12        241,722,663        12        208,297,945        11  

Unappropriated earnings

     1,082,967,237        53        991,639,347        49        951,339,122        49  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,324,689,900        65        1,233,362,010        61        1,159,637,067        60  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Others (Note 24)

     (34,401,067      (2      (26,917,818      (1      (19,709,627      (1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity attributable to shareholders of the parent

     1,605,898,389        79        1,522,057,533        76        1,455,513,363        75  

NON-CONTROLLING INTERESTS

     706,640               702,110               796,662         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     1,606,605,029        79        1,522,759,643        76        1,456,310,025        75  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 2,049,155,806        100      $ 1,991,861,643        100      $ 1,934,663,761        100  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018      2017  
     Amount      %      Amount      %  
           

NET REVENUE (Notes 25, 32 and 37)

   $ 248,078,671        100      $ 233,914,400        100  

COST OF REVENUE (Notes 15, 29 and 32)

     123,103,977        50        112,428,734        48  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     124,974,694        50        121,485,666        52  

REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES

     (117,155             3,970         
  

 

 

    

 

 

    

 

 

    

 

 

 

GROSS PROFIT

     124,857,539        50        121,489,636        52  
  

 

 

    

 

 

    

 

 

    

 

 

 

OPERATING EXPENSES (Notes 29 and 32)

           

Research and development

     20,428,594        8        19,412,393        8  

General and administrative

     4,851,708        2        5,247,603        2  

Marketing

     1,448,092        1        1,496,487        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     26,728,394        11        26,156,483        11  
  

 

 

    

 

 

    

 

 

    

 

 

 

OTHER OPERATING INCOME AND EXPENSES, NET (Note 29)

     (1,302,199             19,237         
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME FROM OPERATIONS (Note 37)

     96,826,946        39        95,352,390        41  
  

 

 

    

 

 

    

 

 

    

 

 

 

NON-OPERATING INCOME AND EXPENSES

           

Share of profits of associates

     681,791               666,810         

Other income

     3,154,642        1        2,104,979        1  

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

     (676,980             99,795         

Finance costs

     (807,966             (816,664       

Other gains and losses, net (Note 26)

     765,188               415,189         
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-operating income and expenses

     3,116,675        1        2,470,109        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAX

     99,943,621        40        97,822,499        42  

INCOME TAX EXPENSE (Notes 4 and 27)

     10,156,047        4        10,201,591        5  
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME

     89,787,574        36        87,620,908        37  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018      2017  
     Amount      %      Amount      %  
           

OTHER COMPREHENSIVE INCOME (LOSS) (Notes 24 and 27)

           

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

           

Unrealized loss on investments in equity instruments at fair value through other comprehensive income

   $ (19,507           $         

Gain on hedging instruments

     37,282                       

Share of other comprehensive income of associates

     62                       

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

     39,206                       
  

 

 

    

 

 

    

 

 

    

 

 

 
     57,043                       
  

 

 

    

 

 

    

 

 

    

 

 

 

Items that may be reclassified subsequently to profit or loss:

           

Exchange differences arising on translation of foreign operations

     (6,476,486      (3      (21,243,594      (9

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

                   (93,470       

Unrealized loss on investments in debt instruments at fair value through other comprehensive income

     (727,410                     

Share of other comprehensive loss of associates

     (39,352          —        (61,657       

Income tax benefit related to items that may be reclassified subsequently

                   46,400         
  

 

 

    

 

 

    

 

 

    

 

 

 
     (7,243,248      (3      (21,352,321      (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive loss for the period, net of income tax

     (7,186,205      (3      (21,352,321      (9
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

   $ 82,601,369        33      $ 66,268,587        28  
  

 

 

    

 

 

    

 

 

    

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO:

           

Shareholders of the parent

   $ 89,784,622        36      $ 87,628,898        37  

Non-controlling interests

     2,952               (7,990          —  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 89,787,574        36      $ 87,620,908        37  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018      2017  
     Amount      %      Amount      %  
           

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

           

Shareholders of the parent

   $ 82,596,052        33      $ 66,274,790        28  

Non-controlling interests

     5,317               (6,203       
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 82,601,369        33      $ 66,268,587        28  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  
    

Income Attributable to
Shareholders of

the Parent

    

Income Attributable to

Shareholders of

the Parent

 
           

EARNINGS PER SHARE (NT$, Note 28)

           

Basic earnings per share

   $        3.46      $        3.38  
  

 

 

    

 

 

 

Diluted earnings per share

   $        3.46      $        3.38  
  

 

 

    

 

 

 

 

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

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Equity Attributable to Shareholders of the Parent                
                                               Others                       
                                                            

Unrealized

Gain(Loss) on

Financial

Assets at Fair

Value Through

Other

Comprehensive

Income

                                                  
                                                                                                             
                                                     

Unrealized

Gain(Loss)

from

Available-

for-sale

Financial Assets

                                                     
                                                                                                         
                                              

Foreign

Currency

Translation

Reserve

                        

Unearned

Stock-Based

Employee

Compensation

                             
     Capital Stock - Common
Stock
            Retained Earnings                     

Gain(Loss) on

Hedging

Instruments

                                
     Shares                    Legal Capital      Unappropriated                     

Cash Flow

Hedges Reserve

                         Non-controlling      Total  
     (In Thousands)      Amount      Capital Surplus      Reserve      Earnings      Total                        Total      Total      Interests      Equity  
                                               

BALANCE, JANUARY 1, 2018

     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      $ 702,110      $ 1,522,759,643  

Effect of retrospective application

                                 1,556,319        1,556,319               214,074        (524,915      (4,226      4,226               (310,841      1,245,478        342        1,245,820  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

ADJUSTED BALANCE, JANUARY 1, 2018

     25,930,380        259,303,805        56,309,536        241,722,663        993,195,666        1,234,918,329        (26,697,680             (524,915             4,226        (10,290      (27,228,659      1,523,303,011        702,452        1,524,005,463  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income for the three months ended March 31, 2018

                                 89,784,622        89,784,622                                                         89,784,622        2,952        89,787,574  

Other comprehensive income (loss) for the three months ended March 31, 2018, net of income tax

                                               (6,515,676             (705,702             32,808               (7,188,570      (7,188,570      2,365        (7,186,205
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss) for the three months ended March 31, 2018

                                 89,784,622        89,784,622        (6,515,676             (705,702             32,808               (7,188,570      82,596,052        5,317        82,601,369  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Disposal of investments in equity instruments at fair value through other comprehensive income

                                 (13,051      (13,051                    13,051                             13,051                       

Adjustments to share of changes in equities of associates

                   (3,825                                                              3,111        3,111        (714             (714

Donation from shareholders

                   40                                                                              40        6        46  

Decrease in non-controlling interests

                                                                                                       (1,135      (1,135
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, March 31, 2018

     25,930,380      $ 259,303,805      $ 56,305,751      $ 241,722,663      $ 1,082,967,237      $ 1,324,689,900      $ (33,213,356    $      $ (1,217,566    $      $ 37,034      $ (7,179    $ (34,401,067    $ 1,605,898,389      $ 706,640      $ 1,606,605,029  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, JANUARY 1, 2017

     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      $ 802,865      $ 1,390,051,126  

Net income (loss) for the three months ended March 31, 2017

                                 87,628,898        87,628,898                                                         87,628,898        (7,990      87,620,908  

Other comprehensive income (loss) for the three months ended March 31, 2017, net of income tax

                                               (21,304,092      (50,016                                  (21,354,108      (21,354,108      1,787        (21,352,321
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss) for the three months ended March 31, 2017

                                 87,628,898        87,628,898        (21,304,092      (50,016                                  (21,354,108      66,274,790        (6,203      66,268,587  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjustments to share of changes in equities of associates

                   9,814                                                                (19,502      (19,502      (9,688             (9,688
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

BALANCE, March 31, 2017

     25,930,380      $ 259,303,805      $ 56,282,118      $ 208,297,945      $ 951,339,122      $ 1,159,637,067      $ (19,642,855    $ (47,375    $      $ 105      $      $ (19,502    $ (19,709,627    $ 1,455,513,363      $ 796,662      $ 1,456,310,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018      2017  
     

CASH FLOWS FROM OPERATING ACTIVITIES

     

Income before income tax

   $ 99,943,621      $ 97,822,499  

Adjustments for:

     

Depreciation expense

     70,462,286        59,133,361  

Amortization expense

     1,035,591        1,038,824  

Reversal of expected credit losses on investments in debt instruments

     (1,757       

Finance costs

     807,966        816,664  

Share of profits of associates

     (681,791      (666,810

Interest income

     (3,154,189      (2,104,979

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

     582,384        (22,195

Gain on disposal of intangible assets, net

     (436       

Impairment loss on financial assets

            12,032  

Loss on financial instruments at fair value through profit or loss

     28,142         

Loss on disposal of investments in debt instruments at fair value through other comprehensive income

     252,328         

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

            8,982  

Unrealized (realized) gross profit on sales to associates

     117,155        (3,970

Gain on foreign exchange, net

     (1,205,272      (7,106,552

Dividend income

     (453       

Loss (gain) arising from fair value hedges, net

     (352      19,487  

Changes in operating assets and liabilities:

     

Financial instruments at fair value through profit or loss

     602,734        1,010,909  

Notes and accounts receivable, net

     13,296,988        18,227,303  

Receivables from related parties

     4,812        474,720  

Other receivables from related parties

     40,988        11,737  

Inventories

     (11,335,152      (1,706,789

Other financial assets

     (3,143,144      1,599,844  

Other current assets

     (1,402,930      369,473  

Other noncurrent assets

     25,301        (152,473

Accounts payable

     (984,571      (3,020,849

Payables to related parties

     (432,049      (90,979

Salary and bonus payable

     (4,053,546      (2,978,161

Accrued profit sharing bonus to employees and compensation to directors and supervisors

     6,109,874        5,963,619  

Accrued expenses and other current liabilities

     (5,776,314      (824,558

Provisions

            (6,696,992

Net defined benefit liability

     (31,999      (14,039
  

 

 

    

 

 

 

Cash generated from operations

     161,106,215        161,120,108  

Income taxes paid

     (380,297      (112,064
  

 

 

    

 

 

 

Net cash generated by operating activities

     160,725,918        161,008,044  
  

 

 

    

 

 

 

(Continued)

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018     2017  
    

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Financial instruments at fair value through profit or loss - debt instruments

   $ (183,026   $  

Financial assets at fair value through other comprehensive income

     (24,382,829      

Available-for-sale financial assets

           (24,675,339

Held-to-maturity financial assets

           (1,695,771

Financial assets carried at cost

           (202,032

Property, plant and equipment

     (71,847,185     (102,505,595

Intangible assets

     (222,548     (917,636

Proceeds from disposal or redemption of:

    

Financial instruments at fair value through profit or loss - debt instruments

     49,438        

Financial assets at fair value through other comprehensive income

     20,123,921        

Available-for-sale financial assets

           18,436,274  

Held-to-maturity financial assets

           400,000  

Financial assets at amortized cost

     498,542        

Property, plant and equipment

     47,376       151,904  

Intangible assets

     492        

Derecognition of hedging derivative financial instruments

           (6,399

Derecognition of hedging financial instruments

     177,209        

Interest received

     3,139,610       1,950,176  

Other dividends received

     453        

Refundable deposits paid

     (1,048,245     (191,217

Refundable deposits refunded

     187,602       25,376  
  

 

 

   

 

 

 

Net cash used in investing activities

     (73,459,190     (109,230,259
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Decrease in short-term loans

     (5,774,830     (250,365

Repayment of bonds and interest – prepaid

     (33,998,915      

Repayment of bonds

     (16,800,000     (10,000,000

Repayment of long-term bank loans

           (2,420

Interest paid

     (998,257     (1,257,295

Guarantee deposits received

     3,095       723,339  

Guarantee deposits refunded

     (57,230     (1,123,178

Donation from shareholders

     46        

Decrease in non-controlling interests

     (1,135      
  

 

 

   

 

 

 

Net cash used in financing activities

     (57,627,226     (11,909,919
  

 

 

   

 

 

 

(Continued)

 

- 9 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Three Months Ended March 31  
     2018      2017  
     

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

   $ (5,248,235    $ (16,396,433
  

 

 

    

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     24,391,267        23,471,433  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     553,391,696        541,253,833  
  

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 577,782,963      $ 564,725,266  
  

 

 

    

 

 

 

 

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

 

- 10 -


Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 and 2017

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

(Reviewed, Not Audited)

 

 

1. GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities of TSMC’s subsidiaries are described in Note 4.

 

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on April 20, 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 TSMC and its subsidiaries’ (collectively as the “Company”) accounting policies:

 

  1) IFRS 9 “Financial Instruments” and related amendment

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Please refer to Note 4 for information relating to the relevant accounting policies.

Classification, measurement and impairment of financial assets and financial liabilities

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.

 

- 11 -


The 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

  $ 553,391,696     $ 553,391,696       (1)  

Derivatives

 

Held for trading

 

Mandatorily at fair value through profit or loss (FVTPL)

    569,751       569,751    
 

Hedging instruments

 

Hedging instruments

    34,394       34,394    

Equity securities

 

Available-for-sale

 

Fair value through other comprehensive income (FVTOCI)

    7,422,311       8,389,438       (2)  

Debt securities

 

Available-for-sale

 

Mandatorily at FVTPL

          779,489       (3)  
   

FVTOCI

    90,826,099       90,046,610       (3)  
 

Held-to-maturity

 

Amortized cost

    20,821,714       20,813,462       (4)  

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

 

Loans and receivables

 

Amortized cost

    131,024,958       131,269,731       (1)  
Financial Liabilities                          

Derivatives

 

Held for trading

 

Held for trading

    26,709       26,709    
 

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

    340,501,266       340,501,266    

 

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

   $ 569,751      $      $      $ 569,751      $      $     

- Debt instruments

                    

Add: From available for sale

            779,489               779,489        (10,085      10,085        (3)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
     569,751        779,489               1,349,240        (10,085      10,085     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

FVTOCI

                                            

- Equity instruments

                    

Add: From available for sale

            7,422,311        967,127        8,389,438        1,294,528        (325,858      (2)  

- Debt instruments

                    

Add: From available for sale

            90,046,610               90,046,610        (30,658      30,658        (3)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
            97,468,921        967,127        98,436,048        1,263,870        (295,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Amortized cost

                                            

Add: From held to maturity

            20,821,714        (8,252      20,813,462        (8,252             (4)  

Add: From loans and receivables

            684,416,654        244,773        684,661,427        244,773               (1)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
            705,238,368        236,521        705,474,889        236,521            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Hedging instruments

     34,394                      34,394                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total

   $ 604,145      $ 803,486,778      $ 1,203,648      $ 805,294,571      $ 1,490,306      $ (285,115   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

    

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

   $ 17,861,488      $ 8,258      $ 17,869,746      $ 33,984      $ (25,726    (5)

 

- 12 -


  (1) Cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and refundable deposits that 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 would result in a decrease in loss allowance for accounts receivable of NT$244,773 thousand and an increase in retained earnings of NT$244,773 thousand on January 1, 2018.

 

  (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$228,304 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$967,127 thousand, an increase in other equity-unrealized gain/loss on financial assets at FVTOCI of NT$968,670 thousand and a decrease in non-controlling interests of NT$1,543 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$1,294,528 thousand and an increase in retained earnings of NT$1,294,528 thousand on January 1, 2018.

 

  (3) Debt investments were previously classified as available-for-sale financial assets under IAS 39. Under IFRS 9, except for debt instruments of NT$779,489 thousand whose contractual cash flows are not solely payments of principal and interest on the principal outstanding and therefore are classified as at FVTPL with the related other equity-unrealized gain/loss on available-for-sale financial assets of NT$10,085 thousand being consequently reclassified to decrease retained earnings, the remaining debt investments are classified as at FVTOCI with assessment of future 12-month expected credit loss because these investments are held within a business model whose objective is both to collect the contractual cash flows and sell the financial assets. The related other equity-unrealized gain/loss on available-for-sale financial assets of NT$434,403 thousand is reclassified to decrease other equity-unrealized gain/loss on financial assets at FVTOCI. As a result of retrospective application of future 12-month expected credit loss, the adjustments would result in an increase in other equity - unrealized gain/loss on financial assets at FVTOCI of NT$30,658 thousand and a decrease in retained earnings of NT$30,658 thousand on January 1, 2018.

 

  (4) Debt investments previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 are classified as measured at amortized cost with assessment of future 12-month expected credit loss under IFRS 9 because the contractual cash flows are solely payments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is to collect the contractual cash flows. As a result of retrospective application of future 12-month expected credit loss, the adjustments would result in an increase in loss allowance of NT$8,252 thousand and a decrease in retained earnings of NT$8,252 thousand on January 1, 2018.

 

  (5) 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$8,258 thousand, a decrease in other equity- unrealized gain/loss on financial assets at FVTOCI of NT$23,616 thousand, a decrease in other equity- unrealized gain/loss on available-for-sale financial assets of NT$2,110 thousand and an increase in retained earnings of NT$33,984 thousand on January 1, 2018.

 

- 13 -


Hedge accounting

The Company prospectively apply the requirements for hedge accounting upon initial application of IFRS 9. In addition, due to the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, all derivative and non-derivative financial assets and financial liabilities which are designated as hedging instruments are presented as financial assets and financial liabilities for hedging starting 2018.

 

  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. Please refer to Note 4 for information relating to the relevant accounting policies.

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

The 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  
           

Inventories

   $ 73,880,747      $ (19,746    $ 73,861,001        (1)  

Other financial assets-current

     7,253,114        34,177        7,287,291        (1)  

Investments accounted for using equity method

     17,861,488        19,483        17,880,971        (1)  
     

 

 

       

Total effect on assets

      $ 33,914        
     

 

 

       

Provisions - current

     13,961,787      $ (13,961,787             (2)  

Accrued expenses and other current liabilities

     65,588,396        13,961,787        79,550,183        (2)  
     

 

 

       

Total effect on liabilities

      $        
     

 

 

       

Retained earnings

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

Non-controlling interests

     702,110        1,885        703,995        (1)  
     

 

 

       

Total effect on equity

      $ 33,914        
     

 

 

       

 

  (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 recognize contract assets (classified under other financial assets) and adjust related assets and equity accordingly.

 

- 14 -


  (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).

The impact of continuing the application of IAS18 instead of IFRS15 for the three months ended March 31, 2018 is detailed as follows:

Impact on Assets, Liabilities and Equity

 

    

March 31,

2018

 
  

Decrease in inventories

   $ (16,438

Increase in other financial assets-current

     30,434  

Increase in investments accounted for using equity method

     25,901  
  

 

 

 

Total effect on assets

   $ 39,897  
  

 

 

 

Decrease in provisions - current

   $ (14,382,288

Increase in accrued expenses and other current liabilities

     14,382,265  

Increase in income tax payable

     2,804  
  

 

 

 

Total effect on liabilities

   $ 2,781  
  

 

 

 

Increase in retained earnings

   $ 35,651  

Increase in non-controlling interests

     1,465  
  

 

 

 

Total effect on equity

   $ 37,116  
  

 

 

 

Impact on Total Comprehensive Income

 

     Three Months
Ended
March 31,
2018
 
  

Increase in net revenue

   $ 30,457  

Increase in cost of revenue

     (16,438

Increase in share of the profit or loss of associates

     25,901  

Increase in income tax expense

     (2,804
  

 

 

 

Increase in net income for the period

   $ 37,116  
  

 

 

 

Increase in net income/total comprehensive income attributable to:

  

Shareholders of the parent

   $ 35,651  

Non-controlling interests

     1,465  
  

 

 

 
   $ 37,116  
  

 

 

 

 

  3) Please refer to Note 30 for the disclosure of amendment to IAS 7 “Disclosure Initiative”

 

- 15 -


  b. 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 (Note 1)

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

IFRS 16 “Leases”

  

January 1, 2019 (Note 2)

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

  

January 1, 2019 (Note 3)

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

 

  Note 1: The FSC permits the election for early adoption of the amendments starting from 2018.
  Note 2: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.
  Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements were issued, 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.

 

- 16 -


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2017.

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

Statement of Compliance

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

Basis of Consolidation

The basis of preparation and the basis for the consolidated financial statements

The basis of preparation and the basis for the consolidated financial statements applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2017.

The subsidiaries in the consolidated financial statements

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

 

           

Establishment

and Operating

Location

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

March 31,

2018

    December 31,
2017
   

March 31,

2017

    Note  
             

TSMC

 

TSMC North America

 

Selling and marketing of integrated circuits and other semiconductor devices

 

San Jose, California, U.S.A.

    100%       100%       100%       —    
 

TSMC Europe B.V. (TSMC Europe)

 

Customer service and supporting activities

 

Amsterdam, the Netherlands

    100%       100%       100%       a)  
 

TSMC Japan Limited (TSMC Japan)

 

Customer service and supporting activities

 

Yokohama, Japan

    100%       100%       100%       a)  
 

TSMC Korea Limited (TSMC Korea)

 

Customer service and supporting activities

 

Seoul, Korea

    100%       100%       100%       a)  
 

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

    100%       100%       100%       a)  
 

TSMC Global, Ltd. (TSMC Global)

 

Investment activities

 

Tortola, British Virgin Islands

    100%       100%       100%       —    
 

TSMC China Company Limited (TSMC China)

 

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

 

Shanghai, China

    100%       100%       100%       —    
 

TSMC Nanjing Company Limited (TSMC Nanjing)

 

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

 

Nanjing, China

    100%       100%       100%       b)  
 

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

 

Hsin-Chu, Taiwan

    87%       87%       87%       —    
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98%       98%       98%       a)  
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

    98%       98%       98%       a)  
 

TSMC Solar Europe GmbH

 

Selling of solar related products and providing customer service

 

Hamburg, Germany

    100%       100%       100%       a) , c)  

 

(Continued)

 

- 17 -


           

Establishment

and Operating

Location

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

March 31,

2018

  December 31,
2017
 

March 31,

2017

  Note
             

TSMC Partners

 

TSMC Development, Inc. (TSMC Development)

 

Investing in companies involved in the manufacturing related business in the semiconductor industry

 

Delaware, U.S.A.

  100%   100%   100%   —  
 

TSMC Technology, Inc. (TSMC Technology)

 

Engineering support activities

 

Delaware, U.S.A.

  100%   100%   100%   a)
 

TSMC Design Technology Canada Inc. (TSMC Canada)

 

Engineering support activities

 

Ontario, Canada

  100%   100%   100%   a)
 

InveStar Semiconductor Development Fund, Inc. (ISDF)

 

Investing in new start-up technology companies

 

Cayman Islands

  97%   97%   97%   a), d)
 

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

 

Investing in new start-up technology companies

 

Cayman Islands

  97%   97%   97%   a), d)

TSMC Development

 

WaferTech, LLC (WaferTech)

 

Manufacturing, selling and testing of integrated circuits and other semiconductor devices

 

Washington, U.S.A.

  100%   100%   100%   —  

VTAF III

 

Mutual-Pak Technology Co., Ltd. (Mutual-Pak)

 

Manufacturing of electronic parts, wholesaling and retailing of electronic materials, and researching, developing and testing of RFID

 

New Taipei, Taiwan

  39%   39%   58%   a), e)
 

Growth Fund Limited (Growth Fund)

 

Investing in new start-up technology companies

 

Cayman Islands

  100%   100%   100%   a)

VTAF III, VTAF II and TSMC

 

VentureTech Alliance Holdings, LLC (VTA Holdings)

 

Investing in new start-up technology companies

 

Delaware, U.S.A.

  —     —     100%   a), f)

(Concluded)

 

  Note a: This is an immaterial subsidiary for which the consolidated financial statements are not reviewed by the Company’s independent auditors.

 

  Note b: Under the investment agreement entered into with the municipal government of Nanjing, China, the Company 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.

 

  Note c: TSMC Solar Europe GmbH is under liquidation procedures.

 

  Note d: ISDF and ISDF II are under liquidation procedures.

 

  Note e: Starting December 2017, the Company no longer had the majority of voting power and control over Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for using the equity method.

 

  Note f: VTA Holdings completed the liquidation procedures in April 2017.

Financial Assets

The classification of financial assets 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.

 

  a. Category of financial assets and measurement

2018

Financial assets are classified into the following categories: financial assets at FVTPL, investments in debt instruments and equity instruments at FVTOCI, and financial assets at amortized cost.

 

  1) Financial asset at FVTPL

For certain financial assets which include debt instruments that do not meet the criteria of amortized cost or FVTOCI, it is mandatorily required to measure them at FVTPL. Any gain or loss arising from remeasurement is recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest earned on the financial asset.

 

- 18 -


  2) Investments in debt instruments at FVTOCI

Debt instruments with contractual terms specifying that cash flows are solely payments of principal and interest on the principal amount outstanding, together with objective of collecting contractual cash flows and selling the financial assets, are measured at FVTOCI.

Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment gains or losses on investments in debt instruments at FVTOCI are recognized in profit or loss. Other changes in the carrying amount of these debt instruments are recognized in other comprehensive income and will be reclassified to profit or loss when these debt instruments are disposed.

 

  3) Investments in equity instruments at FVTOCI

On initial recognition, the Company may irrevocably designate investments in equity investments that is not held for trading as at FVTOCI.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments. Instead, they will be transferred to retained earnings.

Dividends on these investments in equity instruments at FVTOCI are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the Company’s right clearly represent a recovery of part of the cost of the investment.

 

  4) Measured at amortized cost

Cash and cash equivalents, debt instrument investments, notes and accounts receivable (including related parties), other receivables and refundable deposits are measured at amortized cost.

Debt instruments with contractual terms specifying that cash flows are solely payments of principal and interest on the principal amount outstanding, together with objective of holding financial assets in order to collect contractual cash flows, are measured at amortized cost.

Subsequent to initial recognition, financial assets measured at amortized cost are measured at amortized cost, which equals to carrying amount determined by the effective interest method less any impairment loss.

2017

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.

 

  1) Financial asset at FVTPL

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.

 

- 19 -


  2) 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.

 

  3) 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.

 

  4) 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.

 

  b. Impairment of financial assets

2018

At the end of each reporting period, a loss allowance for expected credit loss is recognized for financial assets at amortized cost (including accounts receivable) and for investments in debt instruments that are measured at FVTOCI.

The loss allowance for accounts receivable is measured at an amount equal to lifetime expected credit losses. For financial assets at amortized cost and investments in debt instruments that are measured at FVTOCI, when the credit risk on the financial instrument has not increased significantly since initial recognition, a loss allowance is recognized at an amount equal to expected credit loss resulting from possible default events of a financial instrument within 12 months after the reporting date. If, on the other hand, there has been a significant increase in credit risk since initial recognition, a loss allowance is recognized at an amount equal to expected credit loss resulting from all possible default events over the expected life of a financial instrument.

 

- 20 -


The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset.

2017

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.

Hedge Accounting

 

  a. Fair value hedges

The Company designates certain hedging instruments, such as interest rate futures contracts, to partially hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities as fair value hedge. Changes in the fair value of hedging instrument that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset that are attributable to the hedged risk.

 

- 21 -


  b. Cash flow hedges

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 (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.

2018

The Company prospectively discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance when the hedging instrument expires or is sold, terminated or exercised.

2017

Hedge accounting was discontinued prospectively when the Company revoked the designated hedging relationship, when the hedging instrument expired or was sold, terminated, or exercised; or no longer met the criteria for hedge accounting.

Revenue Recognition

2018

The Company identifies the contract with the customers, and recognizes revenue when performance obligations are satisfied.

Revenue from the sale of goods is mainly recognized when a customer obtains control of promised goods, at which time the goods are delivered to the customer’s specific location and performance obligation is satisfied.

Revenue from sale of goods is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Provision for estimated sales returns and other allowances is generally made and adjusted based on historical experience and the consideration of varying contractual terms to recognize refund liabilities, which is classified under accrued expenses and other current liabilities.

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.

2017

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.

 

- 22 -


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.

Dividend and interest income

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.

Retirement Benefits

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

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. The interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. When tax rate changes during the interim period, the effect of the change in tax rate relating to transactions recognized outside scope of profit or loss is recognized in full in the period in which the change in tax rate occurs. The effect of the change in tax rate relating to transactions recognized in profit or loss is incorporated into estimation of the average annual income tax rate, with corresponding effect recognized throughout the interim periods.

 

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

Except for the following paragraphs, the same critical accounting judgments and key sources of estimates and uncertainty have been followed in these consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2017.

For Level 3 fair value measurement on equity investments, the Company determines the estimated fair value by selecting appropriate valuation methods primarily based on investees’ financial positions, operation results and recent financing activities, the market transaction prices of the similar investments, market conditions, and the required discount factors. As such, the estimated fair value may be different from the actual disposal price in the future. The Company reassesses the fair value measurement quarterly based on the market conditions to ensure the appropriateness of the fair value measurement.

 

- 23 -


Please refer to Note 31 for information about the valuation techniques and inputs used in determining the fair value of various investments.

 

6. CASH AND CASH EQUIVALENTS

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Cash and deposits in banks

   $ 577,028,289      $ 551,919,770      $ 564,224,428  

Commercial paper

     754,674        695,901         

Agency bonds

            776,025         

Repurchase agreements collateralized by corporate bonds

                   500,838  
  

 

 

    

 

 

    

 

 

 
   $ 577,782,963      $ 553,391,696      $ 564,725,266  
  

 

 

    

 

 

    

 

 

 

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

 

    

March 31,

2018

     December 31,
2017
     March 31,
2017
 
Financial assets         

Mandatorily measured at FVTPL

        

Agency bonds/ Agency mortgage-backed securities

   $ 754,545      $      $  

Forward exchange contracts

     113,426             $  

Asset-backed securities

     95,944                
  

 

 

    

 

 

    

 

 

 
     963,915                
  

 

 

    

 

 

    

 

 

 

Held for trading

        

Forward exchange contracts

            569,751        23,432  
  

 

 

    

 

 

    

 

 

 

Designated as at FVTPL

        

Time deposit

                   5,344,256  

Forward exchange contracts

                   6,315  
  

 

 

    

 

 

    

 

 

 
                   5,350,571  
  

 

 

    

 

 

    

 

 

 
   $ 963,915      $ 569,751      $ 5,374,003  
  

 

 

    

 

 

    

 

 

 
Financial liabilities         

Held for trading

        

Forward exchange contracts

   $ 170,673      $ 26,709      $ 80,795  

Designated as at FVTPL

        

Forward exchange contracts

                   44,140  
  

 

 

    

 

 

    

 

 

 
   $ 170,673      $ 26,709      $ 124,935  
  

 

 

    

 

 

    

 

 

 

 

- 24 -


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.

Outstanding forward exchange contracts consisted of the following:

 

          Contract Amount  
     Maturity Date    (In Thousands)  
     

March 31, 2018

     

Sell NT$/Buy EUR

   April 2018 to May 2018      NT$3,561,313/EUR99,000  

Sell NT$/Buy JPY

   April 2018      NT$9,009,251/JPY32,550,000  

Sell US$/Buy RMB

   April 2018 to May 2018      US$629,000/RMB3,965,590  

Sell US$/Buy NT$

   April 2018 to June 2018      US$1,002,500/NT$29,129,055  

Sell US$/Buy JPY

   April 2018      US$4,923/JPY523,000  

Sell RMB /Buy EUR

   April 2018      RMB11,165/EUR1,432  

Sell RMB/Buy JPY

   April 2018 to May 2018      RMB215,531/JPY3,614,848  

Sell RMB/Buy GBP

   April 2018      RMB1,669/GBP187  

Sell RMB/Buy US$

   April 2018 to May 2018      RMB1,245,344/US$197,000  

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 JPY

   January 2018      US$2,191/JPY246,724  

Sell US$/Buy RMB

   January 2018      US$558,000/RMB3,679,575  

Sell US$/Buy NT$

   January 2018 to February 2018      US$1,661,500/NT$49,673,320  

Sell RMB /Buy EUR

   January 2018      RMB38,967/EUR4,994  

Sell RMB/Buy JPY

   January 2018      RMB409,744/JPY7,062,536  

Sell RMB/Buy GBP

   January 2018      RMB3,637/GBP413  

March 31, 2017

     

Sell NT$/Buy EUR

   April 2017 to May 2017      NT$3,147,552/EUR96,000  

Sell NT$/Buy JPY

   April 2017 to May 2017      NT$12,846,853/JPY47,100,000  

Sell US$/Buy EUR

   April 2017      US$109,848/EUR101,270  

Sell US$/Buy JPY

   April 2017      US$129,021/JPY14,339,800  

Sell US$/Buy NT$

   April 2017 to May 2017      US$8,000/NT$245,033  

Sell US$/Buy RMB

   April 2017 to June 2017      US$469,482/RMB3,233,987  

 

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME-2018

 

    

March 31,

2018

 
  

Investments in debt instruments at FVTOCI

  

Corporate bonds

   $ 37,980,277  

Agency bonds/ Agency mortgage-backed securities

     32,189,767  

Asset-backed securities

     13,671,612  

Government bonds

     9,494,204  

Commercial paper

     57,877  
  

 

 

 
     93,393,737  
  

 

 

 

(Continued)

 

- 25 -


    

March 31,

2018

 
  

Investments in equity instruments at FVTOCI

  

Non-publicly traded stocks

   $ 3,032,070  

Funds

     3,003,834  

Publicly traded stocks

     2,319,709  
  

 

 

 
     8,355,613  
  

 

 

 
   $ 101,749,350  
  

 

 

 

Current

   $ 95,713,446  

Non-current

     6,035,904  
  

 

 

 
   $ 101,749,350  
  

 

 

 

(Concluded)

These investments in equity instruments are held for medium to long-term purposes and therefore are accounted for as FVTOCI.

For the three months ended March 31, 2018, the Company sold shares of stocks from merged non-publicly traded company for NT$45,210 thousand and the related other equity-unrealized gain/loss on financial assets at FVTOCI of NT$13,051 thousand were transferred to decrease retained earnings.

As of March 31, 2018, the cumulative loss allowance for expected credit loss of NT$29,792 thousand is recognized under investments in debt instruments at FVTOCI. Refer to Note 31 for information relating to their credit risk management and expected credit loss.

Investments in equity and debt instruments at FVTOCI were classified as available-for-sale financial assets and cost methods (only for equity instruments) under IAS 39. Refer to Notes 3, 9 and 12 (only for equity instruments) for information relating to their reclassification and comparative information for 2017.

 

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS-2017

 

     December 31,
2017
    

March 31,

2017

 
     

Corporate bonds

   $ 40,165,148      $ 31,423,219  

Agency bonds/Agency mortgage-backed securities

     29,235,388        17,234,724  

Asset-backed securities

     13,459,545        11,252,756  

Government bonds

     7,817,723        7,831,260  

Publicly traded stocks

     2,548,054        2,849,231  

Commercial paper

     148,295        492,607  
  

 

 

    

 

 

 
   $ 93,374,153      $ 71,083,797  
  

 

 

    

 

 

 

 

- 26 -


10. HELD-TO-MATURITY FINANCIAL ASSETS-2017

 

     December 31,
2017
    

March 31,

2017

 
     

Corporate bonds

   $ 19,338,764      $ 22,241,885  

Structured product

     1,482,950        1,518,500  

Commercial paper

            10,323,947  

Negotiable certificate of deposit

            4,555,500  
  

 

 

    

 

 

 
   $ 20,821,714      $ 38,639,832  
  

 

 

    

 

 

 

Current portion

   $ 1,988,385      $ 18,140,374  

Noncurrent portion

     18,833,329        20,499,458  
  

 

 

    

 

 

 
   $ 20,821,714      $ 38,639,832  
  

 

 

    

 

 

 

 

11. FINANCIAL ASSETS AT AMORTIZED COST-2018

 

    

March 31,

2018

 
  

Corporate bonds

   $ 18,473,964  

Structured product

     1,454,650  

Less: Allowance for impairment loss

     (6,632
  

 

 

 
   $ 19,921,982  
  

 

 

 

Current portion

   $ 9,888,741  

Noncurrent portion

     10,033,241  
  

 

 

 
   $ 19,921,982  
  

 

 

 

Financial assets at amortized cost were classified as held-to-maturity financial assets under IAS 39. Refer to Notes 3 and 10 for information relating to their reclassification and comparative information for 2017. Refer to Note 31 for information relating to credit risk management and expected credit loss for financial assets at amortized cost.

 

12. FINANCIAL ASSETS CARRIED AT COST-2017

 

       December 31,  
2017
    

  March 31,  

2017

 
     

Non-publicly traded stocks

   $ 2,532,287      $ 2,791,642  

Funds

     2,341,970        1,287,650  
  

 

 

    

 

 

 
   $ 4,874,257      $ 4,079,292  
  

 

 

    

 

 

 

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

The stock of Aquantia was listed in November 2017. Accordingly, the Company reclassified the aforementioned investment from financial assets carried at cost to available-for-sale financial assets.

 

- 27 -


13. HEDGING FINANCIAL INSTRUMENTS

 

   2018

 

     March 31,
2018
 
  

Financial assets- current

  

Cash flow hedges

  

Forward exchange contracts

   $ 26,357  
  

 

 

 

Financial liabilities- current

  

Fair value hedges

  

Interest rate futures contracts

   $ 74,811  

Cash flow hedges

  

Forward exchange contracts

     4,371  
  

 

 

 
   $ 79,182  
  

 

 

 

Fair value hedge

The Company entered into interest rate futures contracts, which are used to hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities. The hedge ratio is adjusted in response to the changes in the financial market and capped at 100%.

On the basis of economic relationships, the Company expects that the value of the interest rate futures contracts and the value of the hedged financial assets will change in opposite directions in response to movements in interest rates.

The main source of hedge ineffectiveness in these hedging relationships is the credit risk of the hedged financial assets, which is not reflected in the fair value of the interest rate future contracts. No other sources of ineffectiveness emerged from these hedging relationships.

The following tables summarize the information relating to the hedges for interest rate risk as of March 31, 2018.

 

Hedging Instruments   

Contract Amount

(US$ in Thousands)

     Maturity      Increase
(Decrease) in
Value Used for
Calculating
Hedge
Ineffectiveness
 
        
US treasury bonds interest rate futures contracts    US$ 264,400        June 2018      $ 53,811  

 

Hedged Items    Asset Carrying Amount
as of March 31, 2018
    

Asset
Accumulated

Amount of Fair

Value

Hedge
Adjustments

    

Increase
(Decrease) in
Value Used for
Calculating
Hedge

Ineffectiveness

 
        
Financial assets at FVTOCI    $ 13,990,841      $ (86,646    $ (53,459

 

- 28 -


The effect on comprehensive income for the three months ended March 31, 2018 is detailed below:

 

Comprehensive Income   

Amount of
Hedge

Ineffectiveness
Recognized in
Profit or Loss

     Line Item in which
Hedge Ineffectiveness
is Included
 
     

Fair value hedge

   $ 352        Other gains and losses  

Cash flow hedge

The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks associated with certain highly probable forecast transactions (capital expenditures). The hedge ratio is adjusted in response to the changes in the financial market and capped at 100%. The forward exchange contracts have maturities of 12 months or less.

On the basis of economic relationships, the Company expects that the value of forward exchange contracts and the value of the hedged transactions will change in opposite directions in response to movements in foreign exchange rates.

The main source of hedge ineffectiveness in these hedging relationships is driven by the effect of the counterparty’s own credit risk on the fair value of forward exchange contracts. No other sources of ineffectiveness emerged from these hedging relationships.

The following tables summarize the information relating to the hedges for foreign currency risk.

 

Hedging Instruments   

Contract Amount

(in Thousands)

     Maturity     

Increase

(Decrease) in
Value Used

for Calculating

Hedge

Ineffectiveness

 
        

Forward exchange contracts

   NT$ 3,239,853 /EUR91,000       
April 2018 to
August 2018
 
 
   $ 37,282  

 

Hedged items   

Increase
(Decrease) in
Value Used for
Calculating
Hedge

Ineffectiveness

    

Balance in

Other Equity
(Continuing
Hedges)

 
     

Cash flow hedge

     

Forecast transaction (capital expenditures)

   $ (37,282    $ 37,034  

Refer to Note 24(d) for gain or loss arising from changes in the fair value of hedging instruments and the amount transferred to initial carrying amount of hedged items.

 

- 29 -


2017

The Company’s hedging policies for 2017 are the same as those mentioned previously in 2018, the instruments employed are as follows:

 

     December 31,
2017
    

March 31,

2017

 
     

Financial assets- current

     

Fair value hedges

     

Interest rate futures contracts

   $ 27,016      $  

Cash flow hedges

     

Forward exchange contracts

     7,378         
  

 

 

    

 

 

 
   $ 34,394      $  
  

 

 

    

 

 

 

Financial liabilities- current

     

Fair value hedges

     

Interest rate futures contracts

   $      $ 3,908  

Cash flow hedges

     

Forward exchange contracts

     15,562         
  

 

 

    

 

 

 
   $ 15,562      $ 3,908  
  

 

 

    

 

 

 

The Company entered into interest rate futures contracts, which are used to hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities.

The outstanding interest rate futures contracts consisted of the following:

 

Maturity Period   

Contract Amount

(US$ in Thousands)

 
  

December 31, 2017

  

March 2018

   US$ 169,400  

March 31, 2017

  

June 2017

   US$ 52,400  

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

Outstanding forward exchange contracts consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

     
December 31, 2017      
Sell NT$/Buy EUR    February 2018 to May 2018    NT$2,649,104/EUR75,000

 

- 30 -


14. NOTES AND ACCOUNTS RECEIVABLE, NET

 

    

  March 31,  

2018

     December 31,
2017
    

  March 31,  

2017

 
        

Notes and accounts receivable

   $ 106,771,905      $ 121,604,989      $ 109,010,938  

Less: Loss allowance

     (170,533      (471,741      (478,109
  

 

 

    

 

 

    

 

 

 

Notes and accounts receivable, net

   $ 106,601,372      $ 121,133,248      $ 108,532,829  
  

 

 

    

 

 

    

 

 

 

2018

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 when the invoice is issued. Aside from recognizing impairment loss for credit-impaired accounts receivable, the Company recognizes loss allowance based on the expected credit loss ratio of customers by different risk levels. Such risk levels are determined with factors of historical loss ratios and customers’ financial conditions, competitiveness and business outlook. For accounts receivable past due over 90 days without collaterals or guarantees, the Company recognizes loss allowance at full amount.

Aging analysis of notes and accounts receivable, net

 

     March 31,
2018
 
  

Not past due

   $ 95,872,716  

Past due

  

Past due within 30 days

     8,723,608  

Past due 31-60 days

     295,558  

Past due 61-120 days

     891,464  

Past due over 121 days

     818,026  
  

 

 

 
   $ 106,601,372  
  

 

 

 

Movements of the loss allowance for accounts receivable

 

Balance at January 1, 2018 (IAS 39)

   $ 471,741  

Effect of retrospective application of IFRS 9

     (244,773
  

 

 

 

Balance at January 1, 2018 (IFRS 9)

     226,968  

Provision(Reversal)

     (56,398

Effect of exchange rate changes

     (37
  

 

 

 

Balance at March 31, 2018

   $ 170,533  
  

 

 

 

For the three months ended March 31, 2018, the loss allowance decreased mainly due to the decrease in the balance of accounts receivable.

2017

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.

 

- 31 -


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 has obtained guarantee against certain receivables.

Aging analysis of notes and accounts receivable, net

 

     December 31,
2017
    

  March 31,  

2017

 
     

Neither past due nor impaired

   $ 105,295,219      $ 94,790,800  

Past due but not impaired

     

Past due within 30 days

     13,984,125        9,682,935  

Past due 31-60 days

     929,672        550,853  

Past due 61-120 days

     582,821        3,508,241  

Past due over 121 days

     341,411         
  

 

 

    

 

 

 
   $ 121,133,248      $ 108,532,829  
  

 

 

    

 

 

 

Movements of the allowance for doubtful receivables

 

     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
         Total      
        

Balance at January 1, 2017

   $ 1,848      $ 478,270      $ 480,118  

Reversal/Write-off

     (1,848             (1,848

Effect of exchange rate changes

            (161      (161
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

   $      $ 478,109      $ 478,109  
  

 

 

    

 

 

    

 

 

 

 

15. INVENTORIES

 

    

  March 31,  

2018

     December 31,
2017
    

  March 31,  

2017

 
        

Finished goods

   $ 15,165,977      $ 9,923,338      $ 8,024,042  

Work in process

     57,012,785        53,362,160        34,535,606  

Raw materials

     8,940,795        7,143,806        5,239,223  

Supplies and spare parts

     4,096,342        3,451,443        2,590,151  
  

 

 

    

 

 

    

 

 

 
   $ 85,215,899      $ 73,880,747      $ 50,389,022  
  

 

 

    

 

 

    

 

 

 

Write-down of inventories to net realizable value and reversal of the reserve for inventory write-downs resulting from the increase in net realizable value in the amount of NT$700,440 thousand and NT$942,343 thousand, respectively, were included in the cost of revenue for the three months ended March 31, 2018 and 2017.

 

- 32 -


16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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
  

March 31,

2018

     December 31,
2017
    

March 31,

2017

    

March 31,

2018

  December 31,
2017
 

March 31,

2017

                     

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

   $ 8,860,765      $ 8,568,344      $ 9,072,232      28%   28%   28%

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

  

Manufacturing and selling of integrated circuits and other semiconductor devices

  

Singapore

     5,923,979        5,677,640        7,153,964      39%   39%   39%

Xintec Inc. (Xintec)

  

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

  

Taoyuan, Taiwan

     2,246,049        2,292,100        2,488,903      41%   41%   41%

Global Unichip Corporation (GUC)

  

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

  

Hsinchu, Taiwan

     1,255,013        1,300,194        1,224,963      35%   35%   35%

Mutual-Pak

  

Manufacturing of electronic parts, wholesaling and retailing of electronic materials, and researching, developing and testing of RFID

  

New Taipei, Taiwan

     21,711        23,210             39%   39%  
        

 

 

    

 

 

    

 

 

        
         $ 18,307,517      $ 17,861,488      $ 19,940,062         
        

 

 

    

 

 

    

 

 

        

Starting December 2017, the Company no longer had the majority of voting power and control over Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for using the equity method.

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   

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

VIS

   $   31,102,974      $   30,638,751      $   26,832,118  
  

 

 

    

 

 

    

 

 

 

GUC

   $ 14,846,739      $ 11,905,404      $ 4,738,818  
  

 

 

    

 

 

    

 

 

 

Xintec

   $ 7,366,863      $ 9,180,759      $ 5,007,687  
  

 

 

    

 

 

    

 

 

 

 

17. PROPERTY, PLANT AND EQUIPMENT

 

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

Cost

                 

Balance at January 1, 2018

   $ 3,983,243      $ 379,134,613      $ 2,487,752,265      $ 42,391,516      $ 167,353,490      $ 3,080,615,127  

Additions

            18,168,937        36,110,432        1,904,943        6,903,141        63,087,453  

Disposals or retirements

            (12,295      (1,727,577      (50,750             (1,790,622

Effect of exchange rate changes

     (14,718      259,417        1,292,667        (15,246      (88,994      1,433,126  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2018

   $ 3,968,525      $ 397,550,672      $ 2,523,427,787      $ 44,230,463      $ 174,167,637      $ 3,143,345,084  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 33 -


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

Accumulated depreciation and impairment

 

              

Balance at January 1, 2018

   $ 510,498      $ 194,446,521      $ 1,795,448,842      $ 27,666,944      $      $ 2,018,072,805  

Additions

     6,688        5,841,659        63,281,950        1,331,989               70,462,286  

Disposals or retirements

            (2,922      (1,107,367      (50,573             (1,160,862

Effect of exchange rate changes

     (9,795      93,243        537,380        (16,180             604,648  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2018

   $ 507,391      $ 200,378,501      $ 1,858,160,805      $ 28,932,180      $      $ 2,087,978,877  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at January 1, 2018

   $ 3,472,745      $ 184,688,092      $ 692,303,423      $ 14,724,572      $ 167,353,490      $ 1,062,542,322  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at March 31, 2018

   $ 3,461,134      $ 197,172,171      $ 665,266,982      $ 15,298,283      $ 174,167,637      $ 1,055,366,207  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Cost                                          

Balance at January 1, 2017

   $ 4,049,292      $ 304,404,474      $ 2,042,867,744      $ 34,729,640      $ 387,199,675      $ 2,773,250,825  

Additions (Deductions)

            22,844,918        107,830,782        2,280,174        (33,261,906      99,693,968  

Disposals or retirements

            (18,994      (1,466,833      (4,993             (1,490,820

Reclassification

                   8,791        1,507               10,298  

Effect of exchange rate changes

     (47,560      (1,124,646      (4,261,654      (129,570      (176,397      (5,739,827
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

   $ 4,001,732      $ 326,105,752      $ 2,144,978,830      $ 36,876,758      $ 353,761,372      $ 2,865,724,444  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated depreciation and impairment

                 

Balance at January 1, 2017

   $ 524,845      $ 174,349,077      $ 1,577,377,509      $ 23,221,707      $      $ 1,775,473,138  

Additions

     7,106        4,600,837        53,350,352        1,175,066               59,133,361  

Disposals or retirements

            (18,994      (1,336,213      (4,974             (1,360,181

Reclassification

                   8,195        1,466               9,661  

Effect of exchange rate changes

     (29,992      (910,592      (3,861,614      (93,480             (4,895,678
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

   $ 501,959      $ 178,020,328      $ 1,625,538,229      $ 24,299,785      $      $ 1,828,360,301  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at March 31, 2017

   $ 3,499,773      $ 148,085,424      $ 519,440,601      $ 12,576,973      $ 353,761,372      $ 1,037,364,143  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

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

 

18. INTANGIBLE ASSETS

 

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

Cost

              

Balance at January 1, 2018

   $ 5,648,702      $ 10,443,257      $ 25,186,218      $ 5,716,146      $ 46,994,323  

Additions

            2,806        271,067        332,608        606,481  

Disposals or retirements

                   (1,193             (1,193

Effect of exchange rate changes

     (76,856      (2,328      4,795        3,020        (71,369
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2018

   $ 5,571,846      $ 10,443,735      $ 25,460,887      $ 6,051,774      $ 47,528,242  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

              

Balance at January 1, 2018

   $      $ 7,694,857      $ 20,376,693      $ 4,747,633      $ 32,819,183  

Additions

            281,528        626,140        127,923        1,035,591  

Disposals or retirements

                   (1,137             (1,137

Effect of exchange rate changes

            (2,328      1,729        909        310  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2018

   $      $ 7,974,057      $ 21,003,425      $ 4,876,465      $ 33,853,947  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at January 1, 2018

   $ 5,648,702      $ 2,748,400      $ 4,809,525      $ 968,513      $ 14,175,140  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at March 31, 2018

   $ 5,571,846      $ 2,469,678      $ 4,457,462      $ 1,175,309      $ 13,674,295  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 34 -


     Goodwill     

Technology
License

Fees

     Software and
System Design
Costs
     Patent and
Others
     Total  
              

Cost

              

Balance at January 1, 2017

   $ 6,007,975      $ 9,546,007      $ 22,243,595      $ 5,386,435      $ 43,184,012  

Additions

            233,977        528,188        195,537        957,702  

Retirements

                   (75,237             (75,237

Reclassification

                   7,662        (17,960      (10,298

Effect of exchange rate changes

     (249,171      (2,607      (6,197      (6,275      (264,250
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

   $ 5,758,804      $ 9,777,377      $ 22,698,011      $ 5,557,737      $ 43,791,929  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

              

Balance at January 1, 2017

   $      $ 6,147,200      $ 18,144,428      $ 4,277,538      $ 28,569,166  

Additions

            385,022        525,031        128,771        1,038,824  

Retirements

                   (75,237             (75,237

Reclassification

                   7,409        (17,070      (9,661

Effect of exchange rate changes

            (2,607      (5,125      (1,867      (9,599
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

   $      $ 6,529,615      $ 18,596,506      $ 4,387,372      $ 29,513,493  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrying amounts at March 31, 2017

   $ 5,758,804      $ 3,247,762      $ 4,101,505      $ 1,170,365      $ 14,278,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rate of 8.5% in its test of impairment as of December 31, 2017 to reflect the relevant specific risk in the cash-generating unit.

For the year ended December 31, 2017, the Company assessed goodwill impairment and recognized an impairment loss of NT$13,520 thousand related to a subsidiary since the operating result of this cash generating unit was not as expected and the recoverable amount of goodwill was nil. Such impairment loss was recognized in other operating income and expenses.

 

19. OTHER ASSETS

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Repayment of bonds and interest - prepaid

   $    33,728,788      $      $  

Tax receivable

     4,471,031        4,021,602        1,921,963  

Prepaid expenses

     1,467,439        1,559,963        1,037,963  

Others

     1,793,794        1,623,995        1,689,373  
  

 

 

    

 

 

    

 

 

 
   $ 41,461,052      $    7,205,560      $    4,649,299  
  

 

 

    

 

 

    

 

 

 

Current portion

   $ 39,947,321      $ 4,222,440      $ 3,025,168  

Noncurrent portion

     1,513,731        2,983,120        1,624,131  
  

 

 

    

 

 

    

 

 

 
   $ 41,461,052      $ 7,205,560      $ 4,649,299  
  

 

 

    

 

 

    

 

 

 

Based on the contract terms of corporate bonds issued, prior to the date on which the principal or interests become due, the Company needs to transfer such amount in advance to a designated agent for repayment of principal and interest. The agent will repay the funds to the bond holders at maturity date.

 

- 35 -


20. SHORT-TERM LOANS

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Unsecured loans

        

Amount

   $ 56,731,350      $ 63,766,850      $ 54,666,000  
  

 

 

    

 

 

    

 

 

 

Original loan content

        

US$ (in thousands)

   $ 1,950,000      $ 2,150,000      $ 1,800,000  

Annual interest rate

     1.92%-2.22%        1.54%-1.82%        1.08%-1.23%  

Maturity date

    

Due by

May 2018

 

 

    
Due by
February 2018
 
 
    
Due by
April 2017

 

 

21. PROVISIONS

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

 

     Sales Returns
and Allowances
 
  

Three months ended March 31, 2017

  

Balance, beginning of period

   $ 18,037,789  

Provision

     8,556,743  

Payment

     (15,250,080

Effect of exchange rate changes

     (46,132
  

 

 

 

Balance, end of period

   $ 11,298,320  
  

 

 

 

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.

Starting from 2018, the Company recognizes the estimation of sales returns and allowance as refund liability (classified under accrued expenses and other current liabilities) upon initial application of IFRS 15.

 

22. BONDS PAYABLE

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Domestic unsecured bonds

   $ 99,300,000      $ 116,100,000      $ 144,200,000  

Overseas unsecured bonds

     33,456,950        34,107,850        34,925,500  
  

 

 

    

 

 

    

 

 

 
     132,756,950        150,207,850        179,125,500  

Less: Discounts on bonds payable

     (210      (6,728      (26,731

Less: Current portion

     (49,356,740      (58,401,122      (44,900,000
  

 

 

    

 

 

    

 

 

 
   $ 83,400,000      $ 91,800,000      $ 134,198,769  
  

 

 

    

 

 

    

 

 

 

 

- 36 -


The major terms of overseas unsecured bonds are as follows:

 

Issuance Period  

Total Amount
(US$

in Thousands)

    Coupon Rate     Repayment and Interest Payment
                 

April 2013 to April 2018

    1,150,000       1.625%    

Bullet repayment; interest payable
semi-annually

 

23. GUARANTEE DEPOSITS

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Capacity guarantee

   $ 11,637,200      $ 13,346,550      $ 18,222,000  

Receivables guarantee

     2,475,412        2,427,548        4,900,473  

Others

     251,267        306,521        173,876  
  

 

 

    

 

 

    

 

 

 
   $ 14,363,879      $ 16,080,619      $ 23,296,349  
  

 

 

    

 

 

    

 

 

 

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

   $ 8,372,518      $ 8,493,829      $ 10,974,881  

Noncurrent portion

     5,991,361        7,586,790        12,321,468  
  

 

 

    

 

 

    

 

 

 
   $ 14,363,879      $ 16,080,619      $ 23,296,349  
  

 

 

    

 

 

    

 

 

 

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

 

24. EQUITY

 

  a. Capital stock

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
        

Authorized shares (in thousands)

     28,050,000        28,050,000        28,050,000  
  

 

 

    

 

 

    

 

 

 

Authorized capital

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

 

 

    

 

 

    

 

 

 

Issued and paid shares (in thousands)

     25,930,380        25,930,380        25,930,380  
  

 

 

    

 

 

    

 

 

 

Issued capital

   $ 259,303,805      $ 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 March 31, 2018, 1,068,158 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,340,792 thousand shares (one ADS represents five common shares).

 

- 37 -


  b. Capital surplus

 

    

March 31,

2018

     December 31,
2017
    

March 31,

2017

 
                      

Additional paid-in capital

   $   24,184,939      $   24,184,939      $   24,184,939  

From merger

     22,804,510        22,804,510        22,804,510  

From convertible bonds

     8,892,847        8,892,847        8,892,847  

From share of changes in equities of subsidiaries

     118,792        118,792        107,798  

From share of changes in equities of associates

     285,415        289,240        291,969  

Donations

     19,248        19,208        55  
  

 

 

    

 

 

    

 

 

 
   $ 56,305,751      $ 56,309,536      $ 56,282,118  
  

 

 

    

 

 

    

 

 

 

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 TSMC’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

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

 

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

 

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

 

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

TSMC’s Articles of Incorporation provide the policy about the profit sharing bonus to employees, please refer to Note 29.

TSMC’s Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of 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.

 

- 38 -


The appropriations of 2017 and 2016 earnings have been approved by TSMC’s Board of Directors in its meeting held on February 13, 2018 and by TSMC’s shareholders in its meeting held on June 8, 2017, 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 2017      Year 2016      Year 2017    Year 2016
                         

Legal capital reserve

   $ 34,311,148      $ 33,424,718        

Special capital reserve

     26,907,527               

Cash dividends to shareholders

     207,443,044        181,512,663      $8    $7
  

 

 

    

 

 

       
   $       268,661,719      $       214,937,381        
  

 

 

    

 

 

       

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

 

  d. Others

Changes in others were as follows:

 

     Three Months Ended March 31, 2018  
     Foreign
Currency
Translation
Reserve
     Unrealized
Gain (Loss) on
Financial
Assets at
FVTOCI
     Gain (Loss) on
Hedging
Instruments
     Unearned
Stock-Based
Compensation
     Total  
                                    

Balance at January 1, 2018 (IFRS9)

   $ (26,697,680    $ (524,915    $ 4,226      $ (10,290    $ (27,228,659

Exchange differences arising on translation of foreign operations

     (6,476,324                           (6,476,324

Unrealized gain (loss) on financial assets at FVTOCI

              

Equity instruments

            (22,034                    (22,034

Debt instruments

            (979,455                    (979,455

Cumulative unrealized gain (loss) of equity instruments transferred to retained earnings due to disposal

            13,051                      13,051  

Cumulative unrealized gain (loss) of debt instruments transferred to profit or loss due to disposal

            252,328                      252,328  

Loss allowance adjustments from debt instruments

            (283                    (283

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

                   37,282               37,282  

Share of other comprehensive income (loss) of associates

     (39,352      62                      (39,290

Share of unearned stock-based employee compensation of associates

                          3,111        3,111  

Income tax effect

            43,680        (4,474             39,206