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 September 2012

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨             No  x

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

 

 

 

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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: September 4, 2012				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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Taiwan Semiconductor Manufacturing

Company Limited

Financial Statements for the

Six Months Ended June 30, 2012 and 2011 and

Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of June 30, 2012 and 2011, and the related statements of income, changes in shareholders’ equity and cash flows for the six months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of June 30, 2012 and 2011, and the results of its operations and its cash flows for the six months then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the six months ended June 30, 2012 and 2011 on which we have issued an unqualified opinion.

August 14, 2012

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

 

 

 

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

		2012										2011
				Amount				%						Amount				%
GROSS SALES (Notes 2 and 23)				$	234,483,507									$	212,301,752
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)					3,734,225										1,907,979
NET SALES					230,749,282				100						210,393,773				100
COST OF SALES (Notes 9, 18 and 23)					121,938,291				53						113,265,613				54
GROSS PROFIT BEFORE AFFILIATES ELIMINATION					108,810,991				47						97,128,160				46
REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2)					(139,950	)			-						249,480				-
GROSS PROFIT					108,671,041				47						97,377,640				46
OPERATING EXPENSES (Notes 18 and 23)
Research and development					18,351,671				8						15,283,607				7
General and administrative					8,402,018				4						6,029,204				3
Marketing					1,155,674				-						1,211,366				1
Total operating expenses					27,909,363				12						22,524,177				11
INCOME FROM OPERATIONS					80,761,678				35						74,853,463				35
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)					5,083,116				3						2,914,860				2
Interest income					464,380				-						402,293				-
Settlement income (Note 25)					448,275				-						433,425				-
Technical service income (Note 23)					232,904				-						224,238				-
Foreign exchange gain, net (Note 2)					213,731				-						322,334				-
Others (Notes 2 and 23)					305,738				-						461,096				-
Total non-operating income and gains					6,748,144				3						4,758,246				2

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

		2012												2011
				Amount				%								Amount				%
NON-OPERATING EXPENSES AND LOSSES
Impairment loss of financial assets (Notes 2, 6 and 22)				$	2,677,529				1							$	-				-
Impairment loss on idle assets (Note 2)					418,330				-								-				-
Interest expense					370,798				-								146,374				-
Valuation loss on financial instruments, net (Notes 2, 5 and 22)					150,310				-								197,255				-
Loss on disposal of property, plant and equipment (Notes 2 and 23)					66,620				-								153,131				-
Others (Note 2)					7,869				-								122,232				-
Total non-operating expenses and losses					3,691,456				1								618,992				-
INCOME BEFORE INCOME TAX					83,818,366				37								78,992,717				37
INCOME TAX EXPENSE (Notes 2 and 17)					8,531,562				4								6,764,610				3
NET INCOME				$	75,286,804				33							$	72,228,107				34

 

		2012												2011
				Before Income Tax				After Income Tax								Before Income Tax				After Income Tax
EARNINGS PER SHARE (NT$, Note 21)
Basic earnings per share				$	3.23			$	2.90							$	3.05			$	2.79
Diluted earnings per share				$	3.23			$	2.90							$	3.05			$	2.79

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

																																						Others
																																												Unrealized
		Capital Stock - Common Stock																Retained Earnings																						Cumulative				Gain/Loss						Total
				Shares										Capital						Legal				Special				Unappropriated												Translation				On Financial						Shareholders’
				(In Thousands)				Amount						Surplus						Capital Reserve				Capital Reserve				Earnings				Total								Adjustments				Instruments						Equity
BALANCE, JANUARY 1, 2012					25,916,222			$	259,162,226					$	55,846,357					$	102,399,995			$	6,433,874			$	213,357,286			$	322,191,155							$	(6,433,369	)		$	(1,172,855	)				$	629,593,514
Appropriations of prior year’s earnings
Legal capital reserve					-				-						-						13,420,128				-				(13,420,128	)			-								-				-						-
Special capital reserve					-				-						-						-				1,172,350				(1,172,350	)			-								-				-						-
Cash dividends to shareholders - NT$3.00 per share					-				-						-						-				-				(77,748,668	)			(77,748,668	)							-				-						(77,748,668	)
Net income for the six months ended June 30, 2012					-				-						-						-				-				75,286,804				75,286,804								-				-						75,286,804
Adjustment arising from changes in percentage of ownership in equity method investees					-				-						83,954						-				-				-				-								-				-						83,954
Translation adjustments					-				-						-						-				-				-				-								(1,397,526	)			-						(1,397,526	)
Issuance of stock from exercising employee stock options					4,487				44,868						94,838						-				-				-				-								-				-						139,706
Net changes of valuation gain/loss on available-for-sale financial assets					-				-						-						-				-				-				-								-				1,508,301						1,508,301
Net change in shareholders’ equity from equity method investees					-				-						-						-				-				-				-								-				(795	)					(795	)
BALANCE, JUNE 30, 2012					25,920,709			$	259,207,094					$	56,025,149					$	115,820,123			$	7,606,224			$	196,302,944			$	319,729,291							$	(7,830,895	)		$	334,651					$	627,465,290
BALANCE, JANUARY 1, 2011					25,910,078			$	259,100,787					$	55,698,434					$	86,239,494			$	1,313,047			$	178,227,030			$	265,779,571							$	(6,543,163	)		$	109,289					$	574,144,918
Appropriations of prior year’s earnings
Legal capital reserve					-				-						-						16,160,501				-				(16,160,501	)			-								-				-						-
Special capital reserve					-				-						-						-				5,120,827				(5,120,827	)			-								-				-						-
Cash dividends to shareholders - NT$3.00 per share					-				-						-						-				-				(77,730,236	)			(77,730,236	)							-				-						(77,730,236	)
Net income for the six months ended June 30, 2011					-				-						-						-				-				72,228,107				72,228,107								-				-						72,228,107
Adjustment arising from changes in percentage of ownership in equity method investees					-				-						14,643						-				-				-				-								-				-						14,643
Translation adjustments					-				-						-						-				-				-				-								(4,917,884	)			-						(4,917,884	)
Issuance of stock from exercising employee stock options					4,205				42,044						89,310						-				-				-				-								-				-						131,354
Net changes of valuation gain/loss on available-for-sale financial assets					-				-						-						-				-				-				-								-				176,970						176,970
Net change in shareholders’ equity from equity method investees					-				-						-						-				-				-				-								-				(98,351	)					(98,351	)
BALANCE, JUNE 30, 2011					25,914,283			$	259,142,831					$	55,802,387					$	102,399,995			$	6,433,874			$	151,443,573			$	260,277,442							$	(11,461,047	)		$	187,908					$	563,949,521

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

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	75,286,804			$	72,228,107
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			57,167,176				49,954,937
Unrealized (realized) gross profit from affiliates			139,950				(249,480	)
Amortization of premium/discount of financial assets			1,142				7,757
Gain on disposal of available-for-sale financial assets, net			-				(35,151	)
Equity in earnings of equity method investees, net			(5,083,116	)			(2,914,860	)
Cash dividends received from equity method investees			1,285,480				1,914,392
Loss on disposal of property, plant and equipment and other assets, net			56,220				10,251
Impairment loss of financial assets			2,677,529				-
Impairment loss on idle assets			418,330				-
Deferred income tax			2,096,079				336,498
Changes in operating assets and liabilities:
Financial assets and liabilities at fair value through profit or loss			22,693				(25,289	)
Receivables from related parties			(13,699,193	)			(1,668,051	)
Notes and accounts receivable			(1,684,241	)			(1,546,839	)
Allowance for sales returns and others			1,374,315				(1,699,667	)
Other receivables from related parties			(65,063	)			(64,293	)
Other financial assets			(33,744	)			(5,588	)
Inventories			(5,575,450	)			(2,758,344	)
Prepaid expenses and other current assets			(86,602	)			284,243
Accounts payable			2,787,642				(2,091,732	)
Payables to related parties			615,433				811,641
Income tax payable			(3,868,404	)			(1,032,551	)
Accrued profit sharing to employees and bonus to directors			5,076,820				4,900,168
Accrued expenses and other current liabilities			3,582,071				(1,875,486	)
Accrued pension cost			22,332				35,858
Net cash provided by operating activities			122,514,203				114,516,521
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment			(105,768,037	)			(139,147,091	)
Investments accounted for using equity method			(2,170,738	)			(511,390	)
Proceeds from return of capital by investees			186,726				-
Proceeds from disposal or redemption of:
Available-for-sale financial assets			-				1,035,151
Held-to-maturity financial assets			-				2,675,000
Property, plant and equipment and other assets			83,226				2,068,298

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
Increase in deferred charges		$	(674,769	)		$	(788,025	)
Decrease in refundable deposits			228,229				3,841,898
Decrease (increase) in other assets			30,798				(22,600	)
Net cash used in investing activities			(108,084,565	)			(130,848,759	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans			4,846,057				2,232,244
Proceeds from issuance of bonds			17,000,000				-
Repayment of bonds			(4,500,000	)			-
Decrease in guarantee deposits			(188,903	)			(245,004	)
Proceeds from exercise of employee stock options			139,706				131,354
Net cash provided by financing activities			17,296,860				2,118,594
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			31,726,498				(14,213,644	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			85,262,521				109,511,130
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	116,989,019			$	95,297,486
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	266,881			$	221,853
Income tax paid		$	10,270,194			$	7,417,035
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	116,448,332			$	133,768,114
Decrease (increase) in payables to contractors and equipment suppliers			(10,630,116	)			5,379,459
Increase in payables to related parties			(50,110	)			-
Nonmonetary exchange trade-out price			(69	)			(482	)
Cash paid		$	105,768,037			$	139,147,091
Disposal of property, plant and equipment and other assets		$	65,393			$	2,905,302
Decrease (increase) in other receivables to related parties			17,902				(836,522	)
Nonmonetary exchange trade-out price			(69	)			(482	)
Cash received		$	83,226			$	2,068,298
Acquisition of deferred charges		$	787,769			$	788,025
Increase in other long-term payables (including current portion)			(113,000	)			-
Cash paid		$	674,769			$	788,025

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
NON-CASH INVESTING AND FINANCING ACTIVITIES
Idle assets reclassified from property, plant and equipment		$	418,330			$	-
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	59,000			$	897,298
Current portion of bonds payable		$	-			$	4,500,000

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

On September 5, 1994, its 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).

As of June 30, 2012 and 2011, the Company had 31,648 and 30,364 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.

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

Significant accounting policies are summarized as follows:

 

Foreign-currency Transactions

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

 

Use of Estimates

The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

 

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Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Repurchase agreements collateralized by government bonds, corporate bonds and short-term commercial paper acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

The fair value of overseas publicly traded stock is determined using the closing prices at the end of the period.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

 

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If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

 

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Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are deferred until they are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

 

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When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

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

Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

 

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Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

Spin-off

In accordance with the Company’s organization realignment, the Company contributed net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries. The net assets transferred are reflected at their net book value without recognizing any gain or loss.

 

3.	ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the six months ended June 30, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and it only changes the disclosure of segment reporting due to the adoption. The Company has conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements.

 

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4.	CASH AND CASH EQUIVALENTS

 

 

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

 

The Company entered into derivative contracts during the six months ended June 30, 2012 and 2011 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date		Contract Amount (In Thousands)
June 30, 2012
Sell US$/Buy JPY		July 2012		US$211,000/JPY16,778,329
Sell US$/Buy EUR		July 2012		US$46,396/EUR37,000
Sell NT$/Buy JPY		July 2012		NT$1,127,870/JPY3,000,000

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date		Contract Amount (In Thousands)		Range of Interest Rates Paid		Range of Interest Rates Received
June 30, 2011
July 2011		US$128,000/NT$3,699,250		0.46%-1.01%		-

For the six months ended June 30, 2012 and 2011, net losses on derivative financial instruments were NT$150,310 thousand and NT$197,255 thousand, respectively.

 

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6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets held by the Company are overseas publicly traded stock. For the six months ended June 30, 2012, the Company recognized an impairment loss on available-for-sale financial assets of NT$2,677,529 thousand due to the significant decline in fair value.

 

7.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

8.	ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

As of June 30, 2012 and 2011, the balance of the allowance for doubtful receivables was NT$485,120 thousand and NT$488,000 thousand, respectively. There was no additions or deductions of allowances for doubtful receivables for the six months ended June 30, 2012 and 2011.

Movements of the allowance for sales returns and others were as follows:

 

 

9.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$776,757 thousand and NT$258,871 thousand, respectively, were included in the cost of sales for the six months ended June 30, 2012 and 2011.

 

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10.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

In the second half year of 2011, the Company continually increased its investment in TSMC China for the amount of NT$6,759,300 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs.

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Company’s certain assets, liabilities and shareholders’ equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.

In January 2012, the Company invested NT$100,000 thousand and established a wholly-owned subsidiary, TSMC GN, which engages mainly in investment activities. In February 2012, the Company participated directly or through TSMC GN in the issuance of new shares by TSMC SSL and TSMC Solar for cash. As of June 30, 2012, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were to 95% and 99%, respectively.

 

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For the six months ended June 30, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$5,083,116 thousand and NT$2,914,860 thousand, respectively.

As of June 30, 2012 and 2011, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$13,587,844 thousand and NT$14,691,013 thousand, respectively.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

As of June 30, 2012 and 2011, balance of the aforementioned difference allocated to goodwill was NT$1,061,885 thousand and NT$1,415,565 thousand, respectively. There was no acquisition or impairment in goodwill for the six months ended June 30, 2012 and 2011.

 

11.	FINANCIAL ASSETS CARRIED AT COST

 

 

12.	PROPERTY, PLANT AND EQUIPMENT

 

 

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		Six Months Ended June 30, 2011
				Balance, Beginning of Period				Additions				Disposals				Reclassification				Balance, End of Period
Cost
Buildings				$	128,646,942			$	18,154,973			$	(11,175	)		$	-			$	146,790,740
Machinery and equipment					852,733,592				98,688,934				(1,119,442	)			(27,667	)			950,275,417
Office equipment					11,730,537				1,424,494				(239,066	)			-				12,915,965
					993,111,071			$	118,268,401			$	(1,369,683	)		$	(27,667	)			1,109,982,122
Accumulated depreciation
Buildings					81,347,877			$	4,360,111			$	(9,762	)		$	-				85,698,226
Machinery and equipment					616,495,207				44,015,931				(1,079,340	)			(15,678	)			659,416,120
Office equipment					8,762,361				547,690				(239,066	)			-				9,070,985
					706,605,445			$	48,923,732			$	(1,328,168	)		$	(15,678	)			754,185,331
Advance payments and construction in progress					80,348,673			$	15,499,713			$	(2,802,779	)		$	-				93,045,607
				$	366,854,299															$	448,842,398

No interest was capitalized during the six months ended June 30, 2012 and 2011.

 

13.	DEFERRED CHARGES, NET

 

		Six Months Ended June 30, 2012
				Balance, Beginning of Period				Additions				Amortization				Reclassification				Balance, End of Period
Technology license fees				$	1,617,310			$	-			$	(209,844	)		$	-			$	1,407,466
Software and system design costs					2,316,571				375,826				(544,876	)			(57,438	)			2,090,083
Patent and others					785,363				411,943				(246,792	)			57,438				1,007,952
				$	4,719,244			$	787,769			$	(1,001,512	)		$	-			$	4,505,501

 

		Six Months Ended June 30, 2011
				Balance, Beginning of Period				Additions				Amortization				Balance, End of Period
Technology license fees				$	2,277,832			$	-			$	(334,985	)		$	1,942,847
Software and system design costs					2,075,935				672,362				(507,499	)			2,240,798
Patent and others					1,102,660				115,663				(185,393	)			1,032,930
				$	5,456,427			$	788,025			$	(1,027,877	)		$	5,216,575

 

14.	SHORT-TERM LOANS

 

		June 30
				2012				2011
Unsecured loans:
US$1,029,700 thousand, due by August 2012, and annual interest at 0.53%-0.77% in 2012; US$922,000 thousand and EUR158,350 thousand, due in July 2011, and annual interest at 0.35%-1.53% in 2011				$	30,772,585			$	33,140,881

 

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15.	BONDS PAYABLE

 

		June 30
				2012				2011
Domestic unsecured bonds:
Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually				$	10,500,000			$	-
Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually					7,500,000				-
Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually					10,000,000				-
Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually					7,000,000				-
Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually					-				4,500,000
					35,000,000				4,500,000
Current portion					-				(4,500,000	)
				$	35,000,000			$	-

With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$18,900,000 thousand in August 2012.

 

16.	PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$564,181 thousand and NT$555,524 thousand for the six months ended June 30, 2012 and 2011, respectively.

The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$141,823 thousand and NT$150,832 thousand for the six months ended June 30, 2012 and 2011, respectively.

Movements of the Fund and accrued pension cost under the defined benefit plan were summarized as follows:

 

		Six Months Ended June 30
				2012				2011
The Fund
Balance, beginning of period				$	3,017,351			$	2,835,231
Contributions					116,685				116,010
Interest					26,304				27,083
Payments					(10,791	)			(3,833	)
Balance, end of period				$	3,149,549			$	2,974,491
Accrued pension cost
Balance, beginning of period				$	3,860,898			$	3,824,601
Accruals					22,332				35,858
Balance, end of period				$	3,883,230			$	3,860,459

 

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17.	INCOME TAX

 

a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

 

b.

Income tax expense consisted of the following:

 

 

c.

Deferred income tax assets consisted of the following:

 

 

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Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

 

d.

Integrated income tax information:

The balance of the imputation credit account as of June 30, 2012 and 2011 was NT$14,283,587 thousand and NT$8,826,775 thousand, respectively.

The estimated and actual creditable ratios for distribution of earnings of 2011 and 2010 were 6.69% and 4.96%, respectively.

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

 

e.

All earnings generated prior to December 31, 1997 have been appropriated.

 

f.

As of June 30, 2012, investment tax credits consisted of the following:

 

 

g.

The profits generated from the following projects are exempt from income tax for a five-year period:

 

 

h.

The tax authorities have examined income tax returns of the Company through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

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18.	LABOR COST, DEPRECIATION AND AMORTIZATION

 

 

 

19.	SHAREHOLDERS’ EQUITY

As of June 30, 2012, 1,091,702 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,458,511 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

 

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Capital surplus consisted of the following:

 

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

 

a.

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

 

b.

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

 

c.

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

 

d.

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

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

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

The Company accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,043,952 thousand and NT$4,873,630 thousand for the six months ended June 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, 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.

 

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A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in the shareholders’ meetings held on June 12, 2012 and June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

The Company’s profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 12, 2012 and June 9, 2011, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 14, 2012 and February 15, 2011 and same amount had been charged against earnings of 2011 and 2010, respectively.

The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website.

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

 

20.	STOCK-BASED COMPENSATION PLANS

The Company’s Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TWSE on the grant date.

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of June 30, 2012.

 

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Information about outstanding options for the six months ended June 30, 2012 and 2011 was as follows:

 

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

As of June 30, 2012, information about outstanding options was as follows:

 

As of June 30, 2012, all of the above outstanding options were exercisable.

No compensation cost was recognized under the intrinsic value method for the six months ended June 30, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the six months ended June 30, 2012 and 2011 would have been as follows:

 

 

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21.	EARNINGS PER SHARE

EPS is computed as follows:

 

If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

 

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The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the six months ended June 30, 2011 to remain at NT$2.79.

 

22.	DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

a.

Fair values of financial instruments were as follows:

 

 

b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

5)

Fair value of bonds payable was based on their quoted market price.

 

6)

Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount.

 

c.

Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as net losses of NT$7,768 thousand and net gains of NT$17,455 thousand for the six months ended June 30, 2012 and 2011, respectively.

 

d.

As of June 30, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$1,421,235 thousand and NT$3,536,985 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$65,799,303 thousand and NT$37,640,881 thousand, respectively.

 

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e.

Movements of the unrealized gains or losses on financial instruments for the six months ended June 30, 2012 and 2011 were as follows:

 

		Six Months Ended June 30, 2012
				From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of period				$	(1,508,301	)		$	335,446			$	(1,172,855	)
Recognized directly in shareholders’ equity					(714,048	)			(795	)			(714,843	)
Removed from shareholders’ equity and recognized in earnings					2,222,349				-				2,222,349
Balance, end of period				$	-			$	334,651			$	334,651
		Six Months Ended June 30, 2011
				From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of period				$	(395,306	)		$	504,595			$	109,289
Recognized directly in shareholders’ equity					212,121				(98,351	)			113,770
Removed from shareholders’ equity and recognized in earnings					(35,151	)			-				(35,151	)
Balance, end of period				$	(218,336	)		$	406,244			$	187,908

 

f.

Information about financial risks

 

1)

Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities and the fluctuations in market prices will result in changes in fair values of overseas publicly traded stock.

 

2)

Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

3)

Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low.

 

4)

Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.

 

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23.	RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

 

a.

Subsidiaries

TSMC North America

TSMC China

TSMC Europe

TSMC Japan

 

b.

Investees

Xintec (holding a controlling financial interest)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

GUC (accounted for using the equity method)

 

c.

Indirect subsidiaries

WaferTech, LLC (WaferTech)

TSMC Technology, Inc. (TSMC Technology)

TSMC Design Technology Canada Inc. (TSMC Canada)

 

d.

Indirect investees

VisEra Technology Company, Ltd. (VisEra) (accounted for using the equity method)

Motech (accounted for using the equity method)

 

e.

Others

Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.

Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:

 

		2012												2011
				Amount				%								Amount				%
For the six months ended June 30
Sales
TSMC North America				$	145,613,637				62							$	115,627,277				54
Others					2,331,268				1								1,474,631				1
				$	147,944,905				63							$	117,101,908				55
Purchases
TSMC China				$	7,036,635				25							$	4,935,280				19
WaferTech					3,752,087				13								3,763,210				15
VIS					1,960,314				7								2,829,238				11
SSMC					1,804,215				7								1,994,243				8
Others					-				-								124,673				-
				$	14,553,251				52							$	13,646,644				53

 

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		2012												2011
				Amount				%								Amount				%
Manufacturing expenses
Xintec (outsourcing and rent)				$	71,598				-							$	177,596				-
VisEra (outsourcing)					8,657				-								8,111				-
VIS (rent)					-				-								5,902				-
Others					230				-								-				-
				$	80,485				-							$	191,609				-
Research and development expenses
TSMC Technology (primarily consulting fee)				$	330,524				2							$	252,450				2
TSMC Canada (primarily consulting fee)					107,855				1								88,283				1
TSMC Europe (primarily consulting fee)					25,951				-								19,775				-
VIS (rent)					-				-								1,984				-
Others					6,675				-								21,718				-
				$	471,005				3							$	384,210				3
Marketing expenses - commission
TSMC Europe				$	165,991				14							$	189,792				16
TSMC Japan					138,456				12								130,927				11
TSMC China					34,114				3								31,876				2
Others					12,704				1								11,287				1
				$	351,265				30							$	363,882				30
Sales of property, plant and equipment and other assets
TSMC China				$	45,982				70							$	2,427,178				84
VisEra					9,000				14								-				-
WaferTech					-				-								72,880				2
VIS					-				-								36,008				1
Others					10				-								253				-
				$	54,992				84							$	2,536,319				87
Purchases of property, plant and equipment and other asset
TSMC China				$	68,455				-							$	70,491				-
GUC					4,137				-								-				-
Others					4,472				-								-				-
				$	77,064				-							$	70,491				-
Non-operating income and gains
VIS (primarily technical service income)				$	123,856				2							$	124,055				3
SSMC (primarily technical service income)					106,258				2								94,255				2
TSMC China (primarily technical service income and gains on disposal of property, plant and equipment)					244				-								96,138				2
Others					9,679				-								2,216				-
				$	240,037				4							$	316,664				7

 

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		2012												2011
				Amount				%								Amount				%
Non-operating expenses and losses
TSMC China (losses on disposal of property, plant and equipment)				$	9,350				-							$	-				-
As of June 30
Receivables
TSMC North America				$	37,694,156				98							$	27,063,064				99
Others					782,571				2								338,961				1
				$	38,476,727				100							$	27,402,025				100
Other receivables
VIS				$	503,976				78							$	512,256				16
SSMC					66,094				10								47,445				1
TSMC North America					62,719				10								14,955				-
TSMC China					2,582				-								1,979,030				61
Motech					-				-								436,600				14
Others					17,025				2								241,271				8
				$	652,396				100							$	3,231,557				100
Payables
TSMC China				$	1,317,606				36							$	955,093				28
VIS					944,589				26								1,087,485				32
WaferTech					731,713				20								620,389				18
SSMC					355,721				10								440,314				13
Others					308,496				8								282,810				9
				$	3,658,125				100							$	3,386,091				100
Other assets (deferred credits)
TSMC China				$	(7,857	)			-							$	10,347				1
VisEra					(1,064	)			-								-				-
Others					(9	)			-								-				-
				$	(8,930	)			-							$	10,347				1

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses. The lease expired in June 2011.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses. The lease expired in April 2011.

 

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The Company deferred the disposal gains/losses (classified under other assets and deferred credits) derived from sales of property, plant and equipment and other assets to TSMC China, VisEra and others, and then recognized such gains/losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets.

 

24.	SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2012 to May 2032 and can be renewed upon expiration.

As of June 30, 2012, future lease payments were as follows:

 

Year		Amount
2012 (3rd and 4th quarter)		$	233,125
2013			441,808
2014			425,370
2015			415,050
2016			404,886
2017 and thereafter			3,401,106
		$	5,321,345

 

25.	SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of June 30, 2012, excluding those disclosed in other notes, were as follows:

 

a.

Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Company’s capacity if the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

b.

Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of June 30, 2012, the Company had a total of US$6,812 thousand of guarantee deposits.

 

c.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

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d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

e.

In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

f.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing several U.S. patents. This litigation is in its early stages and therefore the outcome of the case cannot be determined at this time.

 

26.	SIGNIFICANT SUBSEQUENT EVENTS

The Company joined the Customer Co-Investment Program of ASML Holding N.V. (ASML) and entered into the investment agreement on August 5, 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. The above agreement is subject to the shareholders’ approval at an Extraordinary General Meeting of ASML and relevant government regulatory approvals. Both parties also signed the research and development funding agreement and the Company will provide EUR277,000 thousand to ASML’s research and development programs from 2013 to 2017.

 

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27.	EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

		June 30
		2012												2011
				Foreign Currencies (In Thousands)				Exchange Rate (Note)								Foreign Currencies (In Thousands)				Exchange Rate (Note)
Financial assets
Monetary items
USD				$	2,246,434				29.885							$	1,934,278				28.769
EUR					151,956				37.73								130,392				41.78
JPY					28,961,969				0.3776								37,532,002				0.3584
Non-monetary items
HKD					456,320				3.85								1,127,381				3.70
Investments accounted for using equity method
USD					3,109,771				29.885								2,999,310				28.769
EUR					5,668				37.73								14,194				41.78
JPY					421,035				0.3776								409,773				0.3584
RMB					3,231,687				4.73								1,175,368				4.45
Financial liabilities
Monetary items
USD					2,082,531				29.885								1,783,553				28.769
EUR					171,250				37.73								214,283				41.78
JPY					43,793,568				0.3776								38,261,549				0.3584

 

Note:

Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

28.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

 

a.

Financings provided:     Please see Table 1 attached;

 

b.

Endorsement/guarantee provided:     None;

 

c.

Marketable securities held:     Please see Table 2 attached;

 

d.

Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital:     Please see Table 3 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital:     Please see Table 4 attached;

 

f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital:     None;

 

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g.

Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital:     Please see Table 5 attached;

 

h.

Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:     Please see Table 6 attached;

 

i.

Names, locations, and related information of investees over which the Company exercises significant influence:     Please see Table 7 attached;

 

j.

Information about derivatives of investees over which the Company has a controlling interest:

Do not meet the criteria for hedge accounting

 

1)

TSMC China

TSMC China entered into forward exchange contracts during the six months ended June 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contract as of June 30, 2012 consisted of the following:

 

For the six months ended June 30, 2012, net gains arising from forward exchange contracts of TSMC China amounted to NT$6,934 thousand.

 

2)

Xintec

Xintec entered into forward exchange contracts during the six months ended June 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of June 30, 2012 consisted of the following:

 

For the six months ended June 30, 2012, net gains arising from forward exchange contracts of Xintec amounted to NT$4,464 thousand.

 

3)

TSMC Partners

TSMC Partners entered into forward exchange contracts during the six months ended June 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of June 30, 2012 consisted of the following:

 

For the six months ended June 30, 2012, net losses arising from forward exchange contracts of TSMC Partners amounted to NT$41,296 thousand.

 

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4)

TSMC Solar

TSMC Solar entered into derivative contracts during the six months ended June 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of June 30, 2012 consisted of the following:

 

Outstanding cross currency swap contracts as of June 30, 2012 consisted of the following:

 

For the six months ended June 30, 2012, net losses arising from derivative financial instruments of TSMC Solar amounted to NT$3,874 thousand.

 

5)

TSMC SSL

TSMC SSL entered into derivative contracts during the six months ended June 30, 2012 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of June 30, 2012 consisted of the following:

 

Outstanding cross currency swap contracts as of June 30, 2012 consisted of the following:

 

For the six months ended June 30, 2012, net losses arising from derivative financial instruments of TSMC SSL amounted to NT$5,651 thousand.

Meet the criteria for hedge accounting

Xintec monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, Xintec seeks to reduce the effects of future cash flow related interest rate exposures by primarily using derivative financial instruments.

 

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Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate swap contract to hedge such a cash flow interest rate risk. As of June 30, 2012, the outstanding interest rate swap contract of Xintec consisted of the following:

 

For the six months ended June 30, 2012, the adjustment for current period to shareholder’s equity amounted to a loss of NT$17 thousand for the above Xintec’s interest rate swap contract. The amount removed from shareholder’s equity and recognized as a loss amounted to NT$180 thousand.

 

k.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee:    Please see Table 8 attached.

 

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports:    Please see Note 23.

 

29.	OPERATING SEGMENTS INFORMATION

The Company has provided the operating segments disclosure in the consolidated financial statements.

 

30.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the Board of Directors and authorized for issue on August 14, 2012.

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Investees

FINANCINGS PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

No.		Financing   Company		Counter- party		Financial Statement Account		Maximum  Balance for the  Period (US$ in  Thousands)  (Note 3)				Ending Balance  (US$ in  Thousands)  (Note 3)				Amount  Actually  Drawn  (US$ in  Thousands)				Interest  Rate				Nature  for  Financing		Transaction  Amounts				Reason for   Financing		Allowance  for Bad  Debt				Collateral								Financing  Limits for Each  Borrowing  Company  (Note 1)				Financing  Company’s  Total  Financing  Amount  Limits  (Note 2)
																																				Item				Value
1		TSMC Partners		TSMC China		Long-term receivables from related parties			$7,471,250 (US$250,000	)			$7,471,250 (US$250,000	)			$7,471,250 (US$250,000	)			0.25% -0.26%			The need for short-term financing			$-			Purchase equipment		$	-				-			$	-			$	38,088,238			$	38,088,238
				TSMC Solar		Other receivables from related parties			1,195,400 (US$40,000	)			1,195,400 (US$40,000	)			851,723 (US$28,500	)			0.4017% -0.4757%			The need for short-term financing			-			Operating capital			-				-				-				3,808,824
				TSMC SSL		Other receivables from related parties			896,550 (US$30,000	)			896,550 (US$30,000	)			-				-			The need for short-term financing			-			Operating capital			-				-				-				3,808,824

 

Note 1:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.

 

Note 2:

The total amount available for lending purpose shall not exceed the net worth of TSMC Partners.

 

Note 3:

The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES HELD

JUNE 30, 2012

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

 

 

								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
TSMC		Corporate bond
		Nan Ya Plastics Corporation		-		Held-to-maturity financial assets				-				$	1,099,769					N/A				$	1,113,222
		China Steel Corporation		-		”				-					302,516					N/A					304,237
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets				1,789,493					1,756,835					6					1,756,835
		TSMC Global		Subsidiary		Investments accounted for using equity method				1					43,788,660					100					43,788,660
		TSMC Partners		Subsidiary		”				988,268					38,087,704					100					38,088,238
		VIS		Investee accounted for using equity method		”				628,223					8,857,198					41					8,732,307
		TSMC Solar		Subsidiary		”				1,118,000					8,626,042					99					8,626,042
		SSMC		Investee accounted for using equity method		”				314					5,935,087					39					5,721,104
		TSMC SSL		Subsidiary		”				430,400					3,224,899					95					3,224,899
		TSMC North America		Subsidiary		”				11,000					3,086,841					100					3,086,841
		Xintec		Investee with a controlling financial interest		”				94,011					1,524,811					40					1,524,811
		GUC		Investee accounted for using equity method		”				46,688					1,110,221					35					4,855,537
		TSMC Europe		Subsidiary		”				-					213,863					100					213,863
		TSMC Japan		Subsidiary		”				6					158,983					100					158,983
		TSMC Korea		Subsidiary		”				80					24,460					100					24,460
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost				19,300					193,584					10					334,168
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		”				10,500					105,000					7					334,111
		W.K. Technology Fund IV		-		”				4,000					40,000					2					35,833
		Fund
		Horizon Ventures Fund		-		Financial assets carried at cost				-					103,992					12					103,992
		Crimson Asia Capital		-		”				-					55,259					1					55,259
		Capital
		TSMC China		Subsidiary		Investments accounted for using equity method				-					15,255,074					100					15,285,878
		VTAF III		Subsidiary		”				-					1,236,004					52					1,214,772
		VTAF II		Subsidiary		”				-					843,778					98					837,708
		Emerging Alliance		Subsidiary		”				-					197,892					99					197,892
		TSMC GN		Subsidiary		”				-					79,275					100					79,275
TSMC Solar		Stock
		Motech		Investee accounted for using equity method		Investments accounted for using equity method				87,480					4,700,982					20					3,137,591
		TSMC Solar Europe		Subsidiary		”				-					133,845					100					133,845
		TSMC Solar NA		Subsidiary		”				1					14,702					100					14,702
		Capital
		VTAF III		Investee accounted for using equity method		Investments accounted for using equity method				-					1,660,071					47					1,660,071

(Continued)

 

- 40 -

---

								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
TSMC SSL		Stock
		TSMC Lighting NA		Subsidiary		Investments accounted for using equity method				1				$	2,947					100				$	2,947
TSMC GN		Stock
		TSMC Solar		Investee accounted for using equity method		Investments accounted for using equity method				3,836					29,597					-					29,597
		TSMC SSL		Investee accounted for using equity method		”				4,760					35,667					1					35,667
TSMC Partners		Corporate bond
		General Elec Cap Corp. Mtn		-		Held-to-maturity financial assets				-				US$	20,017					N/A				US$	20,230
		Stock
		TSMC Development, Inc. (TSMC Development)		Subsidiary		Investments accounted for using equity method				1				US$	563,809					100				US$	563,809
		VisEra Holding Company		Investee accounted for using equity method		”				43,000				US$	92,646					49				US$	92,646
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Subsidiary		”				787				US$	12,611					97				US$	12,611
		TSMC Technology		Subsidiary		”				1				US$	11,117					100				US$	11,117
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Subsidiary		”				14,153				US$	9,764					97				US$	9,764
		TSMC Canada		Subsidiary		”				2,300				US$	4,256					100				US$	4,256
		Mcube Inc.		Investee accounted for using equity method		”				6,333					-					25					-
		Fund
		Shanghai Walden Venture Capital Enterprise		-		Financial assets carried at cost				-				US$	5,000					6				US$	5,000
TSMC North America		Stock
		Spansion Inc.		-		Available-for-sale financial assets				272				US$	2,983					-				US$	2,983
TSMC Development		Corporate bond
		GE Capital Corp.		-		Held-to-maturity financial assets				-				US$	20,026					N/A				US$	20,230
		JP Morgan Chase & Co.		-		”				-				US$	15,000					N/A				US$	14,981
		Stock
		WaferTech		Subsidiary		Investments accounted for using equity method				293,640				US$	272,633					100				US$	272,633
Emerging Alliance		Common stock
		Audience, Inc.		-		Available-for-sale financial assets				46				US$	891					-				US$	891
		Global Investment Holding Inc.		-		Financial assets carried at cost				11,124				US$	3,065					6				US$	3,065
		RichWave Technology Corp.		-		”				4,074				US$	1,545					10				US$	1,545
		Preferred stock
		Next IO, Inc.		-		Financial assets carried at cost				8				US$	500					-				US$	500
		QST Holdings, LLC		-		”				-				US$	142					4				US$	142
		Capital
		VentureTech Alliance Holdings, LLC (VTA Holdings)		Subsidiary		Investments accounted for using equity method				-					-					7					-
VTAF II		Common stock
		Audience, Inc.		-		Available-for-sale financial assets				319				US$	6,146					2				US$	6,146
		Sentelic		-		Financial assets carried at cost				1,806				US$	2,607					9				US$	2,607
		Aether Systems, Inc.		-		”				1,800				US$	1,701					23				US$	1,701
		RichWave Technology Corp.		-		”				1,267				US$	1,036					3				US$	1,036

(Continued)

 

- 41 -

---

								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
VTAF II		Preferred stock
		5V Technologies, Inc.		-		Financial assets carried at cost				2,890				US$	2,168					4				US$	2,168
		Aquantia		-		”				4,556				US$	4,316					3				US$	4,316
		Cresta Technology Corporation		-		”				92				US$	28					-				US$	28
		Impinj, Inc.		-		”				475				US$	1,000					-				US$	1,000
		Next IO, Inc.		-		”				179				US$	1,219					1				US$	1,219
		Pixim, Inc.		-		”				33,347				US$	772					2				US$	772
		Power Analog Microelectronics		-		”				7,330				US$	3,483					21				US$	3,483
		QST Holdings, LLC		-		”				-				US$	593					13				US$	593
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method				-					-					31					-
VTAF III		Common stock
		Mutual-Pak Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method				14,168				US$	1,596					58				US$	1,596
		InvenSense, Inc.		-		Available-for-sale financial assets				259				US$	2,931					-				US$	2,931
		Accton Wireless Broadband Corp.		-		Financial assets carried at cost				2,249				US$	315					6				US$	315
		Preferred stock
		BridgeLux, Inc.		-		Financial assets carried at cost				7,522				US$	9,379					3				US$	9,379
		GTBF, Inc.		-		”				1,154				US$	1,500					N/A				US$	1,500
		LiquidLeds Lighting Corp.		-		”				1,600				US$	800					11				US$	800
		Neoconix, Inc.		-		”				4,031				US$	4,810					4				US$	4,810
		Powervation, Ltd.		-		”				449				US$	7,030					16				US$	7,030
		Stion Corp.		-		”				8,152				US$	55,474					17				US$	55,474
		Tilera, Inc.		-		”				3,890				US$	3,025					2				US$	3,025
		Validity Sensors, Inc.		-		”				9,340				US$	3,456					4				US$	3,456
		Capital
		Growth Fund Limited (Growth Fund)		Subsidiary		Investments accounted for using equity method				-				US$	452					100				US$	452
		VTA Holdings		Subsidiary		”				-					-					62					-
Growth Fund		Common stock
		Veebeam		-		Financial assets carried at cost				10				US$	25					-				US$	25
ISDF		Common stock
		Integrated Memory Logic, Inc.		-		Available-for-sale financial assets				1,277				US$	5,001					2				US$	5,001
		Memsic, Inc.		-		”				1,286				US$	3,342					5				US$	3,342
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost				230				US$	497					2				US$	497
ISDF II		Common stock
		Memsic, Inc.		-		Available-for-sale financial assets				1,072				US$	2,787					4				US$	2,787
		Alchip Technologies Limited		-		Financial assets carried at cost				7,520				US$	3,664					14				US$	3,664
		Sonics, Inc.		-		”				278				US$	10					3				US$	10
		Goyatek Technology, Corp.		-		”				745				US$	163					6				US$	163
		Auden Technology MFG. Co., Ltd.		-		”				1,049				US$	223					3				US$	223
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost				264				US$	455					3				US$	455

(Continued)

 

- 42 -

---

								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
Xintec		Capital
		Compositech Ltd.		-		Financial assets carried at cost				587				$	-					3				$	-
TSMC Solar Europe		Stock
		TSMC Solar Europe GmbH		Subsidiary		Investments accounted for using equity method				1				EUR	3,451					100				EUR	3,451
TSMC Global		Corporate bond
		Aust + Nz Banking Group		-		Held-to-maturity financial assets				20,000				US$	20,000					N/A				US$	20,008
		Commonwealth Bank of Australia		-		”				25,000				US$	25,000					N/A				US$	24,823
		Commonwealth Bank of Australia		-		”				25,000				US$	25,000					N/A				US$	24,744
		Deutsche Bank AG London		-		”				20,000				US$	19,941					N/A				US$	20,181
		JP Morgan Chase + Co.		-		”				35,000				US$	35,026					N/A				US$	35,111
		Westpac Banking Corp.		-		”				25,000				US$	25,000					N/A				US$	24,926
		Westpac Banking Corp. 12/12 Frn		-		”				5,000				US$	5,000					N/A				US$	5,009
		Government bond
		Societe De Financement De Lec		-		Held-to-maturity financial assets				15,000				US$	15,000					N/A				US$	15,002
		Money market fund
		Ssga Cash Mgmt Global Offshore		-		Available-for-sale financial assets				17				US$	17					N/A				US$	17

(Concluded)

 

- 43 -

---

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

Company Name		Marketable Securities   Type and Name		Financial Statement Account		Counter-party		Nature of Relationship		Beginning Balance								Acquisition								Disposal (Note 1)														Ending Balance (Note 2)
										Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)		Amount				Carrying Value				Gain/Loss on Disposal				Shares/Units (In Thousands)				Amount
TSMC		Stock
		TSMC SSL		Investments accounted for using equity method		-		Subsidiary			227,000			$	1,746,893				203,400			$	2,034,000			-		$	-			$	-			$	-				430,400			$	3,224,899
		TSMC GN		”		-		Subsidiary			-				-				-				100,000			-			-				-				-				-				79,275

 

Note 1:		The data for marketable securities disposed exclude bonds maturities.
Note 2:		The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

- 44 -

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Investees

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company   Name

Types of   Property

Transaction Date

Transaction   Amount

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of Related Counter-party

Price Reference

Purpose of   Acquisition

Other   Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Fab

February 13, 2012 to June 26, 2012

$

2,484,947

By the construction progress

Da Cin Construction Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

February 13, 2012 to June 26, 2012

1,218,754

By the construction progress

Fu Tsu Construction Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 19, 2012 to June 28, 2012

671,551

By the construction progress

China Steel Structure Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 19, 2012 to June 26, 2012

132,839

By the construction progress

Tung Ho Steel Enterprise Corporation

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

May 28, 2012 to June 26, 2012

139,911

By the construction progress

Tasa Construction Corporation

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

 

- 45 -

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Investees

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company   Name		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction				Notes/Accounts Payable or Receivable								Note
						Purchases/   Sales		Amount (US$ in Thousands)				% to   Total				Payment Terms		Unit Price   (Note)		Payment Terms   (Note)		Ending Balance   (US$ in Thousands)				% to   Total
TSMC		TSMC North America		Subsidiary		Sales		$	145,613,637				62			Net 30 days after invoice date		-		-		$	37,694,156				63
		GUC		Investee accounted for using equity method		Sales			2,206,950				1			Net 30 days after monthly closing		-		-			781,905				1
		VIS		Investee accounted for using equity method		Sales			108,243				-			Net 30 days after monthly closing		-		-			-				-
		TSMC China		Subsidiary		Purchases			7,036,635				25			Net 30 days after monthly closing		-		-			(1,317,606	)			8
		WaferTech		Indirect subsidiary		Purchases			3,752,087				13			Net 30 days after monthly closing		-		-			(731,713	)			4
		VIS		Investee accounted for using equity method		Purchases			1,960,314				7			Net 30 days after monthly closing		-		-			(944,589	)			6
		SSMC		Investee accounted for using equity method		Purchases			1,804,215				7			Net 30 days after monthly closing		-		-			(355,721	)			2
TSMC North America		GUC		Investee accounted for using equity method by TSMC		Sales			291,130 (US$9,817	)			-			Net 30 days after invoice date		-		-			45,292 (US$1,516	)			-
Xintec		OmniVision		Parent company of director (represented for Xintec)		Sales			505,379				38			Net 30 days after monthly closing		-		-			217,002				47

 

Note:

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 46 -

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TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Investees

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name		Related Party		Nature of Relationships		Ending Balance (US$ in Thousands)				Turnover Days     (Note 1)		Overdue						Amounts Received     in Subsequent Period				Allowance for     Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	37,756,875			39		$	9,457,732			-		$	10,328,664			$	-
		GUC		Investee accounted for using equity method			781,905			37			18			-			432,248				-
		VIS		Investee accounted for using equity method			503,976			(Note 2)			-			-			-				-
TSMC Partners		TSMC China		The same parent company			7,471,250 (US$250,000	)		(Note 2)			-			-			-				-
		TSMC Solar		The same parent company			851,723 (US$28,500	)		(Note 2)			-			-			-				-
		VisEra Holding Company		Investee accounted for using equity method			411,193 (US$13,759	)		(Note 2)			-			-			-				-
Xintec		OmniVision		Parent company of director (represented for Xintec)			217,002			83			-			-			-				-

 

Note 1:

The calculation of turnover days excludes other receivables from related parties.

 

Note 2:

The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

- 47 -

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TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Investees

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

JUNE 30, 2012

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

 

 

Investor Company		Investee Company					Location					Main Businesses and Products		Original Investment  Amount										Balance as of June 30, 2012															Net Income (Losses) of the Investee (Foreign Currencies in Thousands)					Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)					Note
														June 30, 2012 (Foreign Currencies in Thousands)					December 31, 2011 (Foreign Currencies in Thousands)					Shares (In Thousands)					Percentage of Ownership					Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global					Tortola, British Virgin Islands					Investment activities			$	42,327,245				$	42,327,245					1					100				$	43,788,660				$	300,894				$	300,894			Subsidiary
		TSMC Partners					Tortola, British Virgin Islands					Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry				31,456,130					31,456,130					988,268					100					38,087,704					3,539,445					3,539,445			Subsidiary
		TSMC China					Shanghai, China					Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers				18,939,667					18,939,667					-					100					15,255,074					1,912,271					1,922,500			Subsidiary
		VIS					Hsin-Chu, Taiwan					Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts				13,232,288					13,232,288					628,223					41					8,857,198					796,105					197,086			Investee accounted for using equity method
		TSMC Solar					Tai-Chung, Taiwan					Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products				11,180,000					11,180,000					1,118,000					99					8,626,042					(1,428,888	)				(1,493,149	)		Subsidiary
		SSMC					Singapore					Fabrication and supply of integrated circuits				5,120,028					5,120,028					314					39					5,935,087					2,265,485					878,653			Investee accounted for using equity method
		TSMC SSL					Hsin-Chu, Taiwan					Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems				4,304,000					2,270,000					430,400					95					3,224,899					(612,617	)				(582,054	)		Subsidiary
		TSMC North America					San Jose, California, U.S.A.					Selling and marketing of integrated circuits and semiconductor devices				333,718					333,718					11,000					100					3,086,841					122,116					122,116			Subsidiary
		Xintec					Taoyuan, Taiwan					Wafer level chip size packaging service				1,357,890					1,357,890					94,011					40					1,524,811					(148,677	)				(72,729	)		Investee with a controlling financial interest
		VTAF III					Cayman Islands					Investing in new start-up technology companies				2,035,977					2,074,155					-					52					1,236,004					107,045					107,974			Subsidiary
		GUC					Hsin-Chu, Taiwan					Researching, developing, manufacturing, testing and marketing of integrated circuits				386,568					386,568					46,688					35					1,110,221					280,891					93,722			Investee accounted for using equity method
		VTAF II					Cayman Islands					Investing in new start-up technology companies				865,237					949,267					-					98					843,778					64,027					62,746			Subsidiary
		TSMC Europe					Amsterdam, the Netherlands					Marketing and engineering supporting activities				15,749					15,749					-					100					213,863					17,119					17,119			Subsidiary
		Emerging Alliance					Cayman Islands					Investing in new start-up technology companies				865,075					892,855					-					99					197,892					(5,019	)				(4,994	)		Subsidiary
		TSMC Japan					Yokohama, Japan					Marketing activities				83,760					83,760					6					100					158,983					2,372					2,372			Subsidiary
		TSMC GN					Taipei, Taiwan					Investment activities				100,000					-					-					100					79,275					(9,682	)				(9,682	)		Subsidiary
		TSMC Korea					Seoul, Korea					Customer service and technical supporting activities				13,656					13,656					80					100					24,460					1,097					1,097			Subsidiary
TSMC Solar		Motech					Taipei, Taiwan					Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems				6,228,661					6,228,661					87,480					20					4,700,982					(3,208,834	)				Note 2			Investee accounted for using equity method
		VTAF III					Cayman Islands					Investing in new start-up technology companies				1,798,991					1,795,131					-					47					1,660,071					107,045					Note 2			Investee accounted for using equity method
		TSMC Solar Europe					Amsterdam, the Netherlands					Investing in solar related business				411,032					411,032					-					100					133,845					(63,732	)				Note 2			Subsidiary
		TSMC Solar NA					Delaware, U.S.A.					Selling and marketing of solar related products				147,686					147,686					1					100					14,702					(36,509	)				Note 2			Subsidiary

(Continued)

 

- 48 -

---

Investor Company

Investee Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of June  30, 2012

Net Income (Losses) of the Investee (Foreign Currencies in Thousands)

Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)

Note

June 30, 2012 (Foreign Currencies in Thousands)

December 31, 2011 (Foreign Currencies in Thousands)

Shares (In Thousands)

Percentage of Ownership

Carrying Value (Foreign Currencies in Thousands)

TSMC SSL

TSMC Lighting NA

Delaware, U.S.A.

Selling and marketing of solid state lighting related products

$3,133

$3,133

1

100

$2,947

$(7)

Note 2

Subsidiary

TSMC Partners

TSMC Development

Delaware, U.S.A.

Investment activities

US$0.001

US$0.001

1

100

US$563,809

US$103,774

Note 2

Subsidiary

VisEra Holding Company

Cayman Islands

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

US$43,000

US$43,000

43,000

49

US$92,646

US$10,390

Note 2

Investee accounted for using equity method

ISDF

Cayman Islands

Investing in new start-up technology companies

US$787

US$ 787

787

97

US$12,611

US$2,513

Note 2

Subsidiary

TSMC Technology

Delaware, U.S.A.

Engineering support activities

US$0.001

US$0.001

1

100

US$11,117

US$502

Note 2

Subsidiary

ISDF II

Cayman Islands

Investing in new start-up technology companies

US$14,153

US$14,153

14,153

97

US$9,764

US$(63)

Note 2

Subsidiary

TSMC Canada

Ontario, Canada

Engineering support activities

US$2,300

US$2,300

2,300

100

US$4,256

US$234

Note 2

Subsidiary

Mcube Inc.

Delaware, U.S.A.

Research, development, and sale of micro-semiconductor device

US$1,800

US$1,800

6,333

25

-

US$(6,421)

Note 2

Investee accounted for using equity method

TSMC Development

WaferTech

Washington, U.S.A.

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

US$280,000

US$280,000

293,640

100

US$272,633

US$102,514

Note 2

Subsidiary

VTAF III

Mutual-Pak Technology Co., Ltd.

Taipei, Taiwan

Manufacturing and selling of electronic parts and researching, developing, and testing of RFID

US$4,718

US$3,937

14,168

58

US$1,596

US$(519)

Note 2

Subsidiary

Growth Fund

Cayman Islands

Investing in new start-up technology companies

US$1,830

US$1,830

-

100

US$452

US$(58)

Note 2

Subsidiary

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

-

-

-

62

-

-

Note 2

Subsidiary

VTAF II

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

-

-

-

31

-

-

Note 2

Subsidiary

Emerging Alliance

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

-

-

-

7

-

-

Note 2

Subsidiary

TSMC Solar Europe

TSMC Solar Europe GmbH

Hamburg, Germany

Selling of solar related products and providing customer service

EUR9,900

EUR9,900

1

100

EUR3,451

EUR(1,651)

Note 2

Subsidiary

TSMC GN

TSMC Solar

Tai-Chung, Taiwan

Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products

38,362

-

3,836

-

29,597

(1,428,888)

Note 2

Investee accounted for using equity method

TSMC SSL

Hsin-Chu, Taiwan

Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems

47,624

-

4,760

1

35,667

(612,617)

Note 2

Investee accounted for using equity method

Note 1: Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.

Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.

(Concluded)

 

- 49 -

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Investees

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of Investment		Accumulated Outflow of Investment from Taiwan as of January 1, 2012 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of June 30, 2012 (US$ in Thousands)				Percentage of Ownership		Equity in the Earnings (Losses)				Carrying Value as of June 30, 2012 (US$ in Thousands)				Accumulated Inward Remittance of Earnings as of June 30, 2012
														Outflow				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$	18,939,667 (RMB 4,502,080	)		(Note 1)		$ (US$	18,939,667 596,000	)		$	-			$	-			$ (US$	18,939,667 596,000	)		100%		$	1,922,500 (Note 3	)		$	15,255,074			$	-
Shanghai Walden Venture Capital Enterprise		Investing in new start-up technology companies		(US$	2,324,062 78,791	)		(Note 2)		(US$	147,485 5,000	)			-				-			(US$	147,485 5,000	)		6%			(Note 4	)		(US$	149,425 5,000	)			-

 

Accumulated Investment in Mainland China as of June 30, 2012 (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)		Upper Limit on Investment (US$ in Thousands)
$ 19,087,152 (US$ 601,000)		$   19,087,152   (US$ 601,000)		$  19,087,152   (US$ 601,000)

Note 1:   TSMC directly invested US$596,000 thousand in TSMC China.

Note 2:   TSMC indirectly invested in China company through third region, TSMC Partners.

Note 3:   Amount was recognized based on the audited financial statements.

Note 4:   TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 50 -

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		Taiwan Semiconductor Manufacturing
		Company Limited and Subsidiaries
		Consolidated Financial Statements for the
		Six Months Ended June 30, 2012 and 2011 and
		Independent Auditors’ Report

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of June 30, 2012 and 2011, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the six months then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of June 30, 2012 and 2011, and the results of their consolidated operations and their consolidated cash flows for the six months then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

August 14, 2012

Notice to Readers

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

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

 

- 1 -

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars, Except Par Value)

 

 

		2012								2011										2012								2011
ASSETS		Amount				%				Amount				%				LIABILITIES AND SHAREHOLDERS’ EQUITY		Amount				%				Amount				%
CURRENT ASSETS																		CURRENT LIABILITIES
Cash and cash equivalents (Notes 2 and 4)		$	178,440,559				20			$	150,978,778				19			Short-term loans (Note 15)		$	30,772,585				3			$	33,140,881				4
Financial assets at fair value through profit or loss (Notes 2, 5 and 25)			23,734				-				19,781				-			Financial liabilities at fair value through profit or loss (Notes 2, 5 and 25)			35,166				-				15,052				-
Available-for-sale financial assets (Notes 2, 6, and 25)			2,477,046				-				5,208,149				1			Hedging derivative financial liabilities (Notes 2, 11 and 25)			69				-				448				-
Held-to-maturity financial assets (Notes 2, 7 and 25)			7,424,976				1				2,924,804				1			Accounts payable			14,126,994				2				11,710,578				1
Receivables from related parties (Notes 3 and 26)			837,245				-				2,367				-			Payables to related parties (Note 26)			1,309,966				-				1,542,011				-
Notes and accounts receivable (Note 3)			61,101,346				7				52,491,604				7			Income tax payable (Notes 2 and 20)			6,787,548				1				6,104,840				1
Allowance for doubtful receivables (Notes 2, 3 and 8)			(490,914	)			-				(494,000	)			-			Cash dividends payable (Note 22)			77,762,637				9				78,127,227				10
Allowance for sales returns and others (Notes 2 and 8)			(6,508,185	)			(1	)			(5,811,952	)			(1	)		Accrued profit sharing to employees and bonus to directors and supervisors (Notes 2 and 22)			14,152,148				2				15,999,671				2
Other receivables from related parties (Notes 3 and 26)			981,263				-				999,772				-
Other financial assets (Note 27)			603,940				-				1,054,744				-			Payables to contractors and equipment suppliers			45,039,813				5				36,805,112				5
Inventories (Notes 2 and 9)			30,780,466				4				31,523,206				4			Accrued expenses and other current liabilities (Notes 13, 18, 25 and 29)			21,734,989				2				17,542,781				2
Deferred income tax assets (Notes 2 and 20)			2,805,069				1				1,173,482				-			Current portion of bonds payable and long-term bank loans (Notes 16, 17, 25 and 27)			125,000				-				4,500,000				1
Prepaid expenses and other current assets			2,404,358				-				2,481,073				-
Total current assets			280,880,903				32				242,551,808				31			Total current liabilities			211,846,915				24				205,488,601				26
LONG-TERM INVESTMENTS (Notes 2, 7, 10, 12 and 25)																		LONG-TERM LIABILITIES
Investments accounted for using equity method			23,372,224				3				23,357,209				3			Bonds payable (Notes 16 and 25)			35,000,000				4				-				-
Held-to-maturity financial assets			701,723				-				7,311,037				1			Long-term bank loans (Notes 17, 25 and 27)			1,525,000				-				1,500,000				-
Financial assets carried at cost			4,084,014				-				4,176,134				1			Other long-term payables (Notes 18, 25 and 29)			113,770				-				3,040,747				1
																		Obligations under capital leases (Notes 2, 13 and 25)			749,794				-				670,865				-
Total long-term investments			28,157,961				3				34,844,380				5
																		Total long-term liabilities			37,388,564				4				5,211,612				1
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 13 and 26)
Cost																		OTHER LIABILITIES
Land and land improvements			1,549,149				-				1,501,628				-			Accrued pension cost (Notes 2 and 19)			3,930,438				1				3,847,450				-
Buildings			189,706,742				22				166,481,044				22			Guarantee deposits (Note 29)			253,346				-				521,598				-
Machinery and equipment			1,189,864,584				135				1,012,617,056				129			Others (Note 26)			429,142				-				383,887				-
Office equipment			18,609,347				2				15,976,394				2
Leased assets			778,338				-				677,086				-			Total other liabilities			4,612,926				1				4,752,935				-
			1,400,508,160				159				1,197,253,208				153
Accumulated depreciation			(933,213,748	)			(106	)			(819,490,993	)			(105	)		Total liabilities			253,848,405				29				215,453,148				27
Advance payments and construction in progress			80,854,453				9				100,125,197				13
																		EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Net property, plant and equipment			548,148,865				62				477,887,412				61			Capital stock - NT$10 par value (Note 22)
																		Authorized: 28,050,000 thousand shares
INTANGIBLE ASSETS																		Issued: 25,920,709 thousand shares in 2012
Goodwill (Note 2)			5,639,097				1				5,487,060				-			25,914,283 thousand shares in 2011			259,207,094				29				259,142,831				33
Deferred charges, net (Notes 2 and 14)			5,221,454				-				5,690,862				1			Capital surplus (Notes 2 and 22)			56,025,149				7				55,802,387				7
																		Retained earnings (Note 22)
Total intangible assets			10,860,551				1				11,177,922				1			Appropriated as legal capital reserve			115,820,123				13				102,399,995				13
																		Appropriated as special capital reserve			7,606,224				1				6,433,874				1
OTHER ASSETS																		Unappropriated earnings			196,302,944				22				151,443,573				19
Deferred income tax assets, net (Notes 2 and 20)			10,344,401				1				11,092,048				1						319,729,291				36				260,277,442				33
Refundable deposits (Note 26)			4,296,083				1				4,834,381				1			Others
Others (Notes 2 and 27)			1,217,289				-				1,427,662				-			Cumulative translation adjustments (Note 2)			(7,830,895	)			(1	)			(11,461,047	)			(1	)
																		Unrealized gain on financial instruments (Notes 2, 11 and 25)			334,651				-				187,908				-
Total other assets			15,857,773				2				17,354,091				2						(7,496,244	)			(1	)			(11,273,139	)			(1	)
																		Equity attributable to shareholders of the parent			627,465,290				71				563,949,521				72
																		MINORITY INTERESTS (Note 2)			2,592,358				-				4,412,944				1
																		Total shareholders’ equity			630,057,648				71				568,362,465				73
TOTAL		$	883,906,053				100			$	783,815,613				100			TOTAL		$	883,906,053				100			$	783,815,613				100

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

 

- 2 -

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

 

		2012								2011
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 26)		$	237,427,920							$	217,895,876
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			3,859,417								2,010,014
NET SALES (Note 34)			233,568,503				100				215,885,862				100
COST OF SALES (Notes 9, 21 and 26)			120,811,731				52				113,359,191				52
GROSS PROFIT BEFORE AFFILIATES ELIMINATION			112,756,772				48				102,526,671				48
UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)			(139,950	)			-				-				-
GROSS PROFIT			112,616,822				48				102,526,671				48
OPERATING EXPENSES (Notes 21 and 26)
Research and development			19,235,781				8				16,456,677				8
General and administrative			9,025,466				4				6,781,342				3
Marketing			2,205,936				1				2,259,365				1
Total operating expenses			30,467,183				13				25,497,384				12
INCOME FROM OPERATIONS (Note 34)			82,149,639				35				77,029,287				36
NON-OPERATING INCOME AND GAINS
Interest income			941,732				1				780,503				1
Equity in earnings of equity method investees, net (Notes 2 and 10)			610,296				1				765,485				-
Settlement income (Note 29)			448,275				-				433,425				-
Gain on settlement and disposal of financial assets, net (Notes 2 and 25)			365,731				-				145,908				-
Foreign exchange gain, net (Note 2)			365,310				-				419,535				-
Technical service income (Note 26)			232,659				-				224,372				-
Gain on disposal of property, plant and equipment and other assets (Notes 2 and 26)			21,176				-				189,020				-
Others			393,319				-				383,128				1
Total non-operating income and gains			3,378,498				2				3,341,376				2

(Continued)

 

- 3 -

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

 

		2012								2011
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Impairment loss of financial assets (Notes 2, 6, 12 and 25)		$	2,748,456				1			$	58,096				-
Impairment loss on idle assets (Note 2)			422,323				1				58,478				-
Interest expense			415,039				-				243,261				-
Valuation loss on financial instruments, net (Notes 2, 5 and 25)			189,737				-				280,630				1
Loss on disposal of property, plant and equipment (Note 2)			25,302				-				156,761				-
Others (Note 2)			149,270				-				206,318				-
Total non-operating expenses and losses			3,950,127				2				1,003,544				1
INCOME BEFORE INCOME TAX			81,578,010				35				79,367,119				37
INCOME TAX EXPENSE (Notes 2 and 20)			6,443,942				3				6,911,828				3
NET INCOME		$	75,134,068				32			$	72,455,291				34
ATTRIBUTABLE TO:
Shareholders of the parent		$	75,286,804				32			$	72,228,107				34
Minority interests			(152,736	)			-				227,184				-
		$	75,134,068				32			$	72,455,291				34

 

		2012								2011
		Income Attributable  to Shareholders of the Parent								Income Attributable  to Shareholders of the Parent
		Before Income Tax				After Income Tax				Before Income Tax				After Income Tax
EARNINGS PER SHARE (NT$, Note 24)
Basic earnings per share		$	3.15			$	2.90			$	3.05			$	2.79
Diluted earnings per share		$	3.15			$	2.90			$	3.05			$	2.79

 

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

 

- 4 -

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

 

		Equity Attributable to Shareholders of the Parent
																														Others
		Capital Stock - Common Stock								Capital				Retained Earnings																Cumulative Translation				Unrealized Gain (Loss) On Financial								Minority				Total Shareholders’
		Shares (In												Legal Capital				Special Capital				Unappropriated
		Thousands)				Amount				Surplus				Reserve				Reserve				Earnings				Total				Adjustments				Instruments				Total				Interests				Equity
BALANCE, JANUARY 1, 2012			25,916,222			$	259,162,226			$	55,846,357			$	102,399,995			$	6,433,874			$	213,357,286			$	322,191,155			$	(6,433,369	)		$	(1,172,855	)		$	629,593,514			$	2,450,037			$	632,043,551
Appropriations of prior year’s earnings
Legal capital reserve			-				-				-				13,420,128				-				(13,420,128	)			-				-				-				-				-				-
Special capital reserve			-				-				-				-				1,172,350				(1,172,350	)			-				-				-				-				-				-
Cash dividends to shareholders - NT$3.00 per share			-				-				-				-				-				(77,748,668	)			(77,748,668	)			-				-				(77,748,668	)			-				(77,748,668	)
Net income for the six months ended June 30, 2012			-				-				-				-				-				75,286,804				75,286,804				-				-				75,286,804				(152,736	)			75,134,068
Adjustment arising from changes in percentage of ownership in equity method investees			-				-				83,954				-				-				-				-				-				-				83,954				(29,976	)			53,978
Translation adjustments			-				-				-				-				-				-				-				(1,397,526	)			-				(1,397,526	)			38,154				(1,359,372	)
Issuance of stock from exercising employee stock options			4,487				44,868				94,838				-				-				-				-				-				-				139,706				-				139,706
Net changes of valuation gain/loss on available-for-sale financial assets			-				-				-				-				-				-				-				-				1,515,571				1,515,571				(1,677	)			1,513,894
Net change in shareholders’ equity from equity method investees			-				-				-				-				-				-				-				-				(8,130	)			(8,130	)			-				(8,130	)
Net change in unrealized gain/loss on hedging derivative financial instruments			-				-				-				-				-				-				-				-				65				65				98				163
Increase in minority interests			-				-				-				-				-				-				-				-				-				-				288,458				288,458
BALANCE, JUNE 30, 2012			25,920,709			$	259,207,094			$	56,025,149			$	115,820,123			$	7,606,224			$	196,302,944			$	319,729,291			$	(7,830,895	)		$	334,651			$	627,465,290			$	2,592,358			$	630,057,648
BALANCE, JANUARY 1, 2011			25,910,078			$	259,100,787			$	55,698,434			$	86,239,494			$	1,313,047			$	178,227,030			$	265,779,571			$	(6,543,163	)		$	109,289			$	574,144,918			$	4,559,487			$	578,704,405
Appropriations of prior year’s earnings
Legal capital reserve			-				-				-				16,160,501				-				(16,160,501	)			-				-				-				-				-				-
Special capital reserve			-				-				-				-				5,120,827				(5,120,827	)			-				-				-				-				-				-
Cash dividends to shareholders - NT$3.00 per share			-				-				-				-				-				(77,730,236	)			(77,730,236	)			-				-				(77,730,236	)			-				(77,730,236	)
Net income for the six months ended June 30, 2011			-				-				-				-				-				72,228,107				72,228,107				-				-				72,228,107				227,184				72,455,291
Adjustment arising from changes in percentage of ownership in equity method investees			-				-				14,643				-				-				-				-				-				-				14,643				(11,995	)			2,648
Translation adjustments			-				-				-				-				-				-				-				(4,917,884	)			-				(4,917,884	)			18,400				(4,899,484	)
Issuance of stock from exercising employee stock options			4,205				42,044				89,310				-				-				-				-				-				-				131,354				-				131,354
Net changes of valuation gain/loss on available-for-sale financial assets			-				-				-				-				-				-				-				-				95,888				95,888				(1,958	)			93,930
Net change in shareholders’ equity from equity method investees			-				-				-				-				-				-				-				-				(17,419	)			(17,419	)			-				(17,419	)
Net change in unrealized gain/loss on hedging derivative financial instruments			-				-				-				-				-				-				-				-				150				150				216				366
Decrease in minority interests			-				-				-				-				-				-				-				-				-				-				(378,390	)			(378,390	)
BALANCE, JUNE 30, 2011			25,914,283			$	259,142,831			$	55,802,387			$	102,399,995			$	6,433,874			$	151,443,573			$	260,277,442			$	(11,461,047	)		$	187,908			$	563,949,521			$	4,412,944			$	568,362,465

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to shareholders of the parent		$	75,286,804			$	72,228,107
Net income (loss) attributable to minority interests			(152,736	)			227,184
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			60,466,238				51,974,504
Unrealized gross profit from affiliates			139,950				-
Amortization of premium/discount of financial assets			3,359				15,015
Impairment loss of financial assets			2,748,456				58,096
Gain on disposal of available-for-sale financial assets, net			(231,622	)			(126,488	)
Gain on disposal of financial assets carried at cost, net			(134,109	)			(19,420	)
Equity in earnings of equity method investees, net			(610,296	)			(765,485	)
Cash dividends received from equity method investees			1,285,480				1,914,392
Loss (gain) on disposal of property, plant and equipment and other assets, net			4,126				(32,259	)
Income from receiving equity securities			(642	)			-
Impairment loss on idle assets			422,323				58,478
Deferred income tax			(85,192	)			427,314
Changes in operating assets and liabilities:
Financial assets and liabilities at fair value through profit or loss			13,050				(16,845	)
Receivables from related parties			(651,481	)			355
Notes and accounts receivable			(14,780,106	)			(1,461,719	)
Allowance for doubtful receivables			(3	)			(10,029	)
Allowance for sales returns and others			1,441,672				(1,734,312	)
Other receivables from related parties			(43,115	)			(79,870	)
Other financial assets			33,113				57,357
Inventories			(5,939,884	)			(3,117,222	)
Prepaid expenses and other current assets			(230,344	)			(443,426	)
Accounts payable			3,042,084				(2,075,757	)
Payables to related parties			(18,555	)			674,926
Income tax payable			(3,868,576	)			(1,079,857	)
Accrued profit sharing to employees and bonus to directors and supervisors			5,070,855				4,903,524
Accrued expenses and other current liabilities			3,788,688				(2,070,228	)
Accrued pension cost			21,930				35,099
Net cash provided by operating activities			127,021,467				119,541,434

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment		$	(108,038,091	)		$	(146,142,855	)
Available-for-sale financial assets			(2,950	)			(34,726,013	)
Financial assets carried at cost			(21,557	)			(123,159	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			241,531				58,501,445
Held-to-maturity financial assets			830,368				2,675,000
Financial assets carried at cost			205,100				207,333
Property, plant and equipment and other assets			113,668				551,208
Increase in deferred charges			(806,248	)			(823,351	)
Decrease in refundable deposits			222,780				3,843,589
Decrease (increase) in other assets			(22,442	)			13,094
Net cash used in investing activities			(107,277,841	)			(116,023,709	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans			4,846,057				1,926,937
Proceeds from long-term bank loans			-				2,100,000
Repayment of long-term bank loans			-				(1,142,968	)
Proceeds from issuance of bonds			17,000,000				-
Repayment of bonds			(4,500,000	)			-
Decrease in obligations under capital leases			(86,328	)			-
Decrease in other long-term payables			(1,434,277	)			(890,000	)
Decrease in guarantee deposits			(190,637	)			(267,500	)
Proceeds from exercise of employee stock options			139,706				131,354
Increase in minority interests			302,427				18,601
Net cash provided by financing activities			16,076,948				1,876,424
NET INCREASE IN CASH AND CASH EQUIVALENTS			35,820,574				5,394,149
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(852,292	)			(2,302,326	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			143,472,277				147,886,955
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	178,440,559			$	150,978,778
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	292,797			$	307,448
Income tax paid		$	10,325,668			$	7,605,291

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	118,091,870			$	141,371,625
Decrease (increase) in payables to contractors and equipment suppliers			(10,053,710	)			4,772,583
Nonmonetary exchange trade-out price			(69	)			(1,353	)
Cash paid		$	108,038,091			$	146,142,855
Disposal of property, plant and equipment and other assets		$	113,737			$	552,561
Nonmonetary exchange trade-out price			(69	)			(1,353	)
Cash received		$	113,668			$	551,208
Acquisition of deferred charges		$	954,073			$	823,351
Increase in other long-term payables (including current portion)			(147,825	)			-
Cash paid		$	806,248			$	823,351
Acquisition of available-for-sale financial assets		$	2,950			$	34,662,414
Decrease in accrued expenses and other current liabilities			-				63,599
Cash paid		$	2,950			$	34,726,013
Disposal of available-for-sale financial assets		$	263,687			$	58,591,994
Increase in other financial assets			(22,156	)			(90,549	)
Cash received		$	241,531			$	58,501,445
NON-CASH INVESTING AND FINANCING ACTIVITIES
Idle assets reclassified from property, plant and equipment		$	422,323			$	-
Current portion of bonds payable		$	-			$	4,500,000
Current portion of long-term bank loans		$	125,000			$	-
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	1,926,049			$	3,916,796

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

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).

As of June 30, 2012 and 2011, TSMC and its subsidiaries had 37,461 and 35,979 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.

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.

Significant accounting policies are summarized as follows:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation.

 

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The consolidated entities were as follows:

 

(Continued)

 

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(Concluded)

 

Note 1:

In August 2011, TSMC adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.

 

Note 2:

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of June 30, 2012:

 

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

TSMC North America is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC Japan, TSMC Korea and TSMC Europe are engaged mainly in marketing or customer service, engineering and technical supporting activities. TSMC Partners is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global, TSMC Development and TSMC GN are engaged in investing activities. TSMC China is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, VTA Holdings, ISDF, ISDF II and Growth Fund are engaged in investing in new start-up technology companies. TSMC Canada and TSMC Technology are engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. Xintec is engaged in the provision of wafer packaging service. TSMC SSL is engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems. TSMC Lighting NA is engaged in selling and marketing of solid state lighting related products. TSMC Solar is engaged in researching, developing, designing, manufacturing and selling renewable energy and energy saving related technologies and products.

 

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TSMC Solar NA is engaged in selling and marketing of solar related products. TSMC Solar Europe is engaged in investing activities of solar related business. TSMC Solar Europe GmbH is engaged in the selling and customer service of solar cell modules and related products. Mutual-Pak is engaged in the manufacturing and selling of electronic parts and researching, developing and testing of RFID.

TSMC together with its subsidiaries are hereinafter referred to collectively as the “Company.”

Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity.

Foreign-currency Transactions and Translation of Foreign-currency Financial Statements

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - spot rates at period-end; shareholders’ equity - historical rates; income and expenses - average rates during the period. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Repurchase agreements collateralized by government bonds, corporate bonds and short-term commercial paper acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

 

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Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is determined as follows: Open-end mutual funds and money market funds - net asset values at the end of the period; and publicly traded stocks - closing prices at the end of the period.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Hedging Derivative Financial Instruments

Hedge derivatives are mainly derivatives instruments that are for cash flow hedge purposes and determined to be an effective hedge. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in shareholders’ equity. The amount recognized in shareholders’ equity is recognized in profit or loss in the same period or period during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in shareholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

 

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The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

TSMC’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

 

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Gains or losses on sales from the Company to equity method investees or from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment, Assets Leased to Others and Idle Assets

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

 

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Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, net operating loss carryforwards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

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

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

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

 

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3.	ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s consolidated financial statements as of and for the six months ended June 30, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting” and the Company conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements accordingly.

 

4.	CASH AND CASH EQUIVALENTS

 

 

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

 

 

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The Company entered into derivative contracts during the six months ended June 30, 2012 and 2011 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date		Contract Amount (In Thousands)
June 30, 2012
Sell RMB/Buy US$		July 2012		RMB1,258,088/US$199,000
Sell US$/Buy JPY		July 2012 to August 2012		US$217,791/JPY17,317,277
Sell US$/Buy EUR		July 2012		US$49,634/EUR39,579
Sell US$/Buy NT$		July 2012 to September 2012		US$16,400/NT$486,689
Sell NT$/Buy JPY		July 2012		NT$1,238,195/JPY3,293,000
Sell NT$/Buy US$		July 2012 to August 2012		NT$507,764/US$17,000
Sell NT$/Buy EUR		July 2012		NT$11,297/EUR300
June 30, 2011
Sell RMB/Buy US$		July 2011		RMB2,214,192/US$342,000
Sell EUR/Buy US$		July 2011		EUR3,530/US$5,090
Sell US$/Buy JPY		July 2011		US$9,606/JPY775,330
Sell US$/Buy EUR		July 2011		US$1,317/EUR928
Sell US$/Buy NT$		July 2011 to August 2011		US$17,750/NT$509,851

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date		Contract Amount (In Thousands)		Range of Interest Rates Paid		Range of Interest Rates Received
June 30, 2012
July 2012		NT$676,922/US$22,630		-		0.15%-0.20%
July 2012		US$ 2,650/NT$79,200		0.30%-0.32%		-
June 30, 2011
July 2011		US$128,000/NT$3,699,250		0.46%-1.01%		-

Net losses on derivative financial instruments for the six months ended June 30, 2012, and 2011 were NT$189,737 thousand and NT$280,630 thousand, respectively.

 

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6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

For the six months ended June 30, 2012, the Company recognized an impairment loss on partial overseas publicly traded stocks in the amount of NT$2,677,529 thousand due to the significant decline in fair value.

 

7.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

8.	ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

Movements of the allowance for sales returns and others were as follows:

 

 

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9.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$1,041,643 thousand and NT$315,552 thousand, respectively, were included in the cost of sales for the six months ended June 30, 2012 and 2011.

 

10.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

Since July 2011, TSMC is no longer deemed to be a controlling entity of GUC and its subsidiaries due to the termination of a Shareholders’ Agreement. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

For the six months ended June 30, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$610,296 thousand and NT$765,485 thousand, respectively.

The quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method was NT$13,587,844 thousand (VIS and GUC) as of June 30, 2012 and NT$9,391,941 thousand (VIS) as of June 30, 2011.

 

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Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

As of June 30, 2012 and 2011, balance of the aforementioned difference allocated to goodwill was NT$1,415,565 thousand. There was no acquisition or impairment in goodwill for the six months ended June 30, 2012 and 2011.

 

11.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. The outstanding interest rate swap contract consisted of the following:

 

Contract Amount     (In Thousands)		Maturity Date		Range of Interest Rates Paid		Range of Interest Rates Received
June 30, 2012
NT$56,000		August 31, 2012		1.38%		0.86%-0.87%
June 30, 2011
NT$104,000		August 31, 2012		1.38%		0.63%-0.77%

For the six months ended June 30, 2012 and 2011, the adjustment for the current period to shareholders’ equity amounted to net losses of NT$17 thousand and NT$51 thousand, respectively; and the amount removed from shareholders’ equity and recognized as a loss from the above interest rate swap contract amounted to NT$180 thousand and NT$417 thousand, respectively.

 

12.	FINANCIAL ASSETS CARRIED AT COST

 

 

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The common stock of InvenSense, Inc. and Audience, Inc. was listed on the NYSE and NASDAQ in November 2011 and in May 2012, respectively. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

For the six months ended June 30, 2012 and 2011, the Company recognized impairment on financial assets carried at cost of NT$70,927 thousand and NT$58,096 thousand, respectively.

 

13.	PROPERTY, PLANT AND EQUIPMENT

 

 

The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to November 2018.

As of June 30, 2012, future lease payments were as follows:

 

Year		Amount
2013		$	27,448
2014			27,448
2015			27,448
2016			27,448
2017 and thereafter			767,973
		$	877,765

 

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During the six months ended June 30, 2012, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. Information about capitalized interest was as follows:

 

		Six Months Ended June 30, 2012
Capitalized interest			$  6,442
Capitalization rates			1.08%-1.20%

 

14.	DEFERRED CHARGES, NET

 

 

 

15.	SHORT-TERM LOANS

 

 

16.	BONDS PAYABLE

 

 

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With the approval from the Financial Supervisory Commission (FSC), the Company issued domestic unsecured bonds in the amount of NT$18,900,000 thousand in August 2012.

 

17.	LONG-TERM BANK LOANS

 

Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual financial statements of Xintec must comply with predetermined financial covenants. As of June 30, 2012, Xintec was in compliance with all such financial covenants.

As of June 30, 2012, future principal repayments for the long-term bank loans were as follows:

 

Year of Repayment		Amount
2012 (3rd and 4th quarter)		$	62,500
2013			125,000
2014			625,000
2015			125,000
2016			712,500
		$	1,650,000

 

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18.	OTHER LONG-TERM PAYABLES

 

The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents.

As of June 30, 2012, future payments for other long-term payables were as follows:

 

Year of Payment		Amount
2012 (3rd and 4th quarter)		$	1,867,049
2013			88,885
2014			47,885
2015			18,000
2016			18,000
		$	2,039,819

 

19.	PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, GUC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Solar NA and TSMC Solar Europe GmbH are required by local regulations to make monthly contributions at certain percentages of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Company recognized pension costs of NT$666,655 thousand and NT$643,427 thousand for the six months ended June 30, 2012 and 2011, respectively.

TSMC, GUC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. The Company recognized pension costs of NT$145,524 thousand and NT$152,007 thousand for the six months ended June 30, 2012 and 2011, respectively.

 

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Movements in the Funds and accrued pension cost under the defined benefit plans were summarized as follows:

 

 

20.	INCOME TAX

 

a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

 

b.

Income tax expense consisted of the following:

 

 

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c.

Net deferred income tax assets consisted of the following:

 

Under the Article 10 of the Statute for Industrial Innovation (SII) legislated, effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

As of June 30, 2012, the net operating loss carryforwards generated by WaferTech, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar would expire on various dates through 2023.

 

d.

Integrated income tax information:

The balance of the imputation credit account of TSMC as of June 30, 2012 and 2011 was NT$14,283,587 thousand and NT$8,826,775 thousand, respectively.

The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2011 and 2010 were 6.69% and 4.96%, respectively.

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

 

e.

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

 

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f.

As of June 30, 2012, investment tax credits of TSMC, Xintec, Mutual-Pak and TSMC SSL consisted of the following:

 

 

g.

The profits generated from the following projects of TSMC and Xintec are exempt from income tax for a five-year period:

 

 

h.

The tax authorities have examined income tax returns of TSMC through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

21.	LABOR COST, DEPRECIATION AND AMORTIZATION

 

(Continued) 

 

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22.	SHAREHOLDERS’ EQUITY

As of June 30, 2012, 1,091,702 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,458,511 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of TSMC’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

 

- 29 -

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Capital surplus consisted of the following:

 

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:

 

a.

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

 

b.

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

 

c.

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

 

d.

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

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

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

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$5,043,952 thousand and NT$4,873,630 thousand for the six months ended June 30, 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, 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.

 

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A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2011 and 2010 had been approved in the TSMC’s shareholders’ meetings held on June 12, 2012 and June 9, 2011, respectively. The appropriations and dividends per share were as follows:

 

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand in cash for 2010, respectively, had been approved in the shareholders’ meeting held on June 12, 2012 and June 9, 2011, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 14, 2012 and February 15, 2011 and same amount had been charged against earnings of 2011 and 2010, respectively.

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

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

 

23.	STOCK-BASED COMPENSATION PLANS

 

a.

Under Intrinsic Value Method

TSMC’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share of TSMC when exercised. The options may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TWSE on the grant date.

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of June 30, 2012.

 

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Information about TSMC’s outstanding options for the six months ended June 30, 2012 and 2011 was as follows:

 

		Number of Options (In Thousands)					Weighted- average Exercise Price (NT$)
Six months ended June 30, 2012
Balance, beginning of period				14,293				$	32.1
Options exercised				(4,487	)				31.1
Balance, end of period				9,806					32.6
Six months ended June 30, 2011
Balance, beginning of period				21,437				$	31.4
Options exercised				(4,205	)				31.2
Balance, end of period				17,232					31.6

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

As of June 30, 2012, information about TSMC’s outstanding options was as follows:

 

As of June 30, 2012, all of the above outstanding options were exercisable.

Xintec’s Employee Stock Option Plans, consisting of the Xintec 2007 Plan and Xintec 2006 Plan, were approved by the SFB on June 26, 2007 and July 3, 2006, respectively. The maximum number of options authorized to be granted under the Xintec 2007 Plan and Xintec 2006 Plan was 6,000 thousand each, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of Xintec 2007 Plan and Xintec 2006 Plan are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

 

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Information about Xintec’s outstanding options for the six months ended June 30, 2012 and 2011 was as follows:

 

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the plans.

As of June 30, 2012, information about Xintec’s outstanding and exercisable options was as follows:

 

No compensation cost was recognized under the intrinsic value method for the six months ended June 30, 2012 and 2011. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the valuation assumptions at the various grant dates and pro forma results of the Company for the six months ended June 30, 2012 and 2011 would have been as follows:

 

		TSMC		Xintec
Valuation assumptions:
Expected dividend yield		1.00%- 3.44%		0.80%
Expected volatility		43.77%- 46.15%		31.79%- 47.42%
Risk free interest rate		3.07%- 3.85%		1.88%- 2.45%
Expected life		5 years		3 years

 

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b.	Under Fair Value Method

The Board of Directors of TSMC SSL and TSMC Solar resolved on November 21, 2011 to issue new shares for cash and reserved 17,175 thousand shares and 12,341 thousand shares, respectively, for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

Information about TSMC SSL’s and TSMC Solar’s employee stock options related to the aforementioned new shares issued was as follows:

 

The grant date of aforementioned stock options was January 9, 2012. TSMC SSL and TSMC Solar used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

 

		TSMC SSL					TSMC Solar
Valuation assumptions:
Stock price on grant date (NT$/share)				$8.9					$9.0
Exercise price (NT$/share)				$10.0					$10.0
Expected volatility				40.32%					40.32%
Expected life				40 days					40 days
Risk free interest rate				0.76%					0.76%

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

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

 

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Xintec’s Employee Stock Option Plan, Xintec 2011 Plan, was approved by the SFB on January 10, 2012. The maximum number of options authorized to be granted under the Xintec 2011 Plan was 6,000 thousand, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of Xintec 2011 Plan are valid for five years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

 

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the plan.

As of June 30, 2012, information about the outstanding and exercisable options of Xintec 2011 Plan was as follows:

 

The grant date of Xintec 2011 Plan was June 14, 2012. Xintec used the Black-Scholes model to determine the fair value of the option. The valuation assumptions were as follow:

 

		Xintec
Valuation assumptions:
Stock price on grant date (NT$/share)		$19.42
Exercise price (NT$/share)		$22.30
Expected volatility		43.73%
Expected life		3.875 years
Expected dividend yield		-
Risk free interest rate		0.96%

The stock price on grant date was determined based on the market approach. The expected volatility was calculated based on the historical stock prices of the comparative companies of Xintec.

For the six months ended June 30, 2012, Xintec recognized compensation cost of the above stock option in the amount of NT$397 thousand.

 

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24.	EARNINGS PER SHARE

EPS is computed as follows:

 

If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the six months ended June 30, 2011 to remain at NT$2.79.

 

25.	DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

a.

Fair values of financial instruments were as follows:

 

(Continued)

 

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(Concluded)

 

b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

5)

Fair value of bonds payable was based on their quoted market price.

 

6)

Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amounts.

 

c.

Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as a net loss of NT$11,432 thousand and a net gain of NT$4,729 thousand for the six months ended June 30, 2012 and 2011, respectively.

 

d.

As of June 30, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$8,150,942 thousand and NT$10,716,092 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$68,343,151 thousand and NT$44,302,126 thousand, respectively; and financial liabilities exposed to cash flow interest rate risk were NT$1,650,069 thousand and NT$1,500,448 thousand, respectively.

 

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e.

Movements of the unrealized gains or losses on financial instruments for the six months ended June 30, 2012 and 2011 were as follows:

 

 

 

f.

Information about financial risks

 

1)

Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and publicly traded stocks; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities and the fluctuations in market prices will result in changes in fair values of publicly traded stocks.

 

2)

Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

3)

Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments, bonds payable and bank loans. Therefore, the liquidity risk is low.

 

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4)

Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. The long-term bank loans were floating-rate loans; therefore, changes in the market interest rates will result in changes in the interest rate of the long-term bank loans, which will affect future cash flows.

 

g.

The Company seeks to reduce the effects of future cash flow related interest rate changes by primarily using derivative financial instruments.

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. Information about outstanding interest rate swap contract consisted of the following:

 

Hedged Item

Hedging Financial Instrument

Fair Value

Expected Cash Flow Generated Period

Expected Timing for the Recognition of Gains or Losses from Hedge

June 30, 2012

Long-term bank loans

Interest rate swap contract

$

(69

)

2012

2012

June 30, 2011

Long-term bank loans

Interest rate swap contract

(448

)

2011 to 2012

2011 to 2012

 

26.	RELATED PARTY TRANSACTIONS

Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions:

 

a.

Investees of TSMC

GUC (prior to July 2011, GUC was a subsidiary. Since July 2011, GUC is accounted for using the equity method.)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

b.

Indirect investees

Motech (accounted for using the equity method)

VisEra Technology Company, Ltd. (VisEra) (accounted for using the equity method)

VisEra Holding (accounted for using the equity method)

Mcube (accounted for using the equity method)

 

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c.

Others

Related parties over which the Company has significant influence but with which the Company had no material transactions.

 

		2012												2011
				Amount				%								Amount				%
For the six months ended June 30
Sales
GUC				$	2,498,080				1							$	-				-
VIS					108,250				-								157,325				-
Mcube					29,475				-								2,155				-
Others					2,530				-								6,746				-
				$	2,638,335				1							$	166,226				-
Purchases
VIS				$	1,960,314				2							$	2,849,371				2
SSMC					1,804,215				1								1,994,243				2
Others					-				-								124,673				-
				$	3,764,529				3							$	4,968,287				4
Manufacturing expenses
VisEra (primarily outsourcing and rent)				$	9,604				-							$	39,862				-
VIS (rent)					1,295				-								5,902				-
				$	10,899				-							$	45,764				-
Research and development expenses
VisEra				$	4,461				-							$	12,927				-
VIS (rent)					-				-								1,984				-
				$	4,461				-							$	14,911				-
Sales of property, plant and equipment and other assets
VisEra				$	9,000				8							$	-				-
VIS					-				-								36,008				7
				$	9,000				8							$	36,008				7
Purchase of property, plant and equipment and other assets
GUC				$	4,137				-							$	-				-
VisEra					1,224				-								11,110				-
				$	5,361				-							$	11,110				-
Non-operating income and gains
VIS (primarily technical service income)				$	123,870				4							$	124,055				4
SSMC (primarily technical service income)					106,258				3								96,992				3
Others					2,336				-								700				-
				$	232,464				7							$	221,747				7

 

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The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses.

The Company leased certain factory building from VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses. The lease expired in June 2011.

 

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27.	PLEDGED OR MORTGAGED ASSETS

The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows:

 

 

28.	SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land, factory and office premises from the Science Park Administration and Jhongli Industrial Park Service Center. These operating leases expire on various dates from August 2012 to May 2032 and can be renewed upon expiration.

The Company entered into lease agreements for its office premises and certain office equipment located in the United States, Japan, Shanghai and Taiwan. These operating leases expire between 2012 and 2020 and can be renewed upon expiration.

As of June 30, 2012, future lease payments were as follows:

 

Year		Amount
2012 (3rd and 4th quarter)		$	321,521
2013			606,257
2014			576,416
2015			566,170
2016			554,595
2017 and thereafter			4,009,261
		$	6,634,220

 

29.	SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of June 30, 2012, excluding those disclosed in other notes, were as follows:

 

a.

Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

b.

Under several foundry agreements, TSMC shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with TSMC. As of June 30, 2012, TSMC had a total of US$6,812 thousand of guarantee deposits.

 

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c.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

e.

In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

f.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing several U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time.

 

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g.

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled NT$1,777,394 thousand and NT$5,975,328 thousand as of June 30, 2012 and 2011, respectively, which is included in other long-term payables.

 

h.

Amounts available under unused letters of credit as of June 30, 2012 were NT$96,002 thousand.

 

30.	SIGNIFICANT SUBSEQUENT EVENTS

TSMC joined the Customer Co-Investment Program of ASML Holding N.V. (ASML) and entered into the investment agreement on August 5, 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. The above agreement is subject to the shareholders’ approval at an Extraordinary General Meeting of ASML and relevant government regulatory approvals. Both parties also signed the research and development funding agreement and TSMC will provide EUR277,000 thousand to ASML’s research and development programs from 2013 to 2017.

 

31.	EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

 

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Note:

Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

32.	PRE-DISCLOSURE OF THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

According to the Rule No. 0990004943 issued by the FSC on February 2, 2010, the Company is required to provide pre-disclosure regarding the adoption of the International Financial Reporting Standards (IFRSs) in the consolidated financial statements as follows.

 

a.

On May 14, 2009, the FSC announced the roadmap of IFRSs adoption for R.O.C. companies. Accordingly, starting 2013, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations as well as related guidance translated by Accounting Research and Development Foundation (ARDF) and issued by the FSC. To comply with the aforementioned amendments, the Company established a taskforce to monitor and execute the IFRSs adoption plan. The important plan items, responsible divisions and plan progress are listed as follows.

 

(Continued)

 

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(Concluded)

 

b.

Exemptions from IFRS 1

IFRS 1, “First-time Adoption of International Financial Reporting Standards,” establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under IFRSs and retrospectively apply to those accounting policies in its opening balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date); except for optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows:

 

1)

Business combinations. The Company elected not to apply IFRS 3, “Business Combinations,” retrospectively to business combinations occurred before January 1, 2012. Therefore, in the opening balance sheet, the amount of goodwill generated from past business combinations remains the same compared with the one under R.O.C. GAAP as of December 31, 2011.

 

2)

Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1, 2012. In addition, the Company elected to apply the exemption disclosure requirement provided by IFRS 1, in which the amounts of present value of defined benefit obligations, the fair value of plan assets, the surplus or deficit in the plan and the experience adjustments are determined for each accounting period prospectively from the transition date.

 

3)

Share-based payment. The Company elected to take the optional exemption from applying IFRS 2, “Share-based Payment,” retrospectively for the shared-based payment transactions granted and vested before January 1, 2012.

 

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c.

As of June 30, 2012, based on the Company’s assessment, the significant differences between the Company’s current accounting policies under R.O.C. GAAP and the ones under IFRSs are stated as follows:

 

1)

Reconciliation of consolidated balance sheet as of January 1, 2012

 

(Continued)

 

- 47 -

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(Concluded)

 

2)

Reconciliation of consolidated balance sheet as of June 30, 2012

 

(Continued)

 

- 48 -

---

(Continued)

 

- 49 -

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(Concluded)

 

3)

Reconciliation of consolidated statement of comprehensive income for the six months ended June 30, 2012

 

(Continued)

 

- 50 -

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(Concluded)

 

4)

Notes to the reconciliation of the significant differences:

 

a)

Allowance for sales returns and others

Under R.O.C. GAAP, provisions for estimated sales returns and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. Allowance for sales returns and others is recorded as a deduction in accounts receivable. Under IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions (classified under current liabilities) in accordance with IAS No. 37, “Provisions, Contingent Liabilities and Contingent Assets.”

As of June 30, 2012 and January 1, 2012, the amounts reclassified from allowance for sales returns and others to provisions were NT$6,508,185 thousand and NT$5,068,263 thousand, respectively.

 

b)

Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset and liability is classified as current or non-current in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or non-current based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset and liability is classified as non-current asset or liability.

In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with IAS No. 12, “Income Taxes,” deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used.

 

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As of June 30, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to non-current assets were NT$2,805,069 thousand and NT$5,936,490 thousand, respectively.

 

c)

The classification of leased assets and idle assets

Under R.O.C. GAAP, leased assets and idle assets are classified under other assets. Under IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. Leased assets are mainly dormitories leased to employees and factories leased to suppliers. In accordance with IAS No. 40, “Investment Property,” the dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

As of June 30, 2012 and January 1, 2012, the amounts reclassified from leased assets and idle assets to property, plant and equipment were NT$35,609 thousand and NT$47,237 thousand, respectively.

 

d)

Employee benefits

The Company had previously applied an actuarial valuation on its defined benefit obligation and recognized the related pension cost and retirement benefit obligation in conformity with R.O.C. GAAP. Under IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

In addition, under R.O.C. GAAP, it is not allowed to recognize actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of gains and losses. When using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees.

Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1. As of June 30, 2012 and January 1, 2012, accrued pension cost was adjusted for an increase of NT$2,296,320 thousand and NT$2,332,516 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$227,520 thousand and NT$231,011 thousand, respectively. Pension cost and income tax expense for the six months ended June 30, 2012 were also adjusted for a decrease of NT$36,196 thousand and an increase of NT$3,491 thousand, respectively.

 

e)

Investments accounted for using the equity method

The Company has evaluated significant differences between current accounting policies and IFRSs for the Company’s associates and joint ventures accounted for using the equity method. The significant difference is mainly due to the adjustment to employee benefits.

 

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In addition, if the investing company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage that results in a decrease in the investing company’s holding percentage in the investee, the resulting carrying amount of the investment in the investee differs from the amount of its share in the investee’s equity. Under R.O.C. GAAP, the investing company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Under IFRSs, such transaction is deemed a disposal and aforementioned difference is recognized in earnings accordingly.

As of June 30, 2012 and January 1, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$51,594 thousand and NT$13,401 thousand, respectively; cumulative translation adjustments was adjusted for an increase of NT$11 thousand and NT$5 thousand, respectively; capital surplus was adjusted for a decrease of NT$428,673 thousand and NT$374,695 thousand, respectively. In addition, equity in earnings of equity method investees was adjusted for an increase of NT$15,779 thousand for the six months ended June 30, 2012.

 

f)

The reclassification of line items in the consolidated statement of comprehensive income

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of IFRSs, income from operations in the consolidated income statement only includes net sales, cost of sales and operating expenses. Under IFRSs, based on the nature of operating transactions, technical service income is reclassified under net sales; rental revenue, depreciation of rental assets, net loss on disposal of property, plant and equipment and other assets, and impairment loss on idle assets, are reclassified under other operating gains and losses, which are reflected in income from operations.

Under IFRSs, based on the nature of operating transactions, the Company reclassified technical service income of NT$232,659 thousand for the six months ended June 30, 2012 to net sales, rental revenue of NT$503 thousand, other income of NT$642 thousand, net loss on disposal of property, plant and equipment and other assets of NT$4,126 thousand, depreciation of rental assets of NT$3,789 thousand and impairment loss on idle assets of NT$422,323 thousand to other operating gains and losses. In addition, interest income of NT$941,732 thousand and dividend income of NT$69,945 thousand were also reclassified to other income; settlement income of NT$448,275 thousand, net gain of disposal of financial assets of NT$365,731 thousand, others of NT$322,229 thousand (under non-operating income and gains), net valuation loss on financial instruments of NT$189,737 thousand, impairment of financial assets of NT$2,748,456 thousand as well as others of NT$145,481 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the six months ended June 30, 2012.

 

d.

The Company’s aforementioned assessment is based on the 2010 version of IFRSs translated by ARDF and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by FSC on December 22, 2011. However, the assessment result may be impacted as FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with the adoption of IFRSs. Actual results may differ from these assessments.

 

33.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation:

 

a.

Financings provided: Please see Table 1 attached;

 

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b.

Endorsement/guarantee provided: None;

 

c.

Marketable securities held: Please see Table 2 attached;

 

d.

Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

 

f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

 

g.

Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

 

h.

Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

i.

Names, locations, and related information of investees over which TSMC exercises significant influence: Please see Table 7 attached;

 

j.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Table 9 attached.

 

k.

Intercompany relationships and significant intercompany transactions: Please see Table 9 attached.

 

34.	OPERATING SEGMENTS INFORMATION

The Company’s only reportable segment is the foundry segment. The foundry segment engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. The Company also had other operating segments that did not exceed the quantitative threshold for separate reporting. These segments mainly engage in the researching, developing, and providing SoC (System on Chip) design and also engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the operating profit as the measurement for segment profit and the basis of performance assessment. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 2.

 

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The Company’s operating segments information was as follows:

 

 

35.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Board of Directors and authorized for issue on August 14, 2012.

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

No.		Financing Company		Counter- party		Financial Statement Account		Maximum Balance for the Period (US$ in Thousands) (Note 3)		Ending Balance (US$ in Thousands) (Note 3)		Amount Actually Drawn (US$ in Thousands)		Interest Rate		Nature for Financing		Transaction Amounts				Reason for Financing		Allowance for Bad Debt				Collateral								Financing Limits for Each Borrowing Company (Note 1)				Financing Company’s Total Financing Amount Limits (Note 2)
																												Item				Value
1		TSMC Partners		TSMC China		Long-term receivables from related parties		$7,471,250 (US$ 250,000)		$7,471,250 (US$ 250,000)		$7,471,250 (US$ 250,000)		0.25% -0.26%		The need for short-term financing		$	-			Purchase equipment		$	-				-			$	-			$	38,088,238			$	38,088,238
				TSMC Solar		Other receivables from related parties		1,195,400 (US$ 40,000)		1,195,400 (US$ 40,000)		851,723 (US$ 28,500)		0.4017% -0.4757%		The need for short-term financing			-			Operating capital			-				-				-				3,808,824
				TSMC SSL		Other receivables from related parties		896,550 (US$ 30,000)		896,550 (US$ 30,000)		-		-		The need for short-term financing			-			Operating capital			-				-				-				3,808,824

 

Note 1:

The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.

 

Note 2:

The total amount available for lending purpose shall not exceed the net worth of TSMC Partners.

 

Note 3:

The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

JUNE 30, 2012

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

 

 

								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
TSMC		Corporate bond
		Nan Ya Plastics Corporation		-		Held-to-maturity financial assets				-					$  1,099,769					N/A					$  1,113,222
		China Steel Corporation		-		”				-					302,516					N/A					304,237
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets				1,789,493					1,756,835					6					1,756,835
		TSMC Global		Subsidiary		Investments accounted for using equity method				1					43,788,660					100					43,788,660
		TSMC Partners		Subsidiary		”				988,268					38,087,704					100					38,088,238
		VIS		Investee accounted for using equity method		”				628,223					8,857,198					41					8,732,307
		TSMC Solar		Subsidiary		”				1,118,000					8,626,042					99					8,626,042
		SSMC		Investee accounted for using equity method		”				314					5,935,087					39					5,721,104
		TSMC SSL		Subsidiary		”				430,400					3,224,899					95					3,224,899
		TSMC North America		Subsidiary		”				11,000					3,086,841					100					3,086,841
		Xintec		Investee with a controlling financial interest		”				94,011					1,524,811					40					1,524,811
		GUC		Investee accounted for using equity method		”				46,688					1,110,221					35					4,855,537
		TSMC Europe		Subsidiary		”				-					213,863					100					213,863
		TSMC Japan		Subsidiary		”				6					158,983					100					158,983
		TSMC Korea		Subsidiary		”				80					24,460					100					24,460
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost				19,300					193,584					10					334,168
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		”				10,500					105,000					7					334,111
		W.K. Technology Fund IV		-		”				4,000					40,000					2					35,833
		Fund
		Horizon Ventures Fund		-		Financial assets carried at cost				-					103,992					12					103,992
		Crimson Asia Capital		-		”				-					55,259					1					55,259
		Capital
		TSMC China		Subsidiary		Investments accounted for using equity method				-					15,255,074					100					15,285,878
		VTAF III		Subsidiary		”				-					1,236,004					52					1,214,772
		VTAF II		Subsidiary		”				-					843,778					98					837,708
		Emerging Alliance		Subsidiary		”				-					197,892					99					197,892
		TSMC GN		Subsidiary		”				-					79,275					100					79,275
TSMC Solar		Stock
		Motech		Investee accounted for using equity method		Investments accounted for using equity method				87,480					4,700,982					20					3,137,591
		TSMC Solar Europe		Subsidiary		”				-					133,845					100					133,845
		TSMC Solar NA		Subsidiary		”				1					14,702					100					14,702
		Capital
		VTAF III		Investee accounted for using equity method		Investments accounted for using equity method				-					1,660,071					47					1,660,071

(Continued)

 

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								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
TSMC SSL		Stock
		TSMC Lighting NA		Subsidiary		Investments accounted for using equity method				1				$	2,947					100				$	2,947
TSMC GN		Stock
		TSMC Solar		Investee accounted for using equity method		Investments accounted for using equity method				3,836					29,597					-					29,597
		TSMC SSL		Investee accounted for using equity method		”				4,760					35,667					1					35,667
TSMC Partners		Corporate bond
		General Elec Cap Corp. Mtn		-		Held-to-maturity financial assets				-				US$	20,017					N/A				US$	20,230
		Stock
		TSMC Development, Inc. (TSMC Development)		Subsidiary		Investments accounted for using equity method				1				US$	563,809					100				US$	563,809
		VisEra Holding Company		Investee accounted for using equity method		”				43,000				US$	92,646					49				US$	92,646
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Subsidiary		”				787				US$	12,611					97				US$	12,611
		TSMC Technology		Subsidiary		”				1				US$	11,117					100				US$	11,117
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Subsidiary		”				14,153				US$	9,764					97				US$	9,764
		TSMC Canada		Subsidiary		”				2,300				US$	4,256					100				US$	4,256
		Mcube Inc.		Investee accounted for using equity method		”				6,333					-					25					-
		Fund
		Shanghai Walden Venture Capital Enterprise		-		Financial assets carried at cost				-				US$	5,000					6				US$	5,000
TSMC North America		Stock
		Spansion Inc.		-		Available-for-sale financial assets				272				US$	2,983					-				US$	2,983
TSMC Development		Corporate bond
		GE Capital Corp.		-		Held-to-maturity financial assets				-				US$	20,026					N/A				US$	20,230
		JP Morgan Chase & Co.		-		”				-				US$	15,000					N/A				US$	14,981
		Stock
		WaferTech		Subsidiary		Investments accounted for using equity method				293,640				US$	272,633					100				US$	272,633
Emerging Alliance		Common stock
		Audience, Inc.		-		Available-for-sale financial assets				46				US$	891					-				US$	891
		Global Investment Holding Inc.		-		Financial assets carried at cost				11,124				US$	3,065					6				US$	3,065
		RichWave Technology Corp.		-		”				4,074				US$	1,545					10				US$	1,545
		Preferred stock
		Next IO, Inc.		-		Financial assets carried at cost				8				US$	500					-				US$	500
		QST Holdings, LLC		-		”				-				US$	142					4				US$	142
		Capital
		VentureTech Alliance Holdings, LLC (VTA Holdings)		Subsidiary		Investments accounted for using equity method				-					-					7					-
VTAF II		Common stock
		Audience, Inc.		-		Available-for-sale financial assets				319				US$	6,146					2				US$	6,146
		Sentelic		-		Financial assets carried at cost				1,806				US$	2,607					9				US$	2,607
		Aether Systems, Inc.		-		”				1,800				US$	1,701					23				US$	1,701
		RichWave Technology Corp.		-		”				1,267				US$	1,036					3				US$	1,036

(Continued)

 

- 58 -

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								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
VTAF II		Preferred stock
		5V Technologies, Inc.		-		Financial assets carried at cost				2,890				US$	2,168					4				US$	2,168
		Aquantia		-		”				4,556				US$	4,316					3				US$	4,316
		Cresta Technology Corporation		-		”				92				US$	28					-				US$	28
		Impinj, Inc.		-		”				475				US$	1,000					-				US$	1,000
		Next IO, Inc.		-		”				179				US$	1,219					1				US$	1,219
		Pixim, Inc.		-		”				33,347				US$	772					2				US$	772
		Power Analog Microelectronics		-		”				7,330				US$	3,483					21				US$	3,483
		QST Holdings, LLC		-		”				-				US$	593					13				US$	593
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method				-					-					31					-
VTAF III		Common stock
		Mutual-Pak Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method				14,168				US$	1,596					58				US$	1,596
		InvenSense, Inc.		-		Available-for-sale financial assets				259				US$	2,931					-				US$	2,931
		Accton Wireless Broadband Corp.		-		Financial assets carried at cost				2,249				US$	315					6				US$	315
		Preferred stock
		BridgeLux, Inc.		-		Financial assets carried at cost				7,522				US$	9,379					3				US$	9,379
		GTBF, Inc.		-		”				1,154				US$	1,500					N/A				US$	1,500
		LiquidLeds Lighting Corp.		-		”				1,600				US$	800					11				US$	800
		Neoconix, Inc.		-		”				4,031				US$	4,810					4				US$	4,810
		Powervation, Ltd.		-		”				449				US$	7,030					16				US$	7,030
		Stion Corp.		-		”				8,152				US$	55,474					17				US$	55,474
		Tilera, Inc.		-		”				3,890				US$	3,025					2				US$	3,025
		Validity Sensors, Inc.		-		”				9,340				US$	3,456					4				US$	3,456
		Capital
		Growth Fund Limited (Growth Fund)		Subsidiary		Investments accounted for using equity method				-				US$	452					100				US$	452
		VTA Holdings		Subsidiary		”				-					-					62					-
Growth Fund		Common stock
		Veebeam		-		Financial assets carried at cost				10				US$	25					-				US$	25
ISDF		Common stock
		Integrated Memory Logic, Inc.		-		Available-for-sale financial assets				1,277				US$	5,001					2				US$	5,001
		Memsic, Inc.		-		”				1,286				US$	3,342					5				US$	3,342
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost				230				US$	497					2				US$	497
ISDF II		Common stock
		Memsic, Inc.		-		Available-for-sale financial assets				1,072				US$	2,787					4				US$	2,787
		Alchip Technologies Limited		-		Financial assets carried at cost				7,520				US$	3,664					14				US$	3,664
		Sonics, Inc.		-		”				278				US$	10					3				US$	10
		Goyatek Technology, Corp.		-		”				745				US$	163					6				US$	163
		Auden Technology MFG. Co., Ltd.		-		”				1,049				US$	223					3				US$	223
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost				264				US$	455					3				US$	455

(Continued)

 

- 59 -

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								June 30, 2012
Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		Shares/Units (In Thousands)					Carrying Value (Foreign Currencies in Thousands)					Percentage of Ownership (%)					Market Value or Net Asset Value (Foreign Currencies in Thousands)					Note
Xintec		Capital
		Compositech Ltd.		-		Financial assets carried at cost				587				$	-					3				$	-
TSMC Solar Europe		Stock
		TSMC Solar Europe GmbH		Subsidiary		Investments accounted for using equity method				1				EUR	3,451					100				EUR	3,451
TSMC Global		Corporate bond
		Aust + Nz Banking Group		-		Held-to-maturity financial assets				20,000				US$	20,000					N/A				US$	20,008
		Commonwealth Bank of Australia		-		”				25,000				US$	25,000					N/A				US$	24,823
		Commonwealth Bank of Australia		-		”				25,000				US$	25,000					N/A				US$	24,744
		Deutsche Bank AG London		-		”				20,000				US$	19,941					N/A				US$	20,181
		JP Morgan Chase + Co.		-		”				35,000				US$	35,026					N/A				US$	35,111
		Westpac Banking Corp.		-		”				25,000				US$	25,000					N/A				US$	24,926
		Westpac Banking Corp. 12/12 Frn		-		”				5,000				US$	5,000					N/A				US$	5,009
		Government bond
		Societe De Financement De Lec		-		Held-to-maturity financial assets				15,000				US$	15,000					N/A				US$	15,002
		Money market fund
		Ssga Cash Mgmt Global Offshore		-		Available-for-sale financial assets				17				US$	17					N/A				US$	17

(Concluded)

 

- 60 -

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party		Nature of Relationship		Beginning Balance								Acquisition								Disposal (Note 1)																Ending Balance (Note 2)
										Shares/ Units (In Thousands)				Amount				Shares/ Units (In Thousands)				Amount				Shares/ Units (In Thousands)				Amount				Carrying Value				Gain/ Loss on Disposal				Shares/ Units (In Thousands)				Amount
TSMC		Stock
		TSMC SSL		Investments accounted for using equity method		-		Subsidiary			227,000			$	1,746,893				203,400			$	2,034,000				-			$	-			$	-			$	-				430,400			$	3,224,899
		TSMC GN		”		-		Subsidiary			-				-				-				100,000				-				-				-				-				-				79,275

 

Note 1:

The data for marketable securities disposed exclude bonds maturities.

 

Note 2:

The ending balance includes translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investments accounted for using equity method.

 

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name

Types of Property

Transaction Date

Transaction Amount

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of  Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Fab

February 13, 2012 to June 26, 2012

$

2,484,947

By the construction progress

Da Cin Construction Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

February 13, 2012 to June 26, 2012

1,218,754

By the construction progress

Fu Tsu Construction Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 19, 2012 to June 28, 2012

671,551

By the construction progress

China Steel Structure Co., Ltd.

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

March 19, 2012 to June 26, 2012

132,839

By the construction progress

Tung Ho Steel Enterprise Corporation

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

May 28, 2012 to June 26, 2012

139,911

By the construction progress

Tasa Construction Corporation

-

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

 

- 62 -

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company Name		Related Party					Nature of Relationships		Transaction Details																	Abnormal Transaction										Notes/Accounts Payable or Receivable										Note
									Purchases/ Sales					Amount (US$ in Thousands)					% to Total					Payment Terms		Unit Price (Note)					Payment Terms (Note)					Ending Balance (US$ in Thousands)					% to Total
TSMC		TSMC North America					Subsidiary		Sales							$ 145,613,637					62			Net 30 days after invoice date		-					-							$  37,694,156			63
		GUC					Investee accounted for using equity method		Sales							2,206,950					1			Net 30 days after monthly closing		-					-							781,905			1
		VIS					Investee accounted for using equity method		Sales							108,243					-			Net 30 days after monthly closing		-					-							-			-
		TSMC China					Subsidiary		Purchases							7,036,635					25			Net 30 days after monthly closing		-					-							(1,317,606)			8
		WaferTech					Indirect subsidiary		Purchases							3,752,087					13			Net 30 days after monthly closing		-					-							(731,713)			4
		VIS					Investee accounted for using equity method		Purchases							1,960,314					7			Net 30 days after monthly closing		-					-							(944,589)			6
		SSMC					Investee accounted for using equity method		Purchases							1,804,215					7			Net 30 days after monthly closing		-					-							(355,721)			2
TSMC North America		GUC					Investee accounted for using equity method by TSMC		Sales							291,130 (US$ 9,817)					-			Net 30 days after invoice date		-					-							45,292 (US    $1,516)			-
Xintec		OmniVision					Parent company of director (represented for Xintec)		Sales							505,379					38			Net 30 days after monthly closing		-					-							217,002			47

 

Note:

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 63 -

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TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

JUNE 30, 2012

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company  Name		Related Party		Nature of Relationships		Ending Balance (US$ in Thousands)				Turnover Days (Note 1)		Overdue						Amounts Received in Subsequent Period				Allowance for Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary			37,756,875			39		$	9,457,732			-		$	10,328,664			$	-
		GUC		Investee accounted for using equity method			781,905			37			18			-			432,248				-
		VIS		Investee accounted for using equity method			503,976			(Note 2)			-			-			-				-
TSMC Partners		TSMC China		The same parent company			7,471,250 (US$250,000)			(Note 2)			-			-			-				-
		TSMC Solar		The same parent company			851,723 (US$28,500)			(Note 2)			-			-			-				-
		VisEra Holding Company		Investee accounted for using equity method			411,193 (US$13,759)			(Note 2)			-			-			-				-
Xintec		OmniVision		Parent company of director (represented for Xintec)			217,002			83			-			-			-				-

Note 1:    The calculation of turnover days excludes other receivables from related parties.

Note 2:    The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

- 64 -

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TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

JUNE 30, 2012

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

 

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of June 30, 2012										Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)				Note
								June 30, 2012 (Foreign Currencies in Thousands)				December 31, 2011 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership		Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1			100		$	43,788,660			$	300,894			$	300,894			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry			31,456,130				31,456,130				988,268			100			38,087,704				3,539,445				3,539,445			Subsidiary
		TSMC China		Shanghai, China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers			18,939,667				18,939,667				-			100			15,255,074				1,912,271				1,922,500			Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			13,232,288				13,232,288				628,223			41			8,857,198				796,105				197,086			Investee accounted for using equit method
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				11,180,000				1,118,000			99			8,626,042				(1,428,888	)			(1,493,149	)		Subsidiary
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314			39			5,935,087				2,265,485				878,653			Investee accounted for using equity method
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			4,304,000				2,270,000				430,400			95			3,224,899				(612,617	)			(582,054	)		Subsidiary
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000			100			3,086,841				122,116				122,116			Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,011			40			1,524,811				(148,677	)			(72,729	)		Investee with a controlling financial interest
		VTAF III		Cayman Islands		Investing in new start-up technology companies			2,035,977				2,074,155				-			52			1,236,004				107,045				107,974			Subsidiary
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688			35			1,110,221				280,891				93,722			Investee accounted for using equity method
		VTAF II		Cayman Islands		Investing in new start-up technology companies			865,237				949,267				-			98			843,778				64,027				62,746			Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				-			100			213,863				17,119				17,119			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			865,075				892,855				-			99			197,892				(5,019	)			(4,994	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6			100			158,983				2,372				2,372			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			100,000				-				-			100			79,275				(9,682	)			(9,682	)		Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80			100			24,460				1,097				1,097			Subsidiary
TSMC Solar		Motech		Taipei, Taiwan		Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems			6,228,661				6,228,661				87,480			20			4,700,982				(3,208,834	)			Note 2			Investee accounted for using equity method
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,798,991				1,795,131				-			47			1,660,071				107,045				Note 2			Investee accounted for using equity method
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			411,032				411,032				-			100			133,845				(63,732	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			147,686				147,686				1			100			14,702				(36,509	)			Note 2			Subsidiary

(Continued)

 

- 65 -

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Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of June 30, 2012												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)				Note
								June 30, 2012 (Foreign Currencies in Thousands)				December 31, 2011 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products		$	3,133			$	3,133				1				100			$	2,947			$	(7)				Note 2			Subsidiary
TSMC Partners		TSMC Development		Delaware, U.S.A.		Investment activities		US$	0.001			US$	0.001				1				100			US$	563,809			US$	103,774				Note 2			Subsidiary
		VisEra Holding Company		Cayman Islands		Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry		US$	43,000			US$	43,000				43,000				49			US$	92,646			US$	10,390				Note 2			Investee accounted for using equity method
		ISDF		Cayman Islands		Investing in new start-up technology companies		US$	787			US$	787				787				97			US$	12,611			US$	2,513				Note 2			Subsidiary
		TSMC Technology		Delaware, U.S.A.		Engineering support activities		US$	0.001			US$	0.001				1				100			US$	11,117			US$	502				Note 2			Subsidiary
		ISDF II		Cayman Islands		Investing in new start-up technology companies		US$	14,153			US$	14,153				14,153				97			US$	9,764			US$	(63)				Note 2			Subsidiary
		TSMC Canada		Ontario, Canada		Engineering support activities		US$	2,300			US$	2,300				2,300				100			US$	4,256			US$	234				Note 2			Subsidiary
		Mcube Inc.		Delaware, U.S.A.		Research, development, and sale of micro-semiconductor device		US$	1,800			US$	1,800				6,333				25				-			US$	(6,421)				Note 2			Investee accounted for using equity method
TSMC Development		WaferTech		Washington, U.S.A.		Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices		US$	280,000			US$	280,000				293,640				100			US$	272,633			US$	102,514				Note 2			Subsidiary
VTAF III		Mutual-Pak Technology Co., Ltd.		Taipei, Taiwan		Manufacturing and selling of electronic parts and researching, developing, and testing of RFID		US$	4,718			US$	3,937				14,168				58			US$	1,596			US$	(519)				Note 2			Subsidiary
		Growth Fund		Cayman Islands		Investing in new start-up technology companies		US$	1,830			US$	1,830				-				100			US$	452			US$	(58)				Note 2			Subsidiary
		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				62				-				-				Note 2			Subsidiary
VTAF II		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				31				-				-				Note 2			Subsidiary
Emerging Alliance		VTA Holdings		Delaware, U.S.A.		Investing in new start-up technology companies			-				-				-				7				-				-				Note 2			Subsidiary
TSMC Solar Europe		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service		EUR	9,900			EUR	9,900				1				100			EUR	3,451			EUR	(1,651)				Note 2			Subsidiary
TSMC GN		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			38,362				-				3,836				-				29,597				(1,428,888)				Note 2			Investee accounted for using equity method
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			47,624				-				4,760				1				35,667				(612,617)				Note 2			Investee accounted for using equity method

Note 1:    Equity in earnings/losses of investees includes the effect of unrealized gross profit from affiliates.

Note 2:    The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.

(Concluded)

 

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE SIX MONTHS ENDED JUNE 30, 2012

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

 

 

Investee    Company

Main Businesses and Products

Total Amount of Paid-in Capital (Foreign Currencies in Thousands)

Method of Investment

Accumulated Outflow of Investment from Taiwan as of January 1, 2012 (US$ in Thousands)

Investment Flows

Accumulated Outflow of Investment from Taiwan as of June 30, 2012 (US$ in Thousands)

Percentage  of Ownership

Equity in the Earnings (Losses)

Carrying Value as of June 30, 2012 (US$ in Thousands)

Accumulated Inward Remittance of Earnings as of June 30, 2012

Outflow

Inflow

TSMC China

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

$18,939,667 (RMB4,502,080)

(Note 1)

$18,939,667 (US$596,000)

$

-

$

-

$18,939,667 (US$596,000)

100%

$

1,922,500 (Note 3)

$

15,255,074

$

-

Shanghai Walden Venture Capital Enterprise

Investing in new start-up technology companies

2,324,062 (US$78,791)

(Note 2)

147,485 (US$5,000)

-

-

147,485 (US$5,000)

6%

(Note 4)

149,425 (US$5,000)

-

 

Accumulated Investment in Mainland China as of June 30, 2012 (US$ in Thousands)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)		Upper Limit on Investment (US$ in Thousands)
$ 19,087,152   (US$ 601,000)		$ 19,087,152   (US$ 601,000)		$ 19,087,152   (US$ 601,000)

Note 1:    TSMC directly invested US$596,000 thousand in TSMC China.

Note 2:    TSMC indirectly invested in China company through third region, TSMC Partners.

Note 3:    Amount was recognized based on the audited financial statements.

Note 4:    TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

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TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

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

 

 

A.   For the six months ended June 30, 2012

 

No.		Company Name		Counter Party		Nature of   Relationship   (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
				TSMC North America		1		Sales		$	145,613,637			-			61%
								Receivables from related parties			37,694,156			-			4%
								Other receivables from related parties			62,719			-			-
								Payables to related parties			48,654			-			-
				TSMC China		1		Sales			2,204			-			-
								Purchase			7,036,635			-			3%
								Marketing expenses - commission			34,114			-			-
								Disposal of property, plant and equipment			45,982			-			-
								Purchase of property, plant and equipment			68,455			-			-
								Loss on disposal of property, plant and equipment, net			9,350			-			-
								Other receivables from related parties			2,582			-			-
								Payables to related parties			1,317,606			-			-
								Deferred credits			7,857			-			-
				TSMC Japan		1		Marketing expenses - commission			138,456			-			-
								Payables to related parties			17,815			-			-
0		TSMC		TSMC Europe		1		Marketing expenses - commission			165,991			-			-
								Research and development expenses			25,951			-			-
								Payables to related parties			30,180			-			-
				TSMC Korea		1		Marketing expenses - commission			12,704			-			-
								Payables to related parties			3,450			-			-
				TSMC Technology		1		Research and development expenses			330,524			-			-
								Payables to related parties			143,413			-			-
				WaferTech		1		Sales			10,969			-			-
								Purchases			3,752,087			-			2%
								Other receivables from related parties			1,586			-			-
								Payables to related parties			731,713			-			-
				TSMC Canada		1		Research and development expenses			107,855			-			-
								Payables to related parties			17,038			-			-
				Xintec		1		Manufacturing expenses			71,598			-			-
								Research and development expenses			2,521			-			-
								Miscellaneous revenue			1,042			-			-
								Other receivables from related parties			11,169			-			-
								Payables to related parties			41,875			-			-
																	(Continued	)

 

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No.		Company Name		Counter Party		Nature of   Relationship   (Note 1)		Intercompany  Transactions
								Financial Statements Item		Amount		Terms  (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
0		TSMC		TSMC SSL		1		Miscellaneous revenue		$  3,150		-		-
								Other receivables from related parties		2,208		-		-
				TSMC Solar		1		Purchases of property, plant and equipment		3,248		-		-
								Miscellaneous revenue		3,150		-		-
								Other receivables from related parties		2,062		-		-
								Payables to related parties		1,434		-		-
1		TSMC Partners		TSMC China		3		Other long-term receivables from related parties		7,500,101		-		1%
								Interest income		9,615		-		-
				TSMC Solar		3		Other receivables from related parties		853,557		-		-
								Interest income		1,513		-		-
2		TSMC Solar		TSMC Solar Europe GmbH		3		Sales		2,397		-		-
								Receivables from related parties		2,406		-		-
3		TSMC Development		WaferTech		3		Other receivables from related parties		32,451		-		-

 

Note 1:

No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries.

 

Note 2:

The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

(Concluded)

 

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B. For the six months ended June 30, 2011

 

No.		Company Name		Counter Party		Nature of   Relationship   (Note 1)		Intercompany  Transactions
								Financial Statements Item		Amount		Terms  (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
				TSMC North America		1		Sales		$  115,627,277		-		53%
								Receivables from related parties		27,063,064		-		3%
								Other receivables from related parties		14,955		-		-
								Payables to related parties		34,905		-		-
				TSMC China		1		Sales		4,163		-		-
								Purchases		4,935,280		-		2%
								Marketing expenses - commission		31,876		-		-
								Sales of property, plant, and equipment		2,427,178		-		1%
								Purchases of property, plant, and equipment		70,491		-		-
								Gain on disposal of property, plant and equipment		95,191		-		-
								Other receivables from related parties		1,979,030		-		-
								Payables to related parties		955,093		-		-
								Deferred debits		10,347		-		-
				TSMC Japan		1		Marketing expenses - commission		130,927		-		-
								Payables to related parties		20,140		-		-
				TSMC Europe		1		Marketing expenses - commission		189,792		-		-
0		TSMC						Research and development expenses		19,775		-		-
								Payables to related parties		39,086		-		-
				TSMC Korea		1		Marketing expenses - commission		11,287		-		-
								Payables to related parties		3,070		-		-
				GUC		1		Sales		1,158,302		-		1%
								Research and development expenses		5,718		-		-
								Receivables from related parties		289,461		-		-
								Other receivables from related parties		142,943		-		-
				TSMC Technology		1		Research and development expenses		252,450		-		-
								Payables to related parties		102,527		-		-
				WaferTech		1		Sales		3,397		-		-
								Purchases		3,763,210		-		2%
								Sales of property, plant, and equipment		72,880		-		-
								Gain on disposal of property, plant and equipment		1,463		-		-
								Payables to related parties		620,389		-		-
				TSMC Canada		1		Research and development expenses		88,283		-		-
								Payables to related parties		17,683		-		-
				Xintec		1		Research and development expenses		3,941		-		-
								Manufacturing overhead		177,596		-		-
								Other receivables from related parties		96,972		-		-
								Payables to related parties		59,915		-		-
				TSMC Solar Europe GmbH		1		Sales		148,898		-		-
								Receivables from related parties		49,185		-		-
														(Continued)

 

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No.		Company Name		Counter Party		Nature of   Relationship   (Note 1)		Intercompany  Transactions
								Financial Statements Item		Amount		Terms  (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
				TSMC North America		3		Purchases		$  296,462		-		-
								Manufacturing overhead		120,408		-		-
								Payables to related parties		55,372		-		-
				GUC-NA		3		Operating expenses		61,369		-		-
1		GUC						Manufacturing overhead		30,583		-		-
								Accrued expense		12,972		-		-
				GUC-Japan		3		Operating expenses		21,826		-		-
								Accrued expense		6,232		-		-
				GUC-Shanghai		3		Operating expenses		8,568		-		-
								Accrued expense		2,084		-		-
2		TSMC Partners		TSMC China		3		Other long-term receivables		7,192,250		-		1%

 

Note 1:

No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries.

 

Note 2:

The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

(Concluded)

 

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