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 August 2014

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

---

SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: August 19, 2014				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

---

		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries   Consolidated Financial Statements for the Six Months Ended June 30, 2014 and 2013 and Independent Accountants’ Review Report

---

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

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

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

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

 

 

August 12, 2014

Notice to Readers

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

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

 

- 1 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		June 30, 2014 (Reviewed)										December 31, 2013 (Audited)										June 30, 2013 (Reviewed)
ASSETS		Amount					%					Amount					%					Amount					%
CURRENT ASSETS
Cash and cash equivalents (Note 6)			$	255,053,573					19				$	242,695,447					19				$	225,832,646					20
Financial assets at fair value through profit or loss (Note 7)				158,265					-					90,353					-					20,010					-
Available-for-sale financial assets (Note 8)				59,082,482					4					760,793					-					1,070,537					-
Held-to-maturity financial assets (Note 9)				299,230					-					1,795,949					-					700,576					-
Notes and accounts receivable, net (Note 11)				86,424,428					7					71,649,926					6					79,742,708					7
Receivables from related parties (Note 32)				462,732					-					291,708					-					597,623					-
Other receivables from related parties (Note 32)				2,875,842					-					221,576					-					2,433,325					-
Inventories (Note 12)				50,954,265					4					37,494,893					3					38,614,928					3
Other financial assets (Note 33)				957,366					-					501,785					-					710,741					-
Other current assets (Note 17)				2,931,372					-					2,984,224					-					2,739,259					-
Total current assets				459,199,555					34					358,486,654					28					352,462,353					30
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)				-					-					58,721,959					5					49,581,219					4
Financial assets carried at cost (Note 13)				2,017,528					-					2,145,591					-					3,667,697					1
Investments accounted for using equity method (Note 14)				26,355,811					2					28,316,260					2					25,012,840					2
Property, plant and equipment (Note 15)				837,167,426					63					792,665,913					63					715,595,036					61
Intangible assets (Note 16)				11,433,307					1					11,490,383					1					11,142,323					1
Deferred income tax assets (Notes 4 and 27)				5,009,457					-					7,239,609					1					8,667,948					1
Refundable deposits (Note 32)				2,476,534					-					2,519,031					-					2,412,290					-
Other noncurrent assets (Note 17)				1,385,149					-					1,469,577					-					1,343,748					-
Total noncurrent assets				885,845,212					66					904,568,323					72					817,423,101					70
TOTAL			$	1,345,044,767					100				$	1,263,054,977					100				$	1,169,885,454					100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)			$	34,705,206					3				$	15,645,000					1				$	31,466,400					3
Financial liabilities at fair value through profit or loss (Note 7)				19,418					-					33,750					-					136,515					-
Hedging derivative financial liabilities (Note 10)				4,282,501					-					-					-					-					-
Accounts payable				20,015,515					1					14,670,260					1					14,391,539					1
Payables to related parties (Note 32)				1,681,781					-					1,688,456					-					811,195					-
Salary and bonus payable				7,806,935					1					8,330,956					1					7,135,399					1
Accrued profit sharing to employees and bonus to directors and supervisors (Note 22)				20,100,855					1					12,738,801					1					17,366,804					1
Payables to contractors and equipment suppliers				34,657,746					3					89,810,160					7					60,883,767					5
Cash dividends payable (Note 22)				77,785,851					6					-					-					77,773,307					7
Income tax payable (Notes 4 and 27)				17,585,111					1					22,563,286					2					11,125,990					1
Provisions (Note 19)				7,709,195					1					7,603,781					1					6,289,117					1
Accrued expenses and other current liabilities (Note 21)				20,284,963					1					16,693,484					1					16,251,434					1
Total current liabilities				246,635,077					18					189,777,934					15					243,631,467					21
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)				1,277,058					-					5,481,616					-					1,813,291					-
Bonds payable (Note 20)				210,869,059					16					210,767,625					17					169,801,262					14
Long-term bank loans				40,000					-					40,000					-					-					-
Other long-term payables (Note 21)				18,000					-					36,000					-					36,000					-
Obligations under finance leases				745,391					-					776,230					-					760,186					-
Accrued pension cost (Note 4)				7,589,543					1					7,589,926					1					6,917,104					1
Others (Note 19)				910,345					-					810,561					-					689,873					-
Total noncurrent liabilities				221,449,396					17					225,501,958					18					180,017,716					15
Total liabilities				468,084,473					35					415,279,892					33					423,649,183					36
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 22)				259,293,750					19					259,286,171					21					259,283,058					22
Capital surplus (Note 22)				56,026,837					4					55,858,626					4					55,828,587					5
Retained earnings (Note 22)
Appropriated as legal capital reserve				151,250,682					11					132,436,003					11					132,436,003					11
Appropriated as special capital reserve				-					-					2,785,741					-					2,785,741					-
Unappropriated earnings				396,729,648					30					382,971,408					30					286,801,018					25
				547,980,330					41					518,193,152					41					422,022,762					36
Others (Note 22)				13,485,597					1					14,170,306					1					8,777,348					1
Equity attributable to shareholders of the parent				876,786,514					65					847,508,255					67					745,911,755					64
NONCONTROLLING INTERESTS (Note 22)				173,780					-					266,830					-					324,516					-
Total equity				876,960,294					65					847,775,085					67					746,236,271					64
TOTAL			$	1,345,044,767					100				$	1,263,054,977					100				$	1,169,885,454					100

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

 

- 2 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

		For the Three Months Ended June 30																				For the Six Months Ended June 30
		2014										2013										2014										2013
		Amount					%					Amount					%					Amount					%					Amount					%
NET REVENUE (Notes 24, 32 and 37)			$	183,020,484					100				$	155,886,320					100				$	331,235,656					100				$	288,641,316					100
COST OF REVENUE (Notes 12, 29 and 32)				91,823,190					50					79,467,520					51					169,659,283					51					151,456,246					52
GROSS PROFIT BEFORE REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES				91,197,294					50					76,418,800					49					161,576,373					49					137,185,070					48
REALIZED (UNREALIZED) GROSS PROFIT ON SALES TO ASSOCIATES				(4,369	)				-					3,386					-					16,648					-					6,926					-
GROSS PROFIT				91,192,925					50					76,422,186					49					161,593,021					49					137,191,996					48
OPERATING EXPENSES (Notes 29 and 32)
Research and development				13,609,070					7					11,941,871					8					25,675,692					8					22,592,856					8
General and administrative				5,407,864					3					5,685,570					3					10,063,535					3					10,381,090					4
Marketing				1,234,821					1					1,164,693					1					2,387,523					1					2,194,492					1
Total operating expenses				20,251,755					11					18,792,134					12					38,126,750					12					35,168,438					13
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 15 and 29)				(227,251	)				-					(970	)				-					(229,992	)				-					33,533					-
INCOME FROM OPERATIONS (Note 37)				70,713,919					39					57,629,082					37					123,236,279					37					102,057,091					35
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture				1,047,626					-					1,059,504					1					2,003,006					-					1,713,657					1
Other income				1,316,583					1					1,009,064					1					1,930,282					-					1,355,385					1
Foreign exchange gain (loss), net				(355,207	)				-					640,998					-					(391,608	)				-					448,084					-
Finance costs (Note 25)				(801,450	)				-					(635,340	)				(1	)				(1,598,030	)				-					(1,129,338	)				-
Other gains and losses (Note 26)				2,176,649					1					313,371					-					2,220,033					1					1,319,714					-
Total non-operating income and expenses				3,384,201					2					2,387,597					1					4,163,683					1					3,707,502					2
INCOME BEFORE INCOME TAX				74,098,120					41					60,016,679					38					127,399,962					38					105,764,593					37
INCOME TAX EXPENSE (Notes 4 and 27)				14,438,263					8					8,255,176					5					19,894,327					6					14,467,547					5
NET INCOME				59,659,857					33					51,761,503					33					107,505,635					32					91,297,046					32
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 22 and 27)
Exchange differences arising on translation of foreign operations				(3,052,142	)				(2	)				1,172,141					1					(220,761	)				-					4,075,894					1
Changes in fair value of available-for-sale financial assets				(31,156	)				-					4,669,793					3					(446,601	)				-					7,495,485					3
Share of other comprehensive income (loss) of associates and joint venture				(1,274	)				-					(191,994	)				-					(6,021	)				-					(56,871	)				-
Income tax benefit (expense) related to components of other comprehensive income				(14,079	)				-					(29	)				-					(11,123	)				-					43,210					-
Other comprehensive income (loss) for the period, net of income tax				(3,098,651	)				(2	)				5,649,911					4					(684,506	)				-					11,557,718					4
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD			$	56,561,206					31				$	57,411,414					37				$	106,821,129					32				$	102,854,764					36
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent			$	59,702,284					33				$	51,807,725					33				$	107,573,029					32				$	91,384,601					32
Noncontrolling interests				(42,427	)				-					(46,222	)				-					(67,394	)				-					(87,555	)				-
			$	59,659,857					33				$	51,761,503					33				$	107,505,635					32				$	91,297,046					32
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent			$	56,604,654					31				$	57,487,048					37				$	106,888,320					32				$	102,942,434					36
Noncontrolling interests				(43,448	)				-					(75,634	)				-					(67,191	)				-					(87,670	)				-
			$	56,561,206					31				$	57,411,414					37				$	106,821,129					32				$	102,854,764					36

 

		For the Three Months Ended June 30										For the Six Months Ended June 30
		2014					2013					2014					2013
		Income Attributable to     Shareholders of the Parent					Income Attributable to     Shareholders of the Parent					Income Attributable to     Shareholders of the Parent					Income Attributable to     Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 28)
Basic earnings per share			$	2.30				$	2.00				$	4.15				$	3.52
Diluted earnings per share			$	2.30				$	2.00				$	4.15				$	3.52

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

 

- 3 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																																					Others
		Capital Stock - Common Stock															Retained Earnings																				Foreign Currency Translation Reserve					Unrealized Gain/Loss from Available- for-sale Financial Assets					Cash Flow Hedges Reserve
		Shares (In Thousands)					Amount					Capital Surplus					Legal Capital Reserve					Special Capital Reserve					Unappropriated Earnings					Total																				Total					Total					Noncontrolling Interests					Total Equity
BALANCE, JANUARY 1, 2014				25,928,617				$	259,286,171				$	55,858,626				$	132,436,003				$	2,785,741				$	382,971,408				$	518,193,152				$	(7,140,362	)			$	21,310,781				$	(113	)			$	14,170,306				$	847,508,255				$	266,830				$	847,775,085
Appropriations of prior year’s earnings
Legal capital reserve				-					-					-					18,814,679					-					(18,814,679	)				-					-					-					-					-					-					-					-
Reversal of special capital reserve				-					-					-					-					(2,785,741	)				2,785,741					-					-					-					-					-					-					-					-
Cash dividends to shareholders - NT$3.00 per share				-					-					-					-					-					(77,785,851	)				(77,785,851	)				-					-					-					-					(77,785,851	)				-					(77,785,851	)
Total				-					-					-					18,814,679					(2,785,741	)				(93,814,789	)				(77,785,851	)				-					-					-					-					(77,785,851	)				-					(77,785,851	)
Net income for the six months ended June 30, 2014				-					-					-					-					-					107,573,029					107,573,029					-					-					-					-					107,573,029					(67,394	)				107,505,635
Other comprehensive income for the six months ended June 30, 2014, net of income tax				-					-					-					-					-					-					-					(223,663	)				(461,136	)				90					(684,709	)				(684,709	)				203					(684,506	)
Total comprehensive income for the six months ended June 30, 2014				-					-					-					-					-					107,573,029					107,573,029					(223,663	)				(461,136	)				90					(684,709	)				106,888,320					(67,191	)				106,821,129
Issuance of stock from exercise of employee stock options				758					7,579					25,908					-					-					-					-					-					-					-					-					33,487					-					33,487
Disposal of investments accounted for using equity method				-					-					(2,273	)				-					-					-					-					-					-					-					-					(2,273	)				-					(2,273	)
Adjustments to share of changes in equity of associates and joint venture				-					-					164,310					-					-					-					-					-					-					-					-					164,310					(66	)				164,244
From share of changes in equities of subsidiaries				-					-					(19,734	)				-					-					-					-					-					-					-					-					(19,734	)				19,734					-
Decrease in noncontrolling interests				-					-					-					-					-					-					-					-					-					-					-					-					(45,527	)				(45,527	)
BALANCE, JUNE 30, 2014				25,929,375				$	259,293,750				$	56,026,837				$	151,250,682				$	-				$	396,729,648				$	547,980,330				$	(7,364,025	)			$	20,849,645				$	(23	)			$	13,485,597				$	876,786,514				$	173,780				$	876,960,294
BALANCE, JANUARY 1, 2013				25,924,435				$	259,244,357				$	55,675,340				$	115,820,123				$	7,606,224				$	284,985,121				$	408,411,468				$	(10,753,806	)			$	7,973,321				$	-				$	(2,780,485	)			$	720,550,680				$	2,543,226				$	723,093,906
Appropriations of prior year’s earnings
Legal capital reserve				-					-					-					16,615,880					-					(16,615,880	)				-					-					-					-					-					-					-					-
Reversal of special capital reserve				-					-					-					-					(4,820,483	)				4,820,483					-					-					-					-					-					-					-					-
Cash dividends to shareholders - NT$3.00 per share				-					-					-					-					-					(77,773,307	)				(77,773,307	)				-					-					-					-					(77,773,307	)				-					(77,773,307	)
Total				-					-					-					16,615,880					(4,820,483	)				(89,568,704	)				(77,773,307	)				-					-					-					-					(77,773,307	)				-					(77,773,307	)
Net income for the six months ended June 30, 2013				-					-					-					-					-					91,384,601					91,384,601					-					-					-					-					91,384,601					(87,555	)				91,297,046
Other comprehensive income for the six months ended June 30, 2013, net of income tax				-					-					-					-					-					-					-					4,017,456					7,540,377					-					11,557,833					11,557,833					(115	)				11,557,718
Total comprehensive income for the six months ended June 30, 2013				-					-					-					-					-					91,384,601					91,384,601					4,017,456					7,540,377					-					11,557,833					102,942,434					(87,670	)				102,854,764
Issuance of stock from exercise of employee stock options				3,870					38,701					71,474					-					-					-					-					-					-					-					-					110,175					-					110,175
Stock option compensation cost of subsidiary				-					-					-					-					-					-					-					-					-					-					-					-					5,312					5,312
Adjustments to share of changes in equity of associates and joint venture				-					-					14,845					-					-					-					-					-					-					-					-					14,845					-					14,845
Adjustments arising from changes in percentage of ownership in subsidiaries				-					-					66,928					-					-					-					-					-					-					-					-					66,928					(66,928	)				-
Increase in noncontrolling interests				-					-					-					-					-					-					-					-					-					-					-					-					203,729					203,729
Effect of deconsolidation of subsidiary				-					-					-					-					-					-					-					-					-					-					-					-					(2,273,153	)				(2,273,153	)
BALANCE, JUNE 30, 2013				25,928,305				$	259,283,058				$	55,828,587				$	132,436,003				$	2,785,741				$	286,801,018				$	422,022,762				$	(6,736,350	)			$	15,513,698				$	-				$	8,777,348				$	745,911,755				$	324,516				$	746,236,271

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

 

- 4 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Six Months Ended June 30
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	127,399,962			$	105,764,593
Adjustments for:
Depreciation expense			86,338,443				73,519,241
Amortization expense			1,263,048				1,071,590
Stock option compensation cost of subsidiary			-				5,312
Finance costs			1,598,030				1,129,338
Share of profits of associates and joint venture			(2,003,006	)			(1,713,657	)
Interest income			(1,292,325	)			(852,693	)
Gain on disposal of property, plant and equipment and intangible assets, net			(15,325	)			(29,365	)
Impairment loss of property, plant and equipment			239,864				-
Impairment loss of financial assets			-				45,716
Gain on disposal of available-for-sale financial assets, net			(134,020	)			(990,713	)
Gain on disposal of financial assets carried at cost, net			(52,694	)			(4,573	)
Loss (gain) on disposal of investments accounted for using equity method			(2,028,643	)			731
Gain on deconsolidation of subsidiary			-				(293,578	)
Realized gross profit on sales to associates			(16,648	)			(6,926	)
Loss on foreign exchange, net			1,646,248				446,110
Dividend income			(637,957	)			(502,692	)
Income from receipt of equity securities in settlement of trade receivables			(1,211	)			(9,590	)
Loss from hedging instruments			589,243				1,937,366
Gain arising from changes in fair value of available-for-sale financial assets in hedge effective portion			(78,109	)			(1,657,824	)
Changes in operating assets and liabilities:
Derivative financial instruments			(82,244	)			140,919
Notes and accounts receivable, net			(14,774,504	)			(22,223,842	)
Receivables from related parties			(171,024	)			(510,193	)
Other receivables from related parties			13,258				(19,275	)
Inventories			(13,459,372	)			(997,563	)
Other financial assets			(389,931	)			(64,259	)
Other current assets			70,323				(90,235	)
Accounts payable			5,331,172				281,081
Payables to related parties			(6,675	)			(27,167	)
Salary and bonus payable			(524,021	)			(311,632	)
Accrued profit sharing to employees and bonus to directors and supervisors			7,362,054				6,180,213
Accrued expenses and other current liabilities			2,915,319				2,647,510
Provisions			113,564				280,544
Accrued pension cost			(383	)			(1,194	)

 

(Continued)

 

- 5 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Six Months Ended June 30
		2014				2013
Cash generated from operations		$	199,212,436			$	163,143,293
Income taxes paid			(22,602,632	)			(14,334,965	)
Net cash generated by operating activities			176,609,804				148,808,328
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(91,592	)			(10,102	)
Financial assets carried at cost			(3,773	)			(16,616	)
Held-to-maturity financial assets			(1,396,723	)			-
Property, plant and equipment			(188,233,322	)			(158,818,884	)
Intangible assets			(1,204,154	)			(1,477,481	)
Other assets			-				(30,721	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			473,520				2,032,100
Held-to-maturity financial assets			2,900,000				4,445,850
Financial assets carried at cost			62,445				11,696
Investments accounted for using equity method			3,471,883				-
Property, plant and equipment			114,987				111,008
Cash refund from other long-term receivables			161,900				-
Costs from entering into hedging transactions			(520,856	)			(143,982	)
Interest received			1,248,110				689,878
Other dividends received			629,843				493,557
Refundable deposits paid			(25,460	)			(23,124	)
Refundable deposits refunded			59,041				52,333
Net cash outflow from deconsolidation of subsidiary (Note 30)			-				(979,910	)
Net cash used in investing activities			(182,354,151	)			(153,664,398	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			19,220,278				(4,087,493	)
Proceeds from issuance of bonds			-				89,644,821
Increase in long-term bank loans			-				650,000
Repayment of long-term bank loans			-				(62,500	)
Interest paid			(889,467	)			(374,202	)
Guarantee deposits received			10,374				12,114
Guarantee deposits refunded			(3,742	)			(53,881	)
Decrease in obligations under finance leases			(28,426	)			(27,796	)
Proceeds from exercise of employee stock options			33,487				110,175
Increase (decrease) in noncontrolling interests			(45,527	)			217,860
Net cash generated by financing activities			18,296,977				86,029,098

 

(Continued)

 

- 6 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Six Months Ended June 30
		2014				2013
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		$	(194,504	)		$	1,249,030
NET INCREASE IN CASH AND CASH EQUIVALENTS			12,358,126				82,422,058
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			242,695,447				143,410,588
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	255,053,573			$	225,832,646

 

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

 

- 7 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED June 30, 2014 and 2013

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 37.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on August 12, 2014.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The 2013 IFRSs version in issue but not yet effective

On April 3, 2014, according to Rule No. 1030010325 issued by the Financial Supervisory Commission (FSC), the following 2013 IFRSs version endorsed by the FSC (collectively, “2013 Taiwan-IFRSs version”) should be adopted by the Company starting 2015.

 

 

(Continued)

 

- 8 -

---

(Concluded)

 

Note:

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

Except for the following items, the Company believes that the adoption of aforementioned 2013 Taiwan-IFRSs version will not have a significant effect on the Company’s consolidated financial statements.

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

2)

IFRS 13, “Fair Value Measurement”

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

The measurement requirements of IFRS 13 shall be applied prospectively starting 2015.

 

- 9 -

---

3)

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

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

Starting 2015, the Company will adopt the aforementioned amendments to prepare the consolidated statements of comprehensive income. The items that will not be reclassified subsequently to profit or loss are expected to include actuarial gains or losses from defined benefit plans, the share of actuarial gains or losses from defined benefit plans of associates and joint venture as well as the related income tax on such items. Items that will be reclassified subsequently to profit or loss are expected to include exchange differences arising on translation of foreign operations, changes in fair value of available-for-sale financial assets, cash flow hedges, the share of other comprehensive income of associates and joint venture as well as the related income tax on items of other comprehensive income (except for the share of actuarial gains or losses from defined benefit plans).

 

4)

Amendments to IAS 19, “Employee Benefits”

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

According to the retrospective application of aforementioned amendments, as of June 30, 2014 and January 1, 2014, the primary impacts on the Company include the adjustment in accrued pension cost for a decrease of NT$779,136 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$691,572 thousand and NT$698,762 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

 

(Continued)

 

- 10 -

---

(Concluded)

 

Note:

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

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

 

1)

IFRS 9, “Financial Instruments”

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

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

 

a)

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

 

b)

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

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

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

 

- 11 -

---

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

 

2)

IFRS 15, “Revenue from Contracts with Customers”

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

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

 

—

Identify the contract with the customer;

—

Identify the performance obligations in the contract;

—

Determine the transaction price;

—

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

—

Recognize revenue when the entity satisfies a performance obligation.

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

 

3)

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

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

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 

- 12 -

---

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

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

The subsidiaries in the consolidated financial statements

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

 

						Establishment		Percentage of Ownership
Name of Investor		Name of Investee		Main Businesses and Products		and Operating Location		June 30, 2014				December 31, 2013				June 30,     2013				Note
TSMC		TSMC North America		Selling and marketing of integrated circuits and semiconductor devices		San Jose, California, U.S.A.			100%				100%				100%			-
		TSMC Japan Limited (TSMC Japan)		Marketing activities		Yokohama, Japan			100%				100%				100%			a)
		TSMC Partners, Ltd. (TSMC Partners)		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry		Tortola, British Virgin Islands			100%				100%				100%			-
		TSMC Korea Limited (TSMC Korea)		Customer service and technical supporting activities		Seoul, Korea			100%				100%				100%			a)
		TSMC Europe B.V. (TSMC Europe)		Marketing and engineering supporting activities		Amsterdam, the Netherlands			100%				100%				100%			a)
		TSMC Global, Ltd. (TSMC Global)		Investment activities		Tortola, British Virgin Islands			100%				100%				100%			-
		TSMC China Company Limited (TSMC China)		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		Shanghai, China			100%				100%				100%			-
		VentureTech Alliance Fund III, L.P. (VTAF III)		Investing in new start-up technology companies		Cayman Islands			98%				50%				50%			b)
		VentureTech Alliance Fund II, L.P. (VTAF II)		Investing in new start-up technology companies		Cayman Islands			98%				98%				98%			-
		Emerging Alliance Fund, L.P. (Emerging Alliance)		Investing in new start-up technology companies		Cayman Islands			99.5%				99.5%				99.5%			a)
		TSMC Solid State Lighting Ltd. (TSMC SSL)		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems		Hsin-Chu, Taiwan			92%				92%				92%			TSMC and TSMC GN aggregately have a controlling interest of 94% in TSMC SSL.
		TSMC Solar Ltd. (TSMC Solar)		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products		Tai-Chung, Taiwan			99%				99%				99%			TSMC and TSMC GN aggregately have a controlling interest of 99% in TSMC Solar.
		TSMC Guang Neng Investment, Ltd. (TSMC GN)		Investment activities		Taipei, Taiwan			100%				100%				100%			a)
TSMC Partners		TSMC Design Technology Canada Inc. (TSMC Canada)		Engineering support activities		Ontario, Canada			100%				100%				100%			a)
		TSMC Technology, Inc. (TSMC Technology)		Engineering support activities		Delaware, U.S.A.			100%				100%				100%			a)
		TSMC Development, Inc. (TSMC Development)		Investment activities		Delaware, U.S.A.			100%				100%				100%			-

 

(Continued)

 

- 13 -

---

Establishment

Percentage of Ownership

Name of Investor

Name of Investee

Main Businesses and Products

and Operating Location

June 30, 2014

December 31, 2013

June 30,     2013

Note

TSMC Partners

InveStar Semiconductor Development Fund, Inc. (ISDF)

Investing in new start-up technology companies

Cayman Islands

97%

97%

97%

a)

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

Investing in new start-up technology companies

Cayman Islands

97%

97%

97%

a)

TSMC Development

WaferTech, LLC (WaferTech)

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

Washington, U.S.A.

100%

100%

100%

-

VTAF III

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

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

Taipei, Taiwan

58%

58%

58%

a)

Growth Fund Limited (Growth Fund)

Investing in new start-up technology companies

Cayman Islands

100%

100%

100%

a)

VTAF III, VTAF II and Emerging Alliance

VentureTech Alliance Holdings, LLC (VTA Holdings)

Investing in new start-up technology companies

Delaware, U.S.A.

100%

100%

100%

a)

TSMC SSL

TSMC Lighting North America, Inc. (TSMC Lighting NA)

Selling and marketing of solid state lighting related products

Delaware, U.S.A.

100%

100%

100%

a), c)

TSMC Solar

TSMC Solar North America, Inc. (TSMC Solar NA)

Selling and marketing of solar related products

Delaware, U.S.A.

100%

100%

100%

a)

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

Investing in solar related business

Amsterdam, the Netherlands

100%

100%

100%

a), d)

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

Investing in new start-up technology companies

Cayman Islands

-

49%

49%

b)

TSMC Solar Europe

TSMC Solar Europe GmbH

Selling of solar related products and providing customer service

Hamburg, Germany

100%

100%

100%

a), d)

(Concluded)

 

Note a:

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

 

Note b:

According to the agreement among TSMC, TSMC Solar and VTAF III, each of the investment held by VTAF III is separately owned by TSMC and TSMC Solar. As the investment owned by VTAF III, which is indirectly owned by TSMC Solar, has entered into liquidation process due to bankruptcy and the bankruptcy trustee confirmed that no residual assets could be reimbursed to the shareholders, in the second quarter of 2014, TSMC Solar’s percentage of ownership over VTAF III has decreased to nil. Consequently, TSMC’s percentage of ownership over VTAF III has been adjusted to 98%.

 

Note c:

To simplify overseas investment structure, in the second quarter of 2014, the Board of Directors of TSMC SSL approved to file for the liquidation of TSMC Lighting NA. The liquidation procedure is expected to be processed in the third quarter of 2014.

 

Note d:

To simplify overseas investments structure, in the second quarter of 2014, the Board of Directors of TSMC Solar approved to file for the liquidation of TSMC Solar Europe. After the liquidation, TSMC Solar Europe GmbH, the 100% owned subsidiary of TSMC Solar Europe, will be held directly by TSMC Solar. The liquidation procedure is expected to be processed in third quarter of 2014.

Retirement Benefits

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

Taxation

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

 

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

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

 

- 14 -

---

6.	CASH AND CASH EQUIVALENTS

 

		June 30, 2014						December 31, 2013						June 30, 2013
Cash and deposits in banks		$	243,638,487					$	238,014,580					$	223,809,009
Commercial paper			5,036,633						-						-
Repurchase agreements collateralized by corporate bonds			3,613,365						1,809,344						1,635,358
Repurchase agreements collateralized by short-term commercial paper			1,708,393						2,395,644						199,899
Repurchase agreements collateralized by government bonds			1,056,695						475,879						188,380
		$	255,053,573					$	242,695,447					$	225,832,646

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

 

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

 

		June 30, 2014						December 31, 2013										June 30, 2013
Derivative financial assets
Cross currency swap contracts		$	94,358							$	-							$	2,758
Forward exchange contracts			63,907								90,353								17,252
		$	158,265							$	90,353							$	20,010
Derivative financial liabilities
Cross currency swap contracts		$	10,751							$	4,177							$	1,331
Forward exchange contracts			8,667								29,573								135,184
		$	19,418							$	33,750							$	136,515

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

Outstanding forward exchange contracts consisted of the following:

		Maturity Date		Contract Amount (In Thousands)
June 30, 2014
Sell EUR/Buy US$		July 2014		EUR2,130/ US$2,900
Sell NT$/Buy JPY		July 2014		NT$190,637/JPY650,000
Sell NT$/Buy US$		July 2014		NT$1,291,583/ US$43,100
Sell US$/Buy EUR		July 2014		US$81,794/EUR60,000
Sell US$/Buy JPY		July 2014		US$407,388/JPY41,429,419
Sell US$/Buy NT$		July 2014		US$60,000/NT$1,801,440
Sell US$/Buy RMB		July 2014 to August 2014		US$132,000/RMB823,267

 

(Continued)

 

- 15 -

---

		Maturity Date		Contract Amount (In Thousands)
December 31, 2013
Sell NT$/Buy EUR		January 2014		NT$4,514,314/EUR110,000
Sell NT$/Buy US$		January 2014		NT$683,749/US$22,800
Sell US$/Buy EUR		January 2014		US$340,134/EUR248,000
Sell US$/Buy JPY		January 2014		US$341,023/JPY35,754,801
Sell US$/Buy RMB		January 2014 to February 2014		US$138,000/RMB841,492
June 30, 2013
Sell NT$/Buy US$		July 2013		NT$534,830/US$17,800
Sell US$/Buy EUR		July 2013		US$386,201/EUR296,000
Sell US$/Buy JPY		July 2013		US$308,877/JPY30,237,970
Sell US$/Buy NT$		July 2013		US$75,000/NT$2,252,825
Sell US$/Buy RMB		July 2013 to August 2013		US$99,000/RMB610,816

(Concluded)

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, 2014
July 2014		NT$2,461,848/US$82,080		-		0.20%-0.48%
July 2014 to August 2014		US$870,000/NT$26,093,255		0.25%-1.92%		-
December 31, 2013
January 2014		NT$1,639,215/US$55,080		-		1.03%-2.00%
June 30, 2013
July 2013		NT$1,200,176/US$40,080		-		0.24%-0.35%

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		June 30, 2014				December 31, 2013				June 30, 2013
Publicly traded stocks		$	59,082,115			$	59,481,569			$	50,643,339
Money market funds			367				1,183				8,417
		$	59,082,482			$	59,482,752			$	50,651,756
Current portion		$	59,082,482			$	760,793			$	1,070,537
Noncurrent portion			-				58,721,959				49,581,219
		$	59,082,482			$	59,482,752			$	50,651,756

 

- 16 -

---

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

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		June 30, 2014						December 31, 2013								June 30, 2013
Current portion
Commercial paper		$	299,230							$	1,795,949					$	-
Corporate bonds			-								-						700,576
		$	299,230							$	1,795,949					$	700,576

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

		June 30, 2014						December 31, 2013								June 30, 2013
Financial liabilities- current
Fair value hedges
Stock forward contracts		$	4,282,501							$	-					$	-
Financial liabilities- noncurrent
Fair value hedges
Stock forward contracts		$	1,277,058							$	5,481,616					$	1,813,291

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

The outstanding stock forward contracts consisted of the following:

 

June 30, 2014

December 31, 2013

June 30, 2013

Contract amount (US$ in thousands)

$   52,874,969

$   37,431,626

$ 14,753,429

(US$1,771,000)

( US$1,256,095)

(US$492,306)

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

		June 30, 2014				December 31, 2013				June 30, 2013
Notes and accounts receivable		$	86,911,018			$	72,136,514			$	80,229,317
Allowance for doubtful receivables			(486,590)				(486,588)				(486,609)
Notes and accounts receivable, net		$	86,424,428			$	71,649,926			$	79,742,708

 

- 17 -

---

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

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

Aging analysis of notes and accounts receivable, net

 

				June 30, 2014										December 31, 2013								June 30, 2013
Neither past due nor impaired				$	78,140,966									$	64,112,564							$	71,025,800
Past due but not impaired
Past due within 30 days					8,283,462										7,537,362								8,716,908
				$	86,424,428									$	71,649,926							$	79,742,708
Movements of the allowance for doubtful receivables
		Individually Assessed for Impairment										Collectively Assessed for Impairment										Total
Balance at January 1, 2014				$	8,058									$	478,530							$	486,588
Provision					17,220										4,495								21,715
Reversal					-										(21,715	)							(21,715	)
Effect of exchange rate changes					-										2								2
Balance at June 30, 2014				$	25,278									$	461,312							$	486,590
Balance at January 1, 2013					$ 137,336									$	342,876							$	480,212
Provision					-										117,018								117,018
Reversal					(107,433	)									(121	)							(107,554	)
Effect of deconsolidation of subsidiary					(3,157	)									-								(3,157	)
Effect of exchange rate changes					1,660										(1,570	)							90
Balance at June 30, 2013				$	28,406									$	458,203							$	486,609
Aging analysis of accounts receivable that is individually determined as impaired
		June 30, 2014										December 31, 2013										June 30, 2013
Not past due				$	-									$	38							$	30,724
Past due 1-30 days					17,326										276								3,780
Past due 31-60 days					334										80								-
Past due 61-120 days					-										158								-
Past due over 121 days					7,618										7,824								-
				$	25,278									$	8,376							$	34,504

 

- 18 -

---

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of June 30, 2014, December 31, 2013 and June 30, 2013, the amount of the bank guarantee and other credit enhancements were nil, NT$318 thousand (US$11 thousand) and NT$6,098 thousand (US$203 thousand), respectively.

 

12.	INVENTORIES

 

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

 

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

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

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

- 19 -

---

a.

Investments in associates

Associates consisted of the following:

 

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

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

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

TSMC no longer has power to govern the financial and operating policies of Xintec starting June 2013 due to the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method. Please refer to Note 30.

 

- 20 -

---

b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

 

- 21 -

---

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

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

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

 

16.	INTANGIBLE ASSETS

 

 

- 22 -

---

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

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

 

17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

 

 

- 23 -

---

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

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

 

20.	BONDS PAYABLE

 

The major terms of overseas unsecured bonds are as follows:

 

 

- 24 -

---

21.	OTHER LONG-TERM PAYABLES

 

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China purchased in 2004 certain property, plant and equipment. The obligations under the aforementioned agreement were fully paid in July 2013.

 

22.

EQUITY

 

a.

Capital stock

 

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

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

As of June 30, 2014, 1,077,411 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,387,057 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

(Continued)

 

- 25 -

---

(Concluded)

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

 

c.

Retained earnings and dividend policy

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

 

1)

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

 

2)

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

 

3)

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

 

4)

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

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

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

 

- 26 -

---

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$3,992,231 thousand and NT$3,483,909 thousand for the three months ended June 30, 2014 and 2013, respectively; and NT$7,192,947 thousand and NT$6,144,391 thousand for the six months ended June 30, 2014 and 2013, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently approved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

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

 

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

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

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

 

- 27 -

---

d.

Others

Changes in others were as follows:

 

 

- 28 -

---

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

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

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

 

e.

Noncontrolling interests

 

 

- 29 -

---

23.	SHARE-BASED PAYMENT

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

 

a.

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

 

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

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

 

 

b.

Application of IFRS 2

 

- 30 -

---

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

 

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.

 

24.	NET REVENUE

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

 

 

25.	FINANCE COSTS

 

 

- 31 -

---

26.	OTHER GAINS AND LOSSES

 

 

27.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

(Continued)

 

- 32 -

---

(Concluded)

 

b.

Income tax expense recognized in other comprehensive income

 

 

c.

Integrated income tax information

 

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

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

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

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

 

d.

Income tax examination

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

 

- 33 -

---

28.	EARNINGS PER SHARE

 

 

EPS

is computed as follows:

 

 

(Continued)

 

- 34 -

---

(Concluded)

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 at the end of the reporting period. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until profit sharing to employees to be settled in the form of common stocks are approved by the shareholders in the following year.

 

29.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

 

- 35 -

---

 

30.	DECONSOLIDATION OF SUBSIDIARY

Starting June 2013, the Company no longer has power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors; accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Xintec.

 

a.

Consideration received

The Company did not receive any consideration in the deconsolidation of Xintec.

 

b.

Analysis of assets and liabilities over which the Company lost control

 

 

(Continued)

 

- 36 -

---

(Concluded)

c.

Gain on deconsolidation of subsidiary

 

Gain on deconsolidation of subsidiary was included in other gains and losses for the six months ended June 30, 2013.

 

d.

Net cash outflow arising from deconsolidation of the subsidiary

 

 

31.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

(Continued)

 

- 37 -

---

(Concluded)

 

Note:

Including financial assets carried at cost.

 

b.

Financial risk management objectives

The Company seeks to ensure sufficient cost-efficient funding readily available when needed. The Company manages its exposure to foreign currency risk, interest rate risk, equity price risk, credit risk and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by Audit Committees and/or Board of Directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, Corporate Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

 

c.

Market risk

The Company is exposed to the market risks arising from changes in foreign exchange rates, interest rates and the prices in equity investments, and utilizes some derivative financial instruments to reduce the related risks.

Foreign currency risk

Most of the Company’s operating activities are denominated in foreign currencies. Consequently, the Company is exposed to foreign currency risk. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Company utilizes derivative financial instruments, including currency forward contracts and cross currency swaps, to hedge its currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements.

 

- 38 -

---

The Company also holds short-term borrowings in foreign currencies in proportion to its expected future cash flows. This allows foreign-currency-denominated borrowings to be serviced with expected future cash flows and provides a partial hedge against transaction translation exposure.

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the six months ended June 30, 2014 and 2013 would have decreased by NT$686,238 thousand and NT$331,962 thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.

Interest rate risk

The Company is exposed to interest rate risk arising from borrowing at both fixed and floating interest rates. All of the Company’s long-term bonds have fixed interest rates and are measured at amortized cost. As such, changes in interest rates would not affect the future cash flows. On the other hand, because interest rates of the Company’s long-term bank loans are floating, changes in interest rates would affect the future cash flows but not the fair value.

Assuming the amount of floating interest rate bank loans at the end of the reporting period had been outstanding for the entire period and all other variables were held constant, a hypothetical increase in interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of tax, by approximately NT$166 thousand for the six months ended June 30, 2014.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments. To reduce the equity price risk, the Company utilizes some stock forward contracts to partially hedge its exposure.

Assuming a hypothetical decrease of 5% in equity prices of the equity investments at the end of the reporting period, the net income for the six months ended June 30, 2014 and 2013 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the six months ended June 30, 2014 and 2013 would have decreased by NT$128,251 thousand and NT$1,879,083 thousand, respectively.

 

d.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is exposed to credit risk from operating activities, primarily trade receivables, and from financing activities, primarily deposits, fixed-income investments and other financial instruments with banks. Credit risk is managed separately for business related and financial related exposures. As of the end of the reporting period, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets recognized in the consolidated balance sheet.

Business related credit risk

The Company has considerable trade receivables outstanding with its customers worldwide. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic conditions worsen.

 

- 39 -

---

As of June 30, 2014, December 31, 2013 and June 30, 2013, the Company’s ten largest customers accounted for 67%, 68% and 69% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

Financial credit risk

The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts the concentration limit according to market conditions and the credit standing of the counterparties. The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.

 

e.

Liquidity risk management

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements associated with existing operations over the next 12 months. The Company manages its liquidity risk by maintaining adequate cash and banking facilities.

As of June 30, 2014, December 31, 2013 and June 30, 2013, the unused of financing facilities of the Company amounted to NT$60,718,188 thousand, NT$76,689,543 thousand and NT$55,098,102 thousand, respectively.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including principal and interest.

 

 

(Continued)

 

- 40 -

---

 

(Concluded)

 

- 41 -

---

f.

Fair value of financial instruments

 

1)

Fair value of financial instruments carried at amortized cost

 

Except as detailed in the following table, the Company considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

 

 

2)

Fair value measurements recognized in the consolidated balance sheets

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

—

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

—

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

—

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

- 42 -

---

 

There were no transfers between Level 1 and 2 for the six months ended June 30, 2014 and 2013, respectively.

 

There were no purchases and disposals for assets on Level 3 for the six months ended June 30, 2014 and 2013, respectively.

 

3)

Valuation techniques and assumptions used in fair value measurement

 

The fair values of financial assets and financial liabilities are determined as follows:

 

—

The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes publicly traded stocks and money market funds).

 

- 43 -

---

—

Forward exchange contracts and cross currency swap contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts; and stock forward contracts are measured at the difference between the present value of stock forward price discounted based on the applicable yield curve derived from quoted interest rates and the stock spot price.

 

—

The fair values of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

 

32.	RELATED PARTY TRANSACTIONS

Intercompany balances and transactions between TSMC and its subsidiaries, which are related parties of TSMC, have been eliminated upon consolidation; therefore those items are not disclosed in this note. The following is a summary of transactions between the Company and other related parties:

 

a.

Net Revenue

 

 

b.

Purchases

 

 

c.

Receivables from related parties

 

 

- 44 -

---

d.

Payables to related parties

 

 

e.

Acquisition of property, plant and equipment and intangible assets

 

 

f.

Disposal of property, plant and equipment

 

 

 

 

- 45 -

---

g.

Others

 

 

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, price and terms were determined in accordance with mutual agreements.

The Company leased machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid quarterly and the related expense was classified under manufacturing expenses.

The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to related parties (transactions with associates and joint venture), and then recognized such gain/loss over the depreciable lives of the disposed assets.

 

h.

Compensation of key management personnel:

The compensation to directors and other key management personnel for the six months ended June 30, 2014 and 2013 were as follows:

 

The compensation to directors and other key management personnel were determined by the Compensation Committee of TSMC in accordance with the individual performance and the market trends.

 

- 46 -

---

33.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for building lease agreements. As of June 30, 2014, December 31, 2013 and June 30, 2013, the aforementioned other financial assets amounted to NT$120,705 thousand, NT$120,566 thousand and NT$120,987 thousand, respectively.

 

34.	SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company leases several parcels of land, factory and office premises from the Science Park Administration and entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between September 2014 and February 2034 and can be renewed upon expiration.

Future minimum lease payments under the above non-cancellable operating leases are as follows:

 

 

35.	SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

Significant contingent liabilities and unrecognized commitments of the Company as of the end of the reporting period, 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 provided 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. As of June 30, 2014, the R.O.C. Government did not invoke such right.

 

b.

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, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, 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 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 falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of June 30, 2014.

 

- 47 -

---

c.

In June 2010, Keranos, LLC. filed a complaint 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 lawsuit in the U.S. District Court for the Eastern District of Texas. In February 2014, the Court entered a final judgment in favor of TSMC, dismissing all of Keranos’ claims against TSMC with prejudice. In March, 2014, Keranos filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

d.

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 infringing several U.S. patents. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

e.

TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 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. TSMC Global has acquired the aforementioned equity on October 31, 2012. Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of June 30, 2014, TSMC has paid EUR82,637 thousand to ASML under the research and development funding agreement.

 

f.

In September 2013, Zond Inc. filed a complaint in U.S. District Court for the District of Massachusetts against TSMC, certain TSMC subsidiaries and other companies. Both sides have since then taken a number of further legal actions. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

g.

In December 2013, Tela Innovations (Tela), Inc. filed complaints in the U.S. District Court for the District of Delaware and in the United States International Trade Commission (ITC) accusing TSMC and TSMC North America of infringing one U.S. patent. The Delaware case had been stayed since February 2014. In March 2014, the ITC Court granted Tela’s motion to assert an additional U.S. patent against TSMC and TSMC North America. In January 2014, TSMC filed a lawsuit in the U.S. District Court for the District of North California against Tela for trade secret misappropriation and breach of contract. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

h.

In March 2014, DSS Technology Management, Inc. filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, TSMC Development, Inc., and several other companies infringe one U.S. patent. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

i.

Amounts available under unused letters of credit as of June 30, 2014, December 31, 2013 and June 30, 2013 were NT$89,568 thousand, NT$89,400 thousand and NT$89,904 thousand, respectively.

 

- 48 -

---

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

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

 

 

(Continued)

 

- 49 -

---

(Concluded)

 

Note:

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

 

37.	OPERATING SEGMENTS INFORMATION

 

a.

Operating segments

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, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the income from operations as the measurement for segment profit and the basis of performance assessment. There was no material differences between the accounting policies of the operating segment and the accounting policies described in Note 4.

 

b.

Segment revenue and operating results

 

 

(Continued)

 

- 50 -

---

(Concluded)

 

38.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the Securities and Futures Bureau (SFB) for TSMC:

 

a.

Financings provided:    Please see Table 1 attached;

 

b.

Endorsement/guarantee provided:    Please see Table 2 attached;

 

c.

Marketable securities held (excluding investments in subsidiaries, associates and jointly controlled entities):    Please see Table 3 attached;

 

d.

Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital:    Please see Table 4 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$300 million or 20% of the paid-in capital:    Please see Table 5 attached;

 

f.

Disposal of individual real estate properties at prices of at least NT$300 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 6 attached;

 

h.

Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:    Please see Table 7 attached;

 

i.

Information about the derivative financial instruments transaction:    Please see Notes 7 and 10;

 

j.

Others:    The business relationship between the parent and the subsidiaries, and significant transactions between them:    Please see Table 8 attached;

 

- 51 -

---

k.

Names, locations, and related information of investees over which TSMC exercises significant influence (excluding information on investment in Mainland China):    Please see Table 9 attached;

 

l.

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, income (losses) of the investee, share of profits/losses of investee, ending balance, amount received as dividends from the investee, and the limitation on investee:    Please see Table 10 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 8 attached.

 

- 52 -

---

TABLE 1

 

Taiwan

Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2014

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

 

 

No.

Finan- cing Company

Counter- party

Financial       Statement       Account

Related Party

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

Transac- tion Amounts

Reason for Financing

Allow- ance 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 Solar

Other receivables from related parties

Yes

$  4,179,840 (US$ 140,000)

$  4,179,840 (US$ 140,000)

$  3,284,160 (US$ 110,000)

0.37%-0.3805%

The need for   short-term financing

$

-

Operating capital

$

-

-

$

-

$

17,566,701

$

43,916,752

TSMC SSL

Other receivables from related parties

Yes

1,791,360 (US$ 60,000)

1,791,360 (US$ 60,000)

597,120 (US$ 20,000)

0.37%

The need for short-term financing

-

Operating capital

-

-

-

17,566,701

43,916,752

 

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. The above restriction does not apply to the subsidiaries whose voting shares are 90% and up owned, directly or indirectly, by TSMC (90% and up owned subsidiaries). However, the aggregate amounts lendable to 90% and up owned subsidiaries and the total amount lendable to one such borrower of 90% and up owned subsidiaries shall not exceed forty percent (40%) of the net worth of TSMC Partners.
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 represent the amounts approved by the Board of Directors.

 

- 53 -

---

TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE SIX MONTHS ENDED JUNE 30, 2014

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

 

 

No.

Endorse- ment/  Guarantee  Provider

Guaranteed Party

Limits on Endorse- ment/   Guarantee Amount Provided to Each Guaranteed Party (Notes 1 and 2)

Maximum Balance for the Period (US$ in Thousands) (Note 3)

Ending Balance (US$ in Thousands) (Note 3)

Amount Actually Drawn (US$ in Thousands)

Amount of Endorse- ment/ Guarantee Collateralized by Properties

Ratio of Accumu- lated Endorse- ment/ Guarantee to Net Equity per Latest Financial Statements

Maximum Endorse- ment/ Guarantee Amount Allowable (Note 2)

Guarantee  Provided by Parent Company

Guarantee  Provided by A Subsidiary

Guarantee Provided to Subsidiaries in Mainland China

Name

Nature of Relationship

0

TSMC

TSMC Global

Subsidiary

$

219,196,629

$      44,784,000 (US$  1,500,000

)

$      44,784,000 (US$  1,500,000

)

$      44,784,000 (US$  1,500,000

)

$

-

5.1%

$

219,196,629

Yes

No

No

 

Note 1:		The total amount of the guarantee provided by TSMC to any individual entity shall not exceed ten percent (10%) of TSMC’s net worth, or the net worth of such entity. However, subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions after the approval of the Board of Directors.
Note 2:		The total amount of guarantee shall not exceed twenty-five percent (25%) of TSMC’s net worth.
Note 3:		The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.

 

- 54 -

---

TABLE 3

 

Taiwan

Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

JUNE 30, 2014

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

 

 

Held Company Name		Marketable Securities       Type and       Name		Relationship    with the    Company		Financial Statement  Account		JUNE 30, 2014														Note
								Shares/Units         (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of     Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC		Commercial paper
		Taiwan Power Company		-		Held-to-maturity financial assets			30			$	299,230			N/A		$	299,857
		Stock
		Semiconductor Manufacturing International Corporation		-		Available-for-sale financial assets			275,957				711,832			1			711,832			Note 1
		United Industrial Gases Co., Ltd.		-		Financial assets carried at cost			21,230				193,584			10			393,875
		Shin-Etsu Handotai Taiwan Co., Ltd.		-		”			10,500				105,000			7			334,199
		W.K. Technology Fund IV		-		”			4,000				39,280			2			35,746
		Fund
		Horizon Ventures Fund		-		Financial assets carried at cost			-				78,303			12			78,303
		Crimson Asia Capital		-		”			-				53,211			1			53,211
TSMC Global		Stock
		ASML		-		Available-for-sale financial assets			20,993			US$	1,954,417			5		US$	1,954,417			Note 2
		Money market fund
		Ssga Cash Mgmt Global Offshore		-		Available-for-sale financial assets			12			US$	12			N/A		US$	12
TSMC Partners		Stock
		Mcube		-		Financial assets carried at cost			6,333				-			16			-
		Fund
		Shanghai Walden Venture Capital Enterprise		-		Financial assets carried at cost			-			US$	5,000			6		US$	5,000
Emerging Alliance		Common stock
		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				-			-			-			Note 3
		QST Holdings, LLC		-		”			-			US$	141			4		US$	141
ISDF		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost			230			US$	497			2		US$	497
ISDF II		Common stock
		Alchip Technologies Limited		-		Financial assets carried at cost			6,857			US$	3,341			14		US$	3,341
		Sonics, Inc.		-		”			278			US$	10			3		US$	10
		Goyatek Technology, Corp.		-		”			745			US$	163			6		US$	163
		Preferred stock
		Sonics, Inc.		-		Financial assets carried at cost			264			US$	456			3		US$	456

(Continued)

 

- 55 -

---

Held Company Name		Marketable Securities         Type and         Name		Relationship    with the    Company		Financial Statement  Account		JUNE 30, 2014														Note
								Shares/Units         (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of     Ownership (%)		Fair Value (Foreign Currencies in Thousands)
VTAF II		Common stock
		Sentelic		-		Financial assets carried at cost			1,806			US$	2,607			8		US$	2,607
		Aether Systems, Inc.		-		”			2,600			US$	2,243			28		US$	2,243
		RichWave Technology Corp.		-		”			1,267			US$	1,036			3		US$	1,036
		Preferred stock
		5V Technologies, Inc.		-		Financial assets carried at cost			963			US$	2,168			2		US$	2,168
		Aquantia		-		”			4,643			US$	4,441			2		US$	4,441
		Cresta Technology Corporation		-		”			92			US$	28			-		US$	28
		Impinj, Inc.		-		”			711			US$	1,100			-		US$	1,100
		Next IO, Inc.		-		”			179				-			1			-			Note 4
		QST Holdings, LLC		-		”			-			US$	588			13		US$	588
VTAF III		Common stock
		Synaptics		-		Available-for-sale financial assets			7			US$	486			-		US$	644
		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.		-		”			4,147			US$	170			-		US$	170			Note 5
		Powervation, Ltd.		-		”			527			US$	8,238			15		US$	8,238
		Tilera, Inc.		-		”			3,890			US$	3,025			2		US$	3,025

 

Note 1:		The carrying value represents carrying amount less accumulated impairment of NT$412,901 thousand.
Note 2:		In October 2012, TSMC Global acquired 5% of the outstanding equity of ASML with a lock-up period of 2.5 years starting from the acquisition date.
Note 3:		The carrying value represents carrying amount less accumulated impairment of US$500 thousand.
Note 4:		The carrying value represents carrying amount less accumulated impairment of US$1,219 thousand.
Note 5:		The carrying value represents carrying amount less accumulated impairment of US$4,672 thousand.		(Concluded)

 

- 56 -

---

TABLE 4

 

Taiwan

Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2014

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

 

 

Company Name		Market- able Securities Type and Name		Financial Statement Account		Counter-  party		Nature of Relation-  ship		Beginning Balance								Acquisition								Disposal																Ending Balance (Note 1)
										Shares/ Units (In Thou- sands)				Amount				Shares/ Units (In Thou- sands)				Amount				Shares/ Units (In Thou- sands)				Amount				Carrying Value				Gain/ Loss on Disposal				Shares/ Units (In Thou- sands)				Amount
TSMC		Commercial Paper
		CPC Corporation, Taiwan		Held-to-maturity financial assets		-		-			100				$     998,018				60				$    598,817				160			$	1,600,000				$    1,596,835			$	3,165				-				$                -
		Taiwan Power Company		”		-		-			80				797,931				80				797,906				130				1,300,000				1,296,607				3,393				30				299,230
		Stock
		Vanguard International Semiconductor Corporation		Investments accounted for using equity method		Public Market		Associate			628,223				10,556,348				-				-				82,000				3,471,883				1,443,240				2,028,643				546,223				9,205,352
TSMC		Stock
Development		WaferTech		Investments accounted for using equity method		Note 2		Subsidiary			293,637				US$248,252				-				-				-				-				US$  50,000				-				293,637				US$220,951

 

Note 1:		The ending balance includes share of profits/losses of investees and other related adjustment to equity.
Note 2:		The disposal is primarily consisted of capital return.

 

- 57 -

---

TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(Amounts in Thousands of New Taiwan Dollars)

 

 

Company  Name

Types of  Property

Transaction Date

Transaction  Amount

Payment Term

Counter-party

Nature of Relation-  ships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relation-  ships

Transfer  Date

Amount

TSMC

Fab

April 9, 2013 to February 21, 2014

$      310,469

Monthly settlement by the construction progress and acceptance

Mandartech Interiors Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

January 13, 2013 to June 18, 2014

491,470

Monthly settlement by the construction progress and acceptance

Tasa Construction Inc.

-

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

 

- 58 -

---

TABLE 6

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, 2014

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

 

 

Company   Name		Related     Party		Nature of   Relationships		Transaction Details										Abnormal Transaction				Notes/Accounts Payable or Receivable						Note
						Purchases/   Sales		Amount (Foreign Currencies in Thousands)				% to      Total		Payment Terms		Unit    Price    (Note)		Payment    Terms    (Note)		Ending Balance (Foreign Currencies in Thousands)				% to     Total
TSMC		TSMC North America		Subsidiary		Sales		$	215,959,508			65		Net 30 days from invoice date		-		-		$	59,308,777			70
		GUC		Associate		Sales			1,200,675			-		Net 30 days from the end of the month of when invoice is issued		-		-			351,004			-
		TSMC China		Subsidiary		Purchases			8,215,495			23		Net 30 days from the end of the month of when invoice is issued		-		-			(1,866,052	)		8
		WaferTech		Indirect subsidiary		Purchases			4,059,315			11		Net 30 days from the end of the month of when invoice is issued		-		-			(637,224	)		3
		VIS		Associate		Purchases			3,735,307			11		Net 30 days from the end of the month of when invoice is issued		-		-			(681,595	)		3
		SSMC		Associate		Purchases			2,116,541			6		Net 30 days from the end of the month of when invoice is issued		-		-			(430,904	)		2
TSMC Solar		TSMC Solar Europe GmbH		Subsidiary		Sales			188,719			64		Net 30 days from the end of the month of when invoice is issued		-		-			85,619			93
TSMC North America		GUC		Associate of TSMC		Sales		(US$	724,011 23,986	)		-		Net 30 days from invoice date		-		-		(US$	111,700 3,741	)		-

 

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.

 

- 59 -

---

TABLE 7

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, 2014

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

 

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days   (Note 1)		Overdue						Amounts Received   in Subsequent Period		Allowance for  Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	59,756,350			47		$	21,592,233			-		$  25,020,309		$              -
		GUC		Associate			491,591			43			-			-		-		-
		VIS		Associate			1,055,169			(Note 2)			-			-		-		-
		SSMC		Associate			1,565,536			(Note 2)			-			-		-		-
TSMC Partners		TSMC Solar		The same parent company			3,291,392			(Note 2)			-			-		-		-
						(US$	110,242)
		TSMC SSL		The same parent company			597,991			(Note 2)			-			-		-		-
						(US$	20,029)
TSMC China		TSMC		Parent company			1,866,052			35			-			-		-		-
						(RMB	387,823)
TSMC North America		GUC		Associate of TSMC			111,700			23			-			-		-		-
						(US$	3,741)
TSMC Technology		TSMC		Parent company			289,167			(Note 2)			-			-		-		-
						(US$	9,685)
WaferTech		TSMC		Parent company			637,224			30			-			-		-		-
						(US$	21,343)

 

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.

 

- 60 -

---

TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

(Amounts in Thousands of New Taiwan Dollars)

 

 

A.	For the six months ended June 30, 2014

 

No.		Company Name		Counter Party		Nature of     Relationship    (Note 1)					Intercompany Transactions
											Financial Statements Item		Amount		Terms    (Note 2)					Percentage of  Consolidated Net Revenue  or Total Assets
0		TSMC		TSMC North America				1			Net revenue from sale of goods		$  215,959,508				-					65	%
											Receivables from related parties		59,308,777				-					4	%
											Other receivables from related parties		447,573				-					-
											Payables to related parties		5,766				-					-
				TSMC China				1			Net revenue from sale of goods		5,160				-					-
											Purchases		8,215,495				-					2	%
											Marketing expenses - commission		49,400				-					-
											Disposal of property, plant and equipment		1,551				-					-
											Gain on disposal of property, plant and equipment		7,080				-					-
											Purchases of property, plant and equipment		8,198				-					-
											Other receivables from related parties		1,869				-					-
											Payables to related parties		1,866,052				-					-
				TSMC Japan				1			Marketing expenses - commission		122,062				-					-
											Payables to related parties		24,203				-					-
				TSMC Europe				1			Marketing expenses - commission		202,653				-					-
											Research and development expenses		36,275				-					-
											Payables to related parties		46,049				-					-
				TSMC Korea				1			Marketing expenses - commission		13,574				-					-
											Payables to related parties		4,050				-					-
				TSMC Technology				1			Research and development expenses		581,061				-					-
											Payables to related parties		289,167				-					-
				WaferTech				1			Net revenue from sale of goods		4,578				-					-
											Purchases		4,059,315				-					1	%
											Other receivables from related parties		7,381				-					-
											Payables to related parties		637,224				-					-
											Disposal of property, plant and equipment		4,212				-					-
											Manufacturing expenses		1,219				-					-
				TSMC Canada				1			Research and development expenses		104,408				-					-
											Payables to related parties		16,885				-					-
				TSMC SSL				1			Manufacturing expenses		25,095				-					-
											Other gains and losses		4,050				-					-
											Other receivables from related parties		2,036				-					-
											Payables to related parties		10,639				-					-
											Purchases of property, plant and equipment		38,606				-					-

(Continued)

 

- 61 -

---

No.		Company Name		Counter Party		Nature of     Relationship    (Note 1)					Intercompany Transactions
											Financial Statements Item		Amount		Terms    (Note 2)					Percentage of  Consolidated Net Revenue  or Total Assets
0		TSMC		TSMC Solar				1			Other gains and losses		$        4,818				-					-
											Other receivables from related parties		2,467				-					-
1		TSMC Development		WaferTech				1			Other receivables from related parties		58,882				-					-
2		TSMC North America		TSMC Technology				3			Other receivables from related parties		19,477				-					-
3		TSMC Solar		TSMC Solar Europe GmbH				1			Net revenue from sale of goods		188,719				-					-
											Receivables from related parties		85,619				-					-
				TSMC Solar North America				1			Net revenue from sale of goods		6,372				-					-
											Receivables from related parties		6,318				-					-
				TSMC Partners				3			Finance costs		5,233				-					-
											Other payables to related parties		3,291,392				-					-
4		TSMC SSL		TSMC Partners				3			Other payables to related parties		597,991				-					-
				TSMC China				3			Net revenue from sale of goods		3,197				-					-

 

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)

 

- 62 -

---

TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INFORMATION ON INVESTMENT IN MAINLAND CHINA)

JUNE 30, 2014

(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, 2014										Net Income (Losses) of the Investee (Foreign  Currencies in  Thousands)				Share of Profits/ Losses of Investee (Note 1) (Foreign  Currencies in  Thousands)				Note
								June 30, 2014 (Foreign Currencies in Thousands)				December 31, 2013 (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		$	64,609,321			$	93,293			$	93,293			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			43,912,641				982,072				982,125			Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			11,786,871				13,232,288				546,223			33			9,205,352				2,665,771				885,867			Associate
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314			39			6,940,820				2,540,544				985,478			Associate
		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			3,882,201				(660,694)				(653,196)			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			3,757,434				(53,385)				(53,385)			Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			5,546,744				5,546,744				554,674			92			1,246,459				(981,710)				(908,460)			Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,950			40			1,875,195				202,791				57,902			Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688			35			1,022,092				253,146				89,119			Associate
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,813,466				1,908,912				-			98			824,495				21,624				21,205			Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			602,454				596,514				-			98			443,893				(4,683)				(4,590)			Subsidiary
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				-			100			309,333				20,626				20,626			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			844,775				841,757				-			99.5			146,399				(1,797)				(1,788)			Subsidiary
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6			100			132,935				3,248				3,248			Subsidiary
		TSMC GN		Taipei, Taiwan		Investment activities			150,000				150,000				-			100			48,143				(17,204)				(17,204)			Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80			100			32,736				1,962				1,962			Subsidiary
TSMC Solar		Motech		New 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			3,745,429				180,296				Note 2			Associate
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			504,107				504,107				-			100			14,297				(75,342)				Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			205,772				205,772				1			100			(5,969)				(14,447)				Note 2			Subsidiary
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products			3,133				3,133				1			100			2,873				(6)				Note 2			Subsidiary

(Continued)

 

- 63 -

---

Investor   Company

Investee   Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of June 30, 2014

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

Share of Profits/ Losses of Investee (Note 1) (Foreign  Currencies in  Thousands)

Note

June 30, 2014 (Foreign Currencies in Thousands)

December 31, 2013 (Foreign Currencies in Thousands)

Shares (In Thousands)

Percentage of  Ownership

Carrying Value (Foreign  Currencies in  Thousands)

TSMC Partners

TSMC Development

Delaware, U.S.A.

Investment activities

$ (US$

0.03   0.001)

$ (US$

0.03   0.001)

-

100

$ (US$

21,373,155   715,875)

$ (US$

728,094    24,121)

Note 2

Subsidiary

VisEra Holding

Cayman Islands

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

(US$

1,283,808   43,000)

(US$

1,283,808   43,000)

43,000

49

(US$

3,570,515   119,591)

(US$

141,424   4,685)

Note 2

Jointly controlled entity

TSMC Technology

Delaware, U.S.A.

Engineering support activities

(US$

0.03   0.001)

(US$

0.03   0.001)

-

100

(US$

416,627   13,955)

(US$

29,248   969)

Note 2

Subsidiary

ISDF II

Cayman Islands

Investing in new start-up technology companies

(US$

277,631   9,299)

(US$

422,552   14,153)

14,153

97

(US$

219,450   7,350)

(US$

42,967   1,423)

Note 2

Subsidiary

ISDF

Cayman Islands

Investing in new start-up technology companies

(US$

17,406   583)

(US$

23,497   787)

787

97

(US$

16,578   555)

(US$

(848)  (28))

Note 2

Subsidiary

TSMC Canada

Ontario, Canada

Engineering support activities

(US$

68,669   2,300)

(US$

68,669   2,300)

2,300

100

(US$

150,075   5,027)

(US$

7,193   238)

Note 2

Subsidiary

TSMC Development

WaferTech

Washington, U.S.A.

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

(US$

895,680   30,000)

(US$

2,388,480   80,000)

293,637

100

(US$

6,596,716   220,951)

(US$

685,179    22,699)

Note 2

Subsidiary

VTAF III

Mutual-Pak Technology Co., Ltd.

New Taipei, Taiwan

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

(US$

155,609   5,212)

(US$

155,609   5,212)

15,643

58

(US$

34,484   1,155)

(US$

(3,334)   (110))

Note 2

Subsidiary

Growth Fund

Cayman Islands

Investing in new start-up technology companies

(US$

63,593   2,130)

(US$

63,593   2,130)

-

100

(US$

16,467   552)

(US$

(1,660)  (55))

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

505,300   12,400)

(EUR

505,300   12,400)

-

100

(EUR

18,066   443)

(EUR

(68,462)   (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

53,092

52,498

5,309

-

18,332

(660,694)

Note 2

Associate

TSMC SSL

Hsin-Chu, Taiwan

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

86,549

54,359

8,655

1

19,476

(981,710)

Note 2

Associate

 

Note 1:		The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.
Note 2:		The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.
Note 3:		Please refer to Table 10 for information on investment in Mainland China.

(Concluded)

 

- 64 -

---

TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE SIX MONTHS ENDED JUNE 30, 2014

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

 

 

Investee   Company

Main Businesses and Products

Method of  Investment

Accumulated

Investment Flows

Accumulated

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

Outflow of  Investment  from Taiwan  as of  January 1,  2014  (US$ in  Thousands)

Outflow

Inflow

Outflow of  Investment  from Taiwan  as of  June 30,  2014  (US$ in  Thousands)

Net Income (Losses) of the Investee Company

Percentage  of  Ownership

Share of Profits/Losses

Carrying Amount as of June 30, 2014

Accumulated    Inward    Remittance    of Earnings    as of    June 30,    2014

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)

$   18,939,667   (US$ 596,000)

$

-

$

-

$ (US$

18,939,667  596,000)

$

2,801,700

100%

$

2,635,734 (Note 2)

$

26,034,876

$

-

 

Accumulated Investment in Mainland China  as of June 30, 2014  (US$ in Thousands)		Investment Amounts Authorized by  Investment Commission, MOEA  (US$ in Thousands)		Upper Limit on Investment (US$ in Thousands)
$  18,939,667 (US$ 596,000)		$  18,939,667 (US$ 596,000)		$  18,939,667 (US$ 596,000)

 

Note 1:		TSMC directly invested US$596,000 thousand in TSMC China.
Note 2:		Amount was recognized based on the reviewed financial statements.

 

- 65 -