Form 6-K

1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2012

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨             No  x

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

 

 

 


SIGNATURES

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

 

 

   

Taiwan Semiconductor Manufacturing Company Ltd.

Date: September 4, 2012     By  

/s/ Lora Ho

     

Lora Ho

     

Senior Vice President & Chief Financial Officer


 

 

Taiwan Semiconductor Manufacturing

Company Limited

Financial Statements for the

Six Months Ended June 30, 2012 and 2011 and

Independent Auditors’ Report


INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

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

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

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

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

August 14, 2012

Notice to Readers

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

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

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

JUNE 30, 2012 AND 2011

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

 

 

     2012     2011  
ASSETS    Amount     %     Amount     %  

CURRENT ASSETS

        

Cash and cash equivalents (Notes 2 and 4)

   $ 116,989,019        14      $ 95,297,486        13   

Financial assets at fair value through profit or loss (Notes 2, 5 and 22)

     18,950        -        17,455        -   

Available-for-sale financial assets (Notes 2, 6 and 22)

     1,756,835        -        4,171,309        1   

Held-to-maturity financial assets (Notes 2, 7 and 22)

     700,562        -        2,114,955        -   

Receivables from related parties (Notes 3 and 23)

     38,476,727        5        27,402,025        4   

Notes and accounts receivable (Note 3)

     21,578,627        3        23,797,744        3   

Allowance for doubtful receivables (Notes 2, 3 and 8)

     (485,120     -        (488,000     -   

Allowance for sales returns and others (Notes 2 and 8)

     (6,262,194     (1     (5,641,777     (1

Other receivables from related parties (Notes 3 and 23)

     652,396        -        3,231,557        -   

Other financial assets

     155,754        -        423,794        -   

Inventories (Notes 2 and 9)

     28,428,847        3        28,404,692        4   

Deferred income tax assets (Notes 2 and 17)

     2,540,243        -        1,053,036        -   

Prepaid expenses and other current assets

     1,812,338        -        1,068,001        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     206,362,984        24        180,852,277        24   
  

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM INVESTMENTS (Notes 2, 7, 10, 11 and 22)

        

Investments accounted for using equity method

     132,250,792        15        110,458,979        15   

Held-to-maturity financial assets

     701,723        -        1,404,575        -   

Financial assets carried at cost

     497,835        -        497,835        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

     133,450,350        15        112,361,389        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 23)

Cost

        

Buildings

     165,491,613        19        146,790,740        19   

Machinery and equipment

     1,113,874,688        127        950,275,417        124   

Office equipment

     15,395,864        2        12,915,965        2   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,294,762,165        148        1,109,982,122        145   

Accumulated depreciation

     (859,587,011     (98     (754,185,331     (99

Advance payments and construction in progress

     79,017,436        9        93,045,607        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     514,192,590        59        448,842,398        58   
  

 

 

   

 

 

   

 

 

   

 

 

 

INTANGIBLE ASSETS

        

Goodwill (Note 2)

     1,567,756        -        1,567,756        -   

Deferred charges, net (Notes 2 and 13)

     4,505,501        1        5,216,575        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets

     6,073,257        1        6,784,331        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS

        

Deferred income tax assets (Notes 2 and 17)

     8,056,117        1        10,855,491        1   

Refundable deposits

     4,263,506        -        4,796,851        1   

Others (Notes 2 and 23)

     962,456        -        1,380,133        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

     13,282,079        1        17,032,475        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

   $ 873,361,260        100      $ 765,872,870        100   
  

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND    2012     2011  
SHAREHOLDERS’ EQUITY    Amount     %     Amount     %  

CURRENT LIABILITIES

        

Short-term loans (Note 14)

   $ 30,772,585            4      $ 33,140,881            4   

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 22)

  

 

26,718

  

 

 

-

  

 

 

-

  

 

 

-

  

Accounts payable

     12,803,106        1        10,138,171        1   

Payables to related parties (Note 23)

     3,658,125        -        3,386,091        -   

Income tax payable (Notes 2 and 17)

     6,779,393        1        6,076,318        1   

Cash dividends payable (Note 19)

     77,748,668        9        77,730,236        10   

Accrued profit sharing to employees and bonus to directors (Notes 2 and 19)

     14,132,524        2        15,859,637        2   

Payables to contractors and equipment suppliers

     43,949,310        5        34,942,119        5   

Accrued expenses and other current liabilities (Note 22)

     16,838,182        2        11,786,554        2   

Current portion of bonds payable (Notes 15 and 22)

     -        -        4,500,000        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     206,708,611        24        197,560,007        26   
  

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM LIABILITIES

        

Bonds payable (Notes 15 and 22)

     35,000,000        4        -        -   

Other long-term payable (Note 22)

     54,000        -        -        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term liabilities

     35,054,000        4        -        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER LIABILITIES

        

Accrued pension cost (Notes 2 and 16)

     3,883,230        -        3,860,459        -   

Guarantee deposits (Note 25)

     250,129        -        502,883        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other liabilities

     4,133,359        -        4,363,342        -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

         245,895,970        28            201,923,349        26   
  

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL STOCK - NT$10 PAR VALUE (Note 19)

        

Authorized: 28,050,000 thousand shares Issued: 25,920,709 thousand shares in 2012 25,914,283 thousand shares in 2011

     259,207,094        30        259,142,831        34   
  

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SURPLUS (Notes 2 and 19)

     56,025,149        6        55,802,387        7   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

RETAINED EARNINGS (Note 19)

        

Appropriated as legal capital reserve

     115,820,123        13        102,399,995        13   

Appropriated as special capital reserve

     7,606,224        1        6,433,874        1   

Unappropriated earnings

     196,302,944        23        151,443,573        20   
  

 

 

   

 

 

   

 

 

   

 

 

 
     319,729,291        37        260,277,442        34   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHERS

        

Cumulative translation adjustments (Note 2)

     (7,830,895     (1     (11,461,047     (1

Unrealized gain on financial instruments (Notes 2 and 22)

     334,651        -        187,908        -   
  

 

 

   

 

 

   

 

 

   

 

 

 
     (7,496,244     (1     (11,273,139     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     627,465,290        72        563,949,521        74   
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

   $ 873,361,260        100      $ 765,872,870        100   
  

 

 

   

 

 

   

 

 

   

 

 

 
 

 

 

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

 

- 2 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

     2012      2011
          Amount     %           Amount      %       

GROSS SALES (Notes 2 and 23)

      $   234,483,507            $   212,301,752         

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

        3,734,225              1,907,979         
     

 

 

         

 

 

       

NET SALES

        230,749,282        100            210,393,773         100      

COST OF SALES (Notes 9, 18 and 23)

        121,938,291        53            113,265,613         54      
     

 

 

   

 

 

       

 

 

    

 

 

    

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

        108,810,991        47            97,128,160         46      

REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES
(Note 2)

        (139,950     -            249,480         -      
     

 

 

   

 

 

       

 

 

    

 

 

    

GROSS PROFIT

        108,671,041        47            97,377,640         46      
     

 

 

   

 

 

       

 

 

    

 

 

    

OPERATING EXPENSES (Notes 18 and 23)

                   

Research and development

        18,351,671        8            15,283,607         7      

General and administrative

        8,402,018        4            6,029,204         3      

Marketing

        1,155,674        -            1,211,366         1      
     

 

 

   

 

 

       

 

 

    

 

 

    

Total operating expenses

        27,909,363        12            22,524,177         11      
     

 

 

   

 

 

       

 

 

    

 

 

    

INCOME FROM OPERATIONS

        80,761,678        35            74,853,463         35      
     

 

 

   

 

 

       

 

 

    

 

 

    

NON-OPERATING INCOME AND GAINS

                   

Equity in earnings of equity method investees, net (Notes 2 and 10)

        5,083,116        3            2,914,860         2      

Interest income

        464,380        -            402,293         -      

Settlement income (Note 25)

        448,275        -            433,425         -      

Technical service income (Note 23)

        232,904        -            224,238         -      

Foreign exchange gain, net (Note 2)

        213,731        -            322,334         -      

Others (Notes 2 and 23)

        305,738        -            461,096         -      
     

 

 

   

 

 

       

 

 

    

 

 

    

Total non-operating income and gains

        6,748,144        3            4,758,246         2      
     

 

 

   

 

 

       

 

 

    

 

 

    

(Continued)

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

     2012    2011
          Amount      %                Amount      %       

NON-OPERATING EXPENSES AND LOSSES

                       

Impairment loss of financial assets (Notes 2, 6 and 22)

      $ 2,677,529         1             $ -         -      

Impairment loss on idle assets (Note 2)

        418,330         -               -         -      

Interest expense

        370,798         -               146,374         -      

Valuation loss on financial instruments, net (Notes 2, 5 and 22)

        150,310         -               197,255         -      

Loss on disposal of property, plant and equipment (Notes 2 and 23)

        66,620         -               153,131         -      

Others (Note 2)

        7,869         -               122,232         -      
     

 

 

    

 

 

          

 

 

    

 

 

    

Total non-operating expenses and losses

        3,691,456         1               618,992         -      
     

 

 

    

 

 

          

 

 

    

 

 

    

INCOME BEFORE INCOME TAX

        83,818,366         37               78,992,717         37      

INCOME TAX EXPENSE (Notes 2 and 17)

        8,531,562         4               6,764,610         3      
     

 

 

    

 

 

          

 

 

    

 

 

    

NET INCOME

      $   75,286,804           33             $   72,228,107           34      
     

 

 

    

 

 

          

 

 

    

 

 

    

 

     2012    2011
          Before
Income
Tax
     After
Income
Tax
               Before
Income
Tax
     After
Income
Tax
      

EARNINGS PER SHARE (NT$, Note 21)

                       

Basic earnings per share

      $ 3.23       $ 2.90             $ 3.05       $ 2.79      
     

 

 

    

 

 

          

 

 

    

 

 

    

Diluted earnings per share

      $ 3.23       $ 2.90             $ 3.05       $ 2.79      
     

 

 

    

 

 

          

 

 

    

 

 

    

 

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

     (Concluded)   

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

                                

Others

      
                                            Unrealized             
     Capital Stock - Common Stock         

Retained Earnings

       Cumulative     Gain/Loss          Total  
          Shares                  Capital          Legal      Special      Unappropriated                    Translation     On Financial          Shareholders’  
          (In Thousands)      Amount           Surplus          Capital Reserve      Capital Reserve      Earnings     Total              Adjustments     Instruments          Equity  

BALANCE, JANUARY 1, 2012

        25,916,222       $ 259,162,226          $ 55,846,357         $ 102,399,995       $ 6,433,874       $ 213,357,286      $ 322,191,155           $ (6,433,369   $ (1,172,855      $ 629,593,514   

Appropriations of prior year’s earnings

                                         

Legal capital reserve

        -         -            -           13,420,128         -         (13,420,128     -             -        -           -   

Special capital reserve

        -         -            -           -         1,172,350         (1,172,350     -             -        -           -   

Cash dividends to shareholders - NT$3.00 per share

        -         -            -           -         -         (77,748,668     (77,748,668          -        -           (77,748,668

Net income for the six months ended June 30, 2012

        -         -            -           -         -         75,286,804        75,286,804             -        -           75,286,804   

Adjustment arising from changes in percentage of ownership in
equity method investees

        -         -            83,954           -         -         -        -             -        -           83,954   

Translation adjustments

        -         -            -           -         -         -        -             (1,397,526     -           (1,397,526

Issuance of stock from exercising employee stock options

        4,487         44,868            94,838           -         -         -        -             -        -           139,706   

Net changes of valuation gain/loss on available-for-sale financial assets

        -         -            -           -         -         -        -             -        1,508,301           1,508,301   

Net change in shareholders’ equity from equity method investees

        -         -            -           -         -         -        -             -        (795        (795
     

 

 

    

 

 

       

 

 

      

 

 

    

 

 

    

 

 

   

 

 

        

 

 

   

 

 

      

 

 

 

BALANCE, JUNE 30, 2012

        25,920,709       $ 259,207,094          $ 56,025,149         $ 115,820,123       $ 7,606,224       $ 196,302,944      $ 319,729,291           $ (7,830,895   $ 334,651         $ 627,465,290   
     

 

 

    

 

 

       

 

 

      

 

 

    

 

 

    

 

 

   

 

 

        

 

 

   

 

 

      

 

 

 

BALANCE, JANUARY 1, 2011

        25,910,078       $ 259,100,787          $ 55,698,434         $ 86,239,494       $ 1,313,047       $ 178,227,030      $ 265,779,571           $ (6,543,163   $ 109,289         $ 574,144,918   

Appropriations of prior year’s earnings

                                         

Legal capital reserve

        -         -            -           16,160,501         -         (16,160,501     -             -        -           -   

Special capital reserve

        -         -            -           -         5,120,827         (5,120,827     -             -        -           -   

Cash dividends to shareholders - NT$3.00 per share

        -         -            -           -         -         (77,730,236     (77,730,236          -        -           (77,730,236

Net income for the six months ended June 30, 2011

        -         -            -           -         -         72,228,107        72,228,107             -        -           72,228,107   

Adjustment arising from changes in percentage of ownership in equity method investees

        -         -            14,643           -         -         -        -             -        -           14,643   

Translation adjustments

        -         -            -           -         -         -        -             (4,917,884     -           (4,917,884

Issuance of stock from exercising employee stock options

        4,205         42,044            89,310           -         -         -        -             -        -           131,354   

Net changes of valuation gain/loss on available-for-sale financial assets

        -         -            -           -         -         -        -             -        176,970           176,970   

Net change in shareholders’ equity from equity method investees

        -         -            -           -         -         -        -             -        (98,351        (98,351
     

 

 

    

 

 

       

 

 

      

 

 

    

 

 

    

 

 

   

 

 

        

 

 

   

 

 

      

 

 

 

BALANCE, JUNE 30, 2011

        25,914,283       $   259,142,831          $   55,802,387         $   102,399,995       $   6,433,874       $   151,443,573      $   260,277,442           $   (11,461,047   $ 187,908         $   563,949,521   
     

 

 

    

 

 

       

 

 

      

 

 

    

 

 

    

 

 

   

 

 

        

 

 

   

 

 

      

 

 

 

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

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 75,286,804      $ 72,228,107   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     57,167,176        49,954,937   

Unrealized (realized) gross profit from affiliates

     139,950        (249,480

Amortization of premium/discount of financial assets

     1,142        7,757   

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

     -        (35,151

Equity in earnings of equity method investees, net

     (5,083,116     (2,914,860

Cash dividends received from equity method investees

     1,285,480        1,914,392   

Loss on disposal of property, plant and equipment and other assets, net

     56,220        10,251   

Impairment loss of financial assets

     2,677,529        -   

Impairment loss on idle assets

     418,330        -   

Deferred income tax

     2,096,079        336,498   

Changes in operating assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     22,693        (25,289

Receivables from related parties

     (13,699,193     (1,668,051

Notes and accounts receivable

     (1,684,241     (1,546,839

Allowance for sales returns and others

     1,374,315        (1,699,667

Other receivables from related parties

     (65,063     (64,293

Other financial assets

     (33,744     (5,588

Inventories

     (5,575,450     (2,758,344

Prepaid expenses and other current assets

     (86,602     284,243   

Accounts payable

     2,787,642        (2,091,732

Payables to related parties

     615,433        811,641   

Income tax payable

     (3,868,404     (1,032,551

Accrued profit sharing to employees and bonus to directors

     5,076,820        4,900,168   

Accrued expenses and other current liabilities

     3,582,071        (1,875,486

Accrued pension cost

     22,332        35,858   
  

 

 

   

 

 

 

Net cash provided by operating activities

     122,514,203        114,516,521   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisitions of:

    

Property, plant and equipment

     (105,768,037     (139,147,091

Investments accounted for using equity method

     (2,170,738     (511,390

Proceeds from return of capital by investees

     186,726        -   

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     -        1,035,151   

Held-to-maturity financial assets

     -        2,675,000   

Property, plant and equipment and other assets

     83,226        2,068,298   

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

     2012     2011  

Increase in deferred charges

   $ (674,769   $ (788,025

Decrease in refundable deposits

     228,229        3,841,898   

Decrease (increase) in other assets

     30,798        (22,600
  

 

 

   

 

 

 

Net cash used in investing activities

     (108,084,565      (130,848,759
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

     4,846,057        2,232,244   

Proceeds from issuance of bonds

     17,000,000        -   

Repayment of bonds

     (4,500,000     -   

Decrease in guarantee deposits

     (188,903     (245,004

Proceeds from exercise of employee stock options

     139,706        131,354   
  

 

 

   

 

 

 

Net cash provided by financing activities

     17,296,860        2,118,594   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     31,726,498        (14,213,644

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     85,262,521        109,511,130   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 116,989,019      $ 95,297,486   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 266,881      $ 221,853   
  

 

 

   

 

 

 

Income tax paid

   $ 10,270,194      $ 7,417,035   
  

 

 

   

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

    

Acquisition of property, plant and equipment

   $ 116,448,332      $ 133,768,114   

Decrease (increase) in payables to contractors and equipment suppliers

     (10,630,116     5,379,459   

Increase in payables to related parties

     (50,110     -   

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash paid

   $ 105,768,037      $ 139,147,091   
  

 

 

   

 

 

 

Disposal of property, plant and equipment and other assets

   $ 65,393      $ 2,905,302   

Decrease (increase) in other receivables to related parties

     17,902        (836,522

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash received

   $ 83,226      $ 2,068,298   
  

 

 

   

 

 

 

Acquisition of deferred charges

   $ 787,769      $ 788,025   

Increase in other long-term payables (including current portion)

     (113,000     -   
  

 

 

   

 

 

 

Cash paid

   $ 674,769      $ 788,025   
  

 

 

   

 

 

 

(Continued)

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

                                           
     2012      2011  

NON-CASH INVESTING AND FINANCING ACTIVITIES

     

Idle assets reclassified from property, plant and equipment

   $ 418,330       $ -   
  

 

 

    

 

 

 

Current portion of other long-term payables (under accrued expenses and other current liabilities)

   $ 59,000       $ 897,298   
  

 

 

    

 

 

 

Current portion of bonds payable

   $ -       $ 4,500,000   
  

 

 

    

 

 

 

 

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

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

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

 

 

  1.

GENERAL

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

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

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

 

  2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Significant accounting policies are summarized as follows:

 

  

Foreign-currency Transactions

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

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

 

 

Use of Estimates

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

 

- 9 -


Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

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

Financial Assets/Liabilities at Fair Value Through Profit or Loss

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

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

Available-for-sale Financial Assets

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

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

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

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

Held-to-maturity Financial Assets

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

 

- 10 -


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

Financial Assets Carried at Cost

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

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

Allowance for Doubtful Receivables

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

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

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

Inventories

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

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

 

- 11 -


Investments Accounted for Using Equity Method

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

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

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

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

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

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

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

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

 

- 12 -


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

Intangible Assets

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

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

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

Pension Costs

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

Income Tax

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

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

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

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

 

- 13 -


Stock-based Compensation

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

Revenue Recognition and Allowance for Sales Returns and Others

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

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

Spin-off

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

 

  3.

ACCOUNTING CHANGES

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

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

 

- 14 -


  4.

CASH AND CASH EQUIVALENTS

 

     June 30
          2012      2011       

Cash and deposits in banks

      $ 108,197,295       $ 91,164,818      

Repurchase agreements collateralized by government bonds

        4,152,458         4,132,668      

Repurchase agreements collateralized by corporate bonds

        3,600,314         -      

Repurchase agreements collateralized by short-term commercial paper

        1,038,952         -      
     

 

 

    

 

 

    
      $ 116,989,019       $ 95,297,486      
     

 

 

    

 

 

    

 

  5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

     June 30
          2012      2011       

Trading financial assets

           

Forward exchange contracts

      $   18,950       $ -      

Cross currency swap contracts

        -         17,455      
     

 

 

    

 

 

    
      $ 18,950       $   17,455      
     

 

 

    

 

 

    

Trading financial liabilities

           

Forward exchange contracts

      $ 26,718       $ -      
     

 

 

    

 

 

    

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

Outstanding forward exchange contracts consisted of the following:

 

     Maturity Date   

Contract Amount

(In Thousands)

June 30, 2012

     

Sell US$/Buy JPY

   July 2012    US$211,000/JPY16,778,329

Sell US$/Buy EUR

   July 2012    US$46,396/EUR37,000

Sell NT$/Buy JPY

   July 2012    NT$1,127,870/JPY3,000,000

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date   

Contract Amount

(In Thousands)

   Range of
Interest Rates
Paid
   Range of
Interest Rates
Received

June 30, 2011

        

July 2011

   US$128,000/NT$3,699,250    0.46%-1.01%    -

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

 

- 15 -


  6.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

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

 

  7.

HELD-TO-MATURITY FINANCIAL ASSETS

 

     June 30
          2012     2011      

Corporate bonds

      $   1,402,285      $   3,519,530     

Current portion

        (700,562     (2,114,955  
     

 

 

   

 

 

   
      $ 701,723      $ 1,404,575     
     

 

 

   

 

 

   

 

  8.

ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

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

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

 

     Six Months Ended June 30
          2012     2011      

Balance, beginning of period

      $ 4,887,879      $ 7,341,444     

Provision

        3,734,225        1,907,979     

Write-off

        (2,359,910     (3,607,646  
     

 

 

   

 

 

   

Balance, end of period

      $ 6,262,194      $ 5,641,777     
     

 

 

   

 

 

   

 

  9.

INVENTORIES

 

     June 30
          2012      2011       

Finished goods

      $ 3,592,729       $ 6,952,784      

Work in process

        21,651,626         17,713,682      

Raw materials

        2,192,967         2,221,347      

Supplies and spare parts

        991,525         1,516,879      
     

 

 

    

 

 

    
      $   28,428,847       $   28,404,692      
     

 

 

    

 

 

    

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

 

- 16 -


  10.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     June 30
     2012    2011
          Carrying
Amount
     % of
Owner-
ship
               Carrying
Amount
     % of
Owner-
ship
      

TSMC Global Ltd. (TSMC Global)

      $     43,788,660         100             $     41,617,880         100      

TSMC Partners, Ltd. (TSMC Partners)

        38,087,704         100               32,657,501         100      

TSMC China Company Limited (TSMC China)

        15,255,074         100               5,198,868         100      

Vanguard International Semiconductor Corporation (VIS)

        8,857,198         41               9,110,898         38      

TSMC Solar

        8,626,042         99               -         -      

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

        5,935,087         39               5,519,534         39      

TSMC SSL

        3,224,899         95               -         -      

TSMC North America

        3,086,841         100               2,830,777         100      

Xintec Inc. (Xintec)

        1,524,811         40               1,596,809         41      

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

        1,236,004         52               2,587,484         99      

Global UniChip Corporation (GUC)

        1,110,221         35               1,064,925         35      

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

        843,778         98               1,015,748         98      

TSMC Europe B.V. (TSMC Europe)

        213,863         100               201,892         100      

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

        197,892         99               277,059         99      

TSMC Japan Limited (TSMC Japan)

        158,983         100               146,863         100      

TSMC Guang Neng Investment, Ltd. (TSMC GN)

        79,275         100               -         -      

TSMC Korea Limited (TSMC Korea)

        24,460         100               22,622         100      

Motech Industries Inc. (Motech)

        -         -               6,132,395         20      

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

        -         -               391,148         100      

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

        -         -               83,704         100      

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

        -         -               2,872         100      
     

 

 

             

 

 

       
      $     132,250,792                $     110,458,979         
     

 

 

             

 

 

       

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

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

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

 

- 17 -


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

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

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

 

     Six Months Ended June 30
          2012     2011      

Balance, beginning of period

      $ 275,584      $ 2,504,496     

Amortization

        (126,819     (476,809  
     

 

 

   

 

 

   

Balance, end of period

      $ 148,765      $ 2,027,687     
     

 

 

   

 

 

   

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

 

11.

FINANCIAL ASSETS CARRIED AT COST

 

     June 30
          2012      2011       

Non-publicly traded stocks

      $ 338,584       $ 338,584      

Mutual funds

        159,251         159,251      
     

 

 

    

 

 

    
      $ 497,835       $ 497,835      
     

 

 

    

 

 

    

 

12.

PROPERTY, PLANT AND EQUIPMENT

 

     Six Months Ended June 30, 2012
          Balance,
Beginning of
Period
    

Additions

  (Deductions)  

      Disposals       Reclassification    

Balance,

  End of Period  

      

Cost

                 

Buildings

      $ 149,495,478       $ 16,020,438      $ (24,303   $ -      $ 165,491,613      

Machinery and equipment

        984,978,666         130,284,874        (727,156     (661,696     1,113,874,688      

Office equipment

        13,824,434         1,896,031        (324,601     -        15,395,864      
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    
        1,148,298,578       $ 148,201,343      $ (1,076,060   $ (661,696     1,294,762,165      
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Accumulated depreciation

                 

Buildings

        90,274,267       $ 4,555,965      $ (23,035   $ -        94,807,197      

Machinery and equipment

        704,885,017         50,861,873        (724,659     (243,366     754,778,865      

Office equipment

        9,581,513         744,037        (324,601     -        10,000,949      
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    
        804,740,797       $ 56,161,875      $ (1,072,295   $ (243,366     859,587,011      
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Advance payments and construction in progress

        110,815,752       $ (31,753,011   $ (45,305   $ -        79,017,436      
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    
      $ 454,373,533             $ 514,192,590      
     

 

 

          

 

 

    

 

- 18 -


     Six Months Ended June 30, 2011
          Balance,
Beginning of
Period
     Additions      Disposals      Reclassification     

Balance,

End of Period

      

Cost

                    

Buildings

      $   128,646,942       $ 18,154,973       $ (11,175    $ -       $ 146,790,740      

Machinery and equipment

        852,733,592         98,688,934         (1,119,442      (27,667      950,275,417      

Office equipment

        11,730,537         1,424,494         (239,066      -         12,915,965      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
        993,111,071       $   118,268,401       $   (1,369,683    $ (27,667        1,109,982,122      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Accumulated depreciation

                    

Buildings

        81,347,877       $ 4,360,111       $ (9,762    $ -         85,698,226      

Machinery and equipment

        616,495,207         44,015,931         (1,079,340      (15,678      659,416,120      

Office equipment

        8,762,361         547,690         (239,066      -         9,070,985      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
        706,605,445       $ 48,923,732       $ (1,328,168    $ (15,678      754,185,331      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Advance payments and construction in progress

        80,348,673       $ 15,499,713       $ (2,802,779    $ -         93,045,607      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
      $ 366,854,299                $ 448,842,398      
     

 

 

             

 

 

    

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

 

13.

DEFERRED CHARGES, NET

 

     Six Months Ended June 30, 2012
         

Balance,

Beginning of

Period

     Additions      Amortization      Reclassification     

Balance,

End of Period

      

Technology license fees

      $ 1,617,310       $ -       $ (209,844    $ -       $ 1,407,466      

Software and system design costs

        2,316,571         375,826         (544,876      (57,438      2,090,083      

Patent and others

        785,363         411,943         (246,792      57,438         1,007,952      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
      $ 4,719,244       $ 787,769       $ (1,001,512    $ -       $ 4,505,501      
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

     Six Months Ended June 30, 2011
         

Balance,

Beginning of

Period

       Additions        Amortization       

Balance,

End of Period

      

Technology license fees

      $ 2,277,832         $ -         $ (334,985      $ 1,942,847      

Software and system design costs

        2,075,935           672,362           (507,499        2,240,798      

Patent and others

        1,102,660           115,663           (185,393        1,032,930      
     

 

 

      

 

 

      

 

 

      

 

 

    
      $ 5,456,427         $ 788,025         $ (1,027,877      $ 5,216,575      
     

 

 

      

 

 

      

 

 

      

 

 

    

 

14.

SHORT-TERM LOANS

 

     June 30
          2012      2011       

Unsecured loans:

           

US$1,029,700 thousand, due by August 2012, and annual interest at 0.53%-0.77% in 2012; US$922,000 thousand and EUR158,350 thousand, due in July 2011, and annual interest at 0.35%-1.53% in 2011

      $   30,772,585       $   33,140,881      
     

 

 

    

 

 

    

 

- 19 -


15.

BONDS PAYABLE

 

     June 30
          2012      2011      

Domestic unsecured bonds:

          

Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually

      $   10,500,000       $ -     

Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually

        7,500,000         -     

Issued in January 2012 and repayable in January 2017, 1.29% interest payable annually

        10,000,000         -     

Issued in January 2012 and repayable in January 2019, 1.46% interest payable annually

        7,000,000         -     

Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually

        -         4,500,000     
     

 

 

    

 

 

   
        35,000,000         4,500,000     

Current portion

        -         (4,500,000  
     

 

 

    

 

 

   
      $ 35,000,000       $ -     
     

 

 

    

 

 

   

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

 

16.

PENSION PLANS

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

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

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

 

     Six Months Ended June 30
          2012     2011      

The Fund

         

Balance, beginning of period

      $ 3,017,351      $ 2,835,231     

Contributions

        116,685        116,010     

Interest

        26,304        27,083     

Payments

        (10,791     (3,833  
     

 

 

   

 

 

   

Balance, end of period

      $ 3,149,549      $ 2,974,491     
     

 

 

   

 

 

   

Accrued pension cost

         

Balance, beginning of period

      $ 3,860,898      $ 3,824,601     

Accruals

        22,332        35,858     
     

 

 

   

 

 

   

Balance, end of period

      $ 3,883,230      $ 3,860,459     
     

 

 

   

 

 

   

 

- 20 -


17.

INCOME TAX

 

  a.

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

 

     Six Months Ended June 30
          2012     2011      

Income tax expense based on “income before income tax” at statutory rate (17%)

      $   14,249,122      $   13,428,762     

Tax effect of the following:

         

Tax-exempt income

        (4,601,908     (7,114,959  

Temporary and permanent differences

        (1,031,430     (1,064,087  

Additional income tax under the Alternative Minimum Tax Act

        -        102,078     

Additional tax at 10% on unappropriated earnings

        4,186,013        6,259,344     

Income tax credits used

        (6,444,051     (5,754,530  
     

 

 

   

 

 

   

Income tax currently payable

      $ 6,357,746      $ 5,856,608     
     

 

 

   

 

 

   

 

  b.

Income tax expense consisted of the following:

 

     Six Months Ended June 30
          2012     2011      

Income tax currently payable

      $ 6,357,746      $ 5,856,608     

Income tax adjustments on prior years

        48,609        464,078     

Other income tax adjustments

        29,128        107,426     

Net change in deferred income tax assets

         

Investment tax credits

        5,213,861        2,877,767     

Temporary differences

        (162,415     342,984     

Valuation allowance

        (2,955,367     (2,884,253  
     

 

 

   

 

 

   

Income tax expense

      $   8,531,562      $   6,764,610     
     

 

 

   

 

 

   

 

  c.

Deferred income tax assets consisted of the following:

 

     June 30
          2012     2011      

Current deferred income tax assets

         

Investment tax credits

      $ 1,184,000      $ 504,814     

Temporary differences

         

Allowance for sales returns and others

        626,219        479,551     

Unrealized loss on financial instruments

        455,180        44,719     

Others

        274,844        23,952     
     

 

 

   

 

 

   
      $ 2,540,243      $ 1,053,036     
     

 

 

   

 

 

   

Noncurrent deferred income tax assets

         

Investment tax credits

      $   13,782,099      $ 18,592,633     

Temporary differences

         

Depreciation

        1,416,895        1,843,188     

Others

        239,847        188,179     

Valuation allowance

        (7,382,724     (9,768,509  
     

 

 

   

 

 

   
      $ 8,056,117      $   10,855,491     
     

 

 

   

 

 

   

 

- 21 -


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

 

  d.

Integrated income tax information:

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

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

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

 

  e.

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

 

  f.

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

 

Law/Statute    Item    Total
Creditable
Amount
     Remaining
Creditable
Amount
     Expiry
Year

Statute for Upgrading Industries

   Purchase of machinery and equipment    $ 6,509,546       $ 6,509,546       2013
        7,006,655         7,006,655       2014
        482,351         482,351       2015
     

 

 

    

 

 

    
      $   13,998,552       $   13,998,552      
     

 

 

    

 

 

    

Statute for Upgrading Industries

   Research and development expenditures    $ 1,148,374       $ -       2012
        4,994,463         950,426       2013
     

 

 

    

 

 

    
      $ 6,142,837       $ 950,426      
     

 

 

    

 

 

    

Statute for Upgrading Industries

   Personnel training expenditures    $ 17,391       $ -       2012
        17,121         17,121       2013
     

 

 

    

 

 

    
      $ 34,512       $ 17,121      
     

 

 

    

 

 

    

Statute for Industrial Innovation

   Research and development expenditures    $ 1,234,249       $ -       2012
     

 

 

    

 

 

    

 

  g.

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

 

     Tax-exemption Period

Construction and expansion of 2004

   2008 to 2012

Construction and expansion of 2005

   2010 to 2014

Construction and expansion of 2006

   2011 to 2015

 

  h.

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

 

- 22 -


18.

LABOR COST, DEPRECIATION AND AMORTIZATION

 

     Six Months Ended June 30, 2012
          Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total       

Labor cost

              

Salary and bonus

      $ 12,836,051       $ 9,059,980       $ 21,896,031      

Labor and health insurance

        668,696         416,384         1,085,080      

Pension

        441,465         264,539         706,004      

Meal

        319,082         143,672         462,754      

Welfare

        120,965         74,897         195,862      

Others

        19,319         26,673         45,992      
     

 

 

    

 

 

    

 

 

    
      $   14,405,578       $   9,986,145       $   24,391,723      
     

 

 

    

 

 

    

 

 

    

Depreciation

      $ 51,166,519       $ 4,995,356       $ 56,161,875      
     

 

 

    

 

 

    

 

 

    

Amortization

      $ 638,174       $ 363,338       $ 1,001,512      
     

 

 

    

 

 

    

 

 

    

 

     Six Months Ended June 30, 2011
          Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total       

Labor cost

              

Salary and bonus

      $ 12,307,288       $ 8,604,243       $ 20,911,531      

Labor and health insurance

        622,318         348,469         970,787      

Pension

        452,941         253,415         706,356      

Meal

        328,234         134,064         462,298      

Welfare

        117,756         67,701         185,457      

Others

        28,121         16,350         44,471      
     

 

 

    

 

 

    

 

 

    
      $   13,856,658       $   9,424,242       $   23,280,900      
     

 

 

    

 

 

    

 

 

    

Depreciation

      $ 45,678,813       $ 3,238,520       $ 48,917,333      
     

 

 

    

 

 

    

 

 

    

Amortization

      $ 653,237       $ 374,640       $ 1,027,877      
     

 

 

    

 

 

    

 

 

    

 

19.

SHAREHOLDERS’ EQUITY

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

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

 

- 23 -


Capital surplus consisted of the following:

 

     June 30
          2012      2011       

Additional paid-in capital

      $   23,869,088       $   23,718,218      

From merger

        22,804,510         22,805,390      

From convertible bonds

        8,892,847         8,893,190      

From long-term investments

        458,649         385,534      

Donations

        55         55      
     

 

 

    

 

 

    
      $ 56,025,149       $ 55,802,387      
     

 

 

    

 

 

    

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

 

  a.

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

 

  b.

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

 

  c.

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

 

  d.

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

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

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

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

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

According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

 

- 24 -


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

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

 

    Appropriation of
Earnings
    Dividends Per  Share
(NT$)
    For Fiscal
Year 2011
    For Fiscal
Year 2010
      For Fiscal
  Year 2011
  For Fiscal  
Year 2010  

Legal capital reserve

  $ 13,420,128      $ 16,160,501       

Special capital reserve

    1,172,350        5,120,827       

Cash dividends to shareholders

    77,748,668        77,730,236      $3.00   $3.00
 

 

 

   

 

 

     
  $   92,341,146      $   99,011,564       
 

 

 

   

 

 

     

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

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

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

 

20.

STOCK-BASED COMPENSATION PLANS

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

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

 

- 25 -


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

 

    

Number of

Options

(In Thousands)

  

Weighted-

average

Exercise Price

(NT$)

Six months ended June 30, 2012

          

Balance, beginning of period

        14,293         $32.1  

Options exercised

        (4,487      31.1
     

 

 

      

Balance, end of period

        9,806         32.6
     

 

 

      

Six months ended June 30, 2011

          

Balance, beginning of period

        21,437         $31.4  

Options exercised

        (4,205      31.2
     

 

 

      

Balance, end of period

        17,232         31.6
     

 

 

      

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

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

 

     Options Outstanding

Range of Exercise Price

(NT$)

  

Number of Options

(In Thousands)

  

Weighted-average

Remaining

Contractual Life

(Years)

  

Weighted-average

Exercise Price

(NT$)

$20.9-$29.3          

        6,907          0.8    $27.0

38.0-50.1          

        2,899          2.5      45.8
     

 

 

          
        9,806          1.3      32.6
     

 

 

          

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

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

 

Valuation assumptions:

  

Expected dividend yield

     1.00%-3.44%   

Expected volatility

     43.77%-46.15%   

Risk free interest rate

     3.07%-3.85%   

Expected life

     5 years   

 

- 26 -


     Six Months Ended June 30  
     2012      2011  

Net income:

     

Net income as reported

       $     75,286,804           $     72,228,107     

Pro forma net income

     75,234,634         72,182,896     

Earnings per share (EPS) - after income tax (NT$):

     

Basic EPS as reported

     $2.90         $2.79     

Pro forma basic EPS

     2.90         2.79     

Diluted EPS as reported

     2.90         2.79     

Pro forma diluted EPS

     2.90         2.78     

 

21.

EARNINGS PER SHARE

EPS is computed as follows:

 

               Number of      EPS (NT$)
     Amounts (Numerator)    Shares           Before      After       
          Before
Income Tax
     After
Income Tax
          (Denominator)
(In Thousands)
          Income
Tax
     Income
Tax
      

Six months ended June 30, 2012

                          

Basic EPS

                          

Earnings available to common shareholders

      $   83,818,366       $   75,286,804            25,919,175          $ 3.23       $ 2.90      
                    

 

 

    

 

 

    

Effect of dilutive potential common shares

        -         -            7,329               
     

 

 

    

 

 

       

 

 

             

Diluted EPS

                          

Earnings available to common shareholders (including effect of dilutive potential common shares)

      $   83,818,366       $ 75,286,804            25,926,504          $ 3.23       $ 2.90      
     

 

 

    

 

 

       

 

 

       

 

 

    

 

 

    

Six months ended June 30, 2011

                          

Basic EPS

                          

Earnings available to common shareholders

      $ 78,992,717       $ 72,228,107            25,913,396          $ 3.05       $ 2.79      
                    

 

 

    

 

 

    

Effect of dilutive potential common shares

        -         -            10,165               
     

 

 

    

 

 

       

 

 

             

Diluted EPS

                          

Earnings available to common shareholders (including effect of dilutive potential common shares)

      $ 78,992,717       $ 72,228,107            25,923,561          $ 3.05       $ 2.79      
     

 

 

    

 

 

       

 

 

       

 

 

    

 

 

    

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

 

- 27 -


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

 

22.

DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a.

Fair values of financial instruments were as follows:

 

     June 30
     2012    2011
          Carrying
Amount
     Fair Value                Carrying
Amount
     Fair Value       

Assets

                       

Financial assets at fair value through profit or loss

      $ 18,950       $ 18,950             $ 17,455       $ 17,455      

Available-for-sale financial assets

        1,756,835         1,756,835               4,171,309         4,171,309      

Held-to-maturity financial assets

        1,402,285         1,417,459               3,519,530         3,554,538      

Financial assets carried at cost

        497,835         -               497,835         -      

Liabilities

                       

Financial liabilities at fair value through profit or loss

        26,718         26,718               -         -      

Bonds payable (including current portion)

        35,000,000         35,278,868               4,500,000         4,528,220      

Other long-term payables (including current portion)

        113,000         113,000               897,298         897,298      

 

  b.

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

 

  1)

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

 

  2)

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

 

  3)

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

 

  4)

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

 

  5)

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

 

  6)

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

 

  c.

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

 

  d.

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

 

- 28 -


  e.

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

 

     Six Months Ended June 30, 2012
          From
Available-
for-sale
Financial Assets
    Equity-
method
Investments
    Total      

Balance, beginning of period

      $ (1,508,301   $ 335,446      $ (1,172,855  

Recognized directly in shareholders’ equity

        (714,048     (795     (714,843  

Removed from shareholders’ equity and recognized in earnings

        2,222,349        -        2,222,349     
     

 

 

   

 

 

   

 

 

   

Balance, end of period

      $ -      $ 334,651      $ 334,651     
     

 

 

   

 

 

   

 

 

   
     Six Months Ended June 30, 2011
          From
Available-
for-sale
Financial Assets
    Equity-
method
Investments
    Total      

Balance, beginning of period

      $ (395,306   $ 504,595      $ 109,289     

Recognized directly in shareholders’ equity

        212,121        (98,351     113,770     

Removed from shareholders’ equity and recognized in earnings

        (35,151     -        (35,151  
     

 

 

   

 

 

   

 

 

   

Balance, end of period

      $ (218,336   $ 406,244      $ 187,908     
     

 

 

   

 

 

   

 

 

   

 

  f.

Information about financial risks

 

  1)

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

 

  2)

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

 

  3)

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

 

  4)

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

 

- 29 -


23.

RELATED PARTY TRANSACTIONS

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

 

  a.

Subsidiaries

TSMC North America

TSMC China

TSMC Europe

TSMC Japan

 

  b.

Investees

Xintec (holding a controlling financial interest)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

GUC (accounted for using the equity method)

 

  c.

Indirect subsidiaries

WaferTech, LLC (WaferTech)

TSMC Technology, Inc. (TSMC Technology)

TSMC Design Technology Canada Inc. (TSMC Canada)

 

  d.

Indirect investees

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

Motech (accounted for using the equity method)

 

  e.

Others

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

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

 

     2012    2011
          Amount      %                Amount      %       

For the six months ended June 30

                       

Sales

                       

TSMC North America

      $ 145,613,637         62             $ 115,627,277         54      

Others

        2,331,268         1               1,474,631         1      
     

 

 

    

 

 

          

 

 

    

 

 

    
      $ 147,944,905             63             $ 117,101,908             55      
     

 

 

    

 

 

          

 

 

    

 

 

    

Purchases

                       

TSMC China

      $ 7,036,635         25             $ 4,935,280         19      

WaferTech

        3,752,087         13               3,763,210         15      

VIS

        1,960,314         7               2,829,238         11      

SSMC

        1,804,215         7               1,994,243         8      

Others

        -         -               124,673         -      
     

 

 

    

 

 

          

 

 

    

 

 

    
      $ 14,553,251         52             $ 13,646,644         53      
     

 

 

    

 

 

          

 

 

    

 

 

    

 

- 30 -


     2012    2011
          Amount          %                    Amount          %           

Manufacturing expenses

                       

Xintec (outsourcing and rent)

      $ 71,598         -             $ 177,596         -      

VisEra (outsourcing)

        8,657         -               8,111         -      

VIS (rent)

        -         -               5,902         -      

Others

        230         -               -         -      
     

 

 

    

 

 

          

 

 

    

 

 

    
      $ 80,485         -             $ 191,609         -      
     

 

 

    

 

 

          

 

 

    

 

 

    

Research and development expenses

                       

TSMC Technology (primarily consulting fee)

      $ 330,524         2             $ 252,450         2      

TSMC Canada (primarily consulting fee)

        107,855         1               88,283         1      

TSMC Europe (primarily consulting fee)

        25,951         -               19,775         -      

VIS (rent)

        -         -               1,984         -      

Others

        6,675         -               21,718         -