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 November 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: November 2, 2012     By     /s/    Lora Ho                                        
             Lora Ho
             Senior Vice President & Chief Financial Officer


 

 

Taiwan Semiconductor Manufacturing

Company Limited

Financial Statements for the

Nine Months Ended September 30, 2012 and 2011 and

Independent Accountants’ Review Report


INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

 

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of September 30, 2012 and 2011, and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

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

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be 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 reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the nine months ended September 30, 2012 and 2011 on which we have issued an unqualified review report.

October 23, 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 review such financial statements are those generally accepted and applied in the Republic of China.

 

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

 

- 1 -


Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

    2012   2011
ASSETS       Amount         %             Amount         %      

CURRENT ASSETS

                   

Cash and cash equivalents (Notes 2 and 4)

    $ 76,017,828          9          $ 67,150,733          9     

Financial assets at fair value through profit or loss (Notes 2, 5 and 23)

      48,169          -            583,010          -     

Available-for-sale financial assets (Notes 2, 6 and 23)

      1,624,700          -            2,735,777          1     

Held-to-maturity financial assets (Notes 2, 7 and 23)

      700,271          -            250,165          -     

Receivables from related parties (Notes 3 and 24)

      44,121,922          5            28,680,784          4     

Notes and accounts receivable (Note 3)

      20,527,231          3            21,894,123          3     

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

      (483,848       -            (485,120       -     

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

      (6,628,904       (1         (5,916,289       (1  

Other receivables from related parties (Notes 3 and 24)

      241,240          -            1,491,316          -     

Other financial assets

      106,490          -            279,163          -     

Inventories (Notes 2 and 9)

      30,805,123          4            23,262,847          3     

Deferred income tax assets (Notes 2 and 17)

      2,374,646          -            918,938          -     

Prepaid expenses and other current assets

      2,000,563          -            1,730,515          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total current assets

      171,455,431          20            142,575,962          20     
   

 

 

     

 

 

       

 

 

     

 

 

   

LONG-TERM INVESTMENTS (Notes 2, 7, 10, 11 and 23)

                   

Investments accounted for using equity method

      132,018,796          15            124,251,210          17     

Held-to-maturity financial assets

      701,435          -            1,404,002          -     

Financial assets carried at cost

      483,759          -            497,835          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total long-term investments

      133,203,990          15            126,153,047          17     
   

 

 

     

 

 

       

 

 

     

 

 

   

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)

                   

Cost

                   

Buildings

      171,984,186          20            147,429,338          20     

Machinery and equipment

      1,185,755,623          136            967,085,889          133     

Office equipment

      15,988,566          2            13,407,880          2     
   

 

 

     

 

 

       

 

 

     

 

 

   
      1,373,728,375          158            1,127,923,107          155     

Accumulated depreciation

      (891,718,235       (103         (779,461,665       (107  

Advance payments and construction in progress

      65,762,701          8            88,918,961          12     
   

 

 

     

 

 

       

 

 

     

 

 

   

Net property, plant and equipment

      547,772,841          63            437,380,403          60     
   

 

 

     

 

 

       

 

 

     

 

 

   

INTANGIBLE ASSETS

                   

Goodwill (Note 2)

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

Deferred charges, net (Notes 2 and 13)

      4,755,321          1            4,674,675          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total intangible assets

      6,323,077          1            6,242,431          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

OTHER ASSETS

                   

Deferred income tax assets (Notes 2 and 17)

      8,057,987          1            11,090,792          1     

Refundable deposits

      2,298,614          -            4,689,418          1     

Others (Notes 2 and 24)

      931,066          -            1,152,898          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total other assets

      11,287,667          1            16,933,108          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

TOTAL

    $ 870,043,006          100          $ 729,284,951          100     
   

 

 

     

 

 

       

 

 

     

 

 

   

 

- 2 -


        2012   2011
LIABILITIES AND SHAREHOLDERS’ EQUITY       Amount         %             Amount         %      

CURRENT LIABILITIES

                   

Short-term loans (Note 14)

    $ 29,749,650          3          $ 36,019,654          5     

Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23)

      4,045          -            173,829          -     

Accounts payable

      12,710,320          2            8,103,660          1     

Payables to related parties (Note 24)

      3,403,558          -            3,161,048          -     

Income tax payable (Notes 2 and 17)

      10,820,869          1            7,680,498          1     

Other payables to related parties (Note 24)

      -          -            10,693,900          1     

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

      8,654,015          1            6,932,701          1     

Payables to contractors and equipment suppliers

      32,003,649          4            19,036,040          3     

Accrued expenses and other current liabilities (Note 23)

      18,367,679          2            12,029,835          2     

Current portion of bonds payable (Notes 15 and 23)

      -          -            4,500,000          1     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total current liabilities

      115,713,785          13            108,331,165          15     
     

 

 

     

 

 

       

 

 

     

 

 

   

LONG-TERM LIABILITIES

                   

Bonds payable (Notes 15 and 23)

      75,600,000          9            18,000,000          2     

Other long-term payables (Note 23)

      54,000          -            -          -     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total long-term liabilities

      75,654,000          9            18,000,000          2     
     

 

 

     

 

 

       

 

 

     

 

 

   

OTHER LIABILITIES

                   

Accrued pension cost (Notes 2 and 16)

      3,907,065          -            3,830,575          1     

Guarantee deposits

      224,965          -            495,013          -     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total other liabilities

      4,132,030          -            4,325,588          1     
     

 

 

     

 

 

       

 

 

     

 

 

   

Total liabilities

      195,499,815          22            130,656,753          18     
     

 

 

     

 

 

       

 

 

     

 

 

   

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

                   

Authorized:    28,050,000 thousand shares

                   

Issued:

 

   25,922,047 thousand shares in 2012

                   
 

   25,915,149 thousand shares in 2011

      259,220,476          30            259,151,492          35     
     

 

 

     

 

 

       

 

 

     

 

 

   

CAPITAL SURPLUS (Notes 2 and 19)

      56,074,435          7            55,689,739          8     
     

 

 

     

 

 

       

 

 

     

 

 

   

RETAINED EARNINGS (Note 19)

                   

Appropriated as legal capital reserve

      115,820,123          13            102,399,995          14     

Appropriated as special capital reserve

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

Unappropriated earnings

      245,605,674          28            181,838,097          25     
     

 

 

     

 

 

       

 

 

     

 

 

   
        369,032,021          42            290,671,966          40     
     

 

 

     

 

 

       

 

 

     

 

 

   

OTHERS

                   

Cumulative translation adjustments (Note 2)

      (10,052,181       (1         (5,586,618       (1  

Unrealized gain/loss on financial instruments (Notes 2 and 23)

      268,440          -            (1,226,783       -     

Treasury stock:    1,000 thousand shares (Notes 2 and 21)

      -          -            (71,598       -     
     

 

 

     

 

 

       

 

 

     

 

 

   
      (9,783,741       (1         (6,884,999       (1  
     

 

 

     

 

 

       

 

 

     

 

 

   

Total shareholders’ equity

      674,543,191          78            598,628,198          82     
     

 

 

     

 

 

       

 

 

     

 

 

   

TOTAL

    $ 870,043,006          100          $ 729,284,951          100     
     

 

 

     

 

 

       

 

 

     

 

 

   

 

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

 

- 3 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

    2012   2011
        Amount         %             Amount         %      

GROSS SALES (Notes 2 and 24)

    $   376,616,735              $   318,455,856         

SALES RETURNS AND ALLOWANCES (Notes 2 and 8)

      6,230,469                3,242,741         
   

 

 

           

 

 

       

NET SALES

      370,386,266          100            315,213,115          100     

COST OF SALES (Notes 9, 18 and 24)

      195,408,944          53            175,237,212          55     
   

 

 

     

 

 

       

 

 

     

 

 

   

GROSS PROFIT BEFORE AFFILIATES ELIMINATION

      174,977,322          47            139,975,903          45     

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

      (129,569       -            346,768          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

GROSS PROFIT

      174,847,753          47            140,322,671          45     
   

 

 

     

 

 

       

 

 

     

 

 

   

OPERATING EXPENSES (Notes 18 and 24)

                   

Research and development

      28,641,998          8            23,347,808          7     

General and administrative

      12,555,530          3            9,130,402          3     

Marketing

      1,818,231          -            1,756,516          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total operating expenses

      43,015,759          11            34,234,726          11     
   

 

 

     

 

 

       

 

 

     

 

 

   

INCOME FROM OPERATIONS

      131,831,994          36            106,087,945          34     
   

 

 

     

 

 

       

 

 

     

 

 

   

NON-OPERATING INCOME AND GAINS

                   

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

      7,410,841          2            3,531,943          1     

Interest income

      626,009          -            512,604          -     

Settlement income (Note 26)

      448,275          -            492,870          -     

Technical service income (Note 24)

      356,971          -            325,505          -     

Valuation gain on financial instruments, net (Notes 2, 5 and 23)

      117,113          -            782,810          1     

Others (Notes 2 and 24)

      370,044          -            663,413          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total non-operating income and gains

      9,329,253          2            6,309,145          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

(Continued)   

 

- 4 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

    2012   2011
        Amount         %             Amount         %      

NON-OPERATING EXPENSES AND LOSSES

                   

Impairment loss of financial assets (Notes 2, 6 and 23)

    $ 2,677,529          1          $ -          -     

Interest expense (Note 24)

      629,102          -            276,154          -     

Impairment loss on idle assets (Note 2)

      418,330          -            -          -     

Loss on disposal of property, plant and equipment (Notes 2 and 24)

      104,430          -            191,120          -     

Foreign exchange loss, net (Note 2)

      17,001          -            657,798          1     

Others (Note 2)

      13,053          -            138,653          -     
   

 

 

     

 

 

       

 

 

     

 

 

   

Total non-operating expenses and losses

      3,859,445          1            1,263,725          1     
   

 

 

     

 

 

       

 

 

     

 

 

   

INCOME BEFORE INCOME TAX

      137,301,802          37            111,133,365          35     

INCOME TAX EXPENSE (Notes 2 and 17)

      12,712,268          3            8,510,734          2     
   

 

 

     

 

 

       

 

 

     

 

 

   

NET INCOME

    $   124,589,534            34          $   102,622,631            33     
   

 

 

     

 

 

       

 

 

     

 

 

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

EARNINGS PER SHARE (NT$, Note 22)

                   

Basic earnings per share

    $ 5.30        $ 4.81          $ 4.29        $ 3.96     
   

 

 

     

 

 

       

 

 

     

 

 

   

Diluted earnings per share

    $ 5.30        $ 4.81          $ 4.29        $ 3.96     
   

 

 

     

 

 

       

 

 

     

 

 

   

 

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

   (Concluded)

 

- 5 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $   124,589,534      $   102,622,631   

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

    

Depreciation and amortization

     90,037,204        76,638,870   

Unrealized (realized) gross profit from affiliates

     129,569        (346,768

Amortization of premium/discount of financial assets

     1,721        9,120   

Gain on disposal of available-for-sale financial assets

     (37,923     (35,151

Loss on disposal of financial assets carried at cost

     269        -   

Equity in earnings of equity method investees, net

     (7,410,841     (3,531,943

Cash dividends received from equity method investees

     1,688,878        2,941,548   

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

     93,515        70,696   

Impairment loss of financial assets

     2,677,529        -   

Impairment loss on idle assets

     418,330        -   

Deferred income tax

     2,235,309        478,443   

Changes in operating assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     (29,199     (417,015

Receivables from related parties

     (19,344,388     (3,003,144

Notes and accounts receivable

     (632,845     356,782   

Allowance for doubtful receivables

     (1,272     (2,880

Allowance for sales returns and others

     1,741,025        (1,425,155

Other receivables from related parties

     (71,114     (100,558

Other financial assets

     15,520        139,043   

Inventories

     (7,951,726     2,366,196   

Prepaid expenses and other current assets

     (274,827     (387,631

Accounts payable

     1,855,509        (2,673,005

Payables to related parties

     207,468        586,598   

Income tax payable

     173,072        571,629   

Accrued profit sharing to employees and bonus to directors

     (401,689     (4,026,768

Accrued expenses and other current liabilities

     5,121,949        (1,489,045

Accrued pension cost

     46,167        66,557   
  

 

 

   

 

 

 

Net cash provided by operating activities

     194,876,744        169,409,050   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Cash contributed related to spin-off

     -        (1,270,340

Acquisitions of:

    

Property, plant and equipment

     (183,020,856     (175,162,624

Investments accounted for using equity method

     (2,241,991     (2,734,568

Financial assets carried at cost

     (1,093     -   

(Continued)

 

- 6 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     2012     2011  

Proceeds from return of capital by investees

   $ 450,326      $ -   

Proceeds from disposal or redemption of:

    

Available-for-sale financial assets

     314,159        1,035,151   

Held-to-maturity financial assets

     -        4,539,000   

Financial assets carried at cost

     14,900        -   

Property, plant and equipment and other assets

     83,739        3,055,991   

Increase in deferred charges

     (1,079,585     (1,069,352

Decrease in refundable deposits

     2,193,121        3,949,331   

Decrease (increase) in other assets

     29,000        (18,200
  

 

 

   

 

 

 

Net cash used in investing activities

     (183,258,280     (167,675,611
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase in short-term loans

     3,823,122        5,111,017   

Increase in other payables to related parties

     -        10,693,900   

Cash dividends

     (77,748,668     (77,730,236

Proceeds from issuance of bonds

     57,600,000        18,000,000   

Repayment of bonds

     (4,500,000     -   

Decrease in guarantee deposits

     (214,067     (252,874

Proceeds from exercise of employee stock options

     176,456        155,955   

Acquisition of treasury stock

     -        (71,598
  

 

 

   

 

 

 

Net cash used in financing activities

     (20,863,157     (44,093,836
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (9,244,693     (42,360,397

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     85,262,521        109,511,130   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 76,017,828      $ 67,150,733   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 630,931      $ 292,211   
  

 

 

   

 

 

 

Income tax paid

   $ 10,291,304      $ 7,436,712   
  

 

 

   

 

 

 

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS

    

Acquisition of property, plant and equipment

   $ 182,382,575      $ 153,008,625   

Decrease in payables to contractors and equipment suppliers

     827,158        22,154,481   

Increase in payables to related parties

     (188,808     -   

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash paid

   $ 183,020,856      $ 175,162,624   
  

 

 

   

 

 

 

(Continued)

 

- 7 -


Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

                                           
     2012     2011  

Disposal of property, plant and equipment and other assets

   $          65,906      $      3,173,046   

Decrease (increase) in other receivables to related parties

     17,902        (116,573

Nonmonetary exchange trade-out price

     (69     (482
  

 

 

   

 

 

 

Cash received

   $ 83,739      $ 3,055,991   
  

 

 

   

 

 

 

Acquisition of deferred charges

   $ 1,558,245      $ 1,069,352   

Increase in accounts payable

     (350,960     -   

Increase in payables to related parties

     (14,700     -   

Increase in other long-term payables

     (113,000     -   
  

 

 

   

 

 

 

Cash paid

   $ 1,079,585      $ 1,069,352   
  

 

 

   

 

 

 

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      $ 816,379   
  

 

 

   

 

 

 

Current portion of bonds payable

   $ -      $ 4,500,000   
  

 

 

   

 

 

 

SUPPLEMENTAL INFORMATION FOR SPIN-OFF BUSINESSES

In August 2011, the Company transferred the 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. The relevant information about spin-off was as follows:

     TSMC SSL     TSMC Solar     Total  

Acquired investments accounted for using equity method

   $     2,270,000      $     11,180,000      $     13,450,000   
  

 

 

   

 

 

   

 

 

 

Non-cash items transferred

      

Current assets

     36,050        18,807        54,857   

Long-term investments

     2,872        7,912,710        7,915,582   

Property, plant and equipment

     1,929,563        2,372,214        4,301,777   

Other assets

     234,696        201,677        436,373   

Current liabilities

     (292,728     (337,439     (630,167

Other liabilities

     (36,272     (25,218     (61,490

Capital surplus

     -        (56,094     (56,094

Unrealized gain/loss on financial instruments

     -        (3,298     (3,298

Cumulative translation adjustments

     256        221,864        222,120   
  

 

 

   

 

 

   

 

 

 
     (1,874,437     (10,305,223     (12,179,660
  

 

 

   

 

 

   

 

 

 

Cash contributed related to spin-off

   $ 395,563      $ 874,777      $ 1,270,340   
  

 

 

   

 

 

   

 

 

 

 

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

   (Concluded)

 

- 8 -


Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Reviewed, Not Audited)

 

 

 

  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 SSL and 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 September 30, 2012 and 2011, the Company had 32,459 and 29,920 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 corporate bonds, government 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.

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.

Held-to-maturity Financial Assets

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

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

 

- 10 -


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.

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.

 

- 11 -


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.

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.

 

- 12 -


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.

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.

 

- 13 -


Treasury Stock

Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. While disposing of the treasury stock, the treasury stock shall be reversed, and if the disposal value is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock.

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

For the Company’s organization realignment, when the Company contributes 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 nine months ended September 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

 

   

September 30

           2012        2011      

Cash and deposits in banks

       $     72,643,880         $     63,280,563     

Repurchase agreements collateralized by corporate bonds

         2,534,741           -     

Repurchase agreements collateralized by government bonds

         439,622           3,089,293     

Repurchase agreements collateralized by short-term commercial paper

         399,585           780,877     
      

 

 

      

 

 

   
       $     76,017,828         $     67,150,733     
      

 

 

      

 

 

   

 

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

 

   

September 30

         2012        2011      

Trading financial assets

           

Forward exchange contracts

     $     45,474         $       583,010     

Cross currency swap contracts

       2,695           -     
    

 

 

      

 

 

   
     $     48,169         $       583,010     
    

 

 

      

 

 

   

Trading financial liabilities

           

Forward exchange contracts

     $ 4,045         $ 66,378     

Cross currency swap contracts

       -           107,451     
    

 

 

      

 

 

   
     $ 4,045         $ 173,829     
    

 

 

      

 

 

   

The Company entered into derivative contracts during the nine months ended September 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)

    

September 30, 2012

        

Sell US$/Buy JPY

   October 2012    US$315,000/JPY24,525,215   

Sell US$/Buy NT$

   October 2012    US$85,000/NT$2,500,880   

Sell US$/Buy EUR

   October 2012    US$52,421/EUR40,500   

September 30, 2011

        

Sell NT$/Buy US$

   October 2011    NT$10,093,875/US$350,000   

Sell US$/Buy NT$

   October 2011    US$110,000/NT$3,292,775   

 

- 15 -


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

September 30, 2012

       

October 2012

   US$170,000/NT$4,991,030    0.10%-0.11%   -

September 30, 2011

       

October 2011

   US$117,000/NT$3,470,950    1.27%-4.40%   -

For the nine months ended September 30, 2012 and 2011, net gains on derivative financial instruments were NT$117,113 thousand and NT$782,810 thousand, respectively.

 

  6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets held by the Company are overseas publicly traded stock. For the nine months ended September 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

 

   

                  September 30                   

         2012      2011      

Corporate bonds

     $ 1,401,706       $ 1,654,167     

Current portion

       (700,271      (250,165  
    

 

 

    

 

 

   
     $ 701,435       $ 1,404,002     
    

 

 

    

 

 

   

 

  8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

    Nine Months Ended September 30 
         2012        2011      

Balance, beginning of period

     $ 485,120         $ 488,000     

Write-off

       (1,272        (2,880  
    

 

 

      

 

 

   

Balance, end of period

     $ 483,848         $ 485,120     
    

 

 

      

 

 

   

 

- 16 -


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

 

     Nine Months Ended September 30 
         2012     2011      

Balance, beginning of period

 

   

   $ 4,887,879      $ 7,341,444     

Provision

       6,230,469        3,242,741     

Write-off

       (4,489,444     (4,667,896  
    

 

 

   

 

 

   

Balance, end of period

     $   6,628,904      $   5,916,289     
    

 

 

   

 

 

   

 

  9. INVENTORIES

 

                        September 30                     
           2012     2011      

Finished goods

              $ 4,074,123      $ 4,260,884     

Work in process

       23,395,624        16,517,292     

Raw materials

       2,211,453        1,410,292     

Supplies and spare parts

       1,123,923        1,074,379     
    

 

 

   

 

 

   
     $   30,805,123      $   23,262,847     
    

 

 

   

 

 

   

Write-down of inventories to net realizable value in the amount of NT$1,144,223 thousand and NT$300,629 thousand, respectively, were included in the cost of sales for the nine months ended September 30, 2012 and 2011.

 

  10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

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

TSMC Global Ltd. (TSMC Global)

    $   43,089,715           100         $   44,274,921           100   

TSMC Partners, Ltd. (TSMC Partners)

      38,058,989           100           34,888,811           100   

TSMC China Company Limited (TSMC China)

      16,309,653           100           8,460,740           100   

Vanguard International Semiconductor Corporation (VIS)

      9,161,979           41           8,918,553           38   

TSMC Solar

      8,045,131           99           10,847,842           100   

Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)

      6,253,232           39           6,109,136           39   

TSMC North America

      3,164,974           100           3,001,878           100   

TSMC SSL

      2,822,776           95           2,063,176           100   

Xintec Inc. (Xintec)

      1,573,654           40           1,610,795           40   

Global UniChip Corporation (GUC)

      1,177,159           35           1,117,076           35   

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

      1,056,641           50           1,247,111           52   

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

      654,685           98           1,022,280           98   

TSMC Europe B.V. (TSMC Europe)

      223,125           100           209,723           100   

(Continued)

 

- 17 -


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

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

    $ 169,756           99         $ 291,196           99   

TSMC Japan Limited (TSMC Japan)

      160,799           100           165,630           100   

TSMC Guang Neng Investment, Ltd. (TSMC GN)

      71,723           100           -           -   

TSMC Korea Limited (TSMC Korea)

      24,805           100           22,342           100   
   

 

 

           

 

 

      
    $   132,018,796              $   124,251,210        
   

 

 

           

 

 

      

(Concluded)

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 North America, Inc. (TSMC Lighting NA) to TSMC SSL and transferring Motech Industries Inc. (Motech), TSMC Solar Europe B.V. (TSMC Solar Europe), TSMC Solar North America, Inc. (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 September 30, 2012, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were 95% and 99%, respectively.

For the nine months ended September 30, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$7,410,841 thousand and NT$3,531,943 thousand, respectively.

As of September 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$16,809,981 thousand and NT$12,574,108 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:

 

      Nine Months Ended September 30  
             2012            2011      

Balance, beginning of period

       $ 275,584           $ 2,504,496     

Amortizations

         (169,943          (641,656  

Effect of spin-off

         -             (1,507,430  
      

 

 

        

 

 

   

Balance, end of period

       $ 105,641           $ 355,410     
      

 

 

        

 

 

   

 

- 18 -


Movements of the difference allocated to goodwill were as follows:

 

            Nine Months Ended September 30        
          2012      2011      
  

Balance, beginning of period

   $ 1,061,885       $ 1,415,565     
  

Effect of spin-off

     -         (353,680 )    
     

 

 

    

 

 

   
  

Balance, end of period

   $ 1,061,885       $ 1,061,885     
     

 

 

    

 

 

   

 

11.  FINANCIAL ASSETS CARRIED AT COST

 

    
                              September 30                         
          2012      2011      
  

Non-publicly traded stocks

   $ 338,584       $ 338,584     
  

Mutual funds

     145,175         159,251     
     

 

 

    

 

 

   
      $ 483,759       $ 497,835     
     

 

 

    

 

 

   

 

  12. PROPERTY, PLANT AND EQUIPMENT

 

    Nine Months Ended September 30, 2012
         Balance,
Beginning of
Period
      

Additions

(Deductions)

       Disposals        Reclassification       

Balance,

End of Period

     

Cost

                          

Buildings

     $ 149,495,478         $ 22,513,410         $ (24,702      $ -         $ 171,984,186     

Machinery and equipment

       984,978,666           202,291,230           (865,831        (648,442        1,185,755,623     

Office equipment

       13,824,434           2,585,681           (421,549        -           15,988,566     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
       1,148,298,578         $ 227,390,321         $ (1,312,082      $ (648,442        1,373,728,375     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Accumulated depreciation

                          

Buildings

       90,274,267         $ 6,962,071         $ (23,435      $ -           97,212,903     

Machinery and equipment

       704,885,017           80,380,237           (857,279        (230,112        784,177,863     

Office equipment

       9,581,513           1,167,505           (421,549        -           10,327,469     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
       804,740,797         $ 88,509,813         $   (1,302,263      $ (230,112        891,718,235     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   

Advance payments and construction in progress

       110,815,752         $   (45,007,746      $ (45,305      $ -           65,762,701     
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

   
     $ 454,373,533                        $ 547,772,841     
    

 

 

                     

 

 

   

 

    Nine Months Ended September 30, 2011
         Balance,
Beginning of
Period
     Additions      Disposals      Reclassification      Effect of
Spin-off
    

Balance,

End of Period

     

Cost

                     

Buildings

     $ 128,646,942       $ 20,274,732       $ (34,499    $ (388    $   (1,457,449    $ 147,429,338     

Machinery and equipment

       852,733,592         117,352,327         (1,672,870      (27,279      (1,299,881      967,085,889     

Office equipment

       11,730,537         2,016,312         (299,897      -         (39,072      13,407,880     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
       993,111,071       $   139,643,371       $ (2,007,266    $ (27,667    $ (2,796,402      1,127,923,107     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Accumulated depreciation

                     

Buildings

       81,347,877       $ 6,648,533       $ (11,864    $ (55    $ (25,639      87,958,852     

Machinery and equipment

       616,495,207         67,519,124         (1,619,962      (15,623      (192,323      682,186,423     

Office equipment

       8,762,361         857,053         (299,897      -         (3,127      9,316,390     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
       706,605,445       $ 75,024,710       $   (1,931,723    $ (15,678    $ (221,089      779,461,665     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Advance payments and construction in progress

       80,348,673       $ 13,365,254       $ (3,068,502    $ -       $ (1,726,464      88,918,961     
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
     $   366,854,299                   $ 437,380,403     
    

 

 

                

 

 

   

No interest was capitalized during the nine months ended September 30, 2012 and 2011.

 

- 19 -


  13. DEFERRED CHARGES, NET

 

    Nine Months Ended September 30, 2012
   

Balance,

Beginning of

Period

   Additions    Amortization    Reclassification   

Balance,

End of Period

   

Technology license fees

    $   1,617,310        $ -        $ (314,765 )      $ -        $   1,302,545    

Software and system design costs

      2,316,571          1,146,302          (826,983 )        (57,438 )        2,578,452    

Patent and others

      785,363          411,943          (380,420 )        57,438          874,324    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    $   4,719,244        $   1,558,245        $   (1,522,168      $ -        $ 4,755,321    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    Nine Months Ended September 30, 2011
   

Balance,

Beginning of

Period

   Additions    Amortization   

Effect of

Spin-off

  

Balance,

End of Period

   

Technology license fees

    $   2,277,832        $ 10,308        $ (502,825 )      $ -        $ 1,785,315    

Software and system design costs

      2,075,935          905,237          (786,921 )        (19,392 )        2,174,859    

Patent and others

      1,102,660          153,807          (318,269 )        (223,697 )        714,501    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     
    $   5,456,427        $   1,069,352        $   (1,608,015      $   (243,089      $ 4,674,675    
   

 

 

      

 

 

      

 

 

      

 

 

      

 

 

     

 

  14. SHORT-TERM LOANS

 

        September 30
        2012          2011      

Unsecured loans:

          

US$1,015,000 thousand, due in October 2012, and annual interest at 0.42%- 0.65% in 2012; US$1,058,200 thousand and EUR88,725 thousand, due by November 2011, and annual interest at 0.40%-1.50% in 2011

    $   29,749,650         $   36,019,654     
   

 

 

      

 

 

   

 

  15. BONDS PAYABLE

 

        September 30
        2012          2011      

Domestic unsecured bonds:

          

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

    $   10,500,000         $   10,500,000     

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

      7,500,000           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 August 2012 and repayable in August 2017, 1.28% interest payable annually

      9,900,000           -     

Issued in August 2012 and repayable in August 2019, 1.40% interest payable annually

      9,000,000           -     

(Continued)

 

- 20 -


        September 30  
        2012          2011  

Issued in September 2012 and repayable in September 2017, 1.28% interest payable annually

    $ 12,700,000         $ -   

Issued in September 2012 and repayable in September 2019, 1.39% interest payable annually

      9,000,000           -   

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

      -           4,500,000   
   

 

 

      

 

 

 
      75,600,000           22,500,000   

Current portion

      -           (4,500,000
   

 

 

      

 

 

 
    $   75,600,000         $   18,000,000   
   

 

 

      

 

 

 

(Concluded)

With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$4,400,000 thousand in October 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$878,763 thousand and NT$843,618 thousand for the nine months ended September 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$212,742 thousand and NT$226,549 thousand for the nine months ended September 30, 2012 and 2011, respectively.

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

 

     Nine Months Ended September 30 
                2012          2011          

The Fund

                  

Balance, beginning of period

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

Contributions

            163,339           161,157       

Interest

            26,304           27,083       

Payments

            (23,078        (7,339    
         

 

 

      

 

 

     

Balance, end of period

          $ 3,183,916         $ 3,016,132       
         

 

 

      

 

 

     

Accrued pension cost

                  

Balance, beginning of period

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

Accruals

            46,167           66,557       

Effect of spin-off

            -           (60,583    
         

 

 

      

 

 

     

Balance, end of period

          $ 3,907,065         $ 3,830,575       
         

 

 

      

 

 

     

 

- 21 -


  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:

 

    Nine Months Ended September 30
    2012    2011    

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

    $   23,341,306        $ 18,892,672    

Tax effect of the following:

          

Tax-exempt income

      (7,327,600 )        (10,599,946 )  

Temporary and permanent differences

      (1,901,636 )        (948,657 )  

Additional income tax under Alternative Minimum Tax Act

      -          116,718    

Additional tax at 10% on unappropriated earnings

      4,186,013          6,259,344    

Income tax credits used

      (7,898,861 )        (6,259,344 )  
   

 

 

      

 

 

   

Income tax currently payable

    $ 10,399,222        $ 7,460,787    
   

 

 

      

 

 

   

 

  b.

Income tax expense consisted of the following:

 

    Nine Months Ended September 30
    2012    2011    

Income tax currently payable

    $   10,399,222        $ 7,460,787    

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

      6,092,545          2,367,900    

Temporary differences

      (528,448 )        229,708    

Valuation allowance

      (3,328,788 )          (2,118,272  

Effect of spin-off

      -          (893 )  
   

 

 

      

 

 

   

Income tax expense

    $ 12,712,268        $ 8,510,734    
   

 

 

      

 

 

   

 

  c.

Deferred income tax assets consisted of the following:

    September 30
    2012      2011    

Current deferred income tax assets

            

Investment tax credits

    $ 492,501          $ -    

Temporary differences

            

Allowance for sales returns and others

      795,468            502,885    

Unrealized loss on financial instruments, net

      359,110            288,760    

Unrealized loss on inventories

      337,742            -    

Others

      389,825            127,293    
   

 

 

        

 

 

   
    $ 2,374,646          $ 918,938    
   

 

 

        

 

 

   

Noncurrent deferred income tax assets

            

Investment tax credits

    $   13,594,914          $       19,607,314    

Temporary differences

            

Depreciation

      1,177,836            1,829,967    

Others

      294,540            188,001    

Valuation allowance

      (7,009,303 )          (10,534,490 )  
   

 

 

        

 

 

   
    $ 8,057,987          $ 11,090,792    
   

 

 

        

 

 

   

 

- 22 -


Under the Article 10 of the Statute for Industrial Innovation (SII), 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.

Under the Income Basic Tax Act amended in August 2012, effective on January 1, 2013, when calculating the security transaction income for the securities held for more than three years as regulated under Article 4-1 of the Income Tax Act, an enterprise could deduct the security transaction losses for the securities held for more than three years. If there is any net gain from the security transactions for the year, 50% of such amount will be exempted from income taxes in the current year; however, if there is a net loss, such loss, after the assessment of the tax authorities, can be carried forward over the next five years to offset the security income generated from the sale of the securities held for more than three years. In addition, the standard deduction and the tax rate were amended to be NT$500 thousand and 12%, respectively. The amendments are effective in 2013. The Company has evaluated the impact from above amendments and adjusted the deferred tax assets with the resulting differences recorded as income tax expense for the nine months ended September 30, 2012.

 

  d.

Integrated income tax information:

The balance of the imputation credit account as of September 30, 2012 and 2011 was NT$8,136,884 thousand and NT$4,016,138 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 September 30, 2012, investment tax credits consisted of the following:

 

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

Statute for Upgrading

 

Purchase of machinery and

   $ 6,503,274       $ 6,503,274       2013

Industries

 

equipment

     7,006,655         7,006,655       2014
       482,351         482,351       2015
    

 

 

    

 

 

    
     $   13,992,280       $   13,992,280      
    

 

 

    

 

 

    

Statute for Upgrading

 

Research and development

   $ 1,148,374       $ -       2012

Industries

 

expenditures

     4,706,569         95,135       2013
    

 

 

    

 

 

    
     $ 5,854,943       $ 95,135      
    

 

 

    

 

 

    

Statute for Upgrading

 

Personnel training expenditures

   $ 17,391       $ -       2012
    

 

 

    

 

 

    

Industries

          

Statute for Industrial

 

Research and development

   $ 2,121,662       $ -       2012
    

 

 

    

 

 

    

Innovation

 

expenditures

        

 

- 23 -


  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 2009. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

  18. LABOR COST, DEPRECIATION AND AMORTIZATION

 

     Nine Months Ended September 30, 2012  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 20,507,961       $ 14,398,187       $   34,906,148   

Labor and health insurance

     1,069,830         655,738         1,725,568   

Pension

     689,476         402,029         1,091,505   

Meal

     499,937         219,643         719,580   

Welfare

     193,499         116,380         309,879   

Others

     29,616         44,087         73,703   
  

 

 

    

 

 

    

 

 

 
   $ 22,990,319       $ 15,836,064       $ 38,826,383   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 80,855,320       $ 7,654,493       $ 88,509,813   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 973,207       $ 548,961       $ 1,522,168   
  

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2011  
     Classified as
Cost of Sales
     Classified as
Operating
Expenses
     Total  

Labor cost

        

Salary and bonus

   $ 17,952,195       $ 12,634,100       $   30,586,295   

Labor and health insurance

     930,786         531,192         1,461,978   

Pension

     681,369         388,798         1,070,167   

Meal

     486,450         202,667         689,117   

Welfare

     175,648         101,976         277,624   

Others

     33,348         27,488         60,836   
  

 

 

    

 

 

    

 

 

 
   $ 20,259,796       $ 13,886,221       $ 34,146,017   
  

 

 

    

 

 

    

 

 

 

Depreciation

   $ 70,045,124       $ 4,971,754       $ 75,016,878   
  

 

 

    

 

 

    

 

 

 

Amortization

   $ 1,044,257       $ 563,758       $ 1,608,015   
  

 

 

    

 

 

    

 

 

 

 

  19. SHAREHOLDERS’ EQUITY

As of September 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).

 

- 24 -


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.

Capital surplus consisted of the following:

 

    September 30  
    2012     2011  

Additional paid-in capital

  $   23,892,456      $   23,734,158   

From merger

    22,804,510        22,805,390   

From convertible bonds

    8,892,847        8,893,190   

From long-term investments

    484,567        256,946   

Donations

    55        55   
 

 

 

   

 

 

 
  $   56,074,435      $   55,689,739   
 

 

 

   

 

 

 

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$8,333,282 thousand and NT$6,887,967 thousand for the nine months ended September 30, 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

 

- 25 -


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.

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.

 

- 26 -


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

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

 

    

Number of

Options

(In Thousands)

 

Weighted-

average

Exercise Price

(NT$)

Nine months ended September 30, 2012

        

Balance, beginning of period

       14,293       $ 31.4          

Options exercised

       (5,825 )       30.3          

Options canceled

       (135 )       34.6          
    

 

 

     

Balance, end of period

           8,333         32.6          
    

 

 

     

Nine months ended September 30, 2011

        

Balance, beginning of period

       21,437       $ 31.4          

Options exercised

       (5,071 )       30.8          
    

 

 

     

Balance, end of period

       16,366         31.8          
    

 

 

     

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

As of September 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$)    

            $20.2-$28.3

       5,569         0.6           $  26.0   

              38.0-  50.1

           2,764         2.2           45.8   
    

 

 

                     
       8,333         1.1           32.6   
    

 

 

                     

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

No compensation cost was recognized under the intrinsic value method for the nine months ended September 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 nine months ended September 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

 

- 27 -


     Nine Months Ended September 30  
     2012      2011  

Net income:

     

Net income as reported

       $ 124,589,534       $ 102,622,631       

Pro forma net income

     124,442,977         102,618,784       

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

     

Basic EPS as reported

     $4.81         $3.96       

Pro forma basic EPS

     4.80         3.96       

Diluted EPS as reported

     4.81         3.96       

Pro forma diluted EPS

     4.80         3.96       

 

  21. TREASURY STOCK

 

     (Shares in Thousands)
          Purpose of Treasury Stock    Number of
Shares,
Beginning of
Period
   Addition    Number of
Shares, End of
Period

Nine months ended September 30, 2011

              

Shareholders executed the appraisal right

                     -                  1,000                  1,000   
    

 

 

      

 

 

      

 

 

 

In August 2011, at the option of the shareholders of the Company, certain shareholders requested the Company to buy back their shares pursuant to the Company Law. As of September 30, 2011, the book value and market value of treasury stock were NT$71,598 thousand and NT$69,998 thousand, respectively. These shares were subsequently retired in November 2011.

 

  22. EARNINGS PER SHARE

EPS is computed as follows:

 

                   Number of     

EPS (NT$)

 
     Amounts (Numerator)      Shares      Before      After  
     Before      After      (Denominator)      Income      Income  
     Income Tax      Income Tax      (In Thousands)      Tax      Tax  

Nine months ended September 30, 2012

              

Basic EPS

              

Earnings available to common shareholders

   $   137,301,802       $   124,589,534         25,919,899       $ 5.30       $ 4.81   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     -         -         7,139         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

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

   $   137,301,802       $   124,589,534         25,927,038       $ 5.30       $ 4.81   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 28 -


                   Number of     

EPS (NT$)

 
     Amounts (Numerator)      Shares      Before      After  
     Before      After      (Denominator)      Income      Income  
     Income Tax      Income Tax      (In Thousands)      Tax      Tax  

Nine months ended September 30, 2011

              

Basic EPS

              

Earnings available to common shareholders

   $   111,133,365       $   102,622,631         25,913,755       $ 4.29       $ 3.96   
           

 

 

    

 

 

 

Effect of dilutive potential common shares

     -         -         10,178         
  

 

 

    

 

 

    

 

 

       

Diluted EPS

              

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

   $   111,133,365       $   102,622,631         25,923,933       $ 4.29       $ 3.96   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares 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.

 

  23. DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

  a.

Fair values of financial instruments were as follows:

 

    September 30  
    2012     2011  
    Carrying           Carrying        
    Amount     Fair Value     Amount     Fair Value  

Assets

       

Financial assets at fair value through profit or loss

  $ 48,169      $ 48,169      $ 583,010      $ 583,010   

Available-for-sale financial assets

    1,624,700        1,624,700        2,735,777        2,735,777   

Held-to-maturity financial assets

    1,401,706        1,414,407        1,654,167        1,682,068   

Financial assets carried at cost

    483,759        -        497,835        -   

Liabilities

       

Financial liabilities at fair value through profit or loss

    4,045        4,045        173,829        173,829   

Bonds payable (including current portion)

    75,600,000        75,940,020        22,500,000        22,561,211   

Other long-term payables (including current portion)

    113,000        113,000        816,379        816,379   

 

  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.

 

- 29 -


  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 gains of NT$44,124 thousand and NT$409,181 thousand for the nine months ended September 30, 2012 and 2011, respectively.

 

  d.

As of September 30, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$1,449,875 thousand and NT$2,237,177 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$105,353,695 thousand and NT$58,693,483 thousand, respectively.

 

  e.

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

 

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

Balance, beginning of period

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

Recognized directly in shareholders’ equity

       (562,968 )       (186,610 )       (749,578 )  

Removed from shareholders’ equity and recognized in earnings

       2,190,873         -         2,190,873    
    

 

 

     

 

 

     

 

 

      

Balance, end of period

     $ 119,604       $ 148,836       $ 268,440    
    

 

 

     

 

 

     

 

 

   

 

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

Balance, beginning of period

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

Recognized directly in shareholders’ equity

       (1,035,704 )       (261,919 )       (1,297,623 )  

Removed from shareholders’ equity and recognized in earnings

       (35,151 )       -         (35,151 )  

Effect of spin-off

       -         (3,298 )       (3,298 )  
    

 

 

     

 

 

     

 

 

   

Balance, end of period

     $  (1,466,161 )     $  239,378       $  (1,226,783 )  
    

 

 

     

 

 

     

 

 

   

 

- 30 -


  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.

 

  24. 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

TSMC Global

 

  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)

 

- 31 -


  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 nine months ended September 30

              

Sales

              

TSMC North America

   $     238,620,510         63          $     175,631,354         55   

Others

     3,810,675         1            3,003,084         1   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 242,431,185         64          $ 178,634,438         56   
  

 

 

    

 

 

       

 

 

    

 

 

 

Purchases

              

TSMC China

   $ 11,401,736         26          $ 7,576,707         20   

WaferTech

     6,009,695         14            5,753,541         16   

VIS

     3,295,850         8            4,313,015         12   

SSMC

     2,759,305         6            2,963,867         8   

Others

     -         -            126,405         -   
  

 

 

    

 

 

       

 

 

    

 

 

 
   $ 23,466,586         54          $ 20,733,535         56   
  

 

 

    

 

 

       

 

 

    

 

 

 

Manufacturing expenses

              

Xintec (outsourcing and rent)

   $ 126,170         -          $ 234,394         -   

VisEra (outsourcing)

     12,437         -            12,807         -   

VIS (rent)

     -         -