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 February 2013

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form  20-F  x             Form 40-F  ¨

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

Yes  ¨             No  x

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

 

 

 

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SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: February 26, 2013				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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Taiwan Semiconductor Manufacturing Company Limited

Financial Statements for the

Years Ended December 31, 2012 and 2011 and

Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2012 and 2011, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the year ended December 31, 2012 and 2011 on which we have issued an unqualified opinion.

February 5, 2013

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

DECEMBER 31, 2012 AND 2011

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

 

 

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

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

 

 

		2012								2011
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 24)		$	506,697,738							$	421,472,087
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			6,825,851								3,226,594
NET SALES			499,871,887				100				418,245,493				100
COST OF SALES (Notes 9, 18 and 24)			265,538,540				53				233,083,068				56
GROSS PROFIT BEFORE AFFILIATES ELIMINATION			234,333,347				47				185,162,425				44
REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2)			(25,029	)			—				398,440				—
GROSS PROFIT			234,308,318				47				185,560,865				44
OPERATING EXPENSES (Notes 18 and 24)
Research and development			38,788,245				8				31,594,034				7
General and administrative			16,330,060				3				12,715,339				3
Marketing			2,388,243				—				2,345,729				1
Total operating expenses			57,506,548				11				46,655,102				11
INCOME FROM OPERATIONS			176,801,770				36				138,905,763				33
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)			8,127,748				2				3,778,083				1
Settlement income (Note 26)			883,845				—				947,340				1
Interest income			867,227				—				697,196				—
Technical service income (Note 24)			497,638				—				408,153				—
Valuation gain on financial instruments, net (Notes 2, 5 and 23)			—				—				801,195				—
Others (Notes 2 and 24)			811,619				—				655,079				—
Total non-operating income and gains			11,188,077				2				7,287,046				2

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

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

 

 

		2012								2011
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Impairment loss of financial assets (Notes 2, 6 and 23)		$	2,677,529				1			$	—				—
Interest expense (Note 24)			945,114				—				445,887				—
Impairment loss on idle assets (Note 2)			418,330				—				—				—
Loss on disposal of property, plant and equipment (Notes 2 and 24)			146,647				—				202,901				—
Foreign exchange loss, net (Note 2)			—				—				673,085				—
Others (Note 2)			172,279				—				163,092				—
Total non-operating expenses and losses			4,359,899				1				1,484,965				—
INCOME BEFORE INCOME TAX			183,629,948				37				144,707,844				35
INCOME TAX EXPENSE (Notes 2 and 17)			17,471,146				4				10,506,565				3
NET INCOME		$	166,158,802				33			$	134,201,279				32
		2012								2011
		Before Income Tax				After Income Tax				Before Income Tax				After Income Tax
EARNINGS PER SHARE (NT$, Note 22)
Basic earnings per share		$	7.08			$	6.41			$	5.58			$	5.18
Diluted earnings per share		$	7.08			$	6.41			$	5.58			$	5.18

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

 

(Concluded)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

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

 

 

																														Others
		Capital Stock - Common Stock												Retained Earnings																Cumulative Translation Adjustments				Net Loss Not Recognized as Pension Cost				Unrealized Gain/Loss on Financial Instruments				Treasury Stock				Total Shareholders’ Equity
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total
BALANCE, JANUARY 1, 2011			25,910,078			$	259,100,787			$	55,698,434			$	86,239,494			$	1,313,047			$	178,227,030			$	265,779,571			$	(6,543,163	)		$	—			$	109,289			$	—			$	574,144,918
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				16,160,501				—				(16,160,501	)			—				—				—				—				—				—
Special capital reserve			—				—				—				—				5,120,827				(5,120,827	)			—				—				—				—				—				—
Cash dividends to shareholders - NT$3.00 per share			—				—				—				—				—				(77,730,236	)			(77,730,236	)			—				—				—				—				(77,730,236	)
Net income in 2011			—				—				—				—				—				134,201,279				134,201,279				—				—				—				—				134,201,279
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				59,898				—				—				—				—				—				—				—				—				59,898
Translation adjustments			—				—				—				—				—				—				—				(112,326	)			—				—				—				(112,326	)
Issuance of stock from exercising employee stock options			7,144				71,439				146,258				—				—				—				—				—				—				—				—				217,697
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				—				(1,112,995	)			—				(1,112,995	)
Net change in shareholders’ equity from equity method investees			—				—				—				—				—				—				—				—				—				(165,851	)			—				(165,851	)
Acquisition of treasury stock - shareholders executed the appraisal right			—				—				—				—				—				—				—				—				—				—				(71,598	)			(71,598	)
Retirement of treasury stock			(1,000	)			(10,000	)			(2,139	)			—				—				(59,459	)			(59,459	)			—				—				—				71,598				—
Effect of spin-off			—				—				(56,094	)			—				—				—				—				222,120				—				(3,298	)			—				162,728
BALANCE, DECEMBER 31, 2011			25,916,222				259,162,226				55,846,357				102,399,995				6,433,874				213,357,286				322,191,155				(6,433,369	)			—				(1,172,855	)			—				629,593,514
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				13,420,128				—				(13,420,128	)			—				—				—				—				—				—
Special capital reserve			—				—				—				—				1,172,350				(1,172,350	)			—				—				—				—				—				—
Cash dividends to shareholders - NT$3.00 per share			—				—				—				—				—				(77,748,668	)			(77,748,668	)			—				—				—				—				(77,748,668	)
Net income in 2012			—				—				—				—				—				166,158,802				166,158,802				—				—				—				—				166,158,802
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				131,095				—				—				—				—				—				—				—				—				131,095
Translation adjustments			—				—				—				—				—				—				—				(4,320,394	)			—				—				—				(4,320,394	)
Issuance of stock from exercising employee stock options			8,213				82,131				160,357				—				—				—				—				—				—				—				—				242,488
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				—				1,998,347				—				1,998,347
Net change in shareholders’ equity from equity method investees			—				—				—				—				—				—				—				—				(5,299	)			7,147,829				—				7,142,530
BALANCE, DECEMBER 31, 2012			25,924,435			$	259,244,357			$	56,137,809			$	115,820,123			$	7,606,224			$	287,174,942			$	410,601,289			$	(10,753,763	)		$	(5,299	)		$	7,973,321			$	—			$	723,197,714

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

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	166,158,802			$	134,201,279
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			124,399,879				102,925,423
Unrealized (realized) gross profit from affiliates			25,029				(398,440	)
Amortization of premium/discount of financial assets			2,281				9,860
Gain on disposal of available-for-sale financial assets			(110,634	)			(35,151	)
Loss on disposal of financial assets carried at cost			269				—
Equity in earnings of equity method investees, net			(8,127,748	)			(3,778,083	)
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			125,488				99,884
Impairment loss of financial assets			2,677,529				—
Impairment loss on idle assets			418,330				—
Deferred income tax			2,618,657				(493,026	)
Changes in operating assets and liabilities:
Financial assets and liabilities at fair value through profit or loss			(17,625	)			(22,759	)
Receivables from related parties			(16,209,910	)			956,440
Notes and accounts receivable			4,167,955				2,356,519
Allowance for doubtful receivables			(11,083	)			(2,880	)
Allowance for sales returns and others			844,859				(2,453,565	)
Other receivables from related parties			(89,347	)			(38,049	)
Other financial assets			(53,251	)			138,196
Inventories			(12,442,994	)			2,775,646
Prepaid expenses and other current assets			(371,593	)			(382,852	)
Accounts payable			1,361,012				(1,805,422	)
Payables to related parties			(67,770	)			418,132
Income tax payable			4,548,602				3,538,928
Accrued profit sharing to employees and bonus to directors			2,130,887				(1,903,765	)
Accrued expenses and other current liabilities			3,556,824				(410,047	)
Accrued pension cost			65,378				96,880
Net cash provided by operating activities			277,288,704				238,734,696
CASH FLOWS FROM INVESTING ACTIVITIES
Cash contributed related to spin-off			—				(1,270,340	)
Acquisitions of:
Property, plant and equipment			(242,063,668	)			(202,757,541	)
Investments accounted for using equity method			(2,259,244	)			(7,390,883	)
Financial assets carried at cost			(1,093	)			—

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
Proceeds from return of capital by investees		$	587,902			$	320,013
Proceeds from disposal or redemption of:
Available-for-sale financial assets			612,834				1,035,151
Held-to-maturity financial assets			700,000				4,789,000
Financial assets carried at cost			14,900				—
Property, plant and equipment and other assets			93,984				4,650,078
Increase in deferred charges			(1,743,043	)			(1,658,296	)
Decrease in refundable deposits			2,096,909				4,147,014
Decrease in other assets			17,600				27,600
Net cash used in investing activities			(241,942,919	)			(198,108,204	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			8,788,401				(4,982,109	)
Cash dividends			(77,748,668	)			(77,730,236	)
Proceeds from issuance of bonds			62,000,000				18,000,000
Repayment of bonds			(4,500,000	)			—
Decrease in guarantee deposits			(239,717	)			(308,855	)
Proceeds from exercise of employee stock options			242,488				217,697
Acquisition of treasury stock			—				(71,598	)
Net cash used in financing activities			(11,457,496	)			(64,875,101	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			23,888,289				(24,248,609	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			85,262,521				109,511,130
CASH AND CASH EQUIVALENTS, END OF YEAR		$	109,150,810			$	85,262,521
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	670,165			$	369,085
Income tax paid		$	10,312,114			$	7,454,386
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	255,108,068			$	195,932,728
Decrease (increase) in payables to contractors and equipment suppliers			(12,764,075	)			6,827,106
Increase in payables to related parties			(280,256	)			—
Nonmonetary exchange trade-out price			(69	)			(2,293	)
Cash paid		$	242,063,668			$	202,757,541

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In Thousands of New Taiwan Dollars)

 

 

		2012				2011
Disposal of property, plant and equipment and other assets		$	91,641			$	3,370,165
Decrease in other receivables to related parties			2,412				1,124,206
Decrease in other financial assets			—				158,000
Nonmonetary exchange trade-out price			(69	)			(2,293	)
Cash received		$	93,984			$	4,650,078
Acquisition of deferred charges		$	2,184,901			$	1,658,296
Increase in accounts payable			(303,584	)			—
Increase in payables to related parties			(25,274	)			—
Increase in other long-term payables			(113,000	)			—
Cash paid		$	1,743,043			$	1,658,296
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			$	—
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)

 

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Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

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

 

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC 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 December 31, 2012 and 2011, the Company had 33,341 and 30,113 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Significant accounting policies are summarized as follows:

Foreign-currency Transactions

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

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

Use of Estimates

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

 

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Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Repurchase agreements collateralized by corporate bonds, short-term commercial paper and government bonds 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 year.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. For equity securities, if the fair value subsequently increases, the increase in value is recorded in 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.

 

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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.

 

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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 year 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.

 

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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 year’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.

 

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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 year 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 year ended December 31, 2011.

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

 

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4.	CASH AND CASH EQUIVALENTS

 

		December 31
		2012				2011
Cash and deposits in banks		$	105,873,048			$	81,467,607
Repurchase agreements collateralized by corporate bonds			2,660,042				—
Repurchase agreements collateralized by short-term commercial paper			349,341				—
Repurchase agreements collateralized by government bonds			268,379				3,794,914
		$	109,150,810			$	85,262,521

 

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

 

		December 31
		2012				2011
Trading financial assets
Forward exchange contracts		$	37,877			$	14,925
Cross currency swap contracts			947				—
		$	38,824			$	14,925
Trading financial liabilities
Forward exchange contracts		$	3,572			$	—
Cross currency swap contracts			2,702				—
		$	6,274			$	—

The Company entered into derivative contracts during the years ended December 31, 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)
December 31, 2012
Sell NT$ /Buy EUR		January 2013		NT$9,417,062/EUR246,000
December 31, 2011
Sell EUR/Buy NT$		January 2012		EUR38,600/NT$1,528,206

 

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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
December 31, 2012
January 2013		US$275,000/NT$7,986,190		0.14%-0.17%			—

For the years ended December 31, 2012 and 2011, a net loss on derivative financial instruments was NT$152,814 thousand and a net gain on derivative financial instruments was NT$801,195 thousand, respectively.

 

6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets held by the Company are overseas publicly traded stock. For the year ended December 31, 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

 

		December 31
		2012				2011
Corporate bonds		$	701,146			$	1,403,427
Current portion			(701,146	)			(701,136	)
		$	—			$	702,291

 

8.	ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

		Years Ended December 31
		2012				2011
Balance, beginning of year		$	485,120			$	488,000
Write-off			(11,083	)			(2,880	)
Balance, end of year		$	474,037			$	485,120

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

 

		Years Ended December 31
		2012				2011
Balance, beginning of year		$	4,887,879			$	7,341,444
Provision			6,825,851				3,226,594
Write-off			(5,980,992	)			(5,680,159	)
Balance, end of year		$	5,732,738			$	4,887,879

 

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9.	INVENTORIES

 

		December 31
		2012				2011
Finished goods		$	5,936,018			$	3,250,637
Work in process			24,442,123				16,971,209
Raw materials			3,666,048				1,593,393
Supplies and spare parts			1,252,202				1,038,158
		$	35,296,391			$	22,853,397

Write-down of inventories to net realizable value in the amount of NT$1,341,041 thousand was included in the cost of sales for the year ended December 31, 2012. The reserve for inventory write-downs in the amount of NT$74,861 thousand was reversed in the cost of sales for the year ended December 31, 2011 when the related inventory items were scrapped or sold.

 

10.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

		December 31
		2012								2011
		Carrying Amount				% of Ownership				Carrying Amount				% of Ownership
TSMC Global Ltd. (TSMC Global)		$	49,954,386				100			$	44,071,845				100
TSMC Partners, Ltd. (TSMC Partners)			38,635,129				100				34,986,964				100
TSMC China Company Limited (TSMC China)			17,828,683				100				13,542,181				100
Vanguard International Semiconductor Corporation (VIS)			9,462,038				40				8,988,007				39
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			6,710,956				39				6,289,429				39
TSMC Solar			6,031,369				99				10,153,244				100
TSMC North America			3,209,288				100				2,981,639				100
TSMC SSL			2,411,212				95				1,746,893				100
Xintec Inc. (Xintec)			1,550,313				40				1,606,694				40
Global UniChip Corporation (GUC)			1,222,972				35				1,157,188				35
VentureTech Alliance Fund III, L.P. (VTAF III)			1,047,285				50				1,311,044				53
VentureTech Alliance Fund II, L.P. (VTAF II)			563,056				98				762,135				98
TSMC Europe B.V. (TSMC Europe)			235,761				100				205,171				100
Emerging Alliance Fund, L.P. (Emerging Alliance)			167,359				99				213,235				99
TSMC Japan Limited (TSMC Japan)			142,412				100				161,601				100
TSMC Guang Neng Investment, Ltd. (TSMC GN)			65,007				100				—				—
TSMC Korea Limited (TSMC Korea)			26,935				100				23,448				100
		$	139,264,161							$	128,200,718

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.

 

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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 December 31, 2012, the Company’s percentages of ownership in TSMC SSL and TSMC Solar were 95% and 99%, respectively.

For the years ended December 31, 2012 and 2011, equity in earnings of equity method investees was a net gain of NT$8,127,748 thousand and NT$3,778,083 thousand, respectively.

As of December 31, 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$17,350,833 thousand and NT$11,273,200 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:

 

		Years Ended December 31
		2012				2011
Balance, beginning of year		$	275,584			$	2,504,496
Amortizations			(172,492	)			(721,482	)
Effect of spin-off			—				(1,507,430	)
Balance, end of year		$	103,092			$	275,584

Movements of the difference allocated to goodwill were as follows:

 

		Years Ended December 31
		2012				2011
Balance, beginning of year		$	1,061,885			$	1,415,565
Effect of spin-off			—				(353,680	)
Balance, end of year		$	1,061,885			$	1,061,885

 

11.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31
		2012				2011
Non-publicly traded stocks		$	338,584			$	338,584
Mutual funds			145,175				159,251
		$	483,759			$	497,835

 

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12.	PROPERTY, PLANT AND EQUIPMENT

 

		Year Ended December 31, 2012
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Balance, End of Year
Cost
Buildings		$	149,495,478			$	23,886,199			$	(25,671	)		$	(11,074	)		$	173,344,932
Machinery and equipment			984,978,666				219,868,105				(1,649,440	)			(436,234	)			1,202,761,097
Office equipment			13,824,434				3,348,864				(489,814	)			—				16,683,484
			1,148,298,578			$	247,103,168			$	(2,164,925	)		$	(447,308	)			1,392,789,513
Accumulated depreciation
Buildings			90,274,267			$	9,428,212			$	(24,403	)		$	(164	)			99,677,912
Machinery and equipment			704,885,017				111,325,894				(1,607,195	)			(28,814	)			814,574,902
Office equipment			9,581,513				1,617,053				(489,814	)			—				10,708,752
			804,740,797			$	122,371,159			$	(2,121,412	)		$	(28,978	)			924,961,566
Advance payments and construction in progress			110,815,752			$	8,004,900			$	(45,305	)		$	—				118,775,347
		$	454,373,533															$	586,603,294

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Effect of Spin-off				Balance, End of Year
Cost
Buildings		$	128,646,942			$	22,343,302			$	(36,929	)		$	(388	)		$	(1,457,449	)		$	149,495,478
Machinery and equipment			852,733,592				135,641,295				(2,079,115	)			(17,225	)			(1,299,881	)			984,978,666
Office equipment			11,730,537				2,495,001				(362,032	)			—				(39,072	)			13,824,434
			993,111,071			$	160,479,598			$	(2,478,076	)		$	(17,613	)		$	(2,796,402	)			1,148,298,578
Accumulated depreciation
Buildings			81,347,877			$	8,966,377			$	(14,293	)		$	(55	)		$	(25,639	)			90,274,267
Machinery and equipment			616,495,207				90,613,430				(2,025,728	)			(5,569	)			(192,323	)			704,885,017
Office equipment			8,762,361				1,184,310				(362,031	)			—				(3,127	)			9,581,513
			706,605,445			$	100,764,117			$	(2,402,052	)		$	(5,624	)		$	(221,089	)			804,740,797
Advance payments and construction in progress			80,348,673			$	35,453,130			$	(3,259,587	)		$	—			$	(1,726,464	)			110,815,752
		$	366,854,299																			$	454,373,533

No interest was capitalized during the years ended December 31, 2012 and 2011.

 

13.	DEFERRED CHARGES, NET

 

		Year Ended December 31, 2012
		Balance, Beginning of Year				Additions				Amortization				Reclassification				Balance, End of Year
Technology license fees		$	1,617,310			$	—			$	(390,723	)		$	—			$	1,226,587
Software and system design costs			2,316,571				1,772,958				(1,117,478	)			(57,438	)			2,914,613
Patent and others			785,363				411,943				(513,863	)			57,438				740,881
		$	4,719,244			$	2,184,901			$	(2,022,064	)		$	—			$	4,882,081

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Amortization				Disposals				Effect of Spin-off				Balance, End of Year
Technology license fees		$	2,277,832			$	10,308			$	(670,830	)		$	—			$	—			$	1,617,310
Software and system design costs			2,075,935				1,324,958				(1,064,884	)			(46	)			(19,392	)			2,316,571
Patent and others			1,102,660				323,030				(416,630	)			—				(223,697	)			785,363
		$	5,456,427			$	1,658,296			$	(2,152,344	)		$	(46	)		$	(243,089	)		$	4,719,244

 

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14.	SHORT-TERM LOANS

 

		December 31
		2012				2011
Unsecured loans:
US$1,195,500 thousand, due in January 2013, and annual interest at 0.39%-0.58% in 2012; US$856,000 thousand, due by February 2012, and annual interest at 0.45%-1.00% in 2011		$	34,714,929			$	25,926,528

 

15.	BONDS PAYABLE

 

		December 31
		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				—
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 October 2012 and repayable in October 2022, 1.53% interest payable annually			4,400,000				—
Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually			—				4,500,000
			80,000,000				22,500,000
Current portion			—				(4,500,000	)
		$	80,000,000			$	18,000,000

With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$23,600,000 thousand in January 2013 and is expected to issue domestic unsecured bonds in the amount of NT$21,400,000 thousand in February 2013.

The provision of a loan guarantee to TSMC Global, a subsidiary of TSMC, for its issuance of unsecured corporate bonds for an amount not to exceed US$1,500,000 thousand had been approved in the meeting of the Board of Directors of TSMC held on February 5, 2013.

 

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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$1,205,642 thousand and NT$1,119,717 thousand for the years ended December 31, 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.

Due to the spin-off (Note 27), the Company transferred the pension fund and the accrued pension cost in the amount of NT$46,884 thousand and NT$60,583 thousand, respectively, to TSMC SSL and TSMC Solar in August 2011.

Pension information on the defined benefit plan is summarized as follows:

 

a.

Components of net periodic pension cost for the year

 

		2012				2011
Service cost		$	125,895			$	131,975
Interest cost			156,773				164,372
Projected return on plan assets			(61,664	)			(67,051	)
Amortization			62,694				73,306
Net periodic pension cost		$	283,698			$	302,602

 

b.

Reconciliation of funded status of the plans and accrued pension cost at December 31, 2012 and 2011

 

		2012				2011
Benefit obligation
Vested benefit obligation		$	375,523			$	280,629
Nonvested benefit obligation			5,971,564				5,356,405
Accumulated benefit obligation			6,347,087				5,637,034
Additional benefits based on future salaries			3,584,608				3,389,649
Projected benefit obligation			9,931,695				9,026,683
Fair value of plan assets			(3,264,786	)			(3,039,871	)
Funded status			6,666,909				5,986,812
Unrecognized net transition obligation			(65,429	)			(73,599	)
Prior service cost			138,133				145,259
Unrecognized net loss			(2,813,337	)			(2,197,574	)
Accrued pension cost		$	3,926,276			$	3,860,898
Vested benefit		$	420,158			$	312,213

 

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		2012				2011
c.      Actuarial assumptions at December 31, 2012 and 2011
Discount rate used in determining present values			1.75	%			1.75	%
Future salary increase rate			3.00	%			3.00	%
Expected rate of return on plan assets			2.00	%			2.00	%
d.      Contributions to the Fund for the year		$	214,782			$	209,260
e.      Payments from the Fund for the year		$	26,119			$	7,339

 

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:

 

		Years Ended December 31
		2012				2011
Income tax expense based on “income before income tax” at statutory rate (17%)		$	31,217,091			$	24,600,334
Tax effect of the following:
Tax-exempt income			(8,360,834	)			(13,231,821	)
Temporary and permanent differences			(2,852,308	)			(1,429,188	)
Additional income tax under the Alternative Minimum Tax Act			—				286,827
Additional tax at 10% on unappropriated earnings			4,186,013				6,259,344
Income tax credits used			(9,580,742	)			(6,259,344	)
Income tax currently payable		$	14,609,220			$	10,226,152

 

b.

Income tax expense consisted of the following:

 

		Years Ended December 31
		2012				2011
Income tax currently payable		$	14,609,220			$	10,226,152
Income tax adjustments on prior years			48,609				464,078
Other income tax adjustments			194,660				309,361
Net change in deferred income tax assets
Investment tax credits			7,067,886				1,795,254
Temporary differences			81,752				27,284
Valuation allowance			(4,530,981	)			(2,314,671	)
Effect of spin-off			—				(893	)
Income tax expense		$	17,471,146			$	10,506,565

 

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c.

Deferred income tax assets consisted of the following:

 

		December 31
		2012				2011
Current deferred income tax assets
Investment tax credits		$	6,179,000			$	4,892,158
Temporary differences
Allowance for sales returns and others			687,929				488,788
Unrealized loss on inventories			359,823				—
Unrealized loss on financial instruments, net			224,694				308,929
Others			277,018				89,669
		$	7,728,464			$	5,779,544
Noncurrent deferred income tax assets
Investment tax credits		$	6,933,074			$	15,287,802
Temporary differences
Depreciation			819,231				2,044,680
Others			299,752				227,433
Valuation allowance			(5,807,110	)			(10,338,091	)
		$	2,244,947			$	7,221,824

Effective in May 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 20% to 17%. The last amended income tax rate of 17% is retroactively applied on January 1, 2010.

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, the standard deduction and the tax rate of Alternative Minimum Tax were amended from NT$1,000 thousand to be NT$500 thousand and from 10% to 12%, respectively. The amended Income Basic Tax Act is effective on January 1, 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 year ended December 31, 2012. In addition, the Company evaluated the effect of Alternative Minimum Tax and the applicable year of the profits generated from projects exempt from income tax for a five-year period. As the Company plans to apply the tax-exempt income in later years, income tax payable is anticipated to increase and the Company will utilize available investment tax credits as an offset against income taxes. Since more investment tax credits can be utilized, valuation allowance has been adjusted down accordingly.

 

d.

Integrated income tax information:

The balance of the imputation credit account as of December 31, 2012 and 2011 was NT$8,130,060 thousand and NT$4,003,228 thousand, respectively.

The estimated and actual creditable ratios for distribution of earnings of 2012 and 2011 were 7.92% and 6.69%, 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.

 

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e.

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

 

f.

As of December 31, 2012, investment tax credits consisted of the following:

 

Law/Statute		Item		Total Creditable Amount				Remaining Creditable Amount				Expiry Year
Statute for Upgrading Industries		Purchase of machinery and equipment		$	6,503,176			$	916,499				2013
					7,006,655				7,006,655				2014
					482,351				482,351				2015
				$	13,992,182			$	8,405,505
Statute for Upgrading Industries		Research and development expenditures		$	1,148,374			$	—				2012
					4,706,569				4,706,569				2013
				$	5,854,943			$	4,706,569
Statute for Upgrading Industries		Personnel training expenditures		$	17,391			$	—				2012
Statute for Industrial Innovation		Research and development expenditures		$	2,828,300			$	—				2012

 

g.

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

 

		Tax-exemption Period
Construction and expansion of 2004		2008 to 2012
Construction and expansion of 2005		2010 to 2014
Construction and expansion of 2006		2011 to 2015

 

h.

The tax authorities have examined income tax returns of the Company through 2009. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

18.	LABOR COST, DEPRECIATION AND AMORTIZATION

 

		Year Ended December 31, 2012
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	27,681,298			$	19,198,385			$	46,879,683
Labor and health insurance			1,509,487				920,024				2,429,511
Pension			946,117				543,174				1,489,291
Meal			678,279				293,917				972,196
Welfare			259,656				153,907				413,563
Others			36,051				57,676				93,727
		$	31,110,888			$	21,167,083			$	52,277,971
Depreciation		$	111,929,312			$	10,441,847			$	122,371,159
Amortization		$	1,273,689			$	748,375			$	2,022,064

 

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		Year Ended December 31, 2011
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	23,511,116			$	16,780,285			$	40,291,401
Labor and health insurance			1,225,757				713,298				1,939,055
Pension			899,039				523,178				1,422,217
Meal			640,257				273,002				913,259
Welfare			230,762				137,019				367,781
Others			294,010				143,151				437,161
		$	26,800,941			$	18,569,933			$	45,370,874
Depreciation		$	93,898,048			$	6,858,236			$	100,756,284
Amortization		$	1,407,787			$	744,557			$	2,152,344

 

19.	SHAREHOLDERS’ EQUITY

As of December 31, 2012, 1,091,468 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,457,339 thousand (one ADS represents five common shares).

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

Capital surplus consisted of the following:

 

		December 31
		2012				2011
Additional paid-in capital		$	23,934,607			$	23,774,250
From merger			22,804,510				22,804,510
From convertible bonds			8,892,847				8,892,847
From long-term investments			505,790				374,695
Donations			55				55
		$	56,137,809			$	55,846,357

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;

 

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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 year, which amounted to NT$11,115,240 thousand and NT$8,990,026 thousand for the years ended December 31 2012 and 2011, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments, unrealized loss on financial instruments and net loss not recognized as pension cost, 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

 

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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 appropriations of earnings for 2012 had been resolved in the meeting of the Board of Directors held on February 5, 2013. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings				Dividends Per Share (NT$)
		For Fiscal Year 2012				For Fiscal Year 2012
Legal capital reserve		$	16,615,880
Special capital reserve			(4,820,483	)
Cash dividends to shareholders			77,773,307			$	3.00
		$	89,568,704

The Board of Directors also resolved to appropriate profit sharing to employees and bonus to directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2012.

The appropriations of earnings, profit sharing to employees and bonus to directors for 2012 are to be resolved in the shareholders’ meeting held on June 11, 2013 (expected).

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

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

 

20.	STOCK-BASED COMPENSATION PLANS

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

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2012.

 

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Information about outstanding options for the years ended December 31, 2012 and 2011 was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2012
Balance, beginning of year			14,293			$	31.4
Options exercised			(8,213	)			29.5
Options canceled			(135	)			34.6
Balance, end of year			5,945				34.6
Year ended December 31, 2011
Balance, beginning of year			21,437			$	31.4
Options exercised			(7,144	)			30.5
Balance, end of year			14,293				32.1

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

As of December 31, 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			3,362				0.4			$	25.9
38.0-50.1			2,583				2.0				45.8
			5,945				1.1				34.6

As of December 31, 2012, all of the above outstanding options were exercisable.

No compensation cost was recognized under the intrinsic value method for the years ended December 31, 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 years ended December 31, 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

 

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		Years Ended December 31
		2012				2011
Net income:
Net income as reported		$	166,158,802			$	134,201,279
Pro forma net income			165,986,009				134,146,490
Earnings per share (EPS) - after income tax (NT$):
Basic EPS as reported		$	6.41			$	5.18
Pro forma basic EPS			6.40				5.18
Diluted EPS as reported			6.41				5.18
Pro forma diluted EPS			6.40				5.17

 

21.	TREASURY STOCK

 

(Shares in Thousands)

Purpose of Treasury Stock

Number of Shares, Beginning of Year

Addition

Retirement

Number of Shares, End of Year

Year ended December 31, 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, which shares were subsequently retired in November 2011.

 

22.	EARNINGS PER SHARE

EPS is computed as follows:

 

		Amounts (Numerator)								Number of Shares (Denominator) (In Thousands)				EPS (NT$)
		Before Income Tax				After Income Tax								Before Income Tax				After Income Tax
Year ended December 31, 2012
Basic EPS
Earnings available to common shareholders		$	183,629,948			$	166,158,802				25,920,735			$	7.08			$	6.41
Effect of dilutive potential common shares			—				—				7,201
Diluted EPS
Earnings available to common shareholders (including effect of dilutive potential common shares)		$	183,629,948			$	166,158,802				25,927,936			$	7.08			$	6.41
Year ended December 31, 2011
Basic EPS
Earnings available to common shareholders		$	144,707,844			$	134,201,279				25,914,076			$	5.58			$	5.18
Effect of dilutive potential common shares			—				—				10,606
Diluted EPS
Earnings available to common shareholders (including effect of dilutive potential common shares)		$	144,707,844			$	134,201,279				25,924,682			$	5.58			$	5.18

 

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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:

 

		December 31
		2012								2011
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets
Financial assets at fair value through profit or loss		$	38,824			$	38,824			$	14,925			$	14,925
Available-for-sale financial assets			1,845,052				1,845,052				2,617,134				2,617,134
Held-to-maturity financial assets			701,146				708,973				1,403,427				1,426,474
Financial assets carried at cost			483,759				—				497,835				—
Liabilities
Financial liabilities at fair value through profit or loss			6,274				6,274				—				—
Bonds payable (including current portion)			80,000,000				80,343,413				22,500,000				22,597,115
Other long-term payables (including current portion)			113,000				113,000				—				—

 

b.

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

 

1)

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

 

2)

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

 

3)

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

 

4)

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

 

5)

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

 

6)

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

 

c.

Valuation gains/losses arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as net gains of NT$32,550 thousand and NT$14,925 thousand for the years ended December 31, 2012 and 2011, respectively.

 

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d.

As of December 31, 2012 and 2011, financial assets exposed to fair value interest rate risk were NT$739,970 thousand and NT$1,418,352 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$114,721,203 thousand and NT$48,426,528 thousand, respectively.

 

e.

Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2012 and 2011 were as follows:

 

		Year Ended December 31, 2012
		From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of year		$	(1,508,301	)		$	335,446			$	(1,172,855	)
Recognized directly in shareholders’ equity			(132,176	)			7,147,829				7,015,653
Removed from shareholders’ equity and recognized in earnings			2,130,523				—				2,130,523
Balance, end of year		$	490,046			$	7,483,275			$	7,973,321

 

		Year Ended December 31, 2011
		From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of year		$	(395,306	)		$	504,595			$	109,289
Recognized directly in shareholders’ equity			(1,077,844	)			(165,851	)			(1,243,695	)
Removed from shareholders’ equity and recognized in earnings			(35,151	)			—				(35,151	)
Effect of spin-off			—				(3,298	)			(3,298	)
Balance, end of year		$	(1,508,301	)		$	335,446			$	(1,172,855	)

 

f.

Information about financial risks

 

1)

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

 

2)

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

 

3)

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

 

4)

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

 

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24.	RELATED PARTY TRANSACTIONS

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

 

a.

Subsidiaries

TSMC China

TSMC Solar

TSMC Europe

TSMC Global

TSMC Japan

TSMC North America

 

b.

Investees

Xintec (holding a controlling financial interest)

VIS (accounted for using the equity method)

GUC (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

c.

Indirect subsidiaries

TSMC Design Technology Canada, Inc. (TSMC Canada)

TSMC Technology, Inc. (TSMC Technology)

WaferTech, LLC (WaferTech)

 

d.

Indirect investees

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

 

e.

Others

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

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

 

		2012								2011
		Amount				%				Amount				%
For the year
Sales
TSMC North America		$	326,768,469				64			$	234,902,043				56
Others			4,567,656				1				3,882,801				1
		$	331,336,125				65			$	238,784,844				57

 

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		2012								2011
		Amount				%				Amount				%
Purchases
TSMC China		$	15,708,447				26			$	10,392,189				21
WaferTech			8,026,114				14				7,305,879				15
VIS			4,475,674				8				5,577,762				12
SSMC			3,638,633				6				3,949,176				8
Others			—				—				124,673				—
		$	31,848,868				54			$	27,349,679				56
Manufacturing expenses
Xintec (outsourcing and rent)		$	180,768				—			$	260,250				—
VisEra (outsourcing)			14,586				—				14,588				—
VIS (rent)			—				—				5,902				—
Others			230				—				—				—
		$	195,584				—			$	280,740				—
Research and development expenses
TSMC Technology (primarily consulting fee)		$	713,323				2			$	534,804				2
TSMC Canada (primarily consulting fee)			206,894				1				192,616				1
TSMC Europe (primarily consulting fee)			49,763				—				45,489				—
VIS (rent)			—				—				1,984				—
Others			18,373				—				30,605				—