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 May 2014

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

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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: May 19, 2014				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

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		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries   Consolidated Financial Statements for the Three Months Ended March 31, 2014 and 2013 and Independent Accountants’ Review Report

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of March 31, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the three months ended March 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

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

May 13, 2014

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		March 31, 2014 (Reviewed)												December 31, 2013 (Audited)												March 31, 2013 (Reviewed)
				Amount						%						Amount						%						Amount						%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)				$	231,697,295						18					$	242,695,447						19					$	186,028,798						18
Financial assets at fair value through profit or loss (Note 7)					11,425						-						90,353						-						18,206						-
Available-for-sale financial assets (Note 8)					845,002						-						760,793						-						1,162,904						-
Held-to-maturity financial assets (Note 9)					2,394,178						-						1,795,949						-						2,044,822						-
Notes and accounts receivable, net (Note 11)					73,774,054						6						71,649,926						6						65,472,529						6
Receivables from related parties (Note 35)					558,970						-						291,708						-						434,306						-
Other receivables from related parties (Note 35)					162,444						-						221,576						-						176,298						-
Inventories (Note 12)					43,481,269						3						37,494,893						3						37,833,465						4
Other financial assets (Note 36)					584,364						-						501,785						-						1,240,492						-
Other current assets (Note 17)					2,381,416						-						2,984,224						-						3,339,372						-
Total current assets					355,890,417						27						358,486,654						28						297,751,192						28
NONCURRENT ASSETS
Available-for-sale financial assets (Note 8)					59,284,283						5						58,721,959						5						42,087,667						4
Hedging derivative financial assets (Note 10)					-						-						-						-						659,351						-
Financial assets carried at cost (Note 13)					2,055,075						-						2,145,591						-						3,703,593						1
Investments accounted for using equity method (Note 14)					29,507,728						2						28,316,260						2						24,252,070						2
Property, plant and equipment (Note 15)					828,011,580						64						792,665,913						63						666,447,384						63
Intangible assets (Note 16)					12,113,629						1						11,490,383						1						11,478,437						1
Deferred income tax assets (Notes 4 and 30)					7,893,479						1						7,239,609						1						11,610,593						1
Refundable deposits (Note 35)					2,560,988						-						2,519,031						-						2,385,571						-
Other noncurrent assets (Note 17)					1,422,102						-						1,469,577						-						1,253,868						-
Total noncurrent assets					942,848,864						73						904,568,323						72						763,878,534						72
TOTAL				$	1,298,739,281						100					$	1,263,054,977						100					$	1,061,629,726						100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)				$	24,843,645						2					$	15,645,000						1					$	35,842,800						3
Financial liabilities at fair value through profit or loss (Note 7)					188,535						-						33,750						-						4,223						-
Accounts payable					15,380,651						1						14,670,260						1						12,462,978						1
Payables to related parties (Note 35)					1,330,050						-						1,688,456						-						793,133						-
Salary and bonus payable					6,107,014						1						8,330,956						1						5,075,309						1
Accrued profit sharing to employees and bonus to directors and supervisors (Note 23)					16,018,761						1						12,738,801						1						13,864,935						1
Payables to contractors and equipment suppliers					53,461,455						4						89,810,160						7						48,601,349						5
Income tax payable (Notes 4 and 30)					28,433,542						2						22,563,286						2						20,164,514						2
Provisions (Note 19)					9,964,997						1						7,603,781						1						6,350,698						1
Accrued expenses and other current liabilities (Notes 15 and 22)					18,668,514						2						16,693,484						1						14,915,135						1
Current portion of long-term bank loans (Note 21)					-						-						-						-						131,250						-
Total current liabilities					174,397,164						14						189,777,934						15						158,206,324						15
NONCURRENT LIABILITIES
Hedging derivative financial liabilities (Note 10)					5,279,032						-						5,481,616						-						-						-
Bonds payable (Note 20)					211,798,101						16						210,767,625						17						125,000,000						12
Long-term bank loans (Note 21)					40,000						-						40,000						-						1,325,000						-
Other long-term payables (Note 22)					36,000						-						36,000						-						54,000						-
Obligations under finance leases (Note 15)					783,275						-						776,230						-						768,935						-
Accrued pension cost (Note 4)					7,577,202						1						7,589,926						1						6,904,635						1
Others (Note 19)					830,406						-						810,561						-						721,747						-
Total noncurrent liabilities					226,344,016						17						225,501,958						18						134,774,317						13
Total liabilities					400,741,180						31						415,279,892						33						292,980,641						28
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 23)					259,291,239						20						259,286,171						21						259,282,327						25
Capital surplus (Note 23)					55,835,280						4						55,858,626						4						55,762,572						5
Retained earnings (Note 23)
Appropriated as legal capital reserve					132,436,003						10						132,436,003						11						115,820,123						11
Appropriated as special capital reserve					2,785,741						1						2,785,741						-						7,606,224						1
Unappropriated earnings					430,842,153						33						382,971,408						30						324,561,997						30
					566,063,897						44						518,193,152						41						447,988,344						42
Others (Note 23)					16,583,227						1						14,170,306						1						3,098,025						-
Equity attributable to shareholders of the parent					897,773,643						69						847,508,255						67						766,131,268						72
NONCONTROLLING INTERESTS (Note 23)					224,458						-						266,830						-						2,517,817						-
Total equity					897,998,101						69						847,775,085						67						768,649,085						72
TOTAL				$	1,298,739,281						100					$	1,263,054,977						100					$	1,061,629,726						100

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

		Three Months Ended March 31
		2014														2013
				Amount						%								Amount						%
NET REVENUE (Notes 25, 35 and 40)				$	148,215,172						100							$	132,754,996						100
COST OF REVENUE (Notes 12, 32 and 35)					77,836,093						53								71,988,726						54
GROSS PROFIT BEFORE REALIZED GROSS PROFIT ON SALES TO ASSOCIATES					70,379,079						47								60,766,270						46
REALIZED GROSS PROFIT ON SALES TO ASSOCIATES					21,017						-								3,540						-
GROSS PROFIT					70,400,096						47								60,769,810						46
OPERATING EXPENSES (Notes 32 and 35)
Research and development					12,066,622						8								10,650,985						8
General and administrative					4,655,671						3								4,695,520						3
Marketing					1,152,702						1								1,029,799						1
Total operating expenses					17,874,995						12								16,376,304						12
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 26 and 32)					(2,741	)					-								34,503						-
INCOME FROM OPERATIONS (Note 40)					52,522,360						35								44,428,009						34
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture					955,380						1								654,153						-
Other income (Note 27)					613,699						-								346,321						-
Foreign exchange loss, net					(36,401	)					-								(192,914	)					-
Finance costs (Note 28)					(796,580	)					-								(493,998	)					-
Other gains and losses (Note 29)					43,384						-								1,006,343						1
Total non-operating income and expenses					779,482						1								1,319,905						1
INCOME BEFORE INCOME TAX					53,301,842						36								45,747,914						35
INCOME TAX EXPENSE (Notes 4 and 30)					5,456,064						4								6,212,371						5
NET INCOME					47,845,778						32								39,535,543						30

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

		Three Months Ended March 31
		2014														2013
				Amount						%								Amount						%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 23 and 30)
Exchange differences arising on translation of foreign operations				$	2,831,381						2							$	2,903,753						2
Changes in fair value of available-for-sale financial assets					(415,445	)					-								2,825,692						2
Share of other comprehensive income (loss) of associates and joint venture					(4,747	)					-								135,123						-
Income tax benefit related to components of other comprehensive income					2,956						-								43,239						-
Other comprehensive income for the period, net of income tax					2,414,145						2								5,907,807						4
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD				$	50,259,923						34							$	45,443,350						34
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent				$	47,870,745						32							$	39,576,876						30
Noncontrolling interests					(24,967	)					-								(41,333	)					-
				$	47,845,778						32							$	39,535,543						30
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent				$	50,283,666						34							$	45,455,386						34
Noncontrolling interests					(23,743	)					-								(12,036	)					-
				$	50,259,923						34							$	45,443,350						34

 

		2014					2013
		Income Attributable to   Shareholders of the Parent					Income Attributable to   Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 31)
Basic earnings per share			$	1.85				$	1.53
Diluted earnings per share			$	1.85				$	1.53

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

		Equity Attributable to Shareholders of the Parent
																														Others
																														Foreign Currency Translation Reserve				Unrealized Gain/Loss from Available- for-sale Financial Assets				Cash Flow Hedges Reserve				Total				Total				Non- controlling Interests				Total Equity
		Capital Stock - Common Stock												Retained Earnings
		Shares (In								Capital				Legal Capital				Special Capital				Unappro- priated
		Thousands)				Amount				Surplus				Reserve				Reserve				Earnings				Total
BALANCE, JANUARY 1, 2014			25,928,617			$	259,286,171			$	55,858,626			$	132,436,003			$	2,785,741			$	382,971,408			$	518,193,152			$	(7,140,362	)		$	21,310,781			$	(113	)		$	14,170,306			$	847,508,255			$	266,830			$	847,775,085
Net income for the three months ended March 31, 2014			-				-				-				-				-				47,870,745				47,870,745				-				-				-				-				47,870,745				(24,967	)			47,845,778
Other comprehensive income for the three months ended March 31, 2014, net of income tax			-				-				-				-				-				-				-				2,807,924				(395,098	)			95				2,412,921				2,412,921				1,224				2,414,145
Total comprehensive income for the three months ended March 31, 2014			-				-				-				-				-				47,870,745				47,870,745				2,807,924				(395,098	)			95				2,412,921				50,283,666				(23,743	)			50,259,923
Issuance of stock from exercise of employee stock options			507				5,068				17,235				-				-				-				-				-				-				-				-				22,303				-				22,303
Adjustments to share of changes in equity of associates and joint venture			-				-				(29,636	)			-				-				-				-				-				-				-				-				(29,636	)			-				(29,636	)
Adjustments arising from changes in percentage of ownership in subsidiaries			-				-				(10,945	)			-				-				-				-				-				-				-				-				(10,945	)			10,945				-
Decrease in noncontrolling interests			-				-				-				-				-				-				-				-				-				-				-				-				(29,574	)			(29,574	)
BALANCE, MARCH 31, 2014			25,929,124			$	259,291,239			$	55,835,280			$	132,436,003			$	2,785,741			$	430,842,153			$	566,063,897			$	(4,332,438	)		$	20,915,683			$	(18	)		$	16,583,227			$	897,773,643			$	224,458			$	897,998,101
BALANCE, JANUARY 1, 2013			25,924,435			$	259,244,357			$	55,675,340			$	115,820,123			$	7,606,224			$	284,985,121			$	408,411,468			$	(10,753,806	)		$	7,973,321			$	-			$	(2,780,485	)		$	720,550,680			$	2,543,226			$	723,093,906
Net income for the three months ended March 31, 2013			-				-				-				-				-				39,576,876				39,576,876				-				-				-				-				39,576,876				(41,333	)			39,535,543
Other comprehensive income for the three months ended March 31, 2013, net of income tax			-				-				-				-				-				-				-				3,006,684				2,871,826				-				5,878,510				5,878,510				29,297				5,907,807
Total comprehensive income for the three months ended March 31, 2013			-				-				-				-				-				39,576,876				39,576,876				3,006,684				2,871,826				-				5,878,510				45,455,386				(12,036	)			45,443,350
Issuance of stock from exercise of employee stock options			3,797				37,970				69,384				-				-				-				-				-				-				-				-				107,354				-				107,354
Stock option compensation cost of subsidiary			-				-				-				-				-				-				-				-				-				-				-				-				2,701				2,701
Adjustments to share of changes in equity of associates and joint venture			-				-				14,238				-				-				-				-				-				-				-				-				14,238				-				14,238
Adjustments arising from changes in percentage of ownership in subsidiaries			-				-				3,610				-				-				-				-				-				-				-				-				3,610				(3,610	)			-
Decrease in noncontrolling interests			-				-				-				-				-				-				-				-				-				-				-				-				(12,464	)			(12,464	)
BALANCE, MARCH 31, 2013			25,928,232			$	259,282,327			$	55,762,572			$	115,820,123			$	7,606,224			$	324,561,997			$	447,988,344			$	(7,747,122	)		$	10,845,147			$	-			$	3,098,025			$	766,131,268			$	2,517,817			$	768,649,085

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

		Three Months Ended March 31
				2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax				$	53,301,842			$	45,747,914
Adjustments for:
Depreciation expense					40,985,942				35,964,677
Amortization expense					636,435				531,513
Stock option compensation cost of subsidiary					-				2,701
Finance costs					796,580				493,998
Share of profits of associates and joint venture					(955,380	)			(654,153	)
Interest income					(613,699	)			(346,321	)
Gain on disposal of property, plant and equipment and intangible assets, net					(497	)			(28,710	)
Gain on disposal of available-for-sale financial assets, net					(20,987	)			(818,315	)
Gain on disposal of financial assets carried at cost, net					(23,758	)			(2,105	)
Loss on disposal of investments in associates					-				484
Realized gross profit on sales to associates					(21,017	)			(3,540	)
Loss on foreign exchange, net					2,665,824				704,013
Income from receipt of equity securities in settlement of trade receivables					-				(8,565	)
Gain from hedging instruments					(325,678	)			(649,991	)
Loss arising from changes in fair value of available-for-sale financial assets in hedge effective portion					327,961				759,175
Changes in operating assets and liabilities:
Derivative financial instruments					233,713				9,946
Notes and accounts receivable, net					(2,124,198	)			(7,695,015	)
Receivables from related parties					(267,262	)			(80,495	)
Other receivables from related parties					4,415				9,252
Inventories					(5,986,376	)			(2,967	)
Other financial assets					(28,952	)			66,064
Other current assets					615,697				(541,426	)
Accounts payable					722,298				(2,065,468	)
Payables to related parties					(358,406	)			69,794
Salary and bonus payable					(2,223,942	)			(2,459,987	)
Accrued profit sharing to employees and bonus to directors and supervisors					3,279,960				2,678,344
Accrued expenses and other current liabilities					2,073,184				1,637,627
Provisions					2,359,196				306,904
Accrued pension cost					(12,724	)			(16,599	)
Cash generated from operations					95,040,171				73,608,749
Income taxes paid					(179,230	)			(39,077	)
Net cash generated by operating activities					94,860,941				73,569,672

 

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

		Three Months Ended March 31
				2014				2013
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets				$	(5,181	)		$	(4,022	)
Financial assets carried at cost					(3,782	)			(16,511	)
Held-to-maturity financial assets					(1,396,723	)			-
Property, plant and equipment					(114,905,317	)			(80,418,491	)
Intangible assets					(1,178,194	)			(951,989	)
Other assets					-				(11,896	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets					62,843				915,865
Held-to-maturity financial assets					800,000				3,091,725
Financial assets carried at cost					28,533				9,564
Property, plant and equipment					55,255				12,531
Cash refund from long-term receivables					78,060				-
Interest received					596,277				315,163
Refundable deposits paid					(7,869	)			(5,693	)
Refundable deposits refunded					16,506				30,841
Net cash used in investing activities					(115,859,592	)			(77,032,913	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans					8,819,028				230,321
Proceeds from issuance of bonds					-				45,000,000
Repayment of long-term bank loans					-				(31,250	)
Interest paid					(863,834	)			(331,695	)
Guarantee deposits received					3,744				3,436
Guarantee deposits refunded					(1,443	)			(26,382	)
Proceeds from exercise of employee stock options					22,303				107,354
Decrease in noncontrolling interests					(29,574	)			(12,464	)
Net cash generated by financing activities					7,950,224				44,939,320
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS					2,050,275				1,142,131
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					(10,998,152	)			42,618,210
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					242,695,447				143,410,588
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	231,697,295			$	186,028,798

 

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 and 2013

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities and operating segments information of TSMC and its subsidiaries (collectively as the “Company”) are described in Notes 4 and 40.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were reported to the Board of Directors and issued on May 13, 2014.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The 2013 IFRSs version in issue but not yet effective

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

 

 

(Continued)

 

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(Concluded)

 

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

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

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2)

IFRS 13, “Fair Value Measurement”

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

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

 

3)

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

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

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

 

4)

Amendments to IAS 19, “Employee Benefits”

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

According to the retrospective application of aforementioned amendments, as of March 31, 2014 and January 1, 2014, the primary impacts on the Company include the adjustment in accrued pension cost for a decrease of NT$796,305 thousand and NT$788,263 thousand, respectively, and the adjustment in retained earnings for an increase of NT$706,285 thousand and NT$698,762 thousand, respectively.

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

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

 

1)

IFRS 9, “Financial Instruments”

Under IFRS 9, all recognized financial assets currently in the scope of IAS 39, “Financial Instruments: Recognition and Measurement,” will be subsequently measured at either the amortized cost or the fair value. If the objective of the Company’s business model is to hold the financial asset to collect the contractual cash flows which are solely for payments of principal and interest on the principal amount outstanding, such assets are measured at the amortized cost. The other financial assets not met the aforementioned criteria must be measured at the fair value through profit or loss.

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

 

2)

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

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

 

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

The consolidated financial statements incorporate the financial statements of TSMC and entities controlled by TSMC (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Income and expenses of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the shareholders of the parent and to the noncontrolling interests even if this results in the noncontrolling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to shareholders of the parent.

When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between:

 

a.

the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and

 

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b.

the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any noncontrolling interest.

The Company shall account for all amounts recognized in other comprehensive income in relation to the subsidiary on the same basis as would be required if the Company had directly disposed of the related assets and liabilities.

The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the cost on initial recognition of an investment in an associate.

The subsidiaries in the consolidated financial statements

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

 

 

(Continued)

 

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Establishment

Percentage of Ownership

Name of Investor

Name of Investee

Main Businesses and Products

and Operating Location

March 31,   2014

December 31, 2013

March 31,   2013

Note

VTAF III

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

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

Taipei, Taiwan

58%

58%

58%

a)

Growth Fund Limited (Growth Fund)

Investing in new start-up technology companies

Cayman Islands

100%

100%

100%

a)

VTAF III, VTAF II and Emerging Alliance

VentureTech Alliance Holdings, LLC (VTA Holdings)

Investing in new start-up technology companies

Delaware, U.S.A.

100%

100%

100%

a)

TSMC SSL

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

Selling and marketing of solid state lighting related products

Delaware, U.S.A.

100%

100%

100%

a)

TSMC Solar

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

Selling and marketing of solar related products

Delaware, U.S.A.

100%

100%

100%

a)

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

Investing in solar related business

Amsterdam, the Netherlands

100%

100%

100%

a)

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

Investing in new start-up technology companies

Cayman Islands

49%

49%

49%

-

TSMC Solar Europe

TSMC Solar Europe GmbH

Selling of solar related products and providing customer service

Hamburg, Germany

100%

100%

100%

a)

(Concluded)

 

Retirement Benefits

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

Taxation

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

 

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

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

 

6.	CASH AND CASH EQUIVALENTS

 

 

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

 

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

Outstanding forward exchange contracts consisted of the following:

 

 

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Outstanding cross currency swap contracts consisted of the following:

 

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

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10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

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

The outstanding stock forward contracts consisted of the following:

 

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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

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

 

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Aging analysis of notes and accounts receivable, net

 

Movements of the allowance for doubtful receivables

 

Aging analysis of accounts receivable that is individually determined to be impaired

 

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of March 31, 2014, December 31, 2013 and March 31, 2013, the amount of the bank guarantee and other credit enhancements were NT$325 thousand (US$11 thousand), NT$318 thousand (US$11 thousand) and nil, respectively.

 

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12.	INVENTORIES

 

Write-down of inventories to net realizable value in the amount of NT$590,034 thousand was included in the cost of revenue for the three months ended March 31, 2014. The reserve for inventory write-downs in the amount of NT$94,941 thousand was reversed in the cost of revenue for the three months ended March 31, 2013 when the related inventory items were scrapped or sold.

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

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

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

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a.

Investments in associates

Associates consisted of the following:

 

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

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

TSMC no longer has power to govern the financial and operating policies of Xintec starting June 2013 due to the loss of power to cast the majority of votes at meetings of the Board of Directors. As a result, Xintec is no longer consolidated and is accounted for using the equity method. Please refer to Note 33.

On April 14, 2014, the Company sold 82,000 thousand common shares of VIS and recognized a disposal gain of NT$2,028,643 thousand in the second quarter of 2014. After the sale, the Company owned approximately 33.7% of the equity interest in VIS.

 

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b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

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

The Company entered into agreements to lease buildings from December 2003 to November 2018 that qualify as finance leases.

Future minimum lease gross payments were as follows:

 

 

(Continued)

 

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(Concluded)

There was no capitalization of borrowing costs for the three months ended March 31, 2014 and 2013.

 

16.	INTANGIBLE ASSETS

 

 

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

For the three months ended March 31, 2014 and 2013, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

 

 

(Continued)

 

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(Concluded)

 

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

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

 

20.	BONDS PAYABLE

 

 

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The major terms of overseas unsecured bonds are as follows:

 

 

21.	LONG-TERM BANK LOANS

 

In relation to the deconsolidation of Xintec in June 2013 (refer to Note 33), long-term bank loans of Xintec have been derecognized.

 

22.	OTHER LONG-TERM PAYABLES

 

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

 

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23.

EQUITY

 

a.

Capital stock

 

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

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

As of March 31, 2014, 1,077,434 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,387,171 thousand shares (one ADS represents five common shares).

 

b.

Capital surplus

 

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

 

c.

Retained earnings and dividend policy

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

 

1)

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

 

2)

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

 

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3)

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

 

4)

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

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

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

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$3,200,716 thousand and NT$2,660,482 thousand for the three months ended March 31, 2014 and 2013, respectively. Bonuses to members of the Board of Directors were expensed based on estimated amount payable. If the actual amounts subsequently approved by the shareholders differ from the amounts estimated, the differences are recorded in the year such bonuses are approved by the shareholders as a change in accounting estimate. If profit sharing approved for distribution to employees is in the form of common shares, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

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

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

The appropriations of 2013 and 2012 earnings have been approved by TSMC’s Board of Directors in its meeting held on February 18, 2014 and by TSMC’s shareholders in its meeting held on June 11, 2013, respectively. The appropriations and dividends per share were as follows:

 

 

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The Board of Directors of TSMC also approved on February 18, 2014 the profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$12,634,665 thousand and NT$104,136 thousand in cash for 2013, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2013.

The appropriations of earnings, profit sharing to employees and bonus to members of the Board of Directors for 2013 are to be presented for approval in the TSMC’s shareholders’ meeting to be held on June 24, 2014 (expected).

TSMC’s profit sharing to employees and bonus to members of the Board of Directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, had been approved by shareholders in its meeting held on June 11, 2013. The aforementioned approved amounts are the same as the amounts approved by the Board of Directors in its meetings held on February 5, 2013, and the same amounts had been charged against earnings of 2012.

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

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

 

d.

Others

Changes in others were as follows:

 

 

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

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

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

 

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e.

Noncontrolling interests

 

 

24.	SHARE-BASED PAYMENT

The Company did not issue employee stock option plans for the three months ended March 31, 2014 and 2013. Information about TSMC’s outstanding employee stock options is described as follows:

 

a.

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

 

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

 

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