1934 Act Registration No. 1-14700

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2014

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

Yes  ¨            No   x

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

 

 

 

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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: August 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 Six Months Ended June 30, 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 June 30, 2014 and 2013 and the related consolidated statements of comprehensive income for the three months ended June 30, 2014 and 2013 and for the six months ended June 30, 2014 and 2013, as well as the consolidated statements of changes in equity and cash flows for the six months ended June 30, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

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

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

 

 

August 12, 2014

Notice to Readers

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

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

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

 

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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)

 

 

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

 

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

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

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Reviewed, Not Audited)

 

 

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

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

 

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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)

 

 

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

 

(Continued)

 

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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)

 

 

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

 

(Continued)

 

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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)

 

 

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

 

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

 

- 7 -

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED June 30, 2014 and 2013

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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

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

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

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

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

 

a.

The 2013 IFRSs version in issue but not yet effective

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

 

 

(Continued)

 

- 8 -

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(Concluded)

 

Note:

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

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

 

1)

IFRS 12, “Disclosure of Interests in Other Entities”

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

 

2)

IFRS 13, “Fair Value Measurement”

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

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

 

- 9 -

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3)

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

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

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

 

4)

Amendments to IAS 19, “Employee Benefits”

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

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

 

b.

The IFRSs issued by IASB but not endorsed by FSC

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

 

 

(Continued)

 

- 10 -

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(Concluded)

 

Note:

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

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

 

1)

IFRS 9, “Financial Instruments”

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

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

 

a)

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

 

b)

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

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

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

 

- 11 -

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

 

2)

IFRS 15, “Revenue from Contracts with Customers”

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

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

 

—

Identify the contract with the customer;

—

Identify the performance obligations in the contract;

—

Determine the transaction price;

—

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

—

Recognize revenue when the entity satisfies a performance obligation.

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

 

3)

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

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

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

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

 

- 12 -

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

Statement of Compliance

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

Basis of Consolidation

The basis for the consolidated financial statements

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

The subsidiaries in the consolidated financial statements

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

 

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

 

(Continued)

 

- 13 -

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Establishment

Percentage of Ownership

Name of Investor

Name of Investee

Main Businesses and Products

and Operating Location

June 30, 2014

December 31, 2013

June 30,     2013

Note

TSMC Partners

InveStar Semiconductor Development Fund, Inc. (ISDF)

Investing in new start-up technology companies

Cayman Islands

97%

97%

97%

a)

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

Investing in new start-up technology companies

Cayman Islands

97%

97%

97%

a)

TSMC Development

WaferTech, LLC (WaferTech)

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

Washington, U.S.A.

100%

100%

100%

-

VTAF III

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

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

Taipei, Taiwan

58%

58%

58%

a)

Growth Fund Limited (Growth Fund)

Investing in new start-up technology companies

Cayman Islands

100%

100%

100%

a)

VTAF III, VTAF II and Emerging Alliance

VentureTech Alliance Holdings, LLC (VTA Holdings)

Investing in new start-up technology companies

Delaware, U.S.A.

100%

100%

100%

a)

TSMC SSL

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

Selling and marketing of solid state lighting related products

Delaware, U.S.A.

100%

100%

100%

a), c)

TSMC Solar

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

Selling and marketing of solar related products

Delaware, U.S.A.

100%

100%

100%

a)

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

Investing in solar related business

Amsterdam, the Netherlands

100%

100%

100%

a), d)

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

Investing in new start-up technology companies

Cayman Islands

-

49%

49%

b)

TSMC Solar Europe

TSMC Solar Europe GmbH

Selling of solar related products and providing customer service

Hamburg, Germany

100%

100%

100%

a), d)

(Concluded)

 

Note a:

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

 

Note b:

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

 

Note c:

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

 

Note d:

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

Retirement Benefits

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

Taxation

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

 

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

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

 

- 14 -

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6.	CASH AND CASH EQUIVALENTS

 

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

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

 

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

 

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

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

Outstanding forward exchange contracts consisted of the following:

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

 

(Continued)

 

- 15 -

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

(Concluded)

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date		Contract Amount (In Thousands)		Range of Interest Rates Paid		Range of Interest Rates Received
June 30, 2014
July 2014		NT$2,461,848/US$82,080		-		0.20%-0.48%
July 2014 to August 2014		US$870,000/NT$26,093,255		0.25%-1.92%		-
December 31, 2013
January 2014		NT$1,639,215/US$55,080		-		1.03%-2.00%
June 30, 2013
July 2013		NT$1,200,176/US$40,080		-		0.24%-0.35%

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

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

 

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

 

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

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

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

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

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

The outstanding stock forward contracts consisted of the following:

 

June 30, 2014

December 31, 2013

June 30, 2013

Contract amount (US$ in thousands)

$   52,874,969

$   37,431,626

$ 14,753,429

(US$1,771,000)

( US$1,256,095)

(US$492,306)

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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

 

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

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

Aging analysis of notes and accounts receivable, net

 

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

 

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

 

12.	INVENTORIES

 

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

 

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

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

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

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

 

 

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a.

Investments in associates

Associates consisted of the following:

 

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

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

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

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

 

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b.

Investments in jointly controlled entities

Jointly controlled entities consisted of the following:

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

 

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

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

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

 

16.	INTANGIBLE ASSETS

 

 

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

 

17.	OTHER ASSETS

 

 

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

 

 

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

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

 

20.	BONDS PAYABLE

 

The major terms of overseas unsecured bonds are as follows:

 

 

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21.	OTHER LONG-TERM PAYABLES

 

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

 

22.

EQUITY

 

a.

Capital stock