Taiwan Semiconductor Manufacturing Company Limited And Subsidiaries

The following excerpt is from the company's SEC filing.

    September 30,2013     December 31,2012     September 30,2012     January 1,2012       Amount     %     Amount     %     Amount     %     Amount     %   ASSETS                 CURRENT ASSETS                 Cash and cash equivalents (Note 6)   $ 216,603,697        19      $ 143,410,588        15      $ 138,738,113        16      $ 143,472,277        18    Financial assets at fair value through profit or loss (Note 7)     188,970        —          39,554        —          58,690        —          15,360        —      Available-for-sale financial assets (Note 8)     672,179        —          2,410,635        —          2,067,730        —          3,308,770        —      Held-to-maturity financial assets (Note 9)     700,285        —          5,056,973        1        6,854,611        1        3,825,680        1    Hedging derivative financial assets (Note 10)     —          —          —          —          28,189        —          —          —      Notes and accounts receivable, net (Note 11)     78,844,389        7        57,777,586        6        64,386,937        7        45,830,288        6    Receivables from related parties (Note 37)     827,480        —          353,811        —          925,245        —          185,764        —      Other receivables from related parties (Note 37)     194,408        —          185,550        —          157,144        —          122,292        —      Inventories (Notes 5 and 12)     36,916,527        3        37,830,498        4        33,249,045        4        24,840,582        3    Other current assets (Note 17)     2,740,765        —          2,786,408        —          2,639,414        —          2,174,014        —      Other financial assets (Note 38)     522,137        —          473,833        —          469,979        —          617,142        —                                                                      Total current assets     338,210,837        29        250,325,436        26        249,575,097        28        224,392,169        28                                                                    NONCURRENT ASSETS                 Available-for-sale financial assets (Note 8)     61,145,097        5        38,751,245        4        —          —          —          —      Held-to-maturity financial assets (Note 9)     —          —          —          —          701,435        —          5,243,167        1    Financial assets carried at cost (Note 13)     2,124,507        —          3,605,077        —          3,981,251        —          4,315,005        1    Investments accounted for using equity method (Notes 5 and 14)     25,903,920        2        23,360,918        3        23,907,158        3        24,886,931        3    Property, plant and equipment (Notes 5 and 15)     727,716,024        62        617,562,188        64        580,114,062        66        490,422,153        63    Intangible assets (Notes 5 and 16)     11,393,280        1        10,959,569        1        10,888,854        1        10,861,563        1    Deferred income tax assets (Notes 5 and 31)     7,165,944        1        13,128,219        2        13,058,484        2        13,604,218        2    Refundable deposits (Note 37)     2,464,658        —          2,426,712        —          2,331,966        —          4,518,863        1    Other noncurrent assets (Note 17)     1,415,948        —          1,235,144        —          1,213,129        —          1,306,746        —                                                                      Total noncurrent assets     839,329,378        71        711,029,072        74        636,196,339        72        555,158,646        72                                                                    TOTAL   $ 1,177,540,215        100      $ 961,354,508        100      $ 885,771,436        100      $ 779,550,815        100                                                                   

    September 30,2013     December 31,2012     September 30,2012     January 1,2012       Amount     %     Amount     %     Amount     %     Amount     %   LIABILITIES AND EQUITY                 CURRENT LIABILITIES                Short-term loans (Note 18)   $ 18,053,096        2      $ 34,714,929        4      $ 29,749,650        3      $ 25,926,528        3    Financial liabilities at fair value through profit or loss (Note 7)     18,876        —          15,625        —          20,013        —          13,742        —      Hedging derivative financial liabilities (Note 10)     —          —          —          —          —          —          232        —      Accounts payable     13,478,598        1        14,490,429        2        13,773,108        2        10,530,487        1    Payables to related parties (Note 37)     1,594,104        —          748,613        —          783,253        —          1,328,521        —      Salary and bonus payable     7,668,518        1        7,535,296        1        6,994,285        1        6,148,499        1    Accrued profit sharing to employees and bonus to directors and supervisors (Note 24)     9,946,700        1        11,186,591        1        8,654,015        1        9,081,293        1    Payables to contractors and equipment suppliers     58,381,100        5        44,831,798        5        32,785,881        4        35,540,526        5    Income tax payable (Note 31)     17,025,992        1        15,635,594        2        10,855,245        1        10,656,124        1    Provisions (Notes 5 and 19)     6,720,214        1        6,038,003        —          6,900,184        —          5,068,263        1    Accrued expenses and other current liabilities (Notes 15 and 22)     15,396,990        1        13,148,944        1        15,312,033        2        13,218,235        2    Current portion of bonds payable and long-term bank loans (Notes 20 and 21)     —          —          128,125        —          125,000        —          4,562,500        1                                                                    Total current liabilities     148,284,188        13        148,473,947        16        125,952,667        14        122,074,950        16                                                                    NONCURRENT LIABILITIES                 Hedging derivative financial liabilities (Note 10)     6,144,025        —          —          —          —          —          —          —      Bonds payable (Note 20)     210,416,434        18        80,000,000        8        75,600,000        9        18,000,000        3    Long-term bank loans (Note 21)     40,000        —          1,359,375        —          1,393,750        —          1,587,500        —      Provisions (Note 19)     7,344        —          4,891        —          3,619        —          2,889        —      Other long-term payables (Note 22)     36,000        —          54,000        —          54,000        —          —          —      Obligations under finance leases (Note 15)     758,732        —          748,115        —          737,034        —          870,993        —      Accrued pension cost (Note 23)     6,931,366        1        6,921,234        1        6,233,278        1        6,241,024        1    Guarantee deposits     149,622        —          203,890        —          229,212        —          443,983        —      Others     597,743        —          495,150        —          480,559        —          400,831        —                                                                      Total noncurrent liabilities     225,081,266        19        89,786,655        9        84,731,452        10        27,547,220        4                                                                    Total liabilities     373,365,454        32        238,260,602        25        210,684,119        24        149,622,170        20                                                                    EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT                 Capital stock (Note 24)     259,283,910        22        259,244,357        27        259,220,476        29        259,162,226        33                                                                    Capital surplus (Note 24)     55,841,716        5        55,675,340        6        55,630,425        6        55,471,662        7                                                                    Retained earnings (Note 24)                 Appropriated as legal capital reserve     132,436,003        11        115,820,123        12        115,820,123        13        102,399,995        13    Appropriated as special capital reserve     2,785,741        —          7,606,224        1        7,606,224        1        6,433,874        1    Unappropriated earnings     338,752,961        29        284,985,121        29        244,003,918        28        211,630,458        27                                                                        473,974,705        40        408,411,468        42        367,430,265        42        320,464,327        41                                                                    Others (Note 24)     14,776,668        1        (2,780,485 )      —          (9,783,800 )      (1 )      (7,606,219 )      (1 )                                                                  Equity attributable to shareholders of the parent     803,876,999        68        720,550,680        75        672,497,366        76        627,491,996        80    NONCONTROLLING INTERESTS (Note 24)     297,762        —          2,543,226        —          2,589,951        —          2,436,649        —                                                                      Total equity     804,174,761        68        723,093,906        75        675,087,317        76        629,928,645        80                                                                    TOTAL   $ 1,177,540,215        100      $ 961,354,508        100      $ 885,771,436        100      $ 779,550,815        100                                                                   

                                                                                                               

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. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products.

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 42.

On May 14, 2009, the Financial Supervisory Commission (FSC) announced the roadmap of IFRSs adoption for R.O.C. companies. Accordingly, starting 2013, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations as well as related guidance translated by Accounting Research and Development Foundation (ARDF) endorsed by the FSC with the effective dates (collectively, “Taiwan-IFRSs”).

The new, revised or amended IFRSs, IASs, interpretations and related guidance in issue but not yet adopted by the Company as well as the effective dates issued by the International Accounting Standards Board (IASB), are stated as follows; however, the initial adoption to the following new, revised or amended standards and interpretations is still subject to the effective date to be published by the FSC.

New, Revised or Amended Standards and Interpretations    Effective Date Issued by IASB (Note) Endorsed by the FSC but the    effective dates have not yet    been determined by the FSC       Amendments to IFRSs    Improvements to IFRSs 2009—Amendment to IAS 39    January 1, 2009 or    January 1, 2010 IFRS 9 (2009)    Financial Instruments    January 1, 2015 Amendment to IAS 39    Embedded Derivatives    Effective in fiscal year    beginning on or after    June 30, 2009 Not yet endorsed by the FSC       Amendments to IFRSs    Improvements to IFRSs 2010—Amendment to IAS 39    July 1, 2010 or January 1, 2011 Amendments to IFRSs    Annual Improvements to IFRSs 2009—2011 Cycle    January 1, 2013 Amendments to IFRS 1    Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters    July 1, 2010 Amendments to IFRS 1    Government Loans    January 1, 2013 Amendments to IFRS 1    Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters    July 1, 2011 Amendment to IFRS 7    Disclosures-offsetting Financial Assets and Financial Liabilities    January 1, 2013 Amendments to IFRS 9 and IFRS 7    Mandatory Effective Date and Transition Disclosure    January 1, 2015 Amendment to IFRS 7    Disclosures—Transfers of Financial Assets    July 1, 2011 Amendment to IFRS 9 (2010)    Financial Instruments    January 1, 2015 IFRS 10    Consolidated Financial Statements    January 1, 2013 IFRS 11    Joint Arrangements    January 1, 2013 IFRS 12    Disclosure of Interests in Other Entities    January 1, 2013 Amendments to IFRS 10,     IFRS 11 and IFRS 12    Consolidated financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities: Transition Guidance    January 1, 2013 Amendments to IFRS 10,     IFRS 12 and IAS 27    Investment Entities    January 1, 2014 IFRS 13    Fair Value Measurement    January 1, 2013 Amendment to IAS 1    Presentation of Items of Other Comprehensive Income    July 1, 2012 Amendment to IAS 12    Deferred Tax: Recovery of Underlying Assets    January 1, 2012 Amendment to IAS 19    Employee Benefits    January 1, 2013 Amendment to IAS 27    Separate Financial Statements    January 1, 2013 Amendment to IAS 28    Investments in Associates and Joint Ventures    January 1, 2013 Amendment to IAS 32    Offsetting of Financial Assets and Financial Liabilities    January 1, 2014 Amendment to IAS 36    Recoverable Amount Disclosures for Non-Financial Assets    January 1, 2014

  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 new, revised or amended standards or interpretations will not have a significant effect on the Company’s accounting policies.

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. All other financial assets must be measured at the fair value through profit or loss as of the balance sheet date.

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.

The amendments to IAS 1 introduce a new disclosure terminology for other comprehensive income, which require additional disclosures in other comprehensive income. 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 Company expects the aforementioned amendments will change the Company’s presentation on the statement of comprehensive income.

The amendments to IAS 19 change the accounting for defined benefit plans, which require the Company to recognize changes in defined benefit obligations or assets, to disclose the components of the defined benefit costs, to eliminate the corridor approach and to accelerate the recognition of past service cost. According to the amendments, all actuarial gains and losses will be recognized 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 amendment also requires a broader disclosure in defined benefit plans.

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.

As of the date that the consolidated financial statements were authorized 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 above standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

The consolidated financial statements are the Taiwan-IFRSs interim consolidated financial statements for part of the period covered by the Taiwan-IFRSs annual consolidated financial statements prepared for the year ended December 31, 2013. The Company’s date of transition to Taiwan-IFRSs is January 1, 2012, and the effect of the transition to Taiwan-IFRSs is disclosed in Note 43.

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.

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and IFRS 1, “First-time adoption of International Financial Reporting Standards,” (IFRS 1) 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.

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.

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

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.

            Establishment and Operating Location   Percentage of Ownership       Name of Investor   Name of Investee   Main Businesses and Products     September 30, 2013     December 31, 2012     September 30, 2012     January 1, 2012     Note TSMC   TSMC North America   Selling and marketing of integrated circuits and semiconductor devices   San Jose, California, U.S.A.     100 %      100 %      100 %      100 %    —     TSMC Japan Limited (TSMC Japan)   Marketing activities   Yokohama, Japan     100 %      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 %      100 %    —     TSMC Korea Limited (TSMC Korea)   Customer service and technical supporting activities   Seoul, Korea     100 %      100 %      100 %      100 %    a)   TSMC Europe B.V. (TSMC Europe)   Marketing and engineering supporting activities   Amsterdam, the Netherlands     100 %      100 %      100 %      100 %    a)   TSMC Global, Ltd. (TSMC Global)   Investment activities   Tortola, British Virgin Islands     100 %      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 %      100 %    —     VentureTech Alliance Fund III, L.P. (VTAF III)   Investing in new start-up technology companies   Cayman Islands     50 %      50 %      50 %      53 %    —     VentureTech Alliance Fund II, L.P. (VTAF II)   Investing in new start-up technology companies   Cayman Islands     98 %      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 %      99.5 %    a)

                Percentage of Ownership       Name of Investor   Name of Investee   Main Businesses andProducts   Establishment andOperating Location   September 30, 2013     December 31, 2012     September 30, 2012     January 1, 2012     Note TSMC   Xintec Inc. (Xintec)   Wafer level chip size packaging service   Taoyuan, Taiwan     b )      40%        40%        40%      —     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%        95%        95%        100%      TSMC and TSMC GN aggregately have a controlling interest of 93% 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%        100%      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%        —        —   TSMC Partners   TSMC Design Technology Canada Inc. (TSMC Canada)   Engineering support activities   Ontario, Canada     100%        100%        100%        100%      a)   TSMC Technology, Inc. (TSMC Technology)   Engineering support activities   Delaware, U.S.A.     100%        100%        100%        100%      a)   TSMC Development, Inc. (TSMC Development)   Investment activities   Delaware, U.S.A.     100%        100%        100%        100%      —     InveStar Semiconductor Development Fund, Inc. (ISDF)   Investing in new start-up technology companies   Cayman Islands     97%        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%        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%        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%        57%      a)   Growth Fund Limited (Growth Fund)   Investing in new start-up technology companies   Cayman Islands     100%        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%        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%        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%        100%      a)   TSMC Solar Europe B.V. (TSMC Solar Europe)   Investing in solar related business   Amsterdam, the Netherlands     100%        100%        100%        100%      a)   VentureTech Alliance Fund III, L.P. (VTAF III)   Investing in new start-up technology companies   Cayman Islands     49%        49%        49%        46%      —   TSMC Solar Europe   TSMC Solar Europe GmbH   Selling of solar related products and providing customer service   Hamburg, Germany     100%        100%        100%        100%      a)

Note a: This is an insignificant subsidiary for which the financial statements are not reviewed by the Company’s independent accountants. The Company’s management believes the investment in such subsidiary has no material effect on the Company’s consolidated financial statements.

Note b: TSMC has no 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 34.

The same accounting policies have been followed in this consolidated financial statements as were applied in the preparation of the Company’s consolidated financial statements for the three months ended March 31, 2013. For the summary of other significant accounting policies, please refer to Note 4 to the consolidated financial statements for the three months ended March 31, 2013.

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 three months ended March 31, 2013. For the related information, please refer to Note 5 to the consolidated financial statements for the three months ended March 31, 2013.

Deposits in banks, for the purpose of meeting short-term cash commitments, 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.

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.

In October 2012, the Company acquired 5% of the outstanding equity of ASML Holding N.V. (ASML) for EUR837,816 thousand with a lock-up period of 2.5 years starting from the acquisition date. (Note 40f)

In the second quarter of 2012, the Company recognized an impairment loss on some of the overseas publicly traded stocks in the amount of NT$2,677,529 thousand due to the significant decline in fair value.

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 in a specific future period in order to hedge the fair value risk caused by changes in equity prices.

The Company entered into derivative contracts to hedge cash flow risk arising from foreign exchange rate fluctuations of an expected equity transaction in September 2012. Outstanding forward exchange contracts consisted of the following:

For the three months and nine months ended September 30, 2012, the amount recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve from the above forward exchange contract both amounted to a net gain of NT$28,189 thousand.

In addition, the Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. The interest rate swap contract of the Company was due in August 2012.

For the three months and the nine months ended September 30, 2012, the amount recognized in other comprehensive income and accumulated under the heading of cash flow hedges reserve from the above interest rate swap contract amounted to a net gain of NT$22 thousand and NT$5 thousand, respectively; the amount reclassified from equity and recognized as a loss from the above interest rate swap contract amounted to a net loss of NT$47 thousand and NT$227 thousand, respectively, which were included under finance costs in the consolidated statements of comprehensive income.

The Company’s sales agreements typically provide that the payment is due 30 days from the invoice date for a majority of the costumers and 30 to 45 days after the end of the month in which sales occur for some customers. 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 an 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.

The Company held bank guarantees and other credit enhancements as collateral for certain impaired accounts receivables. As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the amount of the bank guarantee and other credit enhancements were US$9 thousand, US$1,000 thousand, US$1,985 thousand and US$2,962 thousand, respectively.

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.

The Company recognized impairment loss on financial assets carried at cost in the amount of NT$1,495,454 thousand and NT$160 thousand for the three months ended September 30, 2013 and 2012, respectively; and of NT$1,541,170 thousand and NT$71,087 thousand for the nine months ended September 30, 2013 and 2012, respectively.

Vanguard International Semiconductor Corporation (VIS)   Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts   Hsinchu, Taiwan   $ 10,107,307      $ 9,406,597      $ 9,121,036      $ 8,985,340        39 %      40 %      41 %      39 % 

Motech Industries, Inc. (Motech)   Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems   Taipei, Taiwan     2,713,227        2,992,899        4,449,280        5,609,002        20 %      20 %      20 %      20 % 

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, after reassessment, the Company did not exercise significant influence over Mcube and 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 has no 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 34.

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.

In February 2010, the Company acquired 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; following such acquisition, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years from the acquisition date is prohibited unless permitted by other related regulations.

The market prices of the investments accounted for using the equity method in publicly traded stocks calculated by the closing price at the balance sheet date are summarized as follows:

VisEra Holding Company (VisEra Holding)   Investing in companies involved in the design, manufacturing and other related businesses in the semiconductor industry   CaymanIslands   $ 3,444,234      $ 3,035,641      $ 2,913,578      $ 2,853,364        49 %      49 %      49 %      49 % 

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.

For the nine months ended September 30, 2012, the Company recognized impairment loss of NT$422,323 thousand related to property, plant and equipment of the foundry reportable segment since the carrying amount of some of property, plant and equipment is expected to be unrecoverable.

     September 30, 2013      December 31,2012      September 30, 2012      January 1, 2012   Present value of minimum lease payments             Not later than 1 year    $ 27,231       $ 26,382       $ 26,156       $ —      Later than 1 year and not later than 5 years      102,443         100,821         98,397         213,411    Later than five years      637,670         629,102         620,551         657,582                                           $ 767,344       $ 756,305       $ 745,104       $ 870,993                                        Current portion    $ 8,612       $ 8,190       $ 8,070       $ —      Noncurrent portion      758,732         748,115         737,034         870,993                                           $ 767,344       $ 756,305       $ 745,104       $ 870,993                                       

There was no capitalization of interest for the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. For the three months and the nine months ended September 30, 2012, the amount of capitalized interest was nil and NT$6,442 thousand, respectively, and the capitalized interest rate was 1.08%-1.20%.

The recoverable amount of the Company’s goodwill has been tested for impairment at the end of the annual reporting period and was determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering future five-year period, and the Company used annual discount rate of 9.00% and 9.68% in its test of impairment as of December 31, 2012 and 2011, respectively, to reflect the relevant specific risk in the cash-generating unit.

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.

  C    September 2013 to   March 2019   1,400,000   1.60%   Bullet repayment; interest payable annually (interest for the six months prior to maturity will accrue on the basis of actual days and be repayable at maturity)

Repayable in full in one lump sum payment in June 2016 but repaid earlier of NT$100,000 thousand in September 2012, annual interest rate at 1.08%-1.21% in 2012      —           550,000         550,000         650,000   

Repayable in full in one lump sum payment in March 2015 but repaid earlier of NT$50,000 thousand in August 2012, annual interest rate at 1.16%-1.18% in 2012      —           450,000         450,000         500,000   

As of September 30, 2013, some of the long-term bank loans were amounted to nil as a result of deconsolidation of Xintec in June 2013 (refer to Note 34).

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. The property, plant and equipment have been in use by TSMC China since 2004. The aforementioned payables were totally paid in July 2013.

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Technology, TSMC Solar NA and TSMC Solar Europe GmbH also make monthly contributions at certain percentages of the basic salary of their employees. Accordingly, the Company recognized expenses of NT$402,495 thousand and NT$364,639 thousand in the consolidated statements of comprehensive income for the three months ended September 30, 2013 and 2012, respectively; and of NT$1,190,732 thousand and NT$1,031,294 thousand in the consolidated statements of comprehensive income for the nine months ended September 30, 2013 and 2012, respectively.

TSMC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

The Company adopted projected unit credit method to measure the present value of the defined benefit obligation, current service costs and prior service costs.

The Company adopted the pension cost rate from the actuarial valuation as of December 31, 2012 and January 1, 2012 to determine and recognize pension expenses of NT$60,702 thousand and NT$56,697 thousand in the consolidated statements of comprehensive income for the three months ended September 30, 2013 and 2012, respectively; and of NT$182,089 thousand and NT$166,025 thousand in the consolidated statements of comprehensive income for the nine months ended September 30, 2013 and 2012, respectively. For the information of the defined benefit plans as of December 31, 2012 and January 1, 2012, please refer to Note 23 to the consolidated financial statements for the three months ended March 31, 2013.

As of September 30, 2013, 1,088,027 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,440,133 thousand shares (one ADS represents five common shares).

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, which are limited to a certain percentage of TSMC’s paid-in capital.

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;

  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;

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.

TSMC accrued profit sharing to employees based on certain percentage of net income during the period, which amounted to NT$3,492,973 thousand and NT$3,289,330 thousand for the three months ended September 30, 2013 and 2012, respectively; and NT$9,637,364 thousand and NT$8,333,282 thousand for the nine months ended September 30, 2013 and 2012, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently approved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing 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 on 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 2012 and 2011 earnings have been approved by TSMC’s shareholders in its meetings held on June 11, 2013 and on June 12, 2012, respectively. The appropriations and dividends per share were as follows:

TSMC’s profit sharing to employees and bonus to directors in the amounts of NT$11,115,240 thousand and NT$71,351 thousand in cash for 2012, respectively, and profit sharing to employees and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand in cash for 2011, respectively, had been approved by the shareholders in its meeting held on June 11, 2013 and June 12, 2012, respectively. The aforementioned approved amount has no difference with the one approved by the Board of Directors in its meetings held on February 5, 2013 and February 14, 2012 and the same amount had been charged against earnings of 2012 and 2011, respectively.

The appropriations of earnings, payment of profit sharing to employees and bonus to directors for 2012 approved by the Board of Directors of TSMC were based on the financial statements for the year ended December 31, 2012 prepared under the R.O.C. GAAP and in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by the FSC before amendment.

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

Under the Integrated Income Tax System that became effective on January 1, 1998, 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.

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 gain or loss 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.

The Company elected to take the optional exemption from applying IFRS 2 retrospectively for the shared-based payment transactions granted and vested before January 1, 2012. The plans are described as follows:

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

Stock options of the plans that had never been granted or had been granted but subsequently canceled had expired as of September 30, 2013.

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

The Company applied IFRS 2 for the following plans as the shared-based payment transactions were granted and vested on or after January 1, 2012. The plans are described as follows:

The Board of Directors of TSMC SSL approved on December 18, 2012 and November 21, 2011 the issuance of new shares and allocated 17,000 thousand shares and 17,175 thousand shares for 2013 and 2012 stock option plan, respectively, for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

The grant dates of aforementioned stock options were April 10, 2013 and January 9, 2012, respectively. TSMC SSL used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

The stock price on grant date was determined based on the cost approach. The expected volatility was calculated using the historical rate of return based on the TWSE Optoelectronic Index.

The Board of Directors of TSMC Solar approved on November 21, 2011 the issuance of new shares and allocated 12,341 thousand shares for their employees to subscribe to, according to the Company Law. The aforementioned shares were fully vested on the grant date.

The grant date of aforementioned stock options was January 9, 2012. TSMC Solar used the Black-Scholes model to determine the fair value of the options. The valuation assumptions were as follows:

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2012 and 2011 were 7.75% and 6.69%, respectively. Under the Rule No.10204562810 issued by the Ministry of Finance, when calculating the creditable ratio in the year of first-time adoption of Taiwan-IFRSs, companies should include the net increase/decrease to retained earnings from the effect of transition to Taiwan-IFRSs in the accumulated unappropriated earnings.

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

The tax authorities have examined income tax returns of TSMC through 2010. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

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

Starting June 2013, the Company has no power to govern the financial and operating policies of Xintec due to the loss of power to cast the majority of votes at meetings of the Board of Directors; accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Xintec.

The Company requires significant amounts of capital to build and expand its production facilities and equipment. In consideration of the industry dynamics, the Company manages its capital in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital needs, capital asset purchases, research and development activities, dividend payments, debt service requirements and other business requirements associated with its existing operations over the next 12 months.

The Company seeks to ensure sufficient cost-efficient funding readily available when needed. The Company manages its exposure to foreign currency risk, interest rate risk, equity price risk, credit risk and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by Audit Committees and/or Board of Directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, Corporate Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

The Company is exposed to the market risks arising from changes in foreign exchange rates, interest rates and the prices in equity investments, and utilizes some derivative financial instruments to reduce the related risks.

Most of the Company’s operating activities are denominated in foreign currencies. Consequently, the Company is exposed to foreign currency risk. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Company utilizes derivative financial instruments, including currency forward contracts and cross currency swaps, to hedge its currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements.

The Company also holds short-term borrowings in foreign currencies in proportion to its expected future cash flows. This allows foreign-currency-denominated borrowings to be serviced with expected future cash flows and provides a partial hedge against transaction translation exposure.

The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency monetary items and forward contracts designated as hedging instruments in cash flow hedge at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges against the New Taiwan dollar, the net income for the nine months ended September 30, 2013 and 2012 would have decreased by NT$390,328 thousand and NT$464,243 thousand, respectively, and the equity as of September 30, 2013 and 2012 would have decreased by nil and NT$755,493 thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.

The Company is exposed to interest rate risk arising from borrowing at both fixed and floating interest rates. All of the Company’s long-term bonds have fixed interest rates and are measured at amortized cost. As such, changes in interest rates would not affect the future cash flows. On the other hand, because interest rates of the Company’s long-term bank loans are floating, changes in interest rates would affect the future cash flows but not the fair value. To reduce the cash flow risk caused by floating interest rates, the Company utilized an interest rate swap contract to partially hedge its exposure.

Assuming the amount of floating interest rate bank loans at the end of the reporting period had been outstanding for the entire period and all other variables were held constant, a hypothetical increase in interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of tax, by approximately NT$83 thousand and NT$9,664 thousand for the nine months ended September 30, 2013 and 2012, respectively.

The Company is exposed to equity price risk arising from available-for-sale equity investments. To reduce the price risk, the Company utilized some stock forward contracts to partially hedge its exposure.

Assuming a hypothetical decrease of 5% in equity prices of the equity investments at the end of the reporting period, the net income for the nine months ended September 30, 2013 and 2012 would have been unaffected as they were classified as available-for-sale; however, the other comprehensive income for the nine months ended September 30, 2013 and 2012 would have decreased by NT$1,982,639 thousand and NT$283,693 thousand, respectively.

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is exposed to credit risk from operating activities, primarily trade receivables, and from financing activities, primarily deposits, fixed-income investments and other financial instruments with banks. Credit risk is managed separately for business related and financial related exposures. As of the balance sheet date, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets recognized in the consolidated balance sheet.

The Company has considerable trade receivables outstanding with its hundreds of customers worldwide. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic conditions worsen.

As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the Company’s ten largest customers accounted for 68%, 68%, 65% and 64% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable.

The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts the concentration limit according to market conditions and the credit standing of the counterparties. The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements associated with existing operations over the next 12 months. The Company manages its liquidity risk by maintaining adequate cash and banking facilities.

As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the unused of financing facilities of the Company amounted to NT$74,576,628 thousand, NT$53,422,331 thousand, NT$56,735,075 thousand and NT$63,708,014 thousand, respectively.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including principles and interests.

Except as detailed in the following table, the Company considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

  •   Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

  •   Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

  •   Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no purchases and disposals for assets on Level 3 for the nine months ended September 30, 2013 and 2012, respectively.

  •   The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes publicly traded stocks and money market funds).

  •   Forward exchange contracts and cross currency swap contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts; interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates; and stock forward contracts are measured at the difference between the present value of stock forward price discounted based on the applicable yield curve derived from quoted interest rates and the stock spot price.

  •   The fair values of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

Intercompany balances and transactions between TSMC and its subsidiaries, which are related parties of TSMC, have been eliminated upon consolidation; therefore those items are not disclosed in this note. The following is a summary of transactions between the Company and other related parties:

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, price and terms were determined in accordance with mutual agreements.

The Company leased machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid quarterly and the related expense was classified under manufacturing expenses.

The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to related parties (transactions with associates and joint venture), and then recognized such gain/loss over the depreciable lives of the disposed assets.

The compensation to directors and other key management personnel were determined by the Compensation Committee of TSMC in accordance with the individual performance and the market trends.

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for building lease agreements. As of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012, the aforementioned other financial assets amounted to NT$119,657 thousand, NT$119,710 thousand, NT$120,761 thousand and NT$121,140 thousand, respectively.

The Company leases several parcels of land, factory and office premises from the Science Park Administration and entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between January 2014 and December 2032 and can be renewed upon expiration.

Significant contingent liabilities and unrecognized commitments of the Company as of the end of the reporting period, excluding those disclosed in other notes, were as follows:

  a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

  b. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

  c. In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement. The above mentioned warrant has expired without being exercised in July 2013.

  d. In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

  e. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of infringing several U.S. patents. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

  f. TSMC joined the Customer Co-Investment Program of ASML and entered into the investment agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has acquired the aforementioned equity on October 31, 2012. Both parties also signed the research and development funding agreement and TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017.

  g. Amounts available under unused letters of credit as of September 30, 2013, December 31, 2012, September 30, 2012 and January 1, 2012 were NT$88,713 thousand, NT$99,671 thousand, NT$87,930 thousand and NT$263,880 thousand, respectively.

The Company’s only reportable segment is the foundry segment. The foundry segment engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. The Company also had other operating segments that did not exceed the quantitative threshold for separate reporting. These segments mainly engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the operating profit as the measurement for segment profit and the basis of performance assessment. There was no material differences between the accounting policies of the operating segment and the accounting policies described in Note 4.

The Company prepares consolidated financial statements for the nine months ended September 30, 2013 under Taiwan-IFRSs. As the basis of the preparation, the Company not only follows the significant accounting policies stated in Note 4 but also applies IFRS 1.

IFRS 1 establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with Taiwan-IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under Taiwan-IFRSs and retrospectively apply those accounting policies in its opening balance sheet at the date of transition to Taiwan-IFRSs; except for optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows:

  1) Business combinations. The Company elected not to apply IFRS 3, “Business Combinations,” retrospectively to business combinations that occurred before January 1, 2012. Therefore, in the opening balance sheet, the amount of goodwill generated from past business combinations remains the same compared with the one under R.O.C. GAAP as of December 31, 2011.

  2) Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1, 2012. In addition, the Company elected to apply the exemption disclosure requirement provided by IFRS 1, in which the amounts of present value of defined benefit obligations, the fair value of plan assets, the surplus or deficit in the plan and the experience adjustments are determined for each accounting period prospectively from the transition date.

  3) Share-based payment. The Company elected to take the optional exemption from applying IFRS 2 retrospectively for the shared-based payment transactions granted and vested before January 1, 2012.

Except for the additional information disclosed below, for the effect of transition to Taiwan-IFRSs on the Company’s consolidated balance sheets and the consolidated statements of comprehensive income, please refer to Note 42 to the consolidated financial statements for the three months ended March 31, 2013 for details.

Accrued profit sharing to employees and bonus to directors and supervisors      8,654,015        —          —          8,654,015      Accrued profit sharing to employees and bonus to directors and supervisors   

Under R.O.C. GAAP, provisions for estimated sales returns and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. The corresponding allowance for sales returns and others is recorded as a deduction in accounts receivable. Under Taiwan-IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions in accordance with IAS No. 37, “Provisions, Contingent Liabilities and Contingent Assets.”

Under R.O.C. GAAP, a deferred tax asset and liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Under Taiwan-IFRSs, a deferred tax asset and liability is classified as noncurrent asset or liability.

In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with IAS No. 12, “Income Taxes,” deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used.

Under R.O.C. GAAP, assets leased to others and idle assets are classified under other assets. Under Taiwan-IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. In accordance with IAS No. 40, “Investment Property,” investment properties are defined as properties held to earn rentals or for capital appreciation; however, the Company’s assets leased to others are mainly dormitories leased to employees and factories leased to suppliers. The dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

As of September 30, 2012, the amounts reclassified from assets leased to others and idle assets to property, plant and equipment were NT$34,175 thousand.

The Company had recognized the pension cost and retirement benefit obligation under its defined benefit plans based on actuarial valuations performed in conformity with R.O.C. GAAP. Under Taiwan-IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

In addition, under R.O.C. GAAP, it is not allowed to recognize actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of such actuarial gains and losses. When using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees.

Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1. For the year ended December 31, 2012, total actuarial gains and losses were also recognized to other comprehensive income in accordance with actuarial valuation carried out in 2012.

In addition, under R.O.C. GAAP, the minimum pension liability should be recognized in the balance sheet. If the accrued pension cost is less than the minimum amount, the difference should be recognized as an additional liability. Under Taiwan-IFRSs, there is no aforementioned requirement of minimum pension liability.

As of September 30, 2012, accrued pension cost of the Company was adjusted for an increase of NT$2,278,222 thousand; deferred income tax assets were adjusted for an increase of NT$270,786 thousand; noncontrolling interests were adjusted for a decrease of NT$12,915 thousand. For the nine months ended September 30, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$54,294 thousand and NT$39,775 thousand, respectively. For the three months ended September 30, 2012, pension cost and income tax expense of the Company were adjusted for a decrease of NT$18,098 thousand and NT$43,266 thousand, respectively.

The Company has evaluated significant differences between current accounting policies and Taiwan-IFRSs for the Company’s associates and joint ventures accounted for using the equity method. The significant difference is mainly due to the adjustment to employee benefits.

In addition, if the investing company subscribes to additional investee’s shares disproportionate to its existing ownership percentage that results in a decrease in the investing company’s ownership percentage in the investee, the resulting carrying amount of the investment in the investee differs from the amount of its share in the investee’s equity. Under R.O.C. GAAP, the investing company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. Under Taiwan-IFRSs, such a difference is still adjusted to investments and capital surplus; however, if the investing company’s ownership interest in an associate is reduced, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities.

As of September 30, 2012, as a result of the differences mentioned above, investment accounted for using the equity method was adjusted for a decrease of NT$51,304 thousand; foreign currency translation reserve was adjusted for an decrease of NT$59 thousand; capital surplus was adjusted for a decrease of NT$444,010 thousand. In addition, share of profits of associates and joint venture was adjusted for an increase of NT$32,485 thousand and NT$16,706 thousand, respectively, for the nine months and three months ended September 30, 2012, respectively. Other gains and losses were both adjusted for a decrease of NT$1,009 thousand for the nine months and three months ended September 30, 2012.

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of Taiwan-IFRSs, income from operations in the consolidated income statement only includes net revenue, cost of revenue and operating expenses. Under Taiwan-IFRSs, based on the nature of operating transactions, technical service income is reclassified under net revenue; rental revenue, depreciation of rental assets, net gain or loss on disposal of property, plant and equipment and other assets, and impairment loss on idle assets, are reclassified under other operating income and expenses, which are included in income from operations.

Under Taiwan-IFRSs, based on the nature of operating transactions, for the nine months ended September 30, 2012, the Company reclassified technical service income of NT$356,461 thousand to net revenue; rental revenue of NT$503 thousand, other income of NT$886 thousand, net gain on disposal of property, plant and equipment and other assets of NT$263 thousand, depreciation of rental assets of NT$5,223 thousand and impairment loss on idle assets of NT$422,323 thousand to other operating income and expenses. In addition, interest income of NT$1,294,864 thousand and dividend income of NT$69,945 thousand were reclassified to other income; settlement income of NT$448,275 thousand, net gain on disposal of financial assets of NT$449,060 thousand, others of NT$410,589 thousand (under non-operating income and gains), net valuation gain on financial instruments of NT$43,842 thousand, impairment loss of financial assets of NT$2,748,616 thousand as well as others of NT$222,971 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the Company also reclassified technical service income of NT$123,802 thousand to net revenue, other income of NT$244 thousand, net gain on disposal of property, plant and equipment and other assets of NT$4,389 thousand, depreciation of rental assets of NT$1,434 thousand to other operating income and expenses. In addition, interest income of NT$353,132 thousand was also reclassified to other income; net gain on disposal of financial assets of NT$83,329 thousand, others of NT$88,360 thousand (under non-operating income and gains), net valuation gain on financial instruments of NT$233,579 thousand, impairment loss of financial assets of NT$160 thousand as well as others of NT$77,490 thousand (under non-operating expenses and losses) were reclassified to other gains and losses for the three months ended September 30, 2012.

Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation:

  d. Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

  e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

  f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

  g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

  h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached;

  j. Others: The business relationship between the parent and the subsidiaries and between each subsidiary, and significant transactions between them: Please see Table 8 attached;

  1) The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 10 attached.

  2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Table 8 attached.

      TSMC Solar    Other receivables from related parties     (US$ 2,661,390 90,000    )      (US$ 2,661,390 90,000    )      (US$ 1,936,901 65,500    )      0.3805 %    The need for short-term financing     —        Operating capital     —          —          —            16,474,273 (Note 1    )      41,185,682   

      TSMC SSL    Other receivables from related parties     (US$ 1,774,260 60,000    )      (US$ 1,774,260 60,000    )      —          —        The need for short-term financing     —        Operating capital     —          —          —            16,474,273 (Note 1    )      41,185,682   

2    TSMC Development    TSMC Solar    Other receivables from related parties     (US$ 2,365,680 80,000    )      —          —          —        The need for short-term financing     —        Operating capital     —          —          —             5,942,311 (Notes 1and 4      )        14,855,778 (Note 4    ) 

      TSMC SSL    Other receivables from related parties     (US$ 2,661,390 90,000    )      —          —          —        The need for short-term financing     —        Operating capital     —          —          —             5,942,311 (Notes 1and 4      )        14,855,778 (Note 4    ) 

Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners and TSMC Development, respectively. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. The above restriction does not apply to the offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC (offshore 100% owned subsidiaries) or the subsidiaries whose voting shares are 90% and up owned, directly or indirectly, by TSMC (90% and up owned subsidiaries). However, the respective lending limit for offshore 100% owned subsidiaries shall not exceed the net worth of TSMC Partners and TSMC Development, respectively, and the aggregate amounts lendable to 90% and up owned subsidiaries and the total amount lendable to one such borrower in 90% and up owned subsidiaries shall not exceed forty percent (40%) of the net worth of TSMC Partners and TSMC Development, respectively.

Note 2: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and TSMC Development, respectively.

Note 1: The total amount of the guarantee provided by TSMC to any individual entity shall not exceed ten percent (10%) of TSMC’s net worth, or the net worth of such entity. However, subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions after the approval of the Board of Directors.

Note 4: 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, after reassessment, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost.

Note 9: In October 2012, TSMC Global acquired 5% of the outstanding equity of ASML with a lock-up period of 2.5 years starting from the acquisition date.

Note 1: The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, share of profits/losses of investees and other related adjustment to equity.

TSMC North America    GUC    Investee accounted for using equity method by TSMC    Sales      (US$ 1,258,998 42,363    )      —         Net 30 days after invoice date      —           —           (US$ 448,483 15,166    )      1      

Note 1: The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

Note 2: Starting the third quarter of 2013, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer a related party to the Company.

TSMC North America    GUC    Investee accounted for using equity method by TSMC      (US$ 448,483 15,166    )    53     (US$ 139,603 4,721    )      —           (US$ 341,694 11,555    )      —     

Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

Note 3: TSMC has no power to govern the financial and operating policies of Xintec starting June 2013 for 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.

  TSMC China   Shanghai, China   Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers     18,939,667        18,939,667        —          100        22,019,781        3,685,251        3,627,216      Subsidiary

  VIS   Hsin-Chu, Taiwan   Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts     13,232,288        13,232,288        628,223        39        10,107,307        3,241,736        1,283,219      Investee accounted for using equity method

  TSMC SSL   Hsin-Chu, Taiwan   Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems     5,546,744        4,304,000        554,674        92        2,583,242        (1,196,037 )      (1,119,623 )    Subsidiary

TSMC Solar   Motech   Taipei, Taiwan   Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems     6,228,661        6,228,661        87,480        20        2,713,227        (149,906 )      Note 2      Investee accounted for using equity method

TSMC Partners   TSMC Development   Delaware, U.S.A.   Investment activities   $ (US$ 0.03 0.001    )    $ (US$ 0.03 0.001    )      —          100      $ (US$ 19,176,812 648,501    )    $ (US$ 1,311,604 44,134    )      Note 2      Subsidiary

  VisEra Holding Company   Cayman Islands   Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry     (US$ 1,271,553 43,000    )      (US$ 1,271,553 43,000    )      43,000        49        (US$ 3,444,234 116,473    )      (US$ 827,363 27,840    )      Note 2      Investee accounted for using equity method

  TSMC Technology   Delaware, U.S.A.   Engineering support activities     (US$ 0.03 0.001    )      (US$ 0.03 0.001    )      —          100        (US$ 378,624 12,804    )      (US$ 32,174 1,083    )      Note 2      Subsidiary

  ISDF II   Cayman Islands   Investing in new start-up technology companies     (US$ 418,518 14,153    )      (US$ 418,518 14,153    )      14,153        97        (US$ 320,900 10,852    )      (US$ 74,175 2,496    )      Note 2      Subsidiary

  ISDF   Cayman Islands   Investing in new start-up technology companies     (US$ 23,272 787    )      (US$ 23,272 787    )      787        97        (US$ 248,779 8,413    )      (US$ 169,952 5,719    )      Note 2      Subsidiary

  TSMC Canada   Ontario, Canada   Engineering support activities     (US$ 68,013 2,300    )      (US$ 68,013 2,300    )      2,300        100        (US$ 141,854 4,797    )      (US$ 11,018 371    )      Note 2      Subsidiary

  Mcube Inc.   Delaware, U.S.A.   Research, development, and sale of micro-semiconductor device     (US$ 53,228 1,800    )      (US$ 53,228 1,800    )      6,333        18        —          (US$ (210,622 (7,106 )  ))      Note 2      Note 3

TSMC Development   WaferTech   Washington, U.S.A.   Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices     (US$ 3,844,230 130,000    )      (US$ 8,279,880 280,000    )      293,637        100        (US$ 7,553,943 255,451    )      (US$ 1,290,557 43,425    )      Note 2      Subsidiary

VTAF III   Mutual-Pak Technology Co., Ltd.   Taipei, Taiwan   Manufacturing and selling of electronic parts and researching, developing, and testing of RFID     (US$ 154,124 5,212    )      (US$ 154,124 5,212    )      15,643        58        (US$ 39,280 1,328    )      (US$ (14,022 (472 )  ))      Note 2      Subsidiary

  Growth Fund   Cayman Islands   Investing in new start-up technology companies     (US$ 54,115 1,830    )      (US$ 54,115 1,830    )      —          100        (US$ 9,921 335    )      (US$ (982 (33 )  ))      Note 2      Subsidiary

TSMC Solar Europe   TSMC Solar Europe GmbH   Hamburg, Germany   Selling of solar related products and providing customer service     (EUR 493,768 12,400    )      (EUR 493,768 12,400    )      —          100        (EUR 102,948 2,585    )      (EUR (74,028 (1,884 )  ))      Note 2      Subsidiary

TSMC GN   TSMC Solar   Tai-Chung, Taiwan   Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products     47,830        42,945        4,783        —          15,396        (2,466,942 )      Note 2      Investee accounted for using equity method

  TSMC SSL   Hsin-Chu, Taiwan   Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems     50,910        34,266        5,091        1        23,784        (1,196,037 )      Note 2      Investee accounted for using equity method

Note 2: The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.

Note 3: 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, after reassessment, the Company did not exercise significant influence over Mcube and therefore, Mcube is no longer accounted for using the equity method. Further, such investment was reclassified to financial assets carried at cost.

Investee   Main Businesses and   Total Amountof Paid-inCapital (ForeignCurrencies in     Method of     AccumulatedOutflow ofInvestmentfrom Taiwanas ofJanuary 1,2013 (US$ in     InvestmentFlows     AccumulatedOutflow ofInvestmentfrom Taiwanas of September 30,2013 (US$ in     Percentage of     Share of     CarryingAmount as of September 30,2013 (US$ in     AccumulatedInwardRemittance ofEarnings as of September 30,  

TSMC China   Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers   $ (RMB 18,939,667  4,502,080    )      (Note 1 )    $ (US$ 18,939,667 596,000    )    $ —        $ —        $ (US$ 18,939,667 596,000    )      100 %    $   3,627,216 (Note 3    )    $ 22,019,781      $ —     

Shanghai Walden Venture Capital Enterprise   Investing in new start-up technology companies     (US$ 2,324,062 78,791    )      (Note 2 )      (US$ 147,485 5,000    )      —          —          (US$ 147,485 5,000    )      6 %      (Note 4 )      (US$ 147,855 5,000    )      —     

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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Other recent filings from the company include the following:

Taiwan Semiconductor Manufacturing Company: Tsmc Reports First Quarter Eps Of Nt$1.85 - April 17, 2014
Report of foreign issuer [Rules 13a-16 and 15d-16] - April 14, 2014
Annual and transition report of foreign private issuers [Sections 13 or 15(d)] - April 14, 2014

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