1934 Act Registration No. 1-14700

 

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2018

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

Taiwan

(Address of Principal Executive Offices)

 

 

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

Form 20-F  ☒            Form 40-F  ☐

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

Yes  ☐            No  ☒

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

 

 

 

---

SIGNATURES

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

 

				Taiwan Semiconductor Manufacturing Company Ltd.
Date: Feb 26, 2018				By		/s/ Lora Ho
						Lora Ho
						Senior Vice President & Chief Financial Officer

---

		Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
		Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 and Independent Auditors’ Report

---

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2017, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the International Financial Reporting Standard 10, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements.

 

Very truly yours,

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED

By

MORRIS CHANG

Chairman

February 13, 2018

 

- 1 -

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

Opinion

We have audited the accompanying consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters for the Company’s consolidated financial statements for the year ended December 31, 2017 are stated as follows:

Provision for sales returns and allowances

In consideration of business volume and market conditions, the Company provides a variety of business incentives to specific customers or products. The provision for sales returns and allowance is based on historical experience and the varying contractual terms. Please refer to Notes 4, 5 and 19 to the consolidated financial statements for the details of the information about provision for sales returns and allowances. Since the provision for sales returns and allowances is subject to accounting judgment and estimation, and the result could also affect the net revenue in the consolidated financial statements, it has been identified as a key audit matter.

 

- 2 -

---

Our key audit procedures performed in respect of the above area included the following:

 

1.	Understood and tested the design and operating effectiveness of the key controls over provision for sales returns and allowances;

 

2.	Understood and assessed the reasonableness of assumptions made and methodology used in estimating provision for sales returns and allowances;

 

3.	Sampled and inspected the sales contracts of main products by agreeing the contractual terms and performed an analysis to challenge the estimation on possibility that specific products could meet business incentives condition to verify the reasonableness of the accrual of the provision;

 

4.	Performed a retrospective review to comparatively analyze the historical accuracy of judgments with reference to actual sales returns and allowance paid.

Timing to commence depreciation of property, plant and equipment (PP&E)

The Company continues to invest in capital expenditures to develop and build capacity in leading-edge technologies to meet customers’ demand. Please refer to Notes 4 and 15 to the consolidated financial statements for the details of the information and accounting policy about the depreciation of PP&E. According to IAS 16, depreciation of PP&E should commence when the assets are available for their intended use. Due to the significant capital expenditures incurred by the Company, the appropriateness of the timing to commerce depreciation of PP&E could have a material impact on its financial performance. Consequently, the validity of the timing to commence depreciation of PP&E is identified as a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

 

1.	Understood and tested the design and operating effectiveness of the key controls over the timing to commence depreciation of PP&E;

 

2.	Understood the criteria the assets are defined as available for their intended use and the corresponding accounting treatments;

 

3.	Sampled and reviewed the appropriateness of the timing for commencing depreciation after the assets met the criteria of available for use in current year;

 

4.	Performed an observation on the physical count of equipment under installation and construction in progress; sampled and inspected the supporting documentation to verify that the status of equipment under installation and construction in progress are not available for use;

 

5.	Sampled equipment under installation and construction in progress which met the criteria of available for use and were transferred in the subsequent period to evaluate the reasonableness of the timing for commencing depreciation;

 

6.	Sampled and reviewed the appropriateness of the equipment under installation and construction in progress which are not available for their intended use.

Other Matter

We have also audited the parent company only financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the years ended December 31, 2017 and 2016 on which we have issued an unmodified opinion.

 

- 3 -

---

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including members of the Audit Committee) are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

1.

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

2.	Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

3.	Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

4.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

- 4 -

---

5.	Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

6.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Yih-Shin Kao and Yu Feng Huang.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 13, 2018

Notice to Readers

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

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

 

- 5 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

		December 31, 2017								December 31, 2016
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)		$	553,391,696				28			$	541,253,833				29
Financial assets at fair value through profit or loss (Note 7)			569,751				—				6,451,112				—
Available-for-sale financial assets (Notes 8 and 14)			93,374,153				5				67,788,767				4
Held-to-maturity financial assets (Note 9)			1,988,385				—				16,610,116				1
Hedging derivative financial assets (Note 10)			34,394				—				5,550				—
Notes and accounts receivable, net (Note 11)			121,133,248				6				128,335,271				7
Receivables from related parties (Note 34)			1,184,124				—				969,559				—
Other receivables from related parties (Note 34)			171,058				—				146,788				—
Inventories (Notes 5, 12 and 38)			73,880,747				4				48,682,233				3
Other financial assets (Notes 35 and 38)			7,253,114				—				4,100,475				—
Other current assets (Note 17)			4,222,440				—				3,385,422				—
Total current assets			857,203,110				43				817,729,126				44
NONCURRENT ASSETS
Held-to-maturity financial assets (Note 9)			18,833,329				1				22,307,561				1
Financial assets carried at cost (Note 13)			4,874,257				—				4,102,467				—
Investments accounted for using equity method (Notes 5 and 14)			17,861,488				1				19,743,888				1
Property, plant and equipment (Notes 5 and 15)			1,062,542,322				53				997,777,687				53
Intangible assets (Notes 5 and 16)			14,175,140				1				14,614,846				1
Deferred income tax assets (Notes 5 and 29)			12,105,463				1				8,271,421				—
Refundable deposits			1,283,414				—				407,874				—
Other noncurrent assets (Note 17)			2,983,120				—				1,500,432				—
Total noncurrent assets			1,134,658,533				57				1,068,726,176				56
TOTAL		$	1,991,861,643				100			$	1,886,455,302				100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)		$	63,766,850				3			$	57,958,200				3
Financial liabilities at fair value through profit or loss (Note 7)			26,709				—				191,135				—
Hedging derivative financial liabilities (Note 10)			15,562				—				—				—
Accounts payable			28,412,807				1				26,062,351				2
Payables to related parties (Note 34)			1,656,356				—				1,262,174				—
Salary and bonus payable			14,254,871				1				13,681,817				1
Accrued profit sharing bonus to employees and compensation to directors and supervisors (Notes 23 and 31)			23,419,135				1				22,894,006				1
Payables to contractors and equipment suppliers			55,723,774				3				63,154,514				3
Income tax payable (Notes 5 and 29)			33,479,311				2				40,306,054				2
Provisions (Notes 5 and 19)			13,961,787				1				18,037,789				1
Long-term liabilities - current portion (Note 20)			58,401,122				3				38,109,680				2
Accrued expenses and other current liabilities (Note 22)			65,588,396				3				36,581,553				2
Total current liabilities			358,706,680				18				318,239,273				17
NONCURRENT LIABILITIES
Bonds payable (Note 20)			91,800,000				5				153,093,557				8
Long-term bank loans			—				—				21,780				—
Deferred income tax liabilities (Notes 5 and 29)			302,205				—				141,183				—
Net defined benefit liability (Notes 5 and 21)			8,850,704				1				8,551,408				—
Guarantee deposits (Note 22)			7,586,790				—				14,670,433				1
Others			1,855,621				—				1,686,542				—
Total noncurrent liabilities			110,395,320				6				178,164,903				9
Total liabilities			469,102,000				24				496,404,176				26
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 23)			259,303,805				13				259,303,805				14
Capital surplus (Note 23)			56,309,536				3				56,272,304				3
Retained earnings (Note 23)
Appropriated as legal capital reserve			241,722,663				12				208,297,945				11
Unappropriated earnings			991,639,347				49				863,710,224				46
			1,233,362,010				61				1,072,008,169				57
Others (Note 23)			(26,917,818	)			(1	)			1,663,983				—
Equity attributable to shareholders of the parent			1,522,057,533				76				1,389,248,261				74
NONCONTROLLING INTERESTS			702,110				—				802,865				—
Total equity			1,522,759,643				76				1,390,051,126				74
TOTAL		$	1,991,861,643				100			$	1,886,455,302				100

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

 

- 6 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

		2017								2016
		Amount				%				Amount				%
NET REVENUE (Notes 5, 24, 34 and 40)		$	977,447,241				100			$	947,938,344				100
COST OF REVENUE (Notes 5, 12, 31, 34 and 38)			482,616,286				49				473,077,173				50
GROSS PROFIT BEFORE UNREALIZED GROSS PROFIT ON SALES TO ASSOCIATES			494,830,955				51				474,861,171				50
UNREALIZED GROSS PROFIT ON SALES TO ASSOCIATES			(4,553	)			—				(29,073	)			—
GROSS PROFIT			494,826,402				51				474,832,098				50
OPERATING EXPENSES (Notes 5, 31 and 34)
Research and development			80,732,463				8				71,207,703				7
General and administrative			21,196,717				2				19,795,593				2
Marketing			5,972,488				1				5,900,837				1
Total operating expenses			107,901,668				11				96,904,133				10
OTHER OPERATING INCOME AND EXPENSES, NET (Notes 16, 25 and 31)			(1,365,511	)			(1	)			29,813				—
INCOME FROM OPERATIONS (Note 40)			385,559,223				39				377,957,778				40
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates (Note 14)			2,985,941				1				3,495,600				—
Other income (Note 26)			9,610,294				1				6,454,901				1
Foreign exchange gain (loss), net (Note 39)			(1,509,473	)			—				1,161,322				—
Finance costs (Note 27)			(3,330,313	)			—				(3,306,153	)			—
Other gains and losses, net (Note 28)			2,817,358				—				195,932				—
Total non-operating income and expenses			10,573,807				2				8,001,602				1
INCOME BEFORE INCOME TAX			396,133,030				41				385,959,380				41
INCOME TAX EXPENSE (Notes 5 and 29)			52,986,182				6				51,621,144				6
NET INCOME			343,146,848				35				334,338,236				35

(Continued)

 

- 7 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

		2017								2016
		Amount				%				Amount				%
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 14, 21, 23 and 29)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit obligation		$	(254,681	)			—			$	(1,057,220	)			—
Share of other comprehensive loss of associates			(20,853	)			—				(19,961	)			—
Income tax benefit related to items that will not be reclassified subsequently			30,562				—				126,867				—
			(244,972	)			—				(950,314	)			—
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations			(28,259,627	)			(3	)			(9,379,477	)			(1	)
Changes in fair value of available-for-sale financial assets			(218,832	)			—				(692,523	)			—
Cash flow hedges			4,683				—				—				—
Share of other comprehensive income (loss) of associates			(99,347	)			—				16,301				—
Income tax expense related to items that may be reclassified subsequently			(3,536	)			—				(61,176	)			—
			(28,576,659	)			(3	)			(10,116,875	)			(1	)
Other comprehensive loss for the year, net of income tax			(28,821,631	)			(3	)			(11,067,189	)			(1	)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		$	314,325,217				32			$	323,271,047				34
NET INCOME ATTRIBUTABLE TO:
Shareholders of the parent		$	343,111,476				35			$	334,247,180				35
Noncontrolling interests			35,372				—				91,056				—
		$	343,146,848				35			$	334,338,236				35
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Shareholders of the parent		$	314,294,993				32			$	323,186,736				34
Noncontrolling interests			30,224				—				84,311				—
		$	314,325,217				32			$	323,271,047				34

(Continued)

 

- 8 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

		2017								2016
		Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent
EARNINGS PER SHARE (NT$, Note 30)
Basic earnings per share							$         13.23								$         12.89
Diluted earnings per share							$         13.23								$         12.89

 

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

 

- 9 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

 

 

		Equity Attributable to Shareholders of the Parent
																										Others
		Capital Stock - Common Stock												Retained Earnings												Foreign Currency				Unrealized Gain/Loss from Available-								Unearned Stock-Based
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Unappropriated Earnings				Total				Translation Reserve				for-sale Financial Assets				Cash Flow Hedges Reserve				Employee Compensation				Total				Total				Noncontrolling Interests				Total Equity
BALANCE, JANUARY 1, 2016			25,930,380			$	259,303,805			$	56,300,215			$	177,640,561			$	716,653,025			$	894,293,586			$	11,039,949			$	734,771			$	(607	)		$	—			$	11,774,113			$	1,221,671,719			$	962,760			$	1,222,634,479
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				30,657,384				(30,657,384	)			—				—				—				—				—				—				—				—				—
Cash dividends to shareholders - NT$6 per share			—				—				—				—				(155,582,283	)			(155,582,283	)			—				—				—				—				—				(155,582,283	)			—				(155,582,283	)
Total			—				—				—				30,657,384				(186,239,667	)			(155,582,283	)			—				—				—				—				—				(155,582,283	)			—				(155,582,283	)
Net income in 2016			—				—				—				—				334,247,180				334,247,180				—				—				—				—				—				334,247,180				91,056				334,338,236
Other comprehensive income (loss) in 2016, net of income tax			—				—				—				—				(950,314	)			(950,314	)			(9,378,712	)			(732,130	)			712				—				(10,110,130	)			(11,060,444	)			(6,745	)			(11,067,189	)
Total comprehensive income (loss) in 2016			—				—				—				—				333,296,866				333,296,866				(9,378,712	)			(732,130	)			712				—				(10,110,130	)			323,186,736				84,311				323,271,047
Disposal of investments accounted for using equity method			—				—				(56,169	)			—				—				—				—				—				—				—				—				(56,169	)			—				(56,169	)
Adjustments to share of changes in equities of associates			—				—				21,221				—				—				—				—				—				—				—				—				21,221				9				21,230
From share of changes in equities of subsidiaries			—				—				7,037				—				—				—				—				—				—				—				—				7,037				(7,037	)			—
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(235,224	)			(235,224	)
Effect of disposal of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(1,954	)			(1,954	)
BALANCE, DECEMBER 31, 2016			25,930,380				259,303,805				56,272,304				208,297,945				863,710,224				1,072,008,169				1,661,237				2,641				105				—				1,663,983				1,389,248,261				802,865				1,390,051,126
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				33,424,718				(33,424,718	)			—				—				—				—				—				—				—				—				—
Cash dividends to shareholders - NT$7 per share			—				—				—				—				(181,512,663	)			(181,512,663	)			—				—				—				—				—				(181,512,663	)			—				(181,512,663	)
Total			—				—				—				33,424,718				(214,937,381	)			(181,512,663	)			—				—				—				—				—				(181,512,663	)			—				(181,512,663	)
Net income in 2017			—				—				—				—				343,111,476				343,111,476				—				—				—				—				—				343,111,476				35,372				343,146,848
Other comprehensive income (loss) in 2017, net of income tax			—				—				—				—				(244,972	)			(244,972	)			(28,358,917	)			(216,715	)			4,121				—				(28,571,511	)			(28,816,483	)			(5,148	)			(28,821,631	)
Total comprehensive income (loss) in 2017			—				—				—				—				342,866,504				342,866,504				(28,358,917	)			(216,715	)			4,121				—				(28,571,511	)			314,294,993				30,224				314,325,217
Adjustments to share of changes in equities of associates			—				—				7,085				—				—				—				—				—				—				(10,290	)			(10,290	)			(3,205	)			—				(3,205	)
From share of changes in equities of subsidiaries			—				—				10,994				—				—				—				—				—				—				—				—				10,994				(10,994	)			—
Donation from shareholders			—				—				19,153				—				—				—				—				—				—				—				—				19,153				1,684				20,837
Decrease in noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				—				(113,675	)			(113,675	)
Effect of disposal of subsidiary			—				—				—				—				—				—				—				—				—				—				—				—				(7,994	)			(7,994	)
BALANCE, DECEMBER 31, 2017			25,930,380			$	259,303,805			$	56,309,536			$	241,722,663			$	991,639,347			$	1,233,362,010			$	(26,697,680	)		$	(214,074	)		$	4,226			$	(10,290	)		$	(26,917,818	)		$	1,522,057,533			$	702,110			$	1,522,759,643

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

 

- 10 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		$	396,133,030			$	385,959,380
Adjustments for:
Depreciation expense			255,795,962				220,084,998
Amortization expense			4,346,736				3,743,406
Finance costs			3,330,313				3,306,153
Share of profits of associates			(2,985,941	)			(3,495,600	)
Interest income			(9,464,706	)			(6,317,500	)
Loss (gain) on disposal or retirement of property, plant and equipment, net			1,097,908				(46,548	)
Impairment loss on intangible assets			13,520				—
Impairment loss on financial assets			29,603				122,240
Loss (gain) on disposal of available-for-sale financial assets, net			(76,986	)			4,014
Gain on disposal of financial assets carried at cost, net			(12,809	)			(37,241	)
Loss on disposal of investments accounted for using equity method, net			—				259,960
Loss (gain) from disposal of subsidiaries			(17,343	)			36,105
Unrealized gross profit on sales to associates			4,553				29,073
Gain on foreign exchange, net			(9,118,580	)			(2,656,406	)
Dividend income			(145,588	)			(137,401	)
Loss (gain) arising from fair value hedges, net			30,293				(16,973	)
Changes in operating assets and liabilities:
Financial instruments at fair value through profit or loss			5,645,093				(6,326,561	)
Notes and accounts receivable, net			1,061,805				(49,342,698	)
Receivables from related parties			(214,565	)			(463,837	)
Other receivables from related parties			(13,873	)			(21,770	)
Inventories			(25,229,101	)			18,370,037
Other financial assets			(502,306	)			(41,554	)
Other current assets			12,085				94,512
Other noncurrent assets			(1,276,130	)			(349,771	)
Accounts payable			2,572,072				7,295,491
Payables to related parties			394,182				139,818
Salary and bonus payable			582,054				1,979,775
Accrued profit sharing bonus to employees and compensation to directors and supervisors			525,129				1,935,113
Accrued expenses and other current liabilities			30,435,424				3,693,638
Provisions			(4,057,900	)			7,931,877
Net defined benefit liability			44,615				46,163
Cash generated from operations			648,938,549				585,777,893
Income taxes paid			(63,620,382	)			(45,943,301	)
Net cash generated by operating activities			585,318,167				539,834,592
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets			(100,510,905	)			(83,275,573	)
Held-to-maturity financial assets			(1,997,076	)			(33,625,353	)
Financial assets carried at cost			(1,313,124	)			(533,745	)
Property, plant and equipment			(330,588,188	)			(328,045,270	)
Intangible assets			(4,480,588	)			(4,243,087	)
Land use right			(819,694	)			(805,318	)

(Continued)

 

- 11 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

 

 

		2017				2016
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	69,480,675			$	29,967,979
Held-to-maturity financial assets			17,980,640				10,550,000
Financial assets carried at cost			58,237				160,498
Property, plant and equipment			326,232				98,069
Proceeds from return of capital of financial assets carried at cost			14,828				65,087
Derecognition of hedging derivative financial instruments			33,008				8,868
Interest received			9,526,253				6,353,195
Proceeds from government grants - property, plant and equipment			2,629,747				738,643
Proceeds from government grants - land use right and others			1,811				798,469
Cash outflow from disposal of subsidiary			(4,080	)			—
Other dividends received			145,588				137,420
Dividends received from investments accounted for using equity method			4,245,772				5,478,790
Refundable deposits paid			(1,326,983	)			(144,982	)
Refundable deposits refunded			432,944				169,912
Decrease in receivables for temporary payments			—				706,718
Net cash used in investing activities			(336,164,903	)			(395,439,680	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans			10,394,290				18,968,936
Repayment of bonds			(38,100,000	)			(23,471,600	)
Repayment of long-term bank loans			(31,460	)			(8,540	)
Interest paid			(3,482,703	)			(3,302,420	)
Guarantee deposits received			950,928				6,354,677
Guarantee deposits refunded			(3,823,183	)			(523,234	)
Cash dividends			(181,512,663	)			(155,582,283	)
Donation from shareholders			20,837				—
Decrease in noncontrolling interests			(113,675	)			(235,733	)
Net cash used in financing activities			(215,697,629	)			(157,800,197	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(21,317,772	)			(8,029,812	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			12,137,863				(21,435,097	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			541,253,833				562,688,930
CASH AND CASH EQUIVALENTS, END OF YEAR		$	553,391,696			$	541,253,833

 

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

 

- 12 -

---

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

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

 

 

1.

GENERAL

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

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

The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science Park, Taiwan. The principal operating activities of TSMC’s subsidiaries are described in Note 4.

 

2.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors on February 13, 2018.

 

3.	APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

 

a.

Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have a significant effect on TSMC and its subsidiaries’ (collectively as the “Company”) accounting policies:

 

1)

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Company are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Company has transaction. If the transaction or balance with a specific related party is 10% or more of the Company’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

When the amendments are applied retrospectively from January 1, 2017, the disclosure of related party transactions is enhanced, please refer to Note 34.

 

- 13 -

---

b.

The IFRSs issued by International Accounting Standards Board (IASB) and endorsed by FSC with effective date starting 2018

 

 

Note 1:

The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

Except for the following items, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company’s accounting policies.

 

1)

IFRS 9 “Financial Instruments” and related amendments

Classification, measurement and impairment of financial assets

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

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

 

a)

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

 

b)

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

 

- 14 -

---

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

IFRS 9 adds a new expected loss impairment model to measure the impairment of financial assets. A loss allowance for expected credit losses should be recognized on financial assets measured at amortized cost and investments in debt instruments measured at fair value through other comprehensive income. If the credit risk on a financial instrument has not increased significantly since initial recognition, the loss allowance for that financial instrument should be measured at an amount equal to 12-month expected credit losses. If the credit risk on a financial instrument has increased significantly since initial recognition and is not deemed to be a low credit risk, the loss allowance for that financial instrument should be measured at an amount equal to the lifetime expected credit losses. A simplified approach is allowed for accounts receivables and the loss allowance could be measured at an amount equal to lifetime expected credit losses.

The Company elects not to restate prior reporting period when applying the requirements for the classification, measurement and impairment of financial assets and financial liabilities under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application.

The anticipated impact on measurement categories, carrying amount and related reconciliation for each class of the Company’s financial assets and financial liabilities when retrospectively applying IFRS 9 on January 1, 2018 is detailed below:

 

 

- 15 -

---

 

 

(1)

Cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and refundable deposits were classified as loans and receivables under IAS 39 are now classified at amortized cost with assessment of future 12-month or lifetime expected credit loss under IFRS 9. As a result of retrospective application, the adjustments for accounts receivable would result in a decrease in loss of allowance of NT$244,773 thousand and an increase in retained earnings of NT$244,773 thousand on January 1, 2018.

(2)

As equity investments that were previously classified as available-for-sale financial assets under IAS 39 are not held for trading, the Company elected to designate all of these investments as at FVTOCI under IFRS 9. As a result, the related other equity-unrealized gain/loss on available-for-sale financial assets of NT$228,304 thousand is reclassified to increase other equity - unrealized gain/loss on financial assets at FVTOCI.

As equity investments previously measured at cost under IAS 39 are remeasured at fair value under IFRS 9, the adjustments would result in an increase in financial assets at FVTOCI of NT$967,127 thousand, an increase in other equity-unrealized gain/loss on financial assets at FVTOCI of NT$968,670 thousand and a decrease in noncontrolling interests of NT$1,543 thousand on January 1, 2018.

For those equity investments previously classified as available-for-sale financial assets (including measured at cost financial assets) under IAS 39, the impairment losses that the Company had recognized have been accumulated in retained earnings. Since these investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is required, the adjustments would result in a decrease in other equity - unrealized gain/loss on financial assets at FVTOCI of NT$1,294,528 thousand and an increase in retained earnings of NT$1,294,528 thousand on January 1, 2018.

 

- 16 -

---

(3)

Debt investments were previously classified as available-for-sale financial assets under IAS 39. Under IFRS 9, except for debt instruments of NT$779,489 thousand whose contractual cash flows are not solely payments of principal and interest on the principal outstanding and therefore are classified as at FVTPL with the related other equity-unrealized gain/loss on available-for-sale financial assets of NT$10,085 thousand being consequently reclassified to decrease retained earnings, the remaining debt investments are classified as at FVTOCI with assessment of future 12-month expected credit loss because these investments are held within a business model whose objective is both to collect the contractual cash flows and sell the financial assets. The related other equity-unrealized gain/loss on available-for-sale financial assets of NT$434,403 thousand is reclassified to decrease other equity-unrealized gain/loss on financial assets at FVTOCI. As a result of retrospective application of future 12-month expected credit loss, the adjustments would result in an increase in other equity - unrealized gain/loss on financial assets at FVTOCI of NT$30,658 thousand and a decrease in retained earnings of NT$30,658 thousand on January 1, 2018.

(4)

Debt investments previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 are classified as measured at amortized cost with assessment of future 12-month expected credit loss under IFRS 9 because the contractual cash flows are solely payments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is to collect the contractual cash flows. As a result of retrospective application of future 12-month expected credit loss, the adjustments would result in an increase in loss allowance of NT$8,252 thousand and a decrease in retained earnings of NT$8,252 thousand on January 1, 2018.

(5)

With the retrospective adoption of IFRS 9 by associates accounted for using equity method, the corresponding adjustments made by the Company would result in an increase in investments accounted for using equity method of NT$8,258 thousand, a decrease in other equity- unrealized gain/loss on financial assets at FVTOCI of NT$23,616 thousand, a decrease in other equity- unrealized gain/loss on available-for-sale financial assets of NT$2,110 thousand and an increase in retained earnings of NT$33,984 thousand on January 1, 2018.

Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

A preliminary assessment of the Company’s current hedging relationships indicates that they will qualify as continuing hedging relationships under IFRS 9. The Company will prospectively apply the requirements for hedge accounting upon initial application of IFRS 9.

 

2)

IFRS 15 “Revenue from Contracts with Customers” and related amendments

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

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

 

•

Identify the contract with the customer;

 

•

Identify the performance obligations in the contract;

 

•

Determine the transaction price;

 

- 17 -

---

•

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

 

•

Recognize revenue when the entity satisfies a performance obligation.

The Company elects only to retrospectively apply IFRS 15 to contracts that were not completed on January 1, 2018 and elects not to restate prior reporting period with the cumulative effect of the initial application recognized at the date of initial application.

The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed below:

 

 

(1)

Prior to the application of IFRS 15, the Company recognizes revenue based on the accounting treatment of the sales of goods. Under IFRS 15, certain subsidiaries and associates accounted for using equity method will change to recognize revenue over time because customers are deemed to have control over the products when the products are manufactured. As a result, the Company will recognize contract assets (classified under other financial assets) and adjust related assets and equity accordingly.

(2)

Prior to the application of IFRS 15, the Company recognized the estimation of sales returns and allowance as provisions. Under IFRS 15, the Company recognizes such estimation as refund liability (classified under accrued expenses and other current liabilities).

Except for the aforementioned impact, as of the date the accompanying 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 other standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

 

- 18 -

---

c.

The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC

 

 

Note 2:

On December 19, 2017, the FSC announced that IFRS 16 will take effect starting January 1, 2019.

Except for the following items, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company’s accounting policies.

 

1)

IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for both the principal and interest portion of the lease liability are classified within financing activities.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

Except for the aforementioned impact, as of the date the accompanying 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 other standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

 

4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

 

- 19 -

---

Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed by the FSC with the effective dates (collectively, “Taiwan-IFRSs”).

Basis of Preparation

The accompanying consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

Basis of Consolidation

The basis for the consolidated financial statements

The consolidated financial statements incorporate the financial statements of TSMC and entities controlled by TSMC (its subsidiaries).

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

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

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

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

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

 

a.

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

 

b.

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

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

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

 

- 20 -

---

The subsidiaries in the consolidated financial statements

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

 

 

Note a:

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

Note b:

Under the investment agreement entered into with the municipal government of Nanjing, China on March 28, 2016, the Company will make an investment in Nanjing in the amount of approximately US$3 billion to establish a subsidiary operating a 300mm wafer fab with the capacity of 20,000 12-inch wafers per month, and a design service center. TSMC Nanjing was established in May 2016.

Note c:

TSMC Solar Europe GmbH is under liquidation procedures.

Note d:

To simplify investment structure, VisEra Tech owned by VisEra Holding Company (VisEra Holding) was transferred to TSMC in the third quarter of 2016. In October 2016, VisEra Holding was incorporated into TSMC Partners, the subsidiary of TSMC.

Note e:

ISDF and ISDF II are under liquidation procedures.

Note f:

Starting December 2017, the Company no longer had the majority of voting power and control over Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for using the equity method.

Note g:

VTA Holdings completed the liquidation procedures in April 2017.

 

- 21 -

---

Foreign Currencies

The financial statements of each individual consolidated entity were expressed in the currency which reflected its primary economic environment (functional currency). The functional currency of TSMC and presentation currency of the consolidated financial statements are both New Taiwan Dollars (NT$). In preparing the consolidated financial statements, the operating results and financial positions of each consolidated entity are translated into NT$.

In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to noncontrolling interests as appropriate).

Classification of Current and Noncurrent Assets and Liabilities

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

Cash Equivalents

Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time deposits and investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial Instruments

Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial Assets

Financial assets are classified into the following specified categories: Financial assets “at FVTPL”, “held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Regular way purchases or sales of financial assets are recognized and derecognized on a trade date or settlement date basis for which financial assets were classified in the same way, respectively. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

 

- 22 -

---

Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c) financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Interest income from available-for-sale monetary financial assets and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Such equity instruments are subsequently remeasured at fair value when their fair value can be reliably measured, and the difference between the carrying amount and fair value is recognized in profit or loss or other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including cash and cash equivalents, notes and accounts receivable and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for those loans and receivables with immaterial discounted effect.

Impairment of financial assets

Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Those financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, their estimated future cash flows have been affected.

For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

 

- 23 -

---

For financial assets carried at amortized cost, the amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the year.

In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income and accumulated under the heading of unrealized gains or losses from available-for-sale financial assets.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

 

- 24 -

---

Financial liabilities

Financial liabilities are subsequently measured either at amortized cost using effective interest method or at FVTPL.

Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or is designated as at fair value through profit or loss.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently measured at amortized cost at the end of each reporting period.

Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative Financial Instruments

Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative financial instrument is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Financial Instruments Designated as at Fair Value through Profit or Loss

A financial instrument may be designated as at FVTPL upon initial recognition. The financial instrument forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.

Hedge Accounting

Fair Value Hedge

The Company designates certain hedging instruments, such as interest rate futures contracts, to partially hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities as fair value hedge. Changes in the fair value of hedging instrument that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset that are attributable to the hedged risk.

Cash Flow Hedge

The Company designates certain hedging instruments, such as forward exchange contracts, to partially hedge its foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. The effective portion of changes in the fair value of hedging instruments is recognized in other comprehensive income. When the forecast transactions actually take place, the associated gains or losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating to the ineffective portion are recognized immediately in profit or loss.

 

- 25 -

---

For the aforementioned fair value hedge and cash flow hedge, hedge accounting is discontinued prospectively when the Company revokes the designated hedging relationship, or when the hedging instruments expire or are sold, terminated, or exercised, or no longer meet the criteria for hedge accounting.

Inventories

Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value represents the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Investments Accounted for Using Equity Method

Investments accounted for using the equity method are investments in associates.

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The operating results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate as well as the distribution received. The Company also recognizes its share in the changes in the equities of associates.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date when the Company ceases to have significant influence over an associate. When the Company retains an interest in the former associate, the Company measures the retained interest at fair value at that date. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Company shall account for all amounts recognized in other comprehensive income in relation to that associate on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. If the Company’s ownership interest in an associate is reduced as a result of disposal, but the investment continues to be an associate, the Company should reclassify to profit or loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income.

When the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate by other investors, 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 associate had directly disposed of the related assets or liabilities.

 

- 26 -

---

When a consolidated entity transacts with an associate, profits and losses resulting from the transactions with the associate are recognized in the Company’s consolidated financial statements only to the extent of interests in the associate that are not owned by the Company.

Property, Plant and Equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property, plant and equipment.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful lives, and it is computed using the straight-line method over the following estimated useful lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 2 to 5 years; office equipment - 3 to 5 years; and leased assets - 20 years. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Leases

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

The Company as lessee

Assets held under finance lease are initially recognized as assets of the Company at the fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is recognized as an obligation under finance lease.

Lease payments are apportioned between finance expense and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

 

- 27 -

---

Intangible Assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Other intangible assets

Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized using the straight-line method over the following estimated useful lives: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years or contract period; patent and others - the economic life or contract period. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of Tangible and Intangible Assets

Goodwill

Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is an indication that the cash generating unit may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination. If the recoverable amount of a cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such cash generating unit and then to the other assets of the cash generating unit pro rata based on the carrying amount of each asset in the cash generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Other tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

 

- 28 -

---

Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Guarantee Deposit

Guarantee deposit mainly consists of cash received under deposit agreements with customers to ensure they have access to the Company’s specified capacity; and as guarantee of accounts receivable to ensure payment from customers. Cash received from customers is recorded as guarantee deposit upon receipt. Guarantee deposits are refunded to customers when terms and conditions set forth in the deposit agreements have been satisfied.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

 

•

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

•

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

•

The amount of revenue can be measured reliably;

 

•

It is probable that the economic benefits associated with the transaction will flow to the Company; and

 

•

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

In principle, payment term granted to customers is due 30 days from the invoice date or 30 days from the end of the month of when the invoice is issued. Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

Royalties, dividend and interest income

Revenue from royalties is recognized on an accrual basis in accordance with the substance of the relevant agreement, provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably.

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established, provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

 

- 29 -

---

Employee Benefits

Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for service rendered by employees.

Retirement benefits

For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense when the employees have rendered service entitling them to the contribution. For defined benefit retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the Projected Unit Credit Method. Service cost (including current service cost), and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liability represents the actual deficit in the Company’s defined benefit plan.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) is expensed in the year the shareholders approved the appropriation of earnings which is the year subsequent to the year the earnings are generated.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, net operating loss carryforwards and tax credits for research and development expenses to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered.

 

- 30 -

---

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

Insurance Claim

The Company recognizes insurance claim reimbursement for losses incurred related to disaster damages. Insurance claim reimbursements are recorded, net of any deductible amounts, at the time while there is evidence that the claim reimbursement is virtually certain to be received.

Government Grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.

Government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets (mainly including land use right and depreciable assets) are recognized as a deduction from the carrying amount of the related assets and recognized as a reduced depreciation or amortization charge in profit or loss over the contract period or useful lives of the related assets. Government grants that are receivables as compensation for expenses already incurred are deducted from incurred expenses in the period in which they become receivables.

 

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

In the application of the aforementioned Company’s accounting policies, the Company is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

Revenue Recognition

The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company also records a provision for estimated future returns and other allowances in the same period the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted based on historical experience and the consideration of varying contractual terms, and the Company periodically reviews the adequacy of the estimation used.

 

- 31 -

---

Impairment of Tangible and Intangible Assets Other than Goodwill

In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the nature of semiconductor industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future years.

Impairment of Goodwill

The assessment of impairment of goodwill requires the Company to make subjective judgment to determine the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the recoverable amount of relevant cash-generating units.

Impairment Assessment on Investment Using Equity Method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable. The Company measures the impairment based on a projected future cash flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate formulated by such investees’ internal management team. The Company also takes into account market conditions and the relevant industry trends to ensure the reasonableness of such assumptions.

Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

Valuation of Inventory

Inventories are stated at the lower of cost or net realizable value, and the Company uses judgment and estimate to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid technological changes, the Company estimates the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon.

Recognition and Measurement of Defined Benefit Plans

Net defined benefit liability and the resulting defined benefit costs under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and future salary increase rate. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

- 32 -

---

6.	CASH AND CASH EQUIVALENTS

 

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

 

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

 

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

 

- 33 -

---

Outstanding forward exchange contracts consisted of the following:

 

Outstanding cross currency swap contracts consisted of the following:

 

 

8.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

- 34 -

---

9.	HELD-TO-MATURITY FINANCIAL ASSETS

 

 

10.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company entered into interest rate futures contracts, which are used to hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed income securities.

The outstanding interest rate futures contracts consisted of the following:

 

The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks associated with certain highly probable forecast transactions, such as capital expenditures. These contracts have maturities of 12 months or less.

 

- 35 -

---

Outstanding forward exchange contracts consisted of the following:

 

 

11.	NOTES AND ACCOUNTS RECEIVABLE, NET

 

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

Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at the end of the reporting period is summarized in the following table. There was no impairment concern for the accounts receivable that were past due without recognizing a specific allowance for doubtful receivables since there was no significant change in the credit quality of its customers after the assessment. In addition, the Company has obtained guarantee against certain receivables.

Aging analysis of notes and accounts receivable, net

 

 

- 36 -

---

Movements of the allowance for doubtful receivables

 

Aging analysis of accounts receivable that is individually determined as impaired

 

 

12.	INVENTORIES

 

Reversal of write-down of inventories resulting from the increase in net realizable value (excluding earthquake losses) and write-down of inventories to net realizable value (excluding earthquake losses) in the amount of NT$840,861 thousand and NT$1,542,779 thousand, respectively, were included in the cost of revenue for the years ended December 31, 2017 and 2016. Please refer to related earthquake losses in Note 38.

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

 

- 37 -

---

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 stocks of Aquantia and Impinj, Inc. were listed in November 2017 and July 2016, respectively. Accordingly, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

 

14.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Associates consisted of the following:

 

Starting December 2017, the Company no longer had the majority of voting power and control over Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for using the equity method.

Starting June 2016, the Company has no longer served as Motech’s board of director. As a result, the Company exercises no significant influence over Motech. Therefore, Motech is no longer accounted for using the equity method. Further, such investment was reclassified to available-for-sale financial assets and the Company recognized a disposal loss of NT$259,960 thousand.

As of December 31, 2017, no investments in associates are individually material to the Company. As of December 31, 2016, the summarized financial information in respect of each of the Company’s material associates is set out below. The summarized financial information below represents amounts shown in the associate’s financial statements prepared in accordance with Taiwan-IFRSs adjusted by the Company using the equity method of accounting.

 

- 38 -

---

a.

VIS

 

 

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate was as follows:

 

 

b.

SSMC

 

 

 

- 39 -

---

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate was as follows:

 

Aggregate information of associates that are not individually material was summarized as follows:

 

The market prices of the investments accounted for using the equity method in publicly traded stocks calculated by the closing price at the end of the reporting period are summarized as follows. The closing price represents the quoted price in active markets, the level 1 fair value measurement.

 

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

(Continued)

 

- 40 -

---

(Concluded)

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.

 

16.	INTANGIBLE ASSETS

 

(Continued)

 

- 41 -

---

(Concluded)

The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the recoverable amount is determined based on the value in use. The value in use was calculated based on the cash flow forecast from the financial budgets covering the future five-year period, and the Company used annual discount rates of 8.5% and 8.4% in its test of impairment as of December 31, 2017 and 2016, respectively, to reflect the relevant specific risk in the cash-generating unit.

For the year ended December 31, 2017, the Company assessed goodwill impairment and recognized an impairment loss of NT$13,520 thousand related to a subsidiary since the operating result of this cash generating unit was not as expected and the recoverable amount of goodwill was nil. Such impairment loss was recognized in other operating income and expenses. For the year ended December 31, 2016, the Company did not recognize any impairment loss on goodwill.

 

17.	OTHER ASSETS

 

 

- 42 -

---

18.	SHORT-TERM LOANS

 

 

19.	PROVISIONS

The Company’s current provisions were provisions for sales returns and allowances.

 

Provisions for sales returns and allowances are estimated based on historical experience and the consideration of varying contractual terms, and are recognized as a reduction of revenue in the same year of the related product sales.

 

20.	BONDS PAYABLE

 

 

- 43 -

---

The major terms of domestic unsecured bonds are as follows:

 

 

- 44 -

---

The major terms of overseas unsecured bonds are as follows:

 

 

21.	RETIREMENT BENEFIT PLANS

 

a.

Defined contribution plans

The plan under the R.O.C. Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, Mutual-Pak and VisEra Tech have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Nanjing, TSMC Europe, TSMC Canada, TSMC Technology 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$2,369,940 thousand and NT$2,164,900 thousand for the years ended December 31, 2017 and 2016, respectively.

 

b.

Defined benefit plans

TSMC has defined benefit plans under the R.O.C. 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 Company contributes 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. Before the end of each year, the Company assesses the balance in the Funds. If the amount of the balance in the Funds is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The Funds are operated and managed by the government’s designated authorities; as such, the Company does not have any right to intervene in the investments of the Funds.

Amounts recognized in respect of these defined benefit plans were as follows:

 

 

- 45 -

---

The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

 

The amounts arising from the defined benefit obligation of the Company were as follows:

 

Movements in the present value of the defined benefit obligation were as follows:

 

Movements in the fair value of the plan assets were as follows:

 

 

- 46 -

---

The fair value of the plan assets by major categories at the end of reporting period was as follows:

 

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

 

Through the defined benefit plans under the R.O.C. Labor Standards Law, the Company is exposed to the following risks:

 

1)

Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the government’s designated authorities or under the mandated management. However, under the R.O.C. Labor Standards Law, the rate of return on assets shall not be less than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return.

 

2)

Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the debt investments of the plan assets.

Assuming a hypothetical decrease in interest rate at the end of the reporting period contributed to a decrease of 0.5% in the discount rate and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$890,116 thousand and NT$970,282 thousand as of December 31, 2017 and 2016, respectively.

 

3)

Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

Assuming the expected salary rate increases by 0.5% at the end of the reporting period and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$873,801 thousand and NT$951,424 thousand as of December 31, 2017 and 2016, respectively.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

 

- 47 -

---

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability.

The Company expects to make contributions of NT$233,745 thousand to the defined benefit plans in the next year starting from December 31, 2017. The weighted average duration of the defined benefit obligation is 13 years.

 

22.	GUARANTEE DEPOSITS

 

Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.

 

23.

EQUITY

 

a.

Capital stock

 

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

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

As of December 31, 2017, 1,068,165 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,340,823 thousand shares (one ADS represents five common shares).

 

- 48 -

---

b.

Capital surplus

 

Under the relevant laws, 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 and convertible bonds) may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of TSMC’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and associates and dividend of a claim extinguished by a prescription may be used to offset a deficit; however, when generated from issuance of restricted shares for employees, such capital surplus may not be used for any purpose.

 

c.

Retained earnings and dividend policy

In accordance with the amendments to the R.O.C. Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The amendments to TSMC’s Articles of Incorporation on earnings distribution policy had been approved by TSMC’s shareholders in its meeting held on June 7, 2016. For policy about the profit sharing bonus to employees, please refer to Note 31.

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

 

1)

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

 

2)

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

 

3)

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

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

 

- 49 -

---

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

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

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

The appropriations of 2016 and 2015 earnings have been approved by TSMC’s shareholders in its meetings held on June 8, 2017 and June 7, 2016, respectively. The appropriations and dividends per share were as follows:

 

TSMC’s appropriations of earnings for 2017 had been approved in the meeting of the Board of Directors held on February 13, 2018. The appropriations and dividends per share were as follows:

 

The appropriations of earnings for 2017 are to be presented for approval in the TSMC’s shareholders’ meeting to be held on June 5, 2018 (expected).

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.

 

- 50 -

---

d.

Others

Changes in others were as follows:

 

 

The aforementioned other equity includes the changes in other equities of TSMC and TSMC’s share of its subsidiaries and associates.

 

- 51 -

---

24.	NET REVENUE

 

 

25.	OTHER OPERATING INCOME AND EXPENSES, NET

 

 

26.	OTHER INCOME

 

 

27.	FINANCE COSTS

 

 

- 52 -

---

28.	OTHER GAINS AND LOSSES, NET

 

 

29.	INCOME TAX

 

a.

Income tax expense recognized in profit or loss

Income tax expense consisted of the following:

 

 

- 53 -

---

A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:

 

For the years ended December 31, 2017 and 2016, the Company applied a tax rate of 17% for entities subject to the R.O.C. Income Tax Law; for other jurisdictions, the Company measures taxes by using the applicable tax rate for each individual jurisdiction.

In January 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as of December 31, 2017 are expected to be adjusted and would increase by NT$1,473,065 thousand and NT$15,096 thousand, respectively, in 2018.

 

b.

Income tax expense recognized in other comprehensive income

 

 

- 54 -

---

c.

Deferred income tax balance

The analysis of deferred income tax assets and liabilities was as follows:

 

 

 

- 55 -

---

 

d.

The investment operating loss carryforward and deductible temporary differences for which no deferred income tax assets have been recognized

The information of the operating loss carryforward for which no deferred tax assets have been recognized was as follows:

 

As of December 31, 2017 and 2016, the aggregate deductible temporary differences for which no deferred income tax assets have been recognized amounted to NT$26,536,307 thousand and NT$1,919,784 thousand, respectively.

 

e.

Unused tax-exemption information

As of December 31, 2017, the profits generated from the following projects of TSMC are exempt from income tax for a five-year period:

 

 

f.

The information of unrecognized deferred income tax liabilities associated with investments

As of December 31, 2017 and 2016, the aggregate taxable temporary differences associated with investments in subsidiaries not recognized as deferred income tax liabilities amounted to NT$95,003,344 thousand and NT$83,181,401 thousand, respectively.

 

- 56 -

---

g.

Integrated income tax information

 

The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2017 and 2016 were 14.69% and 13.90%, respectively; while the creditable ratio for individual shareholders residing in the R.O.C. is half of the original creditable ratio according to the R.O.C. Income Tax Law. However, effective from January 1, 2018, integrated income tax system were abrogated and imputation credit account is no longer applicable based on amended R.O.C. Income Tax Law in January 2018.

All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated.

 

h.

Income tax examination

The tax authorities have examined income tax returns of TSMC through 2014. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

30.	EARNINGS PER SHARE

 

EPS is computed as follows:

 

 

- 57 -

---

31.	ADDITIONAL INFORMATION OF EXPENSES BY NATURE

 

In accordance with the amendments to the R.O.C. Company Act in May 2015 and the amended TSMC’s Articles of Incorporation approved by TSMC’s shareholders in its meeting held on June 7, 2016, TSMC shall allocate compensation to directors and profit sharing bonus to employees of TSMC not more than 0.3% and not less than 1% of annual profits during the period, respectively.

TSMC accrued profit sharing bonus to employees based on a percentage of net income before income tax, profit sharing bonus to employees and compensation to directors during the period, which amounted to NT$23,019,082 thousand and NT$22,418,339 thousand for the years ended December 31, 2017 and 2016, respectively; compensation to directors was expensed based on estimated amount payable. If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

 

- 58 -

---

TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of NT$23,019,082 thousand and NT$368,919 thousand in cash for 2017, respectively, and profit sharing bonus to employees and compensation to directors in the amounts of NT$22,418,339 thousand and NT$376,432 thousand in cash for 2016, respectively, had been approved by the Board of Directors of TSMC held on February 13, 2018 and February 14, 2017, respectively. There is no significant difference between the aforementioned approved amounts and the amounts charged against earnings of 2017 and 2016, respectively.

TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of NT$20,556,888 thousand and NT$356,186 thousand in cash for 2015, respectively, had been approved by the Board of Directors on February 2, 2016. The profit sharing bonus to employees and compensation to directors in cash for 2015 had been reported to TSMC’s shareholders in its meeting held on June 7, 2016, after the amended TSMC’s Articles of Incorporation had been approved. The aforementioned approved amount has no difference with the one recognized in the consolidated financial statements for the year ended December 31, 2015.

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

 

32.	CAPITAL MANAGEMENT

The Company requires significant amounts of capital to build and expand its production facilities and acquire additional 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.

 

33.	FINANCIAL INSTRUMENTS

 

a.

Categories of financial instruments

 

 

Note 1:

Including held for trading and designated as at FVTPL.

Note 2:

Including financial assets carried at cost.

 

- 59 -

---

 

Note 3:

Including cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and refundable deposits.

Note 4:

Including short-term loans, accounts payable (including related parties), payables to contractors and equipment suppliers, accrued expenses and other current liabilities, bonds payable, long-term bank loans, and guarantee deposits.

 

b.

Financial risk management objectives

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.

 

c.

Market risk

The Company is exposed to the financial market risks, primarily changes in foreign currency exchange rates, interest rates and equity investment prices.

Foreign currency risk

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, such as forward exchange contracts and cross currency swaps, and non-derivative financial instruments, such as foreign currency-denominated debt, to partially hedge its currency exposure.

The Company’s sensitivity analysis of foreign currency risk mainly focuses on the foreign currency monetary items and the derivatives financial instruments at the end of the reporting period. Assuming an unfavorable 10% movement in the levels of foreign exchanges relative to the New Taiwan dollar, the net income for the years ended December 31, 2017 and 2016 would have decreased by NT$867,910 thousand and NT$111,347 thousand, respectively, and the other comprehensive income for the year ended December 31, 2017 would have decreased by NT$265,875 thousand.

Interest rate risk

The Company is exposed to interest rate risk primarily related to its outstanding debt and investments in fixed income securities. All of the Company’s bonds payable 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.

Assuming the amount of the long-term 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 100 basis point (1.00%) increase in interest rates would have resulted in an increase in the interest expense, net of tax, by approximately NT$261 thousand for the year ended December 31, 2016. As of December 31, 2017, the Company had no outstanding long-term bank loans.

 

- 60 -

---

The Company classified its investments in fixed income securities as held-to-maturity and available-for-sale financial assets. Because held-to-maturity fixed income securities are measured at amortized cost, changes in interest rates would not affect the fair value. On the other hand, available-for-sale fixed income securities are exposed to fair value fluctuations caused by changes in interest rates. The Company utilized interest rate futures to partially hedge the interest rate risk on its available-for-sale fixed income investments. These hedges may offset only a small portion of the financial impact from movements in interest rates.

Based on a sensitivity analysis performed at the end of the reporting period, a hypothetical 100 basis points (1.00%) increase in interest rates across all maturities would have resulted in a decrease in other comprehensive income by NT$2,119,713 thousand and NT$1,600,929 thousand for the years ended December 31, 2017 and 2016, respectively.

Other price risk

The Company is exposed to equity price risk arising from available-for-sale equity investments.

Assuming a hypothetical decrease of 5% in prices of the equity investments at the end of the reporting period for the years ended December 31, 2017 and 2016, the other comprehensive income would have decreased by NT$351,520 thousand and NT$342,565 thousand, respectively.

 

d.

Credit risk management

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 investing 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 end of the reporting period, the Company’s maximum credit risk exposure is mainly from the carrying amount of financial assets.

Business related credit risk

The Company has considerable trade receivables outstanding with its 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 December 31, 2017 and 2016, the Company’s ten largest customers accounted for 70% and 74% of accounts receivable, respectively. The Company believes the concentration of credit risk is not material for the remaining accounts receivable.

Financial credit risk

The Company regularly monitors and reviews the concentration 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 limiting the exposure to any individual counterparty and by selecting counterparties with investment-grade credit ratings.

 

e.

Liquidity risk management

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 cash equivalent, short-term available-for-sale financial assets and short-term held-to-maturity financial assets.

 

- 61 -

---

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

 

 

- 62 -

---

f.

Fair value of financial instruments

 

1)

Fair value measurements recognized in the consolidated balance sheets

Fair value measurements are 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).

 

2)

Fair value of financial instruments that are measured at fair value on a recurring basis

Fair value hierarchy

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:

 

 

- 63 -

---

In the fourth quarter of 2017, the Company reassessed the bid-ask spread and the transaction volume of the fixed income securities in determining whether there were quoted prices in active markets. Accordingly, the Company classified the fair value hierarchy levels of corporate bonds, agency bonds, agency mortgage-backed securities and some government bonds as level 2. To have consistent comparative basis, the Company had revised prior year classification from level 1 to level 2.

There were no purchases and disposals for assets classified as Level 3 for the years ended December 31, 2017 and 2016, respectively.

Valuation techniques and assumptions used in Level 2 fair value measurement

The fair values of financial assets and financial liabilities are determined as follows:

 

•

The fair values of corporate bonds, agency bonds, agency mortgage-backed securities, asset-backed securities, and government bonds are determined by quoted market prices.

 

•

Forward exchange contracts and cross currency swap contracts are measured using forward exchange rates and the discounted curves that are derived from quoted market prices. For investments in commercial paper and time deposit designated as FVTPL, the fair values are determined by the present value of future cash flows based on the discounted curves that are derived from the quoted market prices.

 

- 64 -

---

3)

Fair value of financial instruments that are not measured at fair value

Except as detailed in the following table, the Company considers that the carrying amounts of financial instruments in the consolidated financial statements that are not measured at fair value approximate their fair values.

 

Fair value hierarchy

The table below sets out the fair value hierarchy for the Company’s assets and liabilities which are not required to measure at fair value:

 

 

- 65 -

---

In the fourth quarter of 2017, the Company reassessed the bid-ask spread and the transaction volume of the fixed income securities in determining whether there were quoted prices in active markets. Accordingly, the Company classified the fair value hierarchy levels of corporate bonds and bonds payable as level 2. To have consistent comparative basis, the Company had revised prior year classification from level 1 to level 2.

Valuation techniques and assumptions used in Level 2 fair value measurement

The fair values of corporate bonds, negotiable certificate of deposit, and structured products are determined by quoted market prices.

The fair value of commercial paper is determined by the present value of future cash flows based on the discounted curves that are derived from the quoted market prices.

The fair value of the Company’s bonds payable is determined by quoted market prices.

 

34.	RELATED PARTY TRANSACTIONS

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 significant transactions between the Company and other related parties:

 

a.

Related party name and categories

 

 

b.

Net revenue

 

 

- 66 -

---

c.

Purchases

 

 

d.

Receivables from related parties

 

 

e.

Payables to related parties

 

 

f.

Others

 

 

- 67 -

---

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 factory and office from associates. The lease terms and prices were both determined in accordance with mutual agreements. The rental expenses were paid to associates monthly; the related expenses were both 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 then recognized such gain/loss over the depreciable lives of the disposed assets.

 

g.

Compensation of key management personnel

The compensation to directors and other key management personnel for the years ended December 31, 2017 and 2016 were as follows:

 

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.

 

35.	PLEDGED ASSETS

The Company provided certificate of deposits recorded in other financial assets as collateral mainly for building lease agreements. As of December 31, 2017 and 2016, the aforementioned other financial assets amounted to NT$165,618 thousand and NT$185,698 thousand, respectively.

 

36.	SIGNIFICANT OPERATING LEASE ARRANGEMENTS

The Company’s major significant operating leases are arrangements on several parcels of land, machinery and equipment and office premises.

The Company expensed the lease payments as follows:

 

 

- 68 -

---

Future minimum lease payments under the above non-cancellable operating leases are as follows:

 

 

37.	SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

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 provided 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. As of December 31, 2017, the R.O.C. Government did not invoke such right.

 

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, in September 2006, Philips spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, 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 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 falls below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. There was no default from the aforementioned commitment as of December 31, 2017.

 

c.

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. The lock-up period expired on May 1, 2015 and as of October 8, 2015, all ASML shares had been disposed.

Both parties also signed the research and development funding agreement whereby TSMC shall provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of September 30, 2017, the amount has been fully paid.

 

d.

In May 2017, Mr. Uri Cohen filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America and other companies infringe four U.S. patents. In response, TSMC and TSMC North America filed a declaratory judgment complaint against Cohen in the U.S. District Court for the Northern District of California seeking a judgment declaring that there is no infringement of the same four patents. TSMC also filed a motion to transfer Cohen’s lawsuit in the U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Northern District of California. Cohen agreed to the transfer, and as of December 2017, the cases are consolidated and pending in the U.S. District Court for the Northern District of California. The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent liability at this time.

 

- 69 -

---

e.

On September 28, 2017, TSMC was contacted by the European Commission (“Commission”) for information and documents concerning alleged anti-competitive practices of TSMC in relation to semiconductor sales. This proceeding is still in its preliminary stage, and it is premature to predict how the case will proceed, the outcome of the proceeding or its impact. TSMC will continue to cooperate fully with the Commission.

 

f.

TSMC entered into long-term purchase agreements of silicon wafer with multiple suppliers. The relative minimum purchase quantity and price are specified in the agreements.

 

g.

Amounts available under unused letters of credit as of December 31, 2017 and 2016 were NT$94,909 thousand and NT$122,356 thousand, respectively.

 

38.	SIGNIFICANT LOSS FROM DISASTER

On February 6, 2016, an earthquake struck Taiwan. The resulting damage was mostly to inventories and equipment. The Company recognized earthquake losses of NT$2,492,138 thousand, net of insurance claim, for the year ended December 31, 2016. Such losses were primarily included in cost of revenue. The related insurance claim was finalized in the first quarter of 2017, and the accumulated earthquake losses were NT$2,386,824 thousand, net of insurance claim. The Company recognized a reduction of such losses of NT$105,314 thousand for the three months ended March 31, 2017.

 

39.	EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

The following information was summarized according to the foreign currencies other than the functional currency of the Company. The exchange rates disclosed were used to translate the foreign currencies into the functional currency. The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

(Continued)

 

- 70 -

---

(Concluded)

 

Please refer to the consolidated statements of comprehensive income for the total of realized and unrealized foreign exchange gain and loss for the years ended December 31, 2017 and 2016, respectively. Since there were varieties of foreign currency transactions and functional currencies within the subsidiaries of the Company, the Company was unable to disclose foreign exchange gain (loss) towards each foreign currency with significant impact.

 

40.	OPERATING SEGMENTS INFORMATION

 

a.

Operating segments, segment revenue and operating results

From 2016, the Company has only one operating segment, 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 uses the income from operations as the measurement for the basis of performance assessment. The basis for such measurement is the same as that for the preparation of financial statements. Please refer to the consolidated statements of comprehensive income for the related segment revenue and operating results.

 

- 71 -

---

b.

Geographic information

 

The Company categorized the net revenue mainly based on the country in which the customer is headquartered. Non-current assets include property, plant and equipment, intangible assets and other noncurrent assets.

 

c.

Production information

 

Starting in 2017, revenue from packaging and testing services is reclassified from wafer revenue to other revenue. To have consistent comparative basis, the Company had revised prior year classification.

 

d.

Major customers representing at least 10% of net revenue

 

 

41.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the Securities and Futures Bureau for TSMC:

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: Please see Table 2 attached;

 

c.

Marketable securities held (excluding investments in subsidiaries and associates): Please see Table 3 attached;

 

d.

Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 4 attached;

 

- 72 -

---

e.

Acquisition of individual real estate properties at costs of at least NT$300 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$300 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;

 

i.

Information about the derivative financial instruments transaction: Please see Notes 7 and 10;

 

j.

Others: The business relationship between the parent and the subsidiaries and significant transactions between them: Please see Table 8 attached;

 

k.

Names, locations, and related information of investees over which TSMC exercises significant influence (excluding information on investment in mainland China): Please see Table 9 attached;

 

l.

Information on investment in mainland China

 

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, income (losses) of the investee, share of profits/losses of investee, 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.

 

- 73 -

---

TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

No.		Financing Company		Counter- party		Financial Statement Account		Related Party		Maximum Balance for the Period (Foreign Currencies in Thousands) (Note 3)				Ending Balance (Foreign Currencies in Thousands) (Note 3)				Amount Actually Drawn (Foreign Currencies in Thousands)				Interest Rate		Nature for Financing (Note 4)		Transaction Amounts				Reason for Financing (Note 4)		Allowance for Bad Debt				Collateral								Financing Limits for Each Borrowing Company (Notes 1 and 2)				Financing Company’s Total Financing Amount Limits (Notes 1 and 2)
																																				Item				Value
1		TSMC China		TSMC Nanjing		Other receivables from related parties		Yes		$ (RMB	20,950,700  4,600,000	)		$ (RMB	20,950,700  4,600,000	)		$ (RMB	20,039,800  4,400,000	)		1.3%-1.5%		The need for short-term / long-term financing		$	—			Operating capital		$	—				—			$	—			$	51,161,815			$	51,161,815
2		TSMC Global		TSMC		Other receivables from related parties		Yes		(US$	44,488,500 1,500,000	)		(US$	44,488,500 1,500,000	)			—			1.08%-1.45%		The need for short-term financing			—			Operating capital			—				—				—				309,211,877				309,211,877

 

Note 1:		The total amount available for lending purpose shall not exceed the net worth of TSMC China. 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 China. 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 subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC. However, the total amount lendable to any such subsidiary of TSMC shall not exceed forty percent (40%) of the net worth of TSMC China. When there is a lending for funding needs by TSMC China to TSMC, or to the subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC, which are not located in Taiwan, the lending will not be subject to the restriction set forth in the above paragraph of this Article. Notwithstanding the foregoing, the aggregate amount available for lending to such borrowers and the total amount lendable to each of such borrowers still shall not exceed the net worth of TSMC China.
Note 2:		The total amount available for lending purpose shall not exceed the net worth of TSMC Global. 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 Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While TSMC, or foreign subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC will not be subject to this restriction, their total borrowing amount still shall not exceed the net worth of TSMC Global. Notwithstanding the foregoing, the aggregate amount for lending to Taiwan companies other than TSMC shall not exceed forty percent (40%) of the net worth of TSMC Global.
Note 3:		The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.
Note 4:		The restriction of the term of each loan for funding not exceeding one year shall not apply to inter-company loans for funding between offshore subsidiaries in which the Company holds, directly or indirectly, 100% of the voting shares.

 

- 74 -

---

TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

No.		Endorsement/ Guarantee Provider		Guaranteed Party				Limits on Endorsement/ Guarantee Amount Provided to Each Guaranteed Party (Notes 1 and 2)				Maximum Balance for the Period (US$ in Thousands) (Note 3)				Ending Balance (US$ in Thousands) (Note 3)				Amount Actually Drawn (US$ in Thousands)				Amount of Endorsement/ Guarantee Collateralized by Properties				Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements		Maximum Endorsement/ Guarantee Amount Allowable (Note 2)				Guarantee Provided by Parent Company		Guarantee Provided by A Subsidiary		Guarantee Provided to Subsidiaries in Mainland China
				Name		Nature of Relationship
0		TSMC		TSMC Global		Subsidiary		$	380,514,383			$ (US$	34,107,850  1,150,000	)		$ (US$	34,107,850  1,150,000	)		$ (US$	34,107,850  1,150,000	)		$	—			2.24%		$	380,514,383			Yes		No		No
				TSMC North America		Subsidiary			380,514,383			(US$	2,468,023 83,213	)		(US$	2,468,023 83,213	)		(US$	2,468,023 83,213	)			—			0.16%			380,514,383			Yes		No		No

 

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 2:		The total amount of guarantee shall not exceed twenty-five percent (25%) of TSMC’s net worth.
Note 3:		The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.

 

- 75 -

---

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

DECEMBER 31, 2017

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

 

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company				Financial Statement Account		December 31, 2017																Note
										Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Fair Value (Foreign Currencies in Thousands)
TSMC		Common stock
		Motech			—			Available-for-sale financial assets			58,320			$	1,309,279				12			$	1,309,279
		Semiconductor Manufacturing International Corporation			—			“			21,105				1,084,276				—				1,084,276
		United Industrial Gases Co., Ltd.			—			Financial assets carried at cost			21,230				193,584				10				193,584
		Shin-Etsu Handotai Taiwan Co., Ltd.			—			“			10,500				105,000				7				105,000
		Global Investment Holding Inc.			—			“			11,124				99,041				6				99,041
		W.K. Technology Fund IV			—			“			1,152				4,041				2				4,041
		Fund
		Horizon Ventures Fund			—			Financial assets carried at cost			—				6,975				12				6,975
		Crimson Asia Capital			—			“			—				6,410				1				6,410
TSMC Partners		Common stock
		Tela Innovations			—			Financial assets carried at cost			10,440			US$	65,000				25			US$	65,000
		Mcube Inc.			—			“			6,333				—				12				—
		Fund
		China Walden Venture Investments II, L.P.			—			Financial assets carried at cost			—			US$	8,607				9			US$	8,607
		Shanghai Walden Venture Capital Enterprise			—			“			—			US$	4,270				6			US$	4,270
TSMC Global		Corporate bond
		Morgan Stanley			—			Available-for-sale financial assets			—			US$	43,115				N/A			US$	43,115
		Bank of America Corp			—			“			—			US$	42,703				N/A			US$	42,703
		JPMorgan Chase & Co			—			“			—			US$	40,101				N/A			US$	40,101
		Goldman Sachs Group Inc/The			—			“			—			US$	38,465				N/A			US$	38,465
		Citigroup Inc			—			“			—			US$	29,911				N/A			US$	29,911
		AT&T Inc			—			“			—			US$	26,867				N/A			US$	26,867
		Ford Motor Credit Co LLC			—			“			—			US$	18,533				N/A			US$	18,533
		Verizon Communications Inc			—			“			—			US$	18,298				N/A			US$	18,298
		BAT Capital Corp			—			“			—			US$	17,024				N/A			US$	17,024
		Apple Inc			—			“			—			US$	16,463				N/A			US$	16,463
		PNC Bank NA			—			“			—			US$	14,412				N/A			US$	14,412
		Credit Suisse AG/New York NY			—			“			—			US$	13,623				N/A			US$	13,623
		Anheuser-Busch InBev Finance Inc			—			“			—			US$	13,406				N/A			US$	13,406
		Tyson Foods Inc			—			“			—			US$	12,214				N/A			US$	12,214
		Southern Co/The			—			“			—			US$	12,015				N/A			US$	12,015
		AbbVie Inc			—			“			—			US$	11,097				N/A			US$	11,097
		Asian Development Bank			—			“			—			US$	11,073				N/A			US$	11,073
		Mitsubishi UFJ Financial Group Inc			—			“			—			US$	10,791				N/A			US$	10,791
		Capital One NA/Mclean VA			—			“			—			US$	10,465				N/A			US$	10,465
		Westpac Banking Corp			—			“			—			US$	10,464				N/A			US$	10,464
		Cardinal Health Inc			—			“			—			US$	10,383				N/A			US$	10,383
		BP Capital Markets PLC			—						—			US$	10,264				N/A			US$	10,264
		CVS Health Corp			—			“			—			US$	10,018				N/A			US$	10,018
		Wells Fargo & Co			—			“			—			US$	9,868				N/A			US$	9,868
		Svenska Handelsbanken AB			—			“			—			US$	9,862				N/A			US$	9,862
		Aviation Capital Group Corp			—			“			—			US$	9,620				N/A			US$	9,620
		American International Group Inc			—			“			—			US$	9,410				N/A			US$	9,410
		Sumitomo Mitsui Financial Group Inc			—			“			—			US$	9,396				N/A			US$	9,396
		Microsoft Corp			—			“			—			US$	9,301				N/A			US$	9,301

 

(Continued)

 

- 76 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		HSBC Holdings PLC		—		Available-for-sale financial assets			—			US$	9,099			N/A		US$	9,099
		ERAC USA Finance LLC		—		“			—			US$	8,759			N/A		US$	8,759
		Dominion Energy Inc		—		“			—			US$	8,626			N/A		US$	8,626
		Hewlett Packard Enterprise Co		—		“			—			US$	8,604			N/A		US$	8,604
		Ventas Realty LP/Ventas Capital Corp		—		“			—			US$	8,506			N/A		US$	8,506
		Duke Energy Corp		—		“			—			US$	8,337			N/A		US$	8,337
		Daimler Finance North America LLC		—		“			—			US$	8,041			N/A		US$	8,041
		International Bank for Reconstruction & Development		—		“			—			US$	7,992			N/A		US$	7,992
		Huntington National Bank/The		—		“			—			US$	7,873			N/A		US$	7,873
		Oracle Corp		—		“			—			US$	7,794			N/A		US$	7,794
		UBS Group Funding Switzerland AG		—		“			—			US$	7,505			N/A		US$	7,505
		ANZ New Zealand Int’l Ltd/London		—		“			—			US$	7,353			N/A		US$	7,353
		Toronto-Dominion Bank/The		—		“			—			US$	7,327			N/A		US$	7,327
		Deutsche Telekom International Finance BV		—		“			—			US$	7,252			N/A		US$	7,252
		ABN AMRO Bank NV		—		“			—			US$	7,100			N/A		US$	7,100
		Siemens Financieringsmaatschappij NV		—		“			—			US$	7,073			N/A		US$	7,073
		Banque Federative du Credit Mutuel SA		—		“			—			US$	7,072			N/A		US$	7,072
		Reckitt Benckiser Treasury Services PLC		—		“			—			US$	7,010			N/A		US$	7,010
		Barclays PLC		—		“			—			US$	6,994			N/A		US$	6,994
		Hyundai Capital America		—		“			—			US$	6,971			N/A		US$	6,971
		Air Lease Corp		—		“			—			US$	6,971			N/A		US$	6,971
		Marriott International Inc/MD		—		“			—			US$	6,900			N/A		US$	6,900
		21st Century Fox America Inc		—		“			—			US$	6,882			N/A		US$	6,882
		QUALCOMM Inc		—		“			—			US$	6,866			N/A		US$	6,866
		Citizens Bank NA/Providence RI		—		“			—			US$	6,726			N/A		US$	6,726
		Fifth Third Bancorp		—		“			—			US$	6,543			N/A		US$	6,543
		Skandinaviska Enskilda Banken AB		—		“			—			US$	6,531			N/A		US$	6,531
		Mizuho Financial Group Inc		—		“			—			US$	6,484			N/A		US$	6,484
		Reliance Standard Life Global Funding II		—		“			—			US$	6,483			N/A		US$	6,483
		Banco Santander SA		—		“			—			US$	6,347			N/A		US$	6,347
		Dow Chemical Co/The		—		“			—			US$	6,336			N/A		US$	6,336
		Bank of New York Mellon Corp/The		—		“			—			US$	6,306			N/A		US$	6,306
		Welltower Inc		—		“			—			US$	6,301			N/A		US$	6,301
		Santander UK Group Holdings PLC		—		“			—			US$	6,219			N/A		US$	6,219
		Celgene Corp		—		“			—			US$	6,181			N/A		US$	6,181
		Northrop Grumman Corp		—		“			—			US$	6,180			N/A		US$	6,180
		SMBC Aviation Capital Finance DAC		—		“			—			US$	5,938			N/A		US$	5,938
		Manufacturers & Traders Trust Co		—		“			—			US$	5,925			N/A		US$	5,925
		KeyCorp		—		“			—			US$	5,901			N/A		US$	5,901
		UBS AG/London		—		“			—			US$	5,858			N/A		US$	5,858
		NextEra Energy Capital Holdings Inc		—		“			—			US$	5,847			N/A		US$	5,847
		Schlumberger Holdings Corp		—		“			—			US$	5,769			N/A		US$	5,769
		Danone SA		—		“			—			US$	5,768			N/A		US$	5,768
		Aspen Insurance Holdings Ltd		—		“			—			US$	5,723			N/A		US$	5,723
		Santander UK PLC		—		“			—			US$	5,675			N/A		US$	5,675
		Toyota Motor Credit Corp		—		“			—			US$	5,643			N/A		US$	5,643
		Penske Truck Leasing Co Lp/PTL Finance Corp		—		“			—			US$	5,605			N/A		US$	5,605
		Nordea Bank AB		—					—			US$	5,571			N/A		US$	5,571
		ITC Holdings Corp		—		“			—			US$	5,536			N/A		US$	5,536
		McCormick & Co Inc/MD		—		“			—			US$	5,297			N/A		US$	5,297
		Montpelier Re Holdings Ltd		—		“			—			US$	5,259			N/A		US$	5,259
		Amgen Inc		—		“			—			US$	5,243			N/A		US$	5,243
		Jackson National Life Global Funding		—		“			—			US$	5,145			N/A		US$	5,145
		Branch Banking & Trust Co		—		“			—			US$	5,089			N/A		US$	5,089
		Cigna Corp		—		“			—			US$	5,065			N/A		US$	5,065
		Rockwell Collins Inc		—		“			—			US$	5,043			N/A		US$	5,043
		KeyBank NA/Cleveland OH		—		“			—			US$	5,032			N/A		US$	5,032
		UBS AG/Stamford CT		—		“			—			US$	5,005			N/A		US$	5,005
		International Finance Corp		—		“			—			US$	5,000			N/A		US$	5,000

 

(Continued)

 

- 77 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Analog Devices Inc		—		Available-for-sale financial assets			—			US$	4,948			N/A		US$	4,948
		US Bancorp		—		“			—			US$	4,935			N/A		US$	4,935
		Cox Communications Inc		—		“			—			US$	4,917			N/A		US$	4,917
		Macquarie Group Ltd		—		“			—			US$	4,908			N/A		US$	4,908
		Five Corners Funding Trust		—		“			—			US$	4,819			N/A		US$	4,819
		American Express Credit Corp		—		“			—			US$	4,782			N/A		US$	4,782
		Air Liquide Finance SA		—		“			—			US$	4,740			N/A		US$	4,740
		Shell International Finance BV		—		“			—			US$	4,735			N/A		US$	4,735
		Citibank NA		—		“			—			US$	4,724			N/A		US$	4,724
		European Investment Bank		—		“			—			US$	4,689			N/A		US$	4,689
		Ontario Teachers’ Cadillac Fairview Properties Trust		—		“			—			US$	4,659			N/A		US$	4,659
		SunTrust Banks Inc		—		“			—			US$	4,642			N/A		US$	4,642
		Lam Research Corp		—		“			—			US$	4,587			N/A		US$	4,587
		AEP Texas Inc		—		“			—			US$	4,583			N/A		US$	4,583
		Ryder System Inc		—		“			—			US$	4,472			N/A		US$	4,472
		New York Life Global Funding		—		“			—			US$	4,446			N/A		US$	4,446
		Royal Bank of Canada		—		“			—			US$	4,391			N/A		US$	4,391
		US Bank NA/Cincinnati OH		—		“			—			US$	4,367			N/A		US$	4,367
		Lloyds Bank PLC		—		“			—			US$	4,208			N/A		US$	4,208
		Enterprise Products Operating LLC		—		“			—			US$	4,119			N/A		US$	4,119
		Exelon Generation Co LLC		—		“			—			US$	4,098			N/A		US$	4,098
		Intel Corp		—		“			—			US$	3,990			N/A		US$	3,990
		Mondelez International Holdings Netherlands BV		—		“			—			US$	3,982			N/A		US$	3,982
		Intercontinental Exchange Inc		—		“			—			US$	3,961			N/A		US$	3,961
		BB&T Corp		—		“			—			US$	3,939			N/A		US$	3,939
		Edison International		—		“			—			US$	3,911			N/A		US$	3,911
		Wells Fargo Bank NA		—		“			—			US$	3,888			N/A		US$	3,888
		Express Scripts Holding Co		—		“			—			US$	3,864			N/A		US$	3,864
		Bank of Nova Scotia		—		“			—			US$	3,825			N/A		US$	3,825
		Suncorp-Metway Ltd		—		“			—			US$	3,787			N/A		US$	3,787
		Husky Energy Inc		—		“			—			US$	3,738			N/A		US$	3,738
		Alimentation Couche-Tard Inc		—		“			—			US$	3,736			N/A		US$	3,736
		Credit Agricole SA/London		—		“			—			US$	3,663			N/A		US$	3,663
		Canadian Imperial Bank of Commerce		—		“			—			US$	3,609			N/A		US$	3,609
		Pacific Gas & Electric Co		—		“			—			US$	3,587			N/A		US$	3,587
		Protective Life Global Funding		—		“			—			US$	3,574			N/A		US$	3,574
		Nuveen Finance LLC		—					—			US$	3,568			N/A		US$	3,568
		SES GLOBAL Americas Holdings GP		—		“			—			US$	3,521			N/A		US$	3,521
		LyondellBasell Industries NV		—		“			—			US$	3,515			N/A		US$	3,515
		Sprint Spectrum Co LLC/Sprint Spectrum Co II LLC/Sprint Spectrum Co III LLC		—		“			—			US$	3,481			N/A		US$	3,481
		Kroger Co/The		—		“			—			US$	3,360			N/A		US$	3,360
		State Street Corp		—		“			—			US$	3,355			N/A		US$	3,355
		Digital Realty Trust LP		—		“			—			US$	3,225			N/A		US$	3,225
		DXC Technology Co		—		“			—			US$	3,122			N/A		US$	3,122
		BNP Paribas SA		—		“			—			US$	3,115			N/A		US$	3,115
		Anheuser-Busch InBev Worldwide Inc		—		“			—			US$	3,020			N/A		US$	3,020
		Macquarie Bank Ltd		—		“			—			US$	3,012			N/A		US$	3,012
		Time Warner Inc		—		“			—			US$	2,995			N/A		US$	2,995
		Enel Finance International NV		—		“			—			US$	2,990			N/A		US$	2,990
		Anthem Inc		—		“			—			US$	2,924			N/A		US$	2,924
		Aetna Inc		—		“			—			US$	2,882			N/A		US$	2,882
		Delta Air Lines 2007-1 Class A Pass Through Trust		—		“			—			US$	2,865			N/A		US$	2,865
		Lloyds Banking Group PLC		—		“			—			US$	2,777			N/A		US$	2,777
		BMW US Capital LLC		—		“			—			US$	2,719			N/A		US$	2,719
		AutoZone Inc		—		“			—			US$	2,693			N/A		US$	2,693
		Fifth Third Bank/Cincinnati OH		—		“			—			US$	2,689			N/A		US$	2,689
		PartnerRe Finance B LLC		—		“			—			US$	2,657			N/A		US$	2,657
		NiSource Finance Corp		—		“			—			US$	2,589			N/A		US$	2,589

 

(Continued)

 

- 78 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Realty Income Corp		—		Available-for-sale financial assets			—			US$	2,556			N/A		US$	2,556
		Metropolitan Life Global Funding I		—		“			—			US$	2,519			N/A		US$	2,519
		Capital One Financial Corp		—		“			—			US$	2,501			N/A		US$	2,501
		Credit Suisse Group Funding Guernsey Ltd		—		“			—			US$	2,490			N/A		US$	2,490
		Wm Wrigley Jr Co		—		“			—			US$	2,489			N/A		US$	2,489
		UnitedHealth Group Inc		—		“			—			US$	2,485			N/A		US$	2,485
		Eastman Chemical Co		—		“			—			US$	2,439			N/A		US$	2,439
		Xylem Inc/NY		—		“			—			US$	2,426			N/A		US$	2,426
		EI du Pont de Nemours & Co		—		“			—			US$	2,337			N/A		US$	2,337
		NBCUniversal Media LLC		—		“			—			US$	2,331			N/A		US$	2,331
		National Australia Bank Ltd/New York		—		“			—			US$	2,317			N/A		US$	2,317
		Bank of Tokyo-Mitsubishi UFJ Ltd/The		—		“			—			US$	2,301			N/A		US$	2,301
		Simon Property Group LP		—		“			—			US$	2,300			N/A		US$	2,300
		Voya Financial Inc		—		“			—			US$	2,289			N/A		US$	2,289
		Kimco Realty Corp		—		“			—			US$	2,280			N/A		US$	2,280
		ING Groep NV		—		“			—			US$	2,241			N/A		US$	2,241
		Inter American Development Bank		—		“			—			US$	2,227			N/A		US$	2,227
		Cintas Corp No 2		—		“			—			US$	2,218			N/A		US$	2,218
		Pricoa Global Funding I		—		“			—			US$	2,206			N/A		US$	2,206
		ProAssurance Corp		—		“			—			US$	2,150			N/A		US$	2,150
		WR Berkley Corp		—		“			—			US$	2,136			N/A		US$	2,136
		Bank of Montreal		—		“			—			US$	2,130			N/A		US$	2,130
		HCP Inc		—		“			—			US$	2,113			N/A		US$	2,113
		Sysco Corp		—		“			—			US$	2,005			N/A		US$	2,005
		British Telecommunications PLC		—		“			—			US$	2,002			N/A		US$	2,002
		Johnson Controls International plc		—		“			—			US$	2,001			N/A		US$	2,001
		Danske Bank A/S		—		“			—			US$	1,962			N/A		US$	1,962
		American Airlines 2013-2 Class A Pass Through Trust		—		“			—			US$	1,960			N/A		US$	1,960
		Duke Realty LP		—		“			—			US$	1,954			N/A		US$	1,954
		Stryker Corp		—		“			—			US$	1,947			N/A		US$	1,947
		BPCE SA		—		“			—			US$	1,924			N/A		US$	1,924
		Magellan Midstream Partners LP		—					—			US$	1,920			N/A		US$	1,920
		Societe Generale SA		—		“			—			US$	1,913			N/A		US$	1,913
		Bear Stearns Cos LLC/The		—		“			—			US$	1,908			N/A		US$	1,908
		SunTrust Bank/Atlanta GA		—		“			—			US$	1,836			N/A		US$	1,836
		WestRock RKT Co		—		“			—			US$	1,832			N/A		US$	1,832
		Orange SA		—		“			—			US$	1,831			N/A		US$	1,831
		Philip Morris International Inc		—		“			—			US$	1,809			N/A		US$	1,809
		Australia & New Zealand Banking Group Ltd/New York NY		—		“			—			US$	1,794			N/A		US$	1,794
		Brambles USA Inc		—		“			—			US$	1,791			N/A		US$	1,791
		State Grid Overseas Investment Ltd		—		“			—			US$	1,775			N/A		US$	1,775
		Visa Inc		—		“			—			US$	1,773			N/A		US$	1,773
		Dominion Energy Gas Holdings LLC		—		“			—			US$	1,762			N/A		US$	1,762
		United Technologies Corp		—		“			—			US$	1,761			N/A		US$	1,761
		Regency Centers LP		—		“			—			US$	1,758			N/A		US$	1,758
		Commonwealth Bank of Australia/New York NY		—		“			—			US$	1,751			N/A		US$	1,751
		Alterra Finance LLC		—		“			—			US$	1,741			N/A		US$	1,741
		Regions Financial Corp		—		“			—			US$	1,708			N/A		US$	1,708
		Sumitomo Mitsui Trust Bank Ltd		—		“			—			US$	1,691			N/A		US$	1,691
		Sumitomo Mitsui Banking Corp		—		“			—			US$	1,629			N/A		US$	1,629
		Amazon.com Inc		—		“			—			US$	1,626			N/A		US$	1,626
		Gilead Sciences Inc		—		“			—			US$	1,608			N/A		US$	1,608
		Weyerhaeuser Co		—		“			—			US$	1,602			N/A		US$	1,602
		BAT International Finance PLC		—		“			—			US$	1,594			N/A		US$	1,594
		Principal Life Global Funding II		—		“			—			US$	1,588			N/A		US$	1,588
		Caterpillar Financial Services Corp		—		“			—			US$	1,536			N/A		US$	1,536
		Chevron Corp		—		“			—			US$	1,532			N/A		US$	1,532
		O’Reilly Automotive Inc		—		“			—			US$	1,527			N/A		US$	1,527
		PSEG Power LLC		—		“			—			US$	1,510			N/A		US$	1,510

 

(Continued)

 

- 79 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		McKesson Corp		—		Available-for-sale financial assets			—			US$	1,500			N/A		US$	1,500
		Harley-Davidson Financial Services Inc		—		“			—			US$	1,498			N/A		US$	1,498
		Standard Chartered PLC		—		“			—			US$	1,497			N/A		US$	1,497
		CBS Corp		—		“			—			US$	1,495			N/A		US$	1,495
		HSBC USA Inc		—		“			—			US$	1,470			N/A		US$	1,470
		Guardian Life Global Funding		—		“			—			US$	1,469			N/A		US$	1,469
		HSBC Bank PLC		—		“			—			US$	1,459			N/A		US$	1,459
		Cooperatieve Rabobank UA/NY		—		“			—			US$	1,450			N/A		US$	1,450
		Oesterreichische Kontrollbank AG		—		“			—			US$	1,444			N/A		US$	1,444
		Monongahela Power Co		—		“			—			US$	1,429			N/A		US$	1,429
		Texas Eastern Transmission LP		—		“			—			US$	1,408			N/A		US$	1,408
		Georgia-Pacific LLC		—		“			—			US$	1,401			N/A		US$	1,401
		AIG Global Funding		—		“			—			US$	1,387			N/A		US$	1,387
		Cboe Global Markets Inc		—		“			—			US$	1,366			N/A		US$	1,366
		Entergy Arkansas Inc		—		“			—			US$	1,284			N/A		US$	1,284
		GATX Corp		—					—			US$	1,277			N/A		US$	1,277
		Entergy Corp		—		“			—			US$	1,273			N/A		US$	1,273
		Western Union Co/The		—		“			—			US$	1,266			N/A		US$	1,266
		Nissan Motor Acceptance Corp		—		“			—			US$	1,261			N/A		US$	1,261
		Comcast Corp		—		“			—			US$	1,256			N/A		US$	1,256
		Consolidated Edison Inc		—		“			—			US$	1,213			N/A		US$	1,213
		Glencore Funding LLC		—		“			—			US$	1,206			N/A		US$	1,206
		Sempra Energy		—		“			—			US$	1,179			N/A		US$	1,179
		Public Service Enterprise Group Inc		—		“			—			US$	1,136			N/A		US$	1,136
		Kreditanstalt fuer Wiederaufbau		—		“			—			US$	1,134			N/A		US$	1,134
		ERP Operating LP		—		“			—			US$	1,118			N/A		US$	1,118
		Wesfarmers Ltd		—		“			—			US$	1,095			N/A		US$	1,095
		Marsh & McLennan Cos Inc		—		“			—			US$	1,085			N/A		US$	1,085
		International Paper Co		—		“			—			US$	1,075			N/A		US$	1,075
		Glencore Finance Canada Ltd		—		“			—			US$	1,067			N/A		US$	1,067
		African Development Bank		—		“			—			US$	1,064			N/A		US$	1,064
		CA Inc		—		“			—			US$	1,064			N/A		US$	1,064
		General Electric Co		—		“			—			US$	1,050			N/A		US$	1,050
		Merck & Co Inc		—		“			—			US$	1,049			N/A		US$	1,049
		EOG Resources Inc		—		“			—			US$	1,042			N/A		US$	1,042
		Commonwealth Edison Co		—		“			—			US$	1,037			N/A		US$	1,037
		Athene Global Funding		—		“			—			US$	1,032			N/A		US$	1,032
		Lincoln National Corp		—		“			—			US$	1,029			N/A		US$	1,029
		Statoil ASA		—		“			—			US$	1,016			N/A		US$	1,016
		Biogen Inc		—		“			—			US$	1,013			N/A		US$	1,013
		Berkshire Hathaway Energy Co		—		“			—			US$	1,009			N/A		US$	1,009
		Unum Group		—		“			—			US$	1,007			N/A		US$	1,007
		Tencent Holdings Ltd		—		“			—			US$	1,006			N/A		US$	1,006
		Ares Capital Corp		—		“			—			US$	1,004			N/A		US$	1,004
		Laboratory Corp of America Holdings		—		“			—			US$	1,002			N/A		US$	1,002
		Home Depot Inc/The		—		“			—			US$	1,000			N/A		US$	1,000
		John Deere Capital Corp		—		“			—			US$	999			N/A		US$	999
		JM Smucker Co/The		—		“			—			US$	998			N/A		US$	998
		Healthcare Trust of America Holdings LP		—		“			—			US$	997			N/A		US$	997
		Bunge Ltd Finance Corp		—		“			—			US$	992			N/A		US$	992
		Entergy Texas Inc		—		“			—			US$	992			N/A		US$	992
		XLIT Ltd		—		“			—			US$	988			N/A		US$	988
		Capital One Bank USA NA		—		“			—			US$	976			N/A		US$	976
		National Retail Properties Inc		—		“			—			US$	965			N/A		US$	965
		PPL Capital Funding Inc		—		“			—			US$	932			N/A		US$	932
		Duke Energy Progress LLC		—		“			—			US$	929			N/A		US$	929
		Coca-Cola Femsa SAB de CV		—		“			—			US$	917			N/A		US$	917
		Lockheed Martin Corp		—		“			—			US$	905			N/A		US$	905
		Southern Electric Generating Co		—		“			—			US$	901			N/A		US$	901

 

(Continued)

 

- 80 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Wal-Mart Stores Inc		—		Available-for-sale financial assets			—			US$	894			N/A		US$	894
		CNOOC Finance Ltd		—		“			—			US$	884			N/A		US$	884
		Federal Realty Investment Trust		—		“			—			US$	863			N/A		US$	863
		Baker Hughes a GE Co LLC/Baker Hughes Co-Obligor Inc		—		“			—			US$	858			N/A		US$	858
TSMC Global		Mastercard Inc		—		Available-for-sale financial assets			—			US$	849			N/A		US$	849
		Huntington Bancshares Inc/OH		—		“			—			US$	836			N/A		US$	836
		Consolidated Edison Co of New York Inc		—		“			—			US$	835			N/A		US$	835
		MetLife Inc		—		“			—			US$	819			N/A		US$	819
		Continental Airlines 2000-1 Class A-1 Pass Through Trust		—		“			—			US$	817			N/A		US$	817
		Aon PLC		—		“			—			US$	812			N/A		US$	812
		Nucor Corp		—		“			—			US$	812			N/A		US$	812
		ONEOK Partners LP		—		“			—			US$	805			N/A		US$	805
		AXIS Specialty Finance LLC		—		“			—			US$	802			N/A		US$	802
		Activision Blizzard Inc		—		“			—			US$	794			N/A		US$	794
		Incitec Pivot Finance LLC		—		“			—			US$	794			N/A		US$	794
		Manulife Financial Corp		—		“			—			US$	793			N/A		US$	793
		Spectra Energy Partners LP		—		“			—			US$	785			N/A		US$	785
		Sinopec Capital Ltd		—		“			—			US$	779			N/A		US$	779
		Baidu Inc		—		“			—			US$	753			N/A		US$	753
		Crown Castle Towers LLC		—		“			—			US$	737			N/A		US$	737
		Duke Energy Progress LLC		—		“			—			US$	720			N/A		US$	720
		APT Pipelines Ltd		—		“			—			US$	719			N/A		US$	719
		Baker Hughes a GE Co LLC		—		“			—			US$	715			N/A		US$	715
		DTE Energy Co		—		“			—			US$	714			N/A		US$	714
		American Honda Finance Corp		—		“			—			US$	706			N/A		US$	706
		Total Capital International SA		—		“			—			US$	700			N/A		US$	700
		Norfolk Southern Railway Co		—		“			—			US$	700			N/A		US$	700
		Scentre Group Trust 1/Scentre Group Trust 2		—		“			—			US$	698			N/A		US$	698
		TTX Co		—		“			—			US$	698			N/A		US$	698
		Vornado Realty LP		—		“			—			US$	697			N/A		US$	697
		Three Gorges Finance I Cayman Islands Ltd		—		“			—			US$	687			N/A		US$	687
		Rochester Gas & Electric Corp		—		“			—			US$	681			N/A		US$	681
		ING Bank NV		—		“			—			US$	675			N/A		US$	675
		Ohio Power Co		—		“			—			US$	659			N/A		US$	659
		Continental Airlines 2007-1 Class A Pass Through Trust		—		“			—			US$	658			N/A		US$	658
		Entergy Gulf States Louisiana LLC		—		“			—			US$	649			N/A		US$	649
		Georgia Power Co		—		“			—			US$	646			N/A		US$	646
		Fortive Corp		—		“			—			US$	644			N/A		US$	644
		RBC USA Holdco Corp		—		“			—			US$	642			N/A		US$	642
		Alexandria Real Estate Equities Inc		—		“			—			US$	637			N/A		US$	637
		Liberty Property LP		—		“			—			US$	631			N/A		US$	631
		Grupo Bimbo SAB de CV		—		“			—			US$	631			N/A		US$	631
		Potash Corp of Saskatchewan Inc		—		“			—			US$	628			N/A		US$	628
		Daiwa Securities Group Inc		—		“			—			US$	613			N/A		US$	613
		Dr Pepper Snapple Group Inc		—		“			—			US$	612			N/A		US$	612
		BOC Aviation Ltd		—		“			—			US$	612			N/A		US$	612
		Life Technologies Corp		—		“			—			US$	610			N/A		US$	610
		Altria Group Inc		—		“			—			US$	604			N/A		US$	604
		Kimberly-Clark Corp		—		“			—			US$	598			N/A		US$	598
		American Express Co		—		“			—			US$	592			N/A		US$	592
		ABC Inc		—		“			—			US$	591			N/A		US$	591
		Host Hotels & Resorts LP		—		“			—			US$	588			N/A		US$	588
		Mizuho Bank Ltd		—		“			—			US$	578			N/A		US$	578
		AvalonBay Communities Inc		—		“			—			US$	576			N/A		US$	576
		AXIS Specialty Finance PLC		—		“			—			US$	573			N/A		US$	573
		Boston Properties LP		—		“			—			US$	552			N/A		US$	552
		Caisse Centrale Desjardins		—		“			—			US$	550			N/A		US$	550
		Exxon Mobil Corp		—		“			—			US$	548			N/A		US$	548
		Bunge Ltd Finance Corp		—					—			US$	542			N/A		US$	542

 

(Continued)

 

- 81 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Prudential Financial Inc		—		Available-for-sale financial assets			—			US$	536			N/A		US$	536
		American Electric Power Co Inc		—		“			—			US$	522			N/A		US$	522
		Southwestern Electric Power Co		—		“			—			US$	521			N/A		US$	521
		Fulton Financial Corp		—		“			—			US$	517			N/A		US$	517
		TD Ameritrade Holding Corp		—		“			—			US$	516			N/A		US$	516
		Regency Centers Corp		—		“			—			US$	512			N/A		US$	512
		Burlington Northern Santa Fe LLC		—		“			—			US$	504			N/A		US$	504
		Walgreens Boots Alliance Inc		—		“			—			US$	503			N/A		US$	503
		ORIX Corp		—		“			—			US$	501			N/A		US$	501
		BNP Paribas/BNP Paribas US Medium-Term Note Program LLC		—		“			—			US$	501			N/A		US$	501
		Swedbank AB		—		“			—			US$	501			N/A		US$	501
		Halliburton Co		—		“			—			US$	500			N/A		US$	500
		MassMutual Global Funding II		—		“			—			US$	486			N/A		US$	486
		Comerica Inc		—		“			—			US$	473			N/A		US$	473
		Eaton Corp		—		“			—			US$	470			N/A		US$	470
		Narragansett Electric Co/The		—		“			—			US$	466			N/A		US$	466
		CenterPoint Energy Inc		—		“			—			US$	463			N/A		US$	463
		Spire Inc		—		“			—			US$	458			N/A		US$	458
		Equifax Inc		—		“			—			US$	454			N/A		US$	454
		Canadian Pacific Railway Co		—		“			—			US$	437			N/A		US$	437
		Texas-New Mexico Power Co		—		“			—			US$	434			N/A		US$	434
		Nationwide Building Society		—		“			—			US$	431			N/A		US$	431
		Valero Energy Corp		—		“			—			US$	431			N/A		US$	431
		Woolworths Group Ltd		—		“			—			US$	415			N/A		US$	415
		TransCanada PipeLines Ltd		—		“			—			US$	415			N/A		US$	415
		Volkswagen Group of America Finance LLC		—		“			—			US$	399			N/A		US$	399
		Southern Power Co		—		“			—			US$	396			N/A		US$	396
		IBM Credit LLC		—		“			—			US$	394			N/A		US$	394
		StanCorp Financial Group Inc		—		“			—			US$	391			N/A		US$	391
		Aon Corp		—		“			—			US$	390			N/A		US$	390
		First Niagara Financial Group Inc		—		“			—			US$	382			N/A		US$	382
		Nationwide Financial Services Inc		—		“			—			US$	377			N/A		US$	377
		CenterPoint Energy Resources Corp		—		“			—			US$	364			N/A		US$	364
		NetApp Inc		—		“			—			US$	362			N/A		US$	362
		Deutsche Bank AG		—		“			—			US$	351			N/A		US$	351
		Phillips 66		—		“			—			US$	325			N/A		US$	325
		Cisco Systems Inc		—		“			—			US$	322			N/A		US$	322
		PacifiCorp		—		“			—			US$	314			N/A		US$	314
		eBay Inc		—		“			—			US$	303			N/A		US$	303
		Schlumberger Finance Canada Ltd		—		“			—			US$	298			N/A		US$	298
		Eli Lilly & Co		—		“			—			US$	294			N/A		US$	294
		BAE Systems Holdings Inc		—		“			—			US$	289			N/A		US$	289
		Barclays Bank PLC		—		“			—			US$	289			N/A		US$	289
		Amphenol Corp		—		“			—			US$	288			N/A		US$	288
		EMD Finance LLC		—		“			—			US$	279			N/A		US$	279
		Nomura Holdings Inc		—		“			—			US$	252			N/A		US$	252
		NBCUniversal Enterprise Inc		—		“			—			US$	249			N/A		US$	249
		CMS Energy Corp		—		“			—			US$	243			N/A		US$	243
		Kansas City Power & Light Co		—		“			—			US$	237			N/A		US$	237
		Hartford Financial Services Group Inc/The		—		“			—			US$	237			N/A		US$	237
		Protective Life Corp		—		“			—			US$	228			N/A		US$	228
		WestRock MWV LLC		—		“			—			US$	227			N/A		US$	227
		Rolls-Royce PLC		—		“			—			US$	223			N/A		US$	223
		Assurant Inc		—					—			US$	210			N/A		US$	210
		Fidelity National Information Services Inc		—		“			—			US$	206			N/A		US$	206
		Commonwealth Bank of Australia		—		“			—			US$	201			N/A		US$	201
		Pinnacle West Capital Corp		—					—			US$	199			N/A		US$	199
		Schneider Electric SE		—		“			—			US$	161			N/A		US$	161

 

(Continued)

 

- 82 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Packaging Corp of America		—		Available-for-sale financial assets			—			US$	160			N/A		US$	160
		Berkshire Hathaway Finance Corp		—		“			—			US$	135			N/A		US$	135
		Duke Energy Florida LLC		—		“			—			US$	120			N/A		US$	120
		Wells Fargo & Co		—		Held-to-maturity financial assets			—			US$	150,005			N/A		US$	152,279
		JPMorgan Chase & Co.		—		“			—			US$	142,042			N/A		US$	143,994
		Goldman Sachs Group, Inc.		—		“			—			US$	100,000			N/A		US$	100,943
		Westpac Banking Corp.		—		“			—			US$	100,000			N/A		US$	100,774
		Commonwealth Bank of Australia		—		“			—			US$	50,000			N/A		US$	50,363
		National Australia Bank		—		“			—			US$	50,000			N/A		US$	50,277
		Bank of Nova Scotia		—		“			—			US$	49,990			N/A		US$	50,236
		Industrial and Commercial Bank of China		—		“			—			US$	10,000			N/A		US$	10,005
		Government bond
		United States Treasury Note/Bond		—		Available-for-sale financial assets			—			US$	260,156			N/A		US$	260,156
		Abu Dhabi Government International Bond		—		“			—			US$	3,430			N/A		US$	3,430
		Agency bonds/Agency mortgage-backed securities
		Fannie Mae		—		Available-for-sale financial assets			—			US$	590,123			N/A		US$	590,123
		Freddie Mac		—		“			—			US$	233,117			N/A		US$	233,117
		Government National Mortgage Association		—		“			—			US$	111,741			N/A		US$	111,741
		Ginnie Mae		—		“			—			US$	28,254			N/A		US$	28,254
		Federal Home Loan Banks		—		“			—			US$	6,147			N/A		US$	6,147
		Freddie Mac Multifamily Structured Pass Through Certificates		—		“			—			US$	3,865			N/A		US$	3,865
		Export-Import Bank of Korea		—		“			—			US$	3,004			N/A		US$	3,004
		Export Development Canada		—		“			—			US$	2,990			N/A		US$	2,990
		Province of Quebec Canada		—		“			—			US$	2,551			N/A		US$	2,551
		NCUA Guaranteed Notes Trust 2010-R2		—		“			—			US$	1,537			N/A		US$	1,537
		CPPIB Capital Inc		—		“			—			US$	1,180			N/A		US$	1,180
		Federal Farm Credit Banks		—		“			—			US$	894			N/A		US$	894
		FHLMC-GNMA		—		“			—			US$	313			N/A		US$	313
		Asset-backed securities
		Citibank Credit Card Issuance Trust		—		Available-for-sale financial assets			—			US$	48,328			N/A		US$	48,328
		Discover Card Execution Note Trust		—		“			—			US$	45,722			N/A		US$	45,722
		Chase Issuance Trust		—		“			—			US$	39,211			N/A		US$	39,211
		American Express Credit Account Master Trust		—		“			—			US$	31,060			N/A		US$	31,060
		Capital One Multi-Asset Execution Trust		—		“			—			US$	22,544			N/A		US$	22,544
		Ford Credit Floorplan Master Owner Trust A		—		“			—			US$	20,808			N/A		US$	20,808
		Ford Credit Auto Owner Trust/Ford Credit 2014-REV1		—		“			—			US$	13,904			N/A		US$	13,904
		UBS-Barclays Commercial Mortgage Trust 2012-C2		—		“			—			US$	12,792			N/A		US$	12,792
		COMM Mortgage Trust		—		“			—			US$	12,234			N/A		US$	12,234
		Morgan Stanley Bank of America Merrill Lynch Trust		—		“			—			US$	12,002			N/A		US$	12,002
		Toyota Auto Receivables 2014-C Owner Trust		—		“			—			US$	11,431			N/A		US$	11,431
		Chesapeake Funding II LLC		—		“			—			US$	10,953			N/A		US$	10,953
		BA Credit Card Trust		—		“			—			US$	10,821			N/A		US$	10,821
		GM Financial Automobile Leasing Trust 2015-3		—		“			—			US$	10,359			N/A		US$	10,359
		Mercedes-Benz Master Owner Trust		—		“			—			US$	10,049			N/A		US$	10,049
		JPMCC Commercial Mortgage Securities Trust 2017-JP7		—		“			—			US$	9,335			N/A		US$	9,335
		Hyundai Auto Lease Securitization Trust 2017-A		—					—			US$	9,179			N/A		US$	9,179
		Honda Auto Receivables 2017-2 Owner Trust		—		“			—			US$	8,787			N/A		US$	8,787
		BANK		—		“			—			US$	8,047			N/A		US$	8,047
		CGDBB Commercial Mortgage Trust 2017-BIOC		—		“			—			US$	7,509			N/A		US$	7,509
		Nissan Auto Lease Trust		—		“			—			US$	7,114			N/A		US$	7,114
		GS Mortgage Securities Trust		—		“			—			US$	7,001			N/A		US$	7,001
		Ford Credit Auto Owner Trust		—		“			—			US$	6,859			N/A		US$	6,859
		Citigroup Commercial Mortgage Trust 2013-GC11		—		“			—			US$	6,769			N/A		US$	6,769
		JPMBB Commercial Mortgage Securities Trust 2013-C12		—		“			—			US$	6,749			N/A		US$	6,749
		Hyundai Auto Receivables Trust		—		“			—			US$	6,728			N/A		US$	6,728
		Nissan Master Owner Trust Receivables		—		“			—			US$	6,511			N/A		US$	6,511
		BMW Vehicle Lease Trust		—		“			—			US$	5,961			N/A		US$	5,961

 

(Continued)

 

- 83 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
TSMC Global		Nissan Auto Receivables 2017-B Owner Trust		—		Available-for-sale financial assets			—			US$	4,863			N/A		US$	4,863
		Ford Credit Auto Lease Trust		—		“			—			US$	4,528			N/A		US$	4,528
		GM Financial Consumer Automobile 2017-1		—		“			—			US$	3,970			N/A		US$	3,970
		Cold Storage Trust 2017-ICE3		—		“			—			US$	3,811			N/A		US$	3,811
		Wheels SPV 2 LLC		—		“			—			US$	3,624			N/A		US$	3,624
		Hertz Fleet Lease Funding LP		—		“			—			US$	3,486			N/A		US$	3,486
		Wells Fargo Commercial Mortgage Trust 2015-LC20		—		“			—			US$	3,434			N/A		US$	3,434
		Volvo Financial Equipment Master Owner Trust 2017-A		—		“			—			US$	3,009			N/A		US$	3,009
		CSMC OA LLC		—		“			—			US$	2,877			N/A		US$	2,877
		BMW Floorplan Master Owner Trust		—		“			—			US$	2,442			N/A		US$	2,442
		JPMDB Commercial Mortgage Securities Trust 2017-C7		—		“			—			US$	2,006			N/A		US$	2,006
		Mercedes-Benz Auto Lease Trust 2016-A		—		“			—			US$	1,820			N/A		US$	1,820
		Morgan Stanley Capital I Trust		—		“			—			US$	1,513			N/A		US$	1,513
		CFCRE Commercial Mortgage Trust 2011-C1		—		“			—			US$	998			N/A		US$	998
		Enterprise Fleet Financing LLC		—		“			—			US$	845			N/A		US$	845
		280 Park Avenue Mortgage Trust		—		“			—			US$	831			N/A		US$	831
		Mercedes-Benz Auto Receivables Trust 2015-1		—		“			—			US$	501			N/A		US$	501
		WFRBS Commercial Mortgage Trust 2013-C14		—		“			—			US$	485			N/A		US$	485
		Structure product
		Bank of Tokyo-Mitsubishi UFJ		—		Held-to-maturity financial assets			—			US$	50,000			N/A		US$	49,744
		Commercial paper
		Societe Generale Instl		—		Available-for-sale financial assets			—			US$	2,000			N/A		US$	2,000
		Norinchukin Bank		—		“			—			US$	2,000			N/A		US$	2,000
		Bank of Tokyo-Mitsubishi UFJ		—		“			—			US$	1,000			N/A		US$	1,000
		Fund
		Primavera Capital Fund II L.P.		—		Financial assets carried at cost			—			US$	65,635			4		US$	65,635

 

(Continued)

 

- 84 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2017														Note
								Shares/Units (In Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)		Fair Value (Foreign Currencies in Thousands)
VTAF III		Common stock
		LiquidLeds Lighting Corp.		—		Financial assets carried at cost			1,600			US$	800			11		US$	800
		Preferred stock
		Neoconix, Inc.		—		Financial assets carried at cost			4,147			US$	170			—		US$	170
VTAF II		Common stock
		Aquantia		—		Available-for-sale financial assets			460			US$	5,209			1		US$	5,209
		Sentelic		—		Financial assets carried at cost			903			US$	2,607			4		US$	2,607
		5V Technologies, Inc.		—		“			963			US$	2,168			2		US$	2,168
		Aether Systems, Inc.		—		“			1,085			US$	339			20		US$	339
ISDF		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			230				—			3			—
ISDF II		Common stock
		Sonics, Inc.		—		Financial assets carried at cost			278				—			4			—
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			264				—			4			—
Growth Fund		Common stock
		Innovium, Inc.		—		Financial assets carried at cost			221			US$	370			—		US$	370
		Preferred stock
		Innovium, Inc.		—		Financial assets carried at cost			230			US$	384			—		US$	384

(Concluded)

 

- 85 -

---

TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

										Beginning Balance								Acquisition								Disposal																Ending Balance (Note 1)
Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party		Nature of Relationship		Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Carrying Value				Gain/Loss on Disposal				Shares/Units (In Thousands)				Amount
TSMC		Corporate bond
		CPC Corporation, Taiwan		Held-to-maturity financial assets		—		—			—			$	1,967,303				—			$	—				—			$	1,960,000			$	1,960,000			$	—				—			$	—
		Hon Hai Precision Ind. Co., Ltd.		“		—		—			—				400,250				—				—				—				400,000				400,000				—				—				—
		Commercial paper
		Taiwan Power Company		Held-to-maturity financial assets		—		—			865				8,628,176				170				1,695,771				1,035				10,350,000				10,350,000				—				—				—
		Stock
		TSMC Global		Investments accounted for using equity method		—		Subsidiary			7				265,634,729				2				60,683,010				—				—				—				—				9				309,211,877
		TSMC Nanjing		“		—		Subsidiary			—				6,331,094				—				21,724,892				—				—				—				—				—				26,493,740
TSMC Partners		Stock
		ISDF II		Investments accounted for using equity method		Note 2		Subsidiary			9,299			US$	6,078				—				—				—				—			US$	15,552				—				9,299			US$	28
TSMC Global		Corporate bond
		Bank of America Corp		Available-for-sale financial assets		—		—			—			US$	27,973				—			US$	30,914				—			US$	18,071			US$	18,205			US$	(134	)			—			US$	40,876
		Citigroup Inc		“		—		—			—			US$	16,819				—			US$	18,955				—			US$	5,816			US$	5,833			US$	(17	)			—			US$	29,911
		AT&T Inc		“		—		—			—			US$	13,332				—			US$	19,933				—			US$	6,425			US$	6,438			US$	(13	)			—			US$	26,867
		JPMorgan Chase & Co		“		—		—			—			US$	22,330				—			US$	16,030				—			US$	12,151			US$	12,258			US$	(107	)			—			US$	26,159
		Goldman Sachs Group Inc/The		“		—		—			—			US$	7,390				—			US$	17,211				—			US$	1,900			US$	1,976			US$	(76	)			—			US$	22,709
		Morgan Stanley		“		—		—			—			US$	11,237				—			US$	16,115				—			US$	9,018			US$	8,973			US$	45				—			US$	18,505
		Verizon Communications Inc		“		—		—			—			US$	17,059				—			US$	16,250				—			US$	15,042			US$	15,163			US$	(121	)			—			US$	18,298
		Ford Motor Credit Co LLC		“		—		—			—			US$	7,877				—			US$	11,849				—			US$	1,964			US$	2,016			US$	(52	)			—			US$	17,732
		BAT Capital Corp		“		—		—			—				—				—			US$	17,144				—				—				—				—				—			US$	17,024
		Apple Inc		“		—		—			—			US$	2,607				—			US$	14,737				—			US$	854			US$	862			US$	(8	)			—			US$	16,463
		Morgan Stanley		“		—		—			—				—				—			US$	12,683				—				—			US$	—				—				—			US$	12,722
		Tyson Foods Inc		“		—		—			—			US$	1,704				—			US$	10,762				—			US$	201			US$	200			US$	1				—			US$	12,214
		JPMorgan Chase & Co		“		—		—			—				—				—			US$	11,600				—				—				—				—				—			US$	11,613
		Asian Development Bank		“		—		—			—			US$	1,994				—			US$	11,078				—			US$	1,997			US$	1,998			US$	(1	)			—			US$	11,073

 

(Continued)

 

- 86 -

---

										Beginning Balance								Acquisition								Disposal																Ending Balance (Note 1)
Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party		Nature of Relationship		Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Carrying Value				Gain/Loss on Disposal				Shares/Units (In Thousands)				Amount
TSMC Global		Microsoft Corp		“		—		—			—			US$	2,905				—			US$	11,279				—			US$	5,076			US$	4,992			US$	84				—			US$	9,301
		QUALCOMM Inc		“		—		—			—				—				—			US$	10,425				—			US$	3,561			US$	3,548			US$	13				—			US$	6,866
		BMW US Capital LLC		“		—		—			—			US$	7,180				—			US$	5,995				—			US$	10,552			US$	10,495			US$	57				—			US$	2,719
		Gilead Sciences Inc		“		—		—			—			US$	11,850				—				—				—			US$	10,340			US$	10,606			US$	(266	)			—			US$	1,608
		Aetna Inc		“		—		—			—			US$	11,618				—				—				—			US$	10,656			US$	10,570			US$	86				—			US$	1,099
		Government bond
		United States Treasury Note/Bond		Available-for-sale financial assets		—		—			—			US$	195,285				—			US$	396,552				—			US$	393,853			US$	394,514			US$	(661	)			—			US$	202,689
		United States Treasury Floating Rate Note		“		—		—			—			US$	30,756				—			US$	182,629				—			US$	163,600			US$	163,487			US$	113				—			US$	49,901
		United States Treasury Bill		“		—		—			—				—				—			US$	28,180				—			US$	25,197			US$	25,187			US$	10				—			US$	2,997
		United States Treasury Bill		“		—		—			—				—				—			US$	97,678				—			US$	97,712			US$	97,678			US$	34				—				—
		United States Treasury Inflation Indexed Bonds		“		—		—			—			US$	19,349				—			US$	8,060				—			US$	27,343			US$	27,515			US$	(172	)			—				—

 

(Continued)

 

- 87 -

---

														Beginning Balance								Acquisition								Disposal																Ending Balance (Note 1)
Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Shares/Units (In Thousands)				Amount				Carrying Value				Gain/Loss on Disposal				Shares/Units (In Thousands)				Amount
TSMC Global		Agency bonds/Agency mortgage-backed securities
		FNMA POOL BM3196		Available-for-sale financial assets			—				—				—				—				—			US$	49,619				—				—				—				—				—			US$	49,526
		FNMA POOL BM1948		“			—				—				—				—				—			US$	43,322				—			US$	1,609			US$	1,826			US$	(217	)			—			US$	41,275
		FNMA POOL BM1886		“			—				—				—				—				—			US$	18,827				—			US$	495			US$	538			US$	(43	)			—			US$	18,109
		Government National Mortgage Association		“			—				—				—				—				—			US$	16,497				—			US$	81			US$	87			US$		(6 )			—			US$	16,739
		Fannie Mae		“			—				—				—				—				—			US$	15,777				—			US$	43			US$	114			US$	(71	)			—			US$	16,012
		FNMA TBA 30 Yr 4.5		“			—				—				—				—				—			US$	59,134				—			US$	43,295			US$	43,330			US$	(35	)			—			US$	15,758
		Fannie Mae		“			—				—				—				—				—			US$	14,877				—			US$	80			US$	123			US$	(43	)			—			US$	14,512
		Government National Mortgage Association		“			—				—				—				—				—			US$	14,352				—				—			US$	10			US$	(10	)			—			US$	14,415
		FNMA POOL AL9903		“			—				—				—				—				—			US$	12,520				—			US$	904			US$	1,010			US$	(106	)			—			US$	11,426
		FNMA TBA 30 Yr 3.5		“			—				—				—				—				—			US$	65,279				—			US$	62,406			US$	62,406			US$	—				—			US$	2,866
		GNMA II TBA 30 Yr 4		“			—				—				—				—				—			US$	42,194				—			US$	39,813			US$	39,808			US$	5				—			US$	2,378
		FNMA TBA 15 Yr 3		“			—				—				—				—				—			US$	38,710				—			US$	36,709			US$	36,692			US$	17				—			US$	2,015
		GNMA II TBA 30 Yr 3.5		“			—				—				—				—				—			US$	27,241				—			US$	27,087			US$	27,096			US$	(9	)			—			US$	145
		FNMA TBA 30 Yr 3		“			—				—				—				—				—			US$	154,404				—			US$	154,494			US$	154,404			US$	90				—				—
		FNMA TBA 30 Yr 4		“			—				—				—				—				—			US$	21,721				—			US$	21,726			US$	21,721			US$	5				—				—
		FNMA TBA 30 Yr 5		“			—				—				—				—				—			US$	11,128				—			US$	11,134			US$	11,128			US$	6				—				—
		Federal Home Loan Bank Discount Notes		“			—				—				—				—				—			US$	152,578				—			US$	152,605			US$	152,578			US$	27				—				—
		FED HM LN PC Pool G07375		“			—				—				—			US$	10				—			US$	12,123				—			US$	12,081			US$	12,121			US$	(40	)			—				—
		GNMA II TBA 30 Yr 3		“			—				—				—				—				—			US$	12,544				—			US$	12,541			US$	12,544			US$	(3	)			—				—
		Asset-backed securities
		Citibank Credit Card Issuance Trust		Available-for-sale financial assets			—				—				—			US$	22,585				—			US$	33,402				—			US$	7,567			US$	7,766			US$	(199	)			—			US$	48,328
		Discover Card Execution Note Trust		“			—				—				—			US$	23,076				—			US$	36,655				—			US$	13,991			US$	14,003			US$	(12	)			—			US$	45,722
		Chase Issuance Trust		“			—				—				—			US$	31,276				—			US$	20,538				—			US$	12,607			US$	12,604			US$	3				—			US$	39,211
		Capital One Multi-Asset Execution Trust		“			—				—				—			US$	39,626				—			US$	1,214				—			US$	18,303			US$	18,384			US$	(81	)			—			US$	22,544
		Ford Credit Floorplan Master Owner Trust A		“			—				—				—			US$	11,944				—			US$	14,793				—			US$	5,927			US$	5,924			US$	3				—			US$	20,808
		BA Credit Card Trust		“			—				—				—			US$	17,465				—			US$	7,784				—			US$	14,407			US$	14,416			US$	(9	)			—			US$	10,821
		Fund
		Primavera Capital Fund II L.P.		Financial assets carried at cost			—				—				—			US$	23,784				—			US$	41,851				—				—				—				—				—			US$	65,635
ISDF II		Stock
		Alchip Technologies Limited		Available-for-sale financial assets			—				—				6,581			US$	6,387				—				—				6,581			US$	17,960			US$	3,207			US$	14,753				—				—

 

Note 1:

The ending balance includes the amortization of premium/discount on bonds investments, share of profits/losses of investees and other related adjustment.

Note 2:

The disposal is primarily consisted of capital return.

(Concluded)

 

- 88 -

---

TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

Company Name

Types of Property

Transaction Date

Transaction Amount (Foreign Currencies in Thousands)

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Fab

August 2, 2016 to December 5, 2017

$

642,837

Monthly settlement by the construction progress and acceptance

UNITED INTEGRATED SERVICES CO., LTD.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

August 10, 2016 to December 28, 2017

6,833,577

Monthly settlement by the construction progress and acceptance

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

September 22, 2016 to September 5, 2017

302,620

Monthly settlement by the construction progress and acceptance

Uangyih-Tech Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

January 13, 2017 to December 14, 2017

307,199

Monthly settlement by the construction progress and acceptance

WHOLETECH SYSTEM HITECH LIMITED

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

January 18, 2017

352,766

Monthly settlement by the construction progress and acceptance

TASA Construction Corporation

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

March 15, 2017 to November 2, 2017

310,151

Monthly settlement by the construction progress and acceptance

MARKETECH INTERNATIONAL CORP.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

March 15, 2017 to December 15, 2017

317,397

Monthly settlement by the construction progress and acceptance

LI JIE INDUSTRIAL Co., Ltd

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

TSMC

Fab

March 17, 2017 to December 15, 2017

358,354

Monthly settlement by the construction progress and acceptance

TUN YI INDUSTRIAL Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

March 21, 2017 to November 30, 2017

303,996

Monthly settlement by the construction progress and acceptance

Taiwan Puritic Corp.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

March 21, 2017 to December 25, 2017

300,748

Monthly settlement by the construction progress and acceptance

Gold Stone Development Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

March 27, 2017 to December 27, 2017

758,991

Monthly settlement by the construction progress and acceptance

Cica-Huntek Chemical Technology Taiwan Co., Ltd

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

April 14, 2017 to September 29, 2017

485,131

Monthly settlement by the construction progress and acceptance

KEDGE Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

April 18, 2017 to November 3, 2017

522,566

Monthly settlement by the construction progress and acceptance

Chen Yuan International Co., Ltd

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

May 25, 2017 to December 29, 2017

6,898,386

Monthly settlement by the construction progress and acceptance

DA CIN Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

 

(Continued)

 

- 89 -

---

Company Name

Types of Property

Transaction Date

Transaction Amount (Foreign Currencies in Thousands)

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC Nanjing Company Ltd.

Fab

March 21, 2017 to June 23, 2017

RMB 183,300

Monthly settlement by the construction progress and acceptance

China Construction First Division Group Construction & Development Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

May 25, 2017

RMB 119,027

Monthly settlement by the construction progress and acceptance

Renchong Interior Decoration(Shanghai) Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Fab

June 22, 2017 to June 27, 2017

RMB 98,000

Monthly settlement by the construction progress and acceptance

Shanghai Baoye Group Co., Ltd.

—

N/A

N/A

N/A

N/A

Bidding, price comparison and price negotiation

Manufacturing purpose

None

Land use right

December 18, 2017

RMB 180,042

100% payment

Nanjing Municipal Bureau of Land and Resources

—

N/A

N/A

N/A

N/A

Bidding

Manufacturing purpose

None

(Concluded)

 

- 90 -

---

TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

																						Notes/Accounts Payable or Receivable
						Transaction Details																Ending Balance
								Amount (Foreign Currencies				% to						Abnormal Transaction				(Foreign Currencies in				% to
Company Name		Related Party		Nature of Relationships		Purchases/ Sales		in Thousands)				Total				Payment Terms		Unit Price		Payment Terms		Thousands)				Total				Note
TSMC		TSMC North America		Subsidiary		Sales		$	650,351,537				64			Net 30 days from invoice date (Note 1)		—		Note		$	91,329,510				77
		GUC		Associate		Sales			6,864,165				1			Net 30 days from the end of the month of when invoice is issued		—		—			777,730				1
		TSMC Nanjing		Subsidiary		Sales			416,672				—			Net 30 days from the end of the month of when invoice is issued							—				—
		TSMC China		Subsidiary		Purchases			22,059,850				27			Net 30 days from the end of the month of when invoice is issued		—		—			(1,440,141	)			5
		WaferTech		Indirect subsidiary		Purchases			8,783,741				11			Net 30 days from the end of the month of when invoice is issued		—		—			(1,328,094	)			4
		VIS		Associate		Purchases			5,755,727				7			Net 30 days from the end of the month of when invoice is issued		—		—			(409,950	)			1
		SSMC		Associate		Purchases			4,148,190				5			Net 30 days from the end of the month of when invoice is issued		—		—			(406,959	)			1
TSMC North America		GUC		Associate of TSMC		Sales			1,038,560				—			Net 30 days from invoice date		—		—			245,162				—
								(US$	34,149	)												(US$	8,266	)
VisEra Tech		Xintec		Associate of TSMC		Sales			401,210				16			Net 30 days from the end of the month of when invoice is issued		—		—			161,232				—
TSMC China		SSMC		Associate of TSMC		Sales			115,075 (RMB 25,304	)			1			Net 30 days from the end of the month of when invoice is issued		—		—			—				—

 

Note:

The tenor is 30 days from TSMC’s invoice date or determined by the payment terms granted to its clients by TSMC North America.

 

- 91 -

---

TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2017

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

 

 

Company Name		Related Party		Nature of Relationships		Ending Balance (Foreign Currencies in Thousands)				Turnover Days (Note 1)		Overdue						Amounts Received in Subsequent Period				Allowance for Bad Debts
												Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	92,575,611			50		$	7,340,068			—		$	17,269,052			$	—
		TSMC Nanjing		Subsidiary			1,754,484			Note 2			—			—			—				—
		GUC		Associate			777,730			45			521,739			—			571,010				—
TSMC China		TSMC		Parent company			1,440,141			26			671			—			671				—
						(RMB	316,238	)				(RMB	147	)				(RMB	147	)
		TSMC Nanjing		The same parent company			20,167,025			Note 2			—			—			—				—
						(RMB	4,427,934	)
TSMC Technology		TSMC		The ultimate parent of the Company		(US$	266,599 8,989	)		Note 2			—			—			—				—
WaferTech		TSMC		The ultimate parent of the Company		(US$	1,328,094 44,779	)		54		(US$	1,554 52	)		—		(US$	1,554 52	)			—
VisEra Tech		Xintec		Associate of TSMC			161,232			43			—			—			—				—
TSMC North America		GUC		Associate of TSMC		(US$	245,162 8,266	)		50		(US$	107,483 3,624	)		—		(US$	109,366 3,687	)			—

 

Note 1:

The calculation of turnover days excludes other receivables from related parties.

Note 2:

The ending balance is primarily consisted of other receivables, which is not applicable for the calculation of turnover days.

 

- 92 -

---

TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Net Revenue or Total Assets
0		TSMC		TSMC North America		1		Net revenue from sale of goods		$	650,351,537			—		67%
								Receivables from related parties			91,329,510			—		5%
								Other receivables from related parties			1,246,101			—		—
				TSMC Japan		1		Marketing expenses - commission			210,136			—		—
				TSMC Europe		1		Marketing expenses - commission			437,561			—		—
				TSMC China		1		Purchases			22,059,850			—		2%
								Marketing expenses - commission			135,267			—		—
								Payables to related parties			1,440,141			—		—
				TSMC Nanjing		1		Net revenue from sale of goods			416,672			—		—
								Proceeds from disposal of property, plant and equipment			14,336,846			—		1%
								Other receivables from related parties			1,754,484			—		—
				TSMC Canada		1		Research and development expenses			251,800			—		—
				TSMC Technology		1		Research and development expenses			1,894,942			—		—
								Payables to related parties			266,599			—		—
				WaferTech		1		Purchases			8,783,741			—		1%
								Proceeds from disposal of property, plant and equipment			120,790			—		—
								Payables to related parties			1,328,094			—		—
1		TSMC China		TSMC Nanjing		3		Other receivables from related parties			20,167,025			—		1%

 

Note 1:

No. 1 represents the transactions from parent company to subsidiary.

No. 3 represents the transactions between subsidiaries.

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.

 

- 93 -

---

TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INFORMATION ON INVESTMENT IN MAINLAND CHINA)

FOR THE YEAR ENDED DECEMBER 31, 2017

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

 

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2017										Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2017 (Foreign Currencies in Thousands)				December 31, 2016 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership		Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	292,890,229			$	232,207,219				9			100		$	309,211,877			$	5,026,024			$	5,026,024			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry and other investment activities			31,456,130				31,456,130				988,268			100			49,684,287				2,225,601				2,225,601			Subsidiary
		VIS		Hsin-Chu, Taiwan		Manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing and design service of masks			10,180,677				10,180,677				464,223			28			8,568,344				4,505,064				1,270,941			Associate
		SSMC		Singapore		Manufacturing and selling of integrated circuits and other semiconductor devices			5,120,028				5,120,028				314			39			5,677,640				4,444,634				1,724,073			Associate
		VisEra Tech		Hsin-Chu, Taiwan		Engaged in manufacturing electronic spare parts and in researching, developing, designing, manufacturing, selling, packaging and testing of color filter			5,005,171				5,005,171				253,120			87			4,667,162				207,557				180,424			Subsidiary
		TSMC North America		San Jose, California, U.S.A		Selling and marketing of integrated circuits and other semiconductor devices			333,718				333,718				11,000			100			4,001,003				5,859				5,859			Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging and wafer level post passivation interconnection service			1,988,317				1,988,317				111,282			41			2,292,100				(733,280	)			(304,493	)		Associate
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688			35			1,300,194				854,809				297,816			Associate
		TSMC Europe		Amsterdam, the Netherlands		Customer service and supporting activities			15,749				15,749				—			100			407,324				40,557				40,557			Subsidiary
		VTAF II		Cayman Islands		Investing in new start-up technology companies			412,831				608,562				—			98			320,533				133,597				130,925			Subsidiary
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,318,885				1,355,417				—			98			152,836				(25,234	)			(24,729	)		Subsidiary
		TSMC Japan		Yokohama, Japan		Customer service and supporting activities			83,760				83,760				6			100			129,446				3,600				3,600			Subsidiary
		TSMC Korea		Seoul, Korea		Customer service and supporting activities			13,656				13,656				80			100			39,210				1,970				1,970			Subsidiary
		TSMC Solar Europe GmbH		Hamburg, Germany		Selling of solar related products and providing customer service			25,266				25,266				1			100			(20,217	)			(12,706	)			(12,706	)		Subsidiary
TSMC Partners		TSMC Development		Delaware, U.S.A		Investing in companies involved in the manufacturing related business in the semiconductor industry		(US$	17,408,018 586,939	)		(US$	17,408,018 586,939	)			—			100		(US$	26,379,465 889,425	)		(US$	1,448,900 47,479	)			Note 2			Subsidiary
		TSMC Technology		Delaware, U.S.A		Engineering support activities			423,590				423,590				—			100			518,616				18,990				Note 2			Subsidiary
								(US$	14,282	)		(US$	14,282	)								(US$	17,486	)		(US$	617	)
		TSMC Canada		Ontario, Canada		Engineering support activities			68,216				68,216				2,300			100			182,321				15,597				Note 2			Subsidiary
								(US$	2,300	)		(US$	2,300	)								(US$	6,147	)		(US$	512	)
		ISDF II		Cayman Islands		Investing in new start-up technology companies			—				154,044				9,299			97			839				378,299				Note 2			Subsidiary
												(US$	5,194	)								(US$	28	)		(US$	12,491	)
		ISDF		Cayman Islands		Investing in new start-up technology companies			14,094				14,094				583			97			492				44				Note 2			Subsidiary
								(US$	475	)		(US$	475	)								(US$	17	)		(US$	1	)
VTAF III		Growth Fund		Cayman Islands		Investing in new start-up technology companies			63,879				43,355				—			100			46,334				(1,385	)			Note 2			Subsidiary
								(US$	2,154	)		(US$	1,462	)								(US$	1,562	)		(US$	(46	) )
		Mutual-Pak		New Taipei, Taiwan		Manufacturing of electronic parts, wholesaling and retailing of electronic materials, and researching, developing and testing of RFID		(US$	47,257 1,593	)		(US$	154,602 5,213	)			4,693			39		(US$	23,210 783	)		(US$	(18,028) (589) )				Note 2			Associate

 

(Continued)

 

- 94 -

---

Investor Company

Investee Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of December 31, 2017

Net Income (Losses) of the Investee (Foreign Currencies in Thousands)

Share of Profits/Losses of Investee (Note 1) (Foreign Currencies in Thousands)

Note

December 31, 2017 (Foreign Currencies in Thousands)

December 31, 2016 (Foreign Currencies in Thousands)

Shares (In Thousands)

Percentage of Ownership

Carrying Value (Foreign Currencies in Thousands)

TSMC Development

WaferTech

Washington, U.S.A

Manufacturing, selling and testing of integrated circuits and other semiconductor devices

$

—

$

—

293,637

100

$ (US$

4,762,342 160,570

)

$ (US$

1,248,658 40,896

)

Note 2

Subsidiary

 

Note 1:

The share of profits/losses of investee includes the effect of unrealized gross profit on intercompany transactions.

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.

(Concluded)

 

- 95 -

---

TABLE 10

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR YEAR ENDED DECEMBER 31, 2017

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

 

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (RMB in Thousands)				Method of Investment				Accumulated Outflow of Investment from Taiwan as of January 1, 2017 (US$ in Thousands)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2017 (US$ in Thousands)				Net Income (Losses) of the Investee Company				Percentage of Ownership		Share of Profits/Losses				Carrying Amount as of December 31, 2017				Accumulated Inward Remittance of Earnings as of December 31, 2017
																Outflow (US$ in Thousands)				Inflow
TSMC China		Manufacturing, selling, testing and computer-aided design of integrated circuits and other semiconductor devices		$	18,939,667 (RMB 4,502,080	)			Note 1			$ (US$	18,939,667 596,000	)		$	—			$	—			$ (US$	18,939,667 596,000	)		$	8,938,933			100%		$	9,058,937 (Note 2	)		$	51,060,885			$	—
TSMC Nanjing		Manufacturing, selling, testing and computer-aided design of integrated circuits and other semiconductor devices			28,160,092 (RMB 6,133,276	)			Note 1			(US$	6,435,200 200,000	)		(US$	21,724,892 720,000	)			—			(US$	28,160,092 920,000	)			(867,563	)		100%			(867,563 (Note 2	)  )			26,493,740				—

 

Accumulated Investment in Mainland China as of December 31, 2017 (US$ in Thousands)				Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousands)				Upper Limit on Investment
	$    47,099,759 (US$      1,516,000	)			$  119,412,667 (US$      3,596,000	)		Note 3

 

Note 1:

TSMC directly invested US$596,000 thousand in TSMC China and US$920,000 thousands in TSMC Nanjing.

Note 2:

Amount was recognized based on the audited financial statements.

Note 3:

As the Company has obtained the certificate of being qualified for operating headquarters issued by Industrial Development Bureau, MOEA on August 2016, the upper limit on investment in mainland China pursuant to “Principle of investment or Technical Cooperation in Mainland China” is not applicable.

 

- 96 -