TSMC Vision, Mission & Core Values
TSMCÕ s Vision
Our vision is to be the most advanced and largest technology and foundry services provider to fabless
companies and IDMs, and in partnership with them, to forge a powerful competitive force in the
semiconductor industry.
To realize our vision, we must have a trinity of strengths:
1. be a technology leader, competitive with the leading IDMs
2. be the manufacturing leader
3. be the most reputable, service-oriented and maximum-total-benefits silicon foundry
TSMCÕ s Mission
Our mission is to be the trusted technology and capacity provider of the global logic IC industry for years to
come.
TSMCÕ s Core Values
Integrity
Integrity is our most basic and most important core value. We tell the truth. We believe the record of our
accomplishments is the best proof of our merit. Hence, we do not brag. We do not make commitments
lightly. Once we make a commitment, we devote ourselves completely to meeting that commitment.
We compete to our fullest within the law, but we do not slander our competitors and we respect the
intellectual property rights of others. With vendors, we maintain an objective, consistent, and impartial
attitude. We do not tolerate any form of corrupt behavior or politicking. When selecting new employees,
we place emphasis on the candidatesÕ qualifications and character, not connections or access.
Commitment
TSMC is committed to the welfare of customers, suppliers, employees, shareholders, and society. These
stakeholders all contribute to TSMCÕ s success, and TSMC is dedicated to serving their best interests. In
return, TSMC hopes all these stakeholders will make a mutual commitment to the Company.
Innovation
Innovation is the wellspring of TSMCÕ s growth, and is a part of all aspects of our business, from strategic
planning, marketing and management, to technology and manufacturing. At TSMC, innovation means
more than new ideas, it means putting ideas into practice.
Customer Trust
At TSMC, customers come first. Their success is our success, and we value their ability to compete as we
value our own. We strive to build deep and enduring relationships with our customers, who trust and rely
on us to be part of their success over the long term.
27,000
24,000
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
台積公司歷年營業收入淨額
單位:美元佰萬元
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30 Years of TSMC Technology Innovation
3
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30,000
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21,000
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10,000
9,000
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Revenue
Unit: Million US Dollars
Market Cap at the End of the Year
Unit: Million US Dollars
140,000
120,000
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60,000
40,000
20,000
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Net Income
Unit: Million US Dollars
CapEx
Unit: Million US Dollars
10,000
9,000
8,000
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Table of Contents
1. Letter to Shareholders
2. Company Profile
2.1 An Introduction to TSMC
2.2 Market/Business Summary
2.3 Organization
2.4 Board Members
2.5 Management Team
3. Corporate Governance
3.1 Overview
3.2 Board of Directors
3.3 Major Decisions of ShareholdersÕ Meeting and Board Meetings
3.4
Taiwan Corporate Governance Implementation as Required by the Taiwan Financial
Supervisory Commission
Internal Control System Execution Status
3.5 Code of Ethics and Business Conduct
3.6 Regulatory Compliance
3.7
3.8 Status of Personnel Responsible for the CompanyÕ s Financial and Business Operation
3.9
3.10 Material Information Management Procedure
Information Regarding TSMCÕ s Independent Auditor
Issuance of Corporate Bonds
4. Capital and Shares
4.1 Capital and Shares
4.2
4.3 Preferred Shares
4.4
4.5 Status of Employee Stock Option Plan
4.6 Status of Employee Restricted Stock
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions
4.8 Financing Plans and Implementation
Issuance of American Depositary Shares
5. Operational Highlights
5.1 Business Activities
5.2 Technology Leadership
5.3 Manufacturing Excellence
5.4 Customer Trust
5.5 Human Capital
5.6 Material Contracts
6. Financial Highlights and Analysis
6.1 Financial Highlights
6.2 Financial Status and Operating Results
6.3 Risk Management
7. Corporate Social Responsibility
7.1 Overview
7.2 Environmental, Safety and Health (ESH) Management
7.3 TSMC Education and Culture Foundation
7.4 TSMC Volunteer Program
7.5 TSMC i-Charity
7.6
Social Responsibility Implementation Status as Required by the Taiwan Financial
Supervisory Commission
8. Subsidiary Information and Other Special Notes
8.1 Subsidiaries
8.2
Status of TSMC Common Shares and ADRs Acquired, Disposed of, and
Held by Subsidiaries
8.3 Special Notes
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1.
Letter to Shareholders
Dear Shareholders,
2016 was a good year for TSMC as we delivered another year of record revenue and earnings. Our revenue grew double-digit
outpacing a relatively flat global semiconductor industry. We also achieved our highest gross and operating margin in
the last twenty years, which is a direct result of our ongoing and unrelenting company-wide focus on driving productivity
improvement, higher operating efficiency, and across-the-board cost reduction efforts.
TSMC’s growth is propelled by our ability to earn a premium to the overall semiconductor industry’s growth by being a
trusted provider of technology and capacity to the world logic IC industry. This position allowed us to participate actively in
the growth of the faster-growing segments, such as the strong demand from 4G+ smartphones in the China market, the
replacement and upgrade of Gaming, and the emergence of AI (Artificial Intelligence) in 2016. These applications require
the use of technologies over a wide spectrum, and TSMC holds a leading position over this spectrum. Our strong position
in technology leadership and our commitment to invest in both R&D and in Capex are what enabled us to continually gain
foundry market segment share.
We made significant advances in leading-edge process technologies in 2016. Revenue from 16-nanometer grew more than
five-fold in 2016 and reached above 20% of total wafer revenue. Our 10-nanometer successfully began volume production
for customers’ products in 2016, while 7-nanometer is on schedule to complete technology qualification in early 2017. Our
5-nanometer development is also well-underway and will see use of EUV (extreme ultraviolet) lithography. Our proprietary
InFO (integrated fan-out) advanced packaging solution was adopted by a major customer for a significant mobile product in
2016 while we were working on the next generation of InFO solution for 2017 volume production.
Highlights of TSMC’s accomplishments in 2016:
● Total wafer shipments increased 9.6 percent from 2015 to reach 9.6 million12-inch equivalent wafers.
● Advanced technologies (28-nanometer and beyond) accounted for 54 percent of total wafer revenue, up from 48 percent
in 2015.
● We deployed 249 process technologies, and manufactured 9,275 products for 449 customers.
● TSMC’s market share in the total semiconductor foundry segment rose successively during the last seven years and reached
56 percent in 2016.
2016 Financial Performance
Consolidated revenue totaled NT$947.94 billion, an increase of 12.4 percent over NT$843.50 billion in 2015. Net income
was NT$334.25 billion and diluted earnings per share were NT$12.89. Both increased 9 percent from the 2015 level of
NT$306.57 billion net income and NT$11.82 diluted EPS. Excluding major one-off items, namely share disposal gains and
the closure of TSMC Solar operations in 2015 and the negative impact from the earthquake in 2016, our EPS would have
grown 17.4 percent year-on-year in 2016.
In US dollars, TSMC generated net income of US$10.38 billion on consolidated revenue of US$29.43 billion, compared with
net income of US$9.67 billion on consolidated revenue of US$26.61 billion in 2015.
Gross profit margin was 50.1 percent compared with 48.7 percent in 2015, and operating profit margin was 39.9 percent
compared with 37.9 percent a year earlier. Net profit margin was 35.3 percent, a decrease of 1.0 percentage points from the
prior year’s 36.3 percent.
TSMC raised its cash dividend payment to NT$6.0 per share for 2015 earnings distribution from NT$4.5 a year ago to reflect
continued rising free cash flow generation. We remain confident in our ability to maintain and steadily improve our free cash
flow in the next few years, and will consider increasing the cash dividends when appropriate.
Technological Developments
Thanks to continuous innovation and improvement, TSMC’s 28-nanometer technology remained robust with rising revenue
in 2016, its sixth year of volume production. We will continue to roll out differentiated and cost-effective solutions and
expect our strength in this significant node to persist for many more years.
We continued to reduce defect density and improve cycle time in our 16-nanometer FinFET technology. In addition to
mobile processors, this node has gained strong acceptance for many other applications including cellular baseband, graphic
processors for video games, augmented reality and virtual reality devices, and artificial intelligence systems. We further
pushed the envelope of performance, die size and power consumption to roll out our 12-nanometer technology, which
will enter volume production in the second half of 2017. Both 16-nanometer and 12-nanometer technologies can serve
customers in mainstream and ultra-low power market segments, including low-to-mid-end mobile phones, consumer
electronics, digital TV, automotive, and Internet of Things (IoT), as well as high-end applications, including high-end mobile
and networking.
10-nanometer FinFET technology began production ramp in the fourth quarter of 2016 with shipments commencing
in the first quarter of 2017. We expect a healthy ramp throughout 2017. With its aggressive geometric shrinkage, our
10-nanometer technology provides excellent density and is well positioned to serve the premium mobile market segment.
During the year, we collaborated with major customers and IP vendors to complete the IP design for our 7-nanometer
technology and started silicon validation. We are on plan to start risk production in the spring of 2017. Meanwhile,
development activities for our 5-nanometer node continued with risk production targeted for first half of 2019. We plan to
use EUV lithography extensively at 5-nanometer to reduce process complexity. In addition, intensive early development efforts
focusing on new transistors and technology definition were on-going for the technologies beyond 5-nanometer.
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In the area of advanced packaging technologies, TSMCÕ s proprietary InFO began volume production in 2016 while we
also successfully qualified the next generation InFO solution with volume production expected in 2017. We extended our
interposer CoWoS¨
(chip-on-wafer-on substrate) technology to 16-nanometer and led the industry with volume production
of super high-end accelerators that integrate multiple second generation high bandwidth memory chips (HBM2) and GPUs
(Graphics Processing Unit) for the high performance computing market segment of artificial intelligence and deep learning.
TSMCÕ s ecosystem, the Open Innovation Platform¨
contained in our libraries and silicon IP portfolio. More than 8,200 technology files and over 270 process design kits were
available to customers via TSMC-Online which saw more than 100,000 customer downloads in 2016.
(OIP), continued to expand in 2016 with more than 12,000 items
Corporate Developments
In March 2016, TSMC and the municipal government of Nanjing, China signed an agreement affirming that TSMC will make
an investment to establish TSMC Nanjing Co. Ltd., a wholly-owned subsidiary of TSMC that will own and operate a 12-inch
wafer fab and a design service center. The purpose is to provide closer support to customers as we expand our business
opportunities in China. The facility is scheduled to commence production of 16-nanometer process technology in the second
half of 2018.
Honors and Awards
TSMC received recognitions for achievements in innovation, business information disclosure, corporate governance,
sustainability, investor relations and overall excellence in management from organizations including Newsweek,
CommonWealth Magazine, PricewaterhouseCoopers, GlobalViews Magazine, Channel NewsAsia, RobecoSAM and the
Taiwan Stock Exchange. TSMC received multiple awards from Institutional Investor Magazine and was ranked number one
in IR MagazineÕ s Global Top Fifty Awards. TSMC was also selected as a component of the Dow Jones Sustainability Indices
for a 16th consecutive year, reflecting our ongoing commitment to sustainability and corporate social responsibility. In
2016, TSMC was included as the largest component in the newly-launched FTSE4Good Emerging Index by the London Stock
Exchange, and we remained a major component in MSCI Global Sustainability Indexes, an important global benchmark for
CSR.
Capacity Plan
Wafer Sales Plan
12%
2015
10%
2016
10%
2017
Annual Growth Rate
Capacity: million 12-inch equivalent wafers
Outlook
9-10
10-11
11-12
2015
2016
2017
52%
46%
40-50%
48%
54%
50-60%
> 28nm wafer revenue
≤ 28nm wafer revenue
2017 wafer shipment is expected to be 10-11 million 12-inch
equivalent wafers.
Entering our fourth decade, TSMC has advanced into the forefront of semiconductor technology and has grown to become
the worldÕ s largest wafer capacity provider for logic ICs. TSMCÕ s innovative foundry business model has flourished and placed
us at the center of a comprehensive ecosystem of IC designers, IP providers, and equipment suppliers with unmatched ability
to unleash innovation. ICs manufactured by TSMC formed the backbone of information technology today.
As silicon becomes pervasive and computing is ubiquitous, the intelligent future requires continued advancement and
innovation in semiconductor process technologies. As our technology development collecting pace, we now can provide
our customers the most competitive leading-edge technology to develop their product. Combined with their innovative
algorithm, customized architecture and strength in designs, our customers are able to provide the most competitive products
in the applications where they were not used to compete before. Through our customers, we are expanding our footprint
into the global high performance computing market as well.
TSMC has evolved over the last three decades, but
our core values of integrity, commitment, innovation,
and customer trust remain unchanged. We remain
committed to creating value and generating strong
returns to shareholders who have placed their trust
with us. As we carry our heritage of excellence forward
into an exciting future, we look forward to prospering
together with our shareholders.
Morris Chang
Chairman
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2.
Company Profile
2.1 An Introduction to TSMC
Established in 1987 and headquartered in Hsinchu Science
Park, Taiwan, TSMC pioneered the pure-play foundry business
model by focusing solely on manufacturing customers’
designs. The Company does not design, manufacture or
market semiconductor products under its own brand name,
ensuring that it does not compete directly with its customers.
Today, TSMC is the world’s largest semiconductor foundry,
manufacturing 9,275 different products using 249 distinct
technologies for 449 different customers in 2016.
With such a large and diverse global customer base,
TSMC-manufactured semiconductors are used in a wide
variety of applications covering various segments of the
computer, communications, consumer, industrial and standard
semiconductor markets. Such strong diversification helps to
smooth fluctuations in market demand, which, in turn, leads to
higher levels of capacity utilization and profitability.
Annual capacity of the manufacturing facilities managed by
TSMC and its subsidiaries reached above 10 million 12-inch
equivalent wafers in 2016. These facilities include three 12-inch
wafer GIGAFAB® facilities, four 8-inch wafer fabs, and one
6-inch wafer fab in Taiwan, as well as two 8-inch wafer fabs at
wholly owned subsidiaries: WaferTech in the United States and
TSMC China Company Limited.
In March 2016, TSMC and the municipal government of
Nanjing, China signed an investment agreement affirming
that TSMC will make an investment to establish TSMC Nanjing
Company Limited, a wholly-owned subsidiary managing a
12-inch wafer fab and a design service center. Planned capacity
is 20,000 12-inch wafers per month. The facility is scheduled
to commence production of 16nm process technology in the
second half of 2018. The purpose is to provide closer support
to customers as well as expand TSMC’s market share and
business opportunities in China in step with the rapid growth
of the Chinese semiconductor market over the last several
years.
TSMC provides customer service through its account
management and engineering services offices in North
America, Europe, Japan, China, South Korea and India. The
Company employed about 47,000 people at the end of 2016.
The Company is listed on the Taiwan Stock Exchange (TWSE)
under ticker number 2330, and its American Depositary Shares
(ADSs) are traded on the New York Stock Exchange (NYSE)
under the symbol TSM.
2.2 Market/Business Summary
2.2.1 TSMC Achievements
In 2016, TSMC maintained its leading position in the total
foundry segment of the global semiconductor industry, with
an estimated market share of 56%, despite intense competition
from both established players and relatively new entrants to
the business.
Leadership in advanced process technologies is a key factor
in the Company’s strong market position. In 2016, 54% of
TSMC’s wafer revenue came from manufacturing processes
with geometries of 28nm and below.
With TSMC’s focus on customer trust, the Company
strengthened its Open Innovation Platform® (OIP) initiative
in 2016 with additional services. During the 2016 Open
Innovation Platform® Ecosystem Forum, held in September in
San Jose, California, and in October in Beijing, the Company
revealed 7nm FinFET Reference Flow (both full-chip and IP
design), which highlighted the success of OIP-enabled design.
Both forums were well attended by customers and ecosystem
partners and demonstrated the value of collaboration through
OIP to foster innovation.
TSMC offers the foundry segment’s widest technology portfolio
and continues to invest in advanced technologies and specialty
technologies, which are key differentiators vis-à-vis our
competitors and provide customers more added value.
Technologies that the Company either developed or introduced
in 2016 include:
Logic Technology
● 7nm FinFET (Fin field-effect transistor) technology made good
developmental progress. Risk production of this technology is
planned in April 2017. A very fast yield ramp-up is expected
as more than 95% of tools for 7nm FinFET are compatible
with those for 10nm FinFET. Compared to 10nm FinFET,
7nm FinFET offers approximately a 25% speed improvement
or a 35% power reduction. In addition, 7nm FinFET can be
optimized for mobile applications and high-performance
computing devices.
● 10nm FinFET technology began production ramp-up in
the fourth quarter of 2016 and started shipments in the
first quarter of 2017. Thanks to its aggressive geometric
shrinkage, this technology provides excellent density/cost
benefits. It can be of use to customers in performance-driven
market segments, including mobile, server and graphics.
● 16nm FinFET Plus technology (16FF+) received over 50
product tape-outs in 2016, bringing the total of product
tape-outs to over 90 since this technology entered volume
production in 2015. And most of them achieved first-time
silicon success. This technology is aimed at customers in
high-performance market segments, including mobile, server
and graphics. The cost-effective 16nm FinFET Compact
technology (16FFC) started volume production in the first
quarter of 2016. 16FFC can maximize die cost scaling by
incorporating optical shrink and process simplification at the
same time. In addition, the development of 12nm FinFET
Compact technology (12FFC) is progressing smoothly. This
technology, which drives die size and power consumption
to the best levels of the foundry’s 16/14nm technology,
is expected to enter volume production in the second half
of 2017. Both 16FFC and 12FFC can satisfy customers in
mainstream and ultra-low-power (ULP) market segments,
including low-end to mid-range mobile phones, consumer
electronics, digital TV and the IoT (internet of things). With
innovative structures, 16FFC and 12FFC can also be used in
more advanced applications, including high-end mobile and
networking.
● 28nm High Performance Compact (28HPC) technology led
the way in mainstream smartphones, DTVs, storage and SoC
applications. 28HPC enables smaller die size circuit designs,
less over-design and extraordinary power reduction with
excellent process control and optimized design rules.
● 28nm High Performance Compact Plus (28HPC+) technology
provided further performance enhancement or power
reduction in mainstream smartphones, DTVs, storage,
audio and SoC applications. Compared to 28HPC, 28HPC+
improves device performance by 15% or reduces leakage
by 50%. 28HPC+ also enables low Vdd (voltage drain)
designs in ULP applications for the IoT market. In addition,
this process is seamlessly applicable to the 28nm ecosystem,
accelerating time-to-market for customers.
● 40nm ULP and RF technologies started production in the
first quarter of 2016 for the IoT and wearable devices related
applications, such as wireless connectivity, application
processors and sensor hub applications.
● 55nm Ultra-Low Power (55ULP) technology went into
production, with more than 10 customers having already
taped out using this technology. Compared to 55nm Low
Power (55LP) process, 55ULP can significantly increase battery
life for IoT applications. In addition, it integrates RF and
eFlash (embedded flash) to simplify customers’ SoC designs.
Specialty Technology
● 16FFC foundation IPs passed the Automotive Electronic
Council AEC-Q100 Grade-1 qualification and were certified
for functional safety standard ISO 26262 ASIL-B. In addition,
TSMC 9000A was introduced for automotive IP management
to complete the automotive ecosystem with third-party IP
vendors.
● 16FFC RF technology started production in the first quarter
of 2016. This technology supports wireless connectivity
applications, including smartphones, wireless local area
networks (WLAN), and fifth generation (5G) mobile networks.
● 28nm RF (28HPC RF and 28HPC+ RF) technologies offered
extreme high-frequency devices, reliable model and
comprehensive design support for wireless components in
smartphone, automotive and IoT markets.
● 40nm eFlash started volume production in the first quarter of
2016 for applications such as high-endurance security MCU
(microcontroller unit), wireless MCU, and high-performance
MCU, as well as IoT devices.
● 40nm ULP eFlash was developed and started volume
production in the second half of 2016 for applications
such as wireless MCU, IoT devices, wearable devices and
high-performance MCU.
014
015
● 40nm high-voltage technology was qualified with 6V and
8V offerings for top-end smartphone LCD and AMOLED
(active matrix organic LED) display drivers. This technology
can improve display quality and reduce power consumption
significantly.
● 55nm eFlash technologies passed AEC-Q100 qualification for
automotive and started volume production in the first quarter
of 2016 for automotive applications such as body control
module (BCM), electric power steering (EPS) and electric
vehicles (EV)/hybrid electric vehicles (HEV).
● CIS NIR+ (CMOS image sensor near infra-red plus) technology
was successfully developed for higher (2X~3X) NIR quantum
efficiency. This technology could enable depth sensing for the
AR/VR (augmented reality/virtual reality) market and optical
authentication for the smartphone market.
● 0.13µm Bipolar-CMOS-DMOS (BCD) process started volume
production on both 8-inch and 12-inch wafers in 2016. This
process in 12-inch fabs extended qualification for AEC-Q100
Grade-0 in the first half of 2015.
● 0.18µm BCD third generation passed process validation by
customers. This technology, which provides superior cost
competitiveness compared to the second generation, started
production in the second half of 2016.
● 0.5µm GaN (gallium nitride) on silicon 650V E-HEMT
(enhanced-mode high electron mobility transistor), 650V
D-MISFET (depletion-mode metal-insulator-semiconductor
field-effect transistor), 100V E-HEMT and 30V D-HEMT
(depletion-mode high electron mobility transistor) processes
were qualified for discrete power applications. GaN on silicon
technology offers high power density and efficiency in power
applications.
● Successfully developed Si-pillar WLCSP (wafer level chip scale
packaging) technology, which can be applied to customers’
CMOS-MEMS (micro-electromechanical systems) motion
sensor SoC designs, creating the world’s smallest packaging
dimension, as small as 1.1mm by 1.3mm.
Advanced Packaging Technology
● Integrated Fan-Out Package on Package (InFO-PoP)
technology that integrates 16nm SoC and DRAM for
advanced mobile products began volume production in the
second quarter of 2016. It enables a thinner package, 10%
less thermal resistance, more logic I/Os, and 5 to 10% higher
maximum operating frequency for application processor.
● CoWoS® (chip on wafer on substrate) XL technology
homogeneously integrating multiple 20nm logic chips
and heterogeneously integrating 16nm SoC plus four
stacks of 4-hi (4 high) second generation high bandwidth
memory (HBM2) began production in the first half of 2016.
Integration of 16nm SoC, larger interposer (>1400mm2) and
more than four 8-hi (8 high) HBM2 stacks is expected to be
developed in 2017.
● Fine pitch (80µm) BoT (Bump-on-Trace) Cu bump for flip chip
packaging on ≥16nm silicon continued volume production in
2016. Cu bump on 10nm silicon was qualified for production
start-up in 2017. Volume production also continued
on ≥28nm silicon in WLCSP technologies for high-end
smartphone applications in 2016. 16nm WLCSP qualification
was started and is expected to be completed in the first half
of 2017.
2.2.2 Market Overview
TSMC estimates that the worldwide semiconductor market
in 2016 was US$357 billion in revenue, representing 1%
year-over-year growth, continuing the flattish growth in 2015.
In the foundry sub-segment of the semiconductor industry,
total revenue was US$47 billion in 2016, representing 8% YoY
growth.
2.2.3 Industry Outlook, Opportunities and Threats
Industry Demand and Supply Outlook
The increase in the foundry segment growth to 8% in 2016
from 4% in 2015 was driven mainly by healthier market and
inventory replenishment.
TSMC forecasts the total semiconductor market to grow
4% in 2017. Over the longer term, driven by increasing
semiconductor content in electronic devices, continuing
market share gains by fabless companies, gradual increase
of IDM outsourcing, and expanding in-house Application-
Specific Integrated Circuits (ASIC) from system companies,
the Company expects foundry segment revenue growth to be
much stronger than the 3% compound annual growth rate
projected for the total semiconductor industry from 2015
through 2020.
As an upstream supplier in the semiconductor supply chain,
the foundry segment is tightly correlated with the market
health of the three Cs, communications, computer, consumer,
and the emerging IoT (Internet of Things).
● Communications
The communications sector, particularly the Smartphone
segment, posted a 6% growth in unit shipments for 2016.
Although the growth is slowing down, continuing transition
to 4G/LTE and LTE-Advanced will bring about mid-single digit
growth to the Smartphone market in 2017. Smartphones
with increasing performance, longer battery life, and more
intelligent features will continue to propel buying interests.
The increasing popularity of low-end smartphones in emerging
countries will also drive the growth of the sector.
Low-power IC is an essential requirement among handset
manufacturers. The SoC design for more optimized cost,
power and form factor (device footprint and thickness), plus
the appetite for higher performance to run complex software
and higher resolution video will continue to accelerate the
migration to advanced process technologies, in which TSMC is
already the leader.
● Computer
After an 8% decline in 2015, the computer sector’s unit
shipments dropped 6% YoY in 2016. The decline was due to
prolonged replacement cycle and consumer usage moving
towards mobile computing.
The personal computer market is expected to decline by
mid-single digit percentage in 2017. Increasing variety (e.g.
Convertible, Ultrabook and Chromebook), the business
adoption of Windows 10, and consumer replacements of
aging PCs, however, are expected to help buoy PC demand.
In terms of process technologies used in computers,
requirements of lower power, higher performance and the
integration of key computer components such as CPU, GPU,
Chipset, etc., should drive demand for product refresh towards
leading process technologies.
● Consumer
The consumer sector’s unit shipments declined 5% in 2016
comparing to 2015. Set-top boxes and TV game consoles
showed positive growth, while the rest of the sector – TVs,
MP3 players, digital cameras and hand-held game consoles
– continued to decline due to unsettled environment in
Eurozone and foreign exchange issues, as well as functional
cannibalization by smartphones.
Although consumer electronics will continue to decline in
2017, TV game consoles, 4K (UHD) TVs, and over-the-top
(OTT) set-top boxes should achieve high growth within
the sector. TSMC will be able to capture these trends with
advanced technology offerings.
● IoT
The Internet of Things (IoT) is taking shape as the “next big
thing,” since more and more devices are being connected
to the Internet. The IoT will have 10X greater installed unit
potential than the smartphone will have in 2025. Applications
and products benefiting from IoT related technologies
include smart wearables, home robots, smart meters, smart
manufacturing, self-driving cars, and so on. These applications
and products will require much longer battery life, diversified
sensors and low-power wireless connections, which will
challenge technology development in new ways. TSMC’s
ultra-low-power logic and RF solutions and diversified sensing
technologies will lead the way for this future growth.
Supply Chain
The electronics industry consists of a long and complex supply
chain, the elements of which are highly dependent and
correlated with each other. At the upstream IC manufacturing
level, IC vendors need to have sufficient and flexible supply to
handle the demand dynamics. The foundry vendors are playing
an important role to ensure the health of the supply chain.
As a leader in the foundry segment, TSMC provides leading
technologies and large-scale capacity to complement the
innovations created along the downstream chain.
016
017
2.2.4 TSMC Position, Differentiation and Strategy
Position
TSMC is the worldwide semiconductor foundry leader for both
advanced and specialty process technologies, commanding a
56% market share in 2016. Net revenue by geography, based
mainly on the country in which customers are headquartered,
was: 65% from North America; 15% from the Asia Pacific
region, excluding China and Japan; 9% from China; 6% from
Europe, the Middle East and Africa; and 5% from Japan.
Net revenue by end-product application was: 8% from the
computer sector, 62% from communications, 9% from
consumer products, and 21% from industrial and standard
products.
Differentiation
TSMC’s leadership position is based on three defining
competitive strengths and a business strategy rooted in the
Company’s heritage. The Company distinguishes itself from the
competition through its technology leadership, manufacturing
excellence and customer trust.
As a technology leader, TSMC is consistently first among
dedicated foundries to provide next-generation, leading-edge
technologies. The Company has also established its leadership
on more mature technology nodes by applying the lessons
learned on leading-edge technology development to enrich
its specialty technologies to more advanced process nodes.
Beyond process technology, TSMC has established frontend
and backend integration capabilities that result in faster
time-to-production and create the best power, performance
and area sweet spot.
TSMC has gained manufacturing acclaim for its
industry-leading management and is extending that leadership
through its Open Innovation Platform® and Grand Alliance
initiatives. The TSMC Open Innovation Platform® initiative
hastens the pace of innovation in the semiconductor design
community and among its ecosystem partners, as well as
the Company’s IP, design implementation and design for
manufacturing capabilities, process technology and backend
services. A key element is a set of ecosystem interfaces and
collaborative components initiated and supported by TSMC
that more efficiently empower innovation throughout the
supply chain and drive the creation and sharing of new revenue
and profits. The TSMC Grand Alliance is one of the most
powerful forces for innovation in the semiconductor industry,
bringing together customers, electronic design automation
(EDA) partners, IP partners, and key equipment and material
suppliers at a new, higher level of collaboration. Its objective is
to help customers, alliance members and TSMC win business
and stay competitive.
The foundation for customer trust is a commitment TSMC
made when it opened for business in 1987: to never compete
with its customers. As a result, TSMC has never owned or
marketed a single semiconductor product design, but instead
has focused all of its resources on becoming the trusted
foundry for its customers.
Strategy
TSMC is confident that its differentiating strengths will enable
it to prosper from the foundry segment’s many attractive
growth opportunities. In light of the rapid growth in four
major markets, namely mobile, high-performance computing,
automotive electronics, and the Internet of things, and the
fact that focus of customer demand is shifting from process-
technology-centric to product-application-centric, TSMC has
constructed four different technology platforms to provide
customers with the most comprehensive and competitive
logic process technologies, specialty technologies, IPs, and
packaging and testing technologies to shorten customers’
time-to-design and time-to-market.
Mobile platform: TSMC will offer leading 7nm FinFET, 10nm
FinFET, 16FF+, 20nm SoC, 28nm High Performance (HP),
and 28nm High Performance Mobile (28HPM) logic process
technologies as well as comprehensive IPs for high-end product
applications to further enhance chip performance, reduce
power consumption, and decrease chip size. For low-end to
mid-range product applications, TSMC will offer 12FFC, 16FFC,
28nm Low Power (LP), 28nm High Performance Low Power
TSMC continually strengthens its core competitiveness and
deploys both short-term and long-term technology and
business development plans, and assists customers in taking on
the challenges of short product cycles and intense competition
in the electronic products market to meet ROI and growth
objectives.
● Short-Term Semiconductor Business Development Plan
1. Substantially ramp up the business and sustain advanced
technology market share by increased capacity investment.
2. Maintain mainstream technology market share by expanding
business to new customers and market segments with
off-the-shelf technologies.
3. Continue to enhance the competitive advantages of
TSMC’s platforms in mobile, high-performance computing,
automotive electronics, and IoT design ecosystems so as to
expand TSMC’s dedicated foundry services in these product
applications.
4. Further expand TSMC’s business and service infrastructure
into emerging and developing markets.
● Long-Term Semiconductor Business Development Plan
1. Continue developing leading-edge technologies at a pace
consistent with Moore’s Law.
2. Broaden specialty business contributions by further
developing derivative technologies.
3. Provide more integrated services, covering system-level
integration design, design technology definition, design tool
preparation, wafer processing, and backend services, all of
which deliver more value to customers through optimized
solutions.
(HPL), 28HPC, 28HPC+, and 22ULP logic process technologies
in addition to comprehensive IPs to satisfy customer needs
for high-performance and low-power chips. Furthermore,
for high-end or low- to mid-level product applications, TSMC
also offers the most competitive, leading-edge specialty
technologies, including RF, embedded flash memory, emerging
memory technologies, power management, sensors, and
display chips and advanced packaging technologies such as the
leading integrated fan-out (InFO) technology.
High-performance computing platform: TSMC will offer
customers leading 7nm, 16nm FinFET and 28nm logic process
technologies, as well as comprehensive IPs, including high
speed interconnect IPs, to meet customers’ high performance
computing and transmission requirements. TSMC also
offers multiple advanced packaging technologies such as
CoWoS® and 3D IC technologies to enable homogeneous
and heterogeneous chip system integration to meet
customers’ high performance, low power, and smaller system
footprint requirements. TSMC will continue to optimize our
high performance computing platform offerings to help
customers capture market growth driven by massive data and
applications, including data analytics, artificial intelligence, and
5G wireless communications.
Automotive electronics platform: TSMC will offer leading
7nm FinFET, 16nm FinFET, 28nm, and 40nm logic process
technologies, various leading and competitive specialty
technologies in RF, embedded flash memory, sensors, multiple
power management technologies that pass the AEC-Q100
Grade-0 qualifications, and many advanced packaging
technologies.
IoT platform: TSMC will provide customers with leading ULP
logic process technology options, from 16nm, 12nm, 28nm,
40nm to 55nm, the most competitive and leading-edge
specialty technologies in RF, embedded flash memory,
emerging memory, sensors, and display chips, as well as,
multiple advanced packaging technologies including the
leading InFO technology.
018
019
2.3 Organization
2.3.1 Organization Chart
Audit Committee
Compensation
Committee
Shareholders’ Meeting
Board of Directors,
Chairman,
Vice Chairman
As of 02/28/2017
Internal Audit
Co-CEO Office
Finance and
Spokesperson
Legal
Research and Development-Specialty,
Operations,
Human Resources
Research and Development, Asia, Europe, North America,
Business Development, Corporate Planning Organization,
Quality and Reliability, Information Technology,
Materials Management and Risk Management, Customer Service
2.3.2 Major Corporate Functions
Operations
● Operations of all fabs including in Taiwan and overseas;
product development, manufacturing technology
development, and backend technology development and
production
Human Resources
● Human resources management and organizational
development, as well as proprietary information protection
and physical security management
Research and Development
● Advanced and specialty technology development and
exploratory research, as well as design and technology
platform development
Asia
● Sales, market development, field technical support and service
for customers in Asia
Europe
● Technical marketing, field technical support and service for
customers in Europe
North America
● Sales, market development, field technical support and service
for customers in North America
Business Development
● Business development for electronic products, identification
of new applications, development of markets for specialty
technology, exploration and development of new markets,
and strengthening customer relations, as well as managing
the Company’s brand
Corporate Planning Organization
● Planning for operational resources, as well as for production
and demand; the integration of business processes, corporate
pricing, market analysis and forecasting
Quality and Reliability
● Assurance of the quality and reliability of the Company’s
products via: resolution of reliability issues at development
stage, improvement and management of production quality,
solutions for customers’ quality related issues, services for
advanced materials and failure analysis
Information Technology
● Integration of the Company’s technology and business IT
systems; infrastructure development, communication services
and assurance of IT security and service quality
Materials Management and Risk Management
● Procurement, warehousing, import and export, and logistics
support; also environmental protection, industrial safety,
occupational health, and risk management
Customer Service
● Support and service for customers in Asia, Europe, and North
America
Internal Audit
● Inspection and review of TSMC’s internal control system,
its adequacy in design and effectiveness in operation with
independent risk assessment to ensure compliance with
TSMC’s policies and procedures as well as with external
regulations
Finance and Spokesperson
● Corporate finance, accounting and corporate
communications; the head of the organization also serves as
company spokesperson
Legal
● Corporate legal affairs including regulatory compliances,
commercial transactions, patents and management of other
intellectual properties, litigation, etc.
020
021
2.4 Board Members
2.4.1 Information Regarding Board Members
Title/Name
Chairman
Morris Chang
Vice Chairman
F.C. Tseng
Gender
Nationality or
Place of
Registration
Date Elected
Term Expires
Date First
Elected
Shares
%
Shares
%
Shareholding When Elected
Current Shareholding
Spouse & Minor Shareholding
Male
U.S.A.
06/09/2015
06/08/2018
12/10/1986
125,137,914
0.48%
125,137,914
0.48%
Shares
135,217
%
0.00%
Male
R.O.C.
06/09/2015
06/08/2018
05/13/1997
34,472,675
0.13%
34,472,675
0.13%
132,855
0.00%
Director
National Development Fund, Executive Yuan
(Note 1)
Representative:
Johnsee Lee
Male
R.O.C.
08/06/2010
(Note 2)
06/09/2015
06/08/2018
12/10/1986
1,653,709,980
6.38%
1,653,709,980
6.38%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Independent Director
Sir Peter Leahy Bonfield
Male
UK
06/09/2015
06/08/2018
05/07/2002
Independent Director
Stan Shih
Male
R.O.C.
06/09/2015
06/08/2018
04/14/2000
1,480,286
0.01%
1,480,286
0.01%
16,116
0.00%
022
Selected Education, Past Positions & Current Positions at Non-profit Organizations
Bachelor Degree in Mechanical Engineering, MIT
Master Degree in Mechanical Engineering, MIT
Ph.D. in Electrical Engineering, Stanford University
Former Group Vice-President, Texas Instruments Inc.
Former President & COO, General Instrument Corporation
Former Chairman, Industrial Technology Research Institute
Former CEO, TSMC
Member of National Academy of Engineering
Life Member Emeritus of MIT Corporation
Fellow of the Computer History Museum
Laureate of the Industrial Technology Research Institute
Bachelor Degree in Electrical Engineering, National Chengkung University
Master Degree in Electrical Engineering, National Chiao Tung University
Ph.D. in Electrical Engineering, National Chengkung University
Honorary Ph.D., National Chiao Tung University
Former President, Vanguard International Semiconductor Corp.
Former President, TSMC
Former Deputy CEO, TSMC
Former Director, National Culture and Arts Foundation, R.O.C.
Chairman, TSMC Education and Culture Foundation
Ph.D. in Chemical Engineering, Illinois Institute of Technology
MBA, University of Chicago
Graduate of Harvard Business School’s Advanced Management Program
Former Principal Investigator, Argonne National Laboratory
Former Senior Manager, Johnson Matthey Inc.
Former President, Industrial Technology Research Institute
Former Chairman, Development Center for Biotechnology
Managing Director, Development Center for Biotechnology
Honorary Chairman, Taiwan Bio Industry Organization
Bachelor Degree in Engineering, Loughborough University
Honours Degree in Engineering, Loughborough University
Former Chairman and CEO, ICL Plc
Former CEO and Chairman of the Executive Committee, British Telecommunications Plc
Former Vice President, the British Quality Foundation
Fellow of the Royal Academy of Engineering
Chair of Council and Senior Pro-Chancellor, Loughborough University, UK
BSEE, National Chiao Tung University
MSEE, National Chiao Tung University
Honorary EE Ph.D., National Chiao Tung University
Honorary Doctor of Technology, The Hong Kong Polytechnic University
Honorary Fellowship, University of Wales, Cardiff, UK
Honorary Doctor of International Law, Thunderbird, American Graduate School of International
Management, U.S.A.
Co-Founder, Chairman Emeritus, Acer Group
Former Chairman & CEO, Acer Group
Former Chairman, National Culture and Arts Foundation, R.O.C.
Director, Public Television Service Foundation, R.O.C.
Council member of Asian Corporate Governance Associate (ACGA)
Chairman of Stans Foundation
As of 02/28/2017
Selected Current Positions at TSMC and
Other Companies
None
Chairman of:
- TSMC China Company Ltd.
- Global UniChip Corp.
Vice Chairman, Vanguard International
Semiconductor Corp.
Independent Director, Chairman of Audit Committee &
Compensation Committee member, Acer Inc.
CEO, Personal Genomics, Inc.
Independent Director of:
- Far Eastern New Century Corp.
- Zhen Ding Technology Holding Ltd.
- Everlight Electronics Co., Ltd.
- San Fu Chemical Co., Ltd.
Chairman of:
- NXP Semiconductors N.V., the Netherlands
- Global Logic Inc., U.S.A.
Member, The Longreach Group Advisory Board
Board Mentor, CMi
Senior Advisor to :
- Alix Partners, London
- G3 Good Governance Group, London.
Director & Honorary Chairman, Acer Inc.
Director of:
- Qisda Corp.
- Wistron Corp.
- Nan Shan Life Insurance Co., Ltd.
- Egis Technology Inc.
- Digitimes Inc.
- Chinese Television System Inc.
(Continued)
023
Shareholding When Elected
Current Shareholding
Spouse & Minor Shareholding
Selected Education, Past Positions & Current Positions at Non-profit Organizations
Selected Current Positions at TSMC and
Other Companies
Title/Name
Independent Director
Thomas J. Engibous
Gender
Nationality or
Place of
Registration
Date Elected
Term Expires
Date First
Elected
Male
U.S.A.
06/09/2015
06/08/2018
06/10/2009
Independent Director
Kok-Choo Chen
Female
R.O.C.
06/09/2015
06/08/2018
06/09/2011
Shares
-
-
%
-
-
Shares
-
-
%
-
-
Shares
-
%
-
Bachelor Degree in Electrical Engineering, Purdue University
Master Degree in Electrical Engineering, Purdue University
Honorary Doctorate in Engineering, Purdue University
Former Executive Vice President and President of the Semiconductor Group, Texas Instruments Inc.
Former President and CEO, Texas Instruments Inc.
Former Chairman of the Board, Texas Instruments Inc.
Former Chairman of the Board of Catalyst
Former Chairman of the Board of J.C. Penney Company, Inc.
Former Lead Director, J.C. Penney Company, Inc.
5,120
0.00%
Member of National Academy of Engineering
Member of Texas Business Hall of Fame
Honorary Director of Catalyst
Honorary Trustee, Southwestern Medical Foundation
Inns of Court School of Law, England
Barrister-at-law, England
Advocate & Solicitor, Singapore
Attorney-at-law, California, U.S.A.
Lawyer, Tan, Rajah & Cheah, Singapore, 1969-1970
Lawyer, Sullivan & Cromwell, New York, U.S.A., 1971-1974
Lawyer, Heller, Erhman, White & McAuliffe, San Francisco, California, U.S.A., 1974-1975
Partner, Ding & Ding Law Offices, Taiwan, 1975-1988
Partner, Chen & Associates Law Offices, Taiwan, 1988-1992
Former Vice-President, Echo Publishing, Taiwan, 1992-1995
Former President, National Culture and Arts Foundation, R.O.C., 1995-1997
Former Senior Vice-President & General Counsel, TSMC, 1997-2001
Founder & Executive Director of Taipei Story House, 2003-2015
Former Advisor, Executive Yuan, R.O.C., 2009-2016
Former Director, National Culture and Arts Foundation, R.O.C., 2011-2016
Former Chairman, National Performing Arts Center, 2014-January 2017
Lecturer, Nanyang University, Singapore, 1970-1971
Associate Professor, Soochow University, 1981-1998
Chair Professor, National Tsing Hua University, 1999-2002
Professor, National Chengchi University, 2001-2004
Professor, Soochow University, 2001-2008
Founder and Executive Director, Museum207 (located in Taipei)
Director, Republic of China Female Cancer Foundation
None
None
Director of:
- The NASDAQ OMX Group, Inc.
- Pica8, Inc.
General Partner, WISC Partners LP
Independent Director
Michael R. Splinter
Male
U.S.A.
06/09/2015
06/08/2018
06/09/2015
-
-
-
-
-
-
Bachelor and Master Degrees in Electrical Engineering, University of Wisconsin Madison
Honorary Ph.D, in Engineering, University of Wisconsin Madison
Former Executive Vice President of Technology and Manufacturing group, Intel Corporation
Former Executive Vice President of Sales and Marketing, Intel Corporation
Former CEO, Applied Materials, Inc.
Former Chairman, Applied Materials, Inc.
Director, Silicon Valley Leadership Group
Director, Semiconductor Equipment and Materials International (SEMI)
Director, University of Wisconsin Foundation
Remarks:
1. No member of the Board of Directors held TSMC shares by nominee arrangement.
2. No member of the Board of Directors had a spouse or relative within two degrees of consanguinity serving as a manager or director at TSMC.
Note 1: Major Shareholder of TSMC’s Director that is an Institutional Shareholder.
Director that is an Institutional Shareholder of TSMC
National Development Fund, Executive Yuan
Top 10 Shareholders
Not Applicable
Major Institutional shareholders of National Development Fund: Not Applicable.
Note 2: Mr. Johnsee Lee was appointed as the representative of National Development Fund on August 6, 2010.
024
025
2.4.2 Remuneration Paid to Directors (Note 1)
Unit: NT$ thousands
Title/Name
Chairman
Morris Chang
Vice Chairman
F.C. Tseng
Independent Director
Sir Peter Leahy Bonfield
Independent Director
Stan Shih
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
Director
National Development Fund, Executive Yuan
Representative: Johnsee Lee
22,314
22,314
12,585
12,585
592
334
592
334
286,690
286,690
1,941
1,941
0.0932%
0.0932%
9,600
9,600
1,778
1,778
0.0073%
0.0073%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,514
15,514
12,000
12,000
15,514
15,514
12,000
12,000
15,514
15,514
9,600
9,600
-
-
-
-
-
-
-
-
-
-
-
-
0.0046%
0.0046%
0.0036%
0.0036%
0.0046%
0.0046%
0.0036%
0.0036%
0.0046%
0.0046%
0.0029%
0.0029%
Total
34,899
34,899
926
926
376,432
376,432
3,719
3,719
0.1244%
0.1244%
Note 1: Remuneration policies, standards/packages, procedures, the linkage to operating performance and future risk exposure: The base compensation for the Chairman, Vice-Chairman and directors are
determined in accordance with the procedures set forth in TSMC’s Articles of Incorporation. The Articles of Incorporation also provides that the compensation to directors shall be no more than
0.3% of annual profits and directors who also serve as executive officers of TSMC are not entitled to receive compensation to directors. The distribution of compensation to directors shall be made
in accordance with TSMC’s “Rules for Distribution of Compensation to Directors”.
Note 2: Pensions funded/paid according to applicable law.
Note 3: The above-mentioned figures include expenses for Company cars and gasoline reimbursement, but do not include compensation paid to Company drivers (totaled NT$4,815 thousand).
Note 4: Total remuneration and compensation of TSMC and all consolidated entities paid to TSMC’s directors in 2015 were NT$394,468 thousand, accounting for 0.13% of 2015 net income.
Director’s Remuneration
Base Compensation (A)
Severance Pay and
Pensions (B) (Note 2)
Compensation to
Directors (C)
Allowances (D)
(Note 3)
Total Remuneration
(A+B+C+D) as a % of
2016 Net Income
Compensation Earned by a Director Who is an Employee of TSMC or of TSMC’s Consolidated Entities
Base Compensation, Bonuses,
and Allowances (E)
Severance Pay and
Pensions (F) (Note 2)
Employees’ Profit Sharing Bonus (G)
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All
Consolidated
Entities
From TSMC
From All Consolidated Entities
Cash
Stock (Fair
Market Value)
Cash
Stock (Fair
Market Value)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total Compensation
(A+B+C+D+E+F+G) as a %
of 2016 Net Income (Note 4)
From TSMC
From All
Consolidated
Entities
0.0932%
0.0932%
0.0073%
0.0073%
0.0046%
0.0046%
0.0036%
0.0036%
0.0046%
0.0046%
0.0036%
0.0036%
0.0046%
0.0046%
0.0029%
0.0029%
Compensation Paid to
Directors from Non-
consolidated Affiliates
(J)
-
4,512
-
-
-
-
-
-
0.1244%
0.1244%
4,512
026
027
2.5 Management Team
2.5.1 Information Regarding Management Team
Title
Name
Gender
Nationality
On-board Date
(Note 1)
Shareholding
Spouse & Minor
Shareholds
%
Shareholds
President and Co-Chief Executive Officer
Mark Liu
Male
R.O.C.
11/15/1993
12,977,114
0.05%
-
%
-
President and Co-Chief Executive Officer
C.C. Wei
Male
R.O.C.
02/01/1998
7,179,207
0.03%
261
0.00%
Senior Vice President and Chief Information Officer
Information Technology, Materials Management and
Risk Management
Stephen T. Tso
Senior Vice President,
Chief Financial Officer and Spokesperson
Finance
Lora Ho
Senior Vice President
Research and Development/Technology Development
Wei-Jen Lo
Senior Vice President of TSMC and
President of TSMC North America
Rick Cassidy
Senior Vice President
Operations/Product Development
Y.P. Chin (Note 2)
Senior Vice President
Research and Development/Technology Development
Y.J. Mii (Note 2)
Vice President
Operations/Affiliate Fabs
M.C. Tzeng
Vice President and Chief Technology Officer
Research and Development/Corporate Research
Jack Sun
Vice President
Quality and Reliability
N.S. Tsai
Vice President
Operations/Mainstream Fabs and Manufacturing
Technology
J.K. Lin
Vice President
Operations/300mm Fabs
J.K. Wang
Male
R.O.C.
12/16/1996
12,897,064
0.05%
-
-
Female
R.O.C.
06/01/1999
4,481,080
0.02%
2,230,268
0.01%
Male
R.O.C.
07/01/2004
1,464,127
0.01%
Male
U.S.A.
11/14/1997
-
-
-
-
-
-
Male
R.O.C.
01/01/1987
6,971,122
0.03%
2,194,107
0.01%
Male
R.O.C.
11/14/1994
1,000,419
0.00%
Male
R.O.C.
01/01/1987
7,405,595
0.03%
Male
R.O.C.
06/02/1997
3,981,831
0.02%
-
-
-
-
-
-
Male
R.O.C.
03/01/2000
1,988,180
0.01%
1,103,253
0.00%
Male
R.O.C.
01/01/1987
12,498,018
0.05%
1,048,387
0.00%
Male
R.O.C.
02/11/1987
2,553,947
0.01%
160,844
0.00%
028
Shareholds
-
-
-
-
-
-
-
-
-
-
-
-
-
%
-
-
-
-
-
-
-
-
-
-
-
-
-
TSMC Shareholding by
Nominee Arrangement
(Shares)
Education & Selected Past Positions
Selected Current Positions at Other
Companies
As of 02/28/2017
Managers Who are Spouses or within Second-degree
Relative of Consanguinity to Each Other
Title
None
Name
None
Relation
None
Ph.D., Electrical Engineering & Computer Science, University of California, Berkeley, U.S.
Executive Vice President and Co-Chief Operating Officer, TSMC
Senior Vice President, Operations, TSMC
Senior Vice President, Advanced Technology Business, TSMC
President, Worldwide Semiconductor Manufacturing Corp.
None
Ph.D., Electrical Engineering, Yale University, U.S.
Executive Vice President and Co-Chief Operating Officer, TSMC
Senior Vice President, Business Development, TSMC
Senior Vice President, Mainstream Technology Business, TSMC
Senior Vice President, Chartered Semiconductor Manufacturing Ltd.
Ph.D., Materials Science & Engineering, University of California, Berkeley, U.S.
President, WaferTech, LLC
Senior Vice President, Operations, TSMC
General Manager of CVD Products, Applied Material, Inc.
Director, TSMC subsidiary
None
None
None
Director, TSMC subsidiary
None
None
None
Master, Business Administration, National Taiwan University, Taiwan
Senior Director, Accounting, TSMC
Vice President & CFO, TI-Acer Semiconductor Manufacturing Corp.
Director and/or Supervisor, TSMC subsidiaries
Director, TSMC affiliates
President, TSMC subsidiaries
None
None
None
Ph.D., Solid State Physics and Surface Chemistry, University of California, Berkeley, U.S.
Vice President, Research and Development, TSMC
Vice President, Operations/Manufacturing Technology, TSMC
Vice President, Advanced Technology Business, TSMC
Vice President, Operation II, TSMC
Director, Advanced Technology Development and CTM Plant Manager, Intel Corp.
None
None
None
None
Bachelor, Engineering Technology, United States Military Academy at West Point, U.S.
Vice President of TSMC North America Account Management
Director, TSMC subsidiary
Master, Electrical Engineering, National Cheng Kung University, Taiwan
Vice President, Advanced Technology and Business, TSMC
Senior Director, Product Engineering & Services, TSMC
Ph.D., Electrical Engineering, University of California, Los Angeles, U.S.
Senior Director, R&D Platform I Division, TSMC
None
None
None
None
None
None
None
None
None
None
None
Director, TSMC subsidiaries
Director, TSMC affiliate
Deputy Director
M.J. Tzeng
Siblings
Master, Applied Chemistry, Chungyuan University, Taiwan
Vice President, Mainstream Technology Business, TSMC
Senior Director, Fab 2 Operation, TSMC
Ph.D., Electrical Engineering, University of Illinois at Urbana-Champaign, U.S.
Vice President, Research and Development, TSMC
Senior Director, Logic Technology Division, TSMC
Senior Manager of R&D, International Business Machines (IBM)
Ph.D., Material Science, Massachusetts Institute of Technology, U.S.
Senior Director, Assembly Test Technology & Service, TSMC
Vice President, Operations, Vanguard International Semiconductor Corp.
None
None
Bachelor, Science, National Changhua University of Education, Taiwan
Senior Director, Mainstream Fabs, TSMC
Director, TSMC subsidiary
Director, TSMC affiliate
None
None
None
None
None
None
None
None
None
Master, Chemical Engineering, National Cheng Kung University, Taiwan
Senior Director, 300mm fab operations, TSMC
Director, TSMC subsidiary
None
None
None
(Continued)
029
Title
Name
Gender
Nationality
On-board Date
(Note 1)
Shareholding
Spouse & Minor
Shareholds
%
Shareholds
Female
R.O.C.
10/01/2003
420,709
0.00%
-
%
-
TSMC Shareholding by
Nominee Arrangement
(Shares)
Shareholds
%
-
-
-
-
-
-
Male
R.O.C.
12/15/1997
352,532
0.00%
60,802
0.00%
Female
R.O.C.
04/30/2009
320,000
0.00%
51,000
0.00%
Female
R.O.C.
03/20/1995
700,285
0.00%
419,112
0.00%
34,000
0.00%
Female
R.O.C.
06/01/2014
80,000
0.00%
-
-
Male
R.O.C.
06/01/1992
218,535
0.00%
1,135,529
0.00%
Male
R.O.C.
12/28/1994
225,000
0.00%
Male
U.S.A.
06/15/2009
Male
U.S.A.
11/01/2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vice President
Corporate Planning Organization
Irene Sun
Vice President
Research and Development/Design and Technology
Platform
Cliff Hou
Vice President
Business Development
Been-Jon Woo
Vice President and General Counsel
Legal
Sylvia Fang
Vice President
Human Resources
Connie Ma
Vice President
Research and Development/Technology Development
Y.L. Wang
Vice President
Research and Development/Integrated Interconnect &
Packaging
Douglas Yu (Note 3)
Vice President
Research and Development/More-than-Moore
Technologies
Alexander Kalnitsky (Note 3)
Vice President
Research and Development/Design and Technology
Platform
Kevin Zhang (Note 3)
Education & Selected Past Positions
Selected Current Positions at Other
Companies
Managers Who are Spouses or within Second-degree
Relative of Consanguinity to Each Other
Ph.D., Materials Science and Engineering, Cornell University, U.S.
Senior Director, Corporate Planning Organization, TSMC
None
Ph.D., Electrical Engineering, Syracuse University, U.S.
Senior Director, Design and Technology Platform, TSMC
Director, TSMC subsidiaries
Director, TSMC affiliate
President, TSMC subsidiaries
Title
None
None
Name
None
Relation
None
None
None
Ph.D., Chemistry, University of Southern California, U.S.
Director of Business Development, TSMC
Vice President of R&D, Grace Semiconductor Manufacturing Corp.
Director of Technology Integration, Intel Corp.
Master of Comparative Law, School of Law, University of Iowa
Attorney-at-law, Taiwan
Associate General Counsel, TSMC
Taiwan International Patent and Law Office (TIPLO)
EMBA, International Business Management, National Taiwan University
Director of Human Resources, TSMC
Senior Vice President of Global Human Resources, Trend Micro Inc.
Ph.D., Electrical Engineering, National Chiao Tung University, Taiwan
Vice President, Fab 14B operations, TSMC
Senior Director, Fab 14B operations, TSMC
PhD, Materials Engineering, Georgia Institute of Technology, U.S.
Senior Director of Integrated Interconnect & Packaging Division in R&D, TSMC
PhD, Electrical Engineering, Carleton University, Canada
Senior Director of More-than-Moore Technologies Division in R&D, TSMC
PhD, Electrical Engineering, Duke University, U.S.
Vice President, Technology and Manufacturing Group, Intel Corp.
None
None
None
None
Director and/or Supervisor, TSMC subsidiaries
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
Note 1: On-board date means the official date joining TSMC.
Note 2: Mr. Y.P. Chin and Dr. Y.J. Mii were promoted to Senior Vice President, effective November 8, 2016.
Note 3: Dr. Douglas Yu, Dr. Alexander Kalnitsky and Dr. Kevin Zhang were promoted to Vice President, effective November 8, 2016.
030
031
2.5.2 Compensation Paid to President & Co-CEO and Vice Presidents (Note 1)
Unit: NT$ thousands
Title
President and Co-Chief Executive Officer
President and Co-Chief Executive Officer
Senior Vice President, Chief Financial Officer and Spokesperson
Finance
Senior Vice President and Chief Information Officer
Information Technology, Materials Management and Risk
Management
Senior Vice President
Research and Development/ Technology Development
Senior Vice President of TSMC and
President of TSMC North America
Senior Vice President
Operations/Product Development
Senior Vice President
Research and Development/ Technology Development
Vice President
Operations/Affiliate Fabs
Vice President and Chief Technology Officer
Research and Development/Corporate Research
Vice President
Quality and Reliability
Vice President
Operations/Mainstream Fabs and Manufacturing Technology
Vice President
Operations/300mm Fabs
Vice President
Corporate Planning Organization
Vice President
Research and Development/Design and Technology Platform
Vice President
Business Development
Vice President and General Counsel
Legal
Vice President
Human Resources
Vice President
Research and Development/Technology Development
Name
Mark Liu
C.C. Wei
Lora Ho
Stephen T. Tso
Wei-Jen Lo
Rick Cassidy
Y.P. Chin (Note 2)
Y.J. Mii (Note 2)
M.C. Tzeng
Jack Sun
N.S. Tsai
J.K. Lin
J.K. Wang
Irene Sun
Cliff Hou
Been-Jon Woo
Sylvia Fang
Connie Ma
Y.L. Wang
Vice President
Research and Development/Integrated Interconnect & Packaging
Douglas Yu (Note 3)
Vice President
Research and Development/More-than-Moore Technologies
Vice President
Research and Development/Design and Technology Platform
Total
Alexander Kalnitsky (Note 3)
Kevin Zhang (Note 3)
Salary (A)
Severance Pay and Pensions (B)
(Note 4)
From TSMC
From All
Consolidated Entities
From TSMC
From All
Consolidated Entities
8,118
8,118
5,222
8,118
8,118
5,222
252
252
162
252
252
162
Bonuses and Allowances (C)
(Note 5)
From TSMC
From All
Consolidated
Entities
103,709
104,152
49,118
103,709
104,152
49,118
Employees’ Profit Sharing Bonus (D)
Total Compensation (A+B+C+D)
as a % of 2016 Net Income
(Note 6)
From TSMC
From All Consolidated Entities
Cash
101,588
101,588
47,318
Stock (Fair
Market Value)
-
-
-
Cash
101,588
101,588
47,318
Stock (Fair
Market Value)
From TSMC
--
-
-
0.064%
0.064%
0.030%
From All
Consolidated
Entities
0.064%
0.064%
0.030%
Compensation Received
from Non-consolidated
Affiliates
-
-
-
65,452
79,631
2,025
2,400
475,796
558,934
433,178
-
433,178
-
0.293%
0.322%
122
86,910
101,089
2,691
3,066
732,775
815,913
683,672
-
683,672
-
0.451%
0.480%
122
Note 1: Compensation policy, standards/packages, procedures, the linkage to operating performance and future risk exposure: The total compensation paid to Chief Executive Officer, Chief Financial
Officer and General Counsel is proposed by Chairman based on their job responsibility, contribution, company performance and projected future risks the Company will face. The total
compensation paid to other executive officers is proposed by Chairman and Chief Executive Officer. The proposals are reviewed by the Compensation Committee before submitted to the Board of
Directors for final approval.
Note 2: Mr. Y.P. Chin and Dr. Y.J. Mii were promoted to Senior Vice President, effective November 8, 2016.
Note 3: Dr. Douglas Yu, Dr. Alexander Kalnitsky and Dr. Kevin Zhang were promoted to Vice President, effective November 8, 2016.
Note 4: Pensions funded/paid according to applicable law.
Note 5: The above-mentioned figures include the expense for the employees’ cash bonuses distributed in May, August, November 2016 and February 2017, Company cars and gasoline reimbursement,
but does not include compensation paid to Company drivers (totaled NT$3,432 thousand).
Note 6: Total compensation of TSMC and all consolidated entities paid to TSMC’s Chief Executive Officer and Executive Officers in 2015 were NT$1,406,547 thousand and NT$1,491,529 thousand
respectively, accounting for 0.46% and 0.49% of 2015 net income respectively.
Compensation Paid to President & Co-CEO and Vice Presidents
NT$0 ~ NT$2,000,000
NT$2,000,000 ~ NT$4,999,999
From TSMC
Rick Cassidy
None
2016
From All Consolidated Entities and Non-consolidated Affiliates
None
None
NT$5,000,000 ~ NT$9,999,999
Douglas Yu, Alexander Kalnitsky
Douglas Yu, Alexander Kalnitsky
NT$10,000,000 ~ NT$14,999,999
NT$15,000,000 ~ NT$29,999,999
None
Kevin Zhang
None
Kevin Zhang
NT$30,000,000 ~ NT$49,999,999
J.K. Wang, Irene Sun, Been-Jon Woo, Sylvia Fang, Connie Ma, Y. L. Wang
J.K. Wang, Irene Sun, Been-Jon Woo, Sylvia Fang, Connie Ma, Y. L. Wang
NT$50,000,000 ~ NT$99,999,999
Y.P. Chin, Y.J. Mii, M.C. Tzeng, Jack Sun, N.S. Tsai, J.K. Lin, Cliff Hou
Over NT$100,000,000
Mark Liu, C.C. Wei, Lora Ho, Stephen T. Tso, Wei-Jen Lo
Rick Cassidy, Y.P. Chin, Y.J. Mii, M.C. Tzeng, Jack Sun, N.S. Tsai, J.K. Lin,
Cliff Hou
Mark Liu, C.C. Wei, Lora Ho, Stephen T. Tso, Wei-Jen Lo
Total
22
22
032
033
2.5.3 Employees’ Profit Sharing Bonus Paid to Management Team
Unit: NT$ thousands
Title
President and Co-Chief Executive Officer
President and Co-Chief Executive Officer
Senior Vice President, Chief Financial Officer and Spokesperson
Finance
Senior Vice President and Chief Information Officer
Information Technology, Materials Management and Risk Management
Senior Vice President
Research and Development/Technology Development
Senior Vice President of TSMC and
President of TSMC North America
Senior Vice President
Operations/Product Development
Senior Vice President
Research and Development/Technology Development
Vice President
Operations/Affiliate Fabs
Vice President and Chief Technology Officer
Research and Development/Corporate Research
Vice President
Quality and Reliability
Vice President
Operations/Mainstream Fabs and Manufacturing Technology
Vice President
Operations/300mm Fabs
Vice President
Corporate Planning Organization
Vice President
Research and Development/Design and Technology Platform
Vice President
Business Development
Vice President and General Counsel
Legal
Vice President
Human Resources
Vice President
Research and Development/Technology Development
Vice President
Research and Development/Integrated Interconnect & Packaging
Vice President
Research and Development/More-than-Moore Technologies
Vice President
Research and Development/Design and Technology Platform
Total
Name
Mark Liu
C.C. Wei
Lora Ho
Stephen T. Tso
Wei-Jen Lo
Rick Cassidy
Y.P. Chin (Note 1)
Y.J. Mii (Note 1)
M.C. Tzeng
Jack Sun
N.S. Tsai
J.K. Lin
J.K. Wang
Irene Sun
Cliff Hou
Been-Jon Woo
Sylvia Fang
Connie Ma
Y. L. Wang
Douglas Yu (Note 2)
Alexander Kalnitsky (Note 2)
Kevin Zhang (Note 2)
Note 1: Mr. Y.P. Chin and Dr. Y.J. Mii were promoted to Senior Vice President, effective November 8, 2016.
Note 2: Dr. Douglas Yu, Dr. Alexander Kalnitsky and Dr. Kevin Zhang were promoted to Vice President, effective November 8, 2016.
Stock
(Fair Market Value)
Cash
Total Employees’ Profit Sharing Bonus
Total Employees’ Profit Sharing Bonus
Paid to Management Team as a % of
2016 Net Income
-
-
-
-
-
101,588
101,588
47,318
101,588
101,588
47,318
0.030%
0.030%
0.014%
433,178
433,178
0.130%
683,672
683,672
0.204%
034
035
036
036
037
037
3.
Corporate Governance
3.1 Overview
TSMC advocates and acts upon the principles of operational transparency and respect for shareholder rights. We believe that the
basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle, the TSMC Board
delegates various responsibilities and authority to two Board Committees, Audit Committee and Compensation Committee. Each
Committee has a written charter approved by the Board. Each Committee’s chairperson regularly reports to the Board on the
activities and actions of the relevant committee. The Audit Committee and Compensation Committee consist solely of independent
directors.
2016 Corporate Governance Awards
Organization
Dow Jones Sustainability Indices (DJSI)
MSCI Global Sustainability Indexes
FTSE4Good Index
FinanceAsia
IR Magazine
AsiaMoney
FORTUNE
Barron’s
CommomWealth Magazine
Taiwan Institute of Sustainable Energy
Awards
Membership in the Dow Jones Sustainability World Index for the 16th consecutive year
RobecoSAM Sustainability Award – Gold Class
Selected as MSCI Global Sustainability Indexes component
Selected as FTSE4Good Emerging Index component
“FinanceAsia“ 20th Anniversary Platinum Awards: Best Company – in Taiwan
Global Top Corporate Governance – Five Winning Companies
Best Managed Company Large Cap in Taiwan
Selected as one of The World’s Most Admired Companies
Selected as Top 100 World’s Most Respected Companies
Excellence in Corporate Social Responsibility Award – Large cap – 2nd Place
Most Admired Company in Taiwan for the 21st consecutive year
Most admired entrepreneur in Taiwan
Taiwan Corporate Sustainability Awards:
2016 Taiwan Corporate Sustainability Awards No.1 for Domestic Corporates
Taiwan Top 50 Corporate Responsibility Report Awards – Electronics Industry – Gold Class
Taiwan Stock Exchange
Ranked in top 5% in Corporate Governance Evaluation of Listed Companies for the 2nd consecutive year
3.2 Board of Directors
Board Structure
TSMC’s Board of Directors consists of eight distinguished members with a great breadth of experience as world-class business
leaders or professionals. We rely on them for their diverse knowledge, personal perspectives, and solid business judgment. Five
of the eight members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter Bonfield;
Co-Founder, Chairman Emeritus of the Acer Group, Mr. Stan Shih; former Texas Instruments Inc. Chairman of the Board, Mr.
Thomas J. Engibous; former Chairman of National Performing Arts Center and former Advisor of Executive Yuan, R.O.C., Ms.
Kok-Choo Chen; and former Chairman of Applied Materials, Inc., Mr. Michael R. Splinter. One of the members of the Board
Directors is female. The number of Independent Directors is more than 50% of the total number of Directors.
In February 2017, TSMC’s Board of Directors determined the number of directors to be ten and approve the election of two
additional directors at TSMC’s 2017 Annual Shareholders’ Meeting; and authorized the Chairman to nominate Dr. Mark Liu and Dr.
C.C. Wei as candidates for directors to stand for election at TSMC’s 2017 Annual Shareholders’ Meeting.
Board Responsibilities
Under the leadership of Chairman Morris Chang, TSMC’s Board of Directors takes a serious and forthright approach to its duties and
is a dedicated, competent and independent Board.
Directors shall be elected pursuant to the candidates
nomination system as specified in Article 192-1 of the R.O.C.
“Company Law”. The tenure of office for Directors shall be
three years. The independence of each independent director
candidate is also considered and assessed under relevant law
such as the Taiwan “Regulations Governing Appointment
of Independent Directors and Compliance Matters for
Public Companies”. Under R.O.C. law, in which TSMC was
incorporated, any shareholders holding one percent or more
of our total outstanding common shares may nominate their
own candidate to stand for election as a Board member. This
democratic mechanism allows our shareholders to become
involved in the selection and nomination process of Board
candidates. The final slate of candidates are put to the
shareholders for voting at the relevant annual shareholders’
meeting.
There are no limits on the number of terms that a director may
serve. We believe the Company benefits from the contributions
of directors who have over their years of dedicated service
acquired unique insights into the operations and financial
developments of the Company. The Company reviews the
appropriateness of each director’s continued service to ensure
there are new viewpoints available to the Board.
Transition of Responsibilities
In November 2013, following nomination by Chairman Dr.
Morris Chang and approval by the Board of Directors, Dr. Mark
Liu and Dr. C.C. Wei assumed duties as Presidents and Co-Chief
Executive Officers of TSMC, reporting directly to the Chairman.
Demonstrating TSMC’s steady and deliberate transition of
responsibilities, the Board of Directors approved in April 2017
the nomination of Dr. Liu and Dr. Wei to serve as members of
the Board, and they will stand for election to the Board at the
TSMC Annual Shareholders’ Meeting to be held in June 2017.
In the spirit of Chairman Chang’s approach to corporate
governance, a board of directors’ primary duty is to supervise.
The Board should supervise the Company’s: compliance
with relevant laws and regulations, financial transparency,
timely disclosure of material information, and maintaining of
the highest integrity within the Company. TSMC’s Board of
Directors strives to perform these responsibilities through the
Audit Committee and the Compensation Committee, the hiring
of a financial expert for the Audit Committee, and coordination
with the Internal Audit department.
The second duty of the Board of Directors is to evaluate the
management’s performance and to appoint and dismiss
officers of the Company when necessary. TSMC’s management
has maintained a healthy and functional communication
with the Board of Directors, has been devoted in executing
guidance of the Board, and is dedicated in running the
business operations, all to achieve the best interests for TSMC
shareholders.
The third duty of the Board of Directors is to resolve the
important, concrete matters, such as capital appropriations,
investment activities, dividends, etc.
The fourth duty of the Board of Directors is to provide guidance
to the management team of the Company. Quarterly, TSMC’s
management reports to the Board on a variety of subjects. The
management also reviews the Company’s business strategies
with the Board and updates TSMC’s Board on the progress of
those strategies, obtaining Board guidance as appropriate.
Selection and Election of Directors
TSMC envisions the membership of its esteemed Board of
Directors to be composed of highly ethical professionals with
the necessary knowledge, experience and understanding
from diverse backgrounds. TSMC envisions its Board to be
composed of as many independent directors as possible, and
the independence of each independent director candidate
is also considered and assessed under relevant laws. Based
on the above selection criteria, TSMC composes its Board
with world-class candidates who are/were international or
local business leaders in the high-tech industry, prestigious
academics or other professionals excelling in their chosen field
of expertise.
038
039
Directors’ Compensation
According to our Articles of Incorporation, not more than 0.3 percent of our annual profits (defined under local law) after
recovering any losses incurred in prior years, if any, may be distributed as compensation to our directors. In addition, directors who
also serve as executive officers of the Company are not entitled to receive any director compensation.
Directors’ Professional Qualifications and Independent Analysis
According to the relevant requirements set by Taiwan’s Securities and Futures Bureau, the professional qualifications and
independence status of the Company’s Board members are listed in the table below.
Meet the Following Professional Qualification Requirements,
Together with at Least Five Years Work Experience
Criteria (Note 1)
Criteria
Name
Morris Chang
Chairman
F.C. Tseng
Vice Chairman
Johnsee Lee
Director
Sir Peter Leahy Bonfield
Independent Director
Stan Shih
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
Independent Director
An Instructor or
Higher Position in
a Department of
Commerce, Law,
Finance, Accounting,
or Other Academic
Department Related
to the Business
Needs of the
Company in a Public
or Private Junior
College, College or
University
A Judge, Public
Prosecutor, Attorney,
Certified Public
Accountant, or
Other Professional or
Technical Specialists
Who Has Passed a
National Examination
and Been Awarded
a Certificate in a
Profession Necessary
for the Business of the
Company
Have Work
Experience in the
Area of Commerce,
Law, Finance, or
Accounting, or
Otherwise Necessary
for the Business of
the Company
1
2
3
4
5
6
7
8
9
10
Number of Other
Taiwanese Public
Companies
Concurrently
Serving as an
Independent
Director
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ 1
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
4
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
Note:
Directors, during the two years before being elected and during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes:
1. Not an employee of the company or any of its affiliates;
2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any
subsidiary, as appointed in accordance with the laws of Taiwan or with the laws of the country of the parent company or subsidiary;
3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one
percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders;
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs;
5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as of its top five
shareholders;
6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company;
7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,
accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof, provided that this restriction does not apply to any member of the compensation committee
who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Compensation Committees of Companies whose Stock is Listed on the TWSE or
Traded on the GTSM”;
8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company;
9. Not been a person of any conditions defined in Article 30 of the Company Law; and
10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.
TSMC’s Audit Committee is empowered by its Charter to
conduct any study or investigation it deems appropriate
to fulfill its responsibilities. It has direct access to TSMC’s
internal auditors, the Company’s independent auditors, and
all employees of the Company. The Committee is authorized
to retain and oversee special legal, accounting, or other
consultants as it deems appropriate to fulfill its mandate. The
Audit Committee Charter is available on TSMC’s corporate
website.
3.2.2 Compensation Committee
The Compensation Committee assists the Board in discharging
its responsibilities related to TSMC’s compensation and benefits
policies, plans and programs, and in the evaluation and
compensation of TSMC’s directors of the Board and executives.
The members of the Compensation Committee are appointed
by the Board as required by R.O.C. law. According to TSMC’s
Compensation Committee Charter, the Committee shall consist
of no fewer than three independent directors of the Board.
Currently, the Compensation Committee is comprised of all five
independent directors; the Chairman of the Board, Dr. Morris
Chang, is invited by the Committee to attend all meetings
and is excused from the Committee’s discussion of his own
compensation.
TSMC’s Compensation Committee is authorized by its Charter
to retain an independent consultant to assist in the evaluation
of CEO, or executive officer compensation. The Compensation
Committee Charter is available on TSMC’s corporate website.
3.2.1 Audit Committee
The Audit Committee assists the Board in fulfilling its oversight
of the quality and integrity of the accounting, auditing,
reporting, and financial control practices of the Company.
The Audit Committee is responsible to review the following
major matters:
● Financial reports;
● Auditing and accounting policies and procedures;
● Internal control systems and including related policies and
procedures;
● Material asset or derivatives transactions;
● Material lending funds, endorsements or guarantees;
● Offering or issuance of any equity-type securities;
● Derivatives and cash investments;
● Legal compliance;
● Related-party transactions and potential conflicts of interests
involving executive officers and directors;
● Ombudsman reports;
● Fraud prevention and investigation reports;
● IT security;
● Corporate risk management;
● Performance, independence, qualification of independent
auditor;
● Hiring or dismissal of an attesting CPA, or the compensation
given thereto;
● Appointment or discharge of financial, accounting, or internal
auditing officers;
● Assessment of Committee Charter and fulfillment of Audit
Committee duties; and
● Assessment of the Committee’s performance, etc.
Under R.O.C. law, the membership of Audit Committee shall
consist of all independent Directors. TSMC’s Audit Committee
satisfies this statutory requirement. The Committee also
engaged a financial expert consultant in accordance with the
rules of the U.S. Securities and Exchange Commission. The
Audit Committee annually conducts self-evaluation to assess
the Committee’s performance and identify areas for further
attention.
040
041
Compensation Committee Members’ Professional Qualifications and Independent Analysis
According to the relevant requirements set by Taiwan’s Securities and Futures Bureau, the professional qualifications and
independence status of the Company’s Compensation Committee members are listed in the table below.
Meet the Following Professional Qualification Requirements, Together with at
Least Five Years Work Experience
Criteria (Note 1)
Criteria
Name
Title
Stan Shih
Independent Director
Sir Peter Leahy Bonfield
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
Independent Director
An Instructor or Higher
Position in a Department
of Commerce, Law,
Finance, Accounting,
or Other Academic
Department Related to
the Business Needs of
the Company in a Public
or Private Junior College,
College or University
A Judge, Public
Prosecutor, Attorney,
Certified Public
Accountant, or Other
Professional or Technical
Specialists Who Has
Passed a National
Examination and Been
Awarded a Certificate in
a Profession Necessary
for the Business of the
Company
Have Work Experience in
the Area of Commerce,
Law, Finance, or
Accounting, or Otherwise
Necessary for the
Business of the Company
1
2
3
4
5
6
7
8
Number of Other
Taiwanese Public
Companies
Concurrently Serving
as a Compensation
Committee Member
in Taiwan
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
-
-
-
-
-
Note:
Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes:
1. Not an employee of the company or any of its affiliates;
2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any
subsidiary, as appointed in accordance with the laws of Taiwan or with the laws of the country of the parent company or subsidiary;
3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one
percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders;
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs;
5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as of its top five
shareholders;
6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company;
7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,
accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof;
8. Not been a person of any conditions defined in Article 30 of the Company Law.
3.2.3 Director and Committees Members’ Attendance
Each Director is expected to attend every Board meeting and the committees meeting on which he or she serves. In 2016, the
average Board Meeting attendance rate was 90.63% and the attendance rate for the Audit Committee and Compensation
Committee’s Meetings were 92% and 90% respectively.
Board of Directors Meeting Status
Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings in 2016. The directors’ attendance status
is as follows.
Title
Chairman
Vice Chairman
Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Name
Morris Chang
F.C. Tseng
National Development Fund, Executive Yuan
Representative: Johnsee Lee
Sir Peter Leahy Bonfield
Stan Shih
Thomas J. Engibous
Kok-Choo Chen
Michael R. Splinter
Annotations:
A. (1) Securities and Exchange Act §14-3 resolutions:
Meeting Dates
Resolution
Attendance
in Person
By Proxy
Attendance Rate
in Person (%)
Notes
4
4
3
4
4
3
4
3
-
-
1
-
-
1
-
1
100%
None
100%
None
75%
None
100%
None
100%
None
75%
None
100%
None
75%
None
Any Independent Director
Had a Dissenting Opinion or
Qualified Opinion
2016 1st Regular Meeting
February 1 & 2
2016 2nd Regular Meeting
May 9 & 10
2016 4th Regular Meeting
November 7 & 8
2017 1st Regular Meeting
February 13 & 14
approving the establishment of a wholly owned subsidiary in Nanjing of China with capital injection not exceeding US$1 billion,
subject to approval from the Investment Commission of Taiwan’s Ministry of Economic Affairs, to set up a 12-inch fab and a
design service center with a total capital investment not to exceed US$3 billion
None
approving amendments to TSMC’s internal control related policies and procedures
approving the proposed 2017 service fees and out-of-pocket expenses for Deloitte & Touche, TSMC’s independent auditor
approving amendments to TSMC’s “Procedures for Acquisition or Disposal of Assets”
(2) There were no other written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualified opinion in 2016.
B. Recusals of Directors due to conflicts of interests in 2016: Directors recused themselves from the discussion and voting of their compensation resolution.
C. Measures taken to strengthen the functionality of the Board:
- Five of the eight Directors are Independent Directors. The number of Independent Directors is more than 50% of the total number of Directors; the Chairman and Vice Chairman of the Board of Directors are
not executive officers of the Company.
- TSMC Board delegates various responsibilities and authority to two Board Committees, Audit Committee and Compensation Committee. Both the two Committees consist solely of the five Independent
Directors. Each Committees chairperson regularly reports to the Board on the activities and actions of the relevant committee.
Audit Committee Meeting Status
Sir Peter Bonfield, Chairman of the Audit Committee, convened four regular meetings and one special meeting in 2016. The
Committee members and consultant’s attendance status is shown in the following table. In addition to these meetings, the
Committee members and consultant participated in four telephone conferences to discuss the Company’s Annual Report to be filed
with the Taiwan and U.S. authorities and investor conference materials with management.
042
043
Title
Name
Attendance
in Person
By Proxy
Attendance Rate
in Person (%)
Telephone
Conferences
Chair
Member
Member
Member
Member
Sir Peter Leahy Bonfield
Stan Shih
Thomas J. Engibous
Kok-Choo Chen
Michael R. Splinter
Financial Expert
J.C. Lobbezoo
Annotations:
A. (1) Resolutions related to Securities and Exchange Act §14-5:
Meeting Dates
Resolution
5
5
4
5
4
5
-
-
1
-
1
-
100%
100%
80%
100%
80%
100%
4
4
4
4
4
4
2016 1st Regular Meeting
February 1
2016 2nd Regular Meeting
May 9
2016 3rd Regular Meeting
August 1
2016 4th Regular Meeting
November 7
2017 1st Regular Meeting
February 13
approving the 2015 annual financial statements
approving 2015 Statement of Internal Control System
approving the proposed 2016 service fees to Deloitte & Touche for Nanjing fab
approving amendments to TSMC’s internal control related policies and procedures
approving the 2016 second quarter financial statements
approving the proposed 2017 service fees and out-of-pocket expenses for Deloitte & Touche
approving the permitted non-audit services to be performed by Deloitte & Touche
approving the 2016 annual financial statements
approving the amendments to TSMC’s “Procedures for Acquisition or Disposal of Assets”
approving 2016 Statement of Internal Control System
Attendance Rate
of Telephone
Conferences (%)
Notes
100%
None
100%
None
100%
None
100%
None
100%
None
100%
None
Any Independent Director had a
Dissenting Opinion or Qualified Opinion
None
(2) There was no other resolutions which was not approved by the Audit Committee but was approved by two thirds or more of all directors in 2016.
B. There were no recusals of independent directors due to conflicts of interests in 2016.
C. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2016 (which should include the material items, channels, and results of the audits
on the corporate finance and/or operations, etc.):
(1) The internal auditors have sent the audit reports to the members of the Audit Committee periodically, and presented the findings of all audit reports in the quarterly meetings of the Audit Committee.
The head of Internal Audit will immediately report to the members of the Audit Committee any material matters. During 2016, the head of Internal Audit did not report any such material matters. The
communication channel between the Audit Committee and the internal auditor functioned well.
(2) The Company’s independent auditors have presented the findings of their quarterly review or audits on the Company’s financial results. Under applicable laws and regulations, the independent auditors are
also required to immediately communicate to the Audit Committee any material matters that they have discovered. During 2016, the Company’s independent auditors did not report any irregularity. The
communication channel between the Audit Committee and the independent auditors functioned well.
The communications between the independent directors, the internal auditors, and the independent auditors are listed in the table below.
Communications between the Independent Directors and
the Internal Auditors
Communications between the Independent Directors and the
Independent Auditors
Meeting Dates
2016 1st Regular Meeting
February 1
2016 2nd Regular Meeting
May 9
2016 3rd Regular Meeting
August 1
● reviewing report on SOX 404 self-testing results for the year 2015
● reviewing the Internal Auditor’s report (closed door)
● reviewing and approving 2015 Statement of Internal Control System
● reviewing the Internal Auditor’s report (closed door)
● reviewing and approving amendments to TSMC’s internal control
related policies and procedures
● reviewing the Internal Auditor’s report (closed door)
● reviewing any audit problems or difficulties and management’s response in
connection with 2015 annual financial statements (closed door)
● reviewing regulatory developments
● reviewing external auditor relationship (i.e. qualification, performance and
independence)
● reviewing any review problems or difficulties and management’s response in
connection with 2016 first quarter financial statements (closed door)
● reviewing regulatory developments
● reviewing the result of CPA evaluation questionnaire
● reviewing any review problems or difficulties and management’s response in
connection with 2016 second quarter financial statements (closed door)
● reviewing regulatory developments
● reviewing any review problems or difficulties and management’s response in
connection with 2016 third quarter financial statements (closed door)
● reviewing regulatory developments
2016 4th Regular Meeting
November 7
● reviewing the Internal Auditor’s report (closed door)
● reviewing and approving the 2017 internal audit plan
2017 1st Regular Meeting
February 13
● reviewing the Internal Auditor’s report (closed door)
● reviewing report on SOX 404 self-testing results for the year 2016
● reviewing and approving 2016 Statement of Internal Control System
● reviewing any audit problems or difficulties and management’s response in
connection with 2016 annual financial statements (closed door)
● reviewing regulatory developments
Result: all of above matters were reviewed and approved by the Audit Committee whereupon independent directors raised no objection.
Compensation Committee Meeting Status
Mr. Stan Shih, Chairman of the Compensation Committee, convened four regular meetings in 2016. The Committee members’
attendance status is as follows:
Title
Name
Chair
Stan Shih
Member
Sir Peter Leahy Bonfield
Member
Thomas J. Engibous
Member
Kok-Choo Chen
Member Michael R. Splinter
Attendance
in Person
By Proxy
Attendance
Rate in Person
(%)
Notes
4
4
3
4
3
-
-
1
-
1
100% None
100% None
75% None
100% None
75% None
Annotations:
- There was no recommendation of the Compensation Committee which was not adopted or was
modified by the Board of Directors in 2016.
- There were no written or otherwise recorded resolutions on which a member of the Compensation
Committee had a dissenting opinion or qualified opinion.
3.3 Major Decisions of Shareholders’ Meeting
and Board Meetings
3.3.1 Major Resolutions of Shareholders’ Meeting and
Implementation Status
TSMC’s 2016 Annual Shareholders’ Meeting was held
in Hsinchu, Taiwan on June 7, 2016. At the meeting,
shareholders present in person or by proxy approved the
following resolutions:
(1) The revisions to the Articles of Incorporation;
(2) The 2015 Business Report and Financial Statements; and
(3) The distribution of 2015 profits.
Implementation Status
All the resolutions of the Shareholders’ Meeting have been fully
implemented in accordance with the resolutions.
3.3.2 Major Resolutions of Board Meetings
During the 2016 calendar year, and as of the date of this
Annual Report, major resolutions approved at Board meetings
are summarized below:
(1) Board Meeting of February 1 & 2, 2016:
● approving 2015 business report and financial statements;
● approving distribution of 2015 profits, and cash
dividends, employee cash bonus and employee profit
sharing;
● approving the establishment of a wholly owned subsidiary
in Nanjing of China with capital injection not exceeding
US$1 billion, subject to approval from the Investment
Commission of Taiwan’s Ministry of Economic Affairs, to
set up a 12-inch fab and a design service center with a
total capital investment not to exceed US$3 billion;
● approving capital appropriations of US$2,536.9 million
(including: 1. installation of advanced technology capacity;
2. second quarter 2016 R&D capital investments and
sustaining capital expenditures);
● approving the capital injection of not more than
US$2 billion to TSMC Global Ltd., a wholly-owned BVI
subsidiary, for the purpose of reducing foreign exchange
hedging costs; and
● convening the 2016 Annual Shareholders’ Meeting.
(2) Regular Board Meeting of May 9 & 10, 2016:
● approving capital appropriations of US$4,101.3 million
(including: 1. installation and expansion of advanced
technology capacity; 2. conversion of certain logic capacity
to specialty technology; 3. third quarter 2016 R&D capital
investments and sustaining capital expenditures).
(3) Regular Board Meeting of August 1 & 2, 2016:
● approving capital appropriations of US$3,790.4 million
(including: 1. expansion of advanced technology capacity;
2. conversion of certain logic capacity to specialty
technologies; 3. fourth quarter 2016 R&D capital
investments and sustaining capital expenditures); and
● approving TSMC’s acquisition from VisEra Holding
Company of 86.9% shareholding in VisEra Technologies
Company Ltd. at the book value, and 6.9% shareholding
in Xintec Inc. at the market price to simplify investment
structure. As a result, VisEra Holding Company will be
dissolved and merged into TSMC Partners, Ltd., which
is 100% owned by TSMC. After the transaction, TSMC
will own 86.9% of VisEra Technologies Company Ltd.
and 41.3% of Xintec Inc. directly, which are the same as
what TSMC has held directly and indirectly prior to this
transaction.
(4) Regular Board Meeting of November 7 & 8, 2016:
● approving capital appropriations of US$4,908.9 million
(including: 1. installation and expansion of advanced
technology capacity; 2. upgrading advanced packaging
capacity to next generation technology; 3. first quarter
2017 R&D capital investments and sustaining capital
expenditures);
● approving the promotion of Mr. Y.P. Chin as Senior Vice
President;
● approving the promotion of Dr. Y.J. Mii as Senior Vice
President;
● approving the promotion of Dr. Douglas Yu as Vice
President;
● approving the promotion of Dr. Alexander Kalnitsky as
Vice President; and
● approving the appointment of Dr. Kevin Zhang as Vice
President.
(5) Board Meeting of February 13 & 14, 2017:
● approving 2016 business report and financial statements;
● approving distribution of 2016 profits, and cash
dividends, employee cash bonus and employee profit
sharing;
● approving capital appropriations of US$1,927.58
million (including: 1. upgrading advanced technology
capacity and expanding advanced packaging capacity; 2.
044
045
conversion of logic capacity to specialty technology; 3. upgrading and building specialty technology capacity; 4. second quarter
2017 R&D capital investments and sustaining capital expenditures);
● approving the capital injection of not more than US$2 billion to TSMC Global Ltd., a wholly-owned BVI subsidiary, for the
purpose of reducing foreign exchange hedging costs;
● determining the number of directors to be increased by two to ten and approving the election of two additional directors at
TSMC’s 2017 Annual Shareholders’ Meeting, and authorizing the Chairman to nominate Dr. Mark Liu and Dr. C.C. Wei as
candidates for directors to stand for election at TSMC’s 2017 Annual Shareholders’ Meeting; and
● convening the 2017 Annual Shareholders’ Meeting.
3.3.3 Major Issues of Record or Written Statements Made by Any Director Dissenting to Important Resolutions Passed
by the Board of Directors during the 2016 Calendar Year and as of the Date of this Annual Report: None.
3.4 Taiwan Corporate Governance Implementation as Required by Taiwan Financial Supervisory
Commission
Assessment Item
1. Does Company follow “Taiwan Corporate Governance Implementation” to
establish and disclose its corporate governance practices?
Yes
No
V
2. Shareholding Structure & Shareholders’ Rights
(1) Does Company have Internal Operation Procedures for handling
shareholders’ suggestions, concerns, disputes and litigation matters. If
yes, has these procedures been implemented accordingly?
(2) Does Company possess a list of major shareholders and beneficial owners
of these major shareholders?
(3) Has the Company built and executed a risk management system and
“firewall” between the Company and its affiliates?
(4) Has the Company established internal rules prohibiting insider trading on
undisclosed information?
V
V
V
V
3. Composition and Responsibilities of the Board of Directors
(1) Has the Company established a diversification policy for the composition
V
of its Board of Directors and has it been implemented accordingly?
(2) Other than the Compensation Committee and the Audit Committee
which are required by law, does the Company plan to set up other Board
committees?
(3) Has the Company established methodology for evaluating the
performance of its Board of Directors, on an annual basis?
V
V
Non-
implementation
and Its Reason(s)
Same as explanation
None
None
Implementation Status
Explanation
TSMC has always followed excellent corporate governance practices, provided
the utmost in operational transparency and safeguarded shareholders’ equity.
Although the Company does not have a formal code of practice for corporate
governance, however TSMC has always been highly regarded as the industry
leader in implementing comprehensive corporate governance practices.
In addition, the Company also has a world-class Board of Directors. The
Company believes that corporate governance is based on integrity, professional
management and implementation. TSMC has been proving its excellent corporate
governance in its operating performance and continued winning of domestic and
international awards on best corporate governance company.
(1) TSMC has designated appropriate departments, such as Corporate
Communication Division, the SEC Compliance Department, Legal Department,
etc., to handle shareholder suggestions, concerns, disputes or litigation
matters.
(2) TSMC tracks the shareholdings of directors, officers, and top ten shareholders.
(3) TSMC has set up internal rules in the Company’s Internal Control System and
Affiliated Corporations Management.
(4) TSMC has established its “Insider Trading policy” that applies to all employees,
officers and members of the Board of Directors of the Company and to any
other person having a duty of trust or confidence, with respect to transactions
in the Company’s securities. This policy prohibits any insider trading and the
Company regularly provides internal training on this issue.
(1) The members of TSMC Board of Directors are nominated via a rigorous selection
process. It not only considers diverse backgrounds, professional competence and
experience, but also attaches great importance to his/her personal reputation
on ethics and leadership. Presently, the Company’s Board of Directors consists
of eight members who possesses world-class managerial and/or professional
experiences. We rely on each directors’ knowledge, personal insight and
business judgment. One female director currently sits on the Board of Director,
and a majority of our Board consists of independent directors.
(2) Audit Committee (founded in 2002): consists of all five independent directors;
Compensation Committee (founded in 2003): consists of all five independent
directors;
CSR Committee (founded in 2011): is formed by the Company’s management
team and reports to the Board of Directors.
(3) As TSMC’s corporate governance concept, the Board of Director’s primary
responsibility is to supervise, evaluate the management’s performance and
dismiss officers of the Company when necessary, resolve the important, concrete
matters and provide guidance to the management team. TSMC’s Board of
Directors consists of distinguished members with a great breadth of experience
as world-class business leaders or professionals and adhere high ethical
standards and commitment to the Company. Each quarter’s Board Meeting is
last for two days. Company’s resolutions are determined in board meeting, also
business strategy and future orientation are discussed in the meeting, in order
to create best interest for shareholders. Based on TSMC’s operating performance
and local/international awards of best corporate governance, it certainly proves
the Company’s excellent performance of Board of Directors. Also, TSMC’s audit
committee performs self-evaluation and discusses future issues of concern by
questionnaire on annual basis.
(4) Does the Company regularly evaluate its external auditors’ independence?
V
(4) The Audit Committee annually evaluates the independence of external auditors
and reports the same to the Board of Directors.
(Continued)
Assessment Item
4. Does the Company established a full- (or part-) time corporate governance
unit or personnel to be in charge of corporate governance affairs (including
but not limited to furnish information required for business execution by
directors, handle matters relating to board meetings and shareholders’
meetings according to laws, handle corporate registration and amendment
registration, produce (or record?) minutes of board meetings and
shareholders meetings, etc.
5. Has the Company established a means of communicating with its
Stakeholders (including but not limited to shareholders, employees,
customers, suppliers, etc.) or created a Stakeholders Section on its Company
website?
Does the Company respond to stakeholders’ questions on corporate
responsibilities?
6. Has the Company appointed a professional registrar for its Shareholders’
Meetings?
7. Information Disclosure
(1) Has the Company established a corporate website to disclose information
regarding its financials,business and corporate governance status?
(2) Does the Company use other information disclosure channels (e.g.
maintaining an English-language website, designating staff to handle
information collection and disclosure, appointing spokespersons,
webcasting investors conference etc.)?
8. Has the Company disclosed other information to facilitate a better
understanding of its corporate governance practices (e.g. including but
not limited to employee rights, employee wellness, investor relations,
supplier relations, rights of stakeholders, directors’ training records, the
implementation of risk management policies and risk evaluation measures,
the implementation of customer relations policies, and purchasing insurance
for directors)?
V
V
V
V
V
V
Implementation Status
Yes
No
Explanation
Non-
implementation
and Its Reason(s)
None
None
The Chairman appointed the current General Counsel as the Company’s Board
secretariat. TSMC’s Corporate & Compliance Legal Division, which directly reports
to the General Counsel, is in charge of assisting in related affairs, including
furnishing information required for business decisions by Directors, handling
matters relating to Board meetings, Committees meetings and Shareholders’
meetings and recording minutes of relevant meetings, etc.
The SEC Compliance Department is responsible for handling corporate registration
and amendment registration. All application documents needs to be reviewed by
Legal and approved by the General Counsel.
Depending on the situation, the Company’s Corporate Communication Division,
SEC Compliance department, Human Resources department, Customer Service
department and Procurement department will communicate with stakeholders.
We also have publicly disclosed the contact information of our corporate
spokesperson and relevant departments. Also, we have a stakeholder section on
our corporate website to address our corporate social responsibilities and any
other issues. For details, please refer to “7. Corporate Social Responsibility” on
page 118-133 of this Annual Report and “2. Stakeholder Engagement” of TSMC’s
CSR Report.
We have appointed China Trust as our registrar for our Shareholders’ Meetings.
None
We have appointed China Trust as our registrar for our Shareholders’ Meetings.
(1) TSMC discloses its financials business and corporate governance status on its
website at http://www.tsmc.com (in Chinese and English). TSMC’s American
Depositary Receipt (ADR) is listed on the New York Stock Exchange (NYSE).
As a foreign issuer, TSMC must comply with NYSE’s rules. We have been
operating in accordance with NYSE listing standards, and have been disclosing
the major differences between our corporate governance practices and U.S.
corporate governance practices. Please see http://www.tsmc.com/download/
english/e03_governance/NYSE_Section_303A.pdf
None
(2) TSMC has designated appropriate departments (e.g. the Corporate
Communication Division, the SEC Compliance Department, etc.) to handle the
collection and disclosure of information as required by the relevant laws and
regulations of Taiwan and other jurisdictions.
TSMC has designated spokespersons as required by relevant regulations.
TSMC webcasts live investor conferences.
(1) For employee rights and employee wellness, please refer to “Human Capital”
None
of this Annual Report.
(2) For investor relations, supplier relations and rights of stakeholders, please refer
to “Corporate Social Responsibility” of this Annual Report.
(3) For Directors’ training records, please refer to “Continuing Education/Training
of Directors” of this Annual Report.
(4) For Risk Management Policies and Risk Evaluation, please refer to “Risk
Management” of this Annual Report.
(5) For Customer Relations Policies, please refer to “Customer Trust” of this
Annual Report.
(6) TSMC maintains D&O Insurance for its directors and officers.
9. The improvement status for the result of Corporate Governance Evaluation announced by Taiwan Stock Exchange
TSMC was ranked in top 5% in Corporate Governance Evaluation in 2015 and 2016. The implementation status regarding below two non-scoring items:
1. Establishment a formal code of practice for corporate governance: as the explanation of Assessment Item 1 of this table, although the Company does not have a formal code of practice for corporate
governance, however TSMC has always been highly regarded as the industry leader in implementing comprehensive corporate governance practices. In addition, the Company also has a world-class Board of
Directors. The Company believes that corporate governance is based on integrity, professional management and implementation. TSMC has been proving its excellent corporate governance in its operating
performance and continued winning of domestic and international awards on best corporate governance company.
2. Training of Directors: TSMC’s Board of Directors consists of distinguished members with a great breadth of experience as world-class business leaders or professionals. The Company continually arranges
relevant training for Directors during Board meetings, and Directors also participate relevant course as needed. For the details, please refer to the below table “Continuing Education/Training of Directors in
2016”.
046
047
Continuing Education/Training of Directors in 2016
The major training methods of Directors includes:
● At quarter Board meetings, TSMC management regularly presents updates on the Company’s business, regulatory developments
and other information to Directors;
● The Company arranges speeches regarding politics, economics, and regulatory compliance, etc.;
● At quarter Audit Committee meetings, regular regulatory update reports are provided by TSMC’s General Counsel and by the
Company’s independent auditors; and
● Directors participate relevant training courses as needed.
In addition, from time to time, Directors are invited by other parties to give speeches on corporate governance and related topics.
Date
07/01
10/29
05/05
08/04
11/10
11/11
08/12
09/21
09/29
10/09
02/02
Name
Morris Chang
F.C. Tseng
Stan Shih
Johnsee Lee
Michael R. Splinter
Morris Chang
F.C. Tseng
Sir Peter Leahy Bonfield
Stan Shih
Thomas J. Engibous
Kok-Choo Chen
Michael R. Splinter
Johnsee Lee
TSMC
08/02
TSMC
Host by
Training/Speech Title
Pan Wen-Yuan Cultural and Educational Foundation
Speech: New Talent of a New Era
Fubon Financial Holding Co., Ltd.
Speech: Corporate Governance Structure and Board Operations
Securities and Future Institute
Legal Liability of Directors and Supervisors in Hostile Mergers and Acquisitions
Case Study on Employee Compensation Strategies and Tool Applications
Duration
1 hour
2 hours
3 hours
3 hours
Taiwan Corporate Governance Association
Introduction to Significant Mergers and Acquisition Agreements (Including Case Sharing)
3 hours
Industrial Sustainable Development - ICT Industry’s Low Carbon Investments and
Business Strategies in Response to the Paris Agreement
Taiwan Corporate Governance Association
Audit Committee Practices
Taiwan Mergers & Acquisitions and Private Equity Council
2016 Private Equity Forum
Oxford Economics
Global Economic Outlook Seminar
Community College Entrepreneurial Association
Developing Entrepreneurs
“Post-Election Taiwan and its Relations with China and the US” by Dr. Chi SU, Chairman
of Taipei Forum
“Recent Labor Problems in Taiwan and Future Potential Impact” by Dr. Pan Shihwei,
Associate Professor of Industrial Relations of Department and graduate studies of Labor
Relations,
Chinese Culture University
Note: Selected speeches on corporate governance and related topics.
Continuing Education/Training of Management in 2016
Name/Title
Lora Ho
Senior Vice President
and Chief Financial
Officer
Sylvia Fang
Vice President and
General Counsel
Date
05/05
08/04
Host by
Training
Securities and Future Institute
Legal Liability of Directors and Supervisors in Hostile Mergers and Acquisitions
Case Study on Employee Compensation Strategies and Tool Applications
05/26
Wispro IP & Legal
Sensing the Future Forum
Speech: Sensing the Future
09/21
Intellectual Property Office, Ministry of Economic Affairs
11/15
Ministry of Economic Affairs
12/09
Baker McKenzie
Taiwan-EU Seminar on Trade Secrets
Speech: Challenges Facing Taiwan Companies Protecting Corporate Trade Secrets
Trade Secrets Legislation’s Impact on Industry
Speech: The Status and Predicament of Trade Secrets Protection by Taiwanese
Enterprises
2016 Global Patent Seminar
Speech: Development & Challenges of Trade Secret Protection in Taiwan
Cliff Hou
Vice President, Design
and Technology
Platform
Jessica Chou
Senior Director,
Accounting Division
John Liang
Director, Internal Audit
05/05
12/02
12/05
12/06
05/11
11/29
Securities and Future Institute
Legal Liability of Directors and Supervisors Arising in Hostile Mergers and Acquisitions
Professional Director’s Insight into Corporate Governance and Building/Forming Effective
Board of Directors
Accounting Research and Development Foundation
The Annual Professional Development Training for Principal Accounting Officer
Computer Audit Association
Securities and Future Institute
Case Sharing of Procurement Auditing
Fraud Risks in Operation Cycles
3 hours
3 hours
4 hours
3 hours
2 hours
40 mins.
1 hour
Duration
3 hours
3 hours
3.5 hours
8 hours
3.5 hours
3.5 hours
3 hours
3 hours
6 hours
6 hours
6 hours
6 hours
In addition, various training programs and speech
presentations were also provided by TSMC’s Legal Organization
for Management and the relevant divisions, such as:
● Ethics code and anti-bribery/corruption
● Intellectual Property Protection
● Export Control Compliance and Practice
3.5 Code of Ethics and Business Conduct
Ethics at TSMC
Code of Conduct: Integrity is the most important core value
of TSMC’s culture. TSMC is committed to acting ethically in all
aspects of our business; constantly and vigilantly promoting
integrity, honesty, fairness, accuracy, and transparency in all
that we say and do. At the heart of our corporate governance
culture is TSMC’s Code of Ethics and Business Conduct
(the “Code”) that applies to TSMC and its subsidiaries. The
Code requires that each employee bears a heavy personal
responsibility to preserve and to protect TSMC’s ethical values
and reputation and to comply with various applicable laws and
regulations.
Major Ethics Code Obligations
● Do not advance personal interests at the expense of or in
conflict with the Company;
● Refrain from corruption, unfair competition, fraud, collusion,
and waste or abuse of corporate assets;
● Avoid any efforts improperly to influence the decisions of
anyone, including government officials, agencies, and courts,
as well as our customers and suppliers.
● Do not undertake any practices detrimental to TSMC, to the
environment, or to society;
● Procure all of our raw materials from socially responsible
sources;
● Protect proprietary information of TSMC and our customers;
and
● Abide by both the letter and spirit of all applicable laws, rules
and regulations.
Intellectual Property Protection: In order to build and sustain
an environment of innovation, technology leadership, and
sustainable profitable growth, the Code requires that we
promote business relationships founded upon an unwavering
respect for the intellectual property rights, proprietary
information and trade secrets of TSMC, our customers, and
others.
Public Disclosures: TSMC’s officers, especially our CEO,
CFO, and General Counsel, with oversight from our Board,
are responsible for the full, fair, accurate, timely, and
understandable financial accounting and financial disclosure
in reports and documents filed by the Company with securities
authorities and in all TSMC public communications and
disclosures. TSMC has a variety of measures in place to ensure
compliance with these disclosure obligations.
Any modification to the Code requires the approval of our
Audit Committee to ensure our ethics compliance program is
independently reviewed against corporate best practices.
Code Implementation
High Standard Ethical Culture: Our ethics program is
implemented in four ways by all of our employees, officers
and Board members. First, TSMC’s management sets the
“tone from the top” by acting in accordance with the Code
so that they may be an example to all stakeholders. Second,
working-level managers are responsible for ensuring their
staff’s understanding of and compliance with applicable rules
and regulations. Third, we encourage an environment of open
communications in discussing any questions related to the
Code. Any employee may consult his or her direct supervisors,
Human Resources or Legal to obtain timely advice. Lastly,
TSMC requires all employees to stay vigilant and report any
noncompliance by anyone to their supervisors, the function
head of Human Resources, the responsible corporate Vice
President that oversees the Ombudsman system, or to the
Chairman of the Company’s Audit Committee directly.
Self-Assessment of All Departments and Employees:
Self-assessment of all departments and employees is an
important part of our ethics compliance program. All
departments and subsidiaries of TSMC are required to
conduct Control Self-Assessment (CSA) tests annually to
review employees’ awareness of the Code. The CSA results are
reviewed to track the results of our compliance program. In
addition, all employees must disclose any matters that cause,
or may cause, actual or potential conflict of interest. In addition
to such proactive disclosure requirement, employees with
certain job responsibilities and senior officers must annually
declare any relationships that may constitute a conflict of
interest, which is then reviewed by executive management.
048
049
Internal Auditing: The Internal Auditor of TSMC plays a critical
role in ensuring the Company’s compliance with the Code and
relevant rules and regulations. To ensure that our financial,
managerial, and operating information is accurate, reliable,
and timely and that our employee’s actions are in compliance
with applicable policies, standards, procedures, laws and
regulations, our Internal Auditor conducts audits of various
control points within the Company in accordance with its
annual audit plan approved by the Board of Directors and
subsequently reports its audit findings and remedial issues to
the Board and management on a regular basis.
Training and Promotion: To promote awareness to our
employees of their responsibilities under the Code, we publish
our Code and related policies and documents on our intranet
and, provide training courses, posters, and internal news
articles. For incoming employees, we provide an introductory
training course on the Code which is available to all employees
online, as well as advanced courses delving into more specific
compliance topics such as anti-corruption, PIP, export control
and insider trading.
In addition to our internal compliance efforts, we expect and
assist our customers, suppliers, business partners, and any
other entities with whom we deal (such as consultants or third
party agents who act for or on behalf of TSMC) to recognize
and understand TSMC’s ethical standards to fulfill our
responsibilities as a corporate citizen. For instance, we require
all of our suppliers to declare in writing that they will not
engage in any fraud or any unethical conduct when dealing
with us, our officers, or employees. In 2015, TSMC became
a full member of the Electronic Industry Citizenship Coalition
(EICC) dedicated to electronics supply chain sustainability. In
addition to adopting the EICC Code of Conduct at all of its
facilities, TSMC applied the EICC’s standards to enhance our
audit program of our suppliers and relevant business partners.
We provide training and communicate our ethical culture to
our suppliers through live seminars to prevent any unethical
conduct and detect any sign of Code violations. We exchange
views on appropriate business conduct and TSMC’s ethical
standards with our customers as part of customer audit
programs and other occasions.
Reporting Channels and Whistleblower Protection
To ensure that our conduct meets relevant legal requirements
and the highest ethical standards under the Code, TSMC
provides multiple channels for reporting business conduct
concerns. First of all, our Audit Committee approved and
we have implemented the “Complaint Policy and Procedures
for Certain Accounting and Legal Matters” and “Procedures
for Ombudsman System” that allow employees or any
whistleblowers with relevant evidence to report any financial,
legal, or ethical irregularities anonymously through either
the Ombudsman or directly to the Audit Committee. TSMC
maintains additional internal reporting channels for our
employees. To foster an open culture of ethics compliance, we
encourage our employees and the third parties we do business
with to report any suspected wrongdoing by TSMC or by any
parties with whom we do business.
TSMC treats any complaint and the investigation thereof in a
confidential and sensitive manner, and strictly prohibits any
form of retaliation against any individual who in good faith
reports or helps with the investigation of any complaint.
Due to the open reporting channels, TSMC received reports on
various issues from employees and external parties such as our
customers and suppliers from time to time. Below is a summary
of the Number of Reported Incidents. We did not receive any
report related to finance or accounting matters in 2016.
Incidents reported to the Ombudsman System
Incidents reported to the Audit Committee
Whistleblower System
Incidents reported to the “Irregular Business
Conduct Reporting”
Total incidents investigated as founded
Sexual Harassment Investigation Committee
Total incidents investigated as founded
FY 2014
FY 2015
FY 2016
39
-
22
-
4
4
60
-
16
-
7
7
80 (Note 1)
1
35 (Note 2)
2 (Note 3)
5
5
Note 1: Among the 80 cases, no incidents related to ethics matters.
Note 2: Among the 35 cases, 15 cases related to ethics matters.
Note 3: Two employees involved in these two cases separately were discharged after TSMC’s
investigation confirmed their violation of the Code. TSMC also pressed criminal charge
against one of the employees, and the case is currently under investigation by the
authority.
Code Violation Disciplinary Action
We do not tolerate any violation of the Code and treat every
possible violation incident seriously. Any violator of the Code
(or relevant regulations) will be severely disciplined to the
full extent of our policies and the law, including immediate
dismissal, termination of business relationship, and judicial
prosecution as appropriate.
3.5.1 Taiwan Corporate Conduct and Ethics Implementation as Required by the Taiwan Financial Supervisory
Commission
Assessment Item
1. Establishment of Corporate Conduct and Ethics Policy and Implementation
Measures
(1) Does the company have bylaws and publicly available documents
addressing its corporate conduct and ethics policy and measures, and the
commitment regarding implementation of such policy from the Board of
Directors and the management team?
(2) Does the company establish relevant policies which are duly enforced
to prevent unethical conduct and provide implementation procedures,
guidelines, consequence of violation and complaint procedures in such
policies?
(3) Does the company establish appropriate compliance measures for the
business activities prescribed in paragraph 2, article 7 of the Ethical
Corporate Management Best Practice Principles for TWSE/GTSM Listed
Companies and any other such activities associated with high risk of
unethical conduct?
Implementation Status
Yes
No
Summary
Non-
implementation
and Its Reason(s)
None
V
V
V
(1) Integrity is the most important core value of TSMC’s culture. TSMC is
committed to acting ethically in all aspects of our business. We have
established TSMC Code of Ethics and Business Conduct (the “Code”) to
require that each employee bears a heavy personal responsibility to uphold
TSMC’s ethics value. For more details on the Code and the measures that
TSMC Board of Directors (the “Board”) and the management team take to
ensure compliance of the Code please refer to TSMC’s Annual Report and
the Corporate Social Responsibility Report.
(2) At the heart of our corporate governance culture is the Code that applies
to TSMC and its subsidiaries, and this Code requires that each employee
bears a heavy personal responsibility to preserve and to protect TSMC’s
ethical values and reputation and to comply with various applicable laws
and regulations. Specific requirements under the Code could be found in
our Annual Report. In addition, to educate and remind our employees of
their responsibilities under the Code, we publish our Code, relevant policies
and documents on our intranet and promote its awareness through training
courses, posters, and internal news articles. Furthermore, to ensure that our
conduct meets relevant legal requirements and the highest ethical standards
under the Code, TSMC provides multiple channels for reporting business
conduct concerns. Please refer to Assessment Item 3 for details.
We do not tolerate any violation of the Code and treat every possible
violation incident seriously. Any violator of the Code (or relevant regulations)
will be severely punished to the full extent of our policies and the law,
including immediate dismissal in accordance with TSMC Employee
Recognition, Disciplinary and Ombudsman Procedure, termination of
business relationship, and judicial prosecution as appropriate.
(3) Under the framework of the Code, TSMC has established a regulatory
compliance program that includes policies, guidelines and procedures
in other policy areas, including: Anti-corruption, Anti-harassment/
discrimination, Antitrust (unfair competition), Environment, Export Control,
Financial Reporting/Internal Controls, Insider Trading, Intellectual Property,
Proprietary Information Protection (“PIP“), Privacy, Record Retention and
Disposal, as well as procuring raw materials from socially responsible
sources (“Conflict-free Minerals“). The above-mentioned policies are crucial
in strengthening overall compliance with the Code. TSMC, its employees
and its subsidiaries are expected to fully understand and comply with all
laws and regulations that govern our businesses. The Internal Auditor of
TSMC also plays a critical role in ensuring the Company’s compliance with
the Code and relevant rules and regulations. To ensure that our financial,
managerial, and operating information is accurate, reliable, and timely
and that our employee’s actions are in compliance with applicable policies,
standards, procedures, laws and regulations, our Internal Auditor conducts
audits of various control points within the Company in accordance with
its annual audit plan approved by the Board of Directors and subsequently
reports its audit findings and remedial issues to the Board and Management
on a regular basis.
(Continued)
050
051
Assessment Item
2. Ethic Management Practice
Implementation Status
Yes
No
Summary
Non-
implementation
and Its Reason(s)
None
Assessment Item
4. Information Disclosure
Implementation Status
Yes
No
Summary
Non-
implementation
and Its Reason(s)
None
(1) Does the company assess the ethics records of whom it has business
V
relationship with and include business conduct and ethics related clauses
in the business contracts?
(1) We expect and assist our customers, suppliers, business partners, and any
other entities with whom we deal (such as consultant or third party agents
who act for or on behalf of TSMC) to understand and act in accordance
with TSMC’s ethical standards. For instance, as for our suppliers, we require
all of them to declare in writing that they will not engage in any fraud or
any unethical conduct when dealing with us or our officers and employees.
In addition to periodic audit, we provide training and communicate
our ethical culture to our suppliers through live seminars to prevent any
unethical conduct. We exchange views on business conduct and TSMC’s
ethical standards with our customers in customer audit programs and other
proper occasions.
(2) Does the company set up a unit which is dedicated to or tasked with
promoting the company’s ethical standards and reports directly to the
Board of Directors with periodical updates on relevant matters?
V
(2) TSMC’s Board of Directors strives to perform the responsibilities of
(3) Does the company establish policies to prevent conflict of interests,
provide appropriate communication and complaint channels and
implement such policies properly?
(4) To implement relevant policies on ethical conducts, does the company
establish effective accounting and internal control systems that are
audited by internal auditors or CPA periodically?
V
V
supervising the corporate conduct and ethics compliance practice through
the Audit Committee and the Compensation Committee, the hiring of a
financial expert for the Audit Committee, and coordination with the Internal
Audit department. The General Counsel and the Corporate & Compliance
Legal Division (which directly reports to the General Counsel) promotes,
with other divisions, the Company’s ethical standards, and the General
Counsel reports directly quarterly to the Board on the implementation
status. In addition, the responsible corporate Vice President who oversees
the Ombudsmen system and Internal Auditors update the Board ethical
standards compliance issues on a regular basis. Moreover, TSMC’s officers,
especially our CEO, CFO, and General Counsel, with oversight from our
Board, are responsible for the full, fair, accurate, timely, and understandable
financial accounting and financial disclosure in reports and documents
filed by the Company with securities authorities and in all TSMC public
communications and disclosures.
(3) TSMC requires newly hired employees to declare any conflict of interest
situation as appropriate. In addition, all employees must disclose any
matters that have, or may have, the appearance of undermining the Code
(such as any actual or potential conflict of interest). Furthermore, key
employees and senior officers must periodically declare their compliance
status with the Code according to relevant procedures.
(4) TSMC continues maintaining the integrity of its financial reporting processes
and controls and establishes appropriate internal control systems for
preventing higher potential unethical conduct, and the Internal Auditors
formulate annual audit plans based on the results of the risk assessment
and subsequently reports its audit findings and remedial issues to the Board
and Management on a regular basis. In addition, all departments and
subsidiaries of TSMC are also required to conduct Control Self-Assessment
(CSA) tests annually to review the effectiveness of the internal control
system.
(5) Does the company provide internal and external ethical conduct training
V
(5) Training is a major component of our compliance program, conducted
programs on a regular basis?
3. Implementation of Complaint Procedures
(1) Does the company establish specific complaint and reward procedures,
set up conveniently accessible complaint channels, and designate
responsible individuals to handle the complaint received?
(2) Does the company establish standard operation procedures for
investigating the complaints received and ensuring such complaints are
handled in a confidential manner?
(3) Does the company adopt proper measures to prevent a complainant from
retaliation for his/her filing a complaint?
None
throughout the year to refresh TSMC’s employees’ commitment to ethical
conduct, and to get updated information on laws and regulations related
to their daily operations. As for our suppliers, we communicate our ethical
culture to our business partners through live seminars to ensure their fully
understanding of our commit to ethical conduct.
(1) TSMC’s Audit Committee approved and TSMC has implemented the
“Complaint Policy and Procedures for Certain Accounting and Legal
Matters“ and “Procedures for Ombudsman System“ that allow employees
or any whistleblowers with relevant evidence to report any financial, legal,
or ethical irregularities anonymously through either the Ombudsman or
directly to the Audit Committee. TSMC also requires all employees to stay
vigilant and whistle-blow any noncompliance by anyone to their supervisors,
the function head of Human Resources, the responsible corporate Vice
President that oversees the Ombudsmen system, or to the Chairman of the
Company’s Audit Committee directly.
(2) TSMC treats any complaint and the investigation thereof in a confidential
and sensitive manner, and such manner is clearly stated in our bylaws.
(3) TSMC strictly prohibits any form of retaliation against any individual who
in good faith reports or helps with the investigation of any complaint, and
such requirement is clearly stated in our bylaws.
V
V
V
(Continued)
Does the company disclose its guidelines on business ethics as well as
information about implementation of such guidelines on its website and
Market Observation Post System (“MOPS”)?
V
Our internal website provides guidelines and informative articles on ethics
and honorable business conduct (in both Chinese and English) for employees’
easy access. In addition, TSMC discloses relevant policies and information in its
Annual Report (which is also available at the MOPS) and CSR Report (available
at: http://www.tsmc.com)
5. If the company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation.
TSMC has established the Code to require that all employees, officers and board members comply with the Code and the other policies and procedures. There is no discrepancy between the Code, including its
affiliate policies and procedures, and its implementation. For more details, please refer to “3.5 Code of Ethics and Business Conduct” on page 49-53 of this Annual Report.
6. Other important information to facilitate better understanding of the company’s corporate conduct and ethics compliance practices (e.g., review the company’s corporate conduct and ethics policy).
For details on the implementation of TSMC’s Corporate Conduct and Ethics, please refer to “3.5 Code of Ethics and Business Conduct” on page 49-53 of this Annual Report.
3.6 Regulatory Compliance
TSMC’s robust compliance efforts are comprised of legislation monitoring, developing and implementation of effective compliance
policies and programs, training, and maintaining an open reporting environment.
Legislative Monitoring
TSMC operates in many countries. To comply with governing legislation, applicable laws, regulations and regulatory expectations,
we closely monitor domestic and foreign government policies and regulatory developments that could materially impact TSMC’s
business and financial operations. Our Legal organization periodically updates our relevant internal departments, management
and the Audit Committee of applicable regulatory changes so that internal teams ensure compliance with new regulatory
requirements in a timely manner. We are also a proactive advocate for local legislative and regulatory reform, and our comments
and recommendations on legal reforms to the government have been accepted constructively. TSMC is increasingly dedicated to
identifying potential regulatory issues and will continue to be involved in advocating public policy changes that foster a positive and
fair business environment.
Policy and Compliance Program Development and Implementation
Under the framework of the Code, TSMC has established a regulatory compliance program that includes policies, guidelines and
procedures in different compliance areas, including: Anti-corruption, Anti-harassment/discrimination, Employment Regulations,
Antitrust (unfair competition), Environment, Export Control, Financial Reporting, Internal Controls, Insider Trading, Intellectual
Property, Proprietary Information Protection (“PIP”), Privacy, Record Retention and Disposal, as well as procuring raw materials
from socially responsible sources (“Conflict-free Minerals”). It is our belief that these policies are crucial in strengthening overall
compliance with the Code and compliance program. TSMC, its employees and its subsidiaries are expected to fully understand and
comply with all laws and regulations that govern our businesses and make ethical decisions in every circumstance.
Compliance Awareness Training
Training is a major component of our regulatory compliance program, conducted throughout the year to refresh TSMC’s employees’
commitment to ethical conduct, and to get updated information on laws and regulations related to their daily operations.
Highlights of our training include:
● Awareness promotion emails to employees, posters at our facilities, and news articles, compliance guidelines, tips and FAQs which
our employees can access through our intranet;
● Live seminars focusing on specific topics such as Anti-Corruption (this was the highlight of our compliance training activities for
2016, PIP, Intellectual Property, Personal Data Protection, Conflict Minerals Compliance and Export Control Management. Training
is made mandatory for those employees whose jobs are especially relevant to a particular topic to ensure sufficient awareness of
relevant laws and internal policies;
● On-line learning programs updated frequently to provide most up-to-date information and timely and flexible access for
employees to understand the law and key compliance issues, covering topics of Antitrust, Anti-harassment, Insider Trading, Export
Control Management, PIP, and Privacy Protection among others;
● External training, in Taiwan and abroad, for TSMC’s legal team to receive current developments of new laws and regulations, and
for its lawyers to comply with applicable continuing legal education requirements. External experts are also invited to give in-house
lectures on key issues.
052
053
Major Accomplishments
In 2016, TSMC achieved several major accomplishments in
regulatory compliance:
● Public Promotion Activities: In addition to fulfilling our
obligations on regulatory compliance matters, TSMC exercised
its civic duties as a responsible corporate citizen by advising
the local government on law and policy reform, including
urging the Government to amend certain outdated laws
and regulations, which we believe were inconsistent with
global practice, to improve TaiwanÕ s investment environment
and economic development. For example, since Taiwan
legislatureÕ s acceptance of TSMCÕ s advice to impose criminal
liability for trade secret misappropriation in 2012, TSMC
continues to be an advocate of trade secret protection which
is critical to innovation and fair competition, and hosted and
attended multiple events to raise industriesÕ awareness of the
importance of this topic.
● Internal Training: Throughout 2016, TSMC offered a wide
range of training courses on various compliance topics,
including 12 on-line training courses, and 42 topics covered
via live seminars. These courses were all developed and
conducted by internal and external compliance experts and
legal professionals.
● Continuous Awareness Enhancement of Ethics Code and
Anti-Corruption: Any corruption or other violation of the
Code could not only impose long-term negative influence
on our competitiveness, but could also seriously damage
our strong industry reputation. To enhance employeesÕ and
external partnersÕ awareness of the Code and anti-corruption
rules, the Legal organization set the two topics as our
awareness enhancement focus in 2016 and held a series of
promotion activities through multiple channels, including:
(1) provided over 50 face-to-face training sessions to
approximately 3,000 employees, especially manager-level,
from various internal organizations to promote awareness
of and ensure compliance with TSMCÕ s business conduct
standards when interacting with third parties; (2) provided
two on-line training programs to approximately 26,000
manager-level and non-manager-level employees, (including
those of our subsidiaries); (3) provided 8 live seminars to over
700 suppliers (a special focus for 2016) for a completion rate
of 96%; (4) promoted reporting channels and whistleblower
rights by emails and through posters throughout our facilities.
Ahead into 2017, it is our objective to continuously provide
compliance training on these and other compliance topics to
our employees.
● Conflict-Free Supply Chain: As a recognized global leader in
the electronics industry supply chain, we acknowledge our
corporate social responsibility to strive to procure conflict
free minerals in an effort to recognize humanitarian and
ethical social principles that protect the dignity of all persons
and have implemented a series of compliance safeguards.
In 2016, TSMC has made continued progress to ensure a
conflict-free supply chain, and our conflict-free minerals
compliance program has also been highly ranked by
independent third party rating agencies.
● Export Compliance: TSMCÕ s export management system
(EMS) and policy has been in place for a number of years,
and is continuously maintained to ensure compliance with
all applicable regulations covering the export of information,
technologies, products, materials and equipment. Our EMS
was certified in September 2012 by the Bureau of Foreign
Trade, the Taiwan regulator, as a qualified ICP (Internal
Compliance Program) exporter. In addition, TSMC implements
Ò No ECCN, No ShipmentÓ control and customers are required
to provide end use and export control classification number
(ECCN) of the products, among other required information,
for TSMC to apply for applicable export licenses. TSMC has
frequently earned recognition as Ò best in classÓ and often
shares our experience on EMS implementation to third parties
including a variety of domestic and foreign organizations
and industry peers. In 2016 TSMC was recognized by
World Export Control Review (World ECR), a well-known
international online journal of export controls, as the Export
Controls Compliance team of the year for the Rest of the
World (outside USA and Europe). We also provided an on-line
learning program, live seminars, promotion emails, and
posters at our facilities to further enhance relevant employeesÕ
awareness of the topic.
● Other Major Compliance Topics: For other importance
compliance topics such as privacy protection, insider trading,
anti-harassment, and PIP, in 2016 we not only provided
and updated, if necessary, relevant on-line courses and
resources, but enhanced employeesÕ awareness by promotion
emails and through posters at facilities. Employees were
mandatorily required to complete on-line courses for both
anti-harassment and PIP.
3.7 Internal Control System Execution Status
3.7.1 Statement of Internal Control System
Taiwan Semiconductor Manufacturing Company Limited
Statement of Internal Control System
Date: February 14, 2017
Based on the findings of a self-assessment, Taiwan Semiconductor Manufacturing Company Limited (TSMC) states the
following with regard to its internal control system during the year 2016:
1. TSMCÕ s board of directors and management are responsible for establishing, implementing, and maintaining an adequate
internal control system. Our internal control is a process designed to provide reasonable assurance over the effectiveness
and efficiency of our operations (including profitability, performance and safeguarding of assets), reliability, timeliness,
transparency of our reporting, and compliance with applicable rulings, laws and regulations.
2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system
can provide only reasonable assurance of accomplishing its stated objectives. Moreover, the effectiveness of an internal
control system may be subject to changes due to extenuating circumstances beyond our control. Nevertheless, our internal
control system contains self-monitoring mechanisms, and TSMC takes immediate remedial actions in response to any
identified deficiencies.
3. TSMC evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the
Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the Ò RegulationsÓ ).
The criteria adopted by the Regulations identify five key components of managerial internal control: (1) control environment,
(2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring activities.
4. TSMC has evaluated the design and operating effectiveness of its internal control system according to the aforesaid
Regulations.
5. Based on the findings of such evaluation, TSMC believes that, on December 31, 2016, it has maintained, in all material
respects, an effective internal control system (that includes the supervision and management of our subsidiaries), to provide
reasonable assurance over our operational effectiveness and efficiency, reliability, timeliness, transparency of reporting, and
compliance with applicable rulings, laws and regulations.
6. This Statement is an integral part of TSMCÕ s annual report for the year 2016 and prospectus, and will be made public. Any
falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and
174 of the Securities and Exchange Law.
7. This statement was passed by the board of directors in their meeting held on February 14, 2017, with none of the eight
attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.
Taiwan Semiconductor Manufacturing Company Limited
Morris Chang,
Chairman
Mark Liu,
President and Co-Chief Executive Officer
C.C. Wei,
President and Co-Chief Executive Officer
054
055
3.7.2 If CPA was Engaged to Conduct a Special Audit of Internal Control System, Provide Its Audit Report: None.
3.9.2 CPA’s information
3.8 Status of Personnel Responsible for the Company’s Financial and Business Operation
3.8.1 Resignation or Dismissal of Chairman, President, and Heads of Accounting, Finance, Internal Audit and R&D
during the 2016 Calendar Year and as of the Date of this Annual Report: None.
(1) Former CPAs
Date of Change
Reasons and Explanation of Changes
Approved by BOD on November 10, 2015
Due to its internal personal changes, Deloitte & Touche updated the audit partners for TSMC from Yih-Hsin Kao
and Hung-Wen Huang to Yih-Hsin Kao and Yu-Feng Huang in 2016.
3.8.2 Certification of Employees Whose Jobs are Related to the Release of the Company’s Financial Information
State Whether the Appointment is Terminated or Rejected by the Consignor
or CPAs
Status
Client
CPA
Number of Employees
Internal Audit
Finance
Appointment terminated automatically
Not available
Appointment rejected (discontinued)
Not available
Certification
Certified Public Accountants (CPA)
US Certified Public Accountants (US CPA)
The Chartered Institute of Management Accountants (CIMA)
Certified Internal Auditor (CIA)
Chartered Financial Analyst (CFA)
Certified Management Accountant (CMA)
Financial Risk Manager (FRM)
Certificate in Financial Management (CFM)
Certification in Control Self-Assessment (CCSA)
Certification in Risk Management Assurance (CRMA)
Certified Information Systems Auditor (CISA)
BS7799/ISO 27001 Lead Auditor
3
3
-
13
-
-
-
-
3
4
5
2
30
15
1
6
3
2
2
1
-
-
-
-
3.9 Information Regarding TSMC’s Independent Auditor
3.9.1 Audit Fees
The Audit Committee approves all fees payable to TSMC’s independent auditor and recommends the same to the Board of Directors
for further approval. The Board of Directors has authorized the Audit Committee to approve any increase not exceeding 10% of the
approved fees.
Unit: NT$ thousands
Accounting
Firm
Name of CPA
Audit
Fee
Non-audit Fee
System
Design
Company
Registration
Human
Resource
Others
(Note 1)
Subtotal
CPA’s Audit Period
Remark
Deloitte & Touche
Yih-Hsin Kao,
Yu-Feng Huang,
and others
57,926
-
-
2,098
84
2,182
01/01/2016-12/31/2016
Note 2
Note 1: Fees mainly related to accounting research tool.
Note 2: Article 10.5.1 of Regulation Governing Information to be published in Annual Report of Public Companies was not applicable to TSMC.
Consignor
Not available
Not available
Accounting principle or practice
Disclosure of financial statements
Auditing scope or procedures
Others
V
The Opinions other than Unmodified Opinion Issued in the Last Two Years and
the Reasons for the Said Opinions (Note)
Is there any Disagreement in Opinion with the Issuer
Supplementary Disclosure (Disclosures Specified in Article 10.6.1.4~7 of the
Standards)
None
Yes
No
Explanation
None
Note: Starting in 2016, the new auditing standard of the Republic of China requires “An Unqualified Opinion” be replaced by “An Unmodified Opinion”.
(2) Successor CPAs
Accounting Firm
CPA
Date of Engagement
Deloitte & Touche
Yih-Hsin Kao and Yu-Feng Huang
Approved by BOD on November 10, 2015
Prior to the Formal Engagement, Any Inquiry or Consultation on the Accounting Treatment or Accounting Principles
for Specific Transactions, and the Type of Audit Opinion that Might be Rendered on the Financial Report
Written Opinions from the Successor CPAs that are Different from the Former CPA’s Opinions
None
None
(3) The Reply of Former CPAs on Article 10.6.1 and Article 10.6.2.3 of the Standards: None.
3.9.3 TSMC’s Chairman, Directors, Chief Executive Officer, Chief Financial Officer, and Managers in Charge of Its
Finance and Accounting Operations did not Hold any Positions within TSMC’s Independent Audit Firm or Its
Affiliates in the Most Recent Year.
3.9.4 Evaluation of the External Auditor’s Independence
The Audit Committee regularly monitors the independence of TSMC’s external auditor by conducting the below evaluations and
reports the same to the Board of Directors:
1. The auditor’s independence declaration
2. The Audit Committee pre-approves all audit and non-audit services conducted by the auditor to ensure that the non-audit
services do not influence the results of the audit
3. Ensure the audit partner rotates every five years
4. Annually evaluate the independence of the external auditor based on the results of the auditor survey
3.10 Material Information Management Procedure
TSMC has established relevant procedures for managing and disclosing material information. The responsible departments regularly
remind all officers and employees about the need to comply with these procedures and other applicable regulations when they
become aware of any potential material information and the possible need to publicly disclose such information. To ensure that our
employees, managers and board directors are aware of and comply with these relevant regulations, TSMC has also established our
“Insider Trading Policy”. To reduce the risk of insider trading, on-line training programs and live seminars are conducted periodically.
In addition, employees can familiarize themselves with relevant internal policies and training articles by easily accessing TSMC’s Legal
Organization intranet website.
056
057
058
058
059
059059
4.
Capital and Shares
4.1 Capital and Shares
4.1.1 Capitalization
Unit: Share/NT$
Month/
Year
Issue Price
(Per Share)
Authorized Share Capital
Capital Stock
Shares
Amount
Shares
Amount Sources of Capital
Remark
Capital Increase by
Assets Other than
Cash
07/2015
10
28,050,000,000
280,500,000,000
25,930,380,458
259,303,804,580 Exercise of Employee Stock
None
Options: NT$7,180,220
As of 02/28/2017
Date of Approval &
Approval Document No.
07/13/2015 Zhu Shang Tzu
No.1040020526
As of 02/28/2017
Total
Authorized Share Capital
Issued Shares
Listed
Non-listed
Total
Unissued
Shares
25,930,380,458
-
25,930,380,458
2,119,619,542
28,050,000,000
4.1.2 Capital and Shares
Unit: Share
Type of Stock
Common Stock
Shelf Registration: None.
4.1.3 Composition of Shareholders
Common Share
Type of Shareholders
Government
Agencies
Financial
Institutions
Other Juridical
Persons
Foreign
Institutions
and Natural
Persons
Domestic Natural
Persons
Number of Shareholders
8
173
1,113
4,005
323,327
As of 07/03/2016 (last record date)
Total
328,626
Shareholding
1,653,959,189
716,013,819
1,163,831,208
20,342,510,801
2,054,065,441
25,930,380,458
Distribution Profile of Share Ownership
Common Share
Shareholder Ownership (Unit: Share)
Number of Shareholders
149,756
124,998
24,023
9,374
4,219
4,727
2,255
1,445
2,863
1,568
1,027
461
289
210
1,411
328,626
1~999
1,000~5,000
5,001~10,000
10,001~15,000
15,001~20,000
20,001~30,000
30,001~40,000
40,001~50,000
50,001~100,000
100,001~200,000
200,001~400,000
400,001~600,000
600,001~800,000
800,001~1,000,000
Over 1,000,001
Total
Preferred Share: None.
4.1.4 Major Shareholders
Common Share
Shareholders
ADR-Taiwan Semiconductor Manufacturing Company, Ltd.
National Development Fund, Executive Yuan
Government of Singapore
Holding Percentage (%)
6.38%
2.76%
4.49%
78.45%
7.92%
100.00%
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Saudi Arabian Monetary Agency
JPMorgan Chase Bank N.A. Taipei Branch in Custody for EuroPacific Growth Fund
Norges Bank
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets Equity Pool
Vanguard Emerging Markets Stock Index Fund, a Series of Vanguard International Equity Index Funds
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Vanguard Total International Stock Index Fund, a series
of Vanguard Star Funds
JPMorgan Chase Bank N.A. Taipei Branch in Custody for ABU DHABI Investment Authority
Ownership
33,827,984
264,699,814
171,313,860
113,696,363
73,977,870
114,983,324
77,940,198
64,920,185
200,555,113
218,022,804
286,323,448
223,811,933
201,307,575
188,285,737
23,696,714,250
25,930,380,458
Total Shares Owned
5,363,175,253
1,653,709,980
683,323,892
391,625,559
354,750,649
311,950,515
253,958,873
252,443,845
240,686,063
237,325,761
As of 07/03/2016 (last record date)
Ownership (%)
0.13%
1.02%
0.66%
0.44%
0.29%
0.44%
0.30%
0.25%
0.77%
0.84%
1.10%
0.86%
0.78%
0.73%
91.39%
100.00%
As of 07/03/2016 (last record date)
Ownership (%)
20.68%
6.38%
2.64%
1.51%
1.37%
1.20%
0.98%
0.97%
0.93%
0.92%
060
061
4.1.5 Net Change in Shareholding by Directors, Management and Shareholders with 10% Shareholdings or More
Unit: Share
Title
Name
Chairman
Morris Chang
Vice Chairman
F.C. Tseng
Director
National Development Fund, Executive Yuan
Representative: Johnsee Lee
Independent Director
Sir Peter Leahy Bonfield
Independent Director
Stan Shih
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
President and Co-Chief Executive Officer
Mark Liu
President and Co-Chief Executive Officer
C.C. Wei
Senior Vice President and Chief Information Officer
Information Technology, Materials Management and Risk
Management
Stephen T. Tso
Senior Vice President, Chief Financial Officer and Spokesperson
Finance
Lora Ho
Senior Vice President
Research and Development/Technology Development
Wei-Jen Lo
Senior Vice President of TSMC and
President of TSMC North America
Rick Cassidy
Senior Vice President
Operations/Product Development
Y.P. Chin
Senior Vice President
Research and Development/Technology Development
Y.J. Mii
Vice President
Operations/Affiliate Fabs
M.C. Tzeng
Vice President and Chief Technology Officer
Research and Development/Corporate Research
Jack Sun
Vice President
Quality and Reliability
N.S. Tsai
2016
01/01/2017 ~ 02/28/2017
Net Change in
Shareholding
Net Change in Shares
Pledged (Note)
Net Change in
Shareholding
Net Change in Shares
Pledged (Note)
-
-
-
-
-
-
-
-
-
-
-
(320,000)
-
-
-
(180,000)
-
(178,000)
(225,000)
(45,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,000)
-
(21,000)
-
(9,000)
(25,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(Continued)
Title
Name
Vice President
Operations/Mainstream Fabs and Manufacturing
Technology
J.K. Lin
Vice President
Operations/300mm Fabs
J.K. Wang
Vice President
Corporate Planning Organization
Irene Sun
Vice President
Research and Development/Design and Technology Platform
Cliff Hou
Vice President
Business Development
Been-Jon Woo
Vice President and General Counsel
Legal
Sylvia Fang
Vice President
Human Resources
Connie Ma
Vice President
Research and Development/Technology Development
Y.L. Wang
Vice President
Research and Development/Integrated Interconnect &
Packaging
Douglas Yu (Note)
Vice President
Research and Development/More-than-Moore Technologies
Alexander Kalnitsky (Note)
Vice President
Research and Development/Design and Technology Platform
Kevin Zhang (Note)
2016
01/01/2017 ~ 02/28/2017
Net Change in
Shareholding
Net Change in Shares
Pledged (Note)
Net Change in
Shareholding
Net Change in Shares
Pledged (Note)
-
-
-
-
80,000
-
-
-
-
-
-
350,000
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note: Dr. Douglas Yu, Dr. Alexander Kalnitsky and Dr. Kevin Zhang were promoted to Vice Presidents, effective November 8, 2016. Their shareholdings were disclosed starting from that date.
062
063
4.1.6 Stock Trade with Related Party
4.1.9 Long-term Investment Ownership
Name
Wei-Jen Lo
Reason of the Transfer
Transfer Date
Transferee
Relation with the Transferer
Shares
Transfer Price
Gifting
01/05/2017
Wei-Li Lo
Brother
4,000
-
Ownership by TSMC (1)
Ownership by Directors, Managers and
Directly/Indirectly Owned Subsidiaries (2)
Total Ownership
(1) + (2)
Shares
%
Shares
%
Shares
%
As of 12/31/2016
4.1.7 Stock Pledge with Related Party: None.
4.1.8 Related Party Relationship among Our 10 Largest Shareholders
Common Share
Name
Current Shareholding
Spouse and Minor
Shareholding
TSMC Shareholding by
Nominee Arrangement
ADR-Taiwan Semiconductor Manufacturing Company, Ltd.
5,363,175,253
Shares
%
Shares
National Development Fund, Executive Yuan
Representative: Johnsee Lee
Government of Singapore
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Saudi
Arabian Monetary Agency
JPMorgan Chase Bank N.A. Taipei Branch in Custody for
EuroPacific Growth Fund
Norges Bank
JPMorgan Chase Bank N.A. Taipei Branch in Custody for
Stichting Depositary APG Emerging Markets Equity Pool
Vanguard Emerging Markets Stock Index Fund, a Series of
Vanguard International Equity Index Funds
JPMorgan Chase Bank N.A. Taipei Branch in Custody for
Vanguard Total International Stock Index Fund, a series of
Vanguard Star Funds
1,653,709,980
-
683,323,892
391,625,559
20.68%
6.38%
-
2.64%
1.51%
354,750,649
1.37%
311,950,515
253,958,873
1.20%
0.98%
252,443,845
0.97%
240,686,063
0.93%
JPMorgan Chase Bank N.A. Taipei Branch in Custody for ABU
DHABI Investment Authority
237,325,761
0.92%
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
As of 07/03/2016 (last record date)
Name and Relationship
between TSMC’s
Shareholders
Name
Relationship
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
%
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Shares
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
%
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Long-term Investment
Equity Method:
TSMC Partners, Ltd.
TSMC Global Ltd.
TSMC North America
TSMC Europe B.V.
TSMC Japan Limited
TSMC Korea Limited
988,268,244
7,284
11,000,000
200
6,000
80,000
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
TSMC China Company Limited
Not Applicable (Note 1)
100%
Not Applicable (Note 1)
TSMC Nanjing Company Limited (Note 2)
Not Applicable (Note 1)
100%
Not Applicable (Note 1)
TSMC Solar Europe GmbH (Note 3)
VisEra Technologies Company Ltd. (Note 4)
Systems on Silicon Manufacturing Co. Pte. Ltd.
Vanguard International Semiconductor Corp.
Xintec Inc. (Note 6)
Global UniChip Corporation
800
253,120,000
313,603
464,223,493
111,281,925
46,687,859
100%
86.94%
38.79%
28.32%
41.24%
34.84%
-
-
-
-
-
VentureTech Alliance Fund II, L.P.
Not Applicable (Note 1)
98.00%
Not Applicable (Note 1)
VentureTech Alliance Fund III, L.P.
Not Applicable (Note 1)
98.00%
Not Applicable (Note 1)
275,910,722
16.83% (Note 5)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
988,268,244
7,284
11,000,000
200
6,000
80,000
Not Applicable (Note 1)
Not Applicable (Note 1)
800
253,120,000
313,603
740,134,215
111,281,925
46,687,859
Not Applicable (Note 1)
Not Applicable (Note 1)
100%
100%
100%
100%
100%
100%
100%
100%
100%
86.94%
38.79%
45.16%
41.24%
34.84%
98.00%
98.00%
100%
VentureTech Alliance Holdings, LLC (Note 7)
Not Applicable (Note 1)
7.29%
Not Applicable (Note 1)
92.67%
Not Applicable (Note 1)
Note 1: Not applicable. These firms do not issue shares. TSMC’s investment is measured as a percentage of ownership.
Note 2: TSMC Nanjing Company Limited was established in May 2016.
Note 3: The dissolution procedures of TSMC Solar Europe GmbH will be completed by the end of June 2017.
Note 4: Pursuant to TSMC Board’s approval on August 2, 2016, TSMC acquired 86.94% shareholding in VisEra Technologies Company Ltd. from VisEra Holding Company, a wholly-owned subsidiary of
TSMC, in August 2016. To streamline investment structure, VisEra Holding Company was merged into TSMC Partners, Ltd., the subsidiary of TSMC, in October 2016.
Note 5: TSMC’s Director, National Development Fund of Executive Yuan, holds 16.72% while other Directors and Management hold 0.11%.
Note 6: Pursuant to TSMC Board’s approval on August 2, 2016, TSMC acquired 6.87% shareholding in Xintec Inc. from VisEra Holding Company, a wholly-owned subsidiary of TSMC in August 2016.
After the share purchase transaction, TSMC directly owned 41.24% of Xintec Inc.
Note 7: Due to the expiration of the investment agreement between Emerging Alliance Fund, L.P. and TSMC, Emerging Alliance Fund, L.P. completed the liquidation procedures in April 2016. As a result,
Emerging Alliance Fund, L.P.’s ownership in VentureTech Alliance Holdings, LLC was transferred to TSMC.
064
065
4.1.10 Share Information
4.1.12 Compensation to Directors and Profit Sharing Bonus to Employees
TSMC’s earnings per share in 2016 increased 9.0% from 2015 to NT$12.89 per share. The following table details TSMC’s market
price, net worth, earnings, and dividends per common share, as well as other data regarding return on investment.
Market Price, Net Worth, Earnings, and Dividends Per Common Share
Unit: NT$, except for weighted average shares and return on investment ratios
Item
Market Price Per Share (Note 1)
Highest Market Price
Lowest Market Price
Average Market Price
Net Worth Per Share
Before Distribution
After Distribution
Earnings Per Share
Weighted Average Shares (thousand shares)
Diluted Earnings Per Share
Dividends Per Share
Cash Dividends
Accumulated Undistributed Dividend
Return on Investment
Price/Earnings Ratio (Note 2)
Price/Dividend Ratio (Note 3)
Cash Dividend Yield (Note 4)
2015
154.50
115.00
139.84
47.11
41.11
25,930,380
11.82
6.00
-
11.83
23.31
4.3%
2016
01/01/2017 ~ 02/28/2017
193.00
131.50
166.36
53.58
(Note 5)
25,930,380
12.89 (Note 5)
7.00 (Note 5)
-
12.91 (Note 5)
23.77 (Note 5)
4.2% (Note 5)
190.00
179.50
185.06
-
-
-
-
-
-
-
-
-
Note 1: Referred to TWSE website
Note 2: Price/Earnings Ratio = Average Market Price/Diluted Earnings Per Share
Note 3: Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share
Note 4: Cash Dividend Yield = Cash Dividends Per Share/Average Market Price
Note 5: Pending for shareholders’ approval
4.1.11 Dividend Policy and Distribution of Earnings
TSMC does not pay dividends when there are no profits or retained earnings. TSMC has distributed cash dividends every year to
its shareholders since 2004. TSMC intends to maintain a stable and sustainable dividend policy, and will consider raising dividends
when the free cash flow is sufficient to cover the previous level of dividend payment and any debt repayment. On February 14,
2017, TSMC’s Board of Directors adopted a proposal recommending distribution of a cash dividend of NT$7 per share as shown in
the table below. The proposal will be implemented according to the relevant regulations, upon the approval of shareholders at the
Annual Shareholders’ Meeting on June 8, 2017.
Proposal to Distribute 2016 Earnings
Unit: NT$
Cash Dividends to Common Shareholders (NT$7 per share)
181,512,663,206
Based on TSMC’s Articles of Incorporation, before paying dividends or bonuses to shareholders, TSMC shall set aside not more than
0.3% of its annual profit to directors as compensation, and not less than 1% to employees as profit sharing bonus. As resolved by
TSMC’s Board of Directors on February 14, 2017, a profit sharing bonus to employees was expensed based on a certain percentage
of 2016 profit; compensation to directors was expensed based on the estimated amount of payment. If the actual amounts
subsequently paid differ from the above estimated amounts, the differences will be recorded in the year paid as a change in
accounting estimate.
2016 Directors’ Compensation and Employees’ Profit Sharing Bonus
Directors’ Compensation (Cash)
Employee’s Profit Sharing Bonus (Cash)
Total
Board Resolution (02/14/2017)
Amount (NT$)
376,432,200
22,418,339,262
22,794,771,462
Note: NT$22,418,339,262 employees’ cash bonus has already been distributed following each quarter of 2016. The above employees’ profit sharing bonus will be distributed in the third quarter of 2017.
2015 Directors’ Compensation and Employees’ Profit Sharing Bonus
Directors’ Compensation (Cash)
Employees’ Profit Sharing Bonus (Cash)
Total
Board Resolution (02/02/2016)
Actual Result (Note)
Amount (NT$)
356,186,472
20,556,887,786
20,913,074,258
Amount (NT$)
356,186,472
20,556,887,786
20,913,074,258
Note: The above Directors’ Compensation and Employees’ Profit Sharing Bonus were expensed under the Company’s 2015 statement of comprehensive income and the same amounts were approved by
the Board of Directors at its meeting on February 2, 2016.
4.1.13 Impact to 2017 Business Performance and EPS Resulting from Stock Dividend Distribution: Not applicable.
4.1.14 Buyback of Common Stock: None.
066
067
4.2 Issuance of Corporate Bonds
4.2.1 Corporate Bonds
NTD Corporate Bonds
As of 02/28/2017
Issuance
Issuing Date
Denomination
Offering Price
Total Amount
Coupon
Domestic Unsecured Bond (100-1)
Domestic Unsecured Bond (100-2)
Domestic Unsecured Bond (101-1)
Domestic Unsecured Bond (101-2)
Domestic Unsecured Bond (101-3) Domestic Unsecured Bond (101-4) Domestic Unsecured Bond (102-1) Domestic Unsecured Bond (102-2) Domestic Unsecured Bond (102-3) Domestic Unsecured Bond (102-4)
09/28/2011
NT$10,000,000
Par
01/11/2012
NT$10,000,000
Par
08/02/2012
NT$10,000,000
Par
09/26/2012
NT$10,000,000
Par
10/09/2012
NT$10,000,000
Par
01/04/2013
NT$10,000,000
Par
02/06/2013
NT$10,000,000
Par
07/16/2013
NT$10,000,000
Par
08/09/2013
NT$10,000,000
Par
09/25/2013
NT$10,000,000
Par
NT$18,000,000,000
NT$17,000,000,000
NT$18,900,000,000
NT$21,700,000,000
NT$4,400,000,000
NT$23,600,000,000
NT$21,400,000,000
NT$13,700,000,000
NT$12,500,000,000
NT$15,000,000,000
Tranche A: 1.40% p.a.
Tranche B: 1.63% p.a.
Tranche A: 1.29% p.a.
Tranche B: 1.46% p.a.
Tranche A: 1.28% p.a.
Tranche B: 1.40% p.a.
Tranche A: 1.28% p.a.
Tranche B: 1.39% p.a.
1.53% p.a.
Tranche A: 1.23% p.a.
Tranche B: 1.35% p.a.
Tranche C: 1.49% p.a.
Tranche A: 1.23% p.a.
Tranche B: 1.38% p.a.
Tranche C: 1.50% p.a.
Tranche A: 1.50% p.a.
Tranche B: 1.70% p.a.
Tranche A: 1.34% p.a.
Tranche B: 1.52% p.a.
Tenor and Maturity Date
Tranche A: 5 years
Maturity: 09/28/2016
Tranche B: 7 years
Maturity: 09/28/2018
Tranche A: 5 years
Maturity: 01/11/2017
Tranche B: 7 years
Maturity: 01/11/2019
Tranche A: 5 years
Maturity: 08/02/2017
Tranche B: 7 years
Maturity: 08/02/2019
Tranche A: 5 years
Maturity: 09/26/2017
Tranche B: 7 years
Maturity: 09/26/2019
Tenor: 10 years
Maturity: 10/09/2022
Tranche A: 5 years
Maturity: 01/04/2018
Tranche B: 7 years
Maturity: 01/04/2020
Tranche C: 10 years
Maturity: 01/04/2023
Tranche A: 5 years
Maturity: 02/06/2018
Tranche B: 7 years
Maturity: 02/06/2020
Tranche C: 10 years
Maturity: 02/06/2023
Tranche A: 7 years
Maturity: 07/16/2020
Tranche B: 10 years
Maturity: 07/16/2023
Tranche A: 4 years
Maturity: 08/09/2017
Tranche B: 6 years
Maturity: 08/09/2019
Tranche A: 1.35% p.a.
Tranche B: 1.45% p.a.
Tranche C: 1.60% p.a.
Tranche D: 1.85% p.a.
Tranche E: 2.05% p.a.
Tranche F: 2.10% p.a.
Tranche A: 3 years
Maturity: 09/25/2016
Tranche B: 4 years
Maturity: 09/25/2017
Tranche C: 5.5 years
Maturity: 03/25/2019
Tranche D: 7.5 years
Maturity: 03/25/2021
Tranche E: 9.5 years
Maturity: 03/25/2023
Tranche F: 10 years
Maturity: 09/25/2023
NT$13,500,000,000
Outstanding
Credit Rating
Trustee
Guarantor
Underwriter
Legal Counsel
Auditor
Repayment
Redemption or Early Repayment Clause
Covenants
Other Rights of
Bondholders
Conversion Right
Amount of Converted or
Exchanged Common Shares,
ADRs or Other Securities
NT$7,500,000,000
NT$7,000,000,000
NT$18,900,000,000
NT$21,700,000,000
NT$4,400,000,000
NT$23,600,000,000
NT$21,400,000,000
NT$13,700,000,000
NT$12,500,000,000
twAAA
(Taiwan Ratings Corporation,
08/24/2011)
twAAA
(Taiwan Ratings Corporation,
12/06/2011)
twAAA
(Taiwan Ratings Corporation,
07/02/2012)
Mega International Commercial Bank
twAAA
(Taiwan Ratings Corporation,
08/23/2012)
Taipei Fubon Commercial Bank
twAAA
(Taiwan Ratings Corporation,
09/04/2012)
twAAA
(Taiwan Ratings Corporation,
11/29/2012)
twAAA
(Taiwan Ratings Corporation,
12/18/2012)
twAAA
(Taiwan Ratings Corporation,
05/16/2013)
twAAA
(Taiwan Ratings Corporation,
07/15/2013)
twAAA
(Taiwan Ratings Corporation,
08/06/2013)
None
Not Applicable
Modern Law Office
Deloitte & Touche
Bullet
None
None
None
Not Applicable
Dilution Effect and Other Adverse Effects on
Existing Shareholders
Custodian
None
None
USD Corporate Bonds
Issuance
Issuing Date
Denomination
Listing
Offering Price
Total Amount
Coupon
Tenor and Maturity Date
Guarantor
Trustee
Underwriter
Senior Unsecured Notes
(Note)
04/03/2013
US$200,000 and integral multiples of US$1,000 in excess thereof
Singapore Exchange
2016 Notes: 99.988%
2018 Notes: 99.933%
US$1,500,000,000
2016 Notes: 0.950% p.a.
2018 Notes: 1.625% p.a.
2016 Notes: 3 years
Maturity: 04/03/2016
2018 Notes: 5 years
Maturity: 04/03/2018
TSMC
Citicorp International Limited
Goldman Sachs International
As of 02/28/2017
Legal Advisor
Auditor
Repayment
Outstanding
Jones Day
Maples and Calder
Deloitte & Touche
Bullet
US$1,150,000,000
Redemption or Early Repayment Clause
At issuer’s option
Covenants
Credit Rating
Limitations on (1) liens and (2) sale and leaseback transactions
A1 (Moody’s Investors Service, 03/15/2013)
A+ (Standard & Poor’s Rating Services, 03/15/2013)
Conversion Right
None
Other Rights of
Bondholders
Amount of Converted
or Exchanged Common
Shares, ADRs or Other
Securities
Dilution Effect and Other Adverse Effects on
Existing Shareholders
Custodian
Not Applicable
None
None
068
069
(Continued)
Note: Issued by TSMC Global Ltd., a wholly-owned subsidiary of TSMC, and unconditionally and irrevocably guaranteed by TSMC.
4.2.2 Convertible Bond: None.
4.2.3 Exchangeable Bond: None.
4.2.4 Shelf Registration: None.
4.2.5 Bond with Warrants: None.
4.3 Preferred Shares
4.3.1 Preferred Share: None.
4.3.2 Preferred Share with Warrants: None.
4.4 Issuance of American Depositary Shares
Issuing Date
10/08/1997
11/20/1998
01/12/1999 -
01/14/1999
07/15/1999
08/23/1999 -
09/09/1999
02/22/2000 -
03/08/2000
04/17/2000
06/07/2000 -
06/15/2000
Total Amount (US$)
594,720,000
184,554,440
35,500,000
296,499,641
158,897,089
379,134,599
224,640,000
1,167,873,850
05/14/2001 -
06/11/2001
240,999,660
06/12/2001
11/27/2001
02/07/2002 -
02/08/2002
11/21/2002 -
12/19/2002
297,649,640
320,600,000
1,001,650,000
160,097,914
07/14/2003 -
07/21/2003
908,514,880
11/14/2003
08/10/2005 -
09/08/2005
05/23/2007
1,077,000,000
1,402,036,500
2,563,200,000
Offering Price Per ADS
(US$)
24.78
15.26
17.75
24.516
28.964
57.79
56.16
35.75
20.63
20.63
16.03
16.75
8.73
10.40
10.77
8.6
10.68
24,000,000
12,094,000
2,000,000
12,094,000
5,486,000
6,560,000
4,000,000
32,667,800
120,000,000
60,470,000
10,000,000
60,470,000
27,430,000
32,800,000
20,000,000
163,339,000
11,682,000
58,410,000
14,428,000
72,140,000
20,000,000
59,800,000
18,348,000
87,357,200
100,000,000
163,027,500
240,000,000
100,000,000
299,000,000
91,740,000
436,786,000
500,000,000
815,137,500
1,200,000,000
TSMC Common
Shares from Selling
Shareholders
(Pursuant to ADR
Conversion Sale
Program)
TSMC Common
Shares from Selling
Shareholders
(Pursuant to ADR
Conversion Sale
Program)
TSMC Common
Shares from Selling
Shareholders
Cash Offering and
TSMC Common
Shares from Selling
Shareholders
(Note 4)
TSMC Common
Shares from Selling
Shareholders
(Pursuant to ADR
Conversion Sale
Program)
(Note 3)
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares
from Selling
Shareholders
TSMC Common
Shares
from Selling
Shareholders
(Pursuant to ADR
Conversion Sale
Program)
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
Units Issued
Common Shares
Represented
Underlying Securities
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
TSMC Common
Shares from Selling
Shareholders
Apportionment of
Expenses for Issuance
and Maintenance
(Note 3)
Issuance and Listing
NYSE
Rights and Obligations
of ADS Holders
Same as those of Common Share Holders
Trustee
Not Applicable
Depositary Bank
Citibank,N.A.–NewYork
Custodian Bank
(Note 1)
ADSs Outstanding
(Note 2)
Terms and Conditions
in the Deposit
Agreement and
Custody Agreement
Closing Price Per
ADS (US$; source:
Bloomberg)
Citibank, N.A. – Taipei Branch
As of February 28, 2017, total number of outstanding ADSs was 1,072,193,632.
See Deposit Agreement and Custody Agreement for Details
2016 (Note 5)
01/01/2017-
02/28/2017
High
Low
Average
High
Low
Average
31.55
19.73
26.36
32.34
29.29
30.74
Note 1: Citibank, N.A., Taipei Branch changed its name to “Citibank Taiwan Limited” in 2009.
Note 2: TSMC has in aggregate issued 813,544,500 ADSs since 1997, which, if taking into consideration stock dividends distributed over the period, would amount to 1,147,835,205 ADSs. Stock
dividends distributed in 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009 were 45%, 23%, 28%, 40%, 10%, 8%, 14.08668%, 4.99971%, 2.99903%, 0.49991%,
0.50417% and 0.49998%, respectively. As of February 28, 2017, total number of outstanding ADSs was 1,072,193,632 after 75,641,573 were redeemed.
Note 3: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne by the selling shareholders, while maintenance expenses such as
annual listing fees and accountant fees were borne by TSMC.
Note 4: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne proportionately by TSMC and the selling shareholders, while
maintenance expenses such as annual listing fees and accountant fees were borne by TSMC.
Note 5: Adjusted for cash dividend paid in 2016.
070
071
4.5 Status of Employee Stock Option Plan
All TSMC employee stock options expired and exercise completed in 2015. TSMC did not issue employee stock options in 2016, nor
as of the date of this annual report.
4.5.1 Issuance of Employee Stock Options: Not applicable.
4.5.2 Employee Stock Options Granted to Management Team and to Top 10 Employees: Not applicable.
4.6 Status of Employee Restricted Stock
TSMC did not issue employee restricted stock in 2016, nor as of the date of this annual report.
4.6.1 Status of Employee Restricted Stock: Not applicable.
4.6.2 Employee Restricted Stock Granted to Management Team and to Top 10 Employees: Not applicable.
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions
TSMC neither issued new shares in connection with mergers or acquisitions during 2016, nor as of the date of this annual report.
4.8 Financing Plans and Implementation: Not applicable.
072
073
074
074
075
075075
075
5.
Operational Highlights
5.1 Business Activities
5.1.1 Business Scope
As the founder and leader of the dedicated semiconductor foundry segment, TSMC provides a full range of integrated
semiconductor foundry services, including the most advanced process technologies, leading specialty technologies, the most
comprehensive design ecosystem support, excellent manufacturing productivity and quality, advanced mask and packaging services,
and so on, to fulfill an increasing variety of customer needs. The Company strives to provide the best overall value to its customers
and TSMC believes its customersÕ success is TSMCÕ s success. As a result, TSMC has won customer trust from around the world and
has experienced strong growth and success.
5.1.2 Customer Applications
TSMC manufactured 9,275 different products for 449 customers in 2016. These chips were used across the entire spectrum of
electronic applications, including computers and peripherals, information appliances, wired and wireless communications systems,
automotive and industrial equipment, consumer electronics such as DVDs, digital TVs, game consoles, digital still cameras and many
other applications.
The rapid evolution of end products drives customers to use TSMCÕ s innovative technologies and services, while at the same time
spurring TSMCÕ s own development of technology. As always, success depends on leading rather than following industry trends.
5.1.3 Consolidated Shipments and Net Revenue in 2016 and 2015
Unit: Shipments (thousand 12-inch equivalent wafers) / Net Revenue (NT$ thousands)
2016
2015
Shipments
Net Revenue
Shipments
Net Revenue
Wafer
Domestic (Note 1)
Export
Others (Note 2)
Domestic (Note 1)
Total
Export
Domestic (Note 1)
Export
1,849
7,757
N/A
N/A
1,849
7,757
129,150,510
780,028,641
5,369,724
33,389,469
134,520,234
813,418,110
1,588
7,175
N/A
N/A
1,588
7,175
Note 1: Domestic means sales to Taiwan.
Note 2: Others majorly include revenue associated with mask making, design services, and royalties.
5.1.4 Production in 2016 and 2015
Unit: Capacity / Output (million 12-inch equivalent wafers) / Amount (NT$ millions)
Wafers
Capacity
10-11
9-10
Output
9-10
8-9
Year
2016
2015
076
100,189,156
702,748,813
5,535,154
35,024,245
105,724,310
737,773,058
Amount
405,462
378,871
5.2 Technology Leadership
5.2.1 R&D Organization and Investment
In 2016 TSMC continued to invest in research and
development, with total R&D expenditures amounting to 8% of
revenue, a level that equals or exceeds the R&D investment of
many other leading high-tech companies.
TSMC recognizes that the technology challenge of continuing
to extend MooreÕ s Law, the doubling of semiconductor
computing power every two years, is becoming increasingly
complex and difficult. The efforts of the R&D organization
are focused on enabling the Company to continuously offer
its customers first-to-market, leading-edge technologies and
design solutions that contribute to their product success in
todayÕ s competitive market environment. In 2016 the R&D
organization met these challenges by completing the transfer
to manufacturing of the industry leading 10nm technology,
the 3rd generation of technology platform to make use of
3D FinFET transistors. The R&D organization continues to fuel
the pipeline of technological innovation needed to maintain
industry leadership. TSMCÕ s 7nm technology development is on
track to meet the goal of production start-up in 2017. TSMC
5nm technology is now in the full development stage, and the
definition and intensive early development efforts have been
started for nodes beyond 5nm.
In addition to CMOS logic, TSMC conducts R&D on a wide
range of other semiconductor technologies that provide the
functionality customers require for mobile SoC and other
applications. Highlights in 2016 include: the worldÕ s first
high-volume production of Integrated Fan-Out Package on
Package (InFO PoP) for mobile application processor packaging;
successful qualification of InFO PoP Gen-2 advanced packaging
technology for mobile applications and InFO wafer-level
fine-pitch fan-out technology for die-partition and high-speed
applications; 0.18µm second generation BCD (binary-coded
decimal) technology resulting in the worldÕ s highest
performance quick charger and wireless charger in 2016;
successful production launch of e-Flash 65nm/55nm node,
NOR-based cell technologies, including 1-T cell and split-gate
cell; completion of qualification of the 40nm node, split-gate
cell technology for consumer electronics applications such
as IoT and smartcards; and development and manufacturing
qualification of 650V D-MISFET, 100V E-HEMT, and RF 30V
D-MISFET GaN devices.
TSMC maintains a network of important external R&D
partnerships and alliances with world-class research
institutions, including IMEC, the highly regarded European R&D
consortium, where TSMC is a core partner. TSMC also provides
funding for nanotechnology research at leading universities
worldwide to promote innovation and the advancement of
nano-electronic technology. TSMC has established four joint
research centers within Taiwan: National Taiwan University,
National Chao Tung University, National Tsing Hua University,
and National Cheng Kung University. The goal of these
centers is to develop greater understanding of the devices
and materials used in the manufacture of advanced silicon
technologies.
R&D Expenditures
Amount: NT$ thousands
3
0
7
,
7
0
2
1
7
,
,
9
7
5
4
4
5
5
6
,
,
9
1
3
7
2
6
2
1
,
2015
2016
01/01/2017~
02/28/2017
5.2.2 R&D Accomplishments in 2016
Highlights
● 10nm Technology
10nm technology offers substantial density improvement with
better performance at same power or power reduction at
the same chip performance compared to earlier technology
generations and began customer product tape-out in the first
quarter and production ramp-up in the fourth quarter of 2016.
● 7nm Technology
TSMC focused on the manufacturing baseline process setup,
yield learning, transistor and interconnect R/C performance
improvement and the reliability evaluation of 7nm technology,
which offers significant density improvement with better
performance at same power or lower power consumption at
comparable performance vs. 10nm technology. During the
077
year, major customers and IP vendors completed IP design
and started silicon validation. TSMC plans to complete 7nm
qualification for risk production in 2017.
● 5nm Technology
Development activities in 2016 focused on test vehicle design
and implementation, mask making, and pilot run. Even though
the semiconductor industry is approaching the physical limits of
silicon, 5nm technology still follows Moore’s Law and delivers
substantial density improvement with better performance
at same power or lower power consumption at comparable
performance. TSMC will focus on manufacturing baseline
process setup, yield learning, transistor and interconnect R/C
performance improvement and reliability evaluation and plans
to continue 5nm full development in 2017 and 2018 for risk
production in 2019.
● Lithography Technology
The main focus for RD lithography in 2016 is 7nm and 5nm
development. For 7nm development, the primarily focus is on
continuous improvement of overlay control, defect reduction,
and patterning robustness in preparation for 7nm qualification.
As for 5nm development, EUV lithography will be used to
reduce the complex multiple-patterning process steps. In
2017, TSMC will take the delivery of newest generation of EUV
scanners to meet the tightened overlay control and imaging
requirement for 5nm and beyond.
In 2016, the EUV program made continuous improvement in
light-source power and its stability, which has enabled faster
learning rate and process development for advanced nodes.
Additional progress was made with resist process, pellicle, and
related mask blanks, as EUV technology moves closer to full
scale R&D and manufacturing readiness.
● Mask Technology
Mask technology is an integral part of our advanced
lithography. In 2016, R&D successfully completed the
development of mask technology for the 7nm node. This
technology is being transferred to the mask production
organization. During the same period, solid progress was made
on the development of mask technology for EUV lithography,
including the reduction of native defects on mask blanks and
the fabrication of EUV masks for lithographic processing of
7nm and 5nm nodes.
Integrated Interconnect and Packaging
CoWoS®, InFO and Under-Bump-Metallurgy Free Integration
(UBM-free integration, UFI) are part of the generic wafer level
system integration (WLSI) technology platform, which leverages
TSMC’s core competency in wafer processes for heterogeneous
system integration and packaging to meet the specific
customer needs in performance, power, profile, cycle time and
cost. InFO, UFI and CoWoS® are continuously evolving to fulfill
diversified markets such as IoTs, automotive, high-performance
computing and telecommunication.
● 3D IC
2016 was a landmark year for system integration, as TSMC
launched the world’s first high-volume manufacturing (HVM)
InFO PoP packaging for mobile applications processors. During
the year, TSMC also successfully qualified InFO PoP Gen-2
advanced packaging technology for mobile applications and
wafer-level fine-pitch InFO technology for die-partition and
high-speed applications. Production ramp-up of fine-pitch
fan-out HVM is expected in 2017. In interposer CoWoS®
technology, the application was rapidly extended to 16nm
starting from the FPGA (field programmable gate array)
family. In addition, TSMC leads the industry by starting mass
production of super high-end accelerators that integrate
multiple HBM2 (second generation high bandwidth memory)
chips and GPUs, resulting in a brand new application for
CoWoS® in the HPC area of artificial intelligence and deep
learning.
● Advanced Package
TSMC offers a wide variety of lead-free packaging solutions
for mobile/handheld devices. 10nm FinFET Si with ultra-fine
pitch copper packaging was developed and qualification
was successfully completed in the fourth quarter of 2016.
The low-cost and large die area up to 108mm2 with highly
reliable 80µm pitch copper packaging technology will be
inserted into customers’ mass production from 2017 onward.
In 2016, the low-cost, innovative and highly reliable fan-in
WLCSP technology was completed and transferred to Fab
for mass production of die size 5x5mm2. Expanding its
application envelope, in addition to larger die size 7x7mm2,
this technology also passed the reliability qualification for even
larger die sizes up to 10x10mm2.
● Advanced Interconnect
Several leading interconnect technologies were optimized
and implemented in the 5nm node during 2016. Both chip
performance and power utilization were effectively enhanced.
These state-of-the-art technologies included an innovative
integrated low-cost patterning process with the extension
of immersion lithography and cutting-edge EUV patterning
technology, optimized metal layer stacking combinations, and
a novel thin copper barrier process with prominent reliabilities.
In addition TSMC deployed experienced experts and relevant
resources to develop technology nodes of 3nm and beyond.
Advanced Transistor Research
Innovation in transistor architectures and materials has enabled
increased speed and reduction of power consumption in
advanced logic technologies. TSMC is at the forefront of
transistor research on devices with high mobility channel
materials for beyond Silicon CMOS. Complementing this
research are further efforts focusing on innovative solutions to
address challenges to technology performance from parasitic
resistances and capacitances. TSMC research is expected to
pave the way for continued density scaling while maximizing
performance and minimizing power on advanced logic
technologies for mobile and high-performance applications.
Specialty Technologies
TSMC offers a broad mix of technologies to address a wide
range of applications:
● Mixed Signal/Radio Frequency (MS/RF) Technology
In 2016, TSMC developed a 7nm silicon, electromagnetic
simulation-based design to facilitate high-speed circuit
design with layout specifications. To meet growing demand
for low-power consumption and leakage current in mobile
devices, TSMC also introduced 16FF RF technology, e.g. for 4G
LTE applications. In order to improve performance regarding
insertion loss and isolation, TSMC further reduced the key
parameter Ron-Coff to ~102 fs (femtoseconds) to enable
cellular/Wi-Fi RF switch applications.
● Power IC/Bipolar-CMOS-DMOS (BCD) Technology
TSMC’s 0.18µm second-generation BCD technology enabled
the world’s highest-performance quick charger and wireless
charger in 2016. 0.18µm third-generation BCD technology
is ramping up and will provide an even better solution with
higher performance at lower cost. Targeting 5V and below
mobile power management, newly developed asymmetric
power switch in 0.13µm BCD technology will enable higher
efficiency power supply for mobile devices.
● Panel Drivers
TSMC completed process qualification of 40nm high-voltage
6V/25-32V low-power panel driver technology with several
customer product verifications ongoing. This technology
supports Super Retina display driver ICs and touch-display
driver ICs for high-end mobile phones. In addition, TSMC
introduced Phase-2 with a 22% SRAM bitcell reduction as well
as 8V/25-32V process technology for OLED drivers; several
customers have designs in and plan to tape out in the first
quarter of 2017.
● Micro-electromechanical Systems (MEMS) Technology
In 2016, TSMC’s modular MEMS technology was qualified
for mass production of accelerometers and a pilot run
of high-resolution pressure sensors. Future plans include
the development of next-generation high-sensitivity thin
microphone, MEMS Si-pillar TSV (through silicon via)
technology and BioMEMS applications.
● GaN Technology
In 2016, 650V D-MISFET, 100V E-HEMT, and RF 30V D-MISFET
GaN devices were developed and qualified for manufacturing.
● Complementary Metal-Oxide-Semiconductor (CMOS)
Image Sensor Technology
In 2016, CMOS image sensor technology made the
following breakthroughs: (1) high-density wafer hybrid bond
technology; (2) second-generation wafer backside trench
isolation for pixels; and (3) composite metal grid structure
for SNR (signal-to-noise ratio) per pixel improvement. The
first breakthrough achieved the world’s most advanced pitch
density. The second and third breakthroughs reduced per-pixel
electrical and optical cross-talk for better image quality
compared to previous generations of optical structures. All
three technologies passed product and process qualification
and are progressing toward mass production.
● Flash/Embedded Flash Technology
TSMC achieved several important milestones in embedded flash
technologies in 2016. At the more mature 65nm/55nm node,
NOR-based cell technologies, including 1-T cell and Split-Gate
cell, were successfully put in production. At the 40nm node,
split-gate cell technology completed qualification for consumer
electronics applications such as IoT and smartcards, and
also completed customer product qualification were put in
production. This technology will be adopted for automobile
electronics, the development is undergoing. Embedded
flash development on the 28nm low-power and 28nm
high-performance mobile computing platforms is underway
for low-leakage applications in areas such as automobile
electronics and micro controller units (MCU).
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5.2.3 Technology Platform
TSMC provides customers with advanced technology
platforms that include the comprehensive design infrastructure
required to optimize design productivity and cycle time.
These include: design flows for electronic design automation
(EDA); silicon-proven IP building blocks, such as libraries; and
simulation and verification design kits, i.e., process design kits
(PDK) and technology files.
The availability of 7nm FinFET saw improvements in design
infrastructure using an advanced CPU core as the vehicle
to support customers’ adoption of 7nm FinFET. (EDA tool
certification results can be found on TSMC-Online.) TSMC
also extended its IP quality program (TSMC 9000) to allow IP
audits to be performed either at TSMC or at TSMC-certified
laboratories. To help customers plan new product tape-outs
incorporating IP/Library from TSMC’s Open Innovation
Platform® (OIP) ecosystem, the OIP ecosystem added a portal
to connect customers to an ecosystem of 43 solution providers.
5.2.4 Design Enablement
TSMC’s technology platforms provide a solid foundation to
facilitate the design process. Customers can design directly
using the Company’s internally developed IP and tools or using
those that are available from TSMC’s OIP partners.
Tech Files and PDKs
TSMC provides a broad range of process design kits (PDKs) for
digital logic, mixed-signal, radio frequency (RF), high-voltage
driver, CMOS image sensor (CIS) and embedded flash
technologies across a range of technology nodes from 0.5µm
to 7nm. In addition, the Company provides technology files
for DRC (design rule checking), LVS (layout verification of
schematic), RC (resistance-capacitance) extraction, automatic
place and route, and a layout editor to ensure process
technology information is accurately represented in EDA
(electronic design automation) tools. By 2016, TSMC had
provided more than 8,200 technology files and more than 270
PDKs via TSMC-Online. There are more than 100,000 customer
downloads of these files every year.
Library and IP
TSMC and its alliance partners offer customers a rich portfolio
of reusable IPs, which are essential building blocks for many
circuit designs. In 2016, over 60% of new tape-outs at TSMC
adopted one or more libraries or IP from TSMC and/or OIP
partners, as the Company expanded its library and silicon IP
portfolio to contain more than 12,000 items, a 20% increase
over 2015.
Design Methodology and Flow
In 2016 TSMC addressed critical design challenges associated
with the new 7nm FinFET technology for digital and SoC
applications by announcing the readiness of reference flows
through OIP collaboration that feature FinFET-specific design
solutions and methodologies for performance, power and area
optimization.
5.2.5 Intellectual Property
A strong portfolio of intellectual property rights strengthens
TSMC’s technology leadership and protects our advanced and
leading edge technologies. In 2016, TSMC received a total of
2,294 U.S. patents, which is a 30% increase from the previous
year, and thus reached a historical-high ranking of #9 in terms
of U.S. patent grants. Additionally, TSMC received over 1,200
issued patents in Taiwan and PRC, which is a 59% increase
from the previous year, as well as patents in other various
countries. TSMC’s patent portfolio now reaches over 35,000
patents worldwide (including patent applications in queue).
We continue to implement a unified strategic plan for TSMC’s
intellectual capital management. Strategic considerations and
close alignment with the business objectives drive the timely
creation, management and use of our intellectual property.
At TSMC, we have built a process to extract value from our
intellectual property by aligning our intellectual property
strategy with our R&D, operations, business objectives,
marketing, and corporate development strategies. Intellectual
property rights protect our freedom to operate, enhance our
competitive position, and give us leverage to participate in
many profit-generating activities.
We have worked continuously to improve the quality of our
intellectual property portfolio and to reduce the costs of
maintaining it. We plan to continue investing in our intellectual
property portfolio and intellectual property management
system to ensure that we protect our technology leadership
and receive maximum business value from our intellectual
property rights.
5.2.6 TSMC University Collaboration Programs
In recent years, TSMC has significantly expanded its interaction
with universities in Taiwan with the collaboration of research
projects at some of the nation’s most prestigious institutions.
The mission of these projects is twofold: to increase the
number of highly qualified students suitable for employment
in semiconductor industry, and to inspire university professors
to initiate research programs that focus on the frontiers
of semiconductor science, including device, process and
materials technology, semiconductor manufacturing and
engineering science, and specialty technologies for electronic
applications. Since 2013, TSMC has established four research
centers at National Taiwan University, National Chiao Tung
University, National Cheng Kung University and National
Tsing Hua University. In 2015, TSMC started cooperation
with International College of the Semiconductor Technology
and continued to enhance cooperation with other schools.
Currently, several hundred high-caliber students have joined
the research centers with backgrounds in the disciplines of
electronics, physics, materials engineering, chemistry, chemical
engineering and mechanical engineering.
In addition, TSMC also conducts strategic research projects at
top overseas universities, such as Stanford, MIT, UC Berkeley
and so on. The focus is on disruptive capabilities in transistors,
interconnect, patterning, modeling and special technologies.
TSMC University Shuttle Program
The TSMC University Shuttle Program was established to
provide professors at leading research universities worldwide
with access to the advanced silicon process technologies
needed to research and develop innovative circuit design
concepts. This program links motivated professors and
graduate students to enthusiastic managers at TSMC with the
goals of promoting excellence in the development of advanced
silicon design technologies and nurturing new generations of
engineering talent in the semiconductor field.
The program provides access to TSMC silicon process
technologies for digital, analog/mixed-signal circuits, RF designs
and micro-electromechanical system designs. Participants in
the TSMC University Shuttle Program include major university
research groups worldwide. TSMC and the University Shuttle
Program participants achieve “win-win” collaboration
through the program, which allows graduate students to
implement exciting designs and achieve silicon proof points for
innovations in various end-applications.
5.2.7 Future R&D Plans
To maintain and strengthen TSMC’s technology leadership,
the Company plans to continue investing heavily in R&D.
In addition to 7nm and 5nm CMOS nodes already in the
pipeline, the Company’s reinforced exploratory R&D work is on
track to establish a solid foundation to feed into technology
platforms beyond the 5nm node. The Company’s exploratory
work focuses on new transistors and technologies, such as 3D
structures, strain-engineered CMOS, high-mobility materials
and novel 3D IC devices. These studies emphasize innovation
and are guided by deep understanding of the fundamental
physics of nanometer CMOS transistors and related
technologies. The Company also continues to collaborate with
external research bodies from academia and industry consortia
alike with the goal of extending Moore’s Law and paving the
road to future cost-effective technologies and manufacturing
solutions for its customers.
With a highly competent and dedicated R&D team and its
unwavering commitment to innovation, TSMC is confident
in its ability to deliver the best and most cost-effective SoC
technologies to its customers and to drive future business
growth and profitability for years to come.
Summary of TSMC’s Major Future R&D Projects
Project Name
Description
Risk Production
(Estimated Target
Schedule)
7nm logic platform
technology and applications
4th generation FinFET CMOS platform
technology for SoC
5nm logic platform
technology and applications
5th generation FinFET CMOS platform
technology for SoC
2017
2019
3D IC
Cost-effective solution with better form factor
and performance for System-in-Package (SiP)
2016 ~ 2017
Next-generation lithography
EUV lithography and related patterning
technology to extend Moore’s Law
Long-term research
Specialty SoC technology (including new
NVM, MEMS, RF, analog) and transistors for
5nm node and beyond
2016 ~ 2019
2015 ~ 2019
The projects above account for roughly 70% of the total R&D budget for 2017, estimated to be
around 8% of 2017 revenue.
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5.3 Manufacturing Excellence
5.3.1 GIGAFAB® Facilities
Maintaining dependable capacity is a key part of TSMC’s
manufacturing strategy. The Company currently operates three
12-inch GIGAFAB® facilities – Fab 12, Fab 14, and Fab 15. The
combined capacity of the three facilities exceeded six million
12-inch wafers in 2016. Production within these three facilities
supports 0.13µm, 90nm, 65nm, 40nm, 28nm, 20nm, 16nm,
and 10nm process technologies, including each technology’s
sub-nodes. An additional portion of the capacity is reserved for
R&D work on leading-edge manufacturing technologies, which
currently supports the technology development of the 7nm
node and beyond.
TSMC has developed a centralized fab manufacturing
management system, super manufacturing platform (SMP),
to provide customers with greater benefits in the form of
more consistent quality and reliability, improved flexibility
to cope with demand fluctuations, faster yield learning and
time-to-volume, and lower-cost product requalification.
5.3.2 Engineering Performance Optimization
As advanced technology continues to evolve, the geometry
keeps shrinking and the need for tighter process control have
become extremely challenging for manufacturing. TSMC’s
unique manufacturing infrastructure is tailored with tightened
process control and diversified product portfolio to fulfill
higher product performance requirements. To achieve overall
optimization of equipment, process and yield, the process
control and analysis systems have been integrated with many
intelligent functions to perform self-diagnosis and self-reacting,
which have remarkable results in yield enhancement, workflow
improvement, fault detection, cost reduction and R&D cycle
decrement.
TSMC has developed Precise Fault Detection and Classification
system, Intelligent Advanced Equipment Control and Intelligent
Advanced Process Control to monitor the manufacturing
process in a timely manner and adjust conditions precisely.
To satisfy advanced and accurate process control and ensure
highly efficient and effective production, the Company has
created Precision Equipment Matching and Yield Mining
to minimize process variation and potential yield loss. The
Company has further developed Big Data, Machine Learning,
and Artificial Intelligence architecture to identify critical
variables to optimize yield management and operating
efficiency to fulfill customers’ special process requirements and
to cope with diversified product demand simultaneously.
5.3.3 Agile and Intelligent Operations
TSMC continues to drive manufacturing excellence through
agile and intelligent operations. The Company’s sophisticated
agile operation system has integrated demand and capacity
modeling, lean WIP (Work in Process) line management, and
lot dispatching and scheduling, and on time delivery system
to provide short cycle time, stable manufacturing and on-time
delivery. The system also provides great flexibility to quickly
support customers’ urgent pull-in requests when needed.
TSMC has also introduced new applications such as IoT
devices, intelligent mobile devices, and mobile robots that
help to consolidate data collection, yield traceability, workflow
efficiency, and material transportation to continuously enhance
fab operating efficiency.
Following its commitment to manufacturing excellence, TSMC
has integrated the technology of advanced data analysis, smart
diagnostics, self-reactive, precise forecasting and operational
knowledge to revolutionize the fab operating mode from
“Auto” to “Intelligent,” to optimize efficiency, flexibility and
quality while maximizing cost effectiveness and accelerating
overall innovation.
5.3.4 Raw Materials and Supply Chain Management
In 2016, TSMC continued to hold review meetings periodically
with teams from operations, quality control and business
to proactively identify and manage the risks of insufficient
supply capacity, quality issues and supply chain interruption.
TSMC also worked with suppliers to enhance performance,
quality, delivery and sustainability, as well as to support green
procurement, environmental protection and safety.
Raw Materials Supply
Major Materials
Major Suppliers
Market Status
Procurement Strategy
Raw Wafers
F.S.T.
GlobalWafers
S.E.H.
Siltronic
SUMCO
Chemicals
Lithographic
Materials
Gases
Slurry, Pad, Disk
Air Liquide
BASF
Entegris
Hong-Kuang
Kanto PPC
Merck
Versum
Wah Lee
3M
Hitachi
JSR
Nissan
Shin-Etsu Chemical
Sumitomo
T.O.K.
Air Liquide
Air Products
Entegris
Linde LienHwa
SK Materials
Taiyo Nippon Sanso
Versum
3M
Asahi Glass
Cabot Microelectronics
Dow Chemical
Fujifilm Planar Solutions
Fujimi
Kinik
Sumitomo
Versum
These five suppliers together provide over 90% of the
world’s raw wafer supply.
● TSMC’s suppliers of silicon wafers are required to pass stringent quality certification
procedures.
Each supplier has multiple manufacturing sites in order to
meet customer demand, including plants in North America,
Asia, and Europe.
● TSMC procures wafers from multiple sources to ensure adequate supplies for volume
manufacturing and to appropriately manage supply risk.
● Raw wafer quality enhancement programs are in place to meet TSMC’s technology
advancement.
● TSMC regularly reviews the quality, delivery, cost, sustainability and service performance
of its wafer suppliers. The results of these reviews are incorporated into TSMC’s
subsequent purchasing decisions.
● A periodic audit of each wafer supplier’s quality assurance system ensures that TSMC
can maintain the highest quality in its own products.
These eight companies are the major worldwide suppliers
of chemicals.
● Most suppliers have relocated some of their operations closer to TSMC’s major
manufacturing facilities, thereby significantly improving procurement logistics.
● All supplied products are regularly reviewed to ensure that TSMC’s specifications are
met and product quality is satisfactory.
These seven companies are the major worldwide suppliers of
lithographic materials.
● TSMC works closely with its suppliers to develop materials that meet all application and
cost requirements.
● TSMC and suppliers periodically conduct programs to improve their quality, delivery,
sustainability and green policy, and to ensure continuous progress of TSMC’s supply
chain.
● Some major suppliers have relocated or plan to replicate their manufacturing sites
closer to TSMC’s major manufacturing facilities, thereby significantly improving
procurement logistics and reducing supply risks.
These seven companies are the major worldwide suppliers
of specialty gases.
● The majority of the seven suppliers have facilities in multiple geographic locations,
which minimizes supply risk for TSMC.
● TSMC conducts periodic audits to ensure that they meet TSMC’s standards.
These nine companies are the major worldwide suppliers of
CMP (Chemical Mechanical Polishing) materials.
● TSMC works closely with its suppliers to develop materials that meet all application and
cost requirements.
● TSMC and suppliers periodically conduct programs to improve their quality, delivery,
sustainability and green policy, and to ensure continuous progress of TSMC’s supply
chain.
● Most suppliers have relocated or plan to replicate their manufacturing sites closer to
TSMC’s major manufacturing facilities, thereby significantly improving procurement
logistics and reducing supply risks.
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083
Suppliers Accounted for at Least 10% of Annual Consolidated Net Procurement
Unit: NT$ thousands
Supplier
Company A
Company B
VIS
Company C
Company D
Others
Total Net Procurement
2016
2015
Procurement
Amount
As % of 2016 Total
Net Procurement
Relation to TSMC
Procurement
Amount
As % of 2015 Total
Net Procurement
Relation to TSMC
9,140,880
7,065,392
6,732,297
5,527,526
1,314,335
22,403,613
52,184,043
17%
None
14%
None
13%
Investee accounted for using
equity method
11%
None
2%
None
43%
100%
7,981,126
6,452,073
7,148,777
4,579,937
5,457,120
22,080,628
53,699,661
15%
None
12%
None
13%
Investee accounted for using
equity method
9%
None
10%
None
41%
100%
5.3.5 Quality and Reliability
TSMC’s strong industry reputation stems from its commitment to provide customers with the highest-quality wafers and best
service for their products. Quality and Reliability (Q&R) services aim to achieve “quality on demand” to fulfill customers’ needs for
time-to-market delivery, reliable quality, and market competitiveness over a broad range of products.
Q&R technical services assist customers in the technology developmental stages and product design stages to design in superior
product reliability. In 2016, Q&R has worked with R&D to successfully qualify leading edge 10nm technology (the second FinFET
generation) and characterize process window with Fab for mass production in 2017. For specialty technologies, ultra-low-power
embedded Flash IP, stacked CMOS image sensor and ultra-high voltage GaN device also passed the qualifications and ready for
production. For InFO assembly technology, Q&R worked with R&D to integrate AP (Application Processor) with IPD (Integrated
Passive Device) and passed both component level and board level qualifications. With the implementation of fully automated
production and process monitor data output same as Fab’s quality management system, InFO technology enabled TSMC customers
to introduce new products with excellent and stable production quality in 2016. Over 100 million InFO devices have been shipped
to key customers without major quality or reliability issue.
For leading edge technology qualification and production ramp, Q&R developed accelerated test screening by voltage and
temperature to speed up reliability failure improvement and set up the associated in-line process monitor and control. To cope
with fast growing demand and increasing challenge in specialty technology, Q&R and Fab has worked together to ensure robust
qualification process and production ramp. To reduce quality incidents that affect customers, Q&R and Fab also collaborated to
develop a comprehensive tool and process defense system to early detect and contain issues within Fab and thus improve overall
customer satisfaction.
To enhance employees’ problem solving capabilities and develop associated quality system and methodology, Q&R continued to
hold several company-wide symposiums and training programs such as TQE (Total Quality Excellence), DOE (Design of Experiment),
SPC (Statistical Process Control) and metrology in 2016 including the promotion and training of Deep/Machine Learning. Q&R will
continue the development of employees’ capabilities by using new methodology to enhance TSMC competitiveness.
For incoming material quality improvement in 2016, Q&R
developed and implemented 6 new quality systems and also
inquired material suppliers to participate in the “National
Quality Control Circle Competition” to enhance their
self-improvement capabilities. For outgoing quality control,
Q&R implemented auto-packing machine to eliminate manual
handing and enhance InFO package quality assurance.
Failure analysis and material and chemical studies play
important roles in TSMC’s quality control. These capabilities are
applied from the early stages of process development through
assembly and packaging, including analysis of incoming
materials, airborne molecular contaminants, in-depth materials
characterization, and failure analysis for process development
and failure analysis of customer returns. In 2016, TSMC
invested aggressively in automation for transmission electron
microscopy (TEM) sample preparation and imaging, which
resulted in further improvement in TSMC world-class cycle
times and capacity in the area. The Company also strengthened
its ties with the nearby National Synchrotron Radiation
Research Center to analyze advanced materials. In collaboration
with customers and suppliers, TSMC continued to make
significant progress in fault isolation. In particular, TSMC added
the ability to remove material layer by layer for failure analysis
with nanometer level accuracy. Given the changing needs of
our customers and the importance of ensuring the quality of
incoming chemicals and materials, in 2016, TSMC launched
a laboratory to analyze precursor gases used in atomic layer
deposition (ALD). With a growing presence in the IC packaging
area, Q&R also bolstered failure analysis capabilities for
multi-chip packages including InFO packages. These efforts will
continue in 2017.
Q&R is also responsible for leading the Company toward
the ultimate goal of zero-defect production through the use
of continuous improvement programs. Periodic customer
feedback indicates that products shipped from TSMC
have consistently met or exceeded their field quality and
reliability requirements. In 2016, a third-party audit verified
the effectiveness of TSMC quality management systems in
compliance with ISO/TS 16949: 2009 and IECQ QC 080000:
2012 certificates requirements.
5.4 Customer Trust
5.4.1 Customers
TSMC’s customers worldwide have a variety of successful
product specialties and excellent performance records in
various segments of the semiconductor industry. Customers
include fabless semiconductor companies, systems
companies, and integrated device manufacturers such as
Advanced Micro Devices, Inc., Broadcom Limited, Huawei
Tech, Intel Corporation, MediaTek Inc., NVIDIA Corporation,
NXP Semiconductors N.V., OmniVision Technologies,
Inc., Qualcomm Inc., Sony Corporation, Spreadtrum
Communications, Inc., Texas Instruments Inc., and many more.
Customer Service
TSMC believes that providing superior service is critical
to enhancing customer satisfaction and loyalty, which,
in turn, is very important to retaining existing customers,
strengthening customer relationships and attracting new
customers. With a dedicated customer service team as the
main contact for coordination and facilitation, TSMC strives
to provide world-class design support, mask making, wafer
manufacturing, and backend services to provide customers an
optimum experience and, in return, gain customer trust and
sustain company profitability.
To facilitate customer interaction and information access on
a real-time basis, TSMC-Online offers a suite of web-based
applications that play an active role in design, engineering and
logistics collaborations. Customers have 24/7 access to critical
information and customized reports. Design collaboration
focuses on content availability and accessibility, with close
attention paid to complete, accurate and current information
at each stage of the design life cycle. Engineering collaboration
includes online access to engineering lots, wafer yields, wafer
acceptance test (WAT) analysis, and quality and reliability
data. Logistics collaboration provides access to data on any
given order status in wafer fabrication, backend process and
shipping.
Customer Satisfaction
To measure customer satisfaction and to ensure that our
customer needs are appropriately understood, TSMC conducts
an annual customer satisfaction survey (ACSS) with most active
customers, either by web or interview through an independent
consultancy.
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085
Complementary to the survey, quarterly business reviews (QBRs) are also conducted by the customer service team so that customers
can give feedback to TSMC on a regular basis. Through surveys, feedback reviews and intensive interaction with customers, TSMC is
able to maintain close touch for better service and collaboration.
Customer feedback is routinely reviewed, analyzed and then used to develop appropriate improvement plans, all in all becoming an
integral part of the customer satisfaction process with a complete closed loop. TSMC uses data derived from the survey as a base to
identify future focus areas. TSMC acts on the belief that customer satisfaction leads to loyalty, and customer loyalty leads to higher
levels of retention and expansion.
Customers that Accounted for at Least 10% of Annual Consolidated Net Revenue
Unit: NT$ thousands
Customer
Customer A
Customer B
Others
Total Net Revenue
2016
2015
Net Revenue
As % of 2016 Total
Net Revenue
Relation to TSMC
Net Revenue
As % of 2015 Total
Net Revenue
Relation to TSMC
157,185,418
107,463,238
683,289,688
947,938,344
17%
None
11%
None
72%
100%
134,117,206
134,158,421
575,221,741
843,497,368
16%
None
16%
None
68%
100%
5.4.2 Open Innovation Platform® (OIP) Initiative
Innovation has always been both an exciting proposition and a challenge. Competition among semiconductor companies is growing
more intense in the face of increasing customer consolidation and the commoditization of technology at more mature, conventional
levels. Companies must find ways to continue innovating in order to survive and prosper. One way to accelerate innovation is
through active collaboration with external partners. At TSMC this is known as the “Open Innovation®” approach. It is an “outside
in” approach to complement traditional “inside out” methods. TSMC has adopted this path to innovate via its Open Innovation
Platform® (OIP) initiative, which is a key part of the TSMC Grand Alliance.
The OIP initiative is a comprehensive design technology infrastructure that encompasses all critical IC implementation areas to
reduce design barriers and improve first-time silicon success. OIP promotes the speedy implementation of innovation amongst
the semiconductor design community and its ecosystem partners with TSMC’s IP, design implementation and DFM (design for
manufacturability) capabilities, process technology and backend services.
Crucial to OIP are ecosystem interfaces and collaborative components initiated and supported by TSMC that more efficiently
empower innovation throughout the supply chain and, in turn, drive the creation and sharing of new revenue and profits. TSMC’s
active accuracy assurance (AAA) initiative is key to OIP, providing the accuracy and quality required by the ecosystem interfaces and
collaborative components.
TSMC’s Open Innovation® model brings together the creative thinking of customers and partners under the common goal of
shortening each of the following: design time, time-to-volume, time-to-market and, ultimately, time-to-revenue. The model
features:
● The foundry segment’s earliest and most comprehensive EDA (electronic design automation) certification program, delivering
timely design tool enhancement required by new process technologies;
● The foundry segment’s largest, most comprehensive and robust silicon-proven IP (intellectual properties) and library portfolio; and
● Comprehensive design ecosystem alliance programs covering market-leading EDA, library, IPs, and design service partners.
TSMC’s OIP alliance consists of 23 EDA partners, 43 IP partners,
and 25 design service partners. TSMC and its partners work
together proactively and engage much earlier and deeper
than before in order to address mounting design challenges at
advanced technology nodes. Through this early and intensive
collaboration effort, TSMC’s OIP is able to deliver the needed
design infrastructure with timely enhancement of EDA tools,
early availability of critical IPs and quality design services when
customers need them. Taking full advantage of the process
technologies once they reach production-ready maturity is
critical to customers’ success.
In September 2016, TSMC hosted an OIP ecosystem forum
at the San Jose Convention Center in California, and another
in October in Beijing, with keynote addresses from OIP
ecosystem partners as well as TSMC executives. The forum
was well attended by both customers and ecosystem partners
and demonstrated the value of collaboration through OIP to
nurture innovation.
TSMC’s OIP partner management portal facilitates
communication with our ecosystem partners for efficient
business productivity. Designed with a highly intuitive interface,
this portal can be accessed via a direct link from TSMC-Online.
5.5 Human Capital
5.5.1 Workforce Structure
At the end of 2016, TSMC had over 46,968 employees
worldwide, including 4,909 managers, 20,719 professionals,
3,934 assistants, and 17,406 technicians. The following table
summarizes TSMC’s workforce as of the end of February, 2017:
2015/12/31
(Note)
2016/12/31
2017/02/28
Job
Total
Gender
Education
Managers
Professionals
Assistant
Engineer/Clerical
Technician
Male (%)
Female (%)
Ph.D.
Master’s
Bachelor’s
Other Higher
Education
High School
Average Age (years)
Average Years of Service (years)
4,669
19,645
3,789
17,169
45,272
58.7%
41.3%
4.4%
39.2%
26.2%
12.2%
18.0%
34.6
7.5
4,909
20,719
3,934
17,406
46,968
59.9%
40.1%
4.5%
40.3%
26.7%
11.6%
16.9%
35.2
7.9
4,934
20,972
3,993
17,443
47,342
60.1%
39.9%
4.5%
40.5%
26.8%
11.5%
16.7%
35.2
8.0
Note: The data shown no longer include TSMC Solid State Lighting, which was sold in 2015. In
addition, TSMC Solar ceased manufacturing operations in August 2015 and was merged
into TSMC in December 2015.
Human capital is one of TSMC’s most important assets.
5.5.2 Recruitment
The Company is committed to providing quality jobs with good
compensation, meaningful work, and a safe work environment
for its employees. Moreover, TSMC is dedicated to fostering a
dynamic, effective work environment.
Based on the commitment to employees, TSMC believes that
all employees should be treated with dignity and respect. In the
aspect of upholding international proclaimed human rights,
TSMC has initiated and implemented “TSMC Human Rights
Policy” based on “A Guide for Business – How to Develop
a Human Rights Policy” and is also compliance with “the
International Bill of Human Rights,” “The International Labour
Organization’s (ILO) Declaration on Fundamental Principles and
Rights at Work” and “the United Nations Global Compact’s
Ten Principles”. In addition, TSMC participates in the Electronic
Industry Citizenship Coalition (EICC) as a full member.
TSMC’s growth depends on the continued contributions
of its dedicated employees. In order to strengthen growth
momentum, the Company is dedicated to recruiting top-notch
professionals for all positions available. TSMC is an equal
employment opportunity employer and operates on the
principles of open-and-fair recruitment. The Company evaluates
all candidates according to their qualifications as related to the
requirement of each position without regard to race, gender,
age, religion, nationality or political affiliation.
TSMC’s continuous growth requires constant talent sourcing
and recruitment activities to support its business. The Company
recruited over 3,400 employees in 2016, including over 2,300
managers and professionals, as well as over 1,100 assistants
and technicians.
086
087
5.5.3 People Development
Employee development is an integral and critical factor for
the growth of a company and should be goal oriented,
disciplined and planned. TSMC is committed to cultivating
a consistent and diverse learning environment. To this end,
the Company has initiated the “TSMC Employee Training
and Education Procedure” to ensure the Company’s and the
individuals’ development objectives can be achieved through
the integration of internal and external training resources.
An individual development plan (IDP) is drawn up based on
the nature of the individual’s job, work performance and
career development path. At the same time, TSMC also
actively develops talent and creates a high-performance
work environment through development programs based
on business objectives. The Company not only provides
employees a diverse network of learning resources, including
on-the-job training, classroom training, e-learning, coaching,
mentoring and job rotation, but also creates a learning
atmosphere through learning enablement activities in response
to organization development requirements and employee
capability enhancement needs.
The Company provides employees with a wide range of onsite
general, professional and management training programs
systematically. In addition to engaging external experts as
trainers, hundreds of TSMC employees are trained to be
qualified instructors to deliver their valuable knowhow in
internal training courses.
TSMC’s training programs include:
● New employee training: includes basic training and job
orientation for new employees. Furthermore, newcomers’
managers and the Company’s well-established buddy system
are in place to support new hires in their assimilation process
in both corporate culture and work requirements.
● General training: refers to training required by government
regulations and/or Company policies, as well as training
on general subjects for all employees or employees of
different job functions. Topics include industry-specific
safety, workplace health and safety, quality, fab emergency
response, languages and personal effectiveness.
● Professional/functional training: technical and professional
training required by different functions within the Company.
TSMC offers training courses on equipment engineering,
process engineering, accounting, information technology,
and so forth.
● Management training: programs are tailored to the needs of
managers at all levels, including new, experienced, and senior
managers; optional courses are also available.
● Direct labor training: enables production line employees
to acquire the knowledge, skills and attitudes they need
to perform their jobs well and to pass the certification for
operating equipment. Includes direct labor skill training,
technician “Train the Trainer” training, and manufacturing
leader training.
● Customized training: programs are tailored to the needs of
the organization and/or the people development plan.
In 2016, TSMC conducted 1,228 internal training sessions,
which translated to a companywide total of 623,711 training
hours with the participation of 450,756 attendees. Employees
on average attended over 13 hours of training with total
training expenses reaching NT$75,401,157.
Apart from internal training resources, our employees are
also subsidized when pursuing external short-term courses,
for-credit courses and degrees.
5.5.4 Compensation
TSMC provides a diversified compensation program that is
competitive externally, fair internally, and adapted locally.
TSMC adheres to the philosophy of sharing wealth with
employees in order to attract, retain, develop, motivate
and reward talented employees. With excellent operating
performance, employment at TSMC entitles employees to a
comprehensive compensation and benefits program above the
industry average.
TSMC’s compensation program includes a monthly salary,
employees’ cash bonus based on quarterly business results, and
an employee profit sharing bonus based on annual profit.
are addressed effectively, impartial submission mechanisms,
including quarterly labor-management communication
meetings, are in place to provide timely support. TSMC makes
continuous efforts to facilitate mutual and timely employee
communication, based on multiple channels and platforms,
which in turn fosters harmonious labor relations and creates a
win-win situation for the Company and employees.
A host of two-way communication channels are constructed to
maintain the free flow of information between managers and
employees, including:
● Communication meetings for various levels of managers and
employees.
● Periodic employee satisfaction surveys, with follow-up actions
based on the survey findings.
● The employee portal, myTSMC, an internal website featuring
the Chairman’s talk, corporate messages, executive interviews,
and other activities of interest to employees.
● eSilicon Garden, a website hosting TSMC’s internal electronic
publications providing real-time updates on major activities
of the Company, as well as inspirational content featuring
outstanding teams and individuals.
● The Whistleblower Reporting System owned by Audit
Committee and the Ombudsman system led by an appointed
vice president – two distinct channels, each with a strict
confidentiality – to handle complaints regarding major
management, financial, auditing, ethics and business conduct
issues.
● The employee opinion box provides an opportunity for
employees to submit suggestions or opinions regarding their
work and the overall work environment.
● The Fab Caring Circle in each fab addresses the issues related
to employees’ work and personal life; the system is dedicated
mainly to the Company’s direct labor workers.
The purpose of the employee cash bonus and profit sharing
bonus programs is to reward employee contributions
appropriately, to encourage employees to work consistently
toward ensuring the success of TSMC, and to align employees’
interests with those of TSMC’s shareholders. The Company
determines the amount of the cash bonus and employees
compensation based on operating results and industry
practice in the Republic of China. The amount and form of the
employee cash bonus and employees’ profit sharing bonus
are recommended by the compensation committee to the
board. In addition, the profit sharing bonus is distributed upon
the approval of the board of directors. Individual awards are
based on each employee’s job responsibility, contribution and
performance.
In addition to providing employees of TSMC’s overseas
subsidiaries with a locally competitive base salary, the Company
grants annual bonuses as a part of total compensation. The
annual bonuses are granted in line with local regulations,
market practices, and the overall operating performance of
each subsidiary, to encourage employee commitment and
development within the Company.
5.5.5 Employee Engagement
Both local labor laws in each operation location and the
fundamental conventions of International Labour Organization
prohibit all forms of forced or compulsory labor. TSMC stands
firmly with these protocols and has never forced labor from
involuntary persons or menaced them with any penalty.
The Company encourages employees to maintain a healthy
and well-balanced life while accomplishing their missions
effectively. TSMC continuously implements programs to
enhance employee communication, well-being, benefit,
rewards and recognition. The various initiatives include the
following programs:
Employee Communication
TSMC values two-way communication and is committed to
keeping communication channels among management levels,
subordinates and peers open and transparent. To ensure that
employees’ opinions and voices are heard and their issues
088
089
TSMC Internal Communication Structure
Face-to-Face Meeting
● Functional/Work Unit/Skip-Level Meeting
● Announcement
● Fab/Functional Activity
For example: Labor-Management Meeting,
Chairman’s Executive Communication Meeting,
Functional/Monthly Meeting, etc.
Managers of All
Levels
Employees
Employee Portal
Employee Survey
HR Area Service Team
Communication Meeting
eSilicon Garden
Announcement
Company-Wide Activity
Human Resources
Board of Directors and
Management Team
Employee Voice Channels
● Ombudsman System
● Internal Audit Committee
● Sexual Harassment Investigation Committee
● Employee Opinion Box
● Fab Caring Circle
System/
Committee Chair
Core values are the foundation of the Company. As part of our practice on “Integrity,” means, among other things, that TSMC
abides by the law and goes above and beyond to act in accordance with the spirit of the law. “Commitment” entails providing
employees with meaningful jobs, a safe working environment and competitive compensation and benefits. Under this premise,
TSMC respects employees’ rights entitled by global labor standards and local regulations, including the UN Global Compact’s Ten
Principles and Taiwan’s Labor Union Act. In addition, as a member of the Electronic Industry Citizenship Coalition (EICC), TSMC
adopts the EICC Code of Conduct (http://www.tsmc.com/english/csr/eicc_membership.htm) and does not impede employees’
freedom of association. The principle and regulation above not only align with TSMC’s goal, but also provide practical standards
and measurement of implementation, which support the Company’s continuous enhancement.
The relationship between TSMC management and employees has been harmonious over the years; internal communication
channels are transparent and effective. The Company respects for employees’ right of forming a labor union, however, no
employees have pursued this avenue or issued a request to form one so far.
In 2016 and as of the date of this annual report, there have been no losses resulting from labor disputes.
Employee Benefit Programs
● Convenient onsite services: cafeterias, laundry services, convenience stores, travel, banking, and commuting assistance are
accessible for employees in the fabs.
● Comprehensive health enhancement and management programs: health enhancement programs include weight control, in-fab
clinic and dentist services, smoking cessation, massage service, cancer screening activity, blood donation, as well as monthly
seminars to raise personal health awareness. Health management programs include post health-exam follow-up activities for
abnormal cases, prevention of cerebrovascular disease, ergonomic hazards management, and maternal care and protection.
Employee assistance programs include five free annual counseling sessions for mental health and financial/legal issues, with
extensions available depending on the individual’s needs.
● Diverse employee welfare programs: including 80 hobby
clubs, 70 speeches covering various topics, Sports Day, and
Family Day. In addition, holiday bonuses, marriage bonuses,
condolence allowances and emergency subsidies are also
available to address employees’ needs.
● Premium sports centers: a variety of workout facilities
available to all employees and their families, as well as
exercise sessions conducted by professional instructors to
improve employee wellness.
● Flexible preschool service: childcare service, operated to
meet employees’ work schedules, is available in three fabs in
Hsinchu and Tainan.
Employee Recognition
TSMC sponsors various internal award programs to recognize
outstanding achievements by employees, both individual and
at a team level. With these award programs, TSMC aims to
encourage continued employee development, which, in turn,
adds to the Company’s competitive advantage.
TSMC’s award programs include:
● Medal of Honor: recognizes those who contribute
significantly to the Company’s business performance.
● TSMC Academy: recognizes outstanding TSMC scientists
and engineers whose individual technical capabilities make
significant contributions to the Company.
● TSMC Excellent Labor Award: recognizes excellent TSMC
technicians and group leaders whose outstanding
performance make significant contributions to the Company.
● Total Quality Excellence Award for each fab: recognize
employees’ continuous efforts in creating value for the
Company.
● Service Award and TSMC’s appreciation of senior employees:
recognize senior employees’ long-term commitment and
dedication to the Company.
● Excellent Instructor Award: praises the outstanding
performance and contribution of the Company’s internal
instructors in training courses for employees.
● Function-wide awards dedicated to innovation, such as the
Idea Forum and TQE Awards, which recognize employees’
initiative and continuous implementation of innovative
practices.
Apart from corporate-wide awards, TSMC recommended
employees to participate several external talent awards.
In 2016, distinguished TSMC employees continued to be
recognized through a host of national awards, including
Outstanding Young Engineer Award, National Manager
Excellence Award and National Industrial Innovation Award.
5.5.6 Retention
Continuous growth is a major component of TSMC’s
commitment to its stockholders and employees, and the
retention of outstanding employees is crucial in fulfilling
this commitment. From employee’s initial orientation
and adaptation to professional and career development,
TSMC works proactively to provide employees with good
compensation, innovative, and meaningful work, as well as a
safe work environment.
Employees’ overall satisfaction with the Company’s efforts are
reflected in the 2016 TSMC Core Values Survey, of which 97%
of participants agreed that they are willing to commit fully in
their work to make TSMC an even more successful company;
while 95% of them concurred with the statement that they are
willing to contribute their talents to TSMC and grow together
with the Company for the next five years.
In 2016, the Company recorded a manageable turnover rate of
4.1%.
5.5.7 Retirement Policy
TSMC’s retirement policy is set according to the Labor
Standards Act and Labor Pension Act of the Republic of China.
With the Company’s sound financial system, TSMC ensures
employees a solid pension contribution and payments, which
encourages employees to set long-term career plans and
further deepens their commitment to TSMC.
5.6 Material Contracts
Research and Development Funding Agreement
Term of Agreement:
10/31/2012 - 12/31/2017
Contracting Party:
ASML Holding N.V. (ASML)
Summary:
TSMC shall provide EUR276 million to ASML’s research and
development programs from 2013 to 2017.
Note: TSMC is not currently party to any other material
contract, other than contracts entered into in the
ordinary course of our business. The Company’s
“Significant Contingent Liabilities and Unrecognized
Commitments” are disclosed in Annual Report section
(II), Financial Statements, page 75-76.
090
091
092
092
093
093
6.
Financial Highlights and Analysis
6.1 Financial Highlights
6.1.1 Condensed Balance Sheet
Condensed Balance Sheet from 2012 to 2016 (Consolidated) (Note 1)
Unit: NT$ thousands
Item
Current Assets
Long-term Investments (Note 2)
Property, Plant and Equipment
Intangible Assets
Other Assets (Note 3)
Total Assets
Current Liabilities
Before Distribution
After Distribution
Noncurrent Liabilities
Total Liabilities
Before Distribution
After Distribution
Equity Attributable to Shareholders of the Parent
Capital Stock
Capital Surplus
Retained Earnings
Before Distribution
After Distribution
Others
Equity Attributable to Shareholders of the Parent
Before Distribution
After Distribution
Noncontrolling Interests
Total Equity
Before Distribution
After Distribution
2012
2013
250,325,436
358,486,654
65,717,240
89,183,810
2014
(Adjusted)
626,565,639
30,056,279
617,562,188
792,665,913
818,198,801
10,959,569
16,790,075
11,490,383
11,228,217
13,531,510
6,696,857
2015
2016
746,743,991
34,993,583
853,470,392
14,065,880
8,244,452
817,729,126
46,153,916
997,777,687
14,614,846
10,179,727
961,354,508
1,263,054,977
1,495,049,086
1,657,518,298
1,886,455,302
148,473,947
226,247,254
89,786,655
238,260,602
316,033,909
189,777,934
267,563,785
225,501,958
415,279,892
493,065,743
201,013,629
317,697,110
247,707,125
448,720,754
565,404,235
259,244,357
259,286,171
259,296,624
55,675,340
55,858,626
55,989,922
518,193,152
440,407,301
14,170,306
705,165,274
588,481,793
25,749,291
212,228,594
367,810,877
222,655,225
434,883,819
590,466,102
259,303,805
56,300,215
894,293,586
738,711,303
11,774,113
318,239,273
(Note 4)
178,164,903
496,404,176
(Note 4)
259,303,805
56,272,304
1,072,008,169
(Note 4)
1,663,983
847,508,255
1,046,201,111
1,221,671,719
1,389,248,261
769,722,404
929,517,630
1,066,089,436
266,830
127,221
962,760
(Note 4)
802,865
847,775,085
1,046,328,332
1,222,634,479
1,390,051,126
769,989,234
929,644,851
1,067,052,196
(Note 4)
408,411,468
330,638,161
(2,780,485)
720,550,680
642,777,373
2,543,226
723,093,906
645,320,599
Condensed Balance Sheet from 2012 to 2016 (Unconsolidated) (Note 1)
Unit: NT$ thousands
Item
Current Assets
Long-term Investments (Note 2)
Property, Plant and Equipment
Intangible Assets
Other Assets (Note 3)
Total Assets
Current Liabilities
Before Distribution
After Distribution
Noncurrent Liabilities
Total Liabilities
Before Distribution
After Distribution
Equity
Capital Stock
Capital Surplus
Retained Earnings
Before Distribution
After Distribution
Others
Total Equity
Before Distribution
After Distribution
2012
2013
205,819,614
139,634,200
586,636,036
6,449,837
13,597,966
257,623,763
165,545,159
770,443,494
7,069,456
7,897,131
2014
(Adjusted)
370,949,497
242,395,596
796,684,361
8,996,810
3,935,389
2015
2016
426,913,080
326,330,737
831,784,912
9,391,418
5,265,368
443,781,164
397,290,976
979,401,337
10,047,991
6,816,676
952,137,653
1,208,579,003
1,422,961,653
1,599,685,515
1,837,338,144
144,528,616
222,301,923
87,058,357
231,586,973
309,360,280
187,195,744
264,981,595
173,875,004
361,070,748
438,856,599
178,261,092
294,944,573
198,499,450
376,760,542
493,444,023
194,299,278
349,881,561
183,714,518
378,013,796
533,596,079
308,177,214
(Note 4)
139,912,669
448,089,883
(Note 4)
259,244,357
259,286,171
259,296,624
259,303,805
259,303,805
55,675,340
55,858,626
55,989,922
56,300,215
56,272,304
408,411,468
330,638,161
(2,780,485)
720,550,680
642,777,373
518,193,152
440,407,301
14,170,306
705,165,274
588,481,793
25,749,291
894,293,586
1,072,008,169
738,711,303
11,774,113
(Note 4)
1,663,983
847,508,255
1,046,201,111
1,221,671,719
1,389,248,261
769,722,404
929,517,630
1,066,089,436
(Note 4)
Note 1: 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version, 2014-2016 financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
Financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments include a decrease of NT$82,771 thousand in total assets, a decrease of NT$735,381
thousand in total liabilities before distribution and an increase of NT$652,610 thousand in total equity before distribution.
Note 2: Long-term investments consist of held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 3: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 4: Pending for shareholders’ approval.
Note 1: 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version, 2014-2016 financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
Financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments include a decrease of NT$84,759 thousand in total assets, a decrease of NT$737,344
thousand in total liabilities before distribution and an increase of NT$652,585 thousand in total equity before distribution.
Note 2: Long-term investments consist of noncurrent available-for-sale financial assets, held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 3: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 4: Pending for shareholders’ approval.
094
095
6.1.2 Condensed Statement of Comprehensive Income
6.1.3 Financial Analysis
Condensed Statement of Comprehensive Income from 2012 to 2016 (Consolidated) (Note 1)
Financial Analysis from 2012 to 2016 (Consolidated) (Note 1)
Unit: NT$ thousands (Except EPS: NT$)
Item
Net Revenue
Gross Profit
Income from Operations
Non-operating Income and Expenses
Income before Income Tax
Net Income
Other Comprehensive Income for the Year, Net of Income Tax
2012
2013
506,745,234
244,137,107
181,176,868
499,588
181,676,456
166,123,802
4,252,632
597,024,197
280,945,507
209,429,363
6,057,759
215,487,122
188,018,937
16,352,248
2014
(Adjusted)
762,806,465
377,722,016
295,870,309
6,208,048
302,078,357
263,763,958
11,805,021
Total Comprehensive Income for the Year
170,376,434
204,371,185
275,568,979
2015
2016
843,497,368
410,394,893
320,047,775
30,381,136
350,428,911
306,556,167
(14,714,182)
291,841,985
947,938,344
474,832,098
377,957,778
8,001,602
385,959,380
334,338,236
(11,067,189)
323,271,047
Net Income (Loss) Attributable to:
Shareholders of the Parent
Noncontrolling Interests
Total Comprehensive Income (Loss) Attributable to:
Shareholders of the Parent
Noncontrolling Interests
Basic Earnings Per Share (Note 2)
166,318,286
188,146,790
263,881,771
306,573,837
334,247,180
(194,484)
(127,853)
(117,813)
(17,670)
91,056
170,521,543
204,505,782
275,670,991
291,867,757
323,186,736
(145,109)
6.42
(134,597)
7.26
(102,012)
10.18
(25,772)
11.82
84,311
12.89
Note 1: 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version, 2014-2016 financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
Financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments include a decrease of NT$12,359 thousand in gross profit, a decrease of NT$19,984
thousand in income from operations, a decrease of NT$16,911 thousand in net income and a decrease of NT$46,054 thousand in total comprehensive income for the year.
Note 2: Based on weighted average shares outstanding in each year.
Condensed Statement of Comprehensive Income from 2012 to 2016 (Unconsolidated) (Note 1)
Unit: NT$ thousands (Except EPS: NT$)
Item
Net Revenue
Gross Profit
Income from Operations
Non-operating Income and Expenses
Income before Income Tax
Net Income
Other Comprehensive Income for the Year, Net of Income Tax
2012
2013
500,369,525
234,850,311
176,820,141
6,932,246
183,752,387
166,318,286
4,203,257
591,087,600
271,644,860
204,653,892
11,062,658
215,716,550
188,146,790
16,358,992
2014
(Adjusted)
757,152,389
366,899,120
290,640,302
10,363,515
301,003,817
263,881,771
11,789,220
Total Comprehensive Income for the Year
170,521,543
204,505,782
275,670,991
Basic Earnings Per Share (Note 2)
6.42
7.26
10.18
2015
2016
837,046,888
397,708,840
313,408,698
36,579,970
349,988,668
306,573,837
(14,706,080)
291,867,757
11.82
936,387,291
461,808,296
369,730,533
15,458,427
385,188,960
334,247,180
(11,060,444)
323,186,736
12.89
Note 1: 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version, 2014-2016 financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
Financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments include a decrease of NT$12,583 thousand in gross profit, a decrease of NT$19,356
thousand in income from operations, a decrease of NT$17,023 thousand in net income and a decrease of NT$46,150 thousand in total comprehensive income for the year.
Note 2: Based on weighted average shares outstanding in each year.
Capital Structure Analysis
Debts Ratio (%)
Long-term Fund to Property, Plant and Equipment (%)
Liquidity Analysis
Current Ratio (%)
Operating Performance
Analysis
Quick Ratio (%)
Times Interest Earned (Times)
Average Collection Turnover (Times)
Days Sales Outstanding
Average Inventory Turnover (Times)
Average Inventory Turnover Days
Average Payment Turnover (Times)
Property, Plant and Equipment Turnover (Times)
Total Assets Turnover (Times)
Profitability Analysis
Return on Total Assets (%)
Return on Equity attributable to Shareholders of the Parent (%)
Operating Income to Paid-in Capital Ratio (%)
Pre-tax Income to Paid-in Capital Ratio (%)
Net Margin (%)
Basic Earnings Per Share (NT$)
Diluted Earnings Per Share (NT$)
2012
24.78
131.63
168.60
142.39
177.92
9.64
37.86
8.38
43.56
19.38
0.91
0.58
19.19
24.68
69.89
70.08
32.78
6.42
6.41
2013
32.88
135.40
188.90
168.57
82.41
9.11
40.06
8.39
43.49
20.01
0.85
0.54
17.11
24.00
80.77
83.11
31.49
7.26
7.26
Cash Flow
Cash Flow Ratio (%)
191.93
183.05
Leverage
Industry Specific Key
Performance Indicator
Cash Flow Adequacy Ratio (%)
Cash Flow Reinvestment Ratio (%)
Operating Leverage
Financial Leverage
Billing Utilization Rate (%) (Note 3)
Advanced Technologies (28-nanometer and below) Percentage of
Wafer Sales (%)
Sales Growth (%)
Net Income Growth (%)
94.71
11.46
2.32
1.01
91
12
18.70
23.90
88.35
12.16
2.40
1.01
91
30
17.82
13.12
2014
(Adjusted)
30.01
158.16
311.70
278.03
94.34
8.12
44.95
7.42
49.19
19.39
0.95
0.55
19.33
27.86
114.10
116.50
34.58
10.18
10.18
209.70
92.15
13.04
2.15
1.01
97
42
27.77
40.25
2015
26.24
169.34
351.86
319.58
110.84
8.37
43.61
6.49
56.24
20.10
1.01
0.54
19.62
27.04
123.43
135.14
36.34
11.82
11.82
249.67
103.82
13.76
2.26
1.01
93
48
10.58
16.18
2016
26.31
157.17
256.95
241.34
117.74
8.78
41.57
8.18
44.62
20.11
1.02
0.53
19.03
25.60
145.76
148.84
35.27
12.89
12.89
169.63
108.57
11.51
2.15
1.01
92
55
12.38
9.03
Analysis of deviation of 2016 vs. 2015 over 20%:
1. Current ratio (%) decreased by 27% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
2. Quick ratio (%) decreased by 24% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
3. Average inventory turnover (Times) increased by 26% and average inventory turnover days decreased by 21% mainly due to strong shipments of leading edge wafers during the year and improving cycle time.
4. Cash flow ratio (%) decreased by 32% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
Note 1: Before 2012, financial statements were prepared in accordance with R.O.C. GAAP. 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version. 2014-2016
financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
Note 2: Capacity includes wafers committed by Vanguard and SSMC.
*Glossary
1. Capital Structure Analysis
(1) Debt Ratio = Total Liabilities / Total Assets
(2) Long-term Fund to Property, Plant and Equipment Ratio = (Shareholders’ Equity +
Noncurrent Liabilities) / Net Property, Plant and Equipment
2. Liquidity Analysis
(1) Current Ratio = Current Assets / Current Liabilities
(2) Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
(3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses
4. Profitability Analysis
(1) Return on Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate)) /
Average Total Assets
(2) Return on Equity Attributable to Shareholders of the Parent = Net Income Attributable to
Shareholders of the Parent / Average Equity Attributable to Shareholders of the Parent
(3) Operating Income to Paid-in Capital Ratio= Operating Income / Paid-in Capital
(4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital
(5) Net Margin = Net Income / Net Sales
(6) Earnings Per Share = (Net Income Attributable to Shareholders of the Parent - Preferred
Stock Dividend) / Weighted Average Number of Shares Outstanding
3. Operating Performance Analysis
5. Cash Flow
(1) Average Collection Turnover = Net Sales / Average Trade Receivables
(2) Days Sales Outstanding = 365 / Average Collection Turnover
(3) Average Inventory Turnover = Cost of Sales / Average Inventory
(4) Average Inventory Turnover Days = 365 / Average Inventory Turnover
(5) Average Payment Turnover = Cost of Sales / Average Trade Payables
(6) Property, Plant and Equipment Turnover = Net Sales / Average Net Property, Plant and
Equipment
(1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities
(2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of
Capital Expenditures, Inventory Additions, and Cash Dividend
(3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Dividends)/
(Gross Property, Plant and Equipment + Long-term Investments + Other Noncurrent Assets
+ Working Capital)
(7) Total Assets Turnover = Net Sales / Average Total Assets
6. Leverage
(1) Operating Leverage = (Net Sales - Variable Cost) / Income from Operations
(2) Financial Leverage = Income from Operations / (Income from Operations - Interest
Expenses)
096
097
Financial Analysis from 2012 to 2016 (Unconsolidated) (Note)
6.1.4 Auditors’ Opinions from 2012 to 2016
Capital Structure Analysis
Debt Ratio (%)
Long-term Fund to Property, Plant and Equipment Ratio (%)
Liquidity Analysis
Current Ratio (%)
Operating Performance
Analysis
Quick Ratio (%)
Times Interest Earned (Times)
Average Collection Turnover (Times)
Days Sales Outstanding
Average Inventory Turnover (Times)
Average Inventory Turnover Days
Average Payment Turnover (Times)
Property, Plant and Equipment Turnover (Times)
Total Assets Turnover (Times)
Profitability Analysis
Return on Total Assets (%)
Return on Equity (%)
Operating Income to Paid-in Capital Ratio (%)
Pre-tax Income to Paid-in Capital Ratio (%)
Net Margin (%)
Basic Earnings Per Share (NT$)
Diluted Earnings Per Share (NT$)
Cash Flow
Cash Flow Ratio (%)
Leverage
Cash Flow Adequacy Ratio (%)
Cash Flow Reinvestment Ratio (%)
Operating Leverage
Financial Leverage
2012
24.32
137.67
142.41
117.49
195.42
9.87
36.98
9.13
39.97
18.22
0.96
0.58
19.45
24.68
68.21
70.88
33.24
6.42
6.41
189.88
93.23
11.36
2.37
1.01
2013
29.88
132.57
137.62
118.35
104.10
9.26
39.40
9.06
40.30
18.55
0.87
0.55
17.58
24.00
78.93
83.20
31.83
7.26
7.26
179.11
86.78
12.32
2.46
1.01
2014
(Adjusted)
26.48
156.24
208.09
171.82
120.82
8.29
44.02
7.90
46.18
18.64
0.97
0.58
20.22
27.86
112.09
116.08
34.85
10.18
10.18
230.29
90.72
13.30
2.19
1.01
2015
23.63
168.96
219.72
186.00
144.41
8.58
42.54
6.87
53.11
19.73
1.03
0.55
20.42
27.04
120.87
134.97
36.63
11.82
11.82
264.94
102.35
13.85
2.31
1.01
2016
24.39
156.13
144.00
128.65
146.73
8.89
41.07
8.56
42.63
19.04
1.03
0.54
19.58
25.60
142.59
148.55
35.70
12.89
12.89
172.81
107.06
11.74
2.19
1.01
Analysis of deviation of 2016 vs. 2015 over 20%:
1. Current ratio (%) decreased by 34% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
2. Quick ratio (%) decreased by 31% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
3. Average inventory turnover (Times) increased by 25% and average inventory turnover days decreased by 20% mainly due to strong shipments of leading edge wafers during the year and improving cycle time.
4. Cash flow ratio (%) decreased by 35% mainly due to increase in payables to contractors and equipment suppliers and short-term loans.
Note: Before 2012, financial statements were prepared in accordance with R.O.C. GAAP. 2012-2013 financial statements were prepared in accordance with 2010 Taiwan-IFRSs version. 2014-2016
financial statements were prepared in accordance with 2013 Taiwan-IFRSs version.
*Glossary
1. Capital Structure Analysis
(1) Debt Ratio = Total Liabilities / Total Assets
(2) Long-term Fund to Fixed Assets Ratio = (Shareholders’ Equity + Long-term Liabilities) / Net
Fixed Assets
2. Liquidity Analysis
(1) Current Ratio = Current Assets / Current Liabilities
(2) Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
(3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses
3. Operating Performance Analysis
(1) Average Collection Turnover = Net Sales / Average Trade Receivables
(2) Days Sales Outstanding = 365 / Average Collection Turnover
(3) Average Inventory Turnover = Cost of Sales / Average Inventory
(4) Average Inventory Turnover Days = 365 / Average Inventory Turnover
(5) Average Payment Turnover = Cost of Sales / Average Trade Payables
(6) Fixed Assets Turnover = Net Sales / Average Net Fixed Assets
(7) Total Assets Turnover = Net Sales / Average Total Assets
4. Profitability Analysis
(1) Return on Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate)) /
Average Total Assets
(2) Return on Equity = Net Income / Average Shareholders’ Equity
(3) Operating Income to Paid-in Capital Ratio = Operating Income / Paid-in Capital
(4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital
(5) Net Margin = Net Income / Net Sales
(6) Earnings Per Share = (Net Income - Preferred Stock Dividend) / Weighted Average Number
of Shares Outstanding
5. Cash Flow
(1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities
(2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of
Capital Expenditures, Inventory Additions, and Cash Dividend
(3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Dividends) /
(Gross Fixed Assets + Long-term Investments + Other Assets + Working Capital)
6. Leverage
(1) Operating Leverage = (Net Sales - Variable Cost) / Income from Operations
(2) Financial Leverage = Income from Operations / (Income from Operations - Interest
Expenses)
Year
2012
2013
2014
2015
2016
CPA
Hung-Peng Lin, Shu-Chieh Huang
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Yu-Feng Huang
Audit Opinion
An Unqualified Opinion
An Unqualified Opinion
An Unqualified Opinion
An Unqualified Opinion
An Unmodified Opinion (Note)
Note: Starting in 2016, the new auditing standard of the Republic of China requires “An Unqualified Opinion” be replaced by “An Unmodified Opinion”.
Deloitte & Touche
12F, No. 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan, R.O.C.
Tel: 886-2-2545-9988
6.1.5 Audit Committee’s Review Report
The Board of Directors has prepared the Company’s 2016 Business Report, Financial Statements, and proposal for allocation of
earnings. The CPA firm of Deloitte & Touche was retained to audit TSMC’s Financial Statements and has issued an audit report
relating to the Financial Statements. The Business Report, Financial Statements, and earnings allocation proposal have been
reviewed and determined to be correct and accurate by the Audit Committee members of Taiwan Semiconductor Manufacturing
Company Limited. According to relevant requirements of the Securities and Exchange Act and the Company Law, we hereby submit
this report.
Taiwan Semiconductor Manufacturing Company Limited
Chairman of the Audit Committee: Sir Peter Leahy Bonfield
February 14, 2017
6.1.6 Financial Difficulties
The Company should disclose the financial impact to the Company if the Company and its affiliated companies have incurred any
financial or cash flow difficulties in 2016 and as of the date of this Annual Report: None.
6.1.7 Consolidated Financial Statements and Independent Auditors’ Report along with Parent Company Only Financial
Statements and Independent Auditors’ Report
Please refer to Annual Report section (II), Financial Statements.
098
099
6.2 Financial Status and Operating Results
6.2.1 Financial Status
Consolidated
Unit: NT$ thousands
Item
Current Assets
Long-term Investments (Note 1)
Property, Plant and Equipment
Intangible Assets
Other Assets (Note 2)
Total Assets
Current Liabilities
Noncurrent Liabilities
Total Liabilities
Capital Stock
Capital Surplus
Retained Earnings
Others
Equity Attributable to Shareholders of the Parent
Total Equity
2016
817,729,126
46,153,916
997,777,687
14,614,846
10,179,727
2015
746,743,991
34,993,583
853,470,392
14,065,880
8,244,452
1,886,455,302
1,657,518,298
318,239,273
178,164,903
496,404,176
259,303,805
56,272,304
1,072,008,169
1,663,983
1,389,248,261
1,390,051,126
212,228,594
222,655,225
434,883,819
259,303,805
56,300,215
894,293,586
11,774,113
1,221,671,719
1,222,634,479
Difference
70,985,135
11,160,333
144,307,295
548,966
1,935,275
228,937,004
106,010,679
(44,490,322)
61,520,357
0
(27,911)
177,714,583
(10,110,130)
167,576,542
167,416,647
%
10%
32%
17%
4%
23%
14%
50%
-20%
14%
0%
0%
20%
-86%
14%
14%
Note 1: Long-term investments consist of noncurrent available-for-sale financial assets, held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 2: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
● Analysis of Deviation over 20%
Increase in long-term investments: The increase was mainly due to increase in held-to-maturity financial assets.
Increase in other assets: The increase was mainly due to increase in deferred income tax assets.
Increase in current liabilities: The increase was mainly due to increase in payables to contractors and equipment suppliers and
short-term loans.
Decrease in noncurrent liabilities: The decrease was mainly due to reclassification of bonds payable due in 1 year to current liabilities
and decrease in guarantee deposits.
Increase in retained earnings: The increase was mainly due to net income of 2016, partially offset by distribution of 2015 earnings.
Decrease in others: The decrease was mainly due to decrease in currency exchange differences arising from translation of foreign
operations in 2016.
● Major Impact on Financial Position
The above deviations had no major impact on TSMC’s financial position.
● Future Plan on Financial Position: Not applicable.
Unconsolidated
Unit: NT$ thousands
Item
Current Assets
Long-term Investments (Note 1)
Property, Plant and Equipment
Intangible Assets
Other Assets (Note 2)
Total Assets
Current Liabilities
Noncurrent Liabilities
Total Liabilities
Capital Stock
Capital Surplus
Retained Earnings
Others
Total Equity
2016
443,781,164
397,290,976
979,401,337
10,047,991
6,816,676
2015
426,913,080
326,330,737
831,784,912
9,391,418
5,265,368
1,837,338,144
1,599,685,515
308,177,214
139,912,669
448,089,883
259,303,805
56,272,304
1,072,008,169
1,663,983
194,299,278
183,714,518
378,013,796
259,303,805
56,300,215
894,293,586
11,774,113
1,389,248,261
1,221,671,719
Difference
16,868,084
70,960,239
147,616,425
656,573
1,551,308
237,652,629
113,877,936
(43,801,849)
70,076,087
0
(27,911)
177,714,583
(10,110,130)
167,576,542
%
4%
22%
18%
7%
29%
15%
59%
-24%
19%
0%
0%
20%
-86%
14%
Note 1: Long-term investments consist of held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 2: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
● Analysis of Deviation over 20%
Increase in long-term investments: The increase was mainly due to increase in investments accounted for using equity method in
2016.
Increase in other assets: The increase was mainly due to increase in deferred income tax assets.
Increase in current liabilities: The increase was mainly due to increase in payables to contractors and equipment suppliers and
short-term loans.
Decrease in noncurrent liabilities: The decrease was mainly due to reclassification of bonds payable due in 1 year to current liabilities
and decrease in guarantee deposits.
Increase in retained earnings: The increase was mainly due to net income of 2016, partially offset by distribution of 2015 earnings.
Decrease in others: The decrease was mainly due to decrease in currency exchange differences arising from translation of foreign
operations in 2016.
● Major Impact on Financial Position
The above deviations had no major impact on TSMC’s financial position.
● Future Plan on Financial Position: Not applicable.
100
101
6.2.2 Financial Performance
Consolidated
Unit: NT$ thousands
Item
Net Revenue
Cost of Revenue
Gross Profit before Realized (Unrealized) Gross Profit on Sales
to Associates
Realized (Unrealized) Gross Profit on Sales to Associates
Gross Profit
Operating Expenses
Other Operating Income and Expenses, Net
Income from Operations
Non-operating Income and Expenses
Income before Income Tax
Income Tax Expenses
Net Income
Other Comprehensive Income, Net of Income Tax
Total Comprehensive Income for the Year
Total Net Income Attributable to Shareholders of the Parent
Total Comprehensive Income Attributable to Shareholders
of the Parent
2016
947,938,344
473,077,173
474,861,171
(29,073)
474,832,098
96,904,133
29,813
377,957,778
8,001,602
385,959,380
51,621,144
334,338,236
(11,067,189)
323,271,047
334,247,180
323,186,736
2015
843,497,368
433,117,601
410,379,767
15,126
410,394,893
88,466,500
(1,880,618)
320,047,775
30,381,136
350,428,911
43,872,744
306,556,167
(14,714,182)
291,841,985
306,573,837
291,867,757
Difference
104,440,976
39,959,572
64,481,404
(44,199)
64,437,205
8,437,633
1,910,431
57,910,003
(22,379,534)
35,530,469
7,748,400
27,782,069
3,646,993
31,429,062
27,673,343
31,318,979
%
12%
9%
16%
-292%
16%
10%
NM
18%
-74%
10%
18%
9%
25%
11%
9%
11%
● Analysis of Deviation over 20%
Decrease in realized (unrealized) gross profit on sales to associates: The decrease was mainly due to higher sales to associates and
defer recognition of gain in the fourth quarter of 2016.
Decrease in non-operating income and expenses: The decrease was mainly due to lower gain on disposal of available-for-sale
financial assets.
Increase in other comprehensive income, net of income tax: The increase was mainly due to unrealized gain from available-for-sale
financial assets was realized to profit or loss upon disposal in 2015, partially offset by decrease in currency exchange differences
arising from translation of foreign operations in 2016.
● Sales Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders” on pages 8-11 of this Annual Report.
● Major Impact on Financial Performance
The above deviations had no major impact on TSMC’s financial performance.
● Future Plan on Financial Performance: Not applicable.
Unconsolidated
Unit: NT$ thousands
Item
Net Revenue
Cost of Revenue
Gross Profit before Realized (Unrealized) Gross Profit on Sales
to Subsidiaries and Associates
Realized (Unrealized) Gross Profit on Sales to Subsidiaries and
Associates
Gross Profit
Operating Expenses
Other Operating Income and Expenses, Net
Income from Operations
Non-operating Income and Expenses
Income before Income Tax
Income Tax Expenses
Net Income
Other Comprehensive Income, Net of Income Tax
Total Comprehensive Income for the Year
2016
936,387,291
474,552,913
461,834,378
2015
837,046,888
439,356,165
397,690,723
Difference
99,340,403
35,196,748
64,143,655
(26,082)
18,117
(44,199)
461,808,296
92,161,728
83,965
369,730,533
15,458,427
385,188,960
50,941,780
334,247,180
(11,060,444)
323,186,736
397,708,840
83,953,035
(347,107)
313,408,698
36,579,970
349,988,668
43,414,831
306,573,837
(14,706,080)
291,867,757
64,099,456
8,208,693
431,072
56,321,835
(21,121,543)
35,200,292
7,526,949
27,673,343
3,645,636
31,318,979
%
12%
8%
16%
-244%
16%
10%
NM
18%
-58%
10%
17%
9%
25%
11%
● Analysis of Deviation over 20%
Decrease in realized (unrealized) gross profit on sales to subsidiaries and associates: The decrease was mainly due to higher sales to
subsidiaries and associates and defer recognition of gain in the fourth quarter of 2016.
Decrease in non-operating income and expenses: The decrease was mainly due to lower share of profits of subsidiaries and
associates in 2016.
Increase in other comprehensive income, net of income tax: The increase was mainly due to unrealized gain from available-for-sale
financial assets of the subsidiary was realized to profit or loss upon disposal in 2015, partially offset by decrease in currency
exchange differences arising from translation of foreign operations in 2016.
● Sales Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders” on pages 8-11 of this Annual Report.
● Major Impact on Financial Performance
The above deviations had no major impact on TSMC’s financial performance.
● Future Plan on Financial Performance: Not applicable.
102
103
6.2.3 Cash Flow
Consolidated
Unit: NT$ thousands
Cash Balance 12/31/2015
Net Cash Provided by
Operating Activities in 2016
Net Cash Used in Investing
and Financing Activities in
2016
Cash Balance 12/31/2016
Remedy for Liquidity Shortfall
Investment Plan
Financing Plan
562,688,930
539,834,592
(561,269,689)
541,253,833
None
None
● Analysis of Cash Flow
NT$539.8 billion net cash generated by operating activities: mainly from net income and depreciation and amortization expenses.
NT$395.4 billion net cash used in investing activities: primarily for capital expenditures and net purchase of marketable financial
instruments.
NT$165.8 billion net cash used in financing activities: primarily for cash dividend payment and repayment of corporate bonds,
partially offset by the increase in short-term loans.
● Remedial Actions for Liquidity Shortfall: As a result of positive operating cash flows and cash on-hand, remedial actions are not
required.
● Cash Flow Projection for Next Year: Not applicable.
Unconsolidated
Unit: NT$ thousands
Cash Balance 12/31/2015
Net Cash Provided by
Operating Activities in 2016
Net Cash Used in Investing
and Financing Activities in
2016
Cash Balance 12/31/2016
Remedy for Liquidity Shortfall
Investment Plan
Financing Plan
264,493,583
532,547,786
(547,162,806)
249,878,563
None
None
● Analysis of Cash Flow
NT$532.5 billion net cash generated by operating activities: mainly from net income and depreciation and amortization expenses.
NT$321.9 billion net cash used in investing activities: primarily for capital expenditures.
NT$225.2 billion net cash used in financing activities: primarily for cash dividend payment and capital injection in subsidiaries.
● Remedial Actions for Liquidity Shortfall: As a result of positive operating cash flows and cash on-hand, remedial actions are not
required.
● Cash Flow Projection for Next Year: Not applicable.
6.2.4 Recent Years Major Capital Expenditures and Impact on Financial and Business
Unit: NT$ thousands
Plan
Actual or Planned Source of Capital
Production Facilities, R&D and
Production Equipment
Cash flow generated from operations
Total Amount for 2016 and
2015
Actual Use of Capital
2016
2015
578,773,185
325,471,832
253,301,353
Others
Total
Cash flow generated from operations
6,788,920
2,573,438
4,215,482
585,562,105
328,045,270
257,516,835
Based on capital expenditures listed above, TSMC’s annual production capacity increased by approximately 1 million 12-inch
equivalent wafers in 2016.
6.2.5 Long-term Investment Policy and Results
TSMC’s long-term investments, accounted for under the equity
method, were all made for strategic purposes. However,
when an investment is no longer of strategic value, it may be
considered a financial investment. In 2016, the investment
gain from these investments amounted to NT$14,941,372
thousand (NT$3,495,600 thousand on a consolidated basis),
decreasing from previous year mainly due to the disposal gain
of ASML shares recognized in 2015. For future investments,
TSMC will continue to focus on strategic purposes through
prudent assessments.
6.3 Risk Management
The board of directors plays a key role in helping the Company
identify and manage economic risks. The risk management
organization periodically briefs the audit committee on the
ever-changing risk environment facing TSMC, the focus of the
Company’s enterprise risk management, and risk assessment
and mitigation efforts. The audit committee’s chairperson also
briefs the board on the risk environment and risk mitigation
actions to be taken.
TSMC and its subsidiaries are committed to proactively
and cost effectively integrating and managing strategic,
operational, financial and hazardous risks together with
potential consequences to operations and financial results.
TSMC operates an enterprise risk management (ERM)
program based on both its corporate vision and its long-term
sustainability, as well as on its responsibility to both
industry and society. ERM seeks to provide the appropriate
management of risks by TSMC on behalf of all stakeholders. A
risk MAP that considers likelihood and impact severity is used
to identify and prioritize corporate risks. Various risk treatment
strategies are also adopted in response to identified corporate
risks. The Company’s risk management focuses on strategic
risks, operational risks, financial risks, hazardous risks, and
risks associated with climate change and non-compliance with
environmental and climate related laws and regulations, and
other international laws, regulations and accords, etc.
To mitigate the operational impacts of crisis events, for critical
crisis scenarios, ERM conducts pre-crisis risk assessment
and identifies feasible strategies for crisis prevention.
Corresponding to different scenarios, response procedures
and recovery plans have been compiled. For specific severe
crisis events involving multiple TSMC’s manufacturing sites,
the cross-functional central crisis command center composed
of operations and support functions is responsible for internal
coordination to speed up response time and proactively
communicate with related stakeholders. To increase risk
awareness and strengthen a risk management culture in TSMC,
top management completed a series of crisis management
workshops in 2016. The scenario-based crisis response drills
involving cross-functional crisis management teams also started
in 2016. In order to continuously mitigate corporate risks, drills
are used to examine the integrity and risk-control effectiveness
of ERM.
To reduce supply chain risks, TSMC created a cross-functional
taskforce comprised of members from fab operations,
material management, risk management and quality system
management to work with suppliers to develop business
continuity plans and enhance supply chain resilience to
effectively manage the risks faced by its suppliers. Partly as a
result of these efforts, there was no interruption in TSMC’s
supply chain in 2016.
As TSMC continued to expand production capacity with
advanced technology in 2016, seismic protection engineering
design, risk treatment practices and green factory projects were
initiated and implemented, beginning in the design phase for
all new fabs.
6.3.1 Risk Management (RM) Organization Chart
Board of Directors/
Audit Committee
RM Steering Committee
Materials Management
and Risk Management
RM Executive Council
RM Program
Organization Functions
● RM steering committee
Consists of functional heads (with internal audit head sitting as
an observer)
Reports to audit committee
Reviews risk control progress
Identifies and approves the prioritized risk lists
● RM executive council
Consists of representatives from each function
Identifies and assesses risks
Implements risk control program and ensures effectiveness
Improves transparency and how risks are managed
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● RM program
Coordinates and facilitates functional risk management
activities
Initiates cross-functional communication for risk mitigation
Consolidates ERM reports into the RM steering committee
customers or overcome the above factors, its revenue may
decline significantly. Although TSMC has concentrated on
maintaining a competitive edge in research and development,
if TSMC fails to achieve advances in technologies or processes,
it may become less competitive.
6.3.2 Strategic Risks
Risks Associated with Changes in Technology and
Industry
● Industry Developments
The electronics industries and semiconductor markets are
cyclical and subject to significant and often rapid fluctuations
in product demand, which could impact TSMC’s foundry
business. Variations in order levels from customers may result
in volatility in the Company’s revenue and earnings.
From time to time, the electronics and semiconductor
industries have experienced significant, occasionally prolonged
periods of downturn and overcapacity. Because TSMC is,
and will continue to be, dependent on the requirements
of electronics and semiconductor companies, periods of
downturn and overcapacity in the general electronics and
semiconductor industries could lead to reduced demand for
semiconductor foundry services, including TSMC’s services.
If TSMC cannot take appropriate actions such as reducing its
costs to sufficiently offset declines in demand, the Company’s
revenue, margins, and earnings will likely suffer during these
periods.
● Changes in Technology
The semiconductor industry and its technologies are constantly
evolving. TSMC competes by developing process technologies
using increasingly advanced nodes and by manufacturing
products with more functions. TSMC also competes by
developing new derivative technologies. If TSMC does not
anticipate the changes in technologies and rapidly develop
new and innovative technologies, or if the Company’s
competitors unexpectedly gain sudden access to additional
technologies, TSMC may not be able to provide foundry
services on competitive terms. In addition, TSMC’s customers
have significantly decreased the time in which their products
or services are brought to the market. If TSMC is unable to
meet the requirement for shorter product time-to-market,
it risks losing customers. These factors have also been
intensified by the shift of the global technology market to
consumer-driven products such as mobile devices, and the
increasing concentration of customers and competition (all
further discussed among these risk factors). If TSMC is unable
to innovate new technologies that meet the demands of its
Regarding the response measures for the above-mentioned
risks, please refer to “2.2.4 TSMC Position, Differentiation and
Strategy” on page 18-19 of this annual report.
Risks Associated with Decrease in Demand and Average
Selling Price
A vast majority of the Company’s revenue is derived from
customers who use TSMC’s services in communication devices,
personal computers, consumer electronics products and
industrial/standard products. Any decrease in the demand for
any one of these products may decrease the demand for overall
global semiconductor foundry services, including TSMC’s
services, and may adversely affect the Company’s revenues.
Further, semiconductor manufacturing facilities require
substantial investment to construct and are largely fixed cost
assets once they are in operation. Because the Company owns
most of its manufacturing capacities, a significant portion of
TSMC’s operating costs is fixed. In general, these costs do not
decline when customer demand or TSMC’s capacity utilization
rates drop, and thus declines in customer demand, among
other factors, may significantly decrease margins. Conversely,
as product demand rises and factory utilization increases,
the fixed costs are spread over increased output, which can
improve TSMC’s margins. In addition, the historical and current
trend of declining average selling prices (“ASP”) of end use
applications places downward pressure on the prices of the
components that go into such applications. If the ASP of end
use applications continues decreasing, the pricing pressure
on components produced by the Company may lead to a
reduction of TSMC’s revenue, margin and earnings.
Risks Associated with Competition
The markets for TSMC’s foundry services are highly competitive.
TSMC competes with other foundry service providers, as
well as integrated device manufacturers who devote a
significant portion of their manufacturing capacity to foundry
operations. Some of these companies may have access to
more advanced technologies and greater financial resources
than TSMC, including the possibility of receiving direct or
indirect government aid, economic stimulus funds, or other
incentives that may be unavailable to TSMC. For example,
China companies are expected to be the key drivers of new
semiconductor fab development and fab equipment spending
through 2020. In 2016 alone, it was reported that over
twenty new semiconductor fab projects have been announced
or being developed within China due to various incentives
provided by China government.
Further, the Company’s competition may, from time to time,
also decide to undertake aggressive pricing initiatives in one
or several technology nodes. Increases in these competitive
activities may reduce TSMC’s customer base, its ASP (average
selling price), or both. If TSMC is unable to compete with these
new competitors with better technologies and manufacturing
capacity and capabilities for customer satisfaction, it risks losing
customers to these new contenders.
Risks Associated with Changes in the Government
Policies and Regulatory Environment
TSMC management closely monitors all domestic and foreign
governmental policies and regulations that might impact
TSMC’s business and financial operations. As of February 28,
2017, the following changes or developments in governmental
policies and regulations may influence the Company’s business
operations:
6.3.3 Operational Risks
Risks Associated with Capacity Expansion
TSMC performs long-term market demand forecast for its
products and services to manage its overall capacity. Because
market conditions are dynamic, its market demand forecast
may change significantly at any time. During periods of
decreased demand, certain manufacturing lines or tools in
some of its manufacturing facilities may be suspended or shut
down temporarily. However, if subsequent demand increases
rapidly in a short period of time, TSMC may not be able to
restore the capacity in a timely manner.
Recently, according to the market demand forecast, TSMC
has been adding capacity in its 300mm wafer fabs to fulfill
market needs for its products and services. Expansion of
the Company’s capacity will increase its costs. For example,
the Company will need to purchase additional equipment,
hire additional personnel and train personnel to operate the
new equipment. If TSMC does not increase its net revenue
accordingly, TSMC’s financial performance may be adversely
affected by these increased costs.
To comply with the Labor Standards Act amended on
December 21, 2016, TSMC made certain changes to its
relevant internal rules, including adjusting overtime pay for
work on days of rest as well as increasing employees’ annual
leave entitlements. These changes will increase the operating
costs of the Company.
In order to mitigate the risk associated with capacity expansion,
TSMC continuously watches for changes in market conditions
and works closely with its customers. When market demand
is not as expected, the Company will adjust its capacity plans
in a timely manner to reduce the impact on its financial
performance.
With respect to environmental laws, the “Greenhouse Gas
Reduction and Management Act” was published in July 2015
in Taiwan in response to climate change, and some of the
related regulations have been released. In 2016, among others,
the “Greenhouse Gases Inventory Verification and Registration
Regulations” was published and TSMC has taken proper
measures in compliance with the requirements. We will keep
track of regulatory updates to ensure our compliance with
these laws and regulations. In addition, the amendment to
“Waste Disposal Act” became effective in January 2017. The
key changes define and broaden the scope of “waste” and
increase the responsibilities of waste generating companies.
TSMC has spent great effort on waste management. We will
continue our emphasis on this topic to ensure compliance with
the law.
Other than the above laws and regulations, it is not expected
that other governmental policies or regulatory changes would
materially impact TSMC’s operations and financial condition.
Risks Associated with Sales Concentration
Over the years, TSMC’s customer profile and the nature of its
customers’ businesses have changed dramatically. While it
generates revenue from hundreds of customers worldwide,
TSMC’s ten largest customers accounted for approximately
63% and 69% of net revenue in 2015 and 2016, respectively.
The Company’s largest customer accounted for approximately
16% and 17% of net revenue in 2015 and 2016, respectively.
The Company’s second largest customer accounted for
approximately 16% and 11% of net revenue in 2015 and
2016, respectively.
A more concentrated customer base will subject our revenue
to seasonal demand fluctuations from our large customers,
and cause different seasonal patterns of our business. This
customer concentration results in part from the changing
dynamics of the electronics industry with the structural shift to
mobile devices and applications and software that provide the
content for such devices. Only a limited number of customers
are successfully exploiting this new business model paradigm.
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In order to respond to the new paradigm, TSMC has seen
the change of nature in its customers’ business models. For
example, there is a growing trend toward more system houses
that operate in a manner that makes their products and
services more marketable in a changing consumer market.
Also, since the global semiconductor industry is becoming
increasingly competitive, some customers have engaged
in industry consolidations in order to remain competitive.
Such consolidations have taken the form of mergers and
acquisitions. If more of major customers consolidate, this will
further decrease the overall number of the customer pool.
TSMC’s operating results and financial condition could be
adversely affected by the loss of, or significant curtailment of,
purchases by one or more of the Company’s top customers,
including curtailment due to increased competitive pressures,
industry consolidation, a change in their designs, or change
in their manufacturing sourcing policies, or practices of these
customers, or the timing of customer or distributor inventory
adjustments, or change in its major customers’ business models.
TSMC maintains a close watch on these trends and works
closely with its customers to respond to these changes and to
strengthen the Company’s market position.
Risks Associated with Purchase Concentration
● Raw Materials
TSMC’s production operations require that TSMC obtains
adequate supplies of raw materials, such as silicon wafers,
gases, chemicals and photoresist, on a timely basis and at
commercially reasonable prices. In the past, shortages in
the supply of some materials, whether by specific vendors
or by the semiconductor industry generally, have resulted in
occasional industry-wide price adjustments and delivery delays.
For example, the recent increase in silicon wafer prices due to
increased demand for such wafers across industry is expected
to negatively impact our gross margin in 2017. In addition,
major natural disasters, political or economic turmoil occurring
within the country of origin of such raw materials may also
significantly disrupt the availability of such raw materials or
increase their prices. Also, since TSMC procures some raw
materials from sole-source suppliers, there is a risk that the need
for such raw materials may not be met or that back-up supplies
may not be readily available. TSMC’s revenue and earnings
could decline if the Company is unable to obtain adequate
supplies of the necessary raw materials in a timely manner or
if there are significant increases in the costs of raw materials
that the Company cannot pass on to customers. To reduce
the supply chain risk and to manage the cost actively, TSMC is
committing resources toward developing new supply sources.
In addition, the Company continually encourages its suppliers
to reduce their supply chain risk by decentralizing production
plants and to improve their cost competitiveness by moving
their production facilities to Taiwan from higher-cost areas.
In the meantime, aware of the risk posed by fewer back-up
suppliers, TSMC is engaging early and deeply with primary
suppliers on managing quality and capacity issues to be
prepared for any unexpected need to ramp up production,
which could leave the Company with insufficient time to
re-tune its production process. For leading technology nodes,
TSMC uses world-class processes at world-class facilities but
also requires world-class material quality. To streamline supply
chain risk management, the Company intensifies supplier site
audits and extends supply chain best practices to suppliers
to mitigate capacity and quality risks. Moreover, TSMC
continually refines its planning system and enhances demand
forecast alignments with critical suppliers for more accurate
supply capacity planning, especially for steep ramping up of
new nodes. The Company has developed a supply chain risk
assessment for critical suppliers that fulfills requirements on
labor and ethics, ESH (environmental, safety and health) and
single supply risk management. To ultimately empower them
to take responsibility for their supply chain, on-site audits are
regularly conducted. Any regulatory violations or any adverse
environmental impact event, as well as a failure to meet
TSMC’s expectations in sustainability requirements, may result
in business reduction or termination.
● Equipment
The Company’s operations and ongoing expansion plans
depend on its ability to obtain an appropriate amount of
equipment and related services from a limited number of
suppliers in a market that is characterized from time to time
by limited supply and long delivery cycles. During such times,
supplier-specific or industry-wide lead times for delivery can
be as long as six months or more. To better manage its supply
chain, the Company has implemented various business models
and risk management contingencies with suppliers to shorten
the procurement lead time. Further, the growing complexities,
especially in next-generation lithographic technologies may
delay the timely availability of the equipment and parts
needed to exploit time-sensitive business opportunities and
also increase the market price for such equipment and parts.
If TSMC is unable to obtain equipment in a timely manner to
fulfill its customers’ demands on technology and production
capacity, or at a reasonable cost, its financial condition and
results of operations could be negatively impacted.
Risks Associated with Intellectual Property Rights
The Company’s ability to compete successfully and to achieve
future growth will depend in part on the continued strength
of its intellectual property portfolio. While TSMC actively
enforces and protects its intellectual property rights, there can
be no assurance that its efforts will be adequate to prevent
the misappropriation or improper use of its proprietary
technologies, software, trade secrets or know-how. Also, the
Company cannot assure that, as its business or business models
expand into new areas, it will be able to develop independently
the technologies, patents, software, trade secrets or know-how
necessary to conduct its business or that it can do so without
unknowingly infringing the intellectual property rights of
others. As a result, TSMC may have to rely on, to a certain
degree, licensed technologies and patent licenses from others.
To the extent that the Company relies on licenses from others,
there can be no assurance that it will be able to obtain any or
all of the necessary licenses in the future on terms it considers
reasonable or at all. The lack of necessary licenses could expose
TSMC to claims for damages and/or injunctions from third
parties, as well as claims for indemnification by its customers
in instances where it has contractually agreed to indemnify its
customers against damages resulting from infringement claims.
TSMC has received, from time-to-time, communications
from third parties asserting that TSMC’s technologies, its
manufacturing processes, or the design of the semiconductors
made by TSMC or the use of those semiconductors by its
customers may infringe their patents or other intellectual
property rights. Because of the nature of the industry, the
Company may continue to receive such communications in
the future. These assertions have at times resulted in litigation.
Recently, there has been a notable increase in the number
of assertions made and lawsuits initiated by certain litigious,
non-practicing entities and these litigious, non-practicing
entities are also becoming more aggressive in their monetary
demands and requests for court-issued injunctions. Such
lawsuits or assertions may increase TSMC’s cost of doing
business and may potentially be extremely disruptive if these
non-practicing entities succeed in blocking the trade of
products and services offered by TSMC.
The Company has expended or is expanding its manufacturing
operations into certain offshore jurisdictions. To mitigate
the risk of intellectual property misappropriation, TSMC
has implemented heightened safeguards against such
misappropriation.
If TSMC fails to obtain or maintain certain technologies or
intellectual property licenses (or fails to prevent our intellectual
property from being misappropriated) and, if litigation relating
to such intellectual property matters occurs, it (i) could prevent
the Company from manufacturing particular products or selling
particular services or applying particular technologies; and
(ii) reduce our ability to compete effectively against entities
benefiting from our misappropriated intellectual property,
which could reduce its opportunities to generate revenue.
TSMC has taken related measures to minimize potential loss of
shareholder value arising from intellectual property claims and
litigation filed against the Company. These measures include:
strategically obtaining licenses from certain semiconductor
and other technology companies as needed; timely securing
intellectual property rights for defensive and/or offensive
protection of TSMC technology and business; and aggressively
defending against baseless litigation.
Risks Associated with Litigation
As is the case with many companies in the semiconductor
industry, TSMC has received from time-to-time
communications from third parties asserting that its
technologies, its manufacturing processes, or the design
of the semiconductors made by TSMC or the use of those
semiconductors by its customers may infringe upon their
patents or other intellectual property rights. These assertions
have at times resulted in litigation by or against the Company
and settlement payments by the Company. Irrespective of the
validity of these claims, TSMC could incur significant costs
in the defense thereof or could suffer adverse effects on its
operations.
In June 2010, Keranos, LLC. filed a complaint in the U.S.
District Court for the Eastern District of Texas alleging that
TSMC, TSMC North America, and several other leading
technology companies infringe three expired U.S. patents.
In response, TSMC, TSMC North America, and several
co-defendants in the Texas case filed a lawsuit against Keranos
in the U.S. District Court for the Northern District of California
in November 2010, seeking a judgment declaring that they did
not infringe the asserted patents, and that those patents were
invalid. These two litigations have been consolidated into a
single lawsuit in the U.S. District Court for the Eastern District
of Texas. In February 2014, the Court entered a final judgment
in favor of TSMC and TSMC North America, dismissing all of
Keranos’s claims against TSMC and TSMC North America with
prejudice. Keranos appealed the final judgment to the U.S.
Court of Appeals for the Federal Circuit, and in August 2015,
the Federal Circuit remanded the case back to the Texas court
for further proceedings. In January 2017, the Texas court
dismissed all of Keranos’s claims against TSMC and TSMC
North America with prejudice, and dismissed TSMC’s and
TSMC North America’s counterclaims without prejudice. The
case is over as to TSMC and TSMC North America.
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In December 2010, Ziptronix, Inc. filed a complaint in the U.S.
District Court for the Northern District of California accusing
TSMC, TSMC North America and one other company of
infringing several U.S. patents. In September 2014, the Court
granted summary judgment of noninfringement in favor of
TSMC and TSMC North America. Ziptronix, Inc. could appeal
the Court’s order. In August 2015, Tessera Technologies, Inc.
announced it had acquired Ziptronix. In February 2017, the
Court dismissed all of Ziptronix’s claims against TSMC and
TSMC North America with prejudice.
In March 2014, DSS Technology Management, Inc. (DSS) filed
a complaint in the U.S. District Court for the Eastern District
of Texas alleging that TSMC, TSMC North America, TSMC
Development, Inc., and several other companies infringe one
U.S. patent. TSMC Development, Inc. has subsequently been
dismissed. In May 2015, the Court entered a final judgment of
noninfringement in favor of TSMC and TSMC North America.
DSS appealed the final judgment to the U.S. Court of Appeals
for the Federal Circuit (Federal Circuit). In November 2015,
the Patent Trial and Appeal Board (PTAB) determined after
concluding an Inter Partes Review (IPR) that the patent claims
asserted by DSS in the District Court litigation are unpatentable.
DSS appealed the PTAB’s decision to the Federal Circuit in
January 2016. In March 2016, the District Court’s judgment of
noninfringement was affirmed by the Federal Circuit. In April
2016, the District Court litigation between the parties and the
related Federal Circuit appeal were dismissed, and the appeal
proceeding of the PTAB’s decision is also over as to TSMC.
Other than the matters described above, TSMC was not
involved in any other material litigation in 2016 and is not
currently involved in any other material litigation.
Risks Associated with Mergers and Acquisitions
During 2016 and as of the date of this annual report, there
were no such risks for TSMC.
Risks Associated with Recruiting Qualified Personnel
The Company relies on the continued services and
contributions of its executive officers and skilled technical and
other personnel. TSMC’s business could suffer if the Company
lost, for whatever reasons, the services and contributions of
some of these personnel and could not adequately replace
them. TSMC may be required to increase or reduce the number
of employees in connection with any business expansion
or contraction, in accordance with market demand for the
Company’s products and services. Since there is intense
competition for the recruitment of these personnel, it cannot
ensure that TSMC will always be able to fulfill its personnel
requirements in a timely manner.
Future R&D Plans and Expected R&D Spending
For additional details, please refer to “5.2.7 Future R&D Plans”
on page 81 of this Annual Report.
Changes in Corporate Reputation and Impact on
Company’s Crisis Management
TSMC has established an excellent corporate reputation around
the world based on its core values of integrity, commitment,
innovation and customer trust, as well as its outstanding
operations, rigorous corporate governance, and dedication
to social responsibility by serving as a good corporate citizen
and continuing to pursue innovation in the economic,
environmental and social dimensions of CSR.
In 2016, TSMC was honored with awards for achievements in
operations, corporate governance, innovation, profit growth,
investor relations, environmental protection and in other fields
as well. These included the R.O.C. Presidential Innovation
Award; the Taiwan Institute for Sustainable Energy 2016
Taiwan Corporate Sustainability Awards No.1 for Domestic
Corporates, Gold Medal For Sustainability Report, Sustainable
Water Management Award, and Climate Leader Award; the
R.O.C. Ministry of Economic Affairs Bureau of Foreign Trade
”Outstanding Trade Contribution Award”; ranked top 5% in
the Taiwan Stock Exchange Corporate Governance Evaluation;
ranked No.1 in profit for the China Credit Information
Services’ ranking of large Taiwan companies; the R.O.C.
Ministry of Economic Affairs Industrial Development Bureau
“Green Factory Label”; the R.O.C. Environmental Protection
Administration “National Environmental Education Award” and
“Enterprise Green Procurement Award”; the R.O.C. Ministry of
Economic Affairs’ “Excellence in Water Conservation Award”
and “Excellence in Energy Conservation Award”, ranked No.1
in Taiwan by PricewaterhouseCoopers 2016 Global Innovation
1000 Study; ranked No.1 in Cheers Magazines’ “Most Admired
Companies for the New Generation”; named CommonWealth
Magazine’s “Most Admired Company in Taiwan”; and the
CSR Model Award for the Global Views Magazine Annual
Corporate Social Responsibility Survey. In addition, TSMC
was selected as a component of the Dow Jones Sustainability
Indices for the 16th consecutive year, further strengthening the
Company’s reputation.
As an important member of the technology industry, TSMC
has always endeavored to act as a positive force in society. The
Company maintains departments including legal, customer
service, materials management, quality & reliability, R&D, risk
management, finance, investor relations, operations, ESH
(environment, safety and health), human resources, the TSMC
Foundation, the TSMC Volunteer Association, and public
relations to coordinate the Company’s resources and further
enhance TSMC’s positive corporate reputation.
To address potential events that may affect the Company’s
public reputation, including fires and workplace accidents,
TSMC maintains an emergency response procedure manual,
and health and safety supervisors for each fab hold meetings
of the “Environment, Health, and Safety Technical Board”
every month. In addition, relevant departments hold regular
drills and continuously improve their emergency response
and notification procedures. At the same time, TSMC
has established communications criteria for all types of
stakeholders, and the public relations department is responsible
for external communications. In the event of the above
emergencies, all departments immediately deploy emergency
response measures to reduce casualties and minimize the
impact on the surrounding environment, Company property
and manufacturing operations. Responders also alert the public
relations department at the first stage of response to ensure
smooth channels of communications as well as clear and
consistent disclosure regarding the situation to maintain the
Company’s reputation.
Risks Associated with Change in Management
During 2016 and as of the date of this annual report, there
were no such risks for TSMC.
6.3.4 Financial Risks
Economic Risks
● Interest Rate Fluctuation
TSMC is exposed to interest rate risks primarily related to its
outstanding debt issuances and investment portfolio. TSMC’s
interest income and expenses are most sensitive to fluctuations
in R.O.C. and U.S. interest rates. Changes in R.O.C. and U.S.
interest rates affect the interest earned on the Company’s cash,
cash equivalents, marketable securities and the fair value of
those securities, as well as interest paid on and the fair value of
its outstanding debt.
TSMC’s investment policy is to achieve a return that will
allow the Company to preserve capital and maintain liquidity
requirements. Such policy requires the Company’s investments
generally made in investment grade securities, with the
primary objective of minimizing the potential risk of principal
loss. TSMC uses a combination of internal and external
management to execute its investment strategy. TSMC typically
invests in investment grade fixed income securities across
various sectors, and limits the amount of credit exposure to
any one issuer. The Company’s investments in both fixed rate
and floating rate interest earning securities carry a degree of
interest rate risk. Majority of the Company’s fixed rate securities
are classified as available-for-sale, and may have their fair
market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than
predicted if interest rates fall. TSMC has entered, and may
enter in the future, into interest rate futures to partially hedge
the interest rate risk on its fixed income investments. These
hedges may reduce only a portion of, but do not eliminate, the
financial impact from movements in interest rates.
● Foreign Exchange Volatility
Over one-half of TSMC’s capital expenditures and
manufacturing costs are denominated in currencies other
than NT dollars, primarily in US dollars, Japanese yen and
Euros. In 2016, more than 90% of the Company’s revenue
was denominated in US dollars and currencies other than
NT dollars. Therefore, any significant fluctuation to its
disadvantage in such exchange rates would have an adverse
effect on TSMC’s financial condition. For example, because
TSMC’s functional currency is denominated in NT dollars, every
1 percent depreciation of the US dollar against the NT dollar
may result in approximately 0.4 percentage point decrease in
TSMC’s operating margin based on TSMC’s 2016 results.
Conversely, if the US dollar appreciates significantly versus
other major currencies, the demand for the products and
services of TSMC’s customers and for its goods and services
will likely decrease, which will negatively affect the Company’s
revenue.
TSMC utilizes short-term debt denominated in foreign
currencies and derivative financial instruments, including
currency forward contracts and cross-currency swaps, to
partially hedge its currency exposure.
Fluctuations in the exchange rate between the US dollar and
the NT dollar may affect the US dollar value of the Company’s
common shares and the market price of the Company’s
American Depositary Shares (ADSs) and of any cash dividends
paid in NT dollars on TSMC’s common shares represented by
ADSs.
● Inflation, Deflation and Resulting Market Volatility
The global economy is becoming more vulnerable to sudden
unexpected fluctuations in inflationary and deflationary
expectations and conditions. Expectations of high inflation
and deflation each adversely affects the economy, at both
macro and micro levels, by reducing economic efficiency
and disrupting investment decisions. Recently, political
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uncertainty and negative interest rate policies adopted by
some major world economies have exacerbated global
fluctuations in inflationary and deflationary expectations.
These macro-economic changes have also resulted in market
volatility. Such fluctuations and volatility may negatively affect
the costs of TSMC’s operations and the business operations
of its customers who may be forced to plan their purchases
of TSMC’s goods and services within an uncertain economy.
Therefore, the demand for TSMC’s products and services could
unexpectedly fluctuate severely in accordance with expectations
of inflation or deflation as affected by market volatility.
Risks Associated with External Financing
In times of market instability, sufficient external financing
may not be available to the Company on a timely basis,
on reasonable market terms, or at all. If sufficient external
financing is not available, when TSMC needs such financing to
meet its capital requirements, TSMC may be forced to curtail its
expansion and modification plans or delay the deployment of
new or expanded services until it obtains such financing.
Risks Associated with High-Risk/Highly Leveraged
Investments; Lending, Endorsements, and Guarantees
for Other Parties; and Financial Derivative Transactions
TSMC did not make high-risk or highly leveraged financial
investments in 2016 nor up to the date of this annual report.
TSMC provided a guarantee to TSMC Global, a wholly-owned
subsidiary of TSMC, for its issuance of US dollar-denominated
senior unsecured corporate bonds in April 2013. As of February
28, 2017, TSMC had an intercompany loan of RMB$900
million arranged among the Company’s subsidiaries, which
was in compliance with relevant rules and regulations.
In 2016, the financial transactions of a derivative nature that
TSMC entered into were strictly for hedging and not for any
trading or speculative purposes. For more information, please
refer to page 36 of the annual report section (II), Financial
Statements. The fair market value of TSMC’s trading and
available-for-sale financial securities is subject to prevailing
market conditions and may fluctuate from TSMC’s carrying
value from time to time, which may impact the returns of
those securities.
To control various types of financial transactions, the Company
has established internal policies and procedures based on
sound financial and business practices, all in compliance
with the relevant rules and regulations issued by the Taiwan
Securities and Futures Bureau. TSMC policies and procedures
include “Policies and Procedures for Financial Derivative
Transactions,” “Procedures for Lending Funds to Other Parties,”
“Procedures for Acquisition or Disposal of Assets,” and
“Procedures for Endorsement and Guarantee”.
Risks Associated with Strategic Investments
From time to time, TSMC has made or will make a series
of strategic investments. There is no guarantee that any of
these investments will be successful commercially. Any such
investment will incur risks, which may result in losses even with
careful management. Any loss resulting from such investments
may result in significant impairment charges, lower profit
margin and ultimately lower distributable earnings. For further
information on these investments, please refer to 8. Subsidiary
Information and Other Special Notes on pages 136-141 of this
annual report.
Risks Associated with Impairment Charges
Under Taiwan-IFRSs, TSMC is required to evaluate its
investments, tangible and intangible assets for impairment
whenever triggering events or changes in circumstances
indicate that the asset may be impaired. If certain criteria are
met, TSMC is required to record an impairment charge. TSMC
is also required under Taiwan-IFRSs to evaluate goodwill for
impairment at least on an annual basis or more frequently
whenever triggering events or changes in circumstances
indicate that goodwill may be impaired and the carrying value
may not be recoverable. TSMC holds investments in certain
publicly listed and private companies, some of which have
incurred certain impairment charges disclosed in Annual Report
section (II), Financial Statements.
The determination of an impairment charge at any given time
is based significantly on the projected results of the Company’s
operations over a number of years subsequent to that time.
Consequently, an impairment charge is more likely to occur
during a period when the Company’s operating results are
otherwise already depressed.
TSMC has established the process and system to closely
monitor and assess the risk of any impairment charge.
However, the management is unable to estimate the extent or
timing of any impairment charge for future years, or whether
such impairment charge required may have a material adverse
effect on the Company’s net income.
6.3.5 Hazardous Risks
TSMC maintains a comprehensive risk management system
dedicated to the safety of people, the conservation of
natural resources, and the protection of property. In order to
effectively handle emergencies and natural disasters, at each
facility management has developed comprehensive plans and
procedures that focus on risk prevention, emergency response,
crisis management and business continuity. The Company has
adopted local and international standards for environmental,
safety and health (ESH) management. All TSMC manufacturing
fabs have been ISO 14001 certified (Environmental
Management System), OHSAS 18001 certified (Occupational
Health and Safety Management System), and QC 080000
certified (Hazardous Substance Process Management System).
All manufacturing fabs in Taiwan have also been TOSHMS
(Taiwan Occupational Safety and Health Management System)
certified. The new fabs will also acquire the above certificates
within 18 months of the start of volume production.
The Company pays special attention to preparedness for
emergencies or disasters, such as typhoons, floods, droughts
caused by climate change, earthquakes, environmental
contamination, large-scale product returns, service disruption
of IT systems, strikes, pandemics (such as H1N1 influenza),
and sudden, unexpected disruptions to the supply of raw
materials, water, electricity and other public utilities. TSMC has
established a company-wide taskforce dedicated to managing
the risk of a water shortage that might arise due to climate
change. This taskforce monitors the external supply and
internal demand for water. Cross-company consolidations and
external collaborations with public agencies are also ongoing in
industrial parks to ensure and sustain a stable water supply.
TSMC has further strengthened its business continuity plans,
which include periodic risk assessment, risk mitigation, and
implementation through the establishment of emergency
taskforces when necessary, combined with the preparation of
a thorough analysis of the emergency, its impact, alternative
actions, and solutions for each possible scenario together
with appropriate precautionary and/or recovery measures.
Each taskforce is given the responsibility of ensuring TSMC’s
ability to conduct business while minimizing personal
injury, business disruption and financial impact under the
circumstances. TSMC’s business continuity plan is periodically
reviewed according to results of test scenarios or practical
implementation for ensuring effective and successful business
continuity. Customers are informed of TSMC’s strong business
continuity capability in order to establish resilience and
flexibility in both their supply chain and insurance needs.
In response to the impact of the earthquake that occurred
in southern Taiwan on February 6, 2016, TSMC conducted
a continuous improvement project, including enhancing
earthquake emergency response, enhancing tool anchorage
and seismic isolation facilities, preparedness for speeding up
tool salvage and production recovery, and improved TSMC
procedures with reference to ISO 22301 business continuity
management.
TSMC and many of its suppliers use combustible and toxic
materials in their manufacturing processes and are therefore
subject to the risk of loss arising from explosion, fire, or
environmental influences that cannot be completely eliminated.
Although the Company maintains many overlapping risk
prevention and protection systems, as well as fire and casualty
insurance, TSMC’s risk management and insurance coverage
may not always be sufficient to cover all of the Company’s
potential losses. If any of TSMC’s fabs or vendor facilities
were to be damaged, or cease operations as a result of an
explosion, fire or environmental causes, it could reduce the
Company’s manufacturing capacity and may lead to the loss
of important customers, thereby having a potentially adverse
and material impact on TSMC’s financial performance. In
addition to periodic fire-protection inspections and firefighting
drills, the Company has also carried out a corporate-wide fire
risk mitigation project focused on managerial and hardware
improvements.
6.3.6 Risks Associated with Non-Compliance with
Environmental and Climate Related Laws and
Regulations, and Other International Laws,
Regulations and Accords
Because TSMC engages in manufacturing activities in
multiple jurisdictions and conduct business with its customers
located worldwide, such activities are subject to a myriad of
governmental regulations. For example, the manufacturing,
assembling and testing of TSMC’s products require the
use of metals, chemicals and materials that are subject
to environmental, climate-related, health and safety, and
humanitarian conflict-free sourcing laws, regulations and
guidelines issued worldwide.
Although TSMC may be eligible for various exemptions and/
or extensions of time for compliance, the Company’s failure to
comply with any applicable laws or regulations that materially
affect our business and operations could result in:
● significant penalties and legal liabilities, such as the denial
of import permits or third party private lawsuits, criminal or
administrative proceedings;
● the temporary or permanent suspension of production of the
affected products;
● unfavorable alterations in TSMC manufacturing, fabrication
and assembly and test processes;
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employees. Malicious hackers may also try to introduce
computer viruses, corrupted software or ransomware into the
Company’s network systems to disrupt its operations, blackmail
it for regaining control of its computing systems or spy for
sensitive information. These attacks may result in TSMC having
to pay damages for its delayed or disrupted orders or incur
significant expenses in attempting to re-establish control over
the Company’s network. If TSMC is not able to timely resolve
the technical difficulties caused by such cyber attacks, or
ensure the integrity and availability of its data or control of its
computing systems, the Company’s financial results as well as
commitments to its customers and other stakeholders may be
materially impaired.
Other Material Risks
During 2016 and as of the date of this Annual Report, TSMC’s
management is not aware of any other risk event that could
impart a potentially material impact on the financial status of
the Company.
● challenges from customers that place TSMC at a significant
competitive disadvantage, such as the loss of actual or
potential sales contracts in case the Company is unable to
satisfy applicable legal standard or customer requirement;
to monitor legislative trends and communicate with various
governments through industrial organizations and associations
to set reasonable and feasible legal requirements.
● restrictions on TSMC operations or sales;
● loss of tax benefits, including termination of current tax
incentives, disqualification of tax credit application and
repayment of the tax benefits that we are not entitled to; and
● Conflict minerals risks
For additional details, please refer to the Supplier and
Contractor Management section under 7.2.3 Safety and Health
on pages 129-130 of this annual report.
● damages to TSMC goodwill and reputation.
Complying with applicable laws and regulations, such as
environmental and climate related laws and regulations, could
also require us, among other things, to do the following: (a)
purchase, use or install remedial equipments; (b) implement
remedial programs such as climate change mitigation
programs; (c) modify our product designs and manufacturing
processes, or incur other significant expenses such as obtaining
substitute raw materials or chemicals that may cost more or be
less available for our operations.
Our inability to timely obtain approvals necessary for the
conduct of our business could impair our operational and
financial results. For example, if we are unable to timely obtain
environmental related approvals needed to undertake the
development and construction of a new fab or expansion
project, then such inability may delay, limit, or increase the cost
of our expansion plans that could also in turn adversely affect
our business and operational results. In light of increased public
interest in environmental issues, our operations and expansion
plans may be adversely affected or delayed responding to
public concern and social environmental pressures even if we
comply with all applicable laws and regulations.
TSMC believes that climate change should be regarded as a
significant corporate risk that must be controlled to improve
our competitiveness. Climate change has the potential to
create legal, physical and other risks. TSMC’s control measures
are as follows:
● Climate disaster risks
Abnormal climate caused by the greenhouse effect has
increased the frequency and severity of climate disasters
– storms, floods, drought, and water shortages – causing
considerable impacts on business operations and supply
chains. TSMC believes that climate change control should
take into account both mitigation and adaption, and this
requires cooperation among government, society and
industry to reduce risk. To ensure electricity and raw water
supplies, therefore, in addition to water-saving measures
at the Company’s own facilities and those of upstream and
downstream partners, TSMC participates in the Taiwan Science
Park Industrial Union Experts Committee platform, and is
actively involved in regular meetings with Taipower Company
and the Taiwan Water Corporation to discuss supply and
allocation for response issues.
● Other climate risks
Climate change is a concern to the global supply chain,
necessitating energy conservation, carbon reduction, and
disaster prevention. For example, The Electronic Industry
Citizenship Coalition (EICC) has also required members’
suppliers to disclose GHG emissions information. TSMC not
only discloses its own GHG emissions information each year,
but it also assists and requires its suppliers to establish a GHG
inventory system and conduct reduction programs. TSMC’s
suppliers are required by TSMC to submit GHG emissions and
reduction information as an important index of sustainability
scoring in its procurement strategy.
● Climate regulatory risks
Greenhouse gas (GHG) control regulations and agreements
in countries around the world are becoming increasingly
stringent. Enterprises are legally required to regularly disclose
GHG-related information as well as limit GHG emissions.
Future legal requirements, such as carbon or energy taxes and
carbon emission cap-and-trade may drive up production costs,
including material and energy costs. TSMC China is subject
to the Shanghai carbon emission cap-and-trade regulation,
which has had a cost impact starting in 2016. TSMC continues
To mitigate risks resulting from climate change, TSMC
continues to actively carry out energy conservation measures,
participate in voluntary emission reduction projects for
perfluorinated compounds (PFC), and conduct GHG inventory
and verification on an annual basis. TSMC has publicly
disclosed climate change information annually through the
following channels:
● TSMC has disclosed GHG emissions and reduction-related
information for evaluation by the Dow Jones Sustainability
Index every year since 2001.
● TSMC’s GHG-related information has been disclosed in its CSR
report on the Company website annually since 2008. TSMC
also provides information to customers and investors upon
request.
● TSMC has been participating in an annual survey held by the
nonprofit Carbon Disclosure Project (CDP) since 2005, which
includes GHG emission and reduction information for all
TSMC fabs and subsidiaries.
● TSMC has followed the ISO 14064-1 standard to conduct
a GHG inventory and acquire verification by an accrediting
agency since 2006. TSMC also reports GHG inventory data
to the Taiwan Environmental Protection Administration (EPA)
and the Taiwan Semiconductor Industry Association (TSIA).
6.3.7 Other Risks
Potential Impact and Risks Associated with Sales of
Significant Numbers of Shares by TSMC’s Directors, and/
or Major Shareholders Who Own 10% or more of TSMC’s
Total Outstanding Shares
The value of TSMC shareholders’ investment may be reduced
by possible future sales of TSMC shares owned by major
shareholders.
One or more of our existing shareholders may, from time to
time, dispose of significant numbers of our common shares
or ADSs. For example, the National Development Fund, which
owned 6.38% of TSMC’s outstanding shares as of February 28,
2017, has from time to time in the past sold TSMC shares in
the form of ADSs in several transactions.
As of the date of this annual report, no shareholder owns 10%
or more of TSMC’s total outstanding shares.
Risks Associated with Cyber Attacks
Even though TSMC has established a comprehensive internet
and computing security network, it cannot guarantee that
the Company’s computing systems which control or maintain
vital corporate functions like its manufacturing operations
and enterprise accounting would be completely immune
to crippling cyber viral attacks launched by third party to
gain unauthorized access to its internal network systems to
sabotage its operations and goodwill. In the event of a serious
cyber attack, TSMC’s systems may lose important corporate
data and its production lines may be shutdown indefinitely
pending the resolution of such attack. These cyber attacks
may also attempt to steal TSMC’s trade secrets and other
intellectual properties and other sensitive information, such
as proprietary information of the Company’s customers and
other stakeholders and personal information of the Company’s
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7.
Corporate Social Responsibility
7.1 Overview
TSMC believes a company’s corporate social responsibility is to uplift society. As a result, in addition to actively strengthening
TSMC’s competitiveness in its core business of dedicated IC foundries, the Company is also continuously active in the economic,
environmental and social dimensions of corporate responsibility and attends to the rights of all stakeholders including employees,
shareholders/investors, customers, suppliers, and local communities to serve as a positive force in society.
The Scope of Corporate Social Responsibility
TSMC has declared “Uplifting Society” as the Company vision and identified three primary missions: “Acting with Integrity,”
“Strengthening Environmental Protection,” and “Caring for the Disadvantaged” in its Corporate Social Responsibility Policy. The CSR
matrix below, set by Chairman Dr. Morris Chang, clearly defines the scope of that responsibility. The horizontal axis shows the seven
areas where TSMC aims to set an example: morality, business ethics, economy, rule of law, sustainability, work/life balance and
happiness, and philanthropy. On the vertical axis are actions that TSMC has taken to fulfill its responsibilities.
TSMC CSR Matrix
TSMC
Integrity
Law Compliance
Anti-Corruption
Anti-Bribery
Anti-Cronyism
Environmental Protection
Climate Control
Energy Conservation
Corporate Governance
Provide Well-Paying Jobs
Good Shareholder Return
Employees’ Work/Life Balance
Encourage Innovation
Good Work Environment
Volunteers Organization
Education and Culture Foundation
Society
Morality
Business Ethics
Economy
Rule of Law
Sustainability
Work/Life
Balance
Happiness
Philanthropy
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
V
CSR Management
As the TSMC’s top-level group for corporate social responsibility, the CSR committee acts as a center for decision-making
and platform for coordination throughout the Company. TSMC’s CFO (chief financial officer) serves as chairperson of the CSR
committee, which is comprised of representatives from each functional organization. The committee meets each quarter to discuss
developments and future directions of CSR operations. It also coordinates across all organizations based on the type and nature of
issues addressed and monitors the progress and effectiveness of CSR projects.
Functions related to CSR include legal, customer service, materials management, quality and reliability, research and development,
risk management, finance, investor relations, operations, human resources, the TSMC Foundation, the TSMC Volunteer Program,
public relations and environment, health, and safety. These functions are responsible for addressing CSR issues of interest to
employees, shareholders/investors, customers, suppliers, governments, communities, and other stakeholders to systematically and
effectively fulfill the Company’s corporate social responsibilities. The CSR committee chairperson leads committee to jointly set
the Company’s CSR strategy, identify key issues for the year and monitor the execution of related projects and budgets by each
organization to ensure they are effectively carried out. The CSR committee chairperson also annually reports the current year’s
results and submits plans for the upcoming year to the board of directors.
Stakeholder Engagement
TSMC’s approach to stakeholder relations is divided into four stages: identification, analysis, planning and engagement. In order
to pursue sustainable operations, TSMC not only performs direct communications with each of its stakeholders through multiple
channels established by CSR-related units but also maintains a ”Stakeholder Engagement” section on the corporate website, as
well as a CSR mailbox to gather a broad range of views from the public. The CSR mailbox, set up in 2011, is managed by dedicated
public relations staff, and submissions are sent to relevant departments according to the nature and range of issues addressed.
In 2016, the TSMC CSR mailbox received 472 submissions, including requests for surveys, studies and visits, inquiries about
daily operations, recruiting and CSR-related experience sharing, suggestions and complaints from the public, and requests for
endorsement, donation and collaboration as well as event invitations. All received timely responses from the Company’s dedicated
personnel.
Stakeholders and Communication Channels in 2016
Stakeholders
Employees
Shareholders & Investors
Customers
Suppliers
Government
Society
Communication Channels
● Corporate intranet, internal emails and other announcement channels (such as promotion posters at facilities)
● Human resource representatives
● Regular and ad-hoc communication meetings
● Employee voice channels, such as immediate response system, employee opinion box, wellness center, wellness website, etc.
● Ombudsman System
● Audit Committee Whistleblower System
● Annual shareholder meeting
● Quarterly earnings conference call
● Investor conferences and meetings
● Telephone and email responses to investors’ questions and feedback collection
● Annual reports, CSR reports, 20-F filings to US SEC, material announcements to Taiwan Stock Exchange, and corporate news on the Company’s website
● Annual customer satisfaction survey
● Customer quarterly business review meetings
● Customer audits
● Supplier quarterly business review meetings
● Supplier questionnaire survey
● Supplier onsite audits
● Annual supply chain management forum
● Supplier ethics code awareness training
● Official correspondence
● Meetings (such as communication meetings or public hearings)
● Communication with government authorities through industry organizations, including the Association of Science Park Industries, Taiwan Semiconductor
Industry Association, World Semiconductor Council, and Chinese National Federation of Industries
● Arts events in the communities
● Sponsorship of non-profit organizations to support educational projects
● Professorship endowments and student scholarships at universities
● Support of non-profit organizations and institutions via monetary and in-kind donation, as well as providing necessary manpower for a good cause
● Regular visits to National Museum of Science, Hsinchu Veterans Home, St. Teresa Children Center, Hsinchu Gaofeng Botanical Garden, Jacana Ecology
Education Park, and other remote schools to provide volunteer services
● Annual volunteer activities in collaboration with TSMC fabs and divisions
In April 2016, the Company launched its first Facebook fan page, a newly established two-way communication channel to introduce
a variety of CSR activities provided by the TSMC Education and Culture Foundation, TSMC Volunteer Program and 17 fab/division
volunteer initiatives on a weekly basis. This enables further understanding of the Company’s social contribution to society.
TSMC believes that maintaining good communication with stakeholders not only helps the Company better understand economic,
social and environmental challenges, but also creates value for the Company and society and promotes sustainable growth.
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Responsibilities of TSMC CSR Committee Members
2016 CSR Awards and Recognitions
Committee Members
Responsibilities
Stakeholders
Legal
Customer Service
Materials Management
Quality and Reliability
Corporate Governance, Code of Conduct, Legal Compliance, Intellectual Property, Protection of Confidential
Information
Customers Service and Satisfaction, Customer Trust, Customer Confidentiality
Materials and Supply Chain Risk Management, Supplier Management, Conflict Minerals, EICC
Product Quality and Reliability, Product Recall Mechanism.
Research and Development
Innovation Management, Green Products
Risk Management
Risk Management, Crisis Management, Emergency Response and Action Plan
Finance
Investor Relations
Operations
Environment, Health, and Safety
Financial Disclosure, Dividend Policy, Tax Strategy
Resolving Issues of Stakeholder Concern, Establishing Trusting Long-term Relationships, Effective Two-way
Communication, Annual Report Production
Operational Eco-efficiency, Pollution Prevention, Water Resource Risk Management, Green Manufacturing
Environmental Policy and Management System, Climate Change Mitigation and Adaption, Pollution Prevention, Energy
Consumption Efficiency, Carbon Emissions and Carbon Rights Management, Product Environmental Responsibility,
Response Mechanism for Environmental Issues, Environmental Spending, Green Supply Chain, Policy and Management
Systems for Occupational Health and Safety, Workplace Health and Safety, Occupational Disease Prevention and Health
Promotion, Communication of ESH Regulations
Human Resources
Talent Recruitment and Retention, Employee Health and Safety, Employee Training and Development, Compensation
and Benefits, Freedom of Association and Collective Bargaining, Labor Relations and Whistleblower Procedures, Labor
Rights Violations and Reporting Procedures, Management of Working Hours, Child Labor
TSMC Education and Culture Foundation, TSMC
Volunteer Society
Corporate Citizenship, Philanthropy, Community Relations
Public Relations
Stakeholder Engagement, Mechanism for Reflecting Issues of Social Concern, Media Relations
Government
Employees
Society
Customers
Suppliers
Customers
Employees
Customers
Customers
Employees
Government
Society
Investors
Government
Investors
Investors
Customers
Investors
Employees
Customers
Government
Society
Suppliers
Investors
Employees
Society
Society
As the only semiconductor company chosen for the Dow Jones Sustainability World Indices for the past 16 consecutive years, TSMC
believes that integrity is fundamental to any company’s sustainability. From a CSR perspective, TSMC also believes that customer
trust is enhanced if the Company follows the law, insists on transparency and shows good corporate governance. These practices,
along with outstanding business results, mean investors will be more willing to invest in the Company over the long term and
employees will be more likely to make a mutual commitment to the Company to fulfill its core values, leading to stronger coherence
within the Company. At TSMC’s urging, suppliers – both upstream and downstream – have been working together to strengthen
environmental protection by building a green supply chain. With the engagement of all stakeholders, the Company’s resources
can be amplified to create even more value for society. In summary, carrying out TSMC’s social responsibilities gives the Company
greater competitive advantage and benefits all stakeholders.
Category
Overall CSR
Organization
Awards and Recognitions
Dow Jones Sustainability Indices (DJSI)
● Membership in the Dow Jones Sustainability World Index for the 16th consecutive year
● RobecoSAM Sustainability Award - Gold Class
MSCI Global Sustainability Indexes
● Selected as MSCI Global Sustainability Indexes component
FTSE4Good Index
Goldman Sachs, GS Sustain
R.O.C. Presidential Office
Taiwan Institute of Sustainable Energy
Barron’s
FORTUNE
Newsweek
Channel NewsAsia
CommonWealth Magazine
Global Views Magazine
● Selected as FTSE4Good Emerging Index component
● Selected as GS SUSTAIN Focus List companies, which incorporates global industry leaders
● R.O.C. Presidential Innovation Award
Taiwan Corporate Sustainability Awards:
● Taiwan Corporate Sustainability Awards No.1 for Domestic Corporates
● Taiwan Top 50 Corporate Responsibility Report Awards – Electronics Industry – Gold Class
● Sustainable Water Management Award
● Climate Leader Award
● Selected as Top100 World’s Most Admired Companies
● Selected as one of The World’s Most Admired Companies
● Selected as Newsweek Green Rankings Top Green Companies in the World
● Selected as one of the most sustainable corporations in Channel NewsAsia Sustainability Ranking
● Excellence in Corporate Social Responsibility Award – Large cap – 2nd Place
● Most Admired Company in Taiwan for the 21st consecutive year
● Most admired entrepreneur in Taiwan
Corporate Social Responsibility Award:
● Technology Industry Group - Model Award
Economy, Governance
Taiwan Stock Exchange
● Ranked in top 5% in Second Corporate Governance Evaluation of Listed Companies
Cheers Magazine
● Most Admired Company for the New Generation
R.O.C. Ministry of Economic Affairs
Bureau of Foreign Trade
R.O.C. Ministry of Economic Affairs
Intellectual Property Office
PricewaterhouseCoopers
China Credit Information Service
Institutional Investor Magazine
IR Magazine
Asiamoney
FinanceAsia
FORTUNE
Forbes
Forbes Asia
Nikkei
● Outstanding Trade Contribution Award
● Ranked No.1 in Top 100 Patent Filers
● Ranked No.1 in Taiwan by Pricewaterhouse Coopers Global Innovation 1,000 Study
● Ranked No.1 in Profitability of large Taiwan Companies
● Best CEO (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best CEO (Technology/Semiconductor) - 1st Place (buy-side) - All-Asia
● Best CEO (Technology/Semiconductor) - 1st Place (sell-side) - All-Asia
● Best CFO (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best CFO (Technology/Semiconductor) - 1st Place (buy-side) - All-Asia
● Best CFO (Technology/Semiconductor) - 2nd Place (sell-side) - All-Asia
● Best Investor Relations (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best Investor Relations (Technology/Semiconductor) - 1st Place (buy-side) - All-Asia
● Best Investor Relations (Technology/Semiconductor) - 1st Place (sell-side) - All-Asia
● Best Investor Relations Professional (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best Investor Relations Professional (Technology/Semiconductor) - 1st Place (buy-side) - All-Asia
● Best Investor Relations Professional (Technology/Semiconductor) - 1st Place (sell-side) - All-Asia
● Best Analyst Days (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best Website (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Global Top 50 Gold Rank No.1
● Global Top IRO - Five Winning IROs
● Global Top Corporate Governance - Five Winning Companies
● Best Use of Technology - Greater Asia
● Best Corporate Governance - Greater Asia
● Best in Sector: Technology - Greater Asia
● Best Managed Company Large Cap in Taiwan
● FinanceAsia 20th Anniversary Platinum Awards: Best Company – in Taiwan
● Selected as member of Fortune Global 500
● Forbes Global 2000
● Fabulous 50
● Nikkei Asia 300 Indexes
World Export Controls Review (WorldECR Journal)
● Best Export Controls Compliance Team of the Year - Rest of the World
(Continued)
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Category
Organization
Awards and Recognitions
Environment, Safety and
Health
U.S. Green Building Council Leadership in Energy and
Environmental Design (LEED) certification
● “Gold” class certification – Fab 14B Manufacturing Facility and Office Building
R.O.C. Ministry of the Interior “Ecology, Energy
Saving, Waste Reduction and Health (EEWH)”
certification
R.O.C. Environmental Protection Administration
R.O.C. Ministry of Economic Affairs
● “Diamond” class certification – Fab 12A Manufacturing Facility, Fab 12 Phase 6 Manufacturing Facility, Fab 14B
Manufacturing Facility
● Excellence in Toxic Substance Management Award – Fab 2 and Fab 5
● Enterprise Green Procurement Award – Fab 2 and Fab 5, Fab 3, Fab 8, Fab 12A, Fab 14A, Fab 14B
● Environmental Education Award – Fab 6, Fab 15A
● Excellence in Energy Conservation – Fab 12 Phase 6
● Excellence in Carbon Reduction Award – Fab 2 and Fab 5, Fab 8
● Green Factory Label – Fab 15A
● Water Conservation Award – Fab 14B for two consecutive years
R.O.C. Ministry of Labor
● Excellence in Labor Safety and Hygiene Award – Fab 12A
Hsinchu Science Park Administration
● Water Conservation Award – Fab 2 and Fab 5
● Excellence in Energy Conservation – Fab 2 and Fab 5, Fab 3
● Excellence in Labor Safety and Hygiene Award – Fab 2 and Fab 5
● Excellence in Ammonia Nitrogen Reduction in Wastewater – Fab 12A, Fab 12 Phase 7
Central Taiwan Science Park Administration
● Excellence in Labor Safety and Hygiene Award – Fab 15A
Southern Taiwan Science Park Administration
● Excellence in Environmental Protection – Fab 6
Hsinchu County Environmental Protection Bureau
● Enterprise Environmental Protection Evaluation – Fab 12 Phase 6
Hsinchu City Environmental Protection Bureau
● Enterprise Green Procurement Award – Fab8, Fab 12A
Tainan City Environmental Protection Bureau
● Enterprise Green Procurement Award – Fab 14A
7.2 Environmental, Safety and Health (ESH) Management
TSMC believes its environmental, safety and health practices must not only meet legal requirements, but should also measure
up to or exceed recognized international best practices. TSMC’s ESH policies aim to reach the goals of “zero incident” and
“sustainable development,” and to make TSMC a world-class company in environmental, safety and health management. The
Company’s strategies for reaching these goals are to comply with regulations, promote safety and health, strengthen recycling and
pollution prevention, manage ESH risks, instill an ESH culture, establish a green supply chain, and fulfill its related corporate social
responsibilities.
All TSMC manufacturing facilities have received ISO 14001: 2004 certification for environmental management systems and OHSAS
18001: 2007 certification for occupational safety and health management systems and transferred environmental management
system certificate to ISO 14001: 2015 in 2016. All fabs in Taiwan have also been TOSHMS (Taiwan Occupational Safety and Health
Management System) certified since 2009.
TSMC strives for continuous improvement and actively seeks to enhance climate-change management, pollution prevention and
control, power and resource conservation, waste reduction and recycling, safety and health management, fire and explosion
prevention as well as to minimize the impact of earthquake damage, so as to reduce overall environmental, safety and health risks.
In 2006, in order to meet regulatory and customer needs for the management of hazardous materials, TSMC began to adopt
the IECQ QC 080000 Hazardous Substance Process Management (HSPM) System. All TSMC manufacturing facilities have been
QC 080000 certified since 2007. By practicing QC 080000, TSMC ensures that its products comply with regulatory and customer
requirements, including the European Union’s “Restriction of Hazardous Substances (RoHS) Directive,” the EU’s “Registration,
Evaluation, Authorization and Restriction of Chemicals (REACH),” the “Montreal Protocol on Substances that Deplete the Ozone
Layer” (the halogen free in electronic products initiative), and Perfluorooctane Sulfonates (PFOS) restriction standards.
Since 2011, TSMC has adopted the ISO 50001 Energy Management System for the continuous improvement of energy
conservation. TSMC’s Fab 12 Phase 4 data center is Taiwan’s first facility to earn the ISO 50001 certification for a high-density
computing data center. As of 2016, TSMC has three fabs – Fab 12 Phase 4/5/6, Fab 14 Phase 3/4 and Fab 15 – that earned ISO
50001 certifications. Other TSMC fabs also implement energy management measures consistent with ISO 50001.
TSMC regularly communicates with suppliers and contractors
regarding environmental, safety and health issues and
encourages them to improve their ESH performance. In line
with this policy, TSMC uses priority work management and
self-management to govern work performed by contractors.
TSMC requires contractors performing level-one high-risk
operations to complete certification for technicians and
to establish their own OHSAS 18001 safety and health
management system. This promotion of self-management
is aimed at increasing the sense of responsibility of TSMC’s
contractors, with the goal of promoting safety awareness and
technical improvement for all contractors in the industry.
TSMC collaborates with suppliers to improve the sustainability
of the Company’s supply chain regarding ESH-related issues,
such as environmental protection, safety and hygiene code
compliance, daily management, fire protection, and conflict
mineral management. TSMC not only performs ESH audits at
its suppliers’ manufacturing sites but also proactively assists
them with improving ESH performance.
Besides the requirement of ESH code compliance, energy/
water saving and carbon management of TSMC’s supply chain
are essential to the Company’s green supply chain ideals.
Since 2009, TSMC has required suppliers to establish carbon
inventory procedures. In 2015, TSMC calculated its carbon
footprint and water footprint, which were certified by a third
party for ISO 14067 and ISO 14046, respectively. TSMC not
only provides such information to customers but also continue
to promote carbon reduction and water conservation at TSMC
and in the supply chain from a life-cycle point of view.
TSMC also monitors potential climate-change related risks
in the supply chain, investigates the supply chain’s carbon
emissions, electricity usage and water usage, and encourages
suppliers to implement measures to save energy, reduce
carbon emissions, conserve water and reduce waste. The
ESH management programs of TSMC suppliers are tied to a
sustainability index that includes three components: the Green
Index, the Social Index and the Risk Index. The Green Index
includes environmental management systems, regulatory
compliance, hazardous substance management, conflict
mineral investigation, greenhouse gas inventory and other
green activities. The Social Index includes labor and ethical
conduct. Both the Green and Social indices are consistent
with the Electronic Industry Citizenship Coalition (EICC)
Code of Conduct. The Risk Index includes safety and health
management, fire prevention, natural disaster mitigation,
IT interruption recovery, transportation reliability, supply
chain management and business continuity planning. This
sustainability index is applied to TSMC’s critical suppliers.
7.2.1 Environmental Protection
Greenhouse Gas (GHG) Emission Reduction
TSMC is an active participant in international environmental
regulatory and protection programs. The Company has taken
many measures to reduce its emission of GHGs. For example,
TSMC endorsed a memorandum of understanding with the
Taiwan Semiconductor Industry Association (TSIA), the Taiwan
Environmental Protection Administration (EPA), and the World
Semiconductor Council (WSC) to establish the corporate PFC
emission reduction policy and action plans proactively, whereby
the Company committed to reducing PFC emissions to 10%
below the average of 1997 and 1999 by 2010, a commitment
that it was proud to make and achieve.
TSMC is active in the WSC’s activities to set up a global
voluntary PFC emissions reduction goal for the next ten years,
and has incorporated past experience to develop best practices.
The implementation of best practices has been adopted by
the WSC as a major element of the 2020 goal. In 2013, in
accordance with the “EPA Early Actions for Carbon Credit of
Greenhouse Gases Reduction” regulation, TSMC applied for the
recognition of greenhouse reduction from 2005 to 2011 that
committed to the WSC and EPA, and received 5.28 million tons
of carbon dioxide credits in 2015. Those carbon credits can be
used to offset greenhouse gas emissions of new manufacturing
facilities regulated by Environmental Impact Assessment
(EIA) Act. The mitigation of climate-change risk supports the
Company’s sustainable operations.
The “Greenhouse Reduction and Management Act” established
by Taiwan EPA has been in effect since July 1, 2015. The
related sub-regulations will be established and announced
soon, and TSMC is preparing to take action. In 2005, TSMC
was the semiconductor leading company to complete the GHG
inventory program and take a complete inventory of its GHG
emissions and to gain ISO 14064 certification. The purpose
of the inventory is to serve as a baseline reference for TSMC’s
strategy to reduce GHG emissions, to meet domestic regulatory
requirements, and to prepare for carbon trading and corporate
carbon asset management. All TSMC facilities conduct an
annual GHG inventory. The inventory shows that the major
direct GHG emissions are perfluorinated compounds (PFCs),
which are used in the semiconductor manufacturing process.
The primary indirect GHG emission is electricity consumption.
Thermal power generators, the major source of electricity in
Taiwan, emit larger amounts of carbon dioxide (CO2) than
any other power generators. Because 70% of GHG emission
comes from electricity consumption, TSMC emphasizes energy
saving and carbon reduction initiatives. TSMC has not only
adopted energy-conserving designs in its manufacturing fabs
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and offices, but has also continuously improved the energy
efficiency of its facilities during operation. These efforts
simultaneously reduce both carbon dioxide gas emissions and
costs.
Since 2015, TSMC has actively participated in the R.O.C.
Ministry of Economic Affairs’ voluntary “Green Power
Purchasing Program”. In 2016, TSMC purchased 200 million
kilowatt hours (kWh) of green power that made up nearly 20%
of the Taiwan Power Company’s total green power available
for purchase under the program in that year. Since green
power is generated with zero carbon emissions, the purchase
of 200 million kWh of green power will eliminate over 100
million kilograms of CO2 emissions, equivalent to the carbon
absorbed by 10 million trees in one year. TSMC hopes that by
supporting Taiwan’s renewable energy efforts, it can continue
to pursue sustainability, promote a low-carbon environment,
and reduce the impact of global warming.
Air and Water Pollution Control
The Company has installed effective air and water pollution
control equipment in each wafer fab to meet regulatory
emissions standards. In addition, TSMC maintains backup
pollution control systems, including emergency power
supplies, to lower the risk of pollutant emission in the event of
equipment failure. TSMC centrally monitors the operations of
its air and water pollution control equipment around the clock
and treats system effectiveness as an important tracking item
to ensure the quality of emitted air and discharged water.
To make the most effective use of Taiwan’s limited water
resources, all TSMC fabs strive to increase water reclamation
rates by adjusting the water usage of manufacturing
equipment and improving wastewater reclamation systems.
All fabs meet or exceed the process water reclamation rate
standard of the Science Park Administration. New fabs
are able to reclaim more than 85% of process water, and
outperforming most semiconductor fabs around the world.
TSMC also makes every effort to reduce non-manufacturing-
related water consumption, including water used in air
conditioning systems, sanitary facilities, cleaning and
landscaping activities and kitchens. TSMC uses an intranet
website to collect and measure water recycling volumes
company-wide.
Since water resources are inherently local, TSMC shares its
water saving experiences with other semiconductor companies
through the Association of Science-Based Industrial Park to
promote water conservation in order to achieve the Science
Park’s goals and ensure a long-term balance of supply and
demand.
Waste Management and Recycling
The Company has a designated unit responsible for waste
recycling and disposal. To meet the goal of sustainable
resource utilization, TSMC’s priorities are: (1) reduce process
waste, (2) increase onsite reuse, and (3) increase offsite
recycling. The last option consists of treatment or disposal.
To achieve raw material reduction, resource recycling and the
goal of zero waste, TSMC built an in-house waste sulfuric
acid pre-treatment system as electronic grade sulfuric acid
can be used as waste water treatment agents after the wafer
fabrication process. In order to track waste flow and ensure
that all waste is treated or recycled legally and properly, TSMC
carefully selects waste disposal and recycling contractors and
performs annual audits of certification documents and site
operations. TSMC also takes proactive steps to strengthen
vendor auditing effectiveness. For example, all waste
transportation contractors were asked and agreed to join the
“GPS Satellite Fleet” so that all the cleanup transportation
routes and abnormal stays for all trucks can be traced. In
addition, all waste recycling and treatment vendors have
installed closed-circuit TV systems at operating sites to monitor
and audit the waste handling. Meanwhile, TSMC also conducts
an ongoing survey of recycling product tracking. These actions
were taken to ensure lawful and proper waste recycling and
treatment, and in 2016 TSMC’s fabs in Taiwan achieved a
95% waste recycling rate, with a landfill rate below 1% for the
seventh consecutive year.
Environmental Accounting
The purpose of TSMC’s environmental accounting system
is to identify and calculate environmental costs for internal
management. At the same time, the Company can also
evaluate the savings or economic benefits of environmental
protection programs so as to promote cost-effective programs.
While environmental expenses are expected to continue
growing, environmental accounting can help TSMC manage
these costs more effectively. TSMC’s environmental accounting
measures various environmental costs, establishes independent
environmental account codes, and provides these to all
units for use in annual budgeting. The Company’s economic
benefit evaluation calculates cost savings for reduction of
energy, water or waste and benefits from waste recycling in
accordance with its environmental protection programs.
The environmental benefits disclosed in this report include real
income from projects such as waste recycling and savings from
major environmental projects. In 2016, 184 environmental
projects of TSMC fabs were completed and the total benefits,
including waste recycling, were more than NT$1,168 million.
2016 Environmental Cost of TSMC Fabs in Taiwan
Unit: NT$ thousands
Classification
1. Direct Costs for Reducing Environmental Impact
Description
Investment
Expense
(1) Pollution Control Cost
Fees for air pollution control, water pollution control, and others
(2) Resource Conservation Cost
Costs for resource (e.g. water) conservation
(3) Indistrial Waste Disposal and Recycling
Costs for waste treatment (including recycling, incineration and landfill)
2. Indirect Cost for Reducing Environmental
Impact (Environmental Managerial Cost)
3. Other Environmental Costs
Total
(1) Cost of training (2) Environmental management system and certification
expenditures (3) Environmental impact measurement and monitoring fees (4)
Environmental protection product costs (5) Environmental protection organization
fees
(1) Costs for decontamination and remediation (2) Environmental damage
insurance fees and environmental taxes and expenses (3) Costs related to
environmental settlement, compensations, penalties and lawsuits
7,987,837
1,686,996
-
94,748
3,621,017
-
1,207,390
242,518
-
100
9,769,581
5,071,025
2016 Environmental Efficiency of TSMC Fabs in Taiwan
Unit: NT$ thousands
Category
Description
1. Cost Savings of Environmental Protection
Energy savings: completed 61 projects
Projects
Water savings: completed 16 projects
Waste reduction: completed 107 projects
2. Real Income from Industrial Waste Recycling
Recycling of used chemicals, wafers, targets, batteries, lamps, packaging materials, paper cardboard, metals, plastics,
and other waste
Total
Efficiency
227,000
18,070
503,000
420,000
1,168,070
Green Building and Green Factory
Since 2006 TSMC has adopted standards from both the Taiwan “Green Building” and the evaluation of the U.S. Green Building
Council - Leadership in Energy and Environmental Design (LEED) for new fab and office building designs to achieve better energy
and resource efficiency than conventional designs. During this time, TSMC has also continued to upgrade existing office buildings
to comply with the LEED standard each year. From 2008 to 2016, 21 of TSMC’s fabs and office buildings have achieved LEED
certifications (three platinum-class and 18 gold-class). Meanwhile, TSMC also received three Taiwan Intelligent Building diamond
class certifications and 15 Taiwan EEWH (Ecology, Energy Saving, Waste Reduction and Health) diamond class certifications.
TSMC believes that more manufacturing companies should convert their facilities into green factories to improve the environment
and lower construction costs. Therefore, the Company freely shares its practical experience with industry, government and
academia. As of the end of 2016, 10,245 visitors from 269 different industry, government, academic and general community
groups had contacted TSMC to gain an understanding of the Company’s green factory practices. Since 2009, TSMC has led
the industry in support of the Taiwan government’s “Green Factory Labeling System,” a system that includes “Clean Production
Evaluation” and “Green Factory Evaluation”. TSMC received Taiwan’s first “Green Factory Label” and seven labels in total for Fab 12
Phase 4, Fab 14 Phase 3 and Phase 4, Fab 12 Phase 5 and Phase 6, Fab 15 Phase 1 and Phase 2 and Fab 15 Phase 3 and Phase 4.
7.2.2 Green Products
TSMC collaborates with its upstream material and equipment suppliers, design ecosystem partners and downstream assembly
and testing service providers to minimize environmental impact. We reduce the resources and energy consumed for each unit
of production and are able to provide more advanced, power efficient and ecologically sound products, such as lower-power-
consumption chips for mobile devices, high-efficiency LED driver chips for flat panel display backlighting, indoor/outdoor solid
state LED lighting, “Energy Star” certified low standby AC-DC adaptors chips, and high-efficiency DC brushless motor chips, etc. By
leveraging TSMC’s superior energy-efficient technologies, these chips support sustainable city infrastructure, greener vehicles, smart
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girds, and so on. In addition to helping customers design
low-power, high-performance products to reduce resource
consumption over the product’s life cycle, TSMC’s green
manufacturing practices provide additional “Green Value” to
customers and other stakeholders.
TSMC-manufactured ICs are used in a broad variety of
applications covering various segments of the computer,
communications, consumer, industrial and other electronics
markets. Through TSMC’s manufacturing technologies,
customers’ designs are realized and their products are
incorporated into people’s lives. These chips, therefore, make
significant contributions to the progress of modern society.
TSMC works hard to achieve profitable growth while providing
products that add environmental and social value. Listed below
are several examples of how TSMC-manufactured products
significantly contribute to the environment and society.
Environmental Contribution by TSMC Foundry Services
1. Continue to Drive Technology to Lower Power
Consumption and Save Resources
● TSMC continues to drive the development of advanced
semiconductor process technologies to support customer
designs that result in the most advanced, energy-saving and
environmentally friendly products to improve sustainability. In
each new technology generation, circuitry line widths shrink,
making transistors smaller and reducing product power
consumption.
● TSMC has quickly ramped up its 28nm and beyond
technologies. Wafer revenue contribution from 28nm and
below technologies grew significantly from 12% in 2012 to
54% in 2016. TSMC’s objective is to continue R&D efforts in
28nm and beyond technologies and to increase the wafer
revenue contribution from 28nm and beyond technologies,
helping the Company achieve both profitable growth and
energy savings.
TSMC Wafer Revenue Contribution from 28nm and Beyond Technologies
2012
12%
2013
30%
2014
42%
2015
48%
2016
54%
Chip Die Size Cross-Technology Comparison
Die size reduces as line width shrinks
1
0.53
0.48
0.25
0.13
0.12
0.068
0.048
55nm
45nm 40nm
28nm
20SoC 16FF+
10nm
7nm
Chip Total Power Consumption
Cross-Technology Comparison
More power is saved as line width shrinks
1
0.6
0.3
0.2
0.09
0.06
0.04
55LP
(1.2V)
40LP
(1.1V)
28HPM
(0.9V)
20SoC
(0.9V)
16FF+
(0.8V)
10nm
(0.75V)
7nm
(0.75V)
2. Provide Customers Leading Power Management IC
Process with the Highest Efficiency
● TSMC’s leading manufacturing technology helps customers
design and produce green products. Power management
ICs, the key components that regulate and supply power
to all other IC components, are the most notable green IC
products. TSMC helps customers produce industry-leading
power management chips with more stable and efficient
power supplies and lower energy consumption.
● In 2016, TSMC’s HV/Power technologies collectively shipped
more than 2.1 million 8-inch equivalent wafers to customers.
In total, power management ICs manufactured by TSMC
accounted for more than one-third of global computer,
communication and consumer systems.
HV/Power Technologies Shipments (Unit: 8-inch equivalent wafer)
2012
2013
2014
2015
2016
networks (WLAN), imaging sensors, near field communication
(NFC), Bluetooth, and global positioning systems (GPS)
among others, represented 52% of TSMC wafer revenue in
2016.
TSMC Wafer Revenue Contribution from Mobile Computing Related Products
2012
40%
2013
44%
2014
48%
2015
51%
2016
52%
>1,000K
>1,300K
>1,800K
>2,000K
>2,100K
Note: Mobile computing related products were re-classified in 2014.
3. Green Manufacturing that Lowers Energy Consumption
TSMC continues to develop more advanced and efficient
technologies to reduce energy/resource consumption and
pollution per unit during the manufacturing process as well as
power consumption and pollution during product use. In each
new technology generation, circuitry line widths shrink, making
circuits smaller and lowering the energy and raw materials
consumed for per unit in manufacturing. In addition, the
Company continuously provides process simplification and new
design methodology based on its manufacturing excellence
to help customers reduce design and process waste so as to
produce more advanced, energy-saving and environmentally-
friendly products. To see the total energy savings and benefits
realized in 2016 through TSMC’s green manufacturing, please
refer to Environmental Accounting on pages 124-125 in this
annual report.
Social Contribution by TSMC Foundry Services
1. Unleash Customers’ Mobile and Wireless Chip Innovations
that Enhance Mobility and Convenience
● The rapid growth of smartphones and tablets in recent years
reflects strong demand for mobile devices, which, in turn,
offer remarkable convenience. TSMC contributes significant
value to these devices, including: (1) new TSMC process
technology helps chips achieve faster computing speeds
in a smaller die area, leading to smaller form factors for
these electronic devices. In addition, TSMC SoC technology
integrates more functions into one chip, reducing the total
number of chips in electronic devices, again resulting in a
smaller system form factor; (2) new TSMC process technology
also helps chips consume less energy. People can therefore
use mobile devices for a longer period of time; and (3)
TSMC helps spread the growth of more convenient wireless
connectivity such as 3G/4G and WLAN/Bluetooth, meaning
people can communicate more efficiently and “work anytime
and anywhere,” significantly improving the mobility of
modern society.
● Mobile computing related products, such as baseband, RF
transceivers, application processors (AP), wireless local area
2. Unleash Customers’ CIS (CMOS image sensor) and MEMS
(micro electro mechanical systems) Innovations that
Enhance Human Health and Safety
● In addition to smartphones, tablets and many other
consumer electronic devices, TSMC-manufactured CIS and
MEMS chips are widely used in medical treatment and health
care applications. By leveraging the Company’s advanced
technologies, more and more chips for these applications are
introduced to the market, providing major contributions to
modern medicine. Customers’ CIS and MEMS products are
used in a number of advanced medical treatments as well
as in preventative health care applications. Examples include
early warning systems to minimize the injury from falls for the
elderly, systems to detect physiological changes, car safety
systems and other applications that greatly enhance human
health and safety.
7.2.3 Safety and Health
Safety and Health Management
TSMC’s safety and health management is built on the
framework of the OHSAS 18001 system and adheres to
the management principle of “Plan, Do, Check, Act” to
prevent accidents, promote employee safety and health and
protect Company assets. All TSMC fabs in Taiwan have also
received TOSHMS (Taiwan Occupational Safety and Health
Management System) certification.
Besides accident prevention, TSMC has established emergency
response procedures to protect employees and contractors if
a disaster should occur, as well as to prevent and/or reduce
the negative impact on society and the environment. TSMC
continually communicates with its suppliers to ensure that
potential risk in the operation of production equipment is
minimized, and rigorously follows safety control procedures
when installing production equipment. The Company places
stringent controls on high-risk operations and also evaluates
the seismic tolerance of its facilities and equipment to reduce
the risk of earthquake damage.
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For epidemics, TSMC has established company-level prevention
committees and procedures for emergency response to
outbreaks of infectious diseases.
detailed disaster response procedures and performs regular
drills designed to minimize harm to employees and property, as
well as the impact on society and the environment in the event
of a disaster.
Working Environment and Employee Safety and Health
Protection
TSMC’s ESH policy is focused on establishing a safe working
environment, preventing occupational injury and illness,
keeping employees healthy, enhancing every employee’s
awareness and sense of accountability to ESH, and building an
ESH culture. TSMC safety and health management operations
apply to:
● Equipment Safety and Health Management
In addition to meeting regulatory requirements and internal
standards, as well as mitigating ESH-related risks when building
or upgrading facilities, TSMC also maintains procedures
governing new equipment and raw materials, safety approvals
for bringing new tools online, updating safety rules, seismic
protection measures, and other safety measures.
TSMC requires that all new tools meet SEMI-S8 requirements
and that appropriate supplementary control measures be
taken to reduce ergonomic risk. Moreover, TSMC endeavors
to automate 300mm front-opening unified pod (FOUP)
transportation to prevent accumulative physical damage
caused by repetitive manual handling of 300mm FOUPs. TSMC
300mm fabs have completed automatic transportation control.
● Environmental, Safety and Health Evaluation of New Tools
and New Chemical Substances
As a technology leader in the global semiconductor industry,
TSMC operates many diversified process tools and introduces
new chemicals in the R&D stage. Before using those new tools
and new chemicals, they are reviewed carefully by the “New
Tools and New Chemical Review Committee”. The purpose is
to ensure that new tools are compliant with the semiconductor
industry’s safety standards (such as SEMI S2) and that new
chemicals’ environmental, safety and health concerns can be
well controlled, including engineering controls, application of
personal protection equipment, and operational safety training
during storage, transportation, usage and disposal.
● General Safety Management, Training and Audit
All TSMC manufacturing facilities hold environmental, safety
and health committee meetings on a monthly basis. TSMC
adopts multiple preventive measures such as controls on
high-risk work, contractor management, chemical safety
management, personal protective equipment requirements,
and safety audit management. In addition, TSMC maintains
● Working Environment Hazardous Factors Management
TSMC conducts workplace hazard assessments and
interventions to provide a comfortable and safe workplace
to employees. TSMC also requires employees to use personal
protective equipment (PPE) to prevent hazardous exposures.
TSMC performs semi-annual workplace environment
assessments of physical and chemical hazards, including CO2
concentration, illumination, noise, and hazardous chemical
substances regulated by local laws. The Company performs
exposure assessments and uses hierarchy management control
for chemicals with potential health hazards since 2015. If
abnormal measurements or events happen or an exposure
assessment indicates there is an adverse health effect for
employees, ESH professionals immediately conduct onsite
observation and interventions to reduce the exposure to
acceptable levels.
● Emergency Response
The planning and execution of an effective emergency response
should identify high-risk events from risk assessment and be
prepared for various scenarios. It should focus on continuous
improvement and practice drills covering all potentially severe
events. TSMC’s emergency response plans include procedures
for rapid-response crisis management and disaster recovery to
potential incidents.
All TSMC fabs conduct major annual emergency response
exercises and evacuation drills. TSMC’s Tainan site fabs
continue their spot drills, which have been recognized as
industry best practices. TSMC’s onsite service contractors
also have to participate in emergency response planning and
exercises to ensure cooperation in handling accidents and to
effectively minimize any damage caused by disasters. At least
every two years, each fab director invites fab management and
support functions to participate in crisis management drills for
potentially high-risk events such as earthquake, fire and flood
(Tainan site).
In addition to the regular emergency response drills held
by engineering and facilities departments each quarter, the
Company’s laboratory, canteen, dormitory, and shuttle bus
personnel also hold emergency response drills to prepare
for events such as earthquakes, chemical leakage, ammonia
release, fires and automobile accidents.
● Emerging Infectious Disease Response
TSMC has a dedicated corporate ESH organization to monitor
emerging infectious diseases around the world, to assess
any potential impact on the workplace, and to provide an
appropriate strategic response plan. In previous outbreaks
(such as SARS in 2003 and the H1N1 influenza outbreak in
2009), TSMC convened the corporate influenza response
committee to develop the Company’s strategies. These
strategies include educating employees in prevention and
response, publishing guidelines for managers, establishing
guidelines for employee sick leave due to flu, and installing
alcohol-based hand sanitizers at appropriate locations. The
Committee also monitors the status of employee leave due to
illness and, at the same time, develops a continuous plan to
address manpower shortages and minimize business impact.
TSMC believes that employees’ physical and mental health
is not only fundamental to maintaining normal business
operations but also part of a corporation’s responsibility.
● Employee Physical and Mental Health Enhancement
To protect and promote employee physical and mental health,
TSMC fosters collaboration among the onsite industrial safety
and environmental protection department, onsite medical
personnel of the health center, and physicians of occupational
medicine. TSMC strives to reduce cardiovascular disease that
might be induced or aggravated by overwork, night work
or shift work, and conducts maternal health protection
programs as well. TSMC devotes significant resources to
mental health awareness and related activities, which not only
protect employees from hazards at work but also proactively
promote employee health in general. In 2016, through
planned personal health management, 45.6% of personnel
diagnosed at high risk for cardiovascular disease shifted to
low risk. 801 female employees participated in the maternal
health program. For five consecutive years TSMC has held a
series of physical and mental health activities. 691 employees
have joined the weight-loss program, losing a total of 1,942
kilograms collectively. For smoking cessation, 115 employees
participated with a success rate of 67% during a three-month
period, exceeding the 33% goal set by the health promotion
administration. 781 employees completed the sleep quality
improvement program, which included one-on-one medical
consultation to improve life quality.
Supplier and Contractor Management
● Supplier Management
As a means of enhancing its supply chain management,
TSMC is committed to communicating with and encouraging
its contractors and suppliers to improve their quality, cost
effectiveness, delivery performance and sustainability on
environmental protection, safety and health. Through
regular communication with senior managers, site audits
and experience sharing, TSMC collaborates with major
suppliers and contractors to enhance partnership and ensure
continual improvement for better performance and increased
joint contributions to society. As noted above, contractors
performing high-risk activities must lay out clearly defined
safety precautions and preventative measures. In addition,
contractors working on high-risk engineering projects must
establish OHSAS 18001 systems and the workers must
successfully complete work skill training.
● Supply Chain Sustainability
TSMC works with its suppliers in several fields of sustainable
development, such as greening the supply chain, carbon
management for climate change, mitigation of fire risk,
ESH management and business continuity plans for natural
disasters.
Since becoming a full member of the Electronic Industry
Citizenship Coalition (EICC) in 2015, TSMC has completed the
adoption of the EICC Code of Conduct across the Company
by performing self-assessments at its facilities worldwide and
reviewing policies and procedures in the areas of labor, health
and safety, environment, ethics, and management systems.
To enhance supply chain sustainability and streamline risk
management, TSMC is committed to collaborating with
its suppliers to maintain full compliance with Taiwan’s
environmental, safety, health and fire regulations, and to
establish the necessary management capability as well as
continuous enhancement.
TSMC is subject to the U.S. Securities & Exchange Commission
(SEC) disclosure rule on conflict minerals released under Rule
13p-1 of the U.S. Securities Exchange Act of 1934. As a
recognized global leader in the high-tech supply chain, the
Company acknowledges its corporate social responsibility
to strive to procure conflict-free minerals in an effort to
recognize humanitarian and ethical social principles that
protect the dignity of all people. To this end, TSMC has
implemented a series of compliance safeguards in accordance
with leading industry practices such as adopting the due
diligence framework in the OECD’s Model Supply Chain
Policy for a Responsible Global Supply Chain of Minerals from
Conflict-Affected and High Risk Areas issued in 2011.
TSMC is one of the strongest supporters of the Electronic
Industry Citizenship Coalition (EICC) and the Global
e-Sustainability Initiative (GeSI), and this will help the
Company’s suppliers source conflict-free minerals through
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their jointly developed Conflict-Free Smelter Program (CFSP).
TSMC has asked its suppliers to disclose and make timely
updates to information on smelters and mines since 2011.
TSMC encourages suppliers to source minerals from facilities
or smelters that have received a “conflict-free” designation
by a recognized industry group (such as the EICC). TSMC also
requires those who have not received such designation to
become compliant with CFSP or an equivalent third-party audit
program. TSMC requires the use of tantalum, tin, tungsten and
gold in its products that are conflict-free.
TSMC will continue to issue the supplier survey annually and
require suppliers to improve and expand their disclosure
to fulfill regulatory and customer requirements. For further
information, please see the Company’s Form SD filed with the
U.S. SEC. (http://www.tsmc.com/english/investorRelations/
sec_filings.htm)
7.3 TSMC Education and Culture Foundation
The TSMC Education and Culture Foundation (TSMC
Foundation), led by TSMC Vice Chairman F.C. Tseng, who
serves as the TSMC Foundation’s chairman, was established
in 1998 to make CSR contributions. In 2016, the TSMC
Foundation contributed over NT$75.81 million to various
projects in minority education, humanity education, arts
promotion, and so on, in order to narrow the urban-rural gap
and uplift society.
Focus on Minority Education
Corporate Contributions to Bridge the Urban-Rural Gap
Industrialization, informatization and globalization are spurring
growth and development in cities and urban areas, which
widens the cultural, educational and digital-resource gap
with rural regions. Cooperating with several social groups,
non-governmental organizations and educational institutions,
the TSMC Foundation provided resources of the arts, sciences,
reading and digital education to help the children at the
bottom of the society move upward.
Reading brings knowledge and knowledge is power. In 2004,
the TSMC Foundation began supporting “Hope Reading” of
the CommonWealth Foundation, which each year donates
100 good books to 200 high schools and primary schools in
Taiwan’s remote townships. Over the past 13 years, more than
240,000 children have been helped with more than 210,000
books. To respond to the needs of the digital era, in 2016 the
TSMC Foundation further sponsored “Hope Reading 2.0,”
which, in addition to book donation, selects 6 merit schools
and 5 benchmark schools, and provides each class 2 tablets
and each student in third to sixth grades with one tablet,
respectively, for a total of 265 tablets in all. With the help
of other education partners, the TSMC Foundation will also
implement e-learning systems to build up the reading and
e-learning culture with the aid of distance courses and online
community reading platforms.
The TSMC Foundation also emphasizes aesthetics and science
education. “TSMC Aesthetic Tour” and “TSMC Science Tour,”
launched in 2003 and 2010, respectively, take children from
remote townships throughout the country to visit the National
Palace Museum, the Taipei Fine Arts Museum and the science
museums in northern, central and southern Taiwan. In 2016,
more than 3,000 educators and students from rural schools
in 17 counties participated in these tours. To date, more than
97,000 students from over 200 rural primary schools have
improved their aesthetic view and inspired their scientific
interests.
Besides, the TSMC Foundation has strengthened its
cooperation with Junyi Academy and Boyo Social Welfare
Foundation, by providing for free qualified digital learning tools
and tutors to help rural students in their study regardless of
financial limitation. For economically disadvantaged students
in top universities, the TSMC Foundation sponsors the “Rising
Sun Plan” of National Tsing Hua University and the “Sunflower
Plan” of National Central University. In 2016, the TSMC
Foundation provided 19 students with NT$1.62 million in
scholarships and launched textbook donations to lighten their
economic burden and enable them to focus on their studies.
Building Educational Platforms
Fostering Multi-Competence Talents and Helping Youth
Reach Their Dreams
To enhance student interests in the sciences and humanities,
the TSMC Foundation organizes national science contests,
science camps and humanity activities. These events build a
stage for the youth, giving them the opportunity not only to
showcase their talents but also to discover themselves and to
consider their future.
To encourage those in the younger generation to chase their
dreams, the TSMC Foundation launched the first “TSMC
Dream Builders of Youth Project”. More than 166 teams
composed of 500 college students from Taoyuan, Hsinchu
and Miaoli, applied for the project and, after three-stage
reviews by professional committees, eight teams were
awarded prizes totaling NT$3 million. Within a year, they will
devote themselves in various programs, including agricultural
recreation, environmental sustainability, humanities promotion
and technology startup to demonstrate their creativity and
potential.
The TSMC Foundation has held the “TSMC Youth Literature
Award” and “TSMC Youth Calligraphy Contest” since 2004
and 2008, respectively, to encourage young people to develop
proficiency in literature and calligraphy. In addition to novel
and poetry, prose was included in the literature award as
another category for literary creation, and a record 628 works
were submitted. For the calligraphy contest, collaborating with
National Palace Museum, the TSMC Foundation organized
three school workshops, which attracted more than 800
attendees, including the contesters of regular and clerical
script, semi-cursive and cursive script, and seal carving. The
TSMC Foundation also gives community residents a chance to
appreciate the beauty of literature and calligraphy by school
activities, publishing the works of prize winners and organizing
touring exhibitions of the contests.
According to the Programme for International Student
Assessment, Taiwanese students excel in mathematics
and sciences but are less proficient at logical thinking,
argumentation and presentation. Therefore, the TSMC
Foundation sponsors The Center for Advanced Science
Education at National Taiwan University to hold the
competition, “TSMC Cup – Competition of Scientific Short
Talk”. The competitors have to read a wide variety of scientific
materials, write popular scientific articles, give scientific
speeches and answer the questions from their opponents,
in order to improve their science presentation skills. In 2016,
echoing the United Nations’ theme, “International Year of
Pulses,” the competition focused on pulses and invited 223
teams composed of senior high school students to read
well-respected books, write essays and deliver short scientific
talks on the subjects of science, nutrition, environment and
agriculture in the preliminary and semi-final workshops and
the contest, with the ultimate goal of cultivating in-depth
knowledge and mastering presentation skills.
The TSMC Foundation also continued to support three
science talent camps: Wu Chien-Shiung Science Camp, Wu
Ta-Yu Science Camp and Madame Curie Senior High School
Chemistry Camps, to provide senior high school students with
the opportunity to meet and learn from world-class scientists
with the objective of inspiring the students and helping them
realize their potential.
Promoting the Arts and Culture
Spreading the Seeds of the Fine Arts and Humanities for
Community Development
The TSMC Foundation has long played the role of “fine arts
planter,” spreading the seeds of the fine arts in the society. In
addition to actively supporting prominent international and
Taiwanese artistic performances, the TSMC Foundation has
continued to organize the “TSMC Hsin-Chu Arts Festival” at
TSMC’s site communities, Hsinchu, Taichung and Tainan, to
present a broad spectrum of performances to encourage the
community’s interest in the arts.
In 2016, the commemoration of 400th anniversary of the
death of William Shakespeare, in response to the cultural
event, the festival invited Contemporary Legend Theatre,
Corny Chicken Theatre and Prof. I-Fan Ho of National Hsinchu
University of Education to perform novel musical, children’s
concert and drama lectures for community residents to better
understand Shakespeare’s literature. The festival also invited
the young violinist Richard Lin to perform three concerts in
northern, central and southern Taiwan, to promote prominent
Taiwanese artists. Furthermore, the TSMC Foundation hosted
the first “In Spring Chanting Poetry Festival” and invited
communities and schools at Taoyuan, Hsinchu and Miaoli to
chant poetry and enjoy the beauty of literature. The “2016
TSMC Hsinchu Arts Festival” arranged 53 fine arts activities,
attracting over 20,000 attendees.
The TSMC Foundation also supports various Taiwanese art
groups with actual deed. In 2016, the TSMC Foundation
sponsored the opera concert of Verdi’s “Othello,” a semi-stage
opera concert with sound effects and projected animations
made by National Symphony Orchestra. It was jointly
developed with Mary Birnbaum, an opera and theater director
of the Juilliard School in U.S. “Othello” attracted more than
3,500 fans to enjoy the music and was very well reputed.
The TSMC Foundation has a long-term commitment to relive
historic buildings and to promote Chinese Traditional Classics.
Since 2008, the TSMC Foundation has invited Professor Yih-yun
Hsin to teach traditional Chinese philosophy and wisdom
through broadcast programs on the IC Radio Broadcasting
Station. The programs are extremely popular and followed by
Chinese audiences all over the world. The TSMC foundation
also collaborates with Literary Supplement of United Daily
News to organize monthly literary lectures, inviting authors to
read their works in the Sun Yun-Suan Memorial Museum, to
offer community residents a chance to experience the charm of
literature up close and in person.
130
131
7.4 TSMC Volunteer Program
Taiwan Semiconductor Manufacturing Company (TSMC)
values the corporate social responsibilities. In such principle,
the TSMC volunteer program, led by its president Mrs. Sophie
Su-fen Chang, encourages employees to participate in happy
and smart volunteer activities by holding the goal “selected
program, long-term dedication” and encourages employees to
optimize their work-life balance.
TSMC Ecology Volunteer Program: TSMC is devoted to the
protection of the environment. The Company reserves land
for ecological projects at every new fab, and applies multilevel
ecological engineering methods, which include planting native
tree species and bird/butterfly-attracting plants, providing
habitats and foraging places for animals. These are aimed
at creating a biodiversity environment and protecting the
environment around the fab. Service locations: Hsinchu Fab
12B, Taichung Fab 15, Tainan Jacana Ecology Education Park
The TSMC Volunteer Program collectively plans various
volunteer services and invites employees and their families to
join volunteer services. There are six major programs:
TSMC Volunteer Docent Program: For knowledge sharing,
one of the important ways of providing corporate services and
responding to society. Through knowledge communication
and development, the public may further recognized their
surrounding environment. Moreover, they may create the
power to change society by inspiring future masters. Service
locations: “National Museum of Natural Science” in Taichung
and “TSMC Museum of Innovation” in Hsinchu.
TSMC Book Reading Volunteer Program: Since 2004, this
program has continuously sponsored the “Hope Reading”
program of the Commonwealth Publishing Group. The
program donates 20,000 books to 200 remote schools every
year as bridge to the world built for disadvantaged students.
Service locations: Hsinchu County: Lu Fong Elementary School,
Jing Ping Elementary School, Chao Tung Elementary School,
Fu Hsin Elementary School, Taichung City: Xi Wei Elementary
School, and Tainan City: Song Lin Elementary School, Guang
Jung Elementary School and Shu Lin Elementary School.
TSMC Energy-Saving Volunteer Program: The program is
organized by employees of the Company with professional
energy saving knowledge to assist schools at all levels on
energy-saving assessment and improvement. The service
locations cover: Taipei, Hsinchu, Taichung, Tainan and
Kaohsiung such areas, providing power consumption safety
and professional energy saving suggestions.
TSMC Community Volunteer Program: “Typhoon Morakot
Project Team” was officially transformed into the “TSMC
Community Volunteer Program” after the disaster in 2010 and
moving toward people who need the help most. Following
the aging society and low birth rate, the elderly and children
are groups that TSMC community volunteers pay attention to.
Through regular activities and gatherings, the volunteers work
closely with elderly and children. Service locations: Hsinchu
Veterans Home, and Hsinchu St. Teresa Children Center.
TSMC Fab/Division Volunteer Program: Exercising corporate
social responsibility is always an extremely important part of
returns and services provided by TSMC to the public. With
support of executive officers and the enthusiastic response of
employees, the fab/division volunteer program was created
in 2013. It has shaped CRS culture inside the Company and
“Do good” becomes popular among the fabs. The warm
and strong figures of TSMC volunteers are everywhere;
activities-include: environmental protection, promotion of
energy conservation, caring for the disadvantaged, promotion
of education, help for farmers and workers, and charitable
donations to protect Taiwan silently.
7.5 TSMC i-Charity
“TSMC i-Charity” is an interactive online platform launched in
2014 for employees to proactively take part in philanthropic
activities and give back to society. The intranet opens a channel
for TSMC employees to propose caring projects, share results,
suggest new ideas and participate in philanthropic events
directly and in a timely manner.
In 2016, 6,826 attendees participated in the following projects,
as over NT$12 million in contributions were received:
● Light up the Tribe with Love-Construction for Hualien Xiu-Lin
“Little Sun” School
● Caring for Disadvantaged Children- Call for Hualien Volunteer
● TSMC Bookcase- Caring for Disadvantaged Children with
Knowledge and Love
● Tai Tung St. Mary Hospital Reconstruction
● School Building, Repairing and Construction for Tainan
Hsin-Sheng Elementary School
● Jun-Yi Academy Platform
● Teach for Taiwan
● School Building Repair Construction for National Taitung Jr.
College
● Build up the Dreams with Love- Yuan-Dong Junior High
School
● Healthy program for west Taiwan - Early lung cancer
detection with Low-Dose Computed Tomography
With this interactive platform, TSMC hopes to maintain its commitment to society and encourage employees to join in efforts to
care for and give back to society in all ways.
7.6 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory
Commission
Assessment Item
Implementation Status
Yes
No
Summary
Non-
implementation
and Its Reason(s)
None
1. Implementation of Corporate Governance
(1) Does the Company have a corporate social responsibility policy and
evaluate its implementation?
(2) Does the Company hold regular CSR training?
(3) Does the Company have a dedicated (or ad-hoc) CSR organization with
Board of Directors authorization for senior management, which reports to
the Board of Directors?
(4) Does the Company set a reasonable compensation policy, integrate
employee appraisal with CSR policy, and set clear and effective incentive
and disciplinary policies?
2. Environmentally Sustainable Development
(1) Is the Company committed to improving resource efficiency and to the
use of renewable materials with low environmental impact?
(2) Has the Company set an Environmental management system designed to
industry characteristics?
(3) Does the Company track the impact of climate change on operations,
carry out greenhouse gas inventories, and set energy conservation and
greenhouse gas reduction strategy
3. Promotion of Social Welfare
(1) IDoes the Company set policies and procedures in compliance with
regulations and internationally recognized human rights principles?
V
V
V
(1) Please refer to “7. Corporate Social Responsibility” on pages 118-133 of this
Annual Report.
(2) Please refer to “3.5 Code of Ethics and Business Conduct” on pages 49-53 of
this Annual Report.
(3) Please refer to “7. Corporate Social Responsibility” on pages 118-133 of this
Annual Report.
(4) Social responsibility is regarded as an integral part of corporate governance
by TSMC. TSMC’s fair compensation policy is set with consideration of the
goals of the Company’s corporate governance and operation; corporate
social responsibility is included as part of its indicesindices. For further details,
please refer to “5.5 Human Capital” on pages 87-91 of this Annual Report.
Please refer to “7.2.1 Environmental Protection” on pages 123-125 of this
Annual Report.
None
(1) Please refer to “5.5 Human Capital” on pages 87-91 of this Annual Report.
None
(2) Has the Company established appropriately managed employee appeal
(2) Please refer to “5.5 Human Capital” on pages 87-91 of this Annual Report.
procedures?
(3) Does the Company provide employees with a safe and healthy working
(3) Please refer to “7.2.3 Safety and Health” on pages 127-130 of this Annual
environment, with regular safety and health training?
Report.
(4) Has the Company established a mechanism for regular communication
with employees and use reasonable measures to notify employees of
operational changes which may cause significant impact to employees?
(4) Please refer to “5.5 Human Capital” on pages 87-91 of this Annual Report.
(5) Has the Company established effective career development training plans?
(5) Please refer to “5.5 Human Capital” on pages 87-91 of this Annual Report.
(6) Has the Company set polices and consumer appeal procedures in its R&D,
(6) Not applicable as TSMC is not an end product manufacturer.
purchasing, production, operations, and service processes?
(7) Does the Company follow regulations and international standards in the
(7) Not applicable as TSMC is not an end product manufacturer.
marketing and labelling of its products and services?
(8) Does the company evaluate environmental and social track records before
(8) Please refer to “Supplier and Contractor Management” on page 129-130 of
engaging with potential suppliers?
this Annual Report.
(9) Does the Company’s contracts with major suppliers include termination
clauses if they violate CSR policy and cause significant environmental and
social impact?
(9) Please refer to “Risks Associated with Purchase Concentration” in 6.3.3
Operational Risks of this Annual Report.
4. Enhanced Information Disclosure
V
Does the Company disclose relevant and reliable CSR information on its
website and the Taiwan Stock Exchange website?
TSMC has published a “Corporate Social Responsibility Report” since 2008,
and discloses this on the Company’s website (http://www.tsmc.com/english/
csr/index.htm).
None
5. If the company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice,” please describe the operational status and
differences.
TSMC follows the Corporate Social Responsibility Policy set by the Chairman, Dr. Morris Chang. For our corporate social responsibility operational status, please refer to “7. Corporate Social Responsibility” on
pages 118-133 of this Annual Report and our corporate social responsibility related information in our website: http://www.tsmc.com/english/csr/index.htm
6. Other important information to facilitate better understanding of the company’s implementation of corporate social responsibility:
Please refer to TSMC’s website for its corporate social responsibility implementation status: http://www.tsmc.com/english/csr/index.htm
7. Other information regarding “Corporate Responsibility Report ” which is verified by certifying bodies:
TSMC’s Corporate Social Responsibility Report is in accordance with the GRI G4 guidelines comprehensive option and verified by certifying bodies.
132
133
134
134
135
135
8.
Subsidiary Information and
Other Special Notes
8.1 Subsidiaries
8.1.1 TSMC Subsidiaries Chart
TSMC North America
Shareholding: 100%
TSMC Europe B.V.
Shareholding: 100%
TSMC Japan Limited
Shareholding: 100%
TSMC Korea Limited
Shareholding: 100%
TSMC China Company Limited
Shareholding: 100%
TSMC Nanjing Company Limited (Note 1)
Shareholding: 100%
Taiwan
Semiconductor
Manufacturing
Company Limited
TSMC Partners, Ltd. (Note 2)
Shareholding: 100%
TSMC Global Ltd.
Shareholding: 100%
VisEra Technologies Company Ltd.
(Note 2)
Shareholding: 86.94%
VentureTech Alliance Fund II, L.P.
Shareholding: 98%
VentureTech Alliance Fund III, L.P.
Shareholding: 98%
TSMC Solar Europe GmbH
Shareholding: 100%
TSMC Technology, Inc.
Shareholding: 100%
TSMC Development, Inc.
Shareholding: 100%
WaferTech, LLC
Shareholding: 100%
InveStar Semiconductor Development
Fund, Inc. (Note 3)
Shareholding: 97.09%
InveStar Semiconductor Development
Fund, Inc. (II) LDC. (Note 3)
Shareholding: 97.09%
TSMC Design Technology Canada Inc.
Shareholding: 100%
VentureTech Alliance Holdings, LLC
Shareholding: 100%
Mutual-Pak Technology Co., Ltd.
Shareholding: 58.33%
Growth Fund Limited
Shareholding: 100%
Note 1: TSMC Nanjing Company Limited was established in May 2016.
Note 2: To simplify investment structure, VisEra Technologies Company Ltd. owned by VisEra Holding Company was transferred to TSMC in August 2016. In October
2016, VisEra Holding Company was incorporated into TSMC Partners, Ltd., the subsidiary of TSMC.
Note 3: InveStar Semiconductor Development Fund, Inc and InveStar Semiconductor Development Fund, Inc. (II) LDC. have started the liquidation procedures.
8.1.2 Business Scope of TSMC and Its Subsidiaries
TSMC and its subsidiaries strive to provide the best foundry services in the industry. Subsidiaries in North America, Europe, Japan,
China and South Korea are dedicated to serving TSMC customers worldwide. WaferTech in the United States and TSMC China
provide additional 8-inch wafer capacity. TSMC Nanjing will begin to provide additional 12-inch wafer capacity in 2018. Other
subsidiaries support the Company’s core foundry business with related services such as design service and investment in start-up
companies involved in design, manufacturing, and other related businesses in the semiconductor industry.
As of 12/31/2016
Company
Date of
Incorporation
Place of Registration
Capital Stock
Business Activities
8.1.3 TSMC Subsidiaries
In thousands of NT(USD, EUR, JPY, KRW, RMB, CAD)$
As of 12/31/2016
TSMC North America
Jan. 18, 1988
San Jose, California, U.S.
TSMC Europe B.V.
TSMC Japan Limited
TSMC Korea Limited
Mar. 04, 1994
Amsterdam, The Netherlands
Sep. 10, 1997
Yokohama, Japan
May 02, 2006
Seoul, Korea
US$
EUR
JPY
KRW
11,000
Selling and marketing of integrated circuits and
semiconductor devices
100
Marketing and engineering supporting activities
300,000
Marketing activities
400,000
Customer service and technical supporting activities
TSMC China Company Limited
Aug. 04, 2003
Shanghai, China
RMB 4,502,080
TSMC Nanjing Company Limited (Note 1)
May 16, 2016
Nanjing, China
RMB 1,366,240
Manufacturing and selling of integrated circuits at the
order of and pursuant to product design specifications
provided by customers
Manufacturing and selling of integrated circuits at the
order of and pursuant to product design specifications
provided by customers
TSMC Technology, Inc.
Feb. 20, 1996
Delaware, U.S.
InveStar Semiconductor Development Fund, Inc.
(Note 2)
InveStar Semiconductor Development Fund, Inc.
(II) LDC. (Note 2)
Sep. 10, 1996
Cayman Islands
Aug. 25, 2000
Cayman Islands
TSMC Development, Inc.
Feb. 16, 1996
Delaware, U.S.
WaferTech, LLC
Jun. 03, 1996
Delaware, U.S.
TSMC Partners, Ltd.
Mar. 26, 1998
British Virgin Islands
TSMC Design Technology Canada Inc.
May 28, 2007
Ontario, Canada
US$
US$
US$
US$
US$
US$
CAD
0.001
Engineering support activities
489
Investing in new start-up technology companies
5,349
Investing in new start-up technology companies
0.001
Investment activities
0
Manufacturing, selling, testing and computer-aided
designing of integrated circuits and other semiconductor
devices
988,268
Investing in companies involved in the design, manufacture,
and other related business in the semiconductor industry
2,434
Engineering support activities
TSMC Global Ltd.
Jul. 13, 2006
British Virgin Islands
US$ 7,284,000
Investment activities
Mutual-Pak Technology Co., Ltd.
Mar. 22, 2006
New Taipei City, Taiwan
NT$
268,184
Manufacturing of electronic parts, wholesaling and retailing
of electronic materials, and researching, developing and
testing of RFID
VentureTech Alliance Fund II, L.P.
Feb. 27, 2004
Cayman Islands
VentureTech Alliance Fund III, L.P.
Mar. 25, 2006
Cayman Islands
Growth Fund Limited
May 30, 2007
Cayman Islands
VentureTech Alliance Holdings, LLC
Apr. 25, 2007
Delaware, U.S.
TSMC Solar Europe GmbH (Note 3)
Dec. 17, 2010
Hamburg, Germany
US$
US$
US$
EUR
VisEra Technologies Company Ltd. (Note 4)
Dec. 01, 2003
Hsinchu, Taiwan
NT$ 2,911,531
14,911
Investing in new start-up technology companies
97,751
Investing in new start-up technology companies
1,462
Investing in new start-up technology companies
N/A
400
Investing in new start-up technology companies
Selling of solar modules and related products and providing
customer service
Engaged in manufacturing electronic spare parts and in
researching, developing, designing, manufacturing, selling,
packaging and testing of color filter
Note 1: TSMC Nanjing Company Limited was established in May 2016.
Note 2: InveStar Semiconductor Development Fund, Inc. and InveStar Semiconductor Development Fund, Inc. (II) LDC. have started the liquidation procedures.
Note 3: The dissolution procedures of TSMC Solar Europe GmbH will be completed by the end of June 2017.
Note 4: Pursuant to TSMC Board’s approval on August 2, 2016, TSMC acquired 86.94% shareholding in VisEra Technologies Company Ltd. from VisEra Holding Company, a wholly-owned subsidiary of
TSMC, in August 2016. To streamline investment structure, VisEra Holding Company was merged into TSMC Partners, Ltd., the subsidiary of TSMC, in October 2016.
136
137
8.1.4 Shareholders in Common of TSMC and Its Subsidiaries with Deemed Control and Subordination: None.
8.1.5 Rosters of Directors, Supervisors, and Presidents of TSMC’s Subsidiaries
Company
Title
Name
Shareholding
Shares (Investment Amount)
% (Investment
Holding %)
Unit: NT$(USD), except shareholding
As of 12/31/2016
TSMC Partners, Ltd.
Company
Title
Name
Shareholding
Shares (Investment Amount)
% (Investment
Holding %)
TSMC North America
TSMC Europe B.V.
TSMC Japan Limited
TSMC Korea Limited
TSMC China Company Limited
TSMC Nanjing Company Limited (Note 1)
TSMC Technology, Inc.
InveStar Semiconductor Development
Fund, Inc. (Note 2)
InveStar Semiconductor Development
Fund, Inc. (II) LDC (Note 2)
TSMC Development, Inc.
WaferTech, LLC
Director
Director
President
Director
Director
President
Director
Director
Supervisor
President
Director
Director
Director
Chairman
Director
Director
Supervisor
President
Chairman
Director
Director
Supervisor
Supervisor
President
Chairman
Director
President
Sylvia Fang
Rick Cassidy
Rick Cassidy
Wendell Huang
Maria Marced
Maria Marced
Chih-Chun Tsai
Makoto Onodera
Lora Ho
Makoto Onodera
Shing-Wha Lin
Chih-Chun Tsai
Wendell Huang
F.C. Tseng
M.C. Tzeng
L.C. Tu
Lora Ho
L.C. Tu
C.C. Wei
J.K.Wang
Cliff Hou
Lora Ho
Sylvia Fang
Roger Luo
Lora Ho
Cliff Hou
Cliff Hou
Director
Wendell Huang
Director
Wendell Huang
Chairman
Director
President
Director
Director
President
Lora Ho
Sylvia Fang
Lora Ho
M.C. Tzeng
Steve Tso
Tsung-Chia Kuo
-
-
-
TSMC holds 11,000,000 shares
-
-
-
TSMC holds 200 shares
-
-
-
-
TSMC holds 6,000 shares
-
-
-
TSMC holds 80,000 shares
-
-
-
-
-
(TSMC’s investment US$596,000,000)
-
-
-
-
-
(TSMC’s investment US$200,000,000)
-
-
-
TSMC Partners, Ltd. holds 10 shares
-
TSMC Partners, Ltd. holds 582,523 shares
-
TSMC Partners, Ltd. holds 9,298,625 shares
-
-
-
TSMC Partners, Ltd. holds 10 shares
-
-
-
TSMC Development, Inc. holds 293,636,833 shares
-
-
-
100%
-
-
-
100%
-
-
-
-
100%
-
-
-
100%
-
-
-
-
-
(100%)
-
-
-
-
-
(100%)
-
-
-
100%
-
97.09%
-
97.09%
-
-
-
100%
-
-
-
100%
(Continued)
TSMC Design Technology Canada Inc.
TSMC Global Ltd.
Mutual-Pak Technology Co., Ltd.
VentureTech Alliance Fund II, L.P.
VentureTech Alliance Fund III, L.P.
Growth Fund Limited
VentureTech Alliance Holdings, LLC
TSMC Solar Europe GmbH (Note 3)
VisEra Technologies Company Ltd. (Note 4)
Director
Director
President
Director
Director
Director
President
Director
Director
Chairman
Director
Director
Supervisor
President
None
None
None
None
Director
Chairman
Director
Director
Supervisor
President
Lora Ho
Sylvia Fang
Lora Ho
Cliff Hou
Cormac Michael O’Connell
Sylvia Fang
Cliff Hou
Lora Ho
Sylvia Fang
Hsu-Tung Chen
Lewis Hwang
Representative of VentureTech Alliance Fund III,
L.P.: Juine-Kai Tseng
Wei-Pong Lin
Lewis Hwang
None
None
None
None
C.H. Chen
Robert Kuan
J.K. Lin
George Liu
Wendell Huang
S.C. Hsin
-
-
-
TSMC holds 988,268,244 shares
-
-
-
-
TSMC Partners, Ltd. holds 2,300,000 shares
-
-
TSMC holds 7,284 shares
1,107,010 shares
2,508,000 shares
15,643,347 shares
30,000 shares
2,508,000 shares
(TSMC’s investment US$14,613,019)
(TSMC’s investment US$100,334,790)
(VentureTech Alliance Fund III, L.P.’s investment
US$1,461,768)
None
-
TSMC holds 800 shares
54,600 shares
-
-
-
-
TSMC holds 253,120,000 shares
-
-
-
100%
-
-
-
-
100%
-
-
100%
4.13%
9.35%
58.33%
0.11%
9.35%
(98.00%)
(98.00%)
(100%)
(100%)
-
100%
0.02%
-
-
-
-
86.94%
Note 1: TSMC Nanjing Company Limited was established in May 2016.
Note 2: InveStar Semiconductor Development Fund, Inc. and InveStar Semiconductor Development Fund, Inc. (II) LDC. have started the liquidation procedures.
Note 3: The dissolution procedures of TSMC Solar Europe GmbH will be completed by the end of June 2017.
Note 4: Pursuant to TSMC Board’s approval on August 2, 2016, TSMC acquired 86.94% shareholding in VisEra Technologies Company Ltd. from VisEra Holding Company, a wholly-owned subsidiary of
TSMC, in August 2016. To streamline investment structure, VisEra Holding Company was merged into TSMC Partners, Ltd., the subsidiary of TSMC, in October 2016.
138
139
8.1.6 Operational Highlights of TSMC Subsidiaries (Note)
Unit: NT$ thousands, except EPS ($)
As of 12/31/2016
Basic Earning
(Loss) Per
Share
40,471
202,355.00
3,861
2,074
939
643.50
25.93
NA
NA
9,719
971,931.83
(69)
2,925
(0.12)
0.31
Company
TSMC North America
TSMC Europe B.V.
TSMC Japan Limited
TSMC Korea Limited
Capital
Stock
Assets
Liabilities
Net Worth
Net
Revenues
Income
(Loss) from
Operation
Net Income
(Loss)
354,189
94,698,404
90,358,101
4,340,303
642,518,455
226,087
195,672
17.79
3,430
83,250
10,720
492,887
197,273
38,602
139,192
64,274
2,896
353,695
132,999
35,706
518,062
253,605
24,766
55,252
10,597
2,251
TSMC China Company Limited
20,859,487
50,779,398
7,928,848
42,850,549
19,124,310
5,332,819
6,181,335
TSMC Nanjing Company Limited
6,330,200
11,048,813
4,717,720
6,331,094
0
TSMC Technology, Inc.
0.03
995,605
452,428
543,177
1,881,171
InveStar Semiconductor Development Fund,
Inc.
InveStar Semiconductor Development Fund,
Inc. (II) LDC.
15,744
504
0
504
172,241
208,631
7,045
201,587
0
0
0
2,776
(69)
2,925
TSMC Development, Inc.
0.03
22,404,794
0
22,404,794
1,673,727
1,673,500
1,606,936
160,693,572.14
WaferTech, LLC
TSMC Partners, Ltd.
0
6,749,073
630,211
6,118,862
8,360,374
1,747,334
1,483,317
31,821,249
51,799,183
0
51,799,183
2,151,691
2,145,629
2,145,629
TSMC Design Technology Canada Inc.
58,218
197,988
29,647
168,341
241,356
21,941
14,870
5.05
2.17
6.47
TSMC Global Ltd.
234,537,516
302,832,007
37,197,279
265,634,729
3,501,359
2,819,606
2,818,659
497,904.06
Mutual-Pak Technology Co.,Ltd
VentureTech Alliance Fund II, L.P.
VentureTech Alliance Fund III, L.P.
Growth Fund Limited
VentureTech Alliance Holdings, LLC
268,184
480,127
3,147,480
47,067
0
94,335
470,332
200,447
29,486
0
81,732
12,603
123,113
3,249
2,526
0.09
0
0
0
0
470,332
200,447
29,486
0
9,475
163,385
5,696
0
6,860
(87,045)
(13,072)
3,901
0
(87,451)
(13,072)
3,901
0
NA
NA
NA
NA
(7,680)
(7,810)
(9,762.96)
TSMC Solar Europe GmbH
13,720
33,645
39,973
(6,328)
8.2 Status of TSMC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries: None.
8.3 Special Notes
8.3.1 Private Placement Securities in 2016 and as of the Date of this Annual Report: None.
8.3.2 Regulatory Authorities’ Legal Penalties to the Company or Its Employees, and the Company’s Resulting
Punishment on Its Employees for Violations of Internal Control System Provisions, Principal Deficiencies, and the
State of Any Efforts to Make Improvements in 2016 and as of the Date of this Annual Report
In 2016 and as of the Date of this Annual Report, the Company complied with the Taiwan Company Law, Securities Trading
Act and relevant labor laws and regulations. The competent authorities levied fines totaling NT$166,000 for three violations of
environmental and safety laws: (1) After the magnitude 6.4 earthquake which struck southern Taiwan on February 6, 2016, one of
our employees was injured during the assessment of the damage caused. The Company has further strengthened relevant safety
measures, and revised the internal rule to enhance environmental checks conducted after earthquakes; (2) Our vendors did not
take effective measures to suppress dust at our construction site. The vendors have taken corrective action measures and increased
relevant supervisory and execution professionals per our request. We also increased our own supervision over this site; (3) The
Company did not appropriately report the non-production of a specific type of non-hazardous waste. We submitted our report
immediately upon notification from the competent authority and enhanced the inspection process for future reporting.
8.3.3 Any Events in 2016 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right
or Security Prices as Stated in Item 3 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.
8.3.4 Other Necessary Supplement: None.
VisEra Technologies Company Ltd.
2,911,531
6,966,045
1,006,476
5,959,569
3,444,979
772,952
661,562
2.27
Note: Foreign exchange rates for balance sheet amounts are as follows:
$1 USD = $32.199 NT, $1 EUR = $34.30 NT, $1 JPY = $0.2775 NT, $1 RMB = $4.63 NT, $1 KRW = $0.0268 NT, $1 CAD = $23.92 NT
Foreign exchange rates for income statement amounts are as follows:
$1 USD = $32.274 NT, $1 EUR = $35.92 NT, $1 JPY = $0.2987 NT, $1 RMB = $4.86 NT, $1 KRW = $0.0280 NT, $1 CAD = $24.44 NT
140
141
Contact Information
Corporate Headquarters & Fab 12A
8, Li-Hsin Rd. 6, Hsinchu Science Park, Hsinchu 30078, Taiwan, R.O.C.
Tel: +886-3-5636688 Fax: +886-3-5637000
R&D Center & Fab 12B
168, Park Ave. II, Hsinchu Science Park, Hsinchu 30075, Taiwan, R.O.C.
Tel: +886-3-5636688 Fax: +886-3-6687827
Fab 2, Fab 5
121, Park Ave. 3, Hsinchu Science Park, Hsinchu 30077, Taiwan, R.O.C.
Tel: +886-3-5636688 Fax: +886-3-5781546
Fab 3
9, Creation Rd. 1, Hsinchu Science Park, Hsinchu 30077, Taiwan, R.O.C.
Tel: +886-3-5636688 Fax: +886-3-5781548
Fab 6
1, Nan-Ke North Rd., Tainan Science Park, Tainan 74144, Taiwan,
R.O.C.
Tel: +886-6-5056688 Fax: +886-6-5052057
Fab 8
25, Li-Hsin Rd., Hsinchu Science Park, Hsinchu 30078, Taiwan, R.O.C.
Tel: +886-3-5636688 Fax: +886-3-5662051
Fab 14A
1-1, Nan-Ke North Rd., Tainan Science Park, Tainan 74144, Taiwan
R.O.C.
Tel: +886-6-5056688 Fax: +886-6-5051262
Fab 14B
17, Nan-Ke 9th Rd., Tainan Science Park, Tainan 74144, Taiwan, R.O.C.
Tel: +886-6-5056688 Fax: +886-6-5055217
Fab 15A
1, Keya Rd. 6, Central Taiwan Science Park, Taichung 42882, Taiwan
R.O.C.
Tel: +886-4-27026688 Fax: + 886-4-25607548
Fab 15B
1, Xinke Rd., Central Taiwan Science Park, Taichung 40763, Taiwan
R.O.C.
Tel: +886-4-27026688 Fax: +886-4-24630372
TSMC North America
2851 Junction Avenue, San Jose, CA 95134, U.S.A.
Tel: +1-408-3828000 Fax: +1-408-3828008
TSMC Europe B.V.
World Trade Center, Zuidplein 60, 1077 XV Amsterdam
The Netherlands
Tel: +31-20-3059900 Fax: +31-20-3059911
TSMC Japan Limited
21F, Queen’s Tower C, 2-3-5, Minatomirai, Nishi-ku, Yokohama
Kanagawa, 220-6221, Japan
Tel: +81-45-6820470 Fax: +81-45-6820673
TSMC China Company Limited
4000, Wen Xiang Road, Songjiang, Shanghai, China
Postcode: 201616
Tel: +86-21-57768000 Fax: +86-21-57762525
TSMC Nanjing Company Limited
16, Zifeng Road, Pukou Economic Development Zone, Nanjing
Jiangsu Province, China
Postcode: 211806
Tel: +86-25-57668000 Fax: +86-25-57712395
TSMC Korea Limited
15F, AnnJay Tower, 208, Teheran-ro, Gangnam-gu, Seoul 06220, Korea
Tel: +82-2-20511688 Fax: + 82-2-20511669
TSMC Design Technology Canada Inc.
535 Legget Dr., Suite 600, Kanata, ON K2K 3B8, Canada
Tel: +613-576-1990 Fax: +613-576-1999
TSMC Spokesperson
Name: Lora Ho
Title: Senior Vice President & CFO
Tel: +886-3-5054602 Fax: +886-3-5637000
Email: cyhsu@tsmc.com
TSMC Deputy Spokesperson/Corporate Communications
Name: Elizabeth Sun
Title: Senior Director, TSMC Corporate Communication Division
Tel: +886-3-5682085 Fax: +886-3-5637000
Email: elizabeth_sun@tsmc.com
Auditors
Company: Deloitte & Touche
Auditors: Yih-Hsin Kao , Yu-Feng Huang
Address: 12F, 156, Sec. 3, Min-Sheng E. Rd., Taipei 10596, Taiwan
R.O.C.
Tel: +886-2-25459988 Fax: +886-2-25459966
Website: http://www.deloitte.com.tw
Common Share Transfer Agent and Registrar
Company: The Transfer Agency Department of CTBC Bank
Address: 5F, 83, Sec. 1, Chung-Ching S. Rd., Taipei 10008, Taiwan
R.O.C.
Tel: +886-2-66365566 Fax: +886-2-23116723
Website: http://www.ctbcbank.com
ADR Depositary Bank
Company: Citibank, N.A.
Depositary Receipts Services
Address: 388 Greenwich Street, New York, NY 10013, U.S.A.
Website: http://www.citi.com/dr
Tel: +1-877-2484237 (toll free)
Tel: +1-781-5754555 (out of US)
Fax: + 1-201-3243284
E-mail: citibank@shareholders-online.com
TSMC’s depositary receipts of the common shares are listed on New
York Stock Exchange (NYSE) under the symbol TSM. The information
relating to TSM is available at http://www.nyse.com and http://mops.
twse.com.tw
“TSMC”, “tsmc”, “Open Innovation Platform”, “Open Innovation”, “GIGAFAB” and “CoWoS” are some of our registered trademarks used by us in various jurisdictions, including Taiwan. All rights reserved.
Copyright© 2016 by Taiwan Semiconductor Manufacturing Company, Ltd. All rights reserved.
Contents
Consolidated Financial Statements for the
Years Ended December 31, 2016 and 2015 and
Independent Auditors’ Report
Parent Company Only Financial Statements for the
Years Ended December 31, 2016 and 2015 and
Independent Auditors’ Report
1
101
Taiwan Semiconductor Manufacturing
Company Limited and Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2016 and 2015 and
Independent Auditors’ Report
- 1 -
- 2 -
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, 2016, 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 14, 2017
- 3 -
- 3 -
- 4 -
- 5 -
- 6 -
- 7 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands of New Taiwan Dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)
Financial assets at fair value through profit or loss (Note 7)
Available-for-sale financial assets (Notes 8 and 14)
Held-to-maturity financial assets (Note 9)
Hedging derivative financial assets (Note 10)
Notes and accounts receivable, net (Note 11)
Receivables from related parties (Note 37)
Other receivables from related parties (Note 37)
Inventories (Notes 5, 12 and 41)
Other financial assets (Notes 38 and 41)
Other current assets (Note 17)
Total current assets
NONCURRENT ASSETS
Held-to-maturity financial assets (Note 9)
Financial assets carried at cost (Note 13)
Investments accounted for using equity method (Notes 5 and 14)
Property, plant and equipment (Notes 5 and 15)
Intangible assets (Notes 5, 16 and 33)
Deferred income tax assets (Notes 5 and 30)
Refundable deposits
Other noncurrent assets (Note 17)
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 18)
Financial liabilities at fair value through profit or loss (Note 7)
Accounts payable
Payables to related parties (Note 37)
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to directors and supervisors (Notes 23 and 32)
Payables to contractors and equipment suppliers
Income tax payable (Notes 5 and 30)
Provisions (Notes 5 and 19)
Long-term liabilities - current portion (Note 20)
Accrued expenses and other current liabilities (Note 22)
Total current liabilities
NONCURRENT LIABILITIES
Bonds payable (Note 20)
Long-term bank loans
Deferred income tax liabilities (Notes 5 and 30)
Net defined benefit liability (Notes 5 and 21)
Guarantee deposits (Note 22)
Others (Note 19)
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 23)
Capital surplus (Note 23)
Retained earnings (Note 23)
Appropriated as legal capital reserve
Unappropriated earnings
Others (Note 23)
December 31, 2016
Amount
%
December 31, 2015
Amount
%
$ 541,253,833
6,451,112
67,788,767
16,610,116
5,550
128,335,271
969,559
146,788
48,682,233
4,100,475
3,385,422
29
-
4
1
-
7
-
-
3
-
-
$ 562,688,930
6,026
14,299,361
9,166,523
1,739
85,059,675
505,722
125,018
67,052,270
4,305,358
3,533,369
34
-
1
1
-
5
-
-
4
-
-
817,729,126
44
746,743,991
45
22,307,561
4,102,467
19,743,888
997,777,687
14,614,846
8,271,421
407,874
1,500,432
1
-
1
53
1
-
-
-
6,910,873
3,990,882
24,091,828
853,470,392
14,065,880
6,384,974
430,802
1,428,676
-
-
2
52
1
-
-
-
1,068,726,176
56
910,774,307
55
$ 1,886,455,302
100
$ 1,657,518,298
100
$
57,958,200
191,135
26,062,351
1,262,174
13,681,817
22,894,006
63,154,514
40,306,054
18,037,789
38,109,680
36,581,553
$
3
-
2
-
1
1
3
2
1
2
2
39,474,000
72,610
18,575,286
1,149,988
11,702,042
20,958,893
26,012,192
32,901,106
10,163,536
23,517,612
27,701,329
2
-
1
-
1
1
2
2
1
1
2
318,239,273
17
212,228,594
13
153,093,557
21,780
141,183
8,551,408
14,670,433
1,686,542
178,164,903
8
-
-
-
1
-
9
191,965,082
32,500
31,271
7,448,026
21,564,801
1,613,545
12
-
-
-
1
-
222,655,225
13
496,404,176
26
434,883,819
26
259,303,805
56,272,304
14
3
259,303,805
56,300,215
16
3
208,297,945
863,710,224
1,072,008,169
1,663,983
11
46
57
-
177,640,561
716,653,025
894,293,586
11,774,113
11
43
54
1
Equity attributable to shareholders of the parent
1,389,248,261
74
1,221,671,719
74
NONCONTROLLING INTERESTS
Total equity
TOTAL
802,865
-
962,760
-
1,390,051,126
74
1,222,634,479
74
$ 1,886,455,302
100
$ 1,657,518,298
100
The accompanying notes are an integral part of the consolidated financial statements.
- 8 -
- 8 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016
2015
Amount
%
Amount
%
NET REVENUE (Notes 5, 25, 37 and 43)
$ 947,938,344
100
$ 843,497,368
100
COST OF REVENUE (Notes 5, 12, 32, 37 and 41)
473,077,173
50
433,117,601
51
GROSS PROFIT BEFORE REALIZED (UNREALIZED)
GROSS PROFIT ON SALES TO ASSOCIATES
474,861,171
50
410,379,767
49
REALIZED (UNREALIZED) GROSS PROFIT ON SALES
TO ASSOCIATES
GROSS PROFIT
(29,073)
-
15,126
-
474,832,098
50
410,394,893
49
OPERATING EXPENSES (Notes 5, 32 and 37)
Research and development
General and administrative
Marketing
71,207,703
19,795,593
5,900,837
7
2
1
65,544,579
17,257,237
5,664,684
8
2
1
Total operating expenses
96,904,133
10
88,466,500
11
OTHER OPERATING INCOME AND EXPENSES, NET
(Notes 15, 16, 26 and 32)
29,813
-
(1,880,618)
-
INCOME FROM OPERATIONS (Note 43)
377,957,778
40
320,047,775
38
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates and joint venture (Notes 14
and 43)
Other income (Note 27)
Foreign exchange gain, net (Note 42)
Finance costs (Note 28)
Other gains and losses (Note 29)
3,495,600
6,454,901
1,161,322
(3,306,153)
195,932
Total non-operating income and expenses
8,001,602
-
1
-
-
-
1
4,132,128
4,750,829
2,481,446
(3,190,331)
22,207,064
30,381,136
-
1
-
-
3
4
INCOME BEFORE INCOME TAX
385,959,380
41
350,428,911
42
INCOME TAX EXPENSE (Notes 5, 30 and 43)
51,621,144
6
43,872,744
6
NET INCOME
334,338,236
35
306,556,167
36
OTHER COMPREHENSIVE INCOME (LOSS) (Notes 14,
21, 23 and 30)
Items that will not be reclassified subsequently to profit or
loss:
Remeasurement of defined benefit obligation
Share of other comprehensive loss of associates and
joint venture
Income tax benefit related to items that will not be
reclassified subsequently
- 9 -
- 9 -
(1,057,220)
(19,961)
126,867
(950,314)
-
-
-
-
(827,703)
(2,546)
99,326
(730,923)
-
-
-
-
(Continued)
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016
2015
Amount
%
Amount
%
Items that may be reclassified subsequently to profit or
loss:
Exchange differences arising on translation of foreign
operations
$
(9,379,477)
(1) $
6,604,768
1
Changes in fair value of available-for-sale financial
assets
Share of other comprehensive income (loss) of
associates and joint venture
Income tax expense related to items that may be
reclassified subsequently
(692,523)
16,301
(61,176)
-
-
-
(20,489,015)
(2)
(83,021)
(15,991)
-
-
(10,116,875)
(1)
(13,983,259)
(1)
Other comprehensive loss for the year, net of income
tax
(11,067,189)
(1)
(14,714,182)
(1)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
$ 323,271,047
34
$ 291,841,985
35
NET INCOME (LOSS) ATTRIBUTABLE TO:
Shareholders of the parent
Noncontrolling interests
$ 334,247,180
91,056
35
-
$ 306,573,837
(17,670)
36
-
$ 334,338,236
35
$ 306,556,167
36
TOTAL COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO:
Shareholders of the parent
Noncontrolling interests
$ 323,186,736
84,311
34
-
$ 291,867,757
(25,772)
35
-
$ 323,271,047
34
$ 291,841,985
35
2016
Income Attributable to
Shareholders of
the Parent
2015
Income Attributable to
Shareholders of
the Parent
EARNINGS PER SHARE (NT$, Note 31)
Basic earnings per share
Diluted earnings per share
$
$
12.89
12.89
$ 11.82
$ 11.82
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
- 10 -
- 10 -
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T
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation expense
Amortization expense
Finance costs
Share of profits of associates and joint venture
Interest income
Gain on disposal of property, plant and equipment, net
Impairment loss on property, plant and equipment
Impairment loss on intangible assets
Impairment loss on financial assets
Loss (gain) on disposal of available-for-sale financial assets, net
Gain on disposal of financial assets carried at cost, net
Loss (gain) on disposal of investments accounted for using equity
method, net
Loss from liquidation of subsidiaries
Unrealized (realized) gross profit on sales to associates
Loss (gain) on foreign exchange, net
Dividend income
Loss (gain) from hedging instruments
Loss (gain) arising from changes in fair value of available-for-sale
financial assets in hedge effective portion
Gain from lease agreement modification
Changes in operating assets and liabilities:
Financial instruments at fair value through profit or loss
Notes and accounts receivable, net
Receivables from related parties
Other receivables from related parties
Inventories
Other financial assets
Other current assets
Other noncurrent assets
Accounts payable
Payables to related parties
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to
directors and supervisors
Accrued expenses and other current liabilities
Provisions
Net defined benefit liability
Cash generated from operations
Income taxes paid
2016
2015
$ 385,959,380
$ 350,428,911
220,084,998
3,743,406
3,306,153
(3,495,600)
(6,317,500)
(46,548)
-
-
122,240
4,014
(37,241)
219,303,369
3,202,200
3,190,331
(4,132,128)
(4,129,316)
(433,559)
2,545,584
58,514
154,721
(22,070,736)
(87,193)
259,960
36,105
29,073
(2,656,406)
(137,401)
(12,725)
(2,507,707)
138,243
(15,126)
2,563,439
(621,513)
134,112
(4,248)
-
305,619
(430,041)
(6,326,561)
(49,342,698)
(463,837)
(21,770)
18,370,037
(41,554)
94,512
(349,771)
7,295,491
139,818
1,979,775
(228,560)
26,630,123
(192,767)
53,607
(655,249)
720,301
263,384
-
(2,693,358)
(369,134)
945,030
1,935,113
3,693,638
7,931,877
46,163
585,777,893
2,860,250
(3,778,322)
(382,774)
52,540
570,822,795
(40,943,357)
(45,943,301)
Net cash generated by operating activities
539,834,592
529,879,438
(Continued)
- 12 -
- 12 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
2016
2015
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets carried at cost
Property, plant and equipment
Intangible assets
Land use right
Proceeds from disposal or redemption of:
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets carried at cost
Investments accounted for using equity method
Property, plant and equipment
Proceeds from return of capital of financial assets carried at cost
Derecognition of hedging derivative financial instruments
Costs from entering into hedging transactions
Interest received
Proceeds from government grants - land use right and others
Proceeds from government grants - property, plant and equipment
Net cash outflow from acquisition of subsidiary (Note 33)
Net cash inflow from disposal of subsidiary (Note 34)
Other dividends received
Dividends received from investments accounted for using equity
method
Refundable deposits paid
Refundable deposits refunded
Decrease in receivables for temporary payments
(33,625,353)
(533,745)
$ (83,275,573) $ (13,392,330)
(28,181,915)
(2,586,169)
(328,045,270) (257,516,835)
(4,283,870)
-
(4,243,087)
(805,318)
29,967,979
10,550,000
160,498
-
98,069
65,087
8,868
-
6,353,195
798,469
738,643
-
-
137,420
57,493,051
16,800,000
368,778
5,171,962
816,852
-
2,659
(495,348)
3,641,920
-
-
(51,601)
601,047
616,675
5,478,790
(144,982)
169,912
706,718
3,407,126
(404,458)
348,434
398,185
Net cash used in investing activities
(395,439,680) (217,245,837)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Repayment of bonds
Repayment of long-term bank loans
Interest paid
Decrease in obligations under finance leases
Guarantee deposits received
Guarantee deposits refunded
Cash dividends
Proceeds from exercise of employee stock options
Decrease in noncontrolling interests
Net cash used in financing activities
- 13 -
- 13 -
18,968,936
(23,471,600)
(8,540)
(3,302,420)
3,138,680
-
-
(3,156,218)
(29,098)
754,873
(742,458)
(155,582,283) (116,683,481)
33,891
(50,218)
-
6,354,677
(523,234)
(235,733)
-
(157,800,197) (116,734,029)
(Continued)
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
2016
2015
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
$
(8,029,812) $
8,258,851
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(21,435,097) 204,158,423
CASH AND CASH EQUIVALENTS INCLUDED IN NONCURRENT
ASSETS HELD FOR SALE, BEGINNING OF YEAR
-
81,478
CASH AND CASH EQUIVALENT ON CONSOLIDATED BALANCE
SHEET, BEGINNING OF YEAR
562,688,930
358,449,029
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 541,253,833
$ 562,688,930
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
- 14 -
- 14 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(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 14, 2017.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
As of the date that the accompanying consolidated financial statements were authorized for issue, TSMC
and its subsidiaries (collectively as the “Company”) have not applied the following amendments to the
Regulations Governing the Preparation of Financial Reports by Securities Issuers and International
Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations
(IFRIC), and SIC Interpretations (SIC) issued by the International Accounting Standards Board (IASB)
(collectively, “IFRSs”).
a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers
Rule No. 1050050021 issued by Financial Supervisory Commission (FSC) stipulated that starting
January 1, 2017, the Company should apply the amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers.
The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application
starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the
amendments also include emphasis on certain recognition and measurement considerations and add
requirements for disclosures of related party transactions and goodwill.
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 significant transaction.
- 15 -
- 15 -
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.
The amendments also require additional disclosure if there is a significant difference between the actual
operation after business combination and the expected benefits on acquisition date.
The disclosures of related party transactions and impairment of goodwill will be enhanced when the
above amendments are retrospectively applied in 2017.
Except for the aforementioned impact, as of the date that 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 amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers. The related impact will be disclosed when the
Company completes the evaluation.
b. The IFRSs in issue and endorsed by FSC with effective date starting 2017
According to Rule No. 1050026834 issued by the FSC, the following IFRSs issued by the IASB and
endorsed by the FSC should be adopted by the Company starting 2017.
New, Revised or Amended Standards and Interpretations
by IASB (Note 1)
Effective Date Issued
Annual Improvements to IFRSs 2010 - 2012 Cycle
Annual Improvements to IFRSs 2011 - 2013 Cycle
Annual Improvements to IFRSs 2012 - 2014 Cycle
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”(cid:289)
July 1, 2014 or transactions
on or after July 1, 2014
July 1, 2014
January 1, 2016 (Note 2)
January 1, 2016
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint
January 1, 2016
Operations”
Amendment to IAS 1 “Disclosure Initiative”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods
January 1, 2016
January 1, 2016
of Depreciation and Amortization”
Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial Statements” January 1, 2016
January 1, 2014
Amendment to IAS 36 “Recoverable Amount Disclosures for
July 1, 2014
Non-Financial Assets”
Amendment to IAS 39 “Novation of Derivatives and Continuation of
January 1, 2014
Hedge Accounting”
Note 1: The aforementioned new, revised or amended standards or interpretations are effective after
fiscal year beginning on or after the effective dates, unless specified otherwise.
Note 2: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that
occur in annual periods beginning on or after January 1, 2016; the remaining amendments are
effective for annual periods beginning on or after January 1, 2016.
- 16 -
- 16 -
Except for the following, the Company believes that the adoption of aforementioned IFRSs with
effective date starting 2017 will not have a significant effect on the Company’s accounting policies:
1) Amendments to IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets”
The amendments to IAS 36 clarify that the Company is required to disclose the recoverable amount
of an asset or a cash-generating unit only when an impairment loss on the asset has been recognized
or reversed during the period. Furthermore, if the recoverable amount for which impairment loss
has been recognized or reversed is fair value less costs of disposal, the Company is required to
disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 or
Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed.
The discount rate used is disclosed if such fair value less costs of disposal is measured by using
present value technique. The Company expects the aforementioned amendments will result in a
broader disclosure of recoverable amount for non-financial assets.
Except for the aforementioned impact, as of the date that the accompanying consolidated financial
statements were authorized for issue, the Company continues in evaluating the impact on its financial
position and financial performance as a result of IFRSs with effective date starting 2017. The related
impact will be disclosed when the Company completes the evaluation.
c. The IFRSs issued by IASB but not yet endorsed by FSC
The Company has not applied the following IFRSs issued by the IASB but not endorsed by the FSC.
The FSC announced that the Company should apply IFRS 9 and IFRS 15 starting January 1, 2018. As
of the date the consolidated financial statements were authorized for issue, the FSC has not announced
the effective dates of other new IFRSs.
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB (Note 3)
Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of Share-based
Note 4
January 1, 2018
Payment Transactions”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9
January 1, 2018
January 1, 2018
and Transition Disclosure”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
To be determined by IASB
between an Investor and its Associate or Joint Venture”
IFRS 15 “Revenue from Contracts with Customers”
Amendment to IFRS 15 “Clarifications to IFRS 15”
IFRS 16 “Leases”
Amendment to IAS 7 “Disclosure Initiative”
Amendment to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
January 1, 2018
Note 3: The aforementioned new, revised or amended standards or interpretations are effective after
fiscal year beginning on or after the effective dates, unless specified otherwise.
Note 4: 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.
- 17 -
- 17 -
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”
All recognized financial assets currently in the scope of IAS 39, “Financial Instruments:
Recognition and Measurement,” will be subsequently measured at either the amortized cost or the
fair value. The classification and measurement requirements in IFRS 9 are stated as follows:
For the debt instruments invested by the Company, if the contractual cash flows that are solely for
payments of principal and interest on the principal amount outstanding, the classification and
measurement requirements are stated as follows:
a) If the objective of the Company’s business model is to hold the financial asset to collect the
contractual cash flows, such assets are measured at the amortized cost. Interest revenue should
be recognized in profit or loss by using the effective interest method, continuously assessed for
impairment and the impairment loss or reversal of impairment loss should be recognized in
profit and loss.
b) If the objective of the Company’s business model is to hold the financial asset both to collect
the contractual cash flows and to sell the financial assets, such assets are measured at fair value
through other comprehensive income 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.
The other financial assets which do not meet the aforementioned criteria should be measured at the
fair value through profit or loss. However, the Company may irrevocably designate an investment
in equity instruments that is not held for trading as measured at fair value through other
comprehensive income. All relevant gains and losses shall be recognized in other comprehensive
income, except for dividends which are recognized in profit or loss. No subsequent impairment
assessment is required, 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 financial assets mandatorily measured at fair value through other comprehensive
income. If the credit risk on a financial instrument has not increased significantly since initial
recognition, the Company should measure the loss allowance for that financial instrument at an
amount equal to 12-month expected credit losses. If the credit risk on a financial instrument has
increased significantly since initial recognition and is not deemed to be a low credit risk, the
Company should measure the loss allowance for that financial instrument at an amount equal to the
lifetime expected credit losses. The Company should always measure the loss allowance at an
amount equal to lifetime expected credit losses for trade receivables.
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 hedging
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.
- 18 -
- 18 -
2) IFRS 15, “Revenue from Contracts with Customers” and related amendment
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;
(cid:122)
(cid:122)
(cid:122) Determine the transaction price;
(cid:122) Allocate the transaction price to the performance obligations in the contracts; and
(cid:122) Recognize revenue when the entity satisfies a performance obligation.
When IFRS 15 and related amendment are effective, the Company may elect to apply this Standard
either retrospectively to each prior reporting period presented or retrospectively with the cumulative
effect of initially applying this Standard recognized at the date of initial application.
3) 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 that 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 -
- 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 -
- 20 -
The subsidiaries in the consolidated financial statements
The detail information of the subsidiaries at the end of reporting period was as follows:
Name of Investor
Name of Investee
Main Businesses and Products
Establishment
and Operating
Location
Percentage of Ownership
December 31,
2016
December 31,
2015
Note
Nanjing, China
100%
-
TSMC
TSMC North America
Selling and marketing of integrated circuits
San Jose, California,
TSMC Japan Limited
(TSMC Japan)
TSMC Partners, Ltd.
(TSMC Partners)
TSMC Korea Limited
(TSMC Korea)
and semiconductor devices
Marketing activities
U.S.A.
Yokohama, Japan
Investing in companies involved in the
Tortola, British Virgin
design, manufacture, and other related
business in the semiconductor industry
Islands
Customer service and technical supporting
Seoul, Korea
activities
TSMC Europe B.V. (TSMC
Marketing and engineering supporting
Amsterdam, the
Europe)
activities
TSMC Global, Ltd. (TSMC
Investment activities
Global)
TSMC China Company
Limited (TSMC China)
TSMC Nanjing Company
Limited (TSMC Nanjing)
Manufacturing and selling of integrated
circuits at the order of and pursuant to
product design specifications provided by
customers
Manufacturing and selling of integrated
circuits at the order of and pursuant to
product design specifications provided by
customers
Netherlands
Tortola, British Virgin
Islands
Shanghai, China
VentureTech Alliance Fund
III, L.P. (VTAF III)
VentureTech Alliance Fund
II, L.P. (VTAF II)
Emerging Alliance Fund,
Investing in new start-up technology
Cayman Islands
companies
Investing in new start-up technology
Cayman Islands
companies
Investing in new start-up technology
Cayman Islands
L.P. (Emerging Alliance)
companies
TSMC Solar Europe GmbH Selling of solar related products and
Hamburg, Germany
Chi Cherng Investment Co.,
Investment activities
Taipei, Taiwan
providing customer service
TSMC Partners
Ltd. (Chi Cherng)
VisEra Technologies
Company Ltd. (VisEra
Tech)
TSMC Design Technology
Canada Inc. (TSMC
Canada)
TSMC Technology, Inc.
(TSMC Technology)
TSMC Development, Inc.
(TSMC Development)
InveStar Semiconductor
Development Fund, Inc.
(ISDF)
Engineering support activities
Delaware, U.S.A.
Investment activities
Delaware, U.S.A.
Investing in new start-up technology
Cayman Islands
companies
InveStar Semiconductor
Investing in new start-up technology
Cayman Islands
Development Fund, Inc.
(II) LDC. (ISDF II)
VisEra Holding Company
(VisEra Holding)
companies
Investing in companies involved in the
Cayman Islands
design, manufacturing and other related
businesses in the semiconductor industry
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
98%
98%
-
100%
-
87%
98%
98%
99.5%
100%
100%
-
100%
100%
97%
97%
-
100%
100%
97%
97%
98%
Engaged in manufacturing electronic spare
parts and in researching, developing,
designing, manufacturing, selling,
packaging and testing of color filter
Hsin-Chu, Taiwan
Engineering support activities
Ontario, Canada
100%
100%
TSMC Development
WaferTech, LLC
Manufacturing, selling, testing and
Washington, U.S.A.
100%
100%
(WaferTech)
computer-aided designing of integrated
circuits and other semiconductor devices
Manufacturing of electronic parts,
New Taipei, Taiwan
58%
58%
VTAF III
Mutual-Pak Technology
Co., Ltd. (Mutual-Pak)
VTAF III, VTAF II
and Emerging
Alliance
Growth Fund Limited
(Growth Fund)
VentureTech Alliance
Holdings, LLC (VTA
Holdings)
wholesaling and retailing of electronic
materials, and researching, developing and
testing of RFID
Investing in new start-up technology
Cayman Islands
companies
Investing in new start-up technology
Delaware, U.S.A.
companies
100%
-
100%
100%
100%
-
VTAF III, VTAF II
VentureTech Alliance
Investing in new start-up technology
Delaware, U.S.A.
and TSMC
VisEra Holding
Holdings, LLC (VTA
Holdings)
VisEra Tech
companies
Engaged in manufacturing electronic spare
parts and in researching, developing,
designing, manufacturing, selling,
packaging and testing of color filter
Hsin-Chu, Taiwan
-
87%
-
a)
a)
a)
a)
-
-
b)
a)
a)
a), c)
a), d)
e), f)
e) , g)
a)
a)
-
a) , h)
a) , h)
a), e), g)
-
a)
a)
a) , c)
a) , c)
e), g)
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 managing 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: Due to the expiration of the investment agreement between Emerging Alliance and TSMC, Emerging Alliance completed the liquidation procedures in April 2016. Emerging Alliance’s
ownership in VTA Holdings is held directly by TSMC.
Note d:
In August 2015, TSMC Solar Ltd. (TSMC Solar) ceased its manufacturing operations. TSMC Solar and TSMC Guang Neng Investment, Ltd. (TSMC GN) were incorporated into TSMC
in December 2015. After the incorporation, TSMC Solar Europe GmbH, the subsidiary of TSMC Solar, is held directly by TSMC and TSMC Solar Europe GmbH has started the
liquidation procedures. TSMC Solar North America, Inc. (TSMC Solar NA), the subsidiary of TSMC Solar, completed the liquidation procedures in December 2015.
Note e: The Company acquired OmniVision Technologies, Inc.’s (OVT’s) 49.1% ownership in VisEra Holding and 100% ownership in Taiwan OmniVision Investment Holding Co. (OVT
Taiwan) on November 20, 2015. As a result, the Company has obtained controls of VisEra Holding and OVT Taiwan; therefore the Company has consolidated VisEra Holding, OVT
Taiwan and VisEra Tech, held directly by VisEra Holding, since November 20, 2015. Please refer to Note 33.
Note f: OVT Taiwan that originally acquired by the Company was renamed as Chi Cherng in December 2015. Chi Cherng was incorporated into TSMC in December 2016.
Note g: To simplify investment structure, VisEra Tech owned by 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.
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Note h:
ISDF and ISDF II have started the liquidation procedures.
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.
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Financial Assets
Financial assets are classified into the following specified categories: Financial assets “at fair value
through profit or loss” (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.
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.
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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.
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.
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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.
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 fair value through profit or loss (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
The Company designates certain hedging instruments, which include stock forward contracts and interest
rate futures contracts in respect of foreign currency risk, as fair value hedge. Changes in the fair value of
derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately.
Hedge accounting is discontinued prospectively when the Company revokes the designated hedging
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relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no
longer meets the criteria for hedge accounting.
The effective portion of changes in the fair value of derivative financial instruments that are designated and
qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the
heading of cash flow hedges reserve. Amounts previously recognized in other comprehensive income and
accumulated in equity are reclassified to profit or loss in the period when the hedged item is recognized in
profit or loss.
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.
Noncurrent Assets Held for Sale
Noncurrent assets or disposal groups are classified as noncurrent assets held for sale if their carrying
amount will be recovered principally through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the noncurrent asset held for sale is
available for immediate sale in its present condition. To meet the criteria for the sale being highly
probable, the appropriate level of management must be committed to the sale, which should be expected to
qualify for recognition as a completed sale within one year from the date of classification.
When the committed sale plan involves loss of control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale, regardless of whether a noncontrolling interest in its former
subsidiary is retained after the sale.
Noncurrent assets classified as held for sale are measured at the lower of their previous carrying amount
and fair value less costs to sell. Recognition of depreciation would cease.
Investments Accounted for Using Equity Method
Investments accounted for using the equity method include investments in associates and interests in joint
venture.
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.
A joint venture is a joint arrangement whereby the Company and other parties that have joint control of the
arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
The operating results and assets and liabilities of associates and joint venture are incorporated in these
consolidated financial statements using the equity method of accounting. Under the equity method, an
investment in an associate or a joint venture 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 and joint venture as well as the distribution received. The
Company also recognizes its share in the changes in the equities of associates and joint venture.
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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 or a joint venture 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 or a joint venture 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 or joint venture.
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 or joint venture by other investors, the proportionate
amount of the gains or losses previously recognized in other comprehensive income in relation to that
associate or joint venture shall be reclassified to profit or loss on the same basis as would be required if the
associate or joint venture had directly disposed of the related assets or liabilities.
When a consolidated entity transacts with an associate or a joint venture, profits and losses resulting from
the transactions with the associate or joint venture are recognized in the Company’s consolidated financial
statements only to the extent of interests in the associate or joint venture 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 - 5 to 20 years; machinery and equipment - 2 to 5 years; office
equipment - 3 to 15 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.
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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 included in the consolidated balance sheet 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.
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
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- 28 -
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.
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.
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- 29 -
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:
(cid:121) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
(cid:121) The Company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
(cid:121) The amount of revenue can be measured reliably;
(cid:121)
(cid:121) The costs incurred or to be incurred in respect of the transaction can be measured reliably.
It is probable that the economic benefits associated with the transaction will flow to the Company; and
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.
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.
- 30 -
- 30 -
Share-based Payment Arrangements
The Company elected to take the optional exemption under IFRS 1 for the share-based payment
transactions granted and vested before January 1, 2012, the date of transition to Taiwan-IFRSs. There
were no stock options granted prior to but unvested at the date of transition.
The compensation costs of employee stock options that were granted after January 1, 2012 are measured at
the fair value of the stock options at the grant date. The fair value of the stock option granted determined
at the grant date of the stock options is expensed on a straight-line basis over the vesting period, based on
the Company’s estimate of the number of stock options that will eventually vest, with a corresponding
increase in capital surplus - employee stock option. The estimate is revised if subsequent information
indicates that the number of stock options expected to vest differs from original estimates.
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) at a rate
of 10% 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 unused tax credits 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, and interests in joint venture, 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.
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.
- 31 -
- 31 -
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.
Business Combinations
Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are
generally recognized in profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest
in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
Noncontrolling interests are initially measured at the noncontrolling interests’ proportionate share of the
fair value of the acquiree’s identifiable net assets.
When a business combination is achieved in stages, the Company’s previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date, and the resulting gain or loss is recognized in
profit or loss.
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 directors are 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.
- 32 -
- 32 -
The following are the critical judgments, apart from those involving estimations, that the directors have
made in the process of applying the Company’s accounting policies and that have the most significant
effect on the amounts recognized in the consolidated financial statements.
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 our
management periodically reviews the adequacy of the estimation used.
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.
- 33 -
- 33 -
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.
6. CASH AND CASH EQUIVALENTS
December 31,
2016
December 31,
2015
Cash and deposits in banks
Repurchase agreements collateralized by corporate bonds
Commercial paper
Repurchase agreements collateralized by government bonds
$ 536,895,344
2,361,250
1,997,239
-
$ 557,270,910
5,132,778
-
285,242
$ 541,253,833
$ 562,688,930
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
December 31,
2016
December 31,
2015
$
$
142,406
10,976
153,382
6,026
-
6,026
6,297,708
22
6,297,730
-
-
-
$ 6,451,112
$
6,026
$
91,585
$
72,610
99,550
-
$
191,135
$
72,610
Financial assets
Held for trading
Forward exchange contracts
Cross currency swap contracts
Designated as at FVTPL
Time deposit
Forward exchange contracts
Financial liabilities
Held for trading
Forward exchange contracts
Designated as at FVTPL
Forward exchange contracts
- 34 -
- 34 -
The Company entered into derivative contracts to manage exposures due to fluctuations of foreign
exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge
accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.
Outstanding forward exchange contracts consisted of the following:
Maturity Date
Contract Amount
(In Thousands)
December 31, 2016
Sell NT$/Buy EUR
Sell NT$/Buy JPY
Sell US$/Buy EUR
Sell US$/Buy JPY
Sell US$/Buy NT$
Sell US$/Buy RMB
December 31, 2015
Sell US$/Buy JPY
Sell US$/Buy RMB
Sell US$/Buy NT$
January 2017
January 2017
January 2017
January 2017
January 2017 to February 2017
January 2017 to June 2017
NT$5,393,329/EUR159,400
NT$7,314,841/JPY26,501,800
US$4,180/EUR4,000
US$428/JPY50,000
US$439,000/NT$14,138,202
US$421,750/RMB2,908,380
January 2016
January 2016
January 2016 to February 2016
US$128,418/JPY15,449,355
US$226,000/RMB1,464,472
US$440,000/NT$14,434,179
Outstanding cross currency swap contracts consisted of the following:
Maturity Date
December 31, 2016
Contract Amount
(In Thousands)
Range of
Interest Rates
Paid
Range of
Interest Rates
Received
January 2017
US$170,000/NT$5,487,600
3.98%
-
8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Corporate bonds
Agency bonds
Corporate issued asset-backed securities
Government bonds
Publicly traded stocks
December 31,
2016
December 31,
2015
$ 29,999,508
14,880,482
11,254,757
8,457,362
3,196,658
$ 6,267,768
2,627,367
3,154,366
878,377
1,371,483
$ 67,788,767
$ 14,299,361
- 35 -
- 35 -
9. HELD-TO-MATURITY FINANCIAL ASSETS
Corporate bonds/Bank debentures
Commercial paper
Negotiable certificate of deposit
Structured product
Current portion
Noncurrent portion
10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets- current
Fair value hedges
Interest rate futures contracts
December 31,
2016
December 31,
2015
$ 23,849,701
8,628,176
4,829,850
1,609,950
$ 8,143,146
-
4,934,250
3,000,000
$ 38,917,677
$ 16,077,396
$ 16,610,116
22,307,561
$ 9,166,523
6,910,873
$ 38,917,677
$ 16,077,396
December 31,
2016
December 31,
2015
$ 5,550
$ 1,739
The Company entered into interest rate futures contracts, which are used to hedge against 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:
Maturity Period
December 31, 2016
March 2017
December 31, 2015
March 2016
11. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable
Allowance for doubtful receivables
Contract Amount
(US$ in Thousands)
US$ 53,600
US$ 13,800
December 31,
2016
December 31,
2015
$ 128,815,389
(480,118)
$ 85,547,926
(488,251)
Notes and accounts receivable, net
$ 128,335,271
$ 85,059,675
- 36 -
- 36 -
In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from
the end of the month of when the invoice is issued. The allowance for doubtful receivables is assessed by
reference to the collectability of receivables by performing the account aging analysis, historical experience
and current financial condition of customers.
Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at
the end of the reporting period is summarized in the following table. Notes and accounts receivable
include amounts that are past due but for which the Company has not recognized a specific allowance for
doubtful receivables after the assessment since there has not been a significant change in the credit quality
of its customers and the amounts are still considered recoverable. In addition, the Company has obtained
guarantee to certain receivables.
Aging analysis of notes and accounts receivable, net
Neither past due nor impaired
Past due but not impaired
Past due within 30 days
Past due 31-60 days
Past due 61-120 days
Movements of the allowance for doubtful receivables
Balance at January 1, 2016
Provision
Reversal/Write-off
Effect of exchange rate changes
Balance at December 31, 2016
Balance at January 1, 2015
Provision
Reversal/Write-off
Effect of acquisition of subsidiary
Effect of exchange rate changes
December 31,
2016
December 31,
2015
$ 108,411,408
$ 71,482,666
15,017,824
1,844,726
3,061,313
13,577,009
-
-
$ 128,335,271
$ 85,059,675
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
$ 10,241
-
(8,393)
-
$ 478,010
321
-
(61)
Total
$ 488,251
321
(8,393)
(61)
$
$
1,848
$ 478,270
$ 480,118
8,093
28,593
(29,065)
1,847
773
$ 478,637
4,814
(4,737)
-
(704)
$ 486,730
33,407
(33,802)
1,847
69
Balance at December 31, 2015
$ 10,241
$ 478,010
$ 488,251
Aging analysis of accounts receivable that is individually determined as impaired
Past due over 121 days
December 31,
2016
December 31,
2015
$ 1,848
$ 10,241
- 37 -
- 37 -
12. INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
December 31,
2016
December 31,
2015
$ 8,521,873
33,330,870
4,012,190
2,817,300
$ 7,974,902
53,632,056
3,038,756
2,406,556
$ 48,682,233
$ 67,052,270
Write-down of inventories to net realizable value (excluding earthquake losses) in the amount of
NT$1,542,779 thousand and NT$464,361 thousand, respectively, were included in the cost of revenue for
the years ended December 31, 2016 and 2015. Please refer to related earthquake losses in Note 41.
13. FINANCIAL ASSETS CARRIED AT COST
Non-publicly traded stocks
Mutual funds
December 31,
2016
December 31,
2015
$ 2,944,859
1,157,608
$ 3,268,100
722,782
$ 4,102,467
$ 3,990,882
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 Impinj, Inc. and Richwave Technology Corp. were listed in July 2016 and November 2015,
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
a. Investments in associates
Associates consisted of the following:
Name of Associate
Principal Activities
Vanguard International
Semiconductor
Corporation (VIS)
Systems on Silicon
Manufacturing
Company Pte Ltd.
(SSMC)
Research, design, development,
manufacture, packaging,
testing and sale of memory
integrated circuits, LSI, VLSI
and related parts
Fabrication and supply of
integrated circuits
Place of
Incorporation
and Operation
Carrying Amount
% of Ownership and Voting
Rights Held by the Company
December 31,
December 31,
December 31,
December 31,
2016
2015
2016
2015
Hsinchu, Taiwan
$ 8,806,384
$ 8,446,054
28%
28%
Singapore
7,163,516
9,511,515
39%
39%
Xintec Inc. (Xintec)
Wafer level chip size packaging
Taoyuan, Taiwan
2,599,807
2,928,362
41%
41%
service
(Continued)
- 38 -
- 38 -
Name of Associate
Principal Activities
Place of
Incorporation
and Operation
Carrying Amount
% of Ownership and Voting
Rights Held by the Company
December 31,
December 31,
December 31,
December 31,
2016
2015
2016
2015
Global Unichip
Researching, developing,
Hsinchu, Taiwan
$ 1,174,181
$ 1,152,335
35%
Corporation (GUC)
manufacturing, testing and
marketing of integrated circuits
Motech Industries, Inc.
Manufacturing and sales of solar
(Motech)
cells, crystalline silicon solar
cell, and test and measurement
instruments and design and
construction of solar power
systems
New Taipei,
Taiwan
-
2,053,562
-
35%
12%
$ 19,743,888
$ 24,091,828
(Concluded)
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.
In June 2015, Motech merged with Topcell Solar International Co., Ltd with exchange of shares. As a
result, the Company’s percentage of ownership over Motech decreased to 18.0%. In the fourth quarter
of 2015, the Company sold 29,160 thousand common shares of Motech and recognized a disposal gain
of NT$202,384 thousand. After the sale, the Company’s percentage of ownership over Motech
decreased to 12.0%. Motech continued to be accounted for using equity method as the Company still
retained significant influence over Motech.
The Company acquired OVT’s 49.1% ownership in VisEra Holding on November 20, 2015. As a
result, the Company has obtained control of VisEra Holding and consolidated VisEra Holding since
November 20, 2015. The Company included the Xintec shares held by VisEra Holding and total
percentage of ownership over Xintec increased to 41.4%. To simplify investment structure, Xintec
owned by VisEra Holding was transferred to TSMC in the third quarter of 2016.
In March 2015, Xintec listed its shares on the R.O.C. Over-the-Counter (Taipei Exchange).
Consequently, the Company’s percentage of ownership over Xintec was diluted to approximately
35.4%. In April 2015, the Company sold 2,172 thousand common shares of Xintec and recognized a
disposal gain of NT$43,017 thousand.
In the second quarter of 2015, the Company sold 82,000 thousand common shares of VIS and
recognized a disposal gain of NT$2,263,539 thousand. After the sale, the Company owned
approximately 28.3 % of the equity interest in VIS.
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.
1) VIS
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
December 31,
2016
December 31,
2015
$ 25,662,921
$ 9,501,442
$ 5,476,672
804,107
$
$ 24,800,749
$ 7,785,093
$ 4,262,001
712,611
$
- 39 -
- 39 -
Net revenue
Income from operations
Net income
Other comprehensive income (loss)
Total comprehensive income
Cash dividends received
Years Ended December 31
2016
2015
$ 25,828,634
$ 6,083,625
$ 5,520,645
5,592
$
$ 5,526,237
$ 1,206,981
$ 23,319,721
$ 4,593,430
$ 4,139,031
(61,886)
$
$ 4,077,145
$ 1,206,414
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate recognized in the consolidated balance sheets was as follows:
December 31,
2016
December 31,
2015
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
$ 28,883,584
28%
8,179,830
626,554
$ 27,611,230
28%
7,819,500
626,554
Carrying amount of the investment
$ 8,806,384
$ 8,446,054
2) SSMC
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net revenue
Income from operations
Net income
Total comprehensive income
Cash dividends received
December 31,
2016
December 31,
2015
$ 14,585,150
$ 5,360,076
$ 1,746,602
286,340
$
$ 20,078,179
$ 6,144,263
$ 1,954,057
303,217
$
Years Ended December 31
2016
2015
$ 14,045,927
$ 4,921,735
$ 4,918,140
$ 4,918,140
$ 4,076,170
$ 15,026,016
$ 5,802,261
$ 5,904,586
$ 5,904,586
$ 1,556,592
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate recognized in the consolidated balance sheets was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Other adjustments
December 31,
2016
December 31,
2015
$ 17,912,284
39%
6,948,175
213,984
1,357
$ 23,965,168
39%
9,296,089
213,984
1,442
Carrying amount of the investment
$ 7,163,516
$ 9,511,515
- 40 -
- 40 -
Aggregate information of associates that are not individually material was summarized as follows:
The Company’s share of profits (losses) of associates
The Company’s share of other comprehensive income (loss)
of associates
The Company’s share of total comprehensive income (loss)
of associates
Years Ended December 31
2016
2015
$ 23,140
$ (171,358)
$
(5,244)
$
7,880
$ 17,896
$ (163,478)
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.
Name of Associate
VIS
GUC
Xintec
Motech
b. Investments in joint venture
December 31,
2016
December 31,
2015
$ 26,089,360
$ 3,664,997
$ 3,622,227
$ 19,868,766
$ 3,081,399
$ 3,605,534
$ 2,636,054
The Company and OVT entered into a joint agreement to invest in VisEra Holding. The Company
acquired OVT’s 49.1% ownership in VisEra Holding on November 20, 2015. As a result, the
Company has obtained control of VisEra Holding and consolidated VisEra Holding since November 20,
2015. Please refer to Note 33 for related disclosures.
15. PROPERTY, PLANT AND EQUIPMENT
Land and Land
Improvements
Buildings
Machinery and
Equipment
Office Equipment
Assets under
Finance Leases
Equipment under
Installation and
Construction in
Progress
Total
Cost
Balance at January 1, 2016
Additions
Disposals or retirements
Reclassification
Effect of exchange rate changes
$
4,067,391
-
-
-
(18,099 )
$
296,801,864
9,113,314
(13,372 )
-
(1,497,332 )
$ 1,893,489,604
156,874,203
$
(3,094,143 )
-
(4,401,920 )
$
30,700,049
4,584,087
(469,235 )
7,113
(92,374 )
Balance at December 31, 2016
$
4,049,292
$
304,404,474
$ 2,042,867,744
$
34,729,640
$
Accumulated depreciation
Balance at January 1, 2016
Additions
Disposals or retirements
Reclassification
Effect of exchange rate changes
$
506,185
29,440
-
-
(10,780 )
$
157,910,155
17,540,470
$ 1,385,857,655
198,189,423
$
(7,326 )
-
(1,094,222 )
(3,049,502 )
-
(3,620,067 )
19,426,069
4,325,665
(468,401 )
7,113
(68,739 )
Balance at December 31, 2016
$
524,845
$
174,349,077
$ 1,577,377,509
$
23,221,707
Carrying amounts at December 31, 2016
$
3,524,447
$
130,055,397
$
465,490,235
$
11,507,933
Cost
Balance at January 1, 2015
Additions
Disposals or retirements
Lease agreement modification
Effect of acquisition of subsidiary
Effect of exchange rate changes
$
4,036,785
-
-
-
-
30,606
$
269,163,850
26,960,460
$ 1,754,170,227
142,090,400
$
(74,941 )
-
624,731
127,764
(5,923,022 )
-
1,402,023
1,749,976
27,960,835
3,428,660
(1,170,037 )
-
447,906
32,685
$
$
$
$
7,113
-
-
(7,113 )
-
-
7,113
-
-
(7,113 )
-
-
-
$
192,111,548
195,255,966
$ 2,417,177,569
365,827,570
-
-
(167,839 )
(3,576,750 )
-
(6,177,564 )
$
387,199,675
$ 2,773,250,825
$
$
-
-
-
-
-
-
$ 1,563,707,177
220,084,998
(3,525,229 )
-
(4,793,808 )
$ 1,775,473,138
$
387,199,675
$
997,777,687
841,154
-
-
(824,129 )
-
(9,912 )
$
109,334,736
82,595,294
$ 2,165,507,587
255,074,814
-
-
176,549
4,969
(7,168,000 )
(824,129 )
2,651,209
1,936,088
Balance at December 31, 2015
$
4,067,391
$
296,801,864
$ 1,893,489,604
$
30,700,049
$
7,113
$
192,111,548
$ 2,417,177,569
Accumulated depreciation and impairment
Balance at January 1, 2015
Additions
Disposals or retirements
Lease agreement modification
Impairment
Effect of exchange rate changes
$
459,140
28,935
-
-
-
18,110
$
141,245,913
16,312,589
$ 1,188,388,402
199,184,992
$
(74,075 )
-
278,057
147,671
(5,585,441 )
-
2,256,785
1,612,917
16,767,934
3,751,643
(1,125,191 )
-
10,742
20,941
Balance at December 31, 2015
$
506,185
$
157,910,155
$ 1,385,857,655
$
19,426,069
Carrying amounts at December 31, 2015
$
3,561,206
$
138,891,709
$
507,631,949
$
11,273,980
$
$
$
$
447,397
25,210
-
(460,380 )
-
(5,114 )
7,113
$
-
-
-
-
-
-
-
$ 1,347,308,786
219,303,369
(6,784,707 )
(460,380 )
2,545,584
1,794,525
$ 1,563,707,177
-
$
192,111,548
$
853,470,392
- 41 -
- 41 -
The significant part of the Company’s buildings includes main plants, mechanical and electrical power
equipment and clean rooms, and the related depreciation is calculated using the estimated useful lives of 20
years, 10 years and 10 years, respectively.
For the year ended December 31, 2015, the Company recognized an impairment loss of NT$259,568
thousand under foundry segment since the carrying amount of some of property, plant and equipment was
expected to be unrecoverable. Such impairment loss was included in other operating income and
expenses.
In August 2015, TSMC Solar ceased its manufacturing operations. In the third quarter of 2015, the
Company recognized an impairment loss of NT$2,286,016 thousand since the carrying amounts of certain
machinery and equipment, office equipment and mechanical and electrical power equipment were not
expected to be recoverable. Such impairment loss was included in other operating income and expenses.
The Company had a building lease agreement with leasing terms from December 2003 to November 2018
and such lease was accounted for as a finance lease. In August 2015, the lease was determined to be an
operating lease due to a modification on lease conditions; as such, the Company recognized a gain of
NT$430,041 thousand from the modification. Such gain was included in other operating income and
expenses.
16. INTANGIBLE ASSETS
Goodwill
Technology License
Fees
Software and
System Design
Costs
Patent and Others
Total
Cost
Balance at January 1, 2016
Additions
Retirements
Effect of exchange rate changes
$
$
6,104,784
-
-
(96,809 )
8,454,304
1,091,261
-
442
$
$
19,474,428
2,788,512
(5,273 )
(14,072 )
4,879,026
519,289
-
(11,880 )
$
38,912,542
4,399,062
(5,273 )
(122,319 )
Balance at December 31, 2016
$
6,007,975
$
9,546,007
$
22,243,595
$
5,386,435
$
43,184,012
Accumulated amortization
Balance at January 1, 2016
Additions
Retirements
Effect of exchange rate changes
Balance at December 31, 2016
Carrying amounts at December 31, 2016
Cost
Balance at January 1, 2015
Additions
Retirements
Effect of acquisition of subsidiary
Effect of exchange rate changes
$
$
$
$
-
-
-
-
-
$
4,779,388
1,367,370
-
442
$
$
16,431,666
1,730,834
(5,273 )
(12,799 )
3,635,608
645,202
-
(3,272 )
$
24,846,662
3,743,406
(5,273 )
(15,629 )
$
6,147,200
$
18,144,428
$
4,277,538
$
28,569,166
6,007,975
$
3,398,807
$
4,099,167
$
1,108,897
$
14,614,846
$
5,888,813
-
-
52,669
163,302
$
6,350,253
2,112,572
-
-
(8,521 )
$
18,697,098
867,774
(101,377 )
12,111
(1,178 )
4,292,555
587,754
-
-
(1,283 )
$
35,228,719
3,568,100
(101,377 )
64,780
152,320
Balance at December 31, 2015
$
6,104,784
$
8,454,304
$
19,474,428
$
4,879,026
$
38,912,542
Accumulated amortization and impairment
Balance at January 1, 2015
Additions
Retirements
Impairment
Effect of exchange rate changes
Balance at December 31, 2015
Carrying amounts at December 31, 2015
$
$
$
-
-
-
-
-
-
$
$
3,778,912
950,867
-
58,130
(8,521 )
$
14,861,146
1,672,627
(101,377 )
384
(1,114 )
3,057,151
578,706
-
-
(249 )
$
21,697,209
3,202,200
(101,377 )
58,514
(9,884 )
$
4,779,388
$
16,431,666
$
3,635,608
$
24,846,662
6,104,784
$
3,674,916
$
3,042,762
$
1,243,418
$
14,065,880
- 42 -
- 42 -
The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the
recoverable amount is determined based on the value in use. The value in use was calculated based on the
cash flow forecast from the financial budgets covering the future five-year period, and the Company used
annual discount rate of 8.40% in its test of impairment for both December 31, 2016 and 2015 to reflect the
relevant specific risk in the cash-generating unit.
For the years ended December 31, 2016 and 2015, the Company did not recognize any impairment loss on
goodwill.
In August 2015, TSMC Solar ceased its manufacturing operation and the Company recognized an
impairment loss of NT$58,514 thousand in the third quarter of 2015 since the carrying amounts of
technology license fees, software and system design costs were expected to be unrecoverable. Such
impairment loss was included in other operating income and expenses.
17. OTHER ASSETS
Tax receivable
Prepaid expenses
Net Input VAT
Long-term receivable
Others
Current portion
Noncurrent portion
18. SHORT-TERM LOANS
Unsecured loans
Amount
Original loan content
US$ (in thousands)
Annual interest rate
Maturity date
December 31,
2016
December 31,
2015
$ 2,325,825
1,007,026
333,140
-
1,219,863
$ 2,026,509
1,457,044
-
360,000
1,118,492
$ 4,885,854
$ 4,962,045
$ 3,385,422
1,500,432
$ 3,533,369
1,428,676
$ 4,885,854
$ 4,962,045
December 31,
2016
December 31,
2015
$ 57,958,200
$ 39,474,000
$ 1,800,000
0.87%-1.07%
Due by January
$ 1,200,000
0.50%-0.77%
Due by February
2017
2016
- 43 -
- 43 -
19. PROVISIONS
Sales returns and allowances
Warranties
December 31,
2016
December 31,
2015
$ 18,037,789
28,187
$ 10,163,536
46,304
$ 18,065,976
$ 10,209,840
Current portion
Noncurrent portion (classified under other noncurrent liabilities)
$ 18,037,789
28,187
$ 10,163,536
46,304
Year ended December 31, 2016
Balance, beginning of year
Provision (Reversal)
Payment
Effect of exchange rate changes
$ 18,065,976
$ 10,209,840
Sales Returns
and Allowances Warranties
Total
$
$ 10,163,536
36,519,312
(28,569,318)
(75,741)
$ 10,209,840
46,304
(13,629) 36,505,683
(4,488) (28,573,806)
(75,741)
-
Balance, end of year
$ 18,037,789
$
28,187
$ 18,065,976
Year ended December 31, 2015
Balance, beginning of year
Provision
Payment
Effect of acquisition of subsidiary
Effect of exchange rate changes
$ 10,445,452
17,723,154
(18,133,061)
$
126,049
1,942
$ 10,465,280
19,828
41,831
17,764,985
(14,698) (18,147,759)
126,049
1,285
-
(657)
Balance, end of year
$ 10,163,536
$
46,304
$ 10,209,840
Provisions for sales returns and allowances are estimated based on historical experience, management
judgment, and any known factors that would significantly affect the returns and allowances, and are
recognized as a reduction of revenue in the same year of the related product sales.
The provision for warranties represents the present value of the Company’s best estimate of the future
outflow of the economic benefits that will be required under the Company’s obligations for warranties.
The best estimate has been made on the basis of historical warranty trends of business.
20. BONDS PAYABLE
Domestic unsecured bonds
Overseas unsecured bonds
Less: Discounts on bonds payable
Less: Current portion
December 31,
2016
December 31,
2015
$ 154,200,000
37,028,850
191,228,850
(35,293)
(38,100,000)
$ 166,200,000
49,342,500
215,542,500
(67,306)
(23,510,112)
$ 153,093,557
$ 191,965,082
- 44 -
- 44 -
The major terms of domestic unsecured bonds are as follows:
Issuance
Tranche
Issuance Period
Total Amount
Coupon
Rate
Repayment and
Interest Payment
100-1
100-2
101-1
101-2
101-3
101-4
102-1
102-2
102-3
102-4
A
B
A
B
A
B
A
B
-
A
B
C
A
B
C
A
B
A
B
A
B
September 2011 to
September 2016
September 2011 to
September 2018
January 2012 to
January 2017
January 2012 to
January 2019
August 2012 to
August 2017
August 2012 to
August 2019
September 2012 to
September 2017
September 2012 to
September 2019
October 2012 to
October 2022
January 2013 to
January 2018
January 2013 to
January 2020
January 2013 to
January 2023
February 2013 to
February 2018
February 2013 to
February 2020
February 2013 to
February 2023
$ 10,500,000
1.40%
Bullet repayment;
interest payable
annually
7,500,000
1.63%
The same as above
10,000,000
1.29%
The same as above
7,000,000
1.46%
The same as above
9,900,000
1.28%
The same as above
9,000,000
1.40%
The same as above
12,700,000
1.28%
The same as above
9,000,000
1.39%
The same as above
4,400,000
1.53%
The same as above
10,600,000
1.23%
The same as above
10,000,000
1.35%
The same as above
3,000,000
1.49%
The same as above
6,200,000
1.23%
The same as above
11,600,000
1.38%
The same as above
3,600,000
1.50%
The same as above
July 2013 to July 2020 10,200,000
3,500,000
July 2013 to July 2023
4,000,000
August 2013 to
August 2017
August 2013 to
August 2019
September 2013 to
September 2016
September 2013 to
September 2017
1,500,000
1,500,000
8,500,000
1.50%
1.70%
1.34%
The same as above
The same as above
The same as above
1.52%
The same as above
1.35%
The same as above
1.45%
The same as above
(Continued)
- 45 -
- 45 -
Issuance
Tranche
Issuance Period
Total Amount
Coupon
Rate
Repayment and
Interest Payment
102-4
C
September 2013 to
March 2019
$ 1,400,000
1.60%
Bullet repayment;
interest payable
annually (interest
for the six months
prior to maturity
will accrue on the
basis of actual days
and be repayable at
maturity)
D
E
F
September 2013 to
March 2021
September 2013 to
March 2023
September 2013 to
September 2023
2,600,000
1.85%
The same as above
5,400,000
2.05%
The same as above
2,600,000
2.10%
Bullet repayment;
interest payable
annually
(Concluded)
The major terms of overseas unsecured bonds are as follows:
Issuance Period
Total Amount
(US$
in Thousands)
Coupon Rate
Repayment and Interest
Payment
April 2013 to April 2016
$
350,000
0.95%
Bullet repayment; interest payable
April 2013 to April 2018
1,150,000
1.625%
semi-annually
The same as above
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, TSMC Solar 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, TSMC Solar NA and TSMC Solar Europe GmbH also make monthly contributions
at certain percentages of the basic salary of their employees. Accordingly, the Company recognized
expenses of NT$2,164,900 thousand and NT$2,003,534 thousand in the consolidated statements of
comprehensive income for the years ended December 31, 2016 and 2015, respectively.
b. Defined benefit plans
TSMC and TSMC Solar have 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 aforementioned companies contribute an amount equal to 2% of salaries paid
each month to their respective pension funds (the Funds), which are administered by the Labor Pension
Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of
Taiwan. 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
- 46 -
- 46 -
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 the consolidated statements of comprehensive income in respect of these
defined benefit plans were as follows:
Current service cost
Net interest expense
Components of defined benefit costs recognized in profit or loss
Remeasurement on the net defined benefit liability:
Return on plan assets (excluding amounts included in net
interest expense)
Actuarial loss arising from experience adjustments
Actuarial loss arising from changes in financial assumptions
Actuarial loss arising from changes in demographic
assumptions
Components of defined benefit costs recognized in other
comprehensive income
Total
Years Ended December 31
2016
2015
$
$
132,786
139,355
272,141
134,541
144,389
278,930
45,721
38,195
694,632
(13,707)
297,077
544,333
278,672
-
1,057,220
827,703
$ 1,329,361
$ 1,106,633
The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the
following categories:
Cost of revenue
Research and development expenses
General and administrative expenses
Marketing expenses
Years Ended December 31
2016
2015
$ 176,977
73,395
17,367
4,402
$ 189,523
81,333
3,102
4,972
$ 272,141
$ 278,930
The amounts arising from the defined benefit obligation of the Company in the consolidated balance
sheets were as follows:
December 31,
2016
December 31,
2015
Present value of defined benefit obligation
Fair value of plan assets
$ 12,480,480
(3,929,072)
$ 11,318,174
(3,870,148)
Net defined benefit liability
$ 8,551,408
$ 7,448,026
- 47 -
- 47 -
Movements in the present value of the defined benefit obligation were as follows:
Balance, beginning of year
Current service cost
Interest expense
Remeasurement losses:
Years Ended December 31
2016
2015
$ 11,318,174
132,786
212,909
$ 10,265,284
134,541
228,444
Actuarial loss arising from experience adjustments
Actuarial loss arising from changes in financial assumptions
Actuarial loss arising from changes in demographic
assumptions
Benefits paid from plan assets
Benefits paid directly by the Company
38,195
694,632
297,077
544,333
278,672
(194,888)
-
-
(146,136)
(5,369)
Balance, end of year
$ 12,480,480
$ 11,318,174
Movements in the fair value of the plan assets were as follows:
Balance, beginning of year
Interest income
Remeasurement gains (losses):
Return on plan assets (excluding amounts included in net
interest expense)
Contributions from employer
Benefits paid from plan assets
Years Ended December 31
2016
2015
$ 3,870,148
73,554
$ 3,697,502
84,055
(45,721)
225,979
(194,888)
13,707
221,020
(146,136)
Balance, end of year
$ 3,929,072
$ 3,870,148
The fair value of the plan assets by major categories at the end of reporting period was as follows:
Cash
Equity instruments
Debt instruments
December 31,
2016
December 31,
2015
818,426
$
1,852,950
1,257,696
690,821
$
2,070,142
1,109,185
$ 3,929,072
$ 3,870,148
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:
Measurement Date
December 31,
2016
December 31,
2015
1.50%
3.00%
1.90%
3.00%
Discount rate
Future salary increase rate
- 48 -
- 48 -
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$970,282 thousand and NT$844,058
thousand as of December 31, 2016 and 2015, 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$951,424 thousand and NT$830,699 thousand as of December 31, 2016 and 2015,
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.
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 recognized in the
consolidated balance sheets.
The Company expects to make contributions of NT$232,759 thousand to the defined benefit plans in
the next year starting from December 31, 2016. The weighted average duration of the defined benefit
obligation is 14 years.
22. GUARANTEE DEPOSITS
Capacity guarantee
Receivables guarantee
Others
December 31,
2016
December 31,
2015
$ 20,929,350
5,559,960
181,312
$ 27,549,563
-
183,051
$ 26,670,622
$ 27,732,614
(Continued)
- 49 -
- 49 -
Current portion (classified under accrued expenses and other current
liabilities)
Noncurrent portion
December 31,
2016
December 31,
2015
$ 12,000,189
14,670,433
$ 6,167,813
21,564,801
$ 26,670,622
$ 27,732,614
(Concluded)
Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.
23. EQUITY
a. Capital stock
Authorized shares (in thousands)
Authorized capital
Issued and paid shares (in thousands)
Issued capital
December 31,
2016
December 31,
2015
28,050,000
$ 280,500,000
25,930,380
$ 259,303,805
28,050,000
$ 280,500,000
25,930,380
$ 259,303,805
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, 2016, 1,072,194 thousand ADSs of TSMC were traded on the NYSE. The
number of common shares represented by the ADSs was 5,360,968 thousand shares (one ADS
represents five common shares).
b. Capital surplus
December 31,
2016
December 31,
2015
Additional paid-in capital
From merger
From convertible bonds
From share of changes in equities of subsidiaries
From share of changes in equities of associates and joint venture
Donations
$ 24,184,939
22,804,510
8,892,847
107,798
282,155
55
$ 24,184,939
22,804,510
8,892,847
100,761
317,103
55
$ 56,272,304
$ 56,300,215
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,
associates and joint venture may be used to offset a deficit.
- 50 -
- 50 -
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 profits 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 32.
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 profits shall be made preferably by way of
cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the
ratio for stock dividend shall not exceed 50% of the total distribution.
Any appropriations of the profits are subject to shareholders’ approval in the following year.
The 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 2015 and 2014 earnings have been approved by TSMC’s shareholders in its
meetings held on June 7, 2016 and on June 9, 2015, respectively. The appropriations and dividends
per share were as follows:
Appropriation of Earnings
For Fiscal
For Fiscal
Year 2014
Year 2015
Dividends Per Share
(NT$)
For Fiscal For Fiscal
Year 2015 Year 2014
Legal capital reserve
Cash dividends to shareholders
$ 30,657,384
155,582,283
$ 26,389,879
116,683,481
$6.0
$4.5
$ 186,239,667
$ 143,073,360
- 51 -
- 51 -
TSMC’s appropriations of earnings for 2016 had been approved in the meeting of the Board of
Directors held on February 14, 2017. The appropriations and dividends per share were as follows:
Legal capital reserve
Cash dividends to shareholders
Appropriation
of Earnings
For Fiscal Year
2016
Dividends Per
Share (NT$)
For Fiscal Year
2016
$ 33,424,718
181,512,663
$
7.0
$ 214,937,381
The appropriations of earnings for 2016 are to be presented for approval in the TSMC’s shareholders’
meeting to be held on June 8, 2017 (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.
d. Others
Changes in others were as follows:
Foreign
Currency
Translation
Reserve
Year Ended December 31, 2016
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges Reserve
Total
Balance, beginning of year
Exchange differences arising on
$ 11,039,949
$
734,771
$
(607)
$ 11,774,113
translation of foreign operations
(9,409,190)
Other comprehensive income
reclassified to profit or loss
upon liquidation of subsidiaries
Changes in fair value of
available-for-sale financial
assets
Cumulative (gain)/loss reclassified
to profit or loss upon disposal of
available-for-sale financial
assets
Share of other comprehensive
income (loss) of associates and
joint venture
Other comprehensive loss
reclassified to profit or loss
upon disposal of associates
Income tax effect
-
-
(696,240)
4,071
-
-
-
-
(9,409,190)
36,105
(696,240)
4,071
36,105
-
-
(915)
24,684
712
24,481
(4,712)
-
(3,469)
(61,176)
-
-
(8,181)
(61,176)
Balance, end of year
$ 1,661,237
$
2,641
$
105
$ 1,663,983
- 52 -
- 52 -
Foreign
Currency
Translation
Reserve
Year Ended December 31, 2015
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges Reserve
Total
Balance, beginning of year
Exchange differences arising on
$ 4,502,113
$ 21,247,483
$
(305)
$ 25,749,291
translation of foreign operations
8,061,882
Other comprehensive
income/losses reclassified to
profit or loss upon liquidation of
subsidiaries
Changes in fair value of
available-for-sale financial
assets
Cumulative (gain)/loss reclassified
to profit or loss upon disposal of
available-for-sale financial
assets
Share of other comprehensive
income of associates and joint
venture
The proportionate share of other
comprehensive income/losses
reclassified to profit or loss
upon partial disposal of
associates
Income tax effect
-
-
138,087
-
(5,543)
-
-
-
8,061,882
138,087
(5,543)
(1,595,413)
(20,475,233)
-
(22,070,646)
(60,642)
(17,996)
(313)
(78,951)
(6,078)
-
2,051
(15,991)
11
-
(4,016)
(15,991)
Balance, end of year
$ 11,039,949
$
734,771
$
(607)
$ 11,774,113
The exchange differences arising on translation of foreign operation’s net assets from its functional
currency to TSMC’s presentation currency are recognized directly in other comprehensive income and
also accumulated in the foreign currency translation reserve.
Unrealized gain/loss on available-for-sale financial assets represents the cumulative gains or losses
arising from the fair value measurement on available-for-sale financial assets that are recognized in
other comprehensive income, excluding the amounts recognized in profit or loss for the effective
portion from changes in fair value of the hedging instruments. When those available-for-sale financial
assets have been disposed of or are determined to be impaired subsequently, the related cumulative
gains or losses in other comprehensive income are reclassified to profit or loss.
The cash flow hedges reserve represents the cumulative effective portion of gains or losses arising on
changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative
gains or losses arising on changes in fair value of the hedging instruments that are recognized and
accumulated in cash flow hedges reserve will be reclassified to profit or loss only when the hedge
transaction affects profit or loss.
- 53 -
- 53 -
24. SHARE-BASED PAYMENT
TSMC’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan and TSMC
2002 Plan, were approved by the Securities and Futures Bureau on January 6, 2005, October 29, 2003 and
June 25, 2002, respectively. The maximum number of stock options authorized to be granted under the
TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and
100,000 thousand, respectively, with each stock option eligible to subscribe for one common share of
TSMC when exercised. The stock options may be granted to qualified employees of TSMC or any of its
domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is
more than fifty percent (50%). The stock options of all the plans are valid for ten years and exercisable at
certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans,
the stock options are granted at an exercise price equal to the closing price of TSMC’s common shares
quoted on the TWSE on the grant date.
The Company did not issue employee stock option plans for years ended December 31, 2016 and 2015.
Information about the TSMC’s outstanding employee stock options is described as follows:
Year ended December 31, 2015
Balance, beginning of year
Options exercised
Balance, end of year
Balance exercisable, end of year
Number of
Stock Options
(In Thousands)
Weighted-
average
Exercise Price
(NT$)
718
(718)
-
-
$47.2
47.2
-
-
The numbers of outstanding stock options and exercise prices have been adjusted to reflect the distribution
of earnings by TSMC in accordance with the plans.
The employee stock options have been fully exercised in the second quarter of 2015.
25. NET REVENUE
Net revenue from sale of goods
Net revenue from royalties
26. OTHER OPERATING INCOME AND EXPENSES, NET
Gain on disposal of property, plant and equipment
Impairment loss on property, plant and equipment
Gain from lease agreement modification
Others
- 54 -
- 54 -
Years Ended December 31
2016
2015
$ 947,415,900
522,444
$ 842,997,542
499,826
$ 947,938,344
$ 843,497,368
Years Ended December 31
2016
2015
$
46,548
-
-
(16,735)
433,559
$
(2,545,584)
430,041
(198,634)
$
29,813
$ (1,880,618)
27. OTHER INCOME
Interest income
Bank deposits
Available-for-sale financial assets
Held-to-maturity financial assets
Structured product
Dividend income
28. FINANCE COSTS
Interest expense
Corporate bonds
Bank loans
Finance leases
Others
29. OTHER GAINS AND LOSSES
Gain (loss) on disposal of financial assets, net
Available-for-sale financial assets
Financial assets carried at cost
Gain (loss) on disposal of investments accounted for using equity
method, net
Other gains
Net gain (loss) on financial instruments at FVTPL
Held for trading
Designated as at FVTPL
Fair value hedges
Years Ended December 31
2016
2015
$ 4,892,652
816,185
383,261
225,402
6,317,500
137,401
$ 3,928,030
35,811
76,818
88,657
4,129,316
621,513
$ 6,454,901
$ 4,750,829
Years Ended December 31
2016
2015
$ 3,014,753
291,178
-
222
$ 3,103,702
74,664
11,666
299
$ 3,306,153
$ 3,190,331
Years Ended December 31
2016
2015
$
(4,014) $ 22,070,736
87,193
37,241
(259,960)
176,734
2,507,707
189,330
467,051
(37,369)
(1,769,253)
-
Gain (loss) from hedging instruments
Gain (loss) arising from changes in fair value of available-for-sale
financial assets in hedge effective portion
12,725
(134,112)
4,248
(305,619)
Impairment loss of financial assets
Financial assets carried at cost
Loss from liquidation of subsidiaries
Other losses
(122,240)
(36,105)
(42,379)
(154,721)
(138,243)
(145,954)
$
195,932
$ 22,207,064
- 55 -
- 55 -
30. INCOME TAX
a. Income tax expense recognized in profit or loss
Income tax expense consisted of the following:
Current income tax expense
Current tax expense recognized in the current year
Income tax adjustments on prior years
Other income tax adjustments
Deferred income tax expense (benefit)
The origination and reversal of temporary differences
Investment tax credits and operating loss carryforward
Years Ended December 31
2016
2015
$ 54,315,433
(1,041,762)
122,461
53,396,132
$ 45,857,504
(992,995)
247,835
45,112,344
(1,775,023)
35
(1,774,988)
(1,542,786)
303,186
(1,239,600)
Income tax expense recognized in profit or loss
$ 51,621,144
$ 43,872,744
A reconciliation of income before income tax and income tax expense recognized in profit or loss was
as follows:
Years Ended December 31
2016
2015
Income before tax
$ 385,959,380
$ 350,428,911
Income tax expense at the statutory rate
Tax effect of adjusting items:
Deductible items in determining taxable income
Tax-exempt income
Additional income tax under the Alternative Minimum Tax Act
Additional income tax on unappropriated earnings
The origination and reversal of temporary differences
Income tax credits
Remeasurement of operating loss carryforward
Income tax adjustments on prior years
Other income tax adjustments
$ 66,945,088
$ 60,666,157
(51,324)
(19,594,962)
-
11,957,213
(1,775,023)
(4,940,147)
(400)
52,540,445
(1,041,762)
122,461
(6,332,097)
(22,144,303)
6,041,603
12,103,356
(1,542,786)
(4,243,661)
69,635
44,617,904
(992,995)
247,835
Income tax expense recognized in profit or loss
$ 51,621,144
$ 43,872,744
For the years ended December 31, 2016 and 2015, 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.
- 56 -
- 56 -
b. Income tax expense recognized in other comprehensive income
Deferred income tax benefit (expense)
Related to remeasurement of defined benefit obligation
Related to unrealized gain/loss on available-for-sale
financial assets
Years Ended December 31
2016
2015
$ 126,867
$ 99,326
(61,176)
(15,991)
$ 65,691
$ 83,335
c. Deferred income tax balance
The analysis of deferred income tax assets and liabilities in the consolidated balance sheets was as
follows:
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and allowance
Net defined benefit liability
Unrealized loss on inventories
Deferred compensation cost
Goodwill from business combination
Others
Operating loss carryforward
Deferred income tax liabilities
Temporary differences
Available-for-sale financial assets
Unrealized exchange gains
December 31,
2016
December 31,
2015
$ 4,244,214
1,512,061
939,543
737,247
378,740
-
445,133
14,483
$ 2,852,961
1,141,511
895,486
622,741
316,283
10,025
531,449
14,518
$ 8,271,421
$ 6,384,974
$
(92,447)
(48,736)
$
(31,271)
-
$
(141,183)
$
(31,271)
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and allowance
Net defined benefit liability
Unrealized loss on inventories
Deferred compensation cost
Goodwill from business combination
Others
Operating loss carryforward
Year Ended December 31, 2016
Recognized in
Balance,
Beginning of Year
Profit or Loss
Other
Comprehensive
Income
Effect of Exchange
Rate Changes
Balance, End of
Year
$
2,852,961
1,141,511
895,486
622,741
316,283
10,025
531,449
14,518
$
$
1,437,648
371,410
(82,810 )
115,490
69,311
(9,836 )
(77,454 )
(35 )
-
-
126,867
-
-
-
-
-
$
$
(46,395 )
(860 )
-
(984 )
(6,854 )
(189 )
(8,862 )
-
4,244,214
1,512,061
939,543
737,247
378,740
-
445,133
14,483
$
6,384,974
$
1,823,724
$
126,867
$
(64,144 )
$
8,271,421
(Continued)
- 57 -
- 57 -
Deferred income tax liabilities
Temporary differences
Available-for-sale financial assets
Unrealized exchange gains
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and
allowance
Net defined benefit liability
Unrealized loss on inventories
Deferred compensation cost
Goodwill from business
combination
Others
Operating loss carryforward
Deferred income tax liabilities
Temporary differences
Available-for-sale financial
assets
Unrealized exchange gains
Year Ended December 31, 2016
Recognized in
Balance,
Beginning of Year
Profit or Loss
Other
Comprehensive
Income
Effect of Exchange
Rate Changes
Balance, End of
Year
$
(31,271 )
-
$
-
(48,736 )
$
(61,176 )
-
$
$
(31,271 )
$
(48,736 )
$
(61,176 )
$
-
-
-
$
(92,447 )
(48,736 )
$
(141,183 )
(Concluded)
Year Ended December 31, 2015
Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehensive
Income
Effect of
Acquisition of
Subsidiary
Effect of
Exchange Rate
Changes
Balance, End of
Year
$
1,011,065
$
1,808,736
$
1,230,752
787,391
591,871
255,621
195,453
749,678
316,951
(104,428 )
8,769
25,088
49,348
(185,799 )
(243,398 )
(303,186 )
-
-
99,326
-
-
-
-
-
$
11,899
$
21,261
$
2,852,961
13,815
-
4,081
-
-
148
-
1,372
-
1,701
11,314
371
25,021
753
1,141,511
895,486
622,741
316,283
10,025
531,449
14,518
$
5,138,782
$
1,055,130
$
99,326
$
29,943
$
61,793
$
6,384,974
$
(15,280 )
(184,470 )
$
-
184,470
$
(15,991 )
$
-
$
(199,750 )
$
184,470
$
(15,991 )
$
-
-
-
$
$
-
-
-
$
(31,271 )
-
$
(31,271 )
d. The investment operating loss carryforward and deductible temporary differences for which no deferred
income tax assets have been recognized in the consolidated financial statements
The information of the operating loss carryforward for which no deferred tax assets have been
recognized was as follows:
Expiry period
1 - 4 years
5 - 10 years
December 31,
2016
December 31,
2015
$ 136,703
41,389
$ 85,402
97,831
$ 178,092
$ 183,233
As of December 31, 2016 and 2015, the aggregate deductible temporary differences for which no
deferred income tax assets have been recognized amounted to NT$1,919,784 thousand and
NT$1,972,286 thousand, respectively.
- 58 -
- 58 -
e. Unused operating loss carryforward and tax-exemption information
As of December 31, 2016, operating loss carryforward of Mutual-Pak consisted of the following:
Expiry period
1 - 4 years
5 - 10 years
Remaining Creditable Amount
$ 136,703
126,585
$ 263,288
As of December 31, 2016, the profits generated from the following projects of TSMC are exempt from
income tax for a five-year period:
Construction and expansion of 2007 by TSMC
Construction and expansion of 2008 by TSMC
Construction and expansion of 2009 by TSMC
Tax-exemption Period
2014 to 2018
2015 to 2019
2018 to 2022
f. The information of unrecognized deferred income tax liabilities associated with investments
As of December 31, 2016 and 2015, the aggregate taxable temporary differences associated with
investments
to
NT$83,181,401 thousand and NT$80,919,309 thousand, respectively.
in subsidiaries not recognized as deferred
liabilities amounted
income
tax
g. Integrated income tax information
Balance of the Imputation
Credit Account - TSMC
December 31,
2016
December 31,
2015
$ 82,072,562
$ 59,973,516
The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2016 and 2015 were
13.94% and 12.57%, respectively; however, effective from January 1, 2015, the creditable ratio for
individual shareholders residing in the R.O.C. will be half of the original creditable ratio according to
the revised Article 66 - 6 of the R.O.C. Income Tax Law.
The imputation credit allocated to shareholders is based on its balance as of the date of the dividend
distribution. The estimated creditable ratio may change when the actual distribution of the imputation
credit is made.
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 2013. All investment tax
credit adjustments assessed by the tax authorities have been recognized accordingly.
- 59 -
- 59 -
31. EARNINGS PER SHARE
Basic EPS
Diluted EPS
EPS is computed as follows:
Years Ended December 31
2016
$12.89
$12.89
2015
$11.82
$11.82
Number of
Shares
(Denominator)
(In Thousands)
Amounts
(Numerator)
EPS (NT$)
Year ended December 31, 2016
Basic/Diluted EPS
Net income available to common shareholders
of the parent
$ 334,247,180
25,930,380
$12.89
Year ended December 31, 2015
Basic EPS
Net income available to common shareholders
of the parent
Effect of dilutive potential common shares
Diluted EPS
Net income available to common shareholders
of the parent (including effect of dilutive
potential common shares)
$ 306,573,837
-
25,930,288
92
$11.82
$ 306,573,837
25,930,380
$11.82
32. ADDITIONAL INFORMATION OF EXPENSES BY NATURE
Years Ended December 31
2016
2015
a. Depreciation of property, plant and equipment
Recognized in cost of revenue
Recognized in operating expenses
Recognized in other operating income and expenses
$ 203,476,848
16,583,067
25,083
$ 204,126,243
15,152,174
24,952
b. Amortization of intangible assets
Recognized in cost of revenue
Recognized in operating expenses
$ 220,084,998
$ 219,303,369
$
2,028,492
1,714,914
$
1,642,051
1,560,149
$
3,743,406
$
3,202,200
c. Research and development costs expensed as incurred
$ 71,207,703
$ 65,544,579
- 60 -
- 60 -
d. Employee benefits expenses
Post-employment benefits
Defined contribution plans
Defined benefit plans
Other employee benefits
Employee benefits expense summarized by function
Recognized in cost of revenue
Recognized in operating expenses
Years Ended December 31
2016
2015
$
$
2,164,900
272,141
2,437,041
97,248,082
2,003,534
278,930
2,282,464
89,322,946
$ 99,685,123
$ 91,605,410
$ 58,493,500
41,191,623
$ 52,983,173
38,622,237
$ 99,685,123
$ 91,605,410
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. Prior to the amendments,
TSMC’s Articles of Incorporation provided that, when allocating the net profits for each fiscal year, TSMC
shall first set aside legal capital reserve and special capital reserve, then set aside not more than 0.3% of the
balance as compensation to directors and not less than 1% as profit sharing bonus to employees,
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$22,418,339 thousand and NT$20,556,888 thousand for the years ended December 31, 2016 and 2015,
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.
The Board of Directors of TSMC held on February 14, 2017 approved the 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. There is no significant difference between the aforementioned
approved amounts and the amounts charged against earnings of 2016.
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.
TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of
NT$17,645,966 thousand and NT$406,854 thousand in cash for 2014, respectively, had been approved by
the shareholders in its meetings held on June 9, 2015. The aforementioned approved amount has no
difference with the one recognized in the consolidated financial statements for the year ended December 31,
2014.
- 61 -
- 61 -
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.
33. CONSOLIDATION OF SUBSIDIARY
Due to a Chinese consortium’s acquisition of OVT, major shareholders of VisEra Holding and OVT
Taiwan, the Company acquired OVT’s 49.1% ownership in VisEra Holding and 100% ownership in OVT
Taiwan on November 20, 2015. The related information is as follows:
a. Subsidiaries acquired
Principal Activity
Date of Acquisition
Proportion of
Voting Equity
Interests
Acquired (%)
Consideration
Transferred
VisEra Holding Investing in
November 20, 2015
49.1
$ 3,536,119
companies
involved in the
design,
manufacturing and
other related
businesses in the
semiconductor
industry
OVT Taiwan
Investment activities November 20, 2015
100
$
394,674
b. Considerations transferred
Cash
c. Assets acquired and liabilities assumed at the date of acquisition
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Other financial assets
Other current assets
Noncurrent assets
Investments accounted for using equity method
Property, plant and equipment
Intangible assets
Deferred income tax assets
Refundable deposits
Current liabilities
Financial liabilities at fair value through profit or loss
Accounts payable
Salary and bonus payable
- 62 -
- 62 -
VisEra Holding OVT Taiwan
$ 3,536,119
$
394,674
VisEra Holding OVT Taiwan
$ 3,858,482
511,999
59,050
706,500
26,441
721,641
2,651,209
12,111
29,943
15,611
8,592,987
975
87,480
183,090
$
20,710
-
-
373,813
155
-
-
-
-
-
394,678
-
-
-
(Continued)
Accrued profit sharing bonus to employees and compensation
to directors and supervisors
Payables to contractors and equipment suppliers
Income tax payable
Provisions
Accrued expenses and other current liabilities
Noncurrent liabilities
Guarantee deposits
Net assets
d. Goodwill arising on acquisition
Consideration transferred
Fair value of investments previously owned
Less: Fair value of identifiable net assets acquired
Noncontrolling interests
Goodwill arising on acquisition
e. Net cash outflow on acquisition of subsidiaries
VisEra Holding OVT Taiwan
$
$
45,819
132,305
47,860
126,049
102,851
1,279
727,708
4
-
-
-
-
-
4
$ 7,865,279
$
394,674
(Concluded)
VisEra Holding
$ 3,536,119
3,458,146
(7,865,279)
923,683
$
52,669
Consideration paid in cash
Less: Cash and cash equivalent balances acquired
$ 3,536,119
(3,858,482)
$
394,674
(20,710)
VisEra Holding OVT Taiwan
$
(322,363)
$
373,964
f.
Impact of acquisitions on the results of the Company
The results of VisEra Holding since the acquisition date included in the consolidated statements of
comprehensive income for the year ended December 31, 2015 were as follows:
Net revenue
Net income
VisEra Holding
$
$
254,319
16,264
Had the business combination of VisEra Holding been in effect on January 1, 2015, the Company’s net
revenue and net income for the year ended December 31, 2015 would have been NT$846,401,819
thousand and NT$306,687,674 thousand, respectively. This pro-forma information is for illustrative
purposes only and is not necessarily an indication of revenue and results of operations of the Company
that actually would have been achieved had the acquisition been completed on January 1, 2015, nor is it
intended to be a projection of future results. The aforementioned pro-forma net revenue and net
income were calculated based on the fair value of assets acquired and liabilities assumed at the date of
acquisition.
- 63 -
- 63 -
34. DISPOSAL OF SUBSIDIARY
In January 2015, the Board of Directors of TSMC approved a sale of TSMC SSL common shares of
565,480 thousand held by TSMC and TSMC GN to Epistar Corporation. The transaction was completed
in February 2015.
a. Consideration received from the disposal
Total consideration received
Expenditure associated with consideration received
Net consideration received
b. Analysis of assets and liabilities over which the control was lost
Assets
Cash and cash equivalents
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Others
Liabilities
Salary and bonus payable
Accrued expenses and other current liabilities
Net defined benefit liability
Others
Net assets disposed of
c. Gain/loss on disposal of subsidiary
Net consideration received
Net assets disposed of
Noncontrolling interests
Gain/loss on disposal of subsidiary
d. Net cash inflow arising from disposal of subsidiary
Net consideration received
Less: Balance of cash and cash equivalents disposed of
- 64 -
- 64 -
$ 825,000
(142,475)
$ 682,525
$ 81,478
28,519
91,331
643,699
47,373
51,808
944,208
38,151
68,132
35,845
76,915
219,043
$ 725,165
$ 682,525
(725,165)
42,640
$
-
$ 682,525
81,478
$ 601,047
35. 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.
36. FINANCIAL INSTRUMENTS
a. Categories of financial instruments
Financial assets
FVTPL
Held for trading
Designated as at FVTPL
Available-for-sale financial assets (Note)
Held-to-maturity financial assets
Derivative financial instruments in designated hedge
accounting relationships
Loans and receivables
December 31,
2016
December 31,
2015
$
$
153,382
6,297,730
71,891,234
38,917,677
6,026
-
18,290,243
16,077,396
5,550
1,739
Cash and cash equivalents
Notes and accounts receivable (including related parties)
Other receivables
Refundable deposits
541,253,833
129,304,830
2,626,401
407,874
562,688,930
85,565,397
4,790,376
430,802
Financial liabilities
FVTPL
Held for trading
Designated as at FVTPL
Amortized cost
Short-term loans
Accounts payable (including related parties)
Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities
Bonds payable (including long-term liabilities-current
$ 790,858,511
$ 687,850,909
$
91,585
99,550
$
72,610
-
57,958,200
27,324,525
63,154,514
20,713,259
39,474,000
19,725,274
26,012,192
18,900,123
portion)
191,193,557
215,475,194
Long-term bank loans (including long-term
liabilities-current portion)
Other long-term payables (classified under accrued
expenses and other current liabilities)
Guarantee deposits (including those classified under accrued
31,460
-
40,000
18,000
expenses and other current liabilities)
26,670,622
27,732,614
$ 387,237,272
$ 347,450,007
Note :
Including financial assets carried at cost.
- 65 -
- 65 -
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 market risks arising from changes in foreign exchange rates, interest
rates and the prices in equity investments, and utilizes some derivative financial instruments to reduce
the related risks.
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, including currency forward contracts and cross currency swaps, to hedge its
currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign
currency exchange rate movements.
The Company also holds short-term borrowings in foreign currencies in proportion to its expected
future cash flows. This allows foreign-currency-denominated borrowings to be serviced with expected
future cash flows and provides a partial hedge against transaction translation exposure.
The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency
monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the
levels of foreign exchanges against the New Taiwan dollar, the net income for the years ended
December 31, 2016 and 2015 would have decreased by NT$111,347 thousand and NT$902,083
thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.
Interest rate risk
The Company is exposed to interest rate risk arising from borrowing at both fixed and floating interest
rates and from fixed income securities. All of the Company’s long-term bonds have fixed interest
rates and are measured at amortized cost. As such, changes in interest rates would not affect the future
cash flows. On the other hand, because interest rates of the Company’s long-term bank loans are
floating, changes in interest rates would affect the future cash flows but not the fair value.
Assuming the amount of floating interest rate bank loans at the end of the reporting period had been
outstanding for the entire period and all other variables were held constant, a hypothetical increase in
interest rates of 100 basis point (1%) would have resulted in an increase in the interest expense, net of
tax, by approximately NT$261 thousand and NT$332 thousand for the years ended December 31, 2016
and 2015, respectively.
- 66 -
- 66 -
The Company classified 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. To manage its
exposure to the fair value fluctuations, the Company enters into interest rate futures contract to hedge
against price risk caused by changes in risk-free interest rates in the Company’s investments in
available-for-sale fixed income securities.
Assuming a hypothetical increase of 100 basis point (1%) in interest rates of available-for-sale fixed
income securities at the end of the reporting period, the net income for the years ended December 31,
2016 and 2015 would have been unaffected as they were classified as available-for-sale; however, the
other comprehensive income for the years ended December 31, 2016 and 2015 would have decreased
by NT$1,600,929 thousand and NT$271,547 thousand, 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 equity prices of the equity investments at the end of the
reporting period, the net income for the years ended December 31, 2016 and 2015 would have been
unaffected as they were classified as available-for-sale; however, the other comprehensive income for
the years ended December 31, 2016 and 2015 would have decreased by NT$342,565 thousand and
NT$259,996 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 recognized in the consolidated
balance sheet.
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, 2016 and 2015, the Company’s ten largest customers accounted for 74% and 68%
of accounts receivable, respectively. The Company believes the concentration of credit risk is
insignificant for the remaining accounts receivable.
Financial credit risk
The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts
the concentration limit according to market conditions and the credit standing of the counterparties.
The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.
- 67 -
- 67 -
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.
The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments, including principal and interest.
Less Than
1 Year
2-3 Years
4-5 Years
5+ Years
Total
December 31, 2016
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 57,974,562
$
parties)
Payables to contractors and
equipment suppliers
Accrued expenses and other current
liabilities
Bonds payable
Long-term bank loans
Guarantee deposits (including those
classified under accrued expenses
and other current liabilities)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
Cross currency swap contracts
Outflows
Inflows
27,324,525
63,154,514
20,713,259
40,669,468
10,543
$
-
-
-
$
-
-
-
-
-
-
$ 57,974,562
27,324,525
63,154,514
-
99,161,486
20,116
-
35,340,742
2,423
-
22,979,426
-
20,713,259
198,151,122
33,082
12,000,189
221,847,060
13,060,483
112,242,085
1,609,950
36,953,115
-
22,979,426
26,670,622
394,021,686
40,571,841
(40,586,344 )
(14,503 )
5,478,066
(5,487,600 )
(9,534 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40,571,841
(40,586,344 )
(14,503 )
5,478,066
(5,487,600 )
(9,534 )
$ 221,823,023
$ 112,242,085
$ 36,953,115
$ 22,979,426
$ 393,997,649
December 31, 2015
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 39,488,957
$
parties)
Payables to contractors and
equipment suppliers
Accrued expenses and other current
liabilities
Bonds payable
Long-term bank loans
Other long-term payables (classified
under accrued expenses and other
current liabilities)
Guarantee deposits (including those
classified under accrued expenses
and other current liabilities)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
19,725,274
26,012,192
$
-
-
-
$
-
-
-
-
-
-
$ 39,488,957
19,725,274
26,012,192
18,900,123
26,494,990
8,800
-
104,462,371
21,540
-
68,378,787
12,741
-
25,981,316
-
18,900,123
225,317,464
43,081
18,000
-
-
-
18,000
6,167,813
136,816,149
13,341,051
117,824,962
8,223,750
76,615,278
-
25,981,316
27,732,614
357,237,705
23,192,477
(23,135,579 )
56,898
-
-
-
-
-
-
-
-
-
23,192,477
(23,135,579 )
56,898
$ 136,873,047
$ 117,824,962
$ 76,615,278
$ 25,981,316
$ 357,294,603
- 68 -
- 68 -
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:
(cid:121) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;
(cid:121) 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
(cid:121) 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:
Level 1
Level 2
Level 3
Total
December 31, 2016
Financial assets at FVTPL
Held for trading
Forward exchange contracts
Cross currency swap contracts
$
Designated as at FVTPL
Time deposit
Forward exchange contracts
$
-
-
-
-
-
$
142,406
10,976
$
6,297,708
22
$ 6,451,112
$
Available-for-sale financial assets
Corporate bonds
Agency bonds
Corporate issued asset-backed
securities
Government bonds
Publicly traded stocks
Hedging derivative financial
assets
$ 29,999,508
14,880,482
$
-
-
$
-
8,457,362
3,196,658
11,254,757
-
-
$ 56,534,010
$ 11,254,757
$
Interest rate futures contracts
$
5,550
$
-
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
Designated as at FVTPL
Forward exchange contracts
$
$
-
-
-
$
91,585
$
99,550
$
191,135
$
- 69 -
- 69 -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
142,406
10,976
6,297,708
22
$ 6,451,112
$ 29,999,508
14,880,482
11,254,757
8,457,362
3,196,658
$ 67,788,767
$
5,550
$
91,585
99,550
$
191,135
Level 1
Level 2
Level 3
Total
December 31, 2015
Financial assets at FVTPL
Held for trading
Forward exchange contracts
$
-
$
6,026
$
Available-for-sale financial assets
Corporate bonds
Corporate issued asset-backed
securities
Agency bonds
Publicly traded stocks
Government bonds
Hedging derivative financial
assets
$ 6,267,768
$
-
$
-
2,627,367
1,371,483
878,377
3,154,366
-
-
-
$ 11,144,995
$ 3,154,366
$
Interest rate futures contracts
$
1,739
$
-
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
$
-
$
72,610
$
-
-
-
-
-
-
-
-
-
$
6,026
$ 6,267,768
3,154,366
2,627,367
1,371,483
878,377
$ 14,299,361
$
1,739
$
72,610
There were no transfers between Level 1 and Level 2 for the years ended December 31, 2016 and
2015, respectively.
There were no purchases and disposals for assets on Level 3 for the years ended December 31, 2016
and 2015, respectively.
Valuation techniques and assumptions used in fair value measurement
The fair values of financial assets and financial liabilities are determined as follows:
(cid:121) The fair values of financial assets and financial liabilities with standard terms and conditions
and traded on active liquid markets are determined with reference to quoted market prices
(includes interest rate futures contracts, publicly traded stocks, money market funds,
government bonds, agency bonds and corporate bonds).
(cid:121) Forward exchange contracts and cross currency swap contracts are measured using quoted
forward exchange rates and yield curves derived from quoted interest rates matching maturities
of the contracts. For investments in corporate issued asset-backed securities and time deposit,
the fair value are determined using quoted market prices or the present value of future cash
flows based on the observable yield curves.
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 that are not measured at fair value recognized in the consolidated financial
statements approximate their fair values.
- 70 -
- 70 -
December 31, 2016
December 31, 2015
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$ 23,849,701
$ 23,996,429
$ 8,143,146
8,628,176
8,630,769
$ 8,146,756
-
-
4,829,850
1,609,950
4,847,785
1,609,738
4,934,250
3,000,000
4,945,878
2,995,731
Financial assets
Held-to-maturity financial
assets
Corporate bonds/Bank
debentures
Commercial paper
Negotiable certificate of
deposit
Structured product
Financial liabilities
Measured at amortized cost
Bonds payable
191,193,557 192,845,296 215,475,194 216,223,736
Fair value hierarchy
The table below sets out the balances for the Company’s assets and liabilities that are not measured
at fair value but for which the fair value is disclosed:
Level 1
Level 2
Level 3
Total
December 31, 2016
Assets
Held-to-maturity securities
Corporate bonds/Bank
debentures
Commercial paper
Negotiable certificate of deposit
Structured product
Liabilities
Measured at amortized cost
Bonds payable
Assets
Held-to-maturity securities
Corporate bonds/Bank
debentures
Negotiable certificate of deposit
Structured product
Liabilities
Measured at amortized cost
Bonds payable
$ 23,996,429
-
-
-
$
-
8,630,769
4,847,785
1,609,738
$
$ 23,996,429
$ 15,088,292
$
-
-
-
-
-
$ 23,996,429
8,630,769
4,847,785
1,609,738
$ 39,084,721
$ 192,845,296
$
-
$
-
$ 192,845,296
Level 1
Level 2
Level 3
Total
December 31, 2015
$
8,146,756
-
-
$
-
4,945,878
2,995,731
$
$
8,146,756
$
7,941,609
$
-
-
-
-
$
8,146,756
4,945,878
2,995,731
$ 16,088,365
$ 216,223,736
$
-
$
-
$ 216,223,736
- 71 -
- 71 -
Fair value measurement
For investments in bonds, the fair value is determined using active market prices.
For investments in commercial paper, negotiable certificate of deposit and structured product, the
fair value is determined using the present value of future cash flows based on the observable yield
curves.
The fair value of the Company’s bonds payable is determined using active market prices.
37. 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. Net revenue
Years Ended December 31
2016
2015
Item
Related Party Categories
Net revenue from sale of goods Associates
Joint venture
$ 5,929,141
-
$ 4,253,961
1,206
Net revenue from royalties
Associates
$
516,749
$
489,420
$ 5,929,141
$ 4,255,167
b. Purchases
Related Party Categories
Associates
c. Receivables from related parties
Years Ended December 31
2016
2015
$ 10,108,210
$ 11,126,415
December 31,
2016
December 31,
2015
Item
Related Party Categories
Receivables from related
Associates
$ 969,559
$ 505,722
parties
Other receivables from related
Associates
$ 146,788
$ 125,018
parties
- 72 -
- 72 -
d. Payables to related parties
December 31,
2016
December 31,
2015
Item
Related Party Categories
Payables to related parties
Associates
$ 1,262,174
$ 1,149,988
e. Acquisition of property, plant and equipment
Related Party Categories
Associates
f. Others
Acquisition Price
Years Ended December 31
2016
2015
$
-
$ 26,207
Years Ended December 31
2016
2015
Item
Related Party Categories
Manufacturing expenses
Associates
Joint venture
$ 1,389,164
-
$ 2,321,858
12,819
$ 1,389,164
$ 2,334,677
Research and development
expenses
Associates
Joint venture
$
161,735
-
$
142,833
1,398
$
161,735
$
144,231
The sales prices and payment terms to related parties were not significantly different from those of sales
to third parties. For other related party transactions, price and terms were determined in accordance
with mutual agreements.
The Company leased machinery and equipment, factory and office from Xintec and VIS. The lease
terms and prices were both determined in accordance with mutual agreements. The rental expenses
were paid to Xintec and VIS quarterly or 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 joint venture), and then recognized such gain/loss over
the depreciable lives of the disposed assets.
- 73 -
- 73 -
g. Compensation of key management personnel
The compensation to directors and other key management personnel for the years ended December 31,
2016 and 2015 were as follows:
Short-term employee benefits
Post-employment benefits
Years Ended December 31
2016
2015
$ 2,023,971
3,992
$ 1,883,013
10,926
$ 2,027,963
$ 1,893,939
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.
38. PLEDGED ASSETS
The Company provided certificate of deposits recorded in other financial assets as collateral mainly for
building lease agreements. As of December 31, 2016 and 2015, the aforementioned other financial assets
amounted to NT$185,698 thousand and NT$177,229 thousand, respectively.
39. SIGNIFICANT OPERATING LEASE ARRANGEMENTS
The Company leases several parcels of land, office premises and certain office equipment. These
operating leases expire between January 2017 and June 2066 and can be renewed upon expiration.
The Company expensed the lease payments as follows:
Minimum lease payments
$ 1,135,735
$
995,983
Future minimum lease payments under the above non-cancellable operating leases are as follows:
Years Ended December 31
2016
2015
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
December 31,
2016
December 31,
2015
$ 1,321,546
3,677,432
6,623,957
$ 1,099,017
3,635,180
6,921,891
$ 11,622,935
$ 11,656,088
- 74 -
- 74 -
40. 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,
2016, 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, 2016.
c. In June 2010, Keranos, LLC. filed a complaint in the U.S. District Court for the Eastern District of
Texas alleging that TSMC, TSMC North America, and several other leading technology companies
infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several
co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the
Northern District of California in November 2010, seeking a judgment declaring that they did not
infringe the asserted patents, and that those patents were invalid. These two litigations have been
consolidated into a single lawsuit in the U.S. District Court for the Eastern District of Texas. In
February 2014, the Court entered a final judgment in favor of TSMC and TSMC North America,
dismissing all of Keranos’s claims against TSMC and TSMC North America with prejudice. Keranos
appealed the final judgment to the U.S. Court of Appeals for the Federal Circuit, and in August 2015,
the Federal Circuit remanded the case back to the Texas court for further proceedings. In January
2017, the Texas court dismissed all of Keranos’s claims against TSMC and TSMC North America with
prejudice, and dismissed TSMC’s and TSMC North America’s counterclaims without prejudice. The
case is over as to TSMC and TSMC North America.
d. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District
of California accusing TSMC, TSMC North America and one other company of infringing several U.S.
patents. In September 2014, the Court granted summary judgment of noninfringement in favor of
TSMC and TSMC North America. Ziptronix, Inc. can appeal the Court’s order. In August 2015,
Tessera Technologies, Inc. announced it had acquired Ziptronix. In February 2017, the Court
dismissed all of Ziptronix’s claims against TSMC and TSMC North America with prejudice.
e. 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
- 75 -
- 75 -
December 31, 2016, TSMC has paid EUR228,603 thousand to ASML under the research and
development funding agreement.
f.
In March 2014, DSS Technology Management, Inc. (DSS) filed a complaint in the U.S. District Court
for the Eastern District of Texas alleging that TSMC, TSMC North America, TSMC Development and
several other companies infringe one U.S. patent. TSMC Development has subsequently been
dismissed. In May 2015, the Court entered a final judgment of noninfringement in favor of TSMC and
TSMC North America. DSS appealed the final judgment to the U.S. Court of Appeals for the Federal
Circuit (Federal Circuit). In November 2015, the Patent Trial and Appeal Board (PTAB) determined
after concluding an Inter Partes Review (IPR) that the patent claims asserted by DSS in the District
Court litigation are unpatentable. DSS appealed the PTAB’s decision to the Federal Circuit in January
2016. In March 2016, the District Court’s judgment of noninfringement was affirmed by the Federal
Circuit. In April 2016, the District Court litigation between the parties and the related Federal Circuit
appeal were dismissed, and the appeal proceeding of the PTAB’s decision is also over as to TSMC.
g. Amounts available under unused letters of credit as of December 31, 2016 and 2015 were NT$122,356
thousand and NT$144,738 thousand, respectively.
41. SIGNIFICANT LOSS FROM DISASTER
On February 6, 2016, an earthquake struck Taiwan. The resulting damage was mostly to inventories and
equipment. The Company recognized related 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.
42. 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:
Foreign
Currencies
(In Thousands)
Exchange Rate
(Note 1)
Carrying
Amount
(In Thousands)
December 31, 2016
Financial assets
Monetary items
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
$
5,042,715
19,556
37,024,347
32.199
34.30
0.2775
$ 162,370,381
670,767
10,274,256
257,056
4.15
1,066,780
4,000,930
183,922
61,062,114
32.199
34.30
0.2775
128,825,952
6,308,513
16,944,737
(Continued)
- 76 -
- 76 -
December 31, 2015
Financial assets
Monetary items
USD
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
Foreign
Currencies
(In Thousands)
Exchange Rate
(Note 1)
Carrying
Amount
(In Thousands)
$
3,089,634
251,824
43,933
9,717,089
32.895
6.494(Note 2)
36.00
0.2733
$ 101,633,497
8,283,759
1,581,571
2,655,680
166,727
4.24
706,924
2,952,404
44,174
26,416,113
32.895
36.00
0.2733
97,119,331
1,590,264
7,219,524
(Concluded)
Note 1: Except as otherwise noted, exchange rate represents the number of N.T. dollars for which one
foreign currency could be exchanged.
Note 2: The exchange rate represents the number of RMB for which one USD dollars could be
exchanged.
The realized and unrealized foreign exchange gain and loss were net gains of NT$1,161,322 thousand and
NT$2,481,446 thousand for the years ended December 31, 2016 and 2015, 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.
43. OPERATING SEGMENTS INFORMATION
a. Operating segments
The Company’s only reportable segment is the foundry segment. The foundry segment engages
mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated
circuits and other semiconductor devices and the manufacturing of masks. The Company also had
other operating segments that did not exceed the quantitative threshold for separate reporting. These
segments mainly engaged in the researching, developing, designing, manufacturing and selling of
renewable energy and efficiency related technologies and products.
The Company uses the income from operations as the measurement for segment profit and the basis of
performance assessment. There was no material differences between the accounting policies of the
operating segment and the accounting policies described in Note 4.
- 77 -
- 77 -
b. Segment revenue and operating results
Year ended December 31, 2016
Foundry
Others
Total
Net revenue from external customers
Income from operations
Share of profits of associates and joint venture
Income tax expense
$ 947,938,344
377,957,778
3,495,600
51,621,144
$
-
-
-
-
$ 947,938,344
377,957,778
3,495,600
51,621,144
Year ended December 31, 2015
Net revenue from external customers
Income (loss) from operations
Share of profits (loss) of associates and joint
venture
Income tax expense (benefit)
842,690,157
320,833,219
4,517,699
43,874,515
807,211
(785,444)
843,497,368
320,047,775
(385,571)
(1,771)
4,132,128
43,872,744
c. Geographic information
Net Revenue from External
Customers
Years Ended December 31
2015
2016
Non-current Assets
December 31,
December 31,
2016
2015
Taiwan
United States
Asia
Europe, the Middle East and
Africa
Others
$ 127,062,984
610,371,107
146,907,470
$
90,169,543
566,600,178
123,705,876
$ 991,567,870
8,245,054
14,071,364
$ 844,173,826
8,892,851
15,889,993
58,042,311
5,554,472
57,064,965
5,956,806
8,677
-
8,278
-
$ 947,938,344
$ 843,497,368
$ 1,013,892,965
$ 868,964,948
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.
d. Production information
Production
Wafer
Others
Years Ended December 31
2016
2015
$ 909,179,151
38,759,193
$ 802,937,969
40,559,399
$ 947,938,344
$ 843,497,368
e. Major customers representing at least 10% of net revenue
Years Ended December 31
2016
2015
Amount
%
Amount
%
Customer A
Customer B
$ 157,185,418
107,463,238
17
11
$ 134,117,206
134,158,421
16
16
- 78 -
- 78 -
44. 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, associates and joint venture):
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;
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.
- 79 -
- 79 -
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Taiwan Semiconductor Manufacturing
Company Limited
Parent Company Only Financial Statements for the
Years Ended December 31, 2016 and 2015 and
Independent Auditors’ Report
- 101 -
- 102 -
- 103 -
- 104 -
- 105 -
- 106 -
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY BALANCE SHEETS
(In Thousands of New Taiwan Dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)
Financial assets at fair value through profit or loss (Note 7)
Available-for-sale financial assets
Held-to-maturity financial assets (Note 8)
Notes and accounts receivable, net (Note 9)
Receivables from related parties (Note 31)
Other receivables from related parties (Note 31)
Inventories (Notes 5, 10 and 34)
Other financial assets (Notes 34)
Other current assets (Note 14)
Total current assets
NONCURRENT ASSETS
Held-to-maturity financial assets (Note 8)
Financial assets carried at cost
Investments accounted for using equity method (Notes 5 and 11)
Property, plant and equipment (Notes 5 and 12)
Intangible assets (Notes 5 and 13)
Deferred income tax assets (Notes 5 and 26)
Refundable deposits
Other noncurrent assets (Note 14)
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 15)
Financial liabilities at fair value through profit or loss (Note 7)
Accounts payable
Payables to related parties (Note 31)
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to directors (Notes 20 and 28)
Payables to contractors and equipment suppliers
Income tax payable (Notes 5 and 26)
Provisions (Notes 5 and 16)
Long-term liabilities - current portion (Note 17)
Accrued expenses and other current liabilities (Note 19)
Total current liabilities
NONCURRENT LIABILITIES
Bonds payable (Note 17)
Deferred income tax liabilities (Notes 5 and 26)
Net defined benefit liability (Notes 5 and 18)
Guarantee deposits (Note 19)
Others (Note 16)
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 20)
Capital surplus (Note 20)
Retained earnings (Note 20)
Appropriated as legal capital reserve
Unappropriated earnings
Others (Note 20)
Total equity
TOTAL
The accompanying notes are an integral part of the parent company only financial statements.
- 107 -
- 107 -
December 31, 2016
Amount
%
December 31, 2015
Amount
%
$ 249,878,563
151,070
2,843,952
11,447,538
40,017,297
86,845,570
948,800
46,504,346
2,139,366
3,004,662
14
-
-
1
2
5
-
2
-
-
$ 264,493,583
6,026
706,924
9,166,523
25,636,123
57,282,682
455,327
64,338,188
1,766,573
3,061,131
16
-
-
1
2
4
-
4
-
-
443,781,164
24
426,913,080
27
-
435,268
396,855,708
979,401,337
10,047,991
6,446,781
369,895
-
-
-
22
53
1
-
-
-
1,621,424
343,721
324,365,592
831,784,912
9,391,418
4,506,675
398,693
360,000
-
-
20
52
1
-
-
-
1,393,556,980
76
1,172,772,435
73
$ 1,837,338,144
100
$ 1,599,685,515
100
$
57,958,200
62,441
24,533,924
4,840,001
11,570,505
22,794,771
62,449,143
40,256,148
16,991,612
38,100,000
28,620,469
$
3
-
1
-
1
1
4
2
1
2
2
39,474,000
45,254
16,702,970
3,759,631
9,603,908
20,913,074
25,346,206
32,975,435
9,011,863
12,000,000
24,466,937
2
-
1
-
1
1
2
2
1
1
2
308,177,214
17
194,299,278
13
116,100,000
141,183
8,551,408
14,666,542
453,536
139,912,669
6
-
-
1
-
7
154,200,000
31,271
7,448,026
21,554,374
480,847
10
-
-
1
-
183,714,518
11
448,089,883
24
378,013,796
24
259,303,805
56,272,304
14
3
259,303,805
56,300,215
16
3
208,297,945
863,710,224
1,072,008,169
1,663,983
12
47
59
-
177,640,561
716,653,025
894,293,586
11,774,113
11
45
56
1
1,389,248,261
76
1,221,671,719
76
$ 1,837,338,144
100
$ 1,599,685,515
100
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016
2015
Amount
%
Amount
%
NET REVENUE (Notes 5, 22 and 31)
$ 936,387,291
100
$ 837,046,888
100
COST OF REVENUE (Notes 5, 10, 28, 31 and 34)
474,552,913
51
439,356,165
52
GROSS PROFIT BEFORE REALIZED
(UNREALIZED) GROSS PROFIT ON SALES TO
SUBSIDIARIES AND ASSOCIATES
REALIZED (UNREALIZED) GROSS PROFIT ON
461,834,378
49
397,690,723
48
SALES TO SUBSIDIARIES AND ASSOCIATES
(26,082)
-
18,117
-
GROSS PROFIT
461,808,296
49
397,708,840
48
OPERATING EXPENSES (Notes 5, 28 and 31)
Research and development
General and administrative
Marketing
70,366,179
18,697,463
3,098,086
8
2
-
64,831,860
16,138,095
2,983,080
8
2
-
Total operating expenses
92,161,728
10
83,953,035
10
OTHER OPERATING INCOME AND EXPENSES,
NET (Notes 12 and 28)
83,965
-
(347,107)
-
INCOME FROM OPERATIONS
369,730,533
39
313,408,698
38
NON-OPERATING INCOME AND EXPENSES
Share of profits of subsidiaries and associates (Note
11)
Other income (Note 23)
Foreign exchange gain, net (Note 35)
Finance costs (Note 24)
Other gains and losses (Note 25)
14,941,372
1,816,803
609,345
(2,643,193)
734,100
Total non-operating income and expenses
15,458,427
2
-
-
-
-
2
33,694,186
1,839,862
2,698,396
(2,440,459)
787,985
36,579,970
4
-
-
-
-
4
INCOME BEFORE INCOME TAX
385,188,960
41
349,988,668
42
INCOME TAX EXPENSE (Notes 5 and 26)
50,941,780
5
43,414,831
5
NET INCOME
334,247,180
36
306,573,837
37
(Continued)
- 108 -
- 108 -
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016
2015
Amount
%
Amount
%
OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 11, 18, 20 and 26)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit obligation
Share of other comprehensive loss of subsidiaries
and associates
Income tax benefit related to items that will not be
reclassified subsequently
Items that may be reclassified subsequently to profit
or loss:
Exchange differences arising on translation of
foreign operations
Changes in fair value of available-for-sale
financial assets
Share of other comprehensive loss of subsidiaries
and associates
Income tax expense related to items that may be
reclassified subsequently
Other comprehensive loss for the year, net of
income tax
TOTAL COMPREHENSIVE INCOME FOR THE
$
(1,057,220)
-
$
(827,703)
(19,961)
126,867
(950,314)
-
-
-
(2,523)
99,324
(730,902)
(9,439,776)
(1)
6,525,608
-
-
-
-
1
-
47,506
(656,684)
(61,176)
-
-
-
94,064
(20,578,859)
(3)
(15,991)
-
(10,110,130)
(1)
(13,975,178)
(2)
(11,060,444)
(1)
(14,706,080)
(2)
YEAR
$ 323,186,736
35
$ 291,867,757
35
EARNINGS PER SHARE (NT$, Note 27)
Basic earnings per share
Diluted earnings per share
$
$
12.89
12.89
$
$
11.82
11.82
The accompanying notes are an integral part of the parent company only financial statements.
(Concluded)
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Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation expense
Amortization expense
Finance costs
Share of profits of subsidiaries and associates
Interest income
Gain on disposal of property, plant and equipment, net
Impairment loss on property, plant and equipment
Impairment loss on financial assets
Gain on disposal of available-for-sale financial assets, net
Loss (gain) on disposal of investments accounted for using equity
method, net
Unrealized (realized) gross profit on sales to subsidiaries and
associates
Loss (gain) on foreign exchange, net
Dividend income
Changes in operating assets and liabilities:
Financial instruments at fair value through profit or loss
Notes and accounts receivable, net
Receivables from related parties
Other receivables from related parties
Inventories
Other financial assets
Other current assets
Accounts payable
Payables to related parties
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to
directors
Accrued expenses and other current liabilities
Provisions
Net defined benefit liability
Cash generated from operations
Income taxes paid
2016
2015
$ 385,188,960
$ 349,988,668
213,977,324
3,724,066
2,643,193
(14,941,372)
(1,683,150)
(100,503)
-
4,537
(101,411)
213,293,810
3,159,437
2,440,459
(33,694,186)
(1,726,503)
(21,569)
228,037
21,437
(51)
296,065
(2,419,785)
26,082
(2,656,406)
(133,653)
(18,117)
2,548,291
(113,359)
(127,857)
(20,448,337)
(29,562,888)
(493,473)
17,833,842
(22,662)
18,337
7,639,380
1,108,002
1,966,597
(249,322)
(6,375,554)
31,322,516
108,834
(759,653)
823,847
(142,763)
(1,916,970)
(1,024,427)
595,592
1,881,697
3,891,345
7,961,632
46,163
577,935,510
2,860,254
(2,788,099)
(948,176)
73,473
555,266,121
(40,493,290)
(45,387,724)
Net cash generated by operating activities
532,547,786
514,772,831
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets
Held to maturity financial assets
Investments accounted for using equity method
(172)
(11,242,766)
(445,012)
(3,628)
(23,074,925)
-
(Continued)
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Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
2016
2015
Equity interest in subsidiary
Property, plant and equipment
Intangible assets
Proceeds from disposal or redemption of:
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets carried at cost
Investments accounted for using equity method
Equity interest in subsidiary
Property, plant and equipment
Proceeds from return of capital of financial assets carried at cost
Interest received
Other dividends received
Dividends received from investments accounted for using equity
method
Refundable deposits paid
Refundable deposits refunded
Decrease (increase) in receivables for temporary payments
Cash inflow (outflow) from incorporation of subsidiary
(1,630,700) $
$
(394,674)
(323,009,940) (249,921,656)
(4,269,815)
(4,207,065)
126,289
10,550,000
-
-
2,325
104,020
7,493
1,748,570
133,653
3,679
16,800,000
8,000
3,962,848
806,807
347,840
-
1,636,497
113,359
5,469,549
(138,204)
169,464
47,924
396,262
3,001,834
(404,253)
348,283
(47,924)
(3,725,916)
Net cash used in investing activities
(321,918,310) (254,813,644)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Repayment of bonds
Interest paid
Guarantee deposits received
Guarantee deposits refunded
Cash dividends
Proceeds from exercise of employee stock options
Payment of partial acquisition of interests in subsidiaries
Proceeds from partial disposal of interests in subsidiaries
18,968,936
(12,000,000)
(2,644,187)
420,719
(421,002)
3,138,680
-
(2,456,299)
747,108
(740,829)
(155,582,283) (116,683,481)
33,891
(64,744,242)
380,336
(74,130,714)
144,035
-
Net cash used in financing activities
(225,244,496) (180,324,836)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(14,615,020)
79,634,351
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
264,493,583
184,859,232
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 249,878,563
$ 264,493,583
The accompanying notes are an integral part of the parent company only financial statements.
(Concluded)
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Taiwan Semiconductor Manufacturing Company Limited
NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
1. GENERAL
Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of
China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry
in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and
computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of
masks.
On September 5, 1994, the Company’s shares were listed on the Taiwan Stock Exchange (TWSE). On
October 8, 1997, the Company 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.
2. THE AUTHORIZATION OF FINANCIAL STATEMENTS
The accompanying parent company only financial statements were approved and authorized for issue by the
Board of Directors on February 14, 2017.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
As of the date that the accompanying parent company only financial statements were authorized for issue,
the Company have not applied the following amendments to the Regulations Governing the Preparation of
Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS),
International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)
issued by the International Accounting Standards Board (IASB) (collectively, “IFRSs”).
a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers
Rule No. 1050050021 issued by Financial Supervisory Commission (FSC) stipulated that starting
January 1, 2017, the Company should apply the amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers.
The amendments include additions of several accounting items and requirements for disclosures of
impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application
starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the
amendments also include emphasis on certain recognition and measurement considerations and add
requirements for disclosures of related party transactions and goodwill.
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 significant transaction.
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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.
The amendments also require additional disclosure if there is a significant difference between the actual
operation after business combination and the expected benefits on acquisition date.
The disclosures of related party transactions and impairment of goodwill will be enhanced when the
above amendments are retrospectively applied in 2017.
Except for the aforementioned impact, as of the date that the accompanying parent company only
financial statements were authorized for issue, the Company continues in evaluating the impact on its
financial position and financial performance as a result of amendments to the Regulations Governing
the Preparation of Financial Reports by Securities Issuers. The related impact will be disclosed when
the Company completes the evaluation.
b. The IFRSs in issue and endorsed by FSC with effective date starting 2017
According to Rule No. 1050026834 issued by the FSC, the following IFRSs issued by the IASB and
endorsed by the FSC should be adopted by the Company starting 2017.
New, Revised or Amended Standards and Interpretations
by IASB (Note 1)
Effective Date Issued
Annual Improvements to IFRSs 2010 - 2012 Cycle
Annual Improvements to IFRSs 2011 - 2013 Cycle
Annual Improvements to IFRSs 2012 - 2014 Cycle
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”(cid:289)
July 1, 2014 or transactions
on or after July 1, 2014
July 1, 2014
January 1, 2016 (Note 2)
January 1, 2016
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint
January 1, 2016
Operations”
Amendment to IAS 1 “Disclosure Initiative”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods
January 1, 2016
January 1, 2016
of Depreciation and Amortization”
Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial Statements” January 1, 2016
January 1, 2014
Amendment to IAS 36 “Recoverable Amount Disclosures for
July 1, 2014
Non-Financial Assets”
Amendment to IAS 39 “Novation of Derivatives and Continuation of
January 1, 2014
Hedge Accounting”
Note 1: The aforementioned new, revised or amended standards or interpretations are effective after
fiscal year beginning on or after the effective dates, unless specified otherwise.
Note 2: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that
occur in annual periods beginning on or after January 1, 2016; the remaining amendments are
effective for annual periods beginning on or after January 1, 2016.
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Except for the following, the Company believes that the adoption of aforementioned IFRSs with
effective date starting 2017 will not have a significant effect on the Company’s accounting policies:
1) Amendments to IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets”
The amendments to IAS 36 clarify that the Company is required to disclose the recoverable amount
of an asset or a cash-generating unit only when an impairment loss on the asset has been recognized
or reversed during the period. Furthermore, if the recoverable amount for which impairment loss
has been recognized or reversed is fair value less costs of disposal, the Company is required to
disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 or
Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed.
The discount rate used is disclosed if such fair value less costs of disposal is measured by using
present value technique. The Company expects the aforementioned amendments will result in a
broader disclosure of recoverable amount for non-financial assets.
Except for the aforementioned impact, as of the date that the accompanying parent company only
financial statements were authorized for issue, the Company continues in evaluating the impact on its
financial position and financial performance as a result of IFRSs with effective date starting 2017. The
related impact will be disclosed when the Company completes the evaluation.
c. The IFRSs issued by IASB but not yet endorsed by FSC
The Company has not applied the following IFRSs issued by the IASB but not endorsed by the FSC.
The FSC announced that the Company should apply IFRS 9 and IFRS 15 starting January 1, 2018. As
of the date the parent company only financial statements were authorized for issue, the FSC has not
announced the effective dates of other new IFRSs.
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB (Note 3)
Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of Share-based
Note 4
January 1, 2018
Payment Transactions”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9
January 1, 2018
January 1, 2018
and Transition Disclosure”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
To be determined by IASB
between an Investor and its Associate or Joint Venture”
IFRS 15 “Revenue from Contracts with Customers”
Amendment to IFRS 15 “Clarifications to IFRS 15”
IFRS 16 “Leases”
Amendment to IAS 7 “Disclosure Initiative”
Amendment to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
January 1, 2018
Note 3: The aforementioned new, revised or amended standards or interpretations are effective after
fiscal year beginning on or after the effective dates , unless specified otherwise.
Note 4: 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.
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1) IFRS 9, “Financial Instruments”
All recognized financial assets currently in the scope of IAS 39, “Financial Instruments:
Recognition and Measurement,” will be subsequently measured at either the amortized cost or the
fair value. The classification and measurement requirements in IFRS 9 are stated as follows:
For the debt instruments invested by the Company, if the contractual cash flows that are solely for
payments of principal and interest on the principal amount outstanding, the classification and
measurement requirements are stated as follows:
a) If the objective of the Company’s business model is to hold the financial asset to collect the
contractual cash flows, such assets are measured at the amortized cost. Interest revenue should
be recognized in profit or loss by using the effective interest method, continuously assessed for
impairment and the impairment loss or reversal of impairment loss should be recognized in
profit and loss.
b) If the objective of the Company’s business model is to hold the financial asset both to collect
the contractual cash flows and to sell the financial assets, such assets are measured at fair value
through other comprehensive income 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.
The other financial assets which do not meet the aforementioned criteria should be measured at the
fair value through profit or loss. However, the Company may irrevocably designate an investment
in equity instruments that is not held for trading as measured at fair value through other
comprehensive income. All relevant gains and losses shall be recognized in other comprehensive
income, except for dividends which are recognized in profit or loss. No subsequent impairment
assessment is required, 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 financial assets mandatorily measured at fair value through other comprehensive
income. If the credit risk on a financial instrument has not increased significantly since initial
recognition, the Company should measure the loss allowance for that financial instrument at an
amount equal to 12-month expected credit losses. If the credit risk on a financial instrument has
increased significantly since initial recognition and is not deemed to be a low credit risk, the
Company should measure the loss allowance for that financial instrument at an amount equal to the
lifetime expected credit losses. The Company should always measure the loss allowance at an
amount equal to lifetime expected credit losses for trade receivables.
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 hedging
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.
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2) IFRS 15, “Revenue from Contracts with Customers” and related amendment
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;
(cid:122)
(cid:122)
(cid:122) Determine the transaction price;
(cid:122) Allocate the transaction price to the performance obligations in the contracts; and
(cid:122) Recognize revenue when the entity satisfies a performance obligation.
When IFRS 15 and related amendment are effective, the Company may elect to apply this Standard
either retrospectively to each prior reporting period presented or retrospectively with the cumulative
effect of initially applying this Standard recognized at the date of initial application.
3) 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 parent company only 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 parent company only
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 parent company only 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 that the accompanying parent company only
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 parent company only 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 parent company only financial statements shall prevail.
Statement of Compliance
The accompanying parent company only financial statements have been prepared in conformity with the
Regulations Governing the Preparation of Financial Reports by Securities Issuers (the “Accounting
Standards Used in Preparation of the Parent Company Only Financial Statements”).
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Basis of Preparation
The accompanying parent company only 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.
When preparing the parent company only financial statements, the Company account for subsidiaries and
associates by using the equity method. In order to agree with the amount of net income, other
comprehensive income and equity attributable to shareholders of the parent in the consolidated financial
statements, the differences of the accounting treatment between the parent company only basis and the
consolidated basis are adjusted under the heading of investments accounted for using equity method, share
of profits of subsidiaries and associates and share of other comprehensive income of subsidiaries and
associates in the parent company only financial statements.
Foreign Currencies
In preparing the parent company only financial statements, 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 parent company only 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.
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.
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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 fair value
through profit or loss” (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.
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.
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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.
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.
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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.
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 fair value through profit or loss (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.
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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.
Noncurrent Assets Held for Sale
Noncurrent assets are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the noncurrent asset held for sale is available for immediate sale in its
present condition. To meet the criteria for the sale being highly probable, the appropriate level of
management must be committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
When the committed sale plan involves loss of control of a subsidiary, all of the investments of that
subsidiary are classified as held for sale and still using equity methods, regardless of whether investments
in its former subsidiary is retained after the sale.
Noncurrent assets classified as held for sale are measured at the lower of their previous carrying amount
and fair value less costs to sell. Recognition of depreciation would cease.
Investments Accounted for Using Equity Method
Investments accounted for using the equity method include investments in subsidiaries and associates.
Investment in subsidiaries
A subsidiary is an entity that is controlled by the Company.
Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter
to recognize the Company’s share of profit or loss and other comprehensive income of the subsidiary as
well as the distribution received. The Company also recognized its share in the changes in the equity of
subsidiaries.
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. Any difference between the carrying
amount of the subsidiary and the fair value of the consideration paid or received is recognized directly in
equity.
When the Company loses control of a subsidiary, any retained investment of the former subsidiary is
measured at the fair value at that date. A gain or loss is recognized in profit or loss and 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 investments in
such subsidiary. In addition, the Company shall account for all amounts previously recognized in other
comprehensive income in relation to the subsidiary on the same basis as would be required if the subsidiary
had directly disposed of the related assets and liabilities.
When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with
the subsidiaries are recognized in the Company’s parent company only financial statements only to the
extent of interests in the subsidiaries that are not owned by the Company.
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Investment 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 parent company only
financial statements using the equity method of accounting. Under the equity method, an investment in an
associate is initially recognized in the 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, 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 or jointly controlled entity had directly disposed of the related assets or liabilities.
When the Company transacts with an associate, profits and losses resulting from the transactions with the
associate are recognized in the Company’ parent company only 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.
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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:
buildings - 10 to 20 years; machinery and equipment - 2 to 5 years; and office equipment - 3 to 5 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.
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
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
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. If the recoverable amount of a cash-generating unit is less than its carrying
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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.
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.
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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:
(cid:121) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
(cid:121) The Company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
(cid:121) The amount of revenue can be measured reliably;
(cid:121)
(cid:121) The costs incurred or to be incurred in respect of the transaction can be measured reliably.
It is probable that the economic benefits associated with the transaction will flow to the Company; and
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.
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.
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Share-based Payment Arrangements
The Company elected to take the optional exemption according to related guidance for the share-based
payment transactions granted and vested before January 1, 2012, the date of transition to Accounting
Standards Used in Preparation of the Parent Company Only Financial Statements. There were no stock
options granted prior to but unvested at the date of transition.
The compensation costs of employee stock options that were granted after January 1, 2012 are measured at
the fair value of the stock options at the grant date. The fair value of the stock option granted determined
at the grant date of the stock options is expensed on a straight-line basis over the vesting period, based on
the Company’s estimate of the number of stock options that will eventually vest, with a corresponding
increase in capital surplus - employee stock option. The estimate is revised if subsequent information
indicates that the number of stock options expected to vest differs from original estimates.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Income tax on unappropriated earnings at a rate of 10% 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 parent company only 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 and unused tax credits
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.
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.
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- 127 -
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.
Business Combinations
Business combination involving group reorganization is not accounted for by acquisition method but
accounted for at the carrying amounts of the entity.
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND
UNCERTAINTY
In the application of the aforementioned Company’s accounting policies, the directors are 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.
The following are the critical judgments, apart from those involving estimations, that the directors have
made in the process of applying the Company’s accounting policies and that have the most significant
effect on the amounts recognized in the parent company only financial statements.
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 our
management periodically reviews the adequacy of the estimation used.
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.
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- 128 -
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.
6. CASH AND CASH EQUIVALENTS
December 31,
2016
December 31,
2015
Cash and deposits in banks
Repurchase agreements collateralized by corporate bonds
Commercial paper
Repurchase agreements collateralized by government bonds
$ 245,520,074
2,361,250
1,997,239
-
$ 259,075,563
5,132,778
-
285,242
$ 249,878,563
$ 264,493,583
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- 129 -
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
Financial assets
Held for trading
Forward exchange contracts
Cross currency swap contracts
Financial liabilities
Held for trading
Forward exchange contracts
December 31,
2016
December 31,
2015
$ 140,094
10,976
$
6,026
-
$ 151,070
$
6,026
$ 62,441
$ 45,254
The Company entered into derivative contracts to manage exposures due to fluctuations of foreign
exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge
accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.
Outstanding forward exchange contracts consisted of the following:
Maturity Date
Contract Amount
(In Thousands)
December 31, 2016
Sell NT$/Buy EUR
Sell NT$/Buy JPY
Sell US$/Buy EUR
Sell US$/Buy NT$
December 31, 2015
Sell US$/Buy JPY
Sell US$/Buy NT$
January 2017
January 2017
January 2017
January 2017 to February 2017
NT$5,393,329/EUR159,400
NT$7,314,841/JPY26,501,800
US$4,180/EUR4,000
US$420,000/NT$13,531,450
January 2016
January 2016
US$126,944/JPY15,272,035
US$430,000/NT$14,106,892
Outstanding cross currency swap contracts consisted of the following:
Maturity Date
December 31, 2016
Contract Amount
(In Thousands)
Range of
Interest Rates
Paid
Range of
Interest Rates
Received
January 2017
US$170,000/NT$5,487,600
3.98%
-
- 130 -
- 130 -
8. HELD-TO-MATURITY FINANCIAL ASSETS
Commercial paper
Corporate bonds/Bank debentures
Structured product
Current portion
Noncurrent portion
9. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable
Allowance for doubtful receivables
December 31,
2016
December 31,
2015
$ 8,628,176
2,819,362
-
$
-
7,787,947
3,000,000
$ 11,447,538
$ 10,787,947
$ 11,447,538
-
$ 9,166,523
1,621,424
$ 11,447,538
$ 10,787,947
December 31,
2016
December 31,
2015
$ 40,492,727
(475,430)
$ 26,119,625
(483,502)
Notes and accounts receivable, net
$ 40,017,297
$ 25,636,123
In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from
the end of the month of when the invoice is issued. The allowance for doubtful receivables is assessed by
reference to the collectability of receivables by performing the account aging analysis, historical experience
and current financial condition of customers.
Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at
the end of the reporting period is summarized in the following table. Notes and accounts receivable
include amounts that are past due but for which the Company has not recognized a specific allowance for
doubtful receivables after the assessment since there has not been a significant change in the credit quality
of its customers and the amounts are still considered recoverable. In addition, the Company’s subsidiary
has obtained guarantee of NT$5,559,960 thousand to certain receivables.
Aging analysis of notes and accounts receivable, net
Neither past due nor impaired
Past due but not impaired
Past due within 30 days
Past due 31-60 days
Past due 61-120 days
December 31,
2016
December 31,
2015
$ 28,511,717
$ 20,024,433
6,755,262
1,693,463
3,056,855
5,611,690
-
-
$ 40,017,297
$ 25,636,123
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- 131 -
Movements of the allowance for doubtful receivables
Balance at January 1, 2016
Provision
Reversal/Write-off
Balance at December 31, 2016
Balance at January 1, 2015
Provision
Reversal/Write-off
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Total
$
$
$
8,393
-
(8,393)
$ 475,109
321
-
$ 483,502
321
(8,393)
-
$ 475,430
$ 475,430
8,093
300
-
$ 475,409
4,803
(5,103)
$ 483,502
5,103
(5,103)
Balance at December 31, 2015
$
8,393
$ 475,109
$ 483,502
Aging analysis of accounts receivable that is individually determined as impaired
Past due over 121 days
10. INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
December 31,
2016
December 31,
2015
$
-
$ 8,393
December 31,
2016
December 31,
2015
$ 8,324,267
32,317,210
3,864,429
1,998,440
$ 7,733,331
52,251,863
2,813,029
1,539,965
$ 46,504,346
$ 64,338,188
Write-down of inventories to net realizable value (excluding earthquake losses) in the amount of
NT$1,508,452 thousand and NT$466,825 thousand, respectively, were included in the cost of revenue for
the years ended December 31, 2016 and 2015. Please refer to related earthquake losses in Note 34.
11. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
Investments accounted for using the equity method consisted of the following:
Subsidiaries
Associates
December 31,
2016
December 31,
2015
$ 377,111,820
19,743,888
$ 300,992,341
23,373,251
$ 396,855,708
$ 324,365,592
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- 132 -
a. Investments in subsidiaries
Subsidiaries consisted of the following:
Subsidiaries
Principal Activities
Place of
Incorporation
and Operation
Carrying Amount
% of Ownership and Voting
Rights Held by the Company
December 31,
December 31,
December 31,
December 31,
2016
2015
2016
100%
100%
2015
100%
100%
TSMC Global Ltd.
(TSMC Global)
TSMC Partners, Ltd.
(TSMC Partners)
TSMC China
Company Limited
(TSMC China)
Investment activities
Tortola, British
$ 265,634,729
$ 203,425,723
Virgin Islands
Investing in companies involved
Tortola, British
51,749,910
50,827,318
in the design, manufacture, and
other related business in the
semiconductor industry
Manufacturing and selling of
integrated circuits at the order
of and pursuant to product
design specifications provided
by customers
Virgin Islands
Shanghai, China
42,618,308
40,234,742
100%
100%
TSMC Nanjing
Manufacturing and selling of
Nanjing, China
6,331,094
Company Limited
(TSMC Nanjing)
integrated circuits at the order
of and pursuant to product
design specifications provided
by customers
VisEra Technologies
Engaged in manufacturing
Hsin-Chu, Taiwan
5,234,883
-
-
100%
87%
-
-
Company Ltd.
(VisEra Tech)
electronic spare parts and in
researching, developing,
designing, manufacturing,
selling, packaging and testing
of color filter
TSMC North America Selling and marketing of
integrated circuits and
semiconductor devices
Investing in new start-up
technology companies
VentureTech Alliance
Fund II, L.P.
(VTAF II)
San Jose,
California,
U.S.A.
Cayman Islands
4,340,303
4,234,685
100%
100%
467,171
554,240
98%
98%
Marketing and engineering
supporting activities
Investing in new start-up
technology companies
Amsterdam, the
Netherlands
Cayman Islands
353,695
330,664
219,350
385,834
Marketing activities
Yokohama, Japan
132,999
127,453
TSMC Europe B.V.
(TSMC Europe)
VentureTech Alliance
Fund III, L.P.
(VTAF III)
TSMC Japan Limited
(TSMC Japan)
TSMC Korea Limited
(TSMC Korea)
TSMC Solar Europe
GmbH
Venture Tech Alliance
Holdings, LLC (VTA
Holdings)
Emerging Alliance
Fund, L.P.
(Emerging Alliance)
Customer service and technical
Seoul, Korea
supporting activities
Selling of solar related products
Hamburg,
and providing customer service
Investing in new start-up
technology companies
Investing in new start-up
technology companies
Germany
Delaware, U.S.A.
Cayman Islands
Chi Cherng
Investment activities
Taipei, Taiwan
Investment Co.,
Ltd.(Chi Cherng)
35,706
(6,328 )
-
-
-
35,231
1,186
-
440,901
394,364
$ 377,111,820
$ 300,992,341
100%
98%
100%
100%
100%
7%
-
-
100%
98%
100%
100%
100%
-
99.5%
100%
In August 2015, TSMC Solar Ltd. (TSMC Solar) ceased its manufacturing operations. TSMC Solar
and TSMC Guang Neng Investment, Ltd. (TSMC GN) were incorporated into TSMC in December
2015. After the incorporation, TSMC Solar Europe GmbH, the subsidiary of TSMC Solar, is held
directly by TSMC.
The Company acquired OmniVision Technologies, Inc.’s (“OVT’s”) 100% ownership in OVT Taiwan
(changed to Chi Cherng) on November 20, 2015. As a result, the Company obtained control of OVT
Taiwan. For more information on acquisition of subsidiary, please refer to Note 33 to the consolidated
financial statements for the year ended December 31, 2016. In December 2016, Chi Cherng was
incorporated into the Company.
To simplify investment structure, the Company acquired 253,120 thousand shares of VisEra Tech
previously held by VisEra Holding Company (VisEra Holding) by NT$4,874,231 thousand in August
2016. The percentage of ownership held by the Company was 87%.
- 133 -
- 133 -
Due to the expiration of the investment agreement between Emerging Alliance and the Company,
Emerging Alliance completed the liquidation procedures in April 2016. Emerging Alliance’s
ownership in VTA Holdings is held directly by TSMC.
Under the investment agreement entered into with the municipal government of Nanjing, China on
March 28, 2016, the Company and its subsidiaries will make an investment in Nanjing in the amount of
approximately US$3 billion to establish a subsidiary managing 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. In 2016, the Company continually increased its investment in TSMC Nanjing for the amount of
NT$6,435,200 thousand. This project was approved by the Investment Commission, Ministry of
Economic Affairs, R.O.C. (MOEA).
To lower the hedging cost, in both of 2016 and 2015, the Company continually increased its investment
in TSMC Global for the amount of NT$64,451,983 thousand and NT$64,640,368 thousand,
respectively. This project was approved by the Investment Commission, MOEA.
In January 2015, the Board of Directors of TSMC approved a sale of TSMC Solid State Lighting
common shares of 565,480 thousand held by TSMC and TSMC GN to Epistar Corporation. The
transaction was completed in February 2015.
b. Investments in associates
Associates consisted of the following:
Name of Associate
Principal Activities
Vanguard International
Semiconductor
Corporation (VIS)
Systems on Silicon
Manufacturing
Company Pte Ltd.
(SSMC)
Research, design, development,
manufacture, packaging,
testing and sale of memory
integrated circuits, LSI, VLSI
and related parts
Fabrication and supply of
integrated circuits
Place of
Incorporation
and Operation
Carrying Amount
% of Ownership and Voting
Rights Held by the Company
December 31,
December 31,
December 31,
December 31,
2016
2015
2016
Hsinchu, Taiwan
$
8,806,384
$
8,446,054
28%
2015
28%
Singapore
7,163,516
9,511,515
39%
39%
Xintec Inc. (Xintec)
Wafer level chip size packaging
Taoyuan, Taiwan
2,599,807
2,209,785
service
Global Unichip
Researching, developing,
Hsinchu, Taiwan
1,174,181
1,152,335
41%
35%
Corporation (GUC)
Motech Industries, Inc.
(Motech)
manufacturing, testing and
marketing of integrated circuits
Manufacturing and sales of solar
cells, crystalline silicon solar
cell, and test and measurement
instruments and design and
construction of solar power
systems
New Taipei,
Taiwan
-
2,053,562
-
35%
35%
12%
$ 19,743,888
$ 23,373,251
After TSMC Solar incorporated into the Company in December 2015, the Company directly owned
12% of the equity interest in Motech previously held by TSMC Solar. 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.
In March 2015, Xintec listed its shares on the R.O.C. Over-the-Counter (Taipei Exchange).
Consequently, the Company’s percentage of ownership over Xintec was diluted to approximately
35.4%. In April 2015, the Company sold 2,172 thousand common shares of Xintec and recognized a
disposal gain of NT$43,017 thousand. To simplify investment structure, the Company acquired
18,504 thousand shares of Xintec previously held by VisEra Holding by NT$445,012 thousand in
August 2016. The percentage of ownership held by the Company increased to 41.4%.
- 134 -
- 134 -
In the second quarter of 2015, the Company sold 82,000 thousand common shares of VIS and
recognized a disposal gain of NT$2,263,539 thousand. After the sale, the Company owned
approximately 28.3% of the equity interest in VIS.
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 the Accounting Standards Used in Preparation of the
Parent Company Only Financial Statements, which is also adjusted by the Company using the equity
method of accounting.
1) VIS
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net revenue
Income from operations
Net income
Other comprehensive income (loss)
Total comprehensive income
Cash dividends received
December 31,
2016
December 31,
2015
$ 25,662,921
$ 9,501,442
$ 5,476,672
804,107
$
$ 24,800,749
$ 7,785,093
$ 4,262,001
712,611
$
Years Ended December 31
2016
2015
$ 25,828,634
$ 6,083,625
$ 5,520,645
$
5,592
$ 5,526,237
$ 1,206,981
$ 23,319,721
$ 4,593,430
$ 4,139,031
$
(61,886)
$ 4,077,145
$ 1,206,414
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate recognized in the parent company only balance sheets was as follows:
December 31,
2016
December 31,
2015
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
$ 28,883,584
28%
8,179,830
626,554
$ 27,611,230
28%
7,819,500
626,554
Carrying amount of the investment
$ 8,806,384
$ 8,446,054
2) SSMC
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
December 31,
2016
December 31,
2015
$ 14,585,150
$ 5,360,076
$ 1,746,602
286,340
$
$ 20,078,179
$ 6,144,263
$ 1,954,057
303,217
$
- 135 -
- 135 -
Net revenue
Income from operations
Net income
Total comprehensive income
Cash dividends received
Years Ended December 31
2016
2015
$ 14,045,927
$ 4,921,735
$ 4,918,140
$ 4,918,140
$ 4,076,170
$ 15,026,016
$ 5,802,261
$ 5,904,586
$ 5,904,586
$ 1,556,592
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate recognized in the parent company only balance sheets was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Other adjustments
December 31,
2016
December 31,
2015
$ 17,912,284
39%
6,948,175
213,984
1,357
$ 23,965,168
39%
9,296,089
213,984
1,442
Carrying amount of the investment
$ 7,163,516
$ 9,511,515
Aggregate information of associates that are not individually material was summarized as follows:
The Company’s share of profits of associates
The Company’s share of other comprehensive loss of
associates
The Company’s share of total comprehensive income of
associates
Years Ended December 31
2016
2015
$ 42,457
$ 219,007
$ (17,777)
$
(855)
$ 24,680
$ 218,152
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.
Name of Associate
VIS
GUC
Xintec
Motech
December 31,
2016
December 31,
2015
$ 26,089,360
$ 3,664,997
$ 3,622,227
$ 19,868,766
$ 3,081,399
$ 3,006,017
$ 2,636,054
- 136 -
- 136 -
12. PROPERTY, PLANT AND EQUIPMENT
Land
Buildings
Machinery and
Equipment
Office Equipment
Equipment under
Installation and
Construction in
Progress
Total
Cost
Balance at January 1, 2016
Additions
Disposals or retirements
$
3,212,000
-
-
$
272,949,721
9,000,012
(13,321 )
$ 1,807,955,631
155,226,807
(2,724,958 )
$
27,809,576
4,264,166
(243,085 )
$
191,052,758
193,144,768
-
$ 2,302,979,686
361,635,753
(2,981,364 )
Balance at December 31, 2016
$
3,212,000
$
281,936,412
$ 1,960,457,480
$
31,830,657
$
384,197,526
$ 2,661,634,075
Accumulated depreciation
Balance at January 1, 2016
Additions
Disposals or retirements
$
Balance at December 31, 2016
$
-
-
-
-
$
140,493,396
16,368,395
(7,278 )
$ 1,313,095,298
193,655,507
(2,688,997 )
$
$
17,606,080
3,953,422
(243,085 )
$
156,854,513
$ 1,504,061,808
$
21,316,417
$
-
-
-
-
$ 1,471,194,774
213,977,324
(2,939,360 )
$ 1,682,232,738
Carrying amounts at December 31, 2016
$
3,212,000
$
125,081,899
$
456,395,672
$
10,514,240
$
384,197,526
$
979,401,337
Cost
Balance at January 1, 2015
Additions
Disposals or retirements
Effect of merger of subsidiary
$
3,212,000
-
-
-
$
244,902,026
26,671,505
(74,721 )
1,450,911
$ 1,676,843,858
133,048,817
(2,109,856 )
172,812
$
25,494,170
2,958,321
(675,443 )
32,528
$
105,716,759
85,335,999
-
-
$ 2,056,168,813
248,014,642
(2,860,020 )
1,656,251
Balance at December 31, 2015
$
3,212,000
$
272,949,721
$ 1,807,955,631
$
27,809,576
$
191,052,758
$ 2,302,979,686
Accumulated depreciation and
impairment
Balance at January 1, 2015
Additions
Disposals or retirements
Impairment
Effect of merger of subsidiary
$
Balance at December 31, 2015
$
-
-
-
-
-
-
$
124,864,919
15,032,971
(73,855 )
-
669,361
$ 1,119,908,770
194,722,607
(1,936,928 )
228,037
172,812
$
$
14,710,763
3,538,232
(675,443 )
-
32,528
$
140,493,396
$ 1,313,095,298
$
17,606,080
$
-
-
-
-
-
-
$ 1,259,484,452
213,293,810
(2,686,226 )
228,037
874,701
$ 1,471,194,774
Carrying amounts at December 31, 2015
$
3,212,000
$
132,456,325
$
494,860,333
$
10,203,496
$
191,052,758
$
831,784,912
The significant part of the Company’s buildings includes main plants, mechanical and electrical power
equipment and clean rooms, and the related depreciation is calculated using the estimated useful lives of 20
years, 10 years and 10 years, respectively.
For the year ended December 31, 2015, the Company recognized an impairment loss of NT$228,037
thousand under foundry segment since the carrying amount of some of property, plant and equipment was
expected to be unrecoverable. Such impairment loss was included in other operating income and
expenses.
13. INTANGIBLE ASSETS
Goodwill
Technology
License Fees
Software and
System Design
Costs
Patent and
Others
Total
Cost
Balance at January 1, 2016
Additions
Retirements
$
$
1,567,756
-
-
8,399,059
1,091,261
-
$ 19,297,534
2,770,842
$
(4,787 )
4,722,667
518,536
-
$ 33,987,016
4,380,639
(4,787 )
Balance at December 31, 2016
$
1,567,756
$
9,490,320
$ 22,063,589
$
5,241,203
$ 38,362,868
Accumulated amortization
Balance at January 1, 2016
Additions
Retirements
Balance at December 31, 2016
Carrying amounts at December 31, 2016
$
$
$
-
-
-
-
$
4,724,143
1,367,370
-
$ 16,279,451
1,716,836
$
(4,787 )
3,592,004
639,860
-
$ 24,595,598
3,724,066
(4,787 )
$
6,091,513
$ 17,991,500
$
4,231,864
$ 28,314,877
1,567,756
$
3,398,807
$
4,072,089
$
1,009,339
$ 10,047,991
(Continued)
- 137 -
- 137 -
Goodwill
Technology
License Fees
Software and
System Design
Costs
Patent and
Others
Total
Cost
Balance at January 1, 2015
Additions
Retirements
Effect of merger of subsidiary
$
$
1,567,756
-
-
-
6,093,450
2,112,572
-
193,037
$ 18,532,060
854,962
(101,218 )
$
11,730
4,136,156
586,511
-
-
$ 30,329,422
3,554,045
(101,218 )
204,767
Balance at December 31, 2015
$
1,567,756
$
8,399,059
$ 19,297,534
$
4,722,667
$ 33,987,016
Accumulated amortization
Balance at January 1, 2015
Additions
Retirements
Effect of merger of subsidiary
$
Balance at December 31, 2015
$
-
-
-
-
-
$
3,605,977
925,129
-
193,037
$ 14,706,168
1,662,771
(101,218 )
$
11,730
3,020,467
571,537
-
-
$ 21,332,612
3,159,437
(101,218 )
204,767
$
4,724,143
$ 16,279,451
$
3,592,004
$ 24,595,598
Carrying amounts at December 31, 2015
$
1,567,756
$
3,674,916
$
3,018,083
$
1,130,663
$
9,391,418
(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 rate of 8.40% in its test of impairment for both December 31, 2016 and 2015 to reflect the
relevant specific risk in the cash-generating unit.
For the years ended December 31, 2016 and 2015, the Company did not recognize any impairment loss on
goodwill.
14. OTHER ASSETS
Tax receivable
Prepaid expenses
Long-term receivable
Others
Current portion
Noncurrent portion
December 31,
2016
December 31,
2015
$ 2,182,159
821,648
-
855
$ 1,875,772
1,185,194
360,000
165
$ 3,004,662
$ 3,421,131
$ 3,004,662
-
$ 3,061,131
360,000
$ 3,004,662
$ 3,421,131
- 138 -
- 138 -
15. SHORT-TERM LOANS
Unsecured loans
Amount
Original loan content
US$ (in thousands)
Annual interest rate
Maturity date
16. PROVISIONS
Sales returns and allowances
Warranties
December 31,
2016
December 31,
2015
$ 57,958,200
$ 39,474,000
$ 1,800,000
0.87%-1.07%
Due by January
2017
$ 1,200,000
0.50%-0.77%
Due by February
2016
December 31,
2016
December 31,
2015
$ 16,991,612
28,187
$ 9,011,863
46,304
$ 17,019,799
$ 9,058,167
Current portion
Noncurrent portion (classified under other noncurrent liabilities)
$ 16,991,612
28,187
$ 9,011,863
46,304
Year ended December 31, 2016
Balance, beginning of year
Provision (Reversal)
Payment
$ 17,019,799
$ 9,058,167
Sales Returns
and Allowances Warranties
Total
$ 9,011,863
35,699,912
(27,720,163)
$
$ 9,058,167
46,304
(13,629) 35,686,283
(4,488) (27,724,651)
Balance, end of year
$ 16,991,612
$
28,187
$ 17,019,799
Year ended December 31, 2015
Balance, beginning of year
Provision (Reversal)
Payment
Effect of merger of subsidiary
$ 9,959,817
16,811,021
(17,758,975)
$
-
-
$ 9,959,817
(222) 16,810,799
(17,758,975)
46,526
-
46,526
Balance, end of year
$ 9,011,863
$
46,304
$ 9,058,167
Provisions for sales returns and allowances are estimated based on historical experience, management
judgment, and any known factors that would significantly affect the returns and allowances, and are
recognized as a reduction of revenue in the same year of the related product sales.
The provision for warranties represents the present value of the Company’s best estimate of the future
outflow of the economic benefits that will be required under the Company’s obligations for warranties.
The best estimate has been made on the basis of historical warranty trends of business.
- 139 -
- 139 -
17. BONDS PAYABLE
Domestic unsecured bonds
Less: Current portion
December 31,
2016
December 31,
2015
$ 154,200,000
(38,100,000)
$ 166,200,000
(12,000,000)
The major terms of domestic unsecured bonds are as follows:
Issuance
Tranche
Issuance Period
Total Amount
Coupon
Rate
Repayment and
Interest Payment
$ 116,100,000
$ 154,200,000
100-1
100-2
101-1
101-2
101-3
101-4
102-1
102-2
A
B
A
B
A
B
A
B
-
A
B
C
A
B
C
A
B
September 2011 to
September 2016
September 2011 to
September 2018
January 2012 to
January 2017
January 2012 to
January 2019
August 2012 to
August 2017
August 2012 to
August 2019
September 2012 to
September 2017
September 2012 to
September 2019
October 2012 to
October 2022
January 2013 to
January 2018
January 2013 to
January 2020
January 2013 to
January 2023
February 2013 to
February 2018
February 2013 to
February 2020
February 2013 to
February 2023
$ 10,500,000
1.40%
Bullet repayment;
interest payable
annually
7,500,000
1.63%
The same as above
10,000,000
1.29%
The same as above
7,000,000
1.46%
The same as above
9,900,000
1.28%
The same as above
9,000,000
1.40%
The same as above
12,700,000
1.28%
The same as above
9,000,000
1.39%
The same as above
4,400,000
1.53%
The same as above
10,600,000
1.23%
The same as above
10,000,000
1.35%
The same as above
3,000,000
1.49%
The same as above
6,200,000
1.23%
The same as above
11,600,000
1.38%
The same as above
3,600,000
1.50%
The same as above
July 2013 to July 2020 10,200,000
3,500,000
July 2013 to July 2023
1.50%
1.70%
The same as above
The same as above
(Continued)
- 140 -
- 140 -
Issuance
Tranche
Issuance Period
Total Amount
Coupon
Rate
Repayment and
Interest Payment
102-3
102-4
A
B
A
B
C
D
E
F
August 2013 to
August 2017
August 2013 to
August 2019
September 2013 to
September 2016
September 2013 to
September 2017
September 2013 to
March 2019
$ 4,000,000
1.34%
Bullet repayment;
interest payable
annually
8,500,000
1.52%
The same as above
1,500,000
1.35%
The same as above
1,500,000
1.45%
The same as above
1,400,000
1.60%
Bullet repayment;
interest payable
annually (interest
for the six months
prior to maturity
will accrue on the
basis of actual days
and be repayable at
maturity)
September 2013 to
March 2021
September 2013 to
March 2023
September 2013 to
September 2023
2,600,000
1.85%
The same as above
5,400,000
2.05%
The same as above
2,600,000
2.10%
Bullet repayment;
interest payable
annually
(Concluded)
18. 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, the Company has made monthly contributions equal to 6% of each employee’s
monthly salary to employees’ pension accounts. Accordingly, the Company recognized expenses of
NT$1,735,492 thousand and NT$1,622,375 thousand in the parent company only statements of
comprehensive income for the years ended December 31, 2016 and 2015, respectively.
b. Defined benefit plans
The Company 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.
- 141 -
- 141 -
Amounts recognized in the parent company only statements of comprehensive income in respect of
these defined benefit plans were as follows:
Current service cost
Net interest expense
Components of defined benefit costs recognized in profit or loss
Remeasurement on the net defined benefit liability:
Return on plan assets (excluding amounts included in net
interest expense)
Actuarial loss arising from experience adjustments
Actuarial loss arising from changes in financial assumptions
Actuarial loss arising from changes in demographic
assumptions
Components of defined benefit costs recognized in other
comprehensive income
Total
Years Ended December 31
2016
2015
$
$
132,786
139,355
272,141
149,216
144,754
293,970
45,721
38,195
694,632
278,672
(13,707)
297,077
544,333
-
1,057,220
827,703
$ 1,329,361
$ 1,121,673
The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the
following categories:
Cost of revenue
Research and development expenses
General and administrative expenses
Marketing expenses
Years Ended December 31
2016
2015
$ 176,977
73,395
17,367
4,402
$ 188,761
81,203
19,091
4,915
$ 272,141
$ 293,970
The amounts arising from the defined benefit obligation of the Company in the parent company only
balance sheets were as follows:
December 31,
2016
December 31,
2015
Present value of defined benefit obligation
Fair value of plan assets
$ 12,480,480
(3,929,072)
$ 11,318,174
(3,870,148)
Net defined benefit liability
$ 8,551,408
$ 7,448,026
- 142 -
- 142 -
Movements in the present value of the defined benefit obligation were as follows:
Balance, beginning of year
Current service cost
Interest expense
Remeasurement losses:
Actuarial loss arising from experience adjustments
Actuarial loss arising from changes in financial assumptions
Actuarial loss arising from changes in demographic
assumptions
Benefits paid from plan assets
Effect of merger of subsidiary
Years Ended December 31
2016
2015
$ 11,318,174
132,786
212,909
$ 10,236,262
149,216
228,444
38,195
694,632
297,077
544,333
278,672
(194,888)
-
-
(146,136)
8,978
Balance, end of year
$ 12,480,480
$ 11,318,174
Movements in the fair value of the plan assets were as follows:
Balance, beginning of year
Interest income
Remeasurement gains (losses):
Return on plan assets (excluding amounts included in net
interest expense)
Contributions from employer
Benefits paid from plan assets
Effect of merger of subsidiary
Years Ended December 31
2016
2015
$ 3,870,148
73,554
$ 3,689,413
83,690
(45,721)
225,979
(194,888)
-
13,707
220,496
(146,136)
8,978
Balance, end of year
$ 3,929,072
$ 3,870,148
The fair value of the plan assets by major categories at the end of reporting period was as follows:
Cash
Equity instruments
Debt instruments
December 31,
2016
December 31,
2015
$
818,426
1,852,950
1,257,696
$
690,821
2,070,142
1,109,185
$ 3,929,072
$ 3,870,148
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:
Measurement Date
December 31,
2016
December 31,
2015
1.50%
3.00%
1.90%
3.00%
Discount rate
Future salary increase rate
- 143 -
- 143 -
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$970,282 thousand and NT$844,058
thousand as of December 31, 2016 and 2015, 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$951,424 thousand and NT$830,699 thousand as of December 31, 2016 and 2015,
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.
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 recognized in the
parent company only balance sheets.
The Company expects to make contributions of NT$232,759 thousand to the defined benefit plans in
the next year starting from December 31, 2016. The weighted average duration of the defined benefit
obligation is 14 years.
19. GUARANTEE DEPOSITS
Capacity guarantee
Others
Current portion (classified under accrued expenses and other current
liabilities)
Noncurrent portion
- 144 -
- 144 -
December 31,
2016
December 31,
2015
$ 20,929,350
176,992
$ 27,549,563
172,624
$ 21,106,342
$ 27,722,187
$ 6,439,800
14,666,542
$ 6,167,813
21,554,374
$ 21,106,342
$ 27,722,187
Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.
20. EQUITY
a. Capital stock
Authorized shares (in thousands)
Authorized capital
Issued and paid shares (in thousands)
Issued capital
December 31,
2016
December 31,
2015
28,050,000
$ 280,500,000
25,930,380
$ 259,303,805
28,050,000
$ 280,500,000
25,930,380
$ 259,303,805
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, 2016, 1,072,194 thousand ADSs of the Company were traded on the NYSE. The
number of common shares represented by the ADSs was 5,360,968 thousand shares (one ADS
represents five common shares).
b. Capital surplus
Additional paid-in capital
From merger
From convertible bonds
From share of changes in equities of subsidiaries
From share of changes in equities of associates
Donations
December 31,
2016
December 31,
2015
$ 24,184,939
22,804,510
8,892,847
107,798
282,155
55
$ 24,184,939
22,804,510
8,892,847
100,761
317,103
55
$ 56,272,304
$ 56,300,215
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 the
Company’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and
associates may be used to offset a deficit.
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
the Company’s Articles of Incorporation on profits distribution policy had been approved by the
Company’s shareholders in its meeting held on June 7, 2016. For policy about the profit sharing
bonus to employees, please refer to Note 28.
- 145 -
- 145 -
The Company’s amended Articles of Incorporation provide that, when allocating the net profits for each
fiscal year, the Company shall first offset its losses in previous years and then set aside the following
items accordingly:
1) Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve
equals the Company’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.
The Company’s Articles of Incorporation also provide that profits of the Company may be distributed
by way of cash dividend and/or stock dividend. However, distribution of profits shall be made
preferably by way of cash dividend. Distribution of profits may also be made by way of stock
dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.
Any appropriations of the profits are subject to shareholders’ approval in the following year.
The 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 2015 and 2014 earnings have been approved by the Company’s shareholders in
its meetings held on June 7, 2016 and on June 9, 2015, respectively. The appropriations and dividends
per share were as follows:
Appropriation of Earnings
For Fiscal
For Fiscal
Year 2014
Year 2015
Dividends Per Share
(NT$)
For Fiscal For Fiscal
Year 2015 Year 2014
Legal capital reserve
Cash dividends to shareholders
$ 30,657,384
155,582,283
$ 26,389,879
116,683,481
$6.0
$4.5
$ 186,239,667
$ 143,073,360
The Company’s appropriations of earnings for 2016 had been approved in the meeting of the Board of
Directors held on February 14, 2017. The appropriations and dividends per share were as follows:
Legal capital reserve
Cash dividends to shareholders
- 146 -
- 146 -
Appropriation
of Earnings
For Fiscal Year
2016
Dividends Per
Share (NT$)
For Fiscal Year
2016
$ 33,424,718
181,512,663
$ 214,937,381
$
7.0
The appropriations of earnings for 2016 are to be presented for approval in the Company’s
shareholders’ meeting to be held on June 8, 2017 (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 the
Company on earnings generated since January 1, 1998.
d. Others
Changes in others were as follows:
Foreign
Currency
Translation
Reserve
Year Ended December 31, 2016
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges Reserve
Total
Balance, beginning of year
$ 11,039,949
$
734,771
$
(607)
$ 11,774,113
Exchange differences arising on
translation of foreign
operations
Changes in fair value of
available-for-sale financial
assets
Cumulative gain reclassified to
profit or loss upon disposal of
available-for-sale financial
assets
Share of other comprehensive
income of subsidiaries and
associates
The proportionate share of other
comprehensive income/losses
reclassified to profit or loss
upon partial disposal of
associates
Income tax effect
(9,439,776)
-
-
-
148,917
(101,411)
-
-
-
(9,439,776)
148,917
(101,411)
65,776
(714,991)
712
(648,503)
(4,712)
-
(3,469)
(61,176)
-
-
(8,181)
(61,176)
Balance, end of year
$ 1,661,237
$
2,641
$
105
$ 1,663,983
Foreign
Currency
Translation
Reserve
Year Ended December 31, 2015
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges Reserve
Total
Balance, beginning of year
$ 4,502,113
$ 21,247,483
$
(305)
$ 25,749,291
Exchange differences arising on
translation of foreign
operations
Changes in fair value of
available-for-sale financial
assets
6,525,608
-
-
94,115
-
-
6,525,608
94,115
(Continued)
- 147 -
- 147 -
Foreign
Currency
Translation
Reserve
Year Ended December 31, 2015
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges Reserve
Total
Cumulative gain reclassified to
profit or loss upon disposal of
available-for-sale financial
assets
Share of other comprehensive
income of subsidiaries and
associates
The proportionate share of other
comprehensive income/losses
reclassified to profit or loss
upon partial disposal of
associates
Income tax effect
$
-
$
(51)
$
-
$
(51)
9,102
(20,592,836)
(313)
(20,584,047)
3,126
-
2,051
(15,991)
11
-
5,188
(15,991)
Balance, end of year
$ 11,039,949
$
734,771
$
(607)
$ 11,774,113
(Concluded)
The exchange differences arising on translation of foreign operation’s net assets from its functional
currency to the Company’s presentation currency are recognized directly in other comprehensive
income and also accumulated in the foreign currency translation reserve.
Unrealized gain/loss on available-for-sale financial assets represents the cumulative gains or losses
arising from the fair value measurement on available-for-sale financial assets that are recognized in
other comprehensive income. When those available-for-sale financial assets have been disposed of or
are determined to be impaired subsequently, the related cumulative gains or losses in other
comprehensive income are reclassified to profit or loss.
The cash flow hedges reserve represents the cumulative effective portion of gains or losses arising on
changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative
gains or losses arising on changes in fair value of the hedging instruments that are recognized and
accumulated in cash flow hedges reserve will be reclassified to profit or loss only when the hedge
transaction affects profit or loss.
21. SHARE-BASED PAYMENT
The Company’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan and
TSMC 2002 Plan, were approved by the Securities and Futures Bureau on January 6, 2005, October 29,
2003 and June 25, 2002, respectively. The maximum number of stock options authorized to be granted
under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000
thousand and 100,000 thousand, respectively, with each stock option eligible to subscribe for one common
share of the Company when exercised. The stock options may be granted to qualified employees of the
Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting
rights, directly or indirectly, is more than fifty percent (50%). The stock options of all the plans are valid
for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date.
Under the terms of the plans, the stock options are granted at an exercise price equal to the closing price of
the Company’s common shares quoted on the TWSE on the grant date.
- 148 -
- 148 -
The Company did not issue employee stock option plans for years ended December 31, 2016 and 2015.
Information about the Company’s outstanding employee stock options is described as follows:
Year ended December 31, 2015
Balance, beginning of year
Options exercised
Balance, end of year
Balance exercisable, end of year
Number of
Stock Options
(In Thousands)
Weighted-
average
Exercise Price
(NT$)
718
(718)
-
-
$47.2
47.2
-
-
The numbers of outstanding stock options and exercise prices have been adjusted to reflect the distribution
of earnings by the Company in accordance with the plans.
The employee stock options have been fully exercised in the second quarter of 2015.
22. NET REVENUE
Net revenue from sale of goods
Net revenue from royalties
23. OTHER INCOME
Interest income
Bank deposits
Held-to-maturity financial assets
Dividend income
24. FINANCE COSTS
Interest expense
Corporate bonds
Bank loans
Years Ended December 31
2016
2015
$ 935,864,491
522,800
$ 836,546,605
500,283
$ 936,387,291
$ 837,046,888
Years Ended December 31
2016
2015
$ 1,634,873
48,277
1,683,150
133,653
$ 1,655,118
71,385
1,726,503
113,359
$ 1,816,803
$ 1,839,862
Years Ended December 31
2016
2015
$ 2,353,251
289,942
$ 2,367,179
73,280
$ 2,643,193
$ 2,440,459
- 149 -
- 149 -
25. OTHER GAINS AND LOSSES
Gain on disposal of financial assets, net
Available-for-sale financial assets
Other gains
Net gain (loss) on financial instruments at FVTPL
Held for trading
Designated as at FVTPL
Gain (loss) on disposal of investments accounted for using equity
method, net
Impairment loss of financial assets
Financial assets carried at cost
Other losses
26. INCOME TAX
a. Income tax expense recognized in profit or loss
Income tax expense consisted of the following:
Current income tax expense
Current tax expense recognized in the current year
Income tax adjustments on prior years
Other income tax adjustments
Years Ended December 31
2016
2015
$ 101,411
125,282
$
51
123,920
899,991
(76,691)
(1,719,106)
-
(296,065)
2,419,785
(4,537)
(15,291)
(21,437)
(15,228)
$ 734,100
$ 787,985
Years Ended December 31
2016
2015
$ 53,577,418
(1,039,175)
168,040
52,706,283
$ 45,633,743
(979,196)
142,426
44,796,973
Deferred income tax benefit
The origination and reversal of temporary differences
(1,764,503)
(1,382,142)
Income tax expense recognized in profit or loss
$ 50,941,780
$ 43,414,831
A reconciliation of income before income tax and income tax expense recognized in profit or loss was
as follows:
Income before tax
$ 385,188,960
$ 349,988,668
Years Ended December 31
2016
2015
Income tax expense at the statutory rate (17%)
Tax effect of adjusting items:
Nondeductible (deductible) items in determining taxable
income
Tax-exempt income
Additional income tax under the Alternative Minimum Tax Act (cid:289)
-
- 150 -
- 150 -
$ 65,482,123
$ 59,498,074
121,152
(19,075,801)
(6,011,617)
(21,760,175)
6,041,603
(Continued)
Additional income tax on unappropriated earnings
The origination and reversal of temporary differences
Income tax credits
Income tax adjustments on prior years
Other income tax adjustments
Years Ended December 31
2016
2015
$ 11,957,213
(1,764,503)
(4,907,269)
51,812,915
(1,039,175)
168,040
$ 12,103,200
(1,382,142)
(4,237,342)
44,251,601
(979,196)
142,426
Income tax expense recognized in profit or loss
$ 50,941,780
$ 43,414,831
(Concluded)
b. Income tax expense recognized in other comprehensive income
Deferred income tax benefit (expense)
Related to remeasurement of defined benefit obligation
Related to unrealized gain/loss on available-for-sale financial
assets
Years Ended December 31
2016
2015
$ 126,867
$ 99,324
(61,176)
(15,991)
$ 65,691
$ 83,333
c. Deferred income tax balance
The analysis of deferred income tax assets and liabilities in the parent company only balance sheets was
as follows:
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and allowance
Net defined benefit liability
Unrealized loss on inventories
Others
Deferred income tax liabilities
Temporary differences
Available-for-sale financial assets
Unrealized exchange gains
December 31,
2016
December 31,
2015
$ 3,284,735
1,428,787
939,543
698,858
94,858
$ 1,874,632
1,081,423
895,486
573,243
81,891
$ 6,446,781
$ 4,506,675
$
(92,447)
(48,736)
$
(31,271)
-
$
(141,183)
$
(31,271)
- 151 -
- 151 -
Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehensive
Income
Balance,
End of Year
$ 1,874,632
$ 1,410,103
$
-
3,284,735
Year Ended December 31, 2016
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and
allowance
Net defined benefit liability
Unrealized loss on inventories
Others
1,081,423
895,486
573,243
81,891
347,364
(82,810)
125,615
12,967
-
126,867
-
-
1,428,787
939,543
698,858
94,858
$ 4,506,675
$ 1,813,239
$
126,867
$ 6,446,781
Deferred income tax liabilities
Temporary differences
Available-for-sale financial
assets
Unrealized exchange gains
$
(31,271)
-
$
-
(48,736)
$
(61,176)
-
$
(92,447)
(48,736)
$
(31,271)
$
(48,736)
$
(61,176)
$
(141,183)
Year Ended December 31, 2015
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and
allowance
$
610,819
$ 1,263,813
$
-
$ 1,874,632
Net defined benefit liability
Unrealized loss on inventories
Others
1,195,178
787,492
547,249
68,941
(113,755)
8,670
25,994
12,950
-
99,324
-
-
1,081,423
895,486
573,243
81,891
$ 3,209,679
$ 1,197,672
$
99,324
$ 4,506,675
Deferred income tax liabilities
Temporary differences
Available-for-sale financial
assets
Unrealized exchange gains
$
(15,280)
(184,470)
$
-
184,470
$
(15,991)
-
$
(31,271)
-
$
(199,750)
$
184,470
$
(15,991)
$
(31,271)
d. The deductible temporary differences for which no deferred income tax assets have been recognized in
the parent company only financial statements
As of December 31, 2016 and 2015, the aggregate deductible temporary differences for which no
deferred income tax assets have been recognized amounted to NT$1,919,784 thousand and
NT$1,972,286 thousand, respectively.
- 152 -
- 152 -
e. Unused tax-exemption information
As of December 31, 2016, the profits generated from the following projects of the Company are exempt
from income tax for a five-year period:
Construction and expansion of 2007
Construction and expansion of 2008
Construction and expansion of 2009
Tax-exemption Period
2014 to 2018
2015 to 2019
2018 to 2022
f. The information of unrecognized deferred income tax liabilities associated with investments
As of December 31, 2016 and 2015, the aggregate taxable temporary differences associated with
investments
to
NT$83,181,401 thousand and NT$80,919,309 thousand, respectively.
in subsidiaries not recognized as deferred
liabilities amounted
income
tax
g. Integrated income tax information
Balance of the Imputation
Credit Account
December 31,
2016
December 31,
2015
$ 82,072,562
$ 59,973,516
The estimated and actual creditable ratio for distribution of the Company’s earnings of 2016 and 2015
were 13.94% and 12.57%, respectively; however, effective from January 1, 2015, the creditable ratio
for individual shareholders residing in the R.O.C. will be half of the original creditable ratio according
to the revised Article 66 - 6 of the R.O.C. Income Tax Law.
The imputation credit allocated to shareholders is based on its balance as of the date of the dividend
distribution. The estimated creditable ratio may change when the actual distribution of the imputation
credit is made.
All earnings generated prior to December 31, 1997 have been appropriated.
h. Income tax examination
The tax authorities have examined income tax returns of the Company through 2013. All investment
tax credit adjustments assessed by the tax authorities have been recognized accordingly.
27. EARNINGS PER SHARE
Basic EPS
Diluted EPS
Years Ended December 31
2016
$12.89
$12.89
2015
$11.82
$11.82
- 153 -
- 153 -
EPS is computed as follows:
Year ended December 31, 2016
Basic/Diluted EPS
Number of
Shares
(Denominator)
(In Thousands)
Amounts
(Numerator)
EPS (NT$)
Net income available to common shareholders $ 334,247,180
25,930,380
$12.89
Year ended December 31, 2015
Basic EPS
Net income available to common shareholders $ 306,573,837
-
Effect of dilutive potential common shares
25,930,288
92
$11.82
Diluted EPS
Net income available to common shareholders
(including effect of dilutive potential
common shares)
$ 306,573,837
25,930,380
$11.82
28. ADDITIONAL INFORMATION OF EXPENSES BY NATURE
Years Ended December 31
2016
2015
a. Depreciation of property, plant and equipment
Recognized in cost of revenue
Recognized in operating expenses
Recognized in other operating income and expenses
$ 197,595,313
16,357,124
24,887
$ 198,343,742
14,925,181
24,887
b. Amortization of intangible assets
Recognized in cost of revenue
Recognized in operating expenses
$ 213,977,324
$ 213,293,810
$
2,014,814
1,709,252
$
1,605,572
1,553,865
$
3,724,066
$
3,159,437
c. Research and development costs expensed as incurred
$ 70,366,179
$ 64,831,860
d. Employee benefits expenses
Post-employment benefits
Defined contribution plans
Defined benefit plans
Other employee benefits
$
$
1,735,492
272,141
2,007,633
86,133,216
1,622,375
293,970
1,916,345
79,254,303
$ 88,140,849
$ 81,170,648
(Continued)
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Employee benefits expense summarized by function
Recognized in cost of revenue
Recognized in operating expenses
Years Ended December 31
2016
2015
$ 53,109,947
35,030,902
$ 48,246,789
32,923,859
$ 88,140,849
$ 81,170,648
(Concluded)
In accordance with the amendments to the R.O.C. Company Act in May 2015 and the amended the
Company’s Articles of Incorporation approved by the Company’s shareholders in its meeting held on June
7, 2016, the Company shall allocate compensation to directors and profit sharing bonus to employees of the
Company not more than 0.3% and not less than 1% of annual profits during the period, respectively. Prior
to the amendments, the Company’s Articles of Incorporation provided that, when allocating the net profits
for each fiscal year, the Company shall first set aside legal capital reserve and special capital reserve, then
set aside not more than 0.3% of the balance as compensation to directors and not less than 1% as profit
sharing bonus to employees, respectively.
The Company 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$22,418,339 thousand and NT$20,556,888 thousand for the years ended December 31,
2016 and 2015, respectively; compensation to directors was expensed based on estimated amount payable.
If there is a change in the proposed amounts after the annual parent company only financial statements are
authorized for issue, the differences are recorded as a change in accounting estimate.
The Board of Directors of the Company held on February 14, 2017 approved the 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. There is no significant difference between the aforementioned
approved amounts and the amounts charged against earnings of 2016.
The Company’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 the Company’s shareholders in its meeting held on June 7,
2016, after the amended the Company’s Articles of Incorporation had been approved.
The
aforementioned approved amount has no difference with the one recognized in the parent company only
financial statements for the year ended December 31, 2015.
The Company’s profit sharing bonus to employees and compensation to directors in the amounts of
NT$17,645,966 thousand and NT$406,854 thousand in cash for 2014, respectively, had been approved by
the shareholders in its meetings held on June 9, 2015. The aforementioned approved amount has no
difference with the one recognized in the parent company only financial statements for the year ended
December 31, 2014.
The information about the appropriations of the Company’s profit sharing bonus to employees and
compensation to directors is available at the Market Observation Post System website.
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29. 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.
30. FINANCIAL INSTRUMENTS
a. Categories of financial instruments
Financial assets
FVTPL
Held for trading
Available-for-sale financial assets (Note)
Held-to-maturity financial assets
Loans and receivables
December 31,
2016
December 31,
2015
$
$
151,070
3,279,220
11,447,538
6,026
1,050,645
10,787,947
Cash and cash equivalents
Notes and accounts receivable (including related parties)
Other receivables
Refundable deposits
249,878,563
126,862,867
3,088,166
369,895
264,493,583
82,918,805
2,581,900
398,693
Financial liabilities
FVTPL
Held for trading
Amortized cost
Short-term loans
Accounts payable (including related parties)
Payables to contractors and equipment suppliers
Accrued expenses and other current liabilities
Bonds payable (including long-term liabilities-current
$ 395,077,319
$ 362,237,599
$
62,441
$
45,254
57,958,200
29,373,925
62,449,143
19,485,257
39,474,000
20,462,601
25,346,206
16,797,935
portion)
154,200,000
166,200,000
Other long-term payables (classified under accrued
expenses and other current liabilities)
Guarantee deposits (including those classified under
accrued expenses and other current liabilities )
-
18,000
21,106,342
27,722,187
$ 344,635,308
$ 296,066,183
Note:
Including financial assets carried at cost.
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.
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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 market risks arising from changes in foreign exchange rates, interest
rates and the prices in equity investments, and utilizes some derivative financial instruments to reduce
the related risks.
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, including currency forward contracts and cross currency swaps, to hedge its
currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign
currency exchange rate movements.
The Company also holds short-term borrowings in foreign currencies in proportion to its expected
future cash flows. This allows foreign-currency-denominated borrowings to be serviced with expected
future cash flows and provides a partial hedge against transaction translation exposure.
The Company’s sensitivity analysis to foreign currency risk mainly focuses on the foreign currency
monetary items at the end of the reporting period. Assuming an unfavorable 10% movement in the
levels of foreign exchanges against the New Taiwan dollar, the net income for the years ended
December 31, 2016 and 2015 would have decreased by NT$116,345 thousand and NT$902,173
thousand, respectively, after taking into consideration of the hedging contracts and the hedged items.
Interest rate risk
The Company is exposed to interest rate risk arising from borrowing at fixed interest rates and from
fixed income securities. All of the Company’s long-term bonds have fixed interest rates and are
measured at amortized cost. As such, changes in interest rates would not affect the future cash flows.
The Company classified fixed income securities as held-to-maturity financial assets. Because
held-to-maturity fixed income securities are measured at amortized cost, changes in interest rates would
not affect the fair value.
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 equity prices of the equity investments at the end of the
reporting period, the net income for the years ended December 31, 2016 and 2015 would have been
unaffected as they were classified as available-for-sale; however, the other comprehensive income for
the years ended December 31, 2016 and 2015 would have decreased by NT$141,570 thousand and
NT$44,410 thousand, respectively.
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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 recognized in the parent company
only balance sheet.
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, 2016 and 2015, the Company’s ten largest customers accounted for 74% and 67%
of accounts receivable, respectively. The Company believes the concentration of credit risk is
insignificant for the remaining accounts receivable.
Financial credit risk
The Company regularly monitors and reviews the transaction limit applied to counterparties and adjusts
the concentration limit according to market conditions and the credit standing of the counterparties.
The Company mitigates its exposure by selecting counterparties with investment-grade credit ratings.
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.
The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments, including principal and interest.
Less Than
1 Year
2-3 Years
4-5 Years
5+ Years
Total
December 31, 2016
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 57,974,562
$
parties)
Payables to contractors and
equipment suppliers
Accrued expenses and other current
liabilities
Bonds payable
Guarantee deposits (including those
classified under accrued expenses
and other current liabilities)
29,373,925
62,449,143
19,485,257
40,067,749
$
-
-
-
$
-
-
-
-
-
-
$ 57,974,562
29,373,925
62,449,143
-
61,831,777
-
35,340,742
-
22,979,426
19,485,257
160,219,694
6,439,800
215,790,436
13,056,592
74,888,369
1,609,950
36,950,692
-
22,979,426
21,106,342
350,608,923
(Continued)
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- 158 -
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
Cross currency swap contracts
Outflows
Inflows
Less Than
1 Year
2-3 Years
4-5 Years
5+ Years
Total
$ 26,366,343
$
(26,490,320 )
(123,977 )
5,478,066
(5,487,600 )
(9,534 )
$
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
$ 26,366,343
(26,490,320 )
(123,977 )
5,478,066
(5,487,600 )
(9,534 )
$ 215,656,925
$ 74,888,369
$ 36,950,692
$ 22,979,426
$ 350,475,412
December 31, 2015
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 39,488,957
$
parties)
Payables to contractors and
equipment suppliers
Accrued expenses and other current
liabilities
Bonds payable
Other long-term payables (classified
under accrued expenses and other
current liabilities)
Guarantee deposits (including those
classified under accrued expenses
and other current liabilities)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
20,462,601
25,346,206
16,797,935
14,338,760
$
-
-
-
$
-
-
-
-
-
-
$ 39,488,957
20,462,601
25,346,206
-
65,859,591
-
68,378,787
-
25,981,316
16,797,935
174,558,454
18,000
-
-
-
18,000
6,167,813
122,620,272
13,330,624
79,190,215
8,223,750
76,602,537
-
25,981,316
27,722,187
304,394,340
15,380,767
(15,341,109 )
39,658
-
-
-
-
-
-
-
-
-
15,380,767
(15,341,109 )
39,658
$ 122,659,930
$ 79,190,215
$ 76,602,537
$ 25,981,316
$ 304,433,998
(Concluded)
f. Fair value of financial instruments
1) Fair value measurements recognized in the parent company only balance sheets
Fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value
is observable:
(cid:121) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;
(cid:121) 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
(cid:121) 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).
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- 159 -
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:
Level 1
Level 2
Level 3
Total
December 31, 2016
Financial assets at FVTPL
Held for trading
Forward exchange contracts
Cross currency swap contracts
Available-for-sale financial assets
$
$
-
-
-
$
140,094
10,976
$
151,070
$
$
Publicly traded stocks
$ 2,843,952
$
-
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
$
-
$
62,441
$
Level 1
Level 2
Level 3
December 31, 2015
Financial assets at FVTPL
Held for trading
Forward exchange contracts
$
-
$
6,026
$
Available-for-sale financial assets
Publicly traded stocks
$
706,924
$
-
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
$
-
$
45,254
$
-
-
-
-
-
-
-
-
$
140,094
10,976
$
151,070
$ 2,843,952
$
62,441
Total
$
6,026
$
706,924
$
45,254
There were no transfers between Level 1 and Level 2 for the years ended December 31, 2016 and
2015, respectively.
There were no purchases and disposals for assets on Level 3 for the years ended December 31, 2016
and 2015, respectively.
Valuation techniques and assumptions used in fair value measurement
The fair values of financial assets and financial liabilities are determined as follows:
(cid:121) The fair values of financial assets and financial liabilities with standard terms and conditions
and traded on active liquid markets are determined with reference to quoted market prices
(includes publicly traded stocks).
(cid:121) Forward exchange contracts and cross currency swap contracts are measured using quoted
forward exchange rates and yield curves derived from quoted interest rates matching maturities
of the contracts.
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- 160 -
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 that are not measured at fair value recognized in the parent company only
financial statements approximate their fair values.
December 31, 2016
December 31, 2015
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Financial assets
Held-to-maturity financial
assets
Commercial paper
Corporate bonds/Bank
debentures
Structured product
Financial liabilities
$ 8,628,176
$ 8,630,769
$
-
$
-
2,819,362
-
2,821,660
-
7,787,947
3,000,000
7,792,428
2,995,731
Measured at amortized cost
Bonds payable
154,200,000
155,930,125
166,200,000
167,709,976
Fair value hierarchy
The table below sets out the balances for the Company’s assets and liabilities that are not measured
at fair value but for which the fair value is disclosed:
Level 1
Level 2
Level 3
Total
December 31, 2016
Assets
Held-to-maturity securities
Commercial paper
Corporate bonds
Liabilities
Measured at amortized cost
Bonds payable
Assets
Held-to-maturity securities
$
-
2,821,660
$
8,630,769
-
$
$
2,821,660
$
8,630,769
$
-
-
-
$
8,630,769
2,821,660
$
11,452,429
$ 155,930,125
$
-
$
-
$ 155,930,125
Level 1
Level 2
Level 3
Total
December 31, 2015
Corporate bonds/Bank debentures
Structured product
$
7,792,428
-
$
-
2,995,731
$
$
7,792,428
$
2,995,731
$
-
-
-
$
7,792,428
2,995,731
$
10,788,159
Liabilities
Measured at amortized cost
Bonds payable
Fair value measurement
$ 167,709,976
$
-
$
-
$ 167,709,976
For investments in bonds, the fair value is determined using active market prices.
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- 161 -
For investments in commercial paper and structured product, the fair value is determined using the
present value of future cash flows based on the observable yield curves.
The fair value of the Company’s bonds payable is determined using active market prices.
31. RELATED PARTY TRANSACTIONS
The significant transactions between the Company and its related parties, other than those disclosed in other
notes, are summarized as follows:
a. Net revenue
Item
Related Party Categories
Net revenue from sale of goods Subsidiaries
Associates
Joint venture of the Company’s
subsidiaries
Years Ended December 31
2016
2015
$ 633,923,575
5,084,397
$ 564,722,352
3,356,734
-
1,206
$ 639,007,972
$ 568,080,292
Net revenue from royalties
Subsidiaries
Associates
$
355
516,749
$
457
489,420
b. Purchases
Related Party Categories
Subsidiaries
Associates
c. Receivables from related parties
$
517,104
$
489,877
Years Ended December 31
2016
2015
$ 27,788,470
10,107,719
$ 31,090,925
11,126,415
$ 37,896,189
$ 42,217,340
December 31,
2016
December 31,
2015
Item
Related Party Categories
Receivables from related
parties
Subsidiaries
Associates
$ 85,913,783
931,787
$ 56,798,070
484,612
$ 86,845,570
$ 57,282,682
Other receivables from related Subsidiaries
parties
Associates
$
802,179
146,621
$
330,456
124,871
$
948,800
$
455,327
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- 162 -
d. Payables to related parties
Item
Related Party Categories
Payables to related parties
Subsidiaries
Associates
$ 3,579,248
1,260,753
$ 2,609,731
1,149,900
December 31,
2016
December 31,
2015
$ 4,840,001
$ 3,759,631
e. Acquisition of property, plant and equipment and intangible assets
Acquisition Price
Years Ended December 31
2016
2015
$
$
-
-
-
$ 41,146
26,207
$ 67,353
Proceeds
Years Ended December 31
2016
2015
$ 10,622
$ 183,838
Gains
Years Ended December 31
2016
2015
$ 49,108
$ 41,583
Deferred Gains from Disposal of
Property, Plant and Equipment
December 31,
2015
December 31,
2016
$ 144,689
$ 183,175
Related Party Categories
Subsidiaries
Associates
f. Disposal of property, plant and equipment
Related Party Categories
Subsidiaries
Related Party Categories
Subsidiaries
Related Party Categories
Subsidiaries
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- 163 -
g. Others
Years Ended December 31
2016
2015
Item
Related Party Categories
Manufacturing expenses
Subsidiaries
Associates
Joint venture of the Company’s
$
15,954
1,376,763
-
$
806
2,321,774
12,819
subsidiaries
$ 1,392,717
$ 2,335,399
Research and development
expenses
Subsidiaries
Associates
Joint venture of the Company’s
$ 2,179,813
161,671
-
$ 2,070,611
142,833
1,398
subsidiaries
$ 2,341,484
$ 2,214,842
Marketing expenses -
Subsidiaries
$
873,117
$
782,254
commission
The sales prices and payment terms to related parties were not significantly different from those of sales
to third parties. For other related party transactions, price and terms were determined in accordance
with mutual agreements.
The Company leased machinery and equipment, factory and office from Xintec and VIS. The lease
terms and prices were both determined in accordance with mutual agreements. The rental expenses
were paid to Xintec and VIS quarterly or 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 using equity method, and then recognized such gain/loss over the depreciable lives of the
disposed assets.
h. Compensation of key management personnel
The compensation to directors and other key management personnel for the years ended December 31,
2016 and 2015 were as follows:
Short-term employee benefits
Post-employment benefits
Years Ended December 31
2016
2015
$ 1,926,654
3,617
$ 1,798,390
10,567
$ 1,930,271
$ 1,808,957
The compensation to directors and other key management personnel were determined by the
Compensation Committee of the Company in accordance with the individual performance and the
market trends.
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- 164 -
32. SIGNIFICANT OPERATING LEASE ARRANGEMENTS
The Company leases several parcels of land. These operating leases expire between January 2017 and
March 2035 and can be renewed upon expiration.
The Company expensed the lease payments as follows:
Minimum lease payments
Years Ended December 31
2016
2015
$ 815,178
$ 720,494
Future minimum lease payments under the above non-cancellable operating leases are as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
December 31,
2016
December 31,
2015
$
777,233
2,683,437
5,300,624
$
742,592
2,574,330
5,398,730
$ 8,761,294
$ 8,715,652
33. 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 the Company can use up to 35% of the Company’s capacity
provided the Company’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, 2016, 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. The Company’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, the Company
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, the Company and NXP
B.V. currently own approximately 39% and 61% of the SSMC shares, respectively. The Company
and NXP B.V. are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the
Company 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, 2016.
c. In June 2010, Keranos, LLC. filed a complaint in the U.S. District Court for the Eastern District of
Texas alleging that the Company, TSMC North America, and several other leading technology
companies infringe three expired U.S. patents. In response, the Company, TSMC North America, and
several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the
Northern District of California in November 2010, seeking a judgment declaring that they did not
infringe the asserted patents, and that those patents were invalid. These two litigations have been
consolidated into a single lawsuit in the U.S. District Court for the Eastern District of Texas. In
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- 165 -
February 2014, the Court entered a final judgment in favor of the Company and TSMC North America,
dismissing all of Keranos’ claims against the Company and TSMC North America with prejudice.
Keranos appealed the final judgment to the U.S. Court of Appeals for the Federal Circuit, and in August
2015, the Federal Circuit remanded the case back to the Texas court for further proceedings. In
January 2017, the Texas court dismissed all of Keranos’s claims against the Company and TSMC North
America with prejudice, and dismissed the Company’s and TSMC North America’s counterclaims
without prejudice. The case is over as to the Company and TSMC North America.
d. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District
of California accusing the Company, TSMC North America and one other company of infringing
several U.S. patents. In September 2014, the Court granted summary judgment of noninfringement in
favor of the Company and TSMC North America. Ziptronix, Inc. can appeal the Court’s order. In
August 2015, Tessera Technologies, Inc. announced it had acquired Ziptronix. In February 2017, the
Court dismissed all of Ziptronix’s claims against the Company and TSMC North America with
prejudice.
e. The Company 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 the Company shall
provide EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017.
As of December 31, 2016, the Company has paid EUR228,603 thousand to ASML under the research
and development funding agreement.
f.
In March 2014, DSS Technology Management, Inc. (DSS) filed a complaint in the U.S. District Court
for the Eastern District of Texas alleging that the Company, TSMC North America, TSMC
Development and several other companies infringe one U.S. patent. TSMC Development has
subsequently been dismissed. In May 2015, the Court entered a final judgment of noninfringement in
favor of the Company and TSMC North America. DSS appealed the final judgment to the U.S. Court
of Appeals for the Federal Circuit (Federal Circuit). In November 2015, the Patent Trial and Appeal
Board (PTAB) determined after concluding an Inter Partes Review (IPR) that the patent claims asserted
by DSS in the District Court litigation are unpatentable. DSS appealed the PTAB’s decision to the
Federal Circuit in January 2016. In March 2016, the District Court’s judgment of noninfringement
was affirmed by the Federal Circuit. In April 2016, the District Court litigation between the parties
and the related Federal Circuit appeal were dismissed, and the appeal proceeding of the PTAB’s
decision is also over as to the Company.
g. As of December 31, 2016, the Company provided financial guarantees of NT$37,028,850 thousand to
its subsidiary, TSMC Global, in respect of the issuance of unsecured corporate bonds.
h. As of December 31, 2016, the Company provided endorsement guarantees of NT$2,679,385 thousand
to its subsidiary, TSMC North America, in respect of providing endorsement guarantees for office
leasing contract.
34. SIGNIFICANT LOSS FROM DISASTER
On February 6, 2016, an earthquake struck Taiwan. The resulting damage was mostly to inventories and
equipment. The Company recognized related 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.
- 166 -
- 166 -
35. 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:
Foreign
Currencies
(In Thousands)
Exchange Rate
(Note)
Carrying
Amount
(In Thousands)
December 31, 2016
Financial assets
Monetary items
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
December 31, 2015
Financial assets
Monetary items
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
$
4,583,146
19,545
36,963,829
32.199
34.30
0.2775
$ 147,572,712
670,405
10,257,463
257,056
4.15
1,066,780
3,981,333
183,821
60,843,106
32.199
34.30
0.2775
128,194,952
6,305,052
16,883,962
3,075,149
43,050
9,626,627
32.895
36.00
0.2733
101,157,030
1,549,813
2,630,957
166,727
4.24
706,924
2,925,009
43,293
25,993,829
32.895
36.00
0.2733
96,218,162
1,558,534
7,104,113
Note: Exchange rate represents the number of N.T. dollars for which one foreign currency could be
exchanged.
The realized and unrealized foreign exchange gain and loss were net gains of NT$609,345 thousand and
NT$2,698,396 thousand for the years ended December 31, 2016 and 2015, respectively. Since there were
varieties of foreign currency transactions of the Company, the Company was unable to disclose foreign
exchange gain (loss) towards each foreign currency with significant impact.
- 167 -
- 167 -
36. ADDITIONAL DISCLOSURES
Following are the additional disclosures required by the Securities and Futures Bureau for the Company:
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, associates and joint venture):
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;
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 Note 7;
j. Names, locations, and related information of investees over which the Company exercises significant
influence (excluding information on investment in mainland China): Please see Table 8 attached;
k. 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 9 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 Note 31.
37. OPERATING SEGMENTS INFORMATION
The Company has provided the operating segments disclosure in the consolidated financial statements.
- 168 -
- 168 -
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THE CONTENTS OF STATEMENTS OF MAJOR
ACCOUNTING ITEMS
ITEM
STATEMENT INDEX
MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND
EQUITY
STATEMENT OF CASH AND CASH EQUIVALENTS
STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE,
NET
STATEMENT OF RECEIVABLES FROM RELATED
PARTIES
STATEMENT OF INVENTORIES
STATEMENT OF OTHER CURRENT ASSETS
STATEMENT OF CHANGES IN INVESTMENTS
ACCOUNTED FOR USING EQUITY METHOD
STATEMENT OF CHANGES IN PROPERTY, PLANT AND
EQUIPMENT
STATEMENT OF CHANGES IN ACCUMULATED
DEPRECIATION AND ACCUMULATED IMPAIRMENT
OF PROPERTY, PLANT AND EQUIPMENT
STATEMENT OF CHANGES IN INTANGIBLE ASSETS
STATEMENT OF GUARANTEE DEPOSITS
STATEMENT OF DEFERRED INCOME TAX
ASSETS/LIABILITIES
STATEMENT OF SHORT-TERM LOANS
STATEMENT OF PAYABLES TO RELATED PARTIES
STATEMENT OF PAYABLES TO CONTRACTORS AND
EQUIPMENT SUPPLIERS
STATEMENT OF PROVISIONS
STATEMENT OF ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES
STATEMENT OF BONDS PAYABLE
MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS
STATEMENT OF NET REVENUE
STATEMENT OF COST OF REVENUE
STATEMENT OF OPERATING EXPENSES
STATEMENT OF FINANCE COSTS
STATEMENT OF LABOR, DEPRECIATION AND
AMORTIZATION BY FUNCTION
1
2
3
4
Note 14
5
Note 12
Note 12
Note 13
Note 19
Note 26
6
7
8
Note 16
9
10
11
12
13
Note 24
14
- 189 -
- 189 -
STATEMENT 1
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF CASH AND CASH EQUIVALENTS
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)
Item
Description
Amount
Cash
Petty cash
Cash in banks
Checking accounts and demand deposits
Foreign currency deposits
Time deposits
Cash equivalents
$
330
58,649,136
26,058,971
160,811,637
Including US$484,702 thousand @32.199,
JPY36,954,884 thousand @0.2775 and
EUR5,746 thousand @34.30
From 2016.01.22 to 2017.12.30, interest
rates at 0.19%-1.16%, including
NT$159,061,551 thousand and
US$53,700 thousand @32.199
Repurchase agreements collateralized by
Expired by 2017.01.13 , interest rates at
2,361,250
corporate bonds
Commercial paper
Total
0.5%-1.5%
Expired by 2017.03.15 , interest rates at
1,997,239
0.61%-0.62%
$ 249,878,563
- 190 -
- 190 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Client Name
Spreadtrum Communications, Inc.
MediaTek Inc.
Huawei Technologies Co., Ltd.
Sony Electronics Inc.
NXP Semiconductors N.V.
Analog Devices, Inc.
Others (Note 1)
Less: Allowance for doubtful accounts
Total
STATEMENT 2
Amount
$ 9,368,967
5,097,068
3,556,318
3,275,717
2,189,935
2,097,785
14,906,937
40,492,727
(475,430)
$ 40,017,297
Note 1: The amount of individual client included in others does not exceed 5% of the account balance.
Note 2: The accounts receivable past due over one year amounted to NT$35 thousand for which the Company
has recognized appropriate allowance for doubtful accounts.
- 191 -
- 191 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF RECEIVABLES FROM RELATED PARTIES
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Client Name
TSMC North America
Others (Note)
Total
STATEMENT 3
Amount
$ 85,874,678
970,892
$ 86,845,570
Note: The amount of individual client included in others does not exceed 5% of the account balance.
- 192 -
- 192 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF INVENTORIES
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
STATEMENT 4
Item
Finished goods
Work in process
Raw materials
Supplies and spare parts
Total
Amount
Cost
Net Realizable
Value
$
8,324,267
$ 22,312,989
32,317,210
131,492,618
3,864,429
3,735,628
1,998,440
2,009,039
$ 46,504,346
$ 159,550,274
- 193 -
- 193 -
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Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF PAYABLES TO RELATED PARTIES
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Vendor Name
TSMC China
WaferTech, LLC
VIS
SSMC
Others (Note)
Total
STATEMENT 7
Amount
$ 1,775,774
1,303,795
587,407
505,655
667,370
$ 4,840,001
Note: The amount of individual vendor in others does not exceed 5% of the account balance.
- 196 -
- 196 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
STATEMENT 8
Vendor Name
Applied Materials South East Asia Pte Ltd.
Lam Research International Sarl
ASML Hong Kong Ltd.
TOKYO Electron Ltd.
Others (Note)
Total
Amount
$ 14,916,260
5,256,320
4,859,978
4,707,932
32,708,653
$ 62,449,143
Note: The amount of individual vendor included in others does not exceed 5% of the account balance.
- 197 -
- 197 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Item
Guarantee deposit
Receipts in advance
Utilities
Insurance expense
Research and development expense
Others (Note)
Total
Note: The amount of each item in others does not exceed 5% of the account balance.
STATEMENT 9
Amount
$ 6,439,800
2,695,412
2,043,240
1,766,864
1,458,825
14,216,328
$ 28,620,469
- 198 -
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1
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-
-
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF NET REVENUE
FOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)
Shipments
(Piece) (Note)
9,604,226
Item
Wafer
Other
Net revenue
Note: 12-inch equivalent wafers.
STATEMENT 11
Amount
$ 897,955,740
38,431,551
$ 936,387,291
- 200 -
- 200 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF COST OF REVENUE
FOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Item
Raw materials used
Balance, beginning of year
Raw material purchased
Raw materials, end of year
Transferred to manufacturing or operating expenses
Others
Subtotal
Direct labor
Manufacturing expenses
Manufacturing cost
Work in process, beginning of year
Work in process, end of year
Transferred to manufacturing or operating expenses
Cost of finished goods
Finished goods, beginning of year
Finished goods purchased
Finished goods, end of year
Transferred to manufacturing or operating expenses
Scrapped
Subtotal
Others
Total
STATEMENT 12
Amount
$
2,813,029
32,811,307
(3,864,429)
(6,984,906)
(22,648)
24,752,353
13,355,882
392,240,592
430,348,827
52,251,863
(32,317,210)
(7,557,644)
442,725,836
7,733,331
37,927,662
(8,324,267)
(8,020,109)
(153,660)
471,888,793
2,664,120
$ 474,552,913
- 201 -
- 201 -
STATEMENT 13
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2016
(In Thousands of New Taiwan Dollars)
Item
Research and
Development
Expenses
General and
Administrative
Expenses
Selling
Expenses
Payroll and related expense
$ 25,585,675
$ 7,075,633
$ 2,038,528
Depreciation expense
15,515,812
830,609
10,703
Consumables
15,161,280
261,522
Repair and maintenance expense
2,475,463
1,149,395
Moving expense
Patents
Management fees of the Science Park Administration
Commission
Others (Note)
Total
277,529
1,462,185
1,775,446
1,685,164
-
-
-
-
873,088
11,350,420
4,457,509
168,855
$ 70,366,179
$ 18,697,463
$ 3,098,086
4,779
362
1,771
-
-
Note: The amount of each item in others does not exceed 5% of the account balance.
- 202 -
- 202 -
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