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TSMC Vision, Mission & Core Values
TSMC’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
TSMC’s Mission
Our mission is to be the trusted technology and capacity provider of the global logic IC industry for years to
come.
TSMC’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 candidates’ 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 TSMC’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 TSMC’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.
Table of Contents
1. Letter to Shareholders
4
5. Operational Highlights
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
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
10
10
10
16
18
24
34
34
34
3.3 Major Decisions of Shareholders’ Meeting and
Board Meetings
41
7. Corporate Social Responsibility
3.4 Taiwan Corporate Governance Implementation as
7.1 Overview
74
74
75
80
83
85
89
92
92
98
103
118
118
Required by the Taiwan Financial Supervisory
7.2 Environmental, Safety and Health (ESH) Management 122
7.3 TSMC Education and Culture Foundation
7.4 TSMC Charity Foundation
7.5 TSMC i-Charity
7.6 Social Responsibility Implementation Status as
Required by the Taiwan Financial Supervisory
Commission
131
133
134
134
8. Subsidiary Information and Other Special Notes 138
8.1 Subsidiaries
8.2 Status of TSMC Common Shares and ADRs Acquired,
Disposed of, and Held by Subsidiaries
8.3 Special Notes
138
143
143
Commission
3.5 Code of Ethics and Business Conduct
3.6 Regulatory Compliance
3.7
Internal Control System Execution Status
3.8 Status of Personnel Responsible for the Company’s
Financial and Business Operation
3.9
Information Regarding TSMC’s Independent Auditor
3.10 Material Information Management Procedure
4. Capital and Shares
4.1 Capital and Shares
4.2
Issuance of Corporate Bonds
4.3 Preferred Shares
4.4
Issuance of American Depositary Shares
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
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50
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53
53
55
58
58
66
68
68
70
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1.
Letter to Shareholders
Dear Shareholders,
2017 Financial Performance
2017 was a solid year for TSMC as we delivered another year of record revenue, net income and earnings per share. TSMC’s
technology leadership and manufacturing excellence, as well as our ongoing commitment to R&D and capacity investment,
enabled us to capture opportunities in mobile devices, high-performance computing, the Internet of Things, and automotive
semiconductors. Our continuing technological progress across the broad spectrum of advanced semiconductor process
technologies lays a good foundation and builds a strong momentum for TSMC in the coming years.
“Being everyone’s foundry” is at the heart of TSMC strategy. Through the expansion of our technology and services, we
build an open platform that welcomes all innovators in the semiconductor industry to realize their innovations and see
their products brought to market in volume quickly. TSMC’s ability to address the increasing needs for specific technology
requirements, through the most comprehensive range of technology offerings and our vast and flexible manufacturing
capacity, enable us to cast a wide net to capture the varying waves of product innovations in the semiconductor industry.
In 2017, we saw computation expanding in the cloud and on the edge; major mobile products with enriched features
adopted advanced processes; the need for safer, smarter and greener vehicles drove strong automotive semiconductor
demand; and the readiness of ubiquitous connectivity provided exciting growth in the Internet of Things (IoT). AI (artificial
intelligence) is expected to be embedded in all the above applications. As “everyone’s foundry”, we were able to participate
in these growing segments of the industry and continued to expand our foundry market segment share.
We continued to make significant advances in leading-edge process technologies in 2017. 10-namometer set a new record
in terms of ramp-up speed, and represented 10% of our total wafer revenue in its first year. Our industry-first 7-nanometer
was transferred from R&D to manufacturing in 2017, and will begin volume production in the second quarter of 2018.
Our 7-nanometer+ will follow and enter risk production later in 2018. We broke ground for Fab 18 in January 2018 for
5-nanometer, which will see extensive use of EUV (extreme ultraviolet) lithography with volume production targeted to start
in 2020. Our proprietary CoWoS® (Chip on Wafer on Substrate) and InFO (integrated fan-out) advanced packaging solutions
also continue to see enthusiastic adoption by customers in HPC (high performance computing), mobile and other high speed
applications.
Highlights of TSMC’s accomplishments in 2017:
● Total wafer shipments increased 8.8 percent from 2016 to reach 10.5 million 12-inch equivalent wafers.
● Advanced technologies (28-nanometer and beyond) accounted for 58 percent of total wafer revenue, up from 54 percent
in 2016.
● We deployed 258 distinct process technologies, and manufactured 9,920 products for 465 customers.
● TSMC’s market share in the total semiconductor foundry segment rose successively during the last eight years and reached
56 percent in 2017.
In 2017, our consolidated revenue totaled NT$977.45 billion, an increase of 3.1 percent over NT$947.94 billion in 2016,
despite a significant appreciation in the NT dollar in this period. Net income was NT$343.11 billion and diluted earnings per
share were NT$13.23. Both increased 3 percent from the 2016 level of NT$334.25 billion net income and NT$12.89 diluted
EPS.
Gross profit margin was 50.6 percent compared with 50.1 percent in 2016, while operating profit margin was 39.4 percent
compared with 39.9 percent a year earlier as R&D spending ratio increased. Net profit margin was 35.1 percent, a decrease
of 0.2 percentage points from the prior year’s 35.3 percent.
TSMC further raised its cash dividend payment to NT$7.0 per share for 2016 profit distribution from NT$6.0 a year ago.
Technological Developments
In 2017, we have increased our R&D expense by 13.5% over 2016, with a large number of new technology introduction, to
meet our customer needs and to extend our technology leadership.
TSMC’s 28/22-nanometer technology saw a record number of product tape-outs in 2017, thanks to its differentiated and
diverse offerings. To further enhance the technology performance, we have also developed 22ULP (ultra-low power) and
22ULL (ultra-low leakage) technologies to address IoT and RF-related applications. We are confident that our continued
performance enhancement, strong manufacturing capability, and flexible capacity can further strengthen our position in
28/22-nanometer node for years to come.
TSMC’s 16-nanometer FinFET technology remains robust as it enters its fourth year of volume production in 2018. Strong
tape-out activities covered a variety of mainstream smartphones, cryptocurrency, AI, GPU and RF products. We continued to
expand the technology portfolio by developing 12FFC (FinFET Compact) in 2017, which drives die size and power efficiency
to serve demand in mobile, consumer electronics, digital TV and IoT applications.
10-nanometer FinFET technology started high-volume shipments in early 2017 and successfully supported a major
customer’s new mobile product launches. Thanks to its aggressive geometric shrinkage, this technology provides excellent
density/cost benefits to support customer needs in performance-driven market segments, including application processors,
cellular baseband and ASIC CPUs. As a result, we expect a continued growth of our 10-nanometer business in 2018.
004
005
We successfully introduced TSMCÕ s 7-nanometer technology in 2017. Customer adoption of 7-nanometer is very strong and
we received more than ten product tape-outs in 2017. A total of more than 50 customer product tape-outs are expected by
the end of 2018. TSMCÕ s 7-nanometer+ technology will be introduced in 2018. We have already demonstrated the same
yield level of 256M bit SRAM as compared to 7-nanometer.
Furthermore, TSMCÕ s 5-nanometer technology development is well on track for risk production in the first quarter of 2019.
Both device performance and SRAM development vehicle yield improvement are on our plan. Customer test chips are already
running in our fab.
In advanced packaging, TSMCÕ s second generation InFO technology began volume production for advanced mobile products
in 2017, while InFO_oS (Integrated Fan-Out on Substrate) technology is expected to complete qualification in 2018 for HPC
(high performance computing) products. We also extended our interposer CoWoS¨
actively developing 7-nanometer solutions to further support the requirements of HPC applications, such as AI, data server,
and networking.
technology to 12-nanometer and are
TSMCÕ s ecosystem, the Open Innovation Platform¨
innovations with fast time-to-market. We continued to work with our ecosystem partners to expand our libraries and silicon
IP portfolio in 2017 to more than 16,000 items. More than 9,000 technology files and over 300 process design kits were
available to customers via TSMC-Online which saw more than 100,000 customer downloads in 2017.
(OIP), is an important factor in empowering customers to unleash their
Corporate Developments
In October 2017, I, as TSMC Chairman for the last thirty years, announced my plan to retire from the Company immediately
after the Annual ShareholdersÕ Meeting in early June, 2018. All present directors of the board, except myself, have
unanimously agreed to be nominated, and if elected, will serve as directors of the board during the next term. They all have
agreed to have TSMC under the dual leadership of Dr. Mark Liu and Dr. C.C. Wei, who are TSMCÕ s presidents and Co-CEOs
currently. Dr. Liu will be the Chairman of the Board, and Dr. Wei will be the Chief Executive Officer.
Honors and Awards
TSMC received recognition for achievements in innovation, business information disclosure, corporate governance,
sustainability, investor relations and overall excellence in management from organizations including Forbes, Fortune
Magazine, Newsweek, CommonWealth Magazine, The Nikkei, PricewaterhouseCoopers, RobecoSAM and the Taiwan Stock
Exchange. TSMC continued to receive multiple awards from Institutional Investor Magazine and was ranked among the top
global companies by IR Magazine. TSMC was chosen once again as a component of the Dow Jones Sustainability Indices,
becoming the only semiconductor company to be selected for 17 consecutive years. Meanwhile, we remained a major
component in both MSCI ESG and FTSE4Good Emerging Index, reflecting our ongoing commitment to sustainability and
corporate social responsibility.
Capacity Plan
Wafer Sales Plan
10%
2016
10%
2017
9%
2018
Annual Growth Rate
Capacity: million 12-inch equivalent wafers
Outlook
10-11
11-12
12-13
2016
2017
2018
46%
42%
30-40%
54%
58%
60-70%
> 28nm wafer revenue
≤ 28nm wafer revenue
2018 wafer shipment is expected to be 11-12 million
12-inch equivalent wafers.
TSMCÕ s enduring business model, our ecosystem of partnerships across the industry, and our core values of integrity,
commitment, innovation, and customer trust have well positioned us to serve as Ò everyoneÕ s foundryÓ and enabled win-win
partnership between TSMC and IC innovators. TSMC will continue to advance our semiconductor process technologies
and strengthen our manufacturing capabilities to meet the ever-increasing requirements of our customers and stay at the
forefront to unleash innovation.
As technology and end applications undergo
unprecedented change for the new digital age,
our dedicated foundry business model will remain
the foundation of our success. Our business model
will continue to lead our way in creating value and
generating strong returns to our shareholders. I would
like to personally thank our shareholders for your
long-term support to TSMC. While we have come a long
way over the past thirty years, there is still much more
ahead of us to achieve, and I am ever more confident
that the best is yet to come.
Morris Chang
Chairman
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2.
Company Profile
2.1 An Introduction to TSMC
2.2 Market/Business Summary
Established in 1987 and headquartered in Hsinchu Science
Park, Taiwan, TSMC pioneered the pure-play foundry business
model by focusing solely on manufacturing customers’
products. By choosing not to design, manufacture or market
any semiconductor products under its own name, the
Company ensures that it never competes directly with its
customers. Today, TSMC is the world’s largest semiconductor
foundry, manufacturing 9,920 different products using 258
distinct technologies for 465 different customers in 2017.
With a large and diverse global customer base,
TSMC-manufactured semiconductors are used in a wide
variety of applications covering many segments of the
computer, communications, consumer, industrial and standard
semiconductor markets. Strong diversification helps to smooth
fluctuations in demand, which, in turn, helps TSMC maintain
higher levels of capacity utilization and profitability.
Annual capacity of the manufacturing facilities managed
by TSMC and its subsidiaries exceeded 11 million 12-inch
equivalent wafers in 2017. These facilities include three 12-inch
wafer GIGAFAB® fabs, four 8-inch wafer fabs, and one 6-inch
wafer fab in Taiwan, as well as one 12-inch wafer fab at a
wholly owned subsidiary: TSMC Nanjing Company Limited, and
two 8-inch wafer fabs at wholly owned subsidiaries: WaferTech
in the United States and TSMC China Company Limited. In
2016, TSMC Nanjing Company Limited was established,
managing a 12-inch wafer fab and a design service center.
TSMC provides customer service through its account
management and engineering services offices in North
America, Europe, Japan, China, and South Korea. At the end of
2017, the Company employed more than 48,000 people.
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.
2.2.1 TSMC Achievements
In 2017, 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 2017, 58% of
TSMC’s wafer revenue came from advanced manufacturing
processes (geometries of 28nm and below), up from 54% in
2016.
With TSMC’s focus on customer trust, the Company
strengthened its Open Innovation Platform® (OIP) initiative
in 2017 with additional services. TSMC held its 2017 Open
Innovation Platform® Ecosystem Forum in September in
Santa Clara, California, and in November in Shenzhen. The
annual event demonstrates how TSMC and our ecosystem
partners jointly develop design solutions on top of TSMC’s
advanced technologies through OIP collaboration. TSMC
executive delivered keynote on TSMC’s design enablement
platforms, together with each platform’s respective solutions
jointly developed and delivered with OIP partners. Feature
talks by three executives of TSMC’s EDA/IP partners followed,
highlighting their long-term collaboration with TSMC that
helps customers innovate and capture market opportunities.
TSMC offers the foundry segment’s broadest technology
portfolio and continues to invest in advanced technologies
and specialty technologies, which provide customers more
added value and are key differentiators for TSMC vis-à-vis our
competitors.
In 2017, the Company either developed or introduced the
following:
Logic Technology
● 5nm FinFET (Fin field-effect transistor) technology
development is progressing smoothly. Risk production of this
technology is planned for the first quarter of 2019. Compared
to 7nm FinFET technology, 5nm FinFET offers over 15%
speed improvement or 30% power reduction. In addition,
5nm FinFET technology is optimized upfront for both mobile
applications and high-performance computing devices.
● 7nm FinFET technology development was completed and
entered risk production in April 2017 as planned. Customer
adoption was strong and we received more than ten product
tape-outs in 2017. A very fast yield ramp-up is expected
as more than 95% of tools for 7nm FinFET technology
are compatible with those for 10nm FinFET technology.
Compared to 10nm FinFET technology, 7nm FinFET offers
approximately a 25% speed improvement or a 35% power
reduction. In addition, 7nm FinFET technology can be
optimized for mobile applications and high-performance
computing devices.
● 10nm FinFET technology started high-volume shipments in
the first quarter of 2017. Thanks to its aggressive geometric
shrinkage, this technology provides excellent density/cost
benefits to support customer needs in performance-driven
market segments, including mobile, server and graphics.
● 12nm FinFET Compact technology (12FFC) completed all
process qualifications in the second quarter of 2017 and
entered volume production in the second half of the year.
12FFC technology is TSMC’s latest 16nm family offering
following 16nm FinFET Plus technology (16FF+) and
16nm FinFET Compact technology (16FFC). 12FFC drives
die size and power consumption to the best levels of the
foundry’s 16/14nm technology. 16FF+, which first entered
volume production in 2015, is aimed at customers in
high-performance market segments, including mobile, server,
graphics, and cryptocurrency. The cost-effective 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. Both 16FFC
and 12FFC can satisfy customer needs 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 standard
cell structures, 12FFC can also be used in more advanced
applications. So far, 16FF+/16FFC/12FFC have received a total
of more than 200 product tape-outs, most of which have
been first-time silicon successes.
● 22nm ultra-low power (22ULP) technology was developed
based on TSMC’s industry-leading 28nm technology and
is expected to start production in the second half of 2018.
Compared to 28nm High Performance Compact (28HPC)
technology, 22ULP provides 10% area shrink with more than
30% speed gain or more than 30% power reduction for
applications including image processing, digital TV, set-top
box, smartphone, IoT and consumer products.
● 22nm ultra-low leakage (22ULL) technology development
achieved good progress. New ULL device and ULL SRAM
can provide lower power consumption compared to 40ULP
and 55ULP solutions. 22ULL technology targets the IoT and
wearable devices applications and is expected to start risk
production in the second half of 2018.
● 28nm high performance compact plus (28HPC+) technology
accumulated more than 150 product tape-outs as of
2017. 28HPC+ technology provides further performance
enhancement or power reduction in mainstream smartphone,
digital TV, storage, audio and SoC (System-on-Chip)
applications. Compared to 28HPC technology, 28HPC+
technology improves device performance by 15% or
reduces leakage by 50%. 28HPC+ technology enables low
Vdd (voltage drain) designs in ULP applications for the IoT
market and is seamlessly applicable to the 28nm ecosystem,
accelerating time-to-market for customers.
● 40nm ULP technologies received over 20 product tape-outs
in 2017. These technologies target the IoT and wearable
devices applications, such as wireless connectivity, application
processors and sensor hub applications. In addition,
TSMC uses its leading 40nm ULP Near-Vt (Near Threshold
Voltage) technology to produce the world’s lowest energy
consumption solutions for IoT devices and for wearable
connected devices. Still under development are new
enhanced analog devices that will enrich the 40ULP platform
to support customers for more analog design needs in the
future.
● 55nm ultra-low power (55ULP) technology volume
production continued and accumulated more than 40
customer tape-outs as of 2017. 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.
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Specialty Technology
● 16FF+ technology began production for customer
applications in the automotive industry in 2017. 16FFC
Foundation IPs (intellectual properties) 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 was extended to next generation
Wireless Local Area Network (WLAN 802.11ax) and Millimeter
Wave (mmWAVE) applications, in addition to wireless
connectivity applications such as smartphone, the 5th
generation mobile network (5G).
● 22nm RF (22ULP RF) technology supports high Ft devices
and more flexible process design kits (PDK), while providing
reliable simulation models for chip development and
production for 5G mobile and wireless communication
systems, mmWave, RF TRx and IoT applications.
● 28nm RF (28HPC RF and 28HPC+ RF) technologies offer
>300 Gigahertz (GHz) high-frequency devices and support
wireless components in smartphone, automotive and IoT
applications.
● 40nm ULP embedded flash, which began volume
production in 2016 for applications such as wireless MCU
(Microcontroller Unit) IoT devices, wearable devices, and
high-performance MCU, is expected to complete Automotive
Electronic Council AEC-Q100 qualification in 2018.
● 40nm ULP embedded Resistive Random Access Memory
(RRAM) completed technology development and was ready
for risk production by the end of 2017. Applications include
wireless MCU, IoT and wearable devices.
● 0.13µm SPAD (Single-Photon Avalanche Diode) technology
platform speeds up customer product development of
LiDAR (Light Detection and Ranging) applications. 3D
(Three Dimensional) imaging and sensing are becoming
more important for machine vision, and LiDAR is a critical
technology to serve these applications. Customers can use
TSMC’s industry-leading SPAD platform to design SPAD
sensors and achieve the best time-to-market, which will
greatly accelerate LiDAR’s use in automotive and security
industries.
● 12-inch 0.13µm BCD (Bipolar-CMOS-DMOS) Plus technology,
which provides superior cost competitiveness compared to
the prior 0.13µm BCD technology, passed process validation
by customers and started production in the second half of
2017.
● 0.18µm BCD third generation, which provides superior cost
competitiveness compared to the second generation, also
passed process validation by customers and started volume
production in the second half of 2017.
● In addition to TSMC’s popular capacitive fingerprint sensor
technology, the Company expanded its technology offering
for optical fingerprint sensing, from 0.18µm and 0.11µm
CMOS image sensors (CIS) to collimator, enabling customers
to customize their optical fingerprint sensors. Fingerprint
sensing is a critical authentication scheme for many electronic
communications and payment systems.
● A Piezo technology pilot line was set up in 2017 to help
customers design and develop new products for micro
speakers, microphones, ultrasonic sensors, and various types
of actuators serving medical and health applications. Piezo
technology is a new area in MEMS (Micro-electromechanical
Systems) with high potential. New types of piezoelectric thin
film materials have been pre-characterized, so that customers
can focus on product design and architecture to achieve best
time-to-market.
Advanced Packaging Technology
● For advanced mobile device applications, TSMC began
volume production of the second generation of InFO-PoP
(Integrated Fan-Out, Package on Package) technology that
integrates 10nm SoC and DRAM for advanced mobile
products in the second quarter of 2017.
● For high performance computing applications, TSMC began
production of CoWoS® (Chip on Wafer on Substrate)
technology, featuring heterogeneously integrating 12nm
SoC plus four stacks of 8-hi (8 high) second generation
high bandwidth memory (HBM2) on an about 1500mm2
interposer, in the first half of 2017. Also, TSMC successfully
developed a CoWoS® module that integrates a 16nm SoC
and more than four 8-hi HBM2 stacks in 2017.
● In addition to CoWoS®, InFO_oS (Integrated Fan-Out on
Substrate) technology integrating multiple SoC chips is
expected to complete qualification in 2018.
● Continued volume production of fine pitch Cu bump for flip
chip packaging on ≥10nm silicon in 2017. In addition, Cu
bump on 7nm silicon was qualified for production in 2018.
TSMC also continued volume production on ≥28nm silicon
in WLCSP (Wafer Level Chip Scale Packaging) technologies for
high-end smartphone applications in 2017 and completed
16nm WLCSP qualification for 2018 production.
2.2.2 Market Overview
TSMC estimates that the worldwide semiconductor market in
2017 was US$434 billion in revenue, representing a strong
22% year-over-year growth, after a flat year in 2016. In the
foundry segment of the semiconductor industry, total revenue
was US$53 billion in 2017, up 7% year-over-year, close to the
8% growth in 2016.
2.2.3 Industry Outlook, Opportunities and Threats
Industry Demand and Supply Outlook
Back-to-back years of growth in the foundry segment were
driven mainly by healthy market demand. TSMC forecasts
that the total semiconductor market excluding memory will
grow 5% in 2018. Over the longer term, fueled by increasing
semiconductor content in electronic devices, continuing
market share gains by fabless companies, gradual increases
in IDM outsourcing, and expanding in-house application-
specific integrated circuits (ASIC) from systems companies,
the Company expects foundry segment revenue growth to be
much stronger than the 4% compound annual growth rate
projected for the overall semiconductor industry excluding
memory from 2017 through 2022.
As an upstream supplier in the semiconductor supply chain, the
foundry segment is tightly correlated with the market health
of the three “C” sectors, communications, computers and
consumer goods, as well as with the emerging IoT markets.
● Communications
For the communications sector, smartphone’s unit shipment
grew 3% in 2017. Although the growth has slowed down in
recent years, TSMC projects a steady low-single digit increase
in the smartphone market in 2018 thanks to the continuing
transition to 4G/LTE, LTE-Advanced and LTE-Advanced Pro.
Improved performance, longer battery life, biosensors and
more AI features will continue to propel smartphone sales; and
the increasing popularity of low-end smartphones in emerging
countries will also drive growth in this sector.
Low-power IC is an essential requirement among handset
manufacturers. And SoC design, in which TSMC is already
the leader, is the preferred solution due to its optimized
cost, power and form factor (device footprint and thickness)
potential. The migration to advanced process technologies
will continue to accelerate, spurred by the appetite for higher
performance to run AI applications, various complex software
routines and higher resolution video.
● Computer
After a 6% decline in 2016, the overall computer sector’s unit
shipment dropped another 3% year-over-year in 2017. The
decline was due to personal computer's prolonged replacement
cycle and consumer usage moving towards mobile computing,
partially offset by server unit's positive growth.
The computer sector is expected to continue its low-single digit
unit decline in 2018. However, several factors are expected to
help buoy computer sector demand, including increasing form
varieties, the business adoption of new operating systems, and
consumer replacements of aging PCs; as well as the growing
high performance applications, including machine learning,
blockchain, and cryptocurrency mining.
All these require lower power and higher performance CPU,
GPU, HDD Controller, and ASICs, which will drive computer
sector towards richer silicon content and more advanced
process technologies.
● Consumer
Compared to a 5% decline in 2016, consumer unit shipments
fell 4% in 2017. TV game consoles showed positive growth,
while the rest of the sector – TVs, set-top boxes, MP3 players,
digital cameras and hand-held game consoles – decreased
due to high LCD panel and memory cost, as well as functional
cannibalization by smartphones.
Continued drop in consumer electronics is expected in 2018,
while certain sub-segments such as TV game consoles and 4K
(UHD) TVs should achieve positive growth within the sector.
With its broad array of advanced technology offerings, TSMC
expects to take advantage of the trend in this market toward
more AI functions (e.g. voice recognition/control) to be
incorporated in TVs and set-top boxes.
● IoT
The Internet of Things (IoT) is fast becoming the “next big
thing,” as more and more devices are being connected to
the internet. By 2025 it is estimated that the IoT’s installed
unit base will be ten times greater than that of smartphones.
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
012
013
new ways. TSMC’s ultra-low-power logic and RF solutions and
diversified sensing technologies will lead the way for this future
growth.
and backend integration capabilities that create the optimum
power/performance/area “sweet spot” and result in faster
time-to-production.
Supply Chain
The electronics industry features a long and complex supply
chain, the elements of which are correlated and highly
interdependent. At the upstream manufacturing level, IC
vendors need to have sufficient and flexible supply deliveries
to handle fluctuating demand dynamics. Foundry vendors play
an important role to ensure the health and effectiveness of
the supply chain. As a leader in the foundry segment, TSMC
provides advanced technologies and large-scale capacity to
complement the innovations created along the downstream
chain.
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 2017. Net revenue by geography, based
mainly on the country in which customers are headquartered,
was: 64% from North America; 11% from the Asia Pacific
region, excluding China and Japan; 11% from China; 7%
from Europe, the Middle East and Africa; and 7% from Japan.
Net revenue by end-product application was: 10% from
the computer sector, 59% from communications, 8% from
consumer products, and 23% 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
TSMC, well known for its industry-leading manufacturing
management capabilities, extends that leadership through
its Open Innovation Platform® and Grand Alliance initiatives.
The TSMC Open Innovation Platform® initiative quickens the
pace of innovation in the semiconductor design community
and among its ecosystem partners, as well as the Company’s
own 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
increase competitiveness.
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, 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 (IoT), 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 offers leading process technologies
such as 7nm FinFET, 10nm FinFET, 16nm FinFET Plus
technology, and 20nm SoC logic process technologies, as
well as comprehensive IPs for premium product applications
to further enhance chip performance, reduce power
consumption, and decrease chip size. For low-end to high-end
product applications, TSMC offers leading process technologies
such as 12nm FinFET Compact technology, 16nm FinFET
compact technology, 28nm high performance compact, 28nm
high performance mobile compact plus, and 22nm ultra-low
power logic process technologies, in addition to comprehensive
IPs to satisfy customer needs for high-performance and
low-power chips. Furthermore, for premium, high-end,
mid-level, and low-end 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
as well as advanced packaging technologies such as the
leading integrated fan-out (InFO) technology.
High-performance computing platform: TSMC provides
customers with leading process technologies such as 7nm
FinFET and 16nm FinFET, as well as comprehensive IPs,
including high-speed interconnect IPs, to meet customers’
high-performance computing and communication
requirements. TSMC also offers multiple advanced packaging
technologies such as CoWoS® and 3D IC technologies to
enable homogeneous and heterogeneous chip integration
to meet customers’ performance, power, and system
footprint requirements. TSMC will continue to optimize its
high-performance computing platform offerings to help
customers capture market growth driven by data explosion and
application innovation.
Automotive electronics platform: TSMC offers 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
qualifications.
IoT platform: TSMC provides industry’s leading and
comprehensive ultra-low power technology platform to
support innovations for IoT and wearable applications. TSMC’s
leading offerings, including 55nm ULP, 40nm ULP, 28nm
ULP, 22nm ULP/Ultra-low leakage, have been widely adopted
by various IoT and wearable applications. TSMC extends its
offering with Near-Vt technology for extreme low power
applications. TSMC also offers 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 leading
InFO technology.
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 continually increased capacity
and R&D investments.
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.
014
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2018/4/25 上午11:48
2018/4/25 上午11:48
2.3 Organization
2.3.1 Organization Chart
Audit Committee
Compensation
Committee
Shareholders’ Meeting
Board of Directors,
Chairman,
Vice Chairman
As of 02/28/2018
Internal Audit
Co-CEO Office
Finance and
Spokesperson
Legal
Operations,
Research and Development,
Asia, Europe,
North America,
Business Development,
Corporate Planning Organization,
Quality and Reliability,
Information Technology,
Materials Management and Risk Management,
Customer Service,
Human Resources
2.3.2 Major Corporate Functions
Operations
● Operations including all fabs in Taiwan and overseas; product
development, manufacturing technology development, and
backend technology development, production and service
integrations
Information Technology
● Integration of the Company’s technology and business IT
systems; infrastructure development, communication services
and assurance of IT security and service quality, enable
organizations to apply Big Data and Machine Learning to
improve Company’s productivity and accelerate R&D delivery
Research and Development
● Advanced and specialty technology development, exploratory
research, as well as design and technology platform
development
Asia
● Sales, market development, field technical support and service
for customers in Asia including China, Japan, Korea and
Taiwan
Europe
● Technical marketing, field technical support and service for
customers in Europe
North America
● Sales, market development, field technical solutions and
business operations 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 the strengthening of customer relations, as well as
management of the Company’s brand
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
Human Resources
● Human resources management and organizational
development, as well as proprietary information protection
and physical security management
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
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
Legal
● Corporate legal affairs including regulatory compliances,
commercial transactions, patents and management of other
intellectual properties, litigation, etc.
Quality and Reliability
● Ensure of the quality and reliability of the Company’s
products via resolving reliability issues at new technology
development stage, improving and managing of product
quality at production stage, providing solutions to resolve
customers’ quality related issues and providing services for
advanced materials and failure analysis
016
017
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.
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%
Selected Education, Past Positions & Current Positions at Non-profit Organizations
Bachelor and Master Degrees in Mechanical Engineering, MIT
Ph.D. in Electrical Engineering, Stanford University
Former Group Vice-President, Texas Instruments Inc.
Former President & COO, General Instrument Corp.
Former Chairman, Industrial Technology Research Institute, R.O.C.
Former CEO, TSMC
Member of National Academy of Engineering, U.S.
Life Member Emeritus of MIT Corporation
Fellow of the Computer History Museum, U.S.
Laureate of the Industrial Technology Research Institute, R.O.C.
Honorary Chairman, Taiwan Semiconductor Industry Association (TSIA)
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
Honorary Ph.D., National Tsing Hua 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
As of 02/28/2018
Selected Current Positions at TSMC and
Other Companies
None
Chairman of:
- TSMC China Company Ltd. (a privately held company)
- Global UniChip Corp.
Vice Chairman, Vanguard International
Semiconductor Corp.
Independent Director, Chairman of Audit Committee &
Compensation Committee member, Acer Inc.
Director
National Development Fund, Executive Yuan
(Note 1)
Representative:
Mei-ling Chen
Female
R.O.C.
06/09/2015
06/08/2018
12/10/1986
1,653,709,980
6.38%
1,653,709,980
6.38%
11/07/2017
(Note 2)
-
-
-
-
-
-
-
LL.B., National Chengchi University
LL.M., National Taiwan University
LL.D., National Chengchi University
None
Former Director General, Department of Legal Affairs, Ministry of Justice, R.O.C.
Former Chairperson of Legal Affairs Committee & concurrently Chairperson of Petitions and Appeals
Committee, Executive Yuan, R.O.C.
Former Deputy Secretary-General, Executive Yuan, R.O.C.
Former Secretary-General, Tainan City Government, R.O.C.
Former Secretary-General, Executive Yuan, R.O.C.
Former Associate Professor, Department of Law, Chinese Culture University
Minister without Portfolio, Executive Yuan & concurrently Minister, National Development Council, R.O.C.
-
Bachelor Degree in Electrical Engineering, National Taiwan University
Master Degree and Ph.D. in Electrical Engineering & Computer Science, University of California, Berkeley
President and Co-CEO, TSMC
Former President, Worldwide Semiconductor Manufacturing Corp.
Former Senior Vice President, Advanced Technology Business, TSMC
Former Senior Vice President, Operations, TSMC
Former Executive Vice President and Co-Chief Operating Officer, TSMC
Director
Mark Liu (Note 3)
Director
C.C. Wei (Note 3)
Independent Director
Sir Peter L. Bonfield
018
Male
U.S.
06/08/2017
06/08/2018
06/08/2017
12,977,114
0.05%
12,913,114
0.05%
Male
R.O.C.
06/08/2017
06/08/2018
06/08/2017
7,179,207
0.03%
7,179,207
0.03%
261
0.00%
Bachelor and Master Degrees in Electrical Engineering, National Chiao Tung University
Ph.D. in Electrical Engineering, Yale University
President and Co-CEO, TSMC
Chairman, TSMC Nanjing Company Ltd.
(a privately held company)
Male
UK
06/09/2015
06/08/2018
05/07/2002
-
-
-
-
Former Senior Vice President, Chartered Semiconductor Manufacturing Ltd.
Former Senior Vice President, Mainstream Technology Business, TSMC
Former Senior Vice President, Business Development, TSMC
Former Executive Vice President and Co-Chief Operating Officer, TSMC
Chairman, Taiwan Semiconductor Industry Association (TSIA)
Director, TSMC Charity Foundation
-
-
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
Former Director, Mentor Graphics Corp., U.S.
Former Director, Sony Corp., Japan
Former Senior Advisor to G3 Good Governance Group, London
Fellow of the Royal Academy of Engineering
Chair of Council and Senior Pro-Chancellor, Loughborough University, UK
Chairman of:
- NXP Semiconductors N.V., the Netherlands
- GlobalLogic Inc., U.S. (a privately held company)
Member, The Longreach Group Advisory Board, HK
Board Mentor, CMi, UK
Senior Advisor to :
- Alix Partners, London
- Hampton Group, London
(Continued)
019
Title/Name
Independent Director
Stan Shih
Gender
Nationality or
Place of
Registration
Date Elected
Term Expires
Date First
Elected
Shares
%
Shares
%
Shareholding When Elected
Current Shareholding
Spouse & Minor Shareholding
Male
R.O.C.
06/09/2015
06/08/2018
04/14/2000
1,480,286
0.01%
1,480,286
0.01%
Independent Director
Thomas J. Engibous
Male
U.S.
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
%
16,116
0.00%
Selected Education, Past Positions & Current Positions at Non-profit Organizations
BSEE & 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.
Co-Founder, Chairman Emeritus, Acer Group
Former Chairman & CEO, Acer Group
Former Director, Qisda Corp.
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 Stan Shih Foundation
-
-
Bachelor and Master Degrees 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.
Member of National Academy of Engineering, U.S.
Member of Texas Business Hall of Fame
Honorary Director of Catalyst
Honorary Trustee, Southwestern Medical Foundation
5,120
0.00%
Inns of Court School of Law, England
Barrister-at-law, England
Advocate & Solicitor, Singapore
Attorney-at-law, California, U.S.
Lawyer, Tan, Rajah & Cheah, Singapore, 1969-1970
Lawyer, Sullivan & Cromwell, New York, U.S., 1971-1974
Lawyer, Heller, Erhman, White & McAuliffe, San Francisco, California, U.S., 1974-1975
Partner, Ding & Ding Law Offices, Taiwan, 1975-1988
Partner, Chen & Associates Law Offices, Taiwan, 1988-1992
Vice-President, Echo Publishing, Taiwan, 1992-1995
President, National Culture and Arts Foundation, R.O.C., 1995-1997
Senior Vice-President & General Counsel, TSMC, 1997-2001
Founder & Executive Director of Taipei Story House, 2003-2015
Advisor, Executive Yuan, R.O.C., 2009-2016
Director, National Culture and Arts Foundation, R.O.C., 2011-2016
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
Selected Current Positions at TSMC and
Other Companies
Director & Honorary Chairman, Acer Inc.
Director of:
- Wistron Corp.
- Nan Shan Life Insurance Co., Ltd.
- Egis Technology Inc.
- Digitimes Inc. (a privately held company)
- Chinese Television System Inc.
None
None
Chairman of the Board, NASDAQ, Inc.
Director of:
- Pica8, Inc. (a privately held company)
- Meyer Burger Technology Ltd.
General Partner, WISC Partners LP
Independent Director
Michael R. Splinter
Male
U.S.
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 Corp.
Former Executive Vice President of Sales and Marketing, Intel Corp.
Former CEO, Applied Materials, Inc.
Former Chairman, Applied Materials, Inc.
Former Director, The NASDAQ OMX Group, Inc.
Former Director, Silicon Valley Leadership Group
Former 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: Ms. Mei-ling Chen replaced Mr. Johnsee Lee on November 7, 2017 as the representative of National Development Fund.
Note 3: Dr. Mark Liu and Dr. C.C. Wei were elected as TSMC’s directors at the Annual Shareholders’ Meeting on June 8, 2017.
020
021
2.4.2 Remuneration Paid to Directors (Note 1)
Unit: NT$
Title/Name
Chairman
Morris Chang
Vice Chairman
F.C. Tseng
Director
National Development Fund, Executive
Yuan (Note 2)
Representative: Mei-ling Chen
Director
Mark Liu (Note 3)
Director
C.C. Wei (Note 3)
Independent Director
Sir Peter L. Bonfield
Independent Director
Stan Shih
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
Total
Director’s Remuneration
Base Compensation (A)
Severance Pay and
Pensions (B)
(Note 4)
Compensation to
Directors (C)
Allowances (D)
(Note 5)
Total Remuneration
(A+B+C+D) as a % of
2017 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)
(Note 5)
Severance Pay and Pensions
(F)(Note 4)
Employees’ Profit Sharing Bonus (G)
Total Compensation
(A+B+C+D+E+F+G) as a %
of 2017 Net Income
(Note 6)
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)
From TSMC
From All
Consolidated
Entities
Compensation Paid
to Directors from
Non-consolidated
Affiliates
23,006,760
23,006,760
506,504
506,504
281,884,700
281,884,700
4,084,839
4,084,839
0.0901%
0.0901%
12,972,120
12,972,120
285,586
285,586
9,600,000
9,600,000
2,647,286
2,647,286
0.0074%
0.0074%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,600,000
9,600,000
-
-
-
-
14,611,560
14,611,560
12,000,000
12,000,000
14,611,560
14,611,560
12,000,000
12,000,000
14,611,560
14,611,560
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.0028%
0.0028%
-
-
-
-
0.0043%
0.0043%
0.0035%
0.0035%
0.0043%
0.0043%
0.0035%
0.0035%
0.0043%
0.0043%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
111,393,154
111,393,154
215,251
215,251
99,883,980
111,547,115
111,547,115
215,251
215,251
99,883,980
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,978,880
35,978,880
792,090
792,090
368,919,380
368,919,380
6,732,125
6,732,125
0.1202%
0.1202%
222,940,269
222,940,269
430,502
430,502
199,767,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
99,883,980
99,883,980
-
-
-
-
-
199,767,960
-
-
-
-
-
-
-
-
-
-
-
0.0901%
0.0901%
-
0.0074%
0.0074%
6,381,650
0.0028%
0.0028%
0.0616%
0.0616%
0.0617%
0.0617%
0.0043%
0.0043%
0.0035%
0.0035%
0.0043%
0.0043%
0.0035%
0.0035%
0.0043%
0.0043%
-
-
-
-
-
-
-
-
0.2435%
0.2435%
6,381,650
*Other than disclosure in the above table, Directors remunerations earned by providing services (e.g. providing consulting services as a non-employee) to TSMC and all consolidated entities in the 2017 financial statements: None.
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: Ms. Mei-ling Chen replaced Mr. Johnsee Lee on November 7, 2017 as the representative of National Development Fund.
Note 3: Dr. Mark Liu and Dr. C.C. Wei were elected as TSMC's directors at the Annual Shareholders’ Meeting on June 8, 2017. They also serve as executive officers of TSMC, therefore are not entitled to
receive compensation to directors.
Note 4: Pensions funded/paid according to applicable law.
Note 5: The above-mentioned figures include expenses for Company cars and gasoline reimbursement, but do not include compensation paid to Company drivers (totaled NT$6,640,379).
Note 6: Total remuneration paid to the directors from TSMC and from all consolidated entities in 2016 both were NT$415,976,199, accounting for 0.1244% of 2016 net income.
022
023
2.5 Management Team
2.5.1 Information Regarding Management Team
Title
Name
Gender
Nationality
On-board Date
(Note 1)
Shareholding
Spouse & Minor
TSMC Shareholding by
Nominee Arrangement
(Shares)
Education and Selected Past Positions
Selected Current Positions at Other
Companies
President and Co-Chief Executive Officer
Mark Liu
Male
U.S.
11/15/1993
12,913,114
0.05%
Shares
%
Shares
-
%
-
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 (Note 2)
Senior Vice President,
Chief Financial Officer/Spokesperson
Finance
Lora Ho
Senior Vice President
Research and Development/Technology Development
Wei-Jen Lo
Senior Vice President/
Chief Executive Officer 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
Vice President
Operations/Mainstream Fabs and Manufacturing
Technology
J.K. Lin (Note 3)
Vice President
Operations/300mm Fabs
J.K. Wang
Vice President
Corporate Planning Organization
Irene Sun
Male
R.O.C.
12/16/1996
12,222,064
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
1,444,127
0.01%
Male
U.S.
11/14/1997
-
-
-
-
-
-
Male
R.O.C.
01/01/1987
6,922,122
0.03%
2,193,107
0.01%
Male
R.O.C.
11/14/1994
1,000,419
0.00%
Male
R.O.C.
01/01/1987
7,145,595
0.03%
Male
R.O.C.
06/02/1997
3,913,831
0.02%
-
-
-
-
-
-
Male
R.O.C.
03/01/2000
1,961,180
0.01%
1,103,253
0.00%
Male
R.O.C.
01/01/1987
12,518,018
0.05%
1,073,387
0.00%
Male
R.O.C.
02/11/1987
2,553,947
0.01%
160,844
0.00%
Female
R.O.C.
10/01/2003
420,709
0.00%
-
-
Shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
024
As of 02/28/2018
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
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
None
None
None
None
Director, TSMC subsidiary
None
None
None
None
None
None
None
None
Director
Wayne Yeh
Brother in law
Director, TSMC subsidiaries
Director, TSMC affiliate
Deputy Director
M.J. Tzeng
Siblings
Ph.D., Solid State Physics and Surface Chemistry, University of California, Berkeley, U.S.
Vice President, Research and Development, TSMC
Vice President, Manufacturing Technology Operations, TSMC
Vice President, Advanced Technology Business, TSMC
Vice President, Operation II, TSMC
Director, Advanced Technology Development and CTM Plant Manager, Intel Corp.
Bachelor, Engineering Technology, United States Military Academy at West Point, U.S.
President of TSMC North America
Vice President of TSMC North America Account Management
Master, Electrical Engineering, National Cheng Kung University, Taiwan
Vice President, Product Development Operations, TSMC
Vice President, Advanced Technology and Business, TSMC
Senior Director, Product Engineering & Services, TSMC
Ph.D., Electrical Engineering, University of California, Los Angeles, U.S.
Vice President, Technology Development, TSMC
TSMCSenior Director, R&D Platform I Division, TSMC
Master, Applied Chemistry, Chungyuan University, Taiwan
Vice President, Mainstream Technology Business, TSMC
Vice President, Operation I, TSMC
Senior Director, Fab 2 Operations, 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
Master, Chemical Engineering, National Cheng Kung University, Taiwan
Senior Director, 300mm fabs Operations, TSMC
Director, TSMC subsidiary
Ph.D., Materials Science and Engineering, Cornell University, U.S.
Senior Director, Corporate Planning Organization, TSMC
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
(Continued)
025
Title
Name
Gender
Nationality
On-board Date
(Note 1)
Shareholding
Spouse & Minor
TSMC Shareholding by
Nominee Arrangement
(Shares)
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
Doug Yu
Vice President and TSMC Fellow
Research and Development/More-than-Moore
Technologies
Alexander Kalnitsky
Vice President
Business Development
Kevin Zhang
Vice President and TSMC Fellow
Operations/300mm Fabs/Fab 12B
T.S. Chang (Note 4)
Vice President
Research and Development/Technology Development/
N3 Platform Development Division
Michael Wu (Note 4)
Vice President
Research and Development/Technology Development/
Pathfinding
Min Cao (Note 4)
Shares
%
Shares
%
Shares
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%
53,000
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.
06/15/2009
Male
U.S.
11/01/2016
-
-
-
-
Male
R.O.C.
02/06/1995
200,781
0.00%
-
-
-
-
-
-
-
-
Male
R.O.C.
12/09/1996
468,501
0.00%
176,943
0.00%
Male
U.S.
07/29/2002
353,152
0.00%
4,470
0.00%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note 1: On-board date means the official date joining TSMC.
Note 2: Senior Vice President and Chief Information Officer Dr. Stephen T. Tso retired, effective March 1, 2018.
Note 3: Vice President Mr. J.K. Lin also serves as the head of Materials Management and Risk Management Organization, effective March 1, 2018.
Note 4: Dr. T.S. Chang, Dr. Michael Wu and Dr. Min Cao were promoted to Vice President, effective February 13, 2018.
Education and Selected Past Positions
Ph.D., Electrical Engineering, Syracuse University, U.S.
Senior Director, Design and Technology Platform, TSMC
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
Senior Associate, 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
Ph.D., Materials Engineering, Georgia Institute of Technology, U.S.
Senior Director of Integrated Interconnect & Packaging Division in R&D, TSMC
Ph.D., Electrical Engineering, Carleton University, Canada
Senior Director of More-than-Moore Technologies Division in R&D, TSMC
Ph.D., Electrical Engineering, Duke University, U.S.
Vice President, Design and Technology Platform, TSMC
Vice President, Technology and Manufacturing Group, Intel Corp.
Ph.D., Electrical Engineering, National Tsing Hua University
Senior Director, Fab 12B Operations, TSMC
Ph.D., Electrical Engineering, University of Wisconsin-Madison, U.S.
Senior Director of N3 Platform Development Division in R&D, TSMC
Ph.D., Physics, Stanford University, U.S.
Senior Director of Pathfinding Division in R&D, TSMC
Selected Current Positions at Other
Companies
Director, TSMC subsidiaries
Director, TSMC affiliate
President, TSMC subsidiaries
Managers Who are Spouses or within Second-degree
Relative of Consanguinity to Each Other
Title
None
Name
None
Relation
None
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
None
None
None
None
None
None
None
None
None
None
None
None
026
027
2.5.2 Compensation Paid to President & Co-CEO and Vice Presidents (Note 1)
Salary (A)
Severance Pay and Pensions (B)
(Note 5)
From TSMC
8,371,830
8,371,830
5,384,970
From All
Consolidated
Entities
8,371,830
8,371,830
5,384,970
From TSMC
215,251
215,251
138,456
From All
Consolidated
Entities
215,251
215,251
138,456
Bonuses and Allowances (C)
(Note 6)
From TSMC
From All
Consolidated
Entities
Employees’ Profit Sharing Bonus (D)
From TSMC
From All Consolidated Entities
Cash
Stock (Fair
Market Value)
Cash
Stock (Fair
Market Value)
103,021,324
103,021,324
103,175,285
103,175,285
46,020,375
46,020,375
99,883,980
99,883,980
44,099,530
-
-
-
99,883,980
99,883,980
44,099,530
-
-
-
Total Compensation (A+B+C+D)
as a % of 2017 Net Income
(Note 7)
From TSMC
0.0616%
0.0617%
0.0279%
From All
Consolidated
Entities
0.0616%
0.0617%
0.0279%
Compensation Received
from Non-consolidated
Affiliates
-
-
-
78,328,182
92,249,546
2,013,760
2,365,597
549,707,037
634,894,097
504,799,711
-
504,799,711
-
0.3308%
0.3597%
120,000
Unit: NT$
Title
President and Co-Chief Executive Officer
President and Co-Chief Executive Officer
Senior Vice President, Chief Financial Officer/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/
Chief Executive Officer 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
Name
Mark Liu
C.C. Wei
Lora Ho
Stephen T. Tso (Note 2)
Wei-Jen Lo
Rick Cassidy
Y.P. Chin
Y.J. Mii
M.C. Tzeng
Jack Sun
N.S. Tsai
Vice President
Operations/Mainstream Fabs and Manufacturing Technology
J.K. Lin (Note 3)
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 and TSMC Fellow
Research and Development/More-than-Moore Technologies
Vice President
Business Development
Vice President and TSMC Fellow
Operations/300mm Fabs/Fab 12B
Vice President
Research and Development/Technology Development/N3 Platform
Development Division
J.K. Wang
Irene Sun
Cliff Hou
Been-Jon Woo
Sylvia Fang
Connie Ma
Y.L. Wang
Doug Yu
Alexander Kalnitsky
Kevin Zhang
T.S. Chang (Note 4)
Michael Wu (Note 4)
Vice President
Research and Development/Technology Development/Pathfinding
Min Cao (Note 4)
Total
100,456,812
114,378,176
2,582,718
2,934,555
801,924,021
887,111,081
748,667,201
-
748,667,201
-
0.4820%
0.5109%
120,000
Note 1: Compensation policy, standards/packages, procedures, the linkage to operating performance and future risk exposure: The total compensation paid to the President and Co-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 the President and Co-Chief Executive Officer. The proposals are reviewed by the Compensation Committee before
submitted to the Board of Directors for final approval.
Note 2: Senior Vice President and Chief Information Officer Dr. Stephen T. Tso retired, effective March 1, 2018.
Note 3: Vice President Mr. J.K. Lin also serves as the head of Materials Management and Risk Management Organization, effective March 1, 2018.
Note 4: Dr. T.S. Chang, Dr. Michael Wu and Dr. Min Cao were promoted to Vice President, effective February 13, 2018. Therefore, their 2017 compensation data is not disclosed.
Note 5: Pensions funded/paid according to applicable law.
Note 6: The above-mentioned figures include the expense for the employees’ cash bonuses distributed in May, August, November 2017 and February 2018, Company cars and gasoline reimbursement,
but does not include compensation paid to Company drivers (totaled NT$3,455,753).
Note 7: Total compensation paid to the executive officers in 2016 from TSMC was NT$1,506,047,477, accounting for 0.451% of 2016 net income. Total compensation paid to the executive officers in
2016 from all consolidated entities was NT$1,603,740,033, accounting for 0.480% of 2016 net income.
Compensation Paid to President & Co-CEO and Vice Presidents
NT$0 ~ NT$2,000,000
NT$2,000,000 ~ NT$4,999,999
NT$5,000,000 ~ NT$9,999,999
NT$10,000,000 ~ NT$14,999,999
NT$15,000,000 ~ NT$29,999,999
From TSMC
Rick Cassidy
None
None
None
None
2017
From All Consolidated Entities and Non-consolidated Affiliates
None
None
None
None
None
NT$30,000,000 ~ NT$49,999,999
Irene Sun, Been-Jon Woo, Sylvia Fang, Connie Ma, Y.L. Wang, Doug Yu
Irene Sun, Been-Jon Woo, Sylvia Fang, Connie Ma, Y.L. Wang, Doug Yu
NT$50,000,000 ~ NT$99,999,999
Lora Ho, Y.P. Chin, Y.J. Mii, M.C. Tzeng, Jack Sun, N.S. Tsai, J.K. Lin,
J.K. Wang, Cliff Hou, Alexander Kalnitsky, Kevin Zhang
Lora Ho, Rick Cassidy, Y.P. Chin, Y.J. Mii, M.C. Tzeng, Jack Sun, N.S. Tsai,
J.K. Lin, J.K. Wang, Cliff Hou, Alexander Kalnitsky, Kevin Zhang
Over NT$100,000,000
Total
Mark Liu, C.C. Wei, Stephen T. Tso, Wei-Jen Lo
Mark Liu, C.C. Wei, Stephen T. Tso, Wei-Jen Lo
22
22
028
029
2.5.3 Employees’ Profit Sharing Bonus Paid to Management Team
Unit: NT$
Title
President and Co-Chief Executive Officer
President and Co-Chief Executive Officer
Senior Vice President, Chief Financial Officer/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/
Chief Executive Officer 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 and TSMC Fellow
Research and Development/More-than-Moore Technologies
Vice President
Business Development
Vice President and TSMC Fellow
Operations/300mm Fabs/Fab 12B
Vice President
Research and Development/Technology Development/N3 Platform Development Division
Vice President
Research and Development/Technology Development/Pathfinding
Total
Name
Mark Liu
C.C. Wei
Lora Ho
Stephen T. Tso (Note 1)
Wei-Jen Lo
Rick Cassidy
Y.P. Chin
Y.J. Mii
M.C. Tzeng
Jack Sun
N.S. Tsai
J.K. Lin (Note 2)
J.K. Wang
Irene Sun
Cliff Hou
Been-Jon Woo
Sylvia Fang
Connie Ma
Y.L. Wang
Doug Yu
Alexander Kalnitsky
Kevin Zhang
T.S. Chang (Note 3)
Michael Wu (Note 3)
Min Cao (Note 3)
Note 1: Senior Vice President and Chief Information Officer Dr. Stephen T. Tso retired, effective March 1, 2018.
Note 2: Vice President Mr. J.K. Lin also serves as the head of Materials Management and Risk Management Organization, effective March 1, 2018.
Note 3: Dr. T.S. Chang, Dr. Michael Wu and Dr. Min Cao were promoted to Vice President, effective February 13, 2018. Therefore, their 2017 compensation data is not disclosed.
Stock
(Fair Market Value)
Cash
Total Employees’ Profit Sharing Bonus
Total Employees’ Profit Sharing Bonus
Paid to Management Team as a % of
2017 Net Income
-
-
-
-
-
99,883,980
99,883,980
44,099,530
99,883,980
99,883,980
44,099,530
0.0291%
0.0291%
0.0129%
504,799,711
504,799,711
0.1471%
748,667,201
748,667,201
0.2182%
030
031
032
032
033
033
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.
2017 Corporate Governance Awards
Organization
Dow Jones Sustainability Indices (DJSI)
MSCI ESG Indexes
FTSE4Good Index
IR Magazine
FORTUNE
Institutional Investor
Forbes
Taiwan Institute of Sustainable Energy
Awards
Membership in the Dow Jones Sustainability World Index for the 17th consecutive year
RobecoSAM Sustainability Award - Gold Class
Selected as MSCI ACWI ESG Leaders Index component
Selected as MSCI ACWI SRI Index component
Selected as FTSE4Good Emerging Index component
Global Top 50 Gold – best investor relations
Selected as one of The World’s Most Admired Companies
Selected as one of the Most Honored Company (Greater China)
Chairman Dr. Morris Chang was selected as one of the World’s 100 Greatest Living Business Minds
Taiwan Corporate Sustainability Awards:
Chairman Dr. Morris Chang received TSCA Honorary Award
The Most Prestigious Sustainability Awards - Top 10 Domestic Corporates
Top 50 Corporate Sustainability Report Awards - Electronics Industry
Circular Economy Leadership Awards
Taiwan Stock Exchange
Ranked in top 5% in Corporate Governance Evaluation of Listed Companies for the 3rd consecutive year
3.2 Board of Directors
Board Structure
TSMC’s Board of Directors consists of ten 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 ten
members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter L. 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. The number of Independent Directors is 50% of the total
number of Directors. Two of the members of the Board Directors are female.
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.
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 consultant 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.
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 October 2017, Dr. Morris Chang, as TSMC Chairman for
the last thirty years, announced his plan to retire from the
Company immediately after the Annual Shareholders’ Meeting
in early June, 2018. All present directors of the board, except
himself, have unanimously agreed to be nominated, and if
elected, will serve as directors of the board during the next
term. They all have agreed to have TSMC under the dual
leadership of Dr. Mark Liu and Dr. C.C. Wei, who are TSMC’s
presidents and Co-CEOs currently. Dr. Liu will be the Chairman
of the Board, and Dr. Wei will be the Chief Executive Officer.
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.
034
035
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)
Criteria
Name
Morris Chang
Chairman
F.C. Tseng
Vice Chairman
Mei-ling Chen
Director
Mark Liu
Director
C.C. Wei
Director
Sir Peter L. 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 ˇ ˇ 0
ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ 1
ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ
0
ˇ
ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0
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
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.
036
037
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)
Criteria
Name
Title
Stan Shih
Independent Director
Sir Peter L. 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
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 (Note). In 2017, the
average Board Meeting attendance rate was 84% and the attendance rate for the Audit Committee and Compensation Committee’s
Meetings were 88% and 85% respectively.
Board of Directors Meeting Status
Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings and one special meeting in 2017. The
directors’ attendance status is as follows.
Title
Chairman
Vice Chairman
Director
Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Name
Morris Chang
F.C. Tseng
National Development Fund, Executive Yuan
Representative: Mei-ling Chen
Mark Liu
C.C. Wei
Sir Peter L. 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
5
5
3
2
2
4
5
1
5
4
-
-
2
-
-
1
-
4
-
1
100%
None
100%
None
60%
100%
100%
Ms. Mei-ling Chen replaced Mr.
Johnsee Lee as the representative
of National Development Fund on
November 7, 2017.
New office assumed (elected on
June 8)
New office assumed (elected on
June 8)
80%
None
100%
None
20%
None
100%
None
80%
None
Any Independent Director
Had a Dissenting Opinion or
Qualified Opinion
2017 1st Regular Meeting
February 13 & 14
2017 2nd Regular Meeting
May 8 & 9
2017 4th Regular Meeting
November 13 & 14
approving amendments to TSMC’s “Procedures for Acquisition or Disposal of Assets”
None
approving amendments to TSMC’s internal control related policies and procedures
approving (1) Ms. Shirley Chiang as the new engagement partner of Deloitte & Touche, TSMC’s independent auditor, starting
from 2018; and (2) the proposed 2018 service fees and out-of-pocket expenses for independent auditor
(2) There were no other written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualified opinion in 2017.
B. Recusals of Directors due to conflicts of interests in 2017: 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 ten Directors are Independent Directors. The number of Independent Directors is 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.
Note: Mr. Thomas J. Engibous’ attendance rate in 2017 for TSMC’s Board and Committee meetings was affected by a personal medical condition that prevented him from traveling long distances. Mr.
Engibous participated in all meetings held via video- or tele-conference. He received updates on important matters considered by the Board at the meetings he was unable to attend, which allowed
him to continue providing his insight to the Company throughout the year. We anticipate Mr. Engibous will resume regular participation in Board and Committee meetings upon his recovery.
038
039
Audit Committee Meeting Status
Sir Peter L. Bonfield, Chairman of the Audit Committee, convened four regular meetings and one special meeting in 2017. The
Committee members and consultant’s attendance status is shown in the following table. In addition to these meetings, the
Committee members and Financial Expert Consultant participated in three 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.
Title
Name
Attendance
in Person
By Proxy
Attendance Rate
in Person (%)
Telephone
Conferences
Chair
Member
Member
Member
Member
Financial Expert
Consultant
Sir Peter L. Bonfield
Stan Shih
Thomas J. Engibous
Kok-Choo Chen
Michael R. Splinter
J.C. Lobbezoo
Annotations:
A. (1) Resolutions related to Securities and Exchange Act §14-5:
Meeting Dates
Resolution
5
5
2
5
5
5
-
-
3
-
-
-
100%
100%
40%
100%
100%
100%
3
3
3
3
3
3
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
2017 1st Regular Meeting
February 13
2017 2nd Regular Meeting
May 8
2017 3rd Regular Meeting
August 7
2017 4th Regular Meeting
November 13
2018 1st Regular Meeting
February 12
● approving the 2016 annual financial statements
● approving the related party sale of TSMC’s existing equipment to TSMC Nanjing Company Limited
● approving the amendments to TSMC’s “Procedures for Acquisition or Disposal of Assets”
● approving 2016 Statement of Internal Control System
None
● approving the proposed additional 2017 service fees to Deloitte & Touche for VisEra Technologies
Company Ltd.
● approving amendments to TSMC’s internal control related policies and procedures
● approving the 2017 second quarter financial statements
● approving Ms. Shirley Chiang as the new engagement partner for TSMC starting from 2018 and the
proposed 2018 service fees and out-of-pocket expenses for Deloitte & Touche
● approving the 2017 annual financial statements
● approving 2017 Statement of Internal Control System
(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 2017.
B. There were no recusals of independent directors due to conflicts of interests in 2017.
C. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2017 (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 2017, 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 2017, 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
2017 1st Regular Meeting
February 13
2017 2nd Regular Meeting
May 8
2017 3rd Regular Meeting
August 7
2017 4th Regular Meeting
November 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 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 the Internal Auditor’s report (closed door)
● reviewing and approving the 2018 internal audit plan
2018 1st Regular Meeting
February 12
● reviewing the Internal Auditor’s report (closed door)
● reviewing report on SOX 404 self-testing results for the year 2017
● reviewing and approving 2017 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
● reviewing external auditor relationship (i.e. qualification, performance and
independence)
● reviewing any review problems or difficulties and management’s response in
connection with 2017 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 2017 second quarter financial statements (closed door)
● reviewing regulatory developments
● reviewing any review problems or difficulties and management’s response in
connection with 2017 third quarter financial statements (closed door)
● reviewing regulatory developments
● reviewing Deloitte’s report on its cyber incident
● reviewing report on new GAAP (IFRS 9 & IFRS 15) adoption starting from January
1, 2018
● reviewing any audit problems or difficulties and management’s response in
connection with 2017 annual financial statements (closed door)
● reviewing regulatory developments
● reviewing external auditor relationship (i.e. qualification, performance and
independence)
● reviewing report on IFRS 16 adoption status
Compensation Committee Meeting Status
Mr. Stan Shih, Chairman of the Compensation Committee,
convened four regular meetings in 2017. The Committee
members’ attendance status is as follows:
Title
Name
Chair
Stan Shih
Member
Sir Peter L. 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
1
4
4
-
-
3
-
-
100% None
100% None
25% None
100% None
100% None
Annotations:
- There was no recommendation of the Compensation Committee which was not adopted or was
modified by the Board of Directors in 2017.
- 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 held 2017 Annual Shareholders’ Meeting in Hsinchu,
Taiwan on June 8, 2017. At the meeting, shareholders present
in person or by proxy approved the following resolutions:
(1) The 2016 Business Report and Financial Statements.
Consolidated revenue totaled NT$947.94 billion and net
income was NT$334.25 billion, with diluted earnings per
share of NT$12.89;
(2) The distribution of a NT$7 cash dividend per common
share;
(3) The revisions to the Articles of Incorporation;
(4) The revisions to the Procedures for Acquisition or Disposal
of Assets; and
(5) Election of two additional Directors.
Implementation Status
All the resolutions of the Shareholders’ Meeting have been
fully implemented in accordance with the resolutions. The two
newly elected directors are Dr. Mark Liu and Dr. C.C. Wei.
3.3.2 Major Resolutions of Board Meetings
During 2017 and as of the date of this Annual Report, major
resolutions approved at Board meetings are summarized
below:
(1) 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 appropriation of approximately
US$1,927.58 million for purposes including: 1. Upgrading
advanced technology capacity and expanding advanced
packaging capacity; 2. 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.
(2) Special Board Meeting of April 26, 2017:
● approving the nomination of Dr. Mark Liu and Dr. C.C.
Wei as candidates to stand for election as two additional
directors at TSMC’s Shareholders’ Meeting on June 8,
2017.
(3) Regular Board Meeting of May 8 & 9, 2017:
● approving capital appropriations of approximately
US$1,269.1 million for purposes including: 1. Upgrading
and expanding advanced technology capacity; 2.
Conversion of certain logic capacity to specialty
technology; 3. Third quarter 2017 R&D capital investments
and sustaining capital expenditures; and
● approving the establishment of TSMC Charity Foundation
with donation of NT$30,000,000 as its initial capital.
Result: all of above matters were reviewed and approved by the Audit Committee whereupon independent directors raised no objection.
040
041
(4) Regular Board Meeting of August 7 & 8, 2017:
● approving capital appropriations of approximately US$3,153.6 million for purposes including: 1. Construction of fab facilities
for US$528 million; 2. Other purposes for US$2,625.6 million including: Expanding and upgrading advanced technology
equipment; Expanding advanced packaging technology capacity; Upgrading specialty technology capacity; Conversion of logic
capacity to specialty technology; Fourth quarter 2017 R&D capital investments and sustaining capital expenditures.
(5) Regular Board Meeting of November 13 & 14, 2017:
● approving capital appropriations of approximately US$4,284.5 million for purposes including: 1. US$1,667.5 million for
construction of fab facilities; 2. US$2,617 million for other purposes including: Expanding and upgrading advanced technology
capacity; Expanding advanced packaging technology capacity; Expanding specialty technology capacity; Conversion of logic
capacity to specialty technology; First quarter 2018 R&D capital investments and sustaining capital expenditures; and
● 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.
(6) Board Meeting of February 12 & 13, 2018:
● approving 2017 business report and financial statements;
● approving distribution of 2017 profits, and cash dividends, employee cash bonus and employee profit sharing;
● approving capital appropriations of approximately US$2,834 million for purposes including: 1. Installation, upgrading and
expanding advanced technology capacity; 2. Conversion of logic capacity to specialty technology; 3. Second quarter 2018 R&D
capital investments and sustaining capital expenditures;
● convening the 2018 Annual Shareholders’ Meeting, at which shareholders will hold an election for TSMC’s nine-member Board
of Directors, including five independent directors;
● approving the promotions of Dr. T.S. Chang, Dr. Michael Wu, and Dr. Min Cao as Vice Presidents; and
● in gratitude to Dr. Morris Chang, conferring on Dr. Chang the title of “Founder” beginning June 5, 2018.
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 2017 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
Non-
implementation
and Its Reason(s)
Same as explanation
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.
None
(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.
(Continued)
042
Assessment Item
Implementation Status
Yes
No
Explanation
3. Composition and Responsibilities of the Board of Directors
(1) Has the Company established a diversification policy for the composition
V
(1) The members of TSMC Board of Directors are nominated via a rigorous
Non-
implementation
and Its Reason(s)
None
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?
(4) Does the Company regularly evaluate its external auditors’ independence?
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, 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.)?
V
V
V
V
V
V
V
V
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 ten members who possess world-class managerial and/
or professional experiences. We rely on each directors’ knowledge, personal
insight and business judgment. Two female directors currently sit on the Board
of Director, and half 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) The Audit Committee annually evaluates the independence of external auditors
and reports the same to the Board of Directors.
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 118-135 of this Annual Report and “Materiality Analysis and Stakeholder
Communication” of TSMC’s CSR Report.
None
None
We have appointed China Trust as our registrar for our Shareholders’ Meetings.
None
None
(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
(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.
(Continued)
043
Assessment Item
Implementation Status
Yes
No
Explanation
Non-
implementation
and Its Reason(s)
8. Has the Company disclosed other information to facilitate a better
V
(1) For employee rights and employee wellness, please refer to “5.5 Human
None
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)?
Capital” on page 85-89 of this Annual Report.
(2) For investor relations, supplier relations and rights of stakeholders, please refer
to “7. Corporate Social Responsibility” on page 118-135 of this Annual Report.
(3) For Directors’ training records, please refer to “Continuing Education/Training
of Directors” on page 44-45 of this Annual Report.
(4) For Risk Management Policies and Risk Evaluation, please refer to “6.3 Risk
Management” on page 103-115 of this Annual Report.
(5) For Customer Relations Policies, please refer to “5.4 Customer Trust” on page
83-85 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 2016 and 2017. The implementation status regarding below three 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 details, please refer to the below table “Continuing Education/Training of Directors in 2017”.
(3) Voluntary disclosure of Directors’ compensation on an individualized basis: From 2016, TSMC discloses compensation paid to Directors, President & Co-CEO and Chief Financial Officer on an individualized
basis in its Annual Reports. For details, please refer to “2.4.2 Remuneration Paid to Directors” and “2.5.2 Compensation Paid to President & Co-CEO and Vice Presidents” of 2016 and this Annual Report.
Continuing Education/Training of Directors in 2017
The major training methods of Directors includes:
● At quarter Board meetings, TSMC management regularly presents updates on the Company’s business, regulatory developments
Michael R. Splinter
Morris Chang
F.C. Tseng
Sir Peter L. Bonfield
Stan Shih
Thomas J. Engibous
Kok-Choo Chen
Michael R. Splinter
Morris Chang
F.C. Tseng
Johnsee Lee
Mark Liu
C.C. Wei
Sir Peter L. Bonfield
Stan Shih
Kok-Choo Chen
Michael R. Splinter
Name
Morris Chang
(Note)
F.C. Tseng
Sir Peter L. Bonfield
(Note)
Date
04/20
07/28
08/30
08/03
08/09
11/08
09/18
Host by
Training/Speech Title
Taiwan Economic Daily News Forum
Speech: Growth and Innovation-the Constant Value
Chinese National Association of Industry and Commerce,
Taiwan
Speech: Growth and Innovation
Monte Jade Science & Technology Association of Taiwan
Speech: Growth and Innovation
Taiwan Corporate Governance Association
Information Security Management of Technology Development
Information Security, Personal Information Protection and Liability of Directors and
Supervisors of AoT (Analytics of Things) Era
The Deal
2018-2019 IFRS Major Changes
Corporate Governance UK Conference
Speech: Corporate Governance
Stan Shih
08/09
Taiwan Corporate Governance Association
Information Security, Personal Information Protection and Liability of Directors and
Supervisors of AoT (Analytics of Things) Era
2018-2019 IFRS Major Changes
11/08
09/21
06/21
06/22
02/14
Taiwan Insurance Anti-Fraud Institute
Anti-Money Laundering and Counter Terrorist Financing Workshop
JP Morgan
TSMC
Director Training Summit
“Recent Political & Economic Environment in Taiwan”
by Dr. Tain-Jy, Chen, Minister of National Development Council
08/08
TSMC
“The New East Asia and Cross-strait Situation”
by Dr. Chi SU, Chairman, Taipei Forum
and other information to Directors;
Note: Selected speeches on corporate governance and related topics.
● 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.
Continuing Education/Training of Management in 2017
Name/Title
Lora Ho
Senior Vice President
and Chief Financial
Officer
Sylvia Fang
Vice President and
General Counsel
Cliff Hou
Vice President, Design
and Technology
Platform
Jessica Chou
Senior Director,
Accounting Division
John Liang
Director, Internal Audit
Date
08/03
08/29
08/30
11/02
11/03
08/03
11/10
12/11
12/12
10/16
11/29
Host by
Training
Taiwan Corporate Governance Association
Information Security Management of Technology Development
IP Academy Singapore
China Law Society Intellectual Property Law Association
China Anti-Infringement and Anti-Counterfeit Innovation
Strategic Alliance
Taiwan Association for Trade Secrets Protection (TTSP)
6th Global Forum on Intellectual Property: Ideas to Assets
Speech: Keeping Your Valuable Secrets Secret!
Legislative and Other Practical Solutions for Protecting Trade Secrets
2017 Cross-Strait Trade Secrets Protection Forum
Taiwan Corporate Governance Association
Information Security Management of Technology Development
Taiwan Computer Audit Association
Case Study on Trade Secrets and Intellectual Property Protection of Enterprises
Taiwan Accounting Research and Development
Foundation
The Annual Professional Development Training for Principal Accounting Officer
Taiwan Computer Audit Association
Case Sharing of Procurement Auditing (2)
Taiwan Accounting Research and Development
Foundation
Legal Risk to Internal Auditors in the Trending of Business Globalization
(including the latest Development of Inside Trading)
Duration
20 mins.
40 mins.
40 mins.
3 hours
3 hours
3 hours
2 hours
3 hours
3 hours
1 hour
2 days
40 mins.
1 hour
Duration
3 hours
2 days
2 days
3 hours
3 hours
6 hours
6 hours
6 hours
6 hours
044
045
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
● Classified Information and Intellectual Property Protection
● Anti-trust Regulatory Compliance
● 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
“Ethics Code”) that applies to TSMC and its subsidiaries.
The Ethics 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 Ethics 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 Ethics Code requires the approval of
our Audit Committee to ensure our ethics compliance program
is independently reviewed against corporate best practices.
Ethics 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 Ethics
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 Ethics 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 Ethics 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
specific job grades or job responsibilities must annually declare
any relationships that may constitute a conflict of interest,
which is then reviewed by executive management and reported
to the Audit Committee.
Internal Auditing: The Internal Auditor of TSMC plays a critical
role in ensuring the Company’s compliance with the Ethics
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 Ethics Code, we
publish our Ethics Code and related policies and documents on
our intranet and, provide training courses, posters, and internal
news articles.In addition, we provide an introductory training
course on the Ethics 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,
insider trading and anti-harassment.
In addition to our internal compliance efforts, we expect and
assist our business partners such as customers and suppliers,
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 addition,
TSMC is a full member of the Responsible Business Alliance
(“RBA”, formerly the Electronic Industry Citizenship Coalition
(“EICC”)), dedicated to electronics supply chain sustainability.
In addition to adopting the RBA Code of Conduct at all of its
facilities, TSMC applied the RBA’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 Ethics Code violations. We
exchange views on appropriate business conduct and TSMC’s
ethical standards with our customers as part of customer audit
programs.
Reporting Channels and Whistleblower Protection
To ensure that our conduct meets relevant legal requirements
and the highest ethical standards under the Ethics 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 2017.
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 2015
FY 2016
FY 2017
60
-
16
-
7
7
80
1
35
2
5
5
79 (Note 1)
2
32 (Note 2)
4 (Note 3)
7
3 (Note 4)
Note 1: Among the 79 cases, no incidents related to ethics matters.
Note 2: Among the 32 cases, 18 cases related to ethics matters.
Note 3: After investigation of the 4 cases, 9 employees confirmed their violation of the Ethics
Code. All 9 employees were severely disciplined by the Company and 3 were dismissed.
Note 4: After the investigation by TSMC’s Sexual Harassment Investigation Committee, 3
employees involved in these 3 cases received severe discipline from the Company.
Ethics Code Violation Disciplinary Action
We do not tolerate any violation of the Ethics Code and
treat every possible violation incident seriously. Any violator
of the Ethics Code (or relevant regulations) will be severely
disciplined to the full extent of our policies and the law, up to
and including immediate dismissal, termination of business
relationship, and judicial prosecution as appropriate.
046
047
3.5.1 Taiwan Corporate Conduct and Ethics Implementation as Required by the Taiwan Financial Supervisory
Implementation Status
Yes
No
Explanation
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 “Ethics Code”)
to require that each employee bears a heavy personal responsibility to
uphold TSMC’s ethics value. For more details on the Ethics Code and the
measures that TSMC Board of Directors (the “Board”) and the management
team take to ensure compliance of the Ethics 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 Ethics Code that
applies to TSMC and its subsidiaries, and this Ethics 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 Ethics Code could
be found in our Annual Report. In addition, to educate and remind our
employees of their responsibilities under the Ethics Code, we publish our
Ethics 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 Ethics 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 Ethics Code and treat every possible
violation incident seriously. Any violator of the Ethics 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 Ethics Code, TSMC has established a regulatory
compliance program that includes policies, guidelines and procedures
in other policy areas, including: Anti-corruption, Anti-harassment/
discrimination, Anti-trust (unfair competition), Environment, Export Control,
Financial Reporting/Internal Controls, Insider Trading, Intellectual Property,
Proprietary Information Protection (“PIP“), Personal Data Protection, Record
Retention and Disposal, as well as procuring certain raw materials from
socially responsible sources (“Conflict-free Minerals“). The above-mentioned
policies are crucial in facilitating overall compliance with the Ethics Code.
TSMC, its employees and its subsidiaries are expected to fully understand
and comply with all laws and regulations that govern our businesses, as well
as relevant policies, guidelines and procedures, and make ethical decisions in
every circumstance. The Internal Auditor of TSMC also plays a critical role in
ensuring the Company’s compliance with the Ethics 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.
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?
048
Assessment Item
2. Ethic Management Practice
Implementation Status
Yes
No
Explanation
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 appropriate business conduct
and TSMC’s ethical standards with our customers as part of customer audit
programs.
(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 consultant 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 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 Ethics
Code (such as any actual or potential conflict of interest). Furthermore, key
employees and senior officers must periodically declare their compliance
status with the Ethics 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?
(Continued)
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, as 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, as is
clearly stated in our bylaws.
V
V
V
(Continued)
049
Assessment Item
4. Information Disclosure
Implementation Status
Yes
No
Explanation
Non-
implementation
and Its Reason(s)
None
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 Ethics Code to require that all employees, officers and board members comply with the Ethics Code and the other policies and procedures. There is no discrepancy between the Ethics
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 46-50 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 46-50 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 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 Ethics 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,
Anti-trust (unfair competition), Environment, Export Control, Financial Reporting, Internal Controls, Insider Trading, Intellectual
Property, Proprietary Information Protection (“PIP”), Personal Data Protection, Record Retention and Disposal, as well as procuring
certain raw materials from socially responsible sources (“Conflict-free Minerals”). It is our belief that these policies are crucial in
strengthening overall compliance with the Ethics 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, as well as relevant policies,
guidelines and procedures, 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 is also the highlight of our compliance training activities for
2017), 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 Anti-trust, Anti-harassment, Insider
Trading, Export Control Management, PIP, and Personal Data
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.
Major Accomplishments
In 2017, 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 Taiwan’s investment environment
and economic development. In 2017, TSMC continues to
advocate the importance of trade secret protection and
attended relevant events. In addition, TSMC advised the
government agencies on the amendment of several laws like
the Company Act and environmental protection-related laws.
● Internal Training: Throughout 2017, TSMC offered a wide
range of training courses on 40 different compliance topics
(28 of which were delivered via live seminar). 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
Ethics Code could not only impose long-term negative
influence on our competitiveness, but could also seriously
damage our strong industry reputation. To enhance
employees’ and external partners’ awareness of the Ethics
Code and anti-corruption rules, the Legal organization kept
the two topics remained as our awareness enhancement
focus in 2017 and a series of promotion activities through
multiple channels were held, including: (1) 20 face-to-face
training sessions to approximately 7,000 employees from
various internal organizations to promote awareness of and
ensure compliance with TSMC’s business conduct standards
when interacting with third parties; (2) on-line training
program to approximately 29,000 employees, (including
those of our subsidiaries); (3) 6 live seminars to 888 suppliers
headquartered in Taiwan or with a operation site in Taiwan.
Looking ahead into 2018, it is our objective to continuously
provide compliance training on these and other compliance
topics to our employees, and the training scope will be
expanded to cover on-site operational workers in fabs.
● Conflict-Free Supply Chain: As a recognized global leader
in the hi-tech 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. Meanwhile,
we have implemented a series of compliance safeguards in
accordance with industry leading practices. In 2017, 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 several independent third party
rating agencies.
● Export Compliance: TSMC’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
“No ECCN, No Shipment” control and customers are required
to provide end use and export control classification number
(ECCN) of their products, among other required information,
for TSMC to apply for applicable export licenses. To further
enhance relevant employees’ awareness on the export
control requirements incurred by technology transfers, in
2017 we provided around 25 face-to-face training sessions
to approximately 200 manager-level employees in R&D and
other relevant functions.
● Other Major Compliance Topics: For other importance
compliance topics such as insider trading, anti-harassment,
and PIP, in 2017 we not only provided and updated relevant
on-line courses and resources, but enhanced employees’
awareness by promotion emails and through posters at
facilities. Employees were mandatorily required to complete
on-line courses for both anti-harassment and PIP.
050
051
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
3.7.2 If CPA was engaged to conduct a special audit of internal control system, provide its audit report: None.
3.8 Status of Personnel Responsible for the Company Õ 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 2017 and as of the Date of this Annual Report: None.
3.8.2 Certification of Employees Whose Jobs are Related to the Release of the CompanyÕ s Financial Information
Date: February 13, 2018
Certification
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 2017:
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.
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)
Certification in Control Self-Assessment (CCSA)
Certification in Risk Management Assurance (CRMA)
Certified Information Systems Auditor (CISA)
Chief Fraud Examiner (CFE)
BS7799/ISO 27001 Lead Auditor
3.9 Information Regarding TSMCÕ s Independent Auditor
4. TSMC has evaluated the design and operating effectiveness of its internal control system according to the aforesaid
3.9.1 Audit Fees
Regulations.
Number of Employees
Internal Audit
Finance
4
4
-
14
-
-
-
3
5
5
2
2
31
16
1
7
2
1
2
-
-
-
-
-
5. Based on the findings of such evaluation, TSMC believes that, on December 31, 2017, 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 2017 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 13, 2018, with none of the ten
attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.
Taiwan Semiconductor Manufacturing Company Limited
The Audit Committee approves all fees payable to TSMCÕ 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
CPAÕ s Audit Period
Remark
Deloitte & Touche
Yih-Hsin Kao,
Yu-Feng Huang,
and others
55,647
-
-
-
81
81
01/01/2017 - 12/31/2017
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.
Morris Chang,
Chairman
Mark Liu,
President and Co-Chief Executive Officer
C.C. Wei,
President and Co-Chief Executive Officer
052
053
3.9.2 CPA’s information
(1) Former CPAs
Date of Change
Reasons and Explanation of Changes
Approved by BOD on November 14, 2017
In compliance with relevant regulatory requirements on rotation, the current engagement partner Yih-Hsin Kao
will be replaced by Mei-Yen Chiang starting from 2018. The co-signing partner will remain to be Yu-Feng Huang.
State whether the Appointment is Terminated or Rejected by the Consignor
or CPAs
Status
Client
CPA
Appointment terminated automatically
Not available
Appointment rejected (discontinued)
Not available
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”.
Consignor
Not available
Not available
Accounting principle or practice
Disclosure of financial statements
Auditing scope or procedures
Others
V
(2) Successor CPAs
Accounting Firm
CPA
Date of Engagement
Deloitte & Touche
Mei-Yen Chiang and Yu-Feng Huang
Approved by BOD on November 14, 2017
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.
054
055
056
056
057
057
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 02/28/2018
Date of Approval &
Approval Document No.
07/13/2015 Zhu Shang Tzu
No.1040020526
As of 02/28/2018
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
Distribution Profile of Share Ownership
Common Share
Shareholder Ownership (Unit: Share)
Number of Shareholders
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
146,197
123,140
22,569
8,690
4,023
4,533
2,133
1,377
2,757
1,559
1,037
486
280
189
1,457
320,427
Type of Shareholders
Government
Agencies
Financial
Institutions
Other Juridical
Persons
Foreign
Institutions
and Natural
Persons
Domestic Natural
Persons
Number of Shareholders
7
151
1,149
4,231
314,889
As of 07/02/2017 (last record date)
Total
320,427
Preferred Share: None.
4.1.4 Major Shareholders
Common Share
Shareholders
ADR-Taiwan Semiconductor Manufacturing Company, Ltd.
National Development Fund, Executive Yuan
Shareholding
1,653,710,189
599,818,046
1,058,236,528
20,658,779,209
1,959,836,486
25,930,380,458
Government of Singapore
Holding Percentage (%)
6.38%
2.31%
4.08%
79.67%
7.56%
100.00%
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 Oppenheimer Developing Markets Funds, managed by
Oppenheimer Funds, Inc.
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 Saudi Arabian Monetary Agency
Vanguard Emerging Markets Stock Index Fund, a series of Vanguard International Equity Index Funds
New Perspective Fund
Ownership
32,498,982
255,563,253
161,289,971
105,600,468
70,667,777
110,598,899
73,710,156
61,895,110
192,609,685
218,927,430
292,221,179
236,470,478
193,341,382
170,302,518
23,754,683,170
25,930,380,458
Total Shares Owned
5,341,120,243
1,653,709,980
654,494,172
430,430,649
317,463,515
287,172,429
285,329,063
252,148,426
237,443,845
221,552,994
As of 07/02/2017 (last record date)
Ownership (%)
0.13%
0.99%
0.62%
0.41%
0.27%
0.43%
0.28%
0.24%
0.74%
0.84%
1.13%
0.91%
0.75%
0.66%
91.60%
100.00%
As of 07/02/2017 (last record date)
Ownership (%)
20.60%
6.38%
2.52%
1.66%
1.22%
1.11%
1.10%
0.97%
0.92%
0.85%
058
059
Title
Name
Vice President
Irene Sun
Vice President
Cliff Hou
Vice President
Been-Jon Woo
Vice President and General Counsel
Sylvia Fang
Vice President
Connie Ma
Vice President
Y.L. Wang
Vice President
Doug Yu
Vice President and TSMC Fellow
Alexander Kalnitsky
Vice President
Kevin Zhang
Vice President and TSMC Fellow
T.S. Chang (Note)
Vice President
Michael Wu (Note)
Vice President
Min Cao (Note)
2017
01/01/2018 ~ 02/28/2018
Net Change in
Shareholding
Net Change in Shares
Pledged
Net Change in
Shareholding
Net Change in Shares
Pledged
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note: Dr. T.S. Chang, Dr. Michael Wu and Dr. Min Cao were promoted to Vice President, effective February 13, 2018. Their shareholdings were disclosed starting from that date.
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: Mei-ling Chen
Independent Director
Sir Peter L. Bonfield
Independent Director
Stan Shih
Independent Director
Thomas J. Engibous
Independent Director
Kok-Choo Chen
Independent Director
Michael R. Splinter
Director
President and Co-Chief Executive Officer
Mark Liu
Director
President and Co-Chief Executive Officer
C.C. Wei
Senior Vice President and Chief Information Officer
Stephen T. Tso
Senior Vice President, Chief Financial Officer and Spokesperson
Lora Ho
Senior Vice President
Wei-Jen Lo
Senior Vice President of TSMC and
Chief Executive Officer of TSMC North America
Rick Cassidy
Senior Vice President
Y.P. Chin
Senior Vice President
Y.J. Mii
Vice President
M.C. Tzeng
Vice President and Chief Technology Officer
Jack Sun
Vice President
N.S. Tsai
Vice President
J.K. Lin
Vice President
J.K. Wang
2017
01/01/2018 ~ 02/28/2018
Net Change in
Shareholding
Net Change in Shares
Pledged
Net Change in
Shareholding
Net Change in Shares
Pledged
-
-
-
-
-
-
-
-
-
(64,000)
-
(645,000)
-
(24,000)
-
(69,000)
-
(269,000)
(90,000)
-
20,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(30,000)
-
-
-
(1,000)
-
-
(3,000)
(27,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(Continued)
060
061
4.1.6 Stock Trade with Related Party: None.
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.
5,341,120,243
National Development Fund, Executive Yuan
1,653,709,980
Shares
%
Shares
Representative: Mei-ling Chen
Government of Singapore
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
Oppenheimer Developing Markets Funds, managed by
Oppenheimer Funds, Inc.
JPMorgan Chase Bank N.A. Taipei Branch in Custody for
Vanguard Total International Stock Index Fund, a series of
Vanguard Star Funds
20.60%
6.38%
-
2.52%
1.66%
1.22%
1.11%
-
654,494,172
430,430,649
317,463,515
287,172,429
285,329,063
1.10%
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Saudi
Arabian Monetary Agency
252,148,426
0.97%
Vanguard Emerging Markets Stock Index Fund, a series of
Vanguard International Equity Index Funds
237,443,845
0.92%
New Perspective Fund
221,552,994
0.85%
As of 07/02/2017 (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
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Ownership by TSMC (1)
Ownership by Directors, Managers and
Directly/Indirectly Owned Subsidiaries
(2)
Total Ownership
(1) + (2)
Shares
%
Shares
%
Shares
%
As of 12/31/2017
4.1.9 Long-term Investment Ownership
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
9,284
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
Not Applicable (Note 1)
100%
Not Applicable (Note 1)
TSMC Solar Europe GmbH (Note 2)
VisEra Technologies Company Ltd.
Systems on Silicon Manufacturing Co. Pte. Ltd.
Vanguard International Semiconductor Corp.
Xintec Inc.
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%
40.92%
34.84%
-
-
-
-
17,000
275,877,722
16.83% (Note 3)
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)
Note 1: Not applicable. These firms do not issue shares. TSMC’s investment is measured as a percentage of ownership.
Note 2: The dissolution procedures of TSMC Solar Europe GmbH are expected to be completed by the end of June 2018.
Note 3: TSMC’s Director, National Development Fund of Executive Yuan, holds 16.72% while other Directors and Management hold 0.11%.
-
-
-
-
-
-
-
-
-
-
-
-
0.01%
-
-
988,268,244
9,284
11,000,000
200
6,000
80,000
Not Applicable (Note 1)
Not Applicable (Note 1)
800
253,120,000
313,603
740,101,215
111,281,925
46,704,859
Not Applicable (Note 1)
Not Applicable (Note 1)
100%
100%
100%
100%
100%
100%
100%
100%
100%
86.94%
38.79%
45.16%
40.92%
34.85%
98.00%
98.00%
062
063
4.1.10 Share Information
4.1.12 Compensation to Directors and Profit Sharing Bonus to Employees
TSMC’s earnings per share in 2017 increase 2.7% from 2016 to NT$13.23 per share. The following table details TSMC’s market
price, net worth, earnings, and dividends per common share, as well as other data regarding return on investment.
Based on TSMC’s Articles of Incorporation, before paying dividends or bonuses to shareholders, TSMC shall set aside not more than
0.3% of its annual profit to directors as compensation and not less than 1% to employees as profit sharing bonus.
Market Price, Net Worth, Earnings, and Dividends Per Common Share
Unit: NT$, 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
2016
193.00
131.50
166.36
53.58
46.58
Weighted Average Shares (thousand shares)
25,930,380
25,930,380
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)
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 shareholders’ approval
4.1.11 Dividend Policy and Distribution of Earnings
12.89
7.00
-
12.91
23.77
4.2%
13.23
8.00 (Note 5)
-
15.88
26.26 (Note 5)
3.8% (Note 5)
2017
01/01/2018 ~ 02/28/2018
244.00
179.50
210.09
58.70
50.70 (Note 5)
266.00
232.50
246.03
-
-
-
-
-
-
-
-
-
As resolved by TSMC’s Board of Directors on February 13, 2018, a profit sharing bonus to employees was expensed based on a
certain percentage of 2017 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.
2017 Directors’ Compensation and Employees’ Profit Sharing Bonus
Directors’ Compensation (Cash)
Employee’s Profit Sharing Bonus (Cash)
Total
Board Resolution (02/13/2018)
Amount (NT$)
368,919,380
23,019,082,263
23,388,001,643
Note: NT$23,019,082,263 employees’ cash bonus has already been distributed following each quarter of 2017. The above employees’ profit sharing bonus will be distributed in July, 2018.
2016 Directors’ Compensation and Employees’ Profit Sharing Bonus
Directors’ Compensation (Cash)
Employees’ Profit Sharing Bonus (Cash)
Total
Board Resolution (02/14/2017)
Actual Result (Note)
Amount (NT$)
376,432,200
22,418,339,262
22,794,771,462
Amount (NT$)
376,432,200
22,418,339,262
22,794,771,462
Note: The above Directors’ Compensation and Employees’ Profit Sharing Bonus were expensed under the Company’s 2016 statement of comprehensive income and the same amounts were approved by
the Board of Directors at its meeting on February 14, 2017.
4.1.13 Impact to 2018 Business Performance and EPS Resulting from Stock Dividend Distribution: Not applicable.
4.1.14 Buyback of Common Stock: None.
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 free cash flow is sufficient to cover the previous level of dividend payment and any debt repayment. On February 13, 2018,
TSMC’s Board of Directors adopted a proposal recommending distribution of a cash dividend of NT$8 per share as shown in the
table below. The proposal will be implemented according to the relevant regulations, upon the approval of shareholders at the
Annual Shareholders’ Meeting on June 5, 2018.
Proposal to Distribute 2017 Earnings
Unit: NT$
Cash Dividends Paid to Common Shareholders (NT$8 per share)
207,443,043,664
064
065
4.2 Issuance of Corporate Bonds
4.2.1 Corporate Bonds
NTD Corporate Bonds
As of 02/28/2018
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$12,000,000,000
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$9,000,000,000
NT$9,000,000,000
NT$4,400,000,000
NT$13,000,000,000
NT$15,200,000,000
NT$13,700,000,000
NT$8,500,000,000
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 02/28/2018
Legal Advisor
Auditor
Repayment
Outstanding
Jones Day
Maples and Calder
Deloitte & Touche
Bullet
US$1,150,000,000
Redemption or Early Repayment Clause
At issuer’s option
Covenants
Credit Rating
Limitations on (1) liens and (2) sale and leaseback transactions
Aa3 (Moody’s Investors Service, 03/12/2018)
A+ (Standard & Poor’s Rating Services, 03/15/2013)
Conversion Right
None
Other Rights of
Bondholders
Amount of Converted
or Exchanged Common
Shares, ADRs or Other
Securities
Dilution Effect and Other Adverse Effects on
Existing Shareholders
Custodian
Not Applicable
None
None
066
067
(Continued)
Note: Issued by TSMC Global Ltd., a wholly-owned subsidiary of TSMC, and unconditionally and irrevocably guaranteed by TSMC.
4.2.2 Convertible Bond: None.
4.2.3 Exchangeable Bond: None.
4.2.4 Shelf Registration: None.
4.2.5 Bond with Warrants: None.
4.3 Preferred Shares
4.3.1 Preferred Share: None.
4.3.2 Preferred Share with Warrants: None.
4.4 Issuance of American Depositary Shares
Issuing Date
10/08/1997
11/20/1998
01/12/1999 -
01/14/1999
07/15/1999
08/23/1999 -
09/09/1999
02/22/2000 -
03/08/2000
04/17/2000
06/07/2000 -
06/15/2000
Total Amount (US$)
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
Citibank, N.A. – Taipei Branch
As of February 28, 2018, total number of outstanding ADSs was 1,068,164,518
See Deposit Agreement and Custody Agreement for Details
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)
2017
01/01/2018 -
02/28/2018
High
Low
Average
High
Low
Average
42.99
29.29
35.73
46.38
40.36
43.33
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, 2018, total number of outstanding ADSs was 1,068,164,518 after 79,670,687 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.
068
069
4.5 Status of Employee Stock Option Plan
4.5.1 Issuance of Employee Stock Options: None.
4.5.2 Employee Stock Options Granted to Management Team and to Top 10 Employees: None.
4.6 Status of Employee Restricted Stock
4.6.1 Status of Employee Restricted Stock: None.
4.6.2 Employee Restricted Stock Granted to Management Team and to Top 10 Employees: None.
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None.
4.8 Financing Plans and Implementation: Not applicable.
070
071
072
072
073
073
073
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 meet a growing variety of customer needs. The Company strives to provide the best overall value to its customers and
views customer success as TSMC 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 9,920 different products for 465 customers in 2017. These chips were used across a broad spectrum of
electronic applications, including computers and peripherals, information appliances, wired and wireless communication systems,
automotive and industrial equipment, consumer electronics such as digital TVs, game consoles, digital cameras and many other
devices and applications.
The rapid ongoing evolution of end products prompts customers to pursue differentiation using TSMCÕ s innovative technologies
and services and, at the same time, spurs 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 2017 and 2016
Unit: Shipments (thousand 12-inch equivalent wafers) / Net Revenue (NT$ thousands)
2017
2016
Shipments
Net Revenue
Shipments
Net Revenue
Wafer
Domestic (Note 1)
Export
Others (Note 2)
Domestic (Note 1)
Total
Export
Domestic (Note 1)
Export
1,650
8,799
N/A
N/A
1,650
8,799
89,796,998
784,775,622
7,969,232
94,905,389
97,766,230
879,681,011
1,849
7,757
N/A
N/A
1,849
7,757
Note 1: Domestic means sales to Taiwan.
Note 2: Others mainly include revenue associated with packaging and testing services, mask making, design services, and royalties.
5.1.4 Production in 2017 and 2016
Unit: Capacity / Output (million 12-inch equivalent wafers) / Amount (NT$ millions)
Wafers
Capacity
11-12
10-11
Output
10-11
9-10
Year
2017
2016
074
127,717,686
733,453,169
6,802,548
79,964,941
134,520,234
813,418,110
Amount
454,603
405,462
5.2 Technology Leadership
5.2.1 R&D Organization and Investment
In 2017 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
customers first-to-market, leading-edge technologies and
design solutions that contribute to their product success
in todayÕ s competitive environment. In 2017 the R&D
organization met these challenges by completing the transfer
to manufacturing of the industry leading 7nm technology,
the fourth 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 is on track to
ramp up volume production in 2018. TSMC 5nm technology
continues in full development stage, and the definition and
intensive early development efforts have been progressing 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 required by customers for mobile SoC and other
applications. Highlights in 2017 included: the high-volume
production of Gen-2 Integrated Fan-Out Package on Package
(InFO-PoP) for mobile application processor packaging;
successful qualification of Gen-3 InFO-PoP advanced packaging
technology for mobile applications and Integrated Fan-Out
on Substrate (InFO-oS) for die-partition and HPC applications;
0.18µm third generation BCD (Bipolar-CMOS-DMOS)
technology resulting in the leading performance quick charger
and wireless charger in 2017; successful production launch
of eFlash 40nm node, NOR-based cell technologies and
Split-Gate cell for consumer electronics applications such as
IoT, smartcards and micro controller units; development and
manufacturing qualification of 650V, 100V E-HEMT, and RF
30V D-MISFET GaN devices; and 40nm high-voltage phase-2
technology readiness for both LCD and OLED drivers.
TSMC maintains a network of important external R&D
partnerships and alliances with world-class research
institutions, including GRC/SRC in the US, and 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.
R&D Expenditures
Amount: NT$ thousands
3
6
4
,
2
3
7
,
0
8
3
0
7
,
7
0
2
,
1
7
2016
2017
1
9
9
,
4
4
1
,
3
1
01/01/2018~
02/28/2018
5.2.2 R&D Accomplishments in 2017
Highlights
● 7nm Technology
7nm technology offers significant performance, power and
density improvement compared to previous technology
generations. In 2017, TSMC successfully completed 7nm
technology qualification for volume production, as major
customers completed IP validation and started product
tape-out. Ramp-up to volume production is expected in first
half of 2018.
● 5nm Technology
Even though the semiconductor industry is approaching the
physical limits of silicon, 5nm technology still follows MooreÕ s
Law and delivers substantial density improvement with better
performance at same power or lower power consumption
at comparable performance. Development activities of 5nm
technology in 2017 were focused on test vehicle pilot run,
baseline process development, yield ramp, and transistor
performance enhancement. In 2018, TSMC will continue
075
5nm full development focusing on manufacturing baseline
process setup, yield learning, transistor and interconnect R/C
performance improvement and reliability evaluation, targeting
risk production in 2019.
● Lithography Technology
The main focus for R&D lithography in 2017 is 7nm technology
transfer, 5nm technology development and preparation
of 5nm beyond development. For 7nm development, the
technology was smoothly transferred and R&D is working with
the fab to clean up the remaining patterning issues. As for 5nm
development, EUV (extreme ultraviolet) lithography showed
promising imaging capability with expected good wafer yield.
R&D is working on EUV cost reduction, mask defect reduction
in scanner, and mask-making capability improvement. In 2018,
TSMC will intensively focus on improving EUV quality and
adopting more EUV layers in 5nm and beyond technology.
In 2017, 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 advanced lithography.
In 2017, R&D successfully implemented EUV mask technology
into 7nm and 5nm nodes. Solid progress was made on the
production yield and the reduction of blank native defects to
meet high-volume manufacturing requirements.
Integrated Interconnect and Packaging
Wafer Level System Integration (WLSI) is a disruptive
technology that leverages TSMC’s core competency in wafer
processes and capacity in building up heterogeneous system
integration and packaging to meet specific customer needs
in system-level performance, power, profile, cycle time
and cost. WLSI and its associated technology platforms,
including CoWoS®, InFO and Under-Bump-Metallurgy Free
Integration (UFI), are continuously evolving to fulfill diversified
customer needs in mobile computing, IoT, automotive, and
high-performance computing.
heterogeneous integration of a large logic chip at 16/12/7nm
and a growing number of HBM2 (second generation high
bandwidth memory) stacks. Consequently, the Si interposer
area has grown very fast to an astonishing ~1400mm2 in
some applications. TSMC continues to provide a complete
Si-to-package business model for CoWoS® manufacturing.
● Advanced Fan-Out Packaging
In 2017, TSMC continued to lead in high-volume
manufacturing (HVM) of InFO-PoP Gen-2 packaging for mobile
applications processors. During the year, the Company also
successfully qualified InFO-PoP Gen-3 advanced packaging
technology for mobile applications and started risk production
in Integrated Fan-Out on Substrate (InFO-oS) for HPC
die-partition application. The newly developed InFO-PoP could
be stacked with versatile commercial DRAM with competitive
performance. This InFO-PoP with backside RDL will boost
penetration into mobile application processor application with
wide coverage from premium to mid and low tiers. TSMC has
scheduled HVM readiness by end of 2018. To meet demand
with the coming of 5G mobile communications, TSMC has
developed an advanced InFO antenna in package (InFO-AIP)
technology, in which the RF chip and millimeter-wave antenna
are integrated into an InFO package. InFO-AIP technology
provides high-performance, low-power, small-size, low-cost
solutions for millimeter wave system applications such as
5G mobile, video streaming and virtual reality (VR) wireless
communications. This technology can also support the
fast-evolving applications in car radar, auto-driving and driving
safety.
● Advanced Interconnect
TSMC has made significant progress in innovative materials and
processes for continuous interconnect scaling. The Company
has developed and verified a novel low-k process using selective
deposition on dielectric, which can lower capacitance loading,
improve electric performance and enhance device reliability. In
addition, TSMC has developed a new barrier and copper gap
filling process to further extend copper material applications
and provide competitive wire conductance and via resistance
for advanced technology nodes. Verification of these new
materials and processes is progressing well for beyond 5nm
technologies.
● 3D IC and Si Interposer
Interposer CoWoS® demand is growing rapidly in the
high-performance computing (HPC) area, both in volume and
the number of products. Typical CoWoS® applications involve
Advanced Transistor Research
Innovation in transistor architectures and materials continues
to enable higher speed and reduced power consumption
in advanced logic technologies. TSMC is at the forefront of
transistor research in areas such as high mobility channel,
novel gate stack materials, and device structures for reduced
operating voltage and enhanced off state control. TSMC
research is well positioned to pave the way for continued
density scaling, performance enhancement and power
reduction to deliver 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 2017, in order to facilitate circuit design for the increasing
demand of 5G cutting-edge wireless technologies, TSMC
successfully delivered 22nm devices with a Si-based
millimeter-wave (mmWave) model to fulfill a customer’s
request for transceiver design to support faster application.
To achieve better performance in insertion loss and isolation,
TSMC reduced the key parameter Ron-Coff to~85 fs
(femtosecond) in 0.11µm process for cellar/Wi-Fi RF switch
applications as a lower-cost alternative.
● Power IC/Bipolar-CMOS-DMOS (BCD) Technology
TSMC’s 0.18µm third-generation BCD technology went into
production in 2017. The technology provides the world’s
leading performance for fast charger, wireless charger and
panel Power Management IC (PMIC). TSMC continually
enriches this platform to cover more PMIC applications with
40nm eFlash compatible 7-30V HV (high voltage) devices for
the first time to enable low power, high integration and small
footprint in mobile applications.
● Panel Drivers
In 2017, TSMC completed 40nm high-voltage phase-2
technology qualification and transferred to fab. Several
customers passed product qualification with good yield. This
technology supports Super Retina display driver ICs in LCD,
OLED and touch-display driver ICs for high-end mobile phones.
For next generation HV panel display driver, TSMC plans to
deliver high-speed, low active power 28HPC+ technology in
both wafer-on-wafer stacking and high-voltage monolithic
technologies.
● Micro-electromechanical Systems (MEMS) Technology
In 2017, 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
The next generations of 650V/100V enhanced-high electron
mobility transistor (E-HEMT) and RF 30V D-MISFET GaN devices
were developed and qualified for manufacturing in 2017.
● Complementary Metal-Oxide-Semiconductor (CMOS)
Image Sensor Technology
In 2017, TSMC had several achievements in CMOS image
sensor technology including: (1) high-performance sub-micron
pixel development, which was completed and made ready
for mass production; (2) quantum efficiency (QE), which
gained significant boost on near-infrared sensors by innovated
structure and usage of new material; and (3) pitch density of
wafer bond technology, which was pushed higher to maintain
the Company’s world-wide leading position.
● Embedded Flash/Emerging Memory Technology
TSMC achieved several major milestones in non-volatile
memory (NVM) technologies in 2017. At the 40nm node,
NOR-based cell technology with Split-Gate cell was successfully
mass-produced to support consumer electronics applications
such as IoT, smartcards and micro controller units (MCU). This
technology will be incorporated in automobile electronics
and mass production is expected in first half of 2018.
Embedded flash development on the 28nm low-power and
28nm high-performance mobile computing platforms has
demonstrated preliminary yield and reliability, and technical
qualification is expected in 2019 for low-leakage applications
in areas such as automobile electronics and micro controller
units. TSMC is developing embedded resistive random access
memory (RRAM) technology as a low-cost solution to split-gate
technology, completing the 40nm technical qualification. With
production expected in 2018, this technology will be mainly
applied to the price sensitive IoT market. 22nm embedded
resistive memory technology is also being developed.
Compared to 40nm technology, 22nm embedded resistive
memory unit cell area will be substantially scaled and expected
to enter mass production in 2020. TSMC is also developing
embedded MRAM (Magnetoresistive Random Access Memory)
technology as embedded-flash technology replacement beyond
40nm node for many emerging applications.
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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
(PDKs) and technology files.
For TSMC’s latest advanced technologies of 7nm, 12nm and
3D IC design enablement platform, EDA tools, features and IP
solutions are readily available for customers to adopt to meet
their product requirements at various design stages. 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 40 solution providers.
Overall, TSMC and its IP partners have accumulated a portfolio
of 16,000 IP titles, from 0.35µm-7nm with major IP types to
meet customer design needs. TSMC and its EDA partners have
created numerous deliverables from 0.13µm-7nm that have
successfully supported customer tape-outs.
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
EDA tool certification is an essential foundation for IP and
customer designs to ensure that the features meet TSMC
process technology requirements, with certification results
that can be found on TSMC-Online. There are corresponding
technology files and process development kits (PDKs) available
for customers to download and design together with certified
EDA tools. TSMC provides a broad range of 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 design
rule checking (DRC), layout verification of schematic (LVS),
resistance-capacitance (RC) extraction, automatic place and
route, and a layout editor to ensure process technology
information is accurately represented in electronic design
automation tools. By 2017, TSMC had provided more
than 9,000 technology files and more than 300 PDKs via
TSMC-Online. There are more than 100,000 customer
downloads of these files every year.
Library and IP
Silicon Intellectual property (IP) is the basic building block
of integrated circuit designs. Various IP types are available
to support different customer design applications including
foundation IP, analog IP, embedded memory IP, interface IP
and soft IP. TSMC and its alliance partners offer customers
a rich portfolio of reusable IPs, which are essential building
blocks for many circuit designs. In 2017, the Company
expanded its library and silicon IP portfolio to contain more
than 16,000 items, a 33% increase over 2016.
Design Methodology and Flow
Reference flows are built on top of certified EDA (Electronic
Design Automation) tools to provide additional design flow
methodology innovations that can help boost productivity. In
2017, TSMC addressed critical design challenges associated
with the new 7nm+, 12nm FinFET and 3DIC 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. As of end of 2017, TSMC
has accumulated over 40,000 patent applications, and
over 30,000 patent grants worldwide. In 2017, TSMC has
obtained 2,428 U.S. patents to rank #9 among U.S. patent
assignees, making the ranking of top 10 U.S. patent assignees
for the second consecutive year. Additionally, TSMC actively
develops worldwide patent strategy, ranking #1 among
patent applicants in Taiwan, and obtaining over 1,100
patents in Taiwan and China. In terms of patent quality, the
average allowance rate of TSMC’s U.S. applications is 98%
and ranks #1 among top 10 U.S. patent assignees. Going
forward, TSMC will continue to implement a unified strategic
plan for intellectual capital management, combining with
strategic considerations and close alignment with the business
objectives, to drive the timely creation, management and use
of intellectual property.
TSMC has established a process to generate company value
from intellectual property by aligning intellectual property
strategy with R&D, business operation objectives, marketing,
and corporate development strategies. Intellectual property
rights protect the company’s freedom to operate, enhance
competitive position, and provide leverage to participate in
many profit-generating activities.
TSMC has worked continuously to improve the quality of
intellectual property portfolio and to reduce the maintenance
costs. TSMC will continue to invest in intellectual property
portfolio and intellectual property management system to
ensure the company’s technology leadership and receive
maximum business value from intellectual property rights.
5.2.6 TSMC University Collaboration Programs
In recent years TSMC has significantly expanded its
collaboration on research projects at some of Taiwan’s most
prestigious universities. The mission of these projects is
twofold: to increase the number of highly qualified students
suitable for employment in the 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. In the past five years,
TSMC has established research centers at four institutions:
National Chiao Tung University, National Taiwan University,
National Cheng Kung University and National Tsing Hua
University. In 2015, TSMC started collaborating with the
International College of Semiconductor Technology, National
Chiao Tung University 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, 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 with enthusiastic managers at TSMC in
order to promote excellence in the development of advanced
silicon design technologies and nurture new generations of
engineering talent in the semiconductor field.
The program provides access to TSMC silicon process
technologies for digital and analog/mixed-signal circuits,
RF designs and micro-electromechanical system designs.
Participants 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.
For advanced CMOS logic, the Company’s 7nm and 5nm
CMOS nodes continue progressing in the pipeline. In
addition, the Company’s reinforced exploratory R&D work
is focused on beyond-5nm node; in areas such as 3D
transistors, new memory, and low-R interconnect, on track
to establish a solid foundation to feed into technology
platforms. For 3D IC advanced packaging, innovations for
energy-efficient sub-system integration and scaling provide
further augmentation to CMOS logic applications. For
specialty technologies, the Company has intensified focus
on new specialty technologies such as RF and 3D intelligent
sensors targeting 5G and smart IoT applications. In 2017, a
new Corporate Research function is established to focus on
novel materials, process, devices, nanowires, memories, and
etc. for long term horizon which is beyond 8-10 years. The
Company also continues to collaborate with external research
bodies from academia to 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.
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Summary of TSMC’s Major Future R&D Projects
Project Name
Description
Risk Production
(Estimated Target
Schedule)
5nm logic platform
technology and
applications
Beyond-5nm logic
platform technology and
applications
3D IC
Next-generation
lithography
Long-term research
5th generation FinFET CMOS platform
technology for SoC
6th generation FinFET CMOS platform
technology for SoC
Cost-effective solution with better form
factor and performance for System-in-
Package (SiP)
EUV lithography and related patterning
technology to extend Moore’s Law
Specialty SoC technology (including new
NVM, MEMS, RF, analog) and transistors
for 8-10 year out horizon
2019
2021
2018-2020
2018-2020
2018-2025
The projects above account for roughly 70% of the total R&D budget for 2018, estimated to be
around 8% of 2018 revenue.
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 – Fabs 12, 14 and 15. The
combined capacity of the three facilities exceeded 7 million
12-inch wafers in 2017. Production within these three facilities
supports 0.13µm, 90nm, 65nm, 40nm, 28nm, 20nm,
16nm, 10nm, and 7nm 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 5nm 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 and the geometry
keeps shrinking, the need for tighter process control has
become extremely challenging for manufacturing. TSMC’s
unique manufacturing infrastructure is tailored for a diversified
product portfolio, which uses strict process control to attain
tightened specs and higher product quality and 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-reaction, which
have demonstrated remarkable results in yield enhancement,
workflow improvement, fault detection, cost reduction and
shortening of the R&D cycle.
TSMC has developed systems for precise fault detection
and classification, 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 special process requirements such
as automotive products and to cope with diversified product
demand simultaneously.
5.3.3 Agile and Intelligent Operations
The Company’s sophisticated agile operation system continues
to drive manufacturing excellence by integrating demand
and capacity modeling, lean Work in Process (WIP) line
management, and lot dispatching and scheduling to provide
fast ramp-up, 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,
intelligent mobile devices and mobile robots to consolidate
data collection, yield traceability, workflow efficiency, and
material transportation to continuously enhance fab operation
efficiency.
Following its commitment to manufacturing excellence, TSMC
has integrated automatic manufacturing system and machine
learning technology, and then achieve intelligent fabs. Machine
learning technology revolutionizes fab operation mode from
“auto” to “intelligent”, and widely applied in scheduling and
dispatching, people productivity, equipment productivity,
process and equipment control, quality defense, and robotic
control. So as to optimize efficiency, flexibility and quality
while maximizing cost effectiveness and accelerating overall
innovation.
5.3.4 Raw Materials and Supply Chain Management
In 2017, TSMC continued to review and resolve supply issues, quality issues and potential supply chain risks through the
collaboration of teams formed by operations, quality control and business organizations. TSMC also worked with suppliers to
advance material and process innovation, improve quality and create recycling economy with benefits from win-win solutions.
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
Avantor
BASF
Entegris
Fujifilm Electronic Materials
Kanto PPC
Kuang Ming
Merck
RASA
Tokuyama
Versum
Wah Lee
3M
Asahi Kasei
Dow Chemical
Fujifilm Electronic Materials
JSR
Merck
Nissan
Shin-Etsu Chemical
Sumitomo
T.O.K.
Air Liquide
Air Products
Central Glass
Entegris
Linde LienHwa
Praxair
SK Materials
Taiwan Material Technology
Taiyo Nippon Sanso
Versum
3M
Cabot Microelectronics
Dow Chemical
Fujibo
Fujifilm Electronic Materials
Fujimi
JSR
Kinik
Versum
These 5 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.
World-wide demand for raw wafer has remained strong
through 2017 and expected to continue in 2018.
● 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 support 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 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.
● TSMC takes various approaches with suppliers to better manage the cost and supply.
These 12 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.
● TSMC encourages and engages with chemical suppliers to implement innovative green
solutions for waste reduction
These 10 companies are the major worldwide suppliers of
lithographic materials.
● TSMC works closely with 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 10 companies are the major worldwide suppliers of
specialty gases.
● The majority of these 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 9 companies are the major worldwide suppliers of
CMP (Chemical Mechanical Polishing) materials.
● TSMC works closely with 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 some of their manufacturing sites
closer to TSMC’s major manufacturing facilities, thereby significantly improving
procurement logistics and reducing supply risks.
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081
Suppliers Accounted for at Least 10% of Annual Consolidated Net Procurement
Unit: NT$ thousands
Supplier
Company A
Company B
VIS
Company C
Company D
Company E
Others
Total Net Procurement
2017
2016
Procurement
Amount
As % of 2017 Total
Net Procurement
Relation to TSMC
Procurement
Amount
As % of 2016 Total
Net Procurement
Relation to TSMC
8,868,953
8,029,455
5,755,727
5,579,238
5,156,154
37,707
19,766,419
53,193,653
17%
None
15%
None
11%
Investee accounted for using
equity method
10%
None
10%
None
0%
None
37%
100%
9,140,880
7,065,392
6,732,297
3,785,553
3,832,363
5,527,526
16,100,032
52,184,043
17%
None
14%
None
13%
7%
7%
Investee accounted for using
equity method
None
None
11%
None
31%
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’ requirements
for time-to-market delivery, product reliability, and competitiveness over a broad range of product market segments. Automotive
quality improvement program is implemented to meet automotive customers’ low Defect Parts Per Million (DPPM) requirement.
Q&R technical services assist customers in the technology developmental stages and product design stages to design-in superior
product reliability. In 2017, Q&R has worked with R&D in advanced logic technology, specialty technology and advanced packaging
technology development and qualification. Q&R has successfully qualified the leading-edge 7nm technology (the third FinFET
generation) and characterized process window with Fab for mass production in 2018. TSMC has led the industry in 7nm technology
qualification and built up a complete model to simulate thermal dissipation effect during FinFET operation. In addition, Electronic
Design Automation (EDA) tool for thermal simulation has been introduced to provide design guidance to customers. Through
the 7nm development, profound reliability learning in new material, new process steps and new reliability methodology provided
important foundation for 5nm technology development. For specialty technologies, Q&R completed the Diffractive Optical Element
(DOE) product qualification and ramp into mass production on schedule to support one of our key customer’s new product launch
with 3D sensing and facial recognition application, and the DOE units were shipped to our customer. In addition, Q&R worked
with customers to complete stacked CMOS Image Sensor (CIS) Column Level Hybrid Bond (CLHB) process/product qualification
and successfully shipped to customers in 2017. In high-voltage technologies, 0.13µm Bipolar-CMOS-DMOS (BCD) and 0.18µm
second generation BCD process passed automotive grade qualification. For CoWoS® packaging technologies, Q&R integrated High
Bandwidth Memory with advanced silicon technology and completed component level, board level and customer product system
level qualifications. It has been in production and has shipped to key customers without quality or reliability issues. The technology
enables the applications of High Performance Computing and Artificial Intelligence. In addition, Integrated Fan-Out (InFO) assembly
technology for mobile application has been moving into the second generation of manufacturing. Over 100 million InFO devices
have been shipped without any InFO related quality or reliability issues.
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 Total Quality Excellence (TQE), Design of Experiment (DOE),
Statistical Process Control (SPC) and Metrology in 2017 including the promotion and training of Deep/Machine Learning. Deep
machine learning methodology was successfully applied for wafer defects automatic classification and advanced spectral analysis to
detect differences among processes and equipment such that improvement actions can be triggered. In 2018, Q&R will continue
the development of employees’ capabilities by promoting and
using new methodology to enhance TSMC competitiveness. In
response to raw materials quality improvement, Q&R coached
raw materials suppliers to participate in the 2017 National
Quality Control Circle Competition and achieved good results.
Through this activity, quality improvement and competitiveness
enhancement were thus promoted.
In the ramping of leading edge technologies, one of the
most challenging tasks in electrical failure analysis (EFA), is
to determine the physical location of which one among the
millions of transistors in a chip is causing the failure. In 2017,
Q&R acquired industry leading capability in this area that is
not only suitable for 7nm technology but is extendable to 5nm
technology node.
The health and safety of employees has always been a priority
in TSMC. In 2017, raw materials suppliers were required to
provide non-PFOA (Perfluorooctanoic acid) raw materials
to replace the existing PFOA-containing raw materials to
fulfill the green procurement policy. Since the end of 2015,
Q&R has collaborated with Environmental Safety and Health
(ESH) organization to build capability to detect and analyze
carcinogenic, mutagenic and reprotoxic (CMR) substances.
In 2017, TSMC also continued to invest in safety equipment
such as better hoods and exhausts to improve the laboratory
environment in which TSMC employees work.
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 2017, a third-party audit verified
the effectiveness of TSMC quality management systems in
compliance with IATF 16949: 2016 and IECQ QC 080000:
2012 certificates requirements. In addition, Q&R and Fabs have
jointly worked on new enhancement for automotive product
quality improvement including design rule implementation
and migration to Automotive Quality System 2.0 in 2017
which covers Fab in-line and Wafer Acceptance Test Cpk
(process capability index) tightening and maverick wafers/lots
handling. Q&R also provides dedicated resources for field/line
return analysis, timely physical failure analysis (PFA) for process
improvement to meet automotive customers’ low DPPM
requirement.
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., Bitmain Technologies Limited, Broadcom Limited,
Hisilicon Technologies Co. Ltd, Intel Corporation, Marvell
Technology Group Ltd., MediaTek Inc., NVIDIA Corporation,
NXP Semiconductors N.V., Qualcomm Inc., Sony Corporation,
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 revenues and 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 up-to-date
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
customer needs are fully 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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083
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 stay in close touch for better service and collaboration.
● the foundry segment’s largest, most comprehensive and
robust silicon-proven IP (intellectual properties) and library
portfolio; and
by actively encouraging employees to nurture and enjoy a
healthy family life, to develop outside interests, to expand
social participation, and, in general, live a happy life.
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 healthy relationships, and healthy
relationships lead 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
2017
2016
Net Revenue
As % of 2017 Total
Net Revenue
Relation to TSMC
Net Revenue
As % of 2016 Total
Net Revenue
Relation to TSMC
214,228,766
64,096,227
699,122,248
977,447,241
22%
None
7%
None
71%
100%
157,185,418
107,463,238
683,289,688
947,938,344
17%
None
11%
None
72%
100%
5.4.2 Open Innovation Platform® (OIP) Initiative
Innovation has always been an exciting and challenging proposition. Competition among semiconductor companies continues
to grow more intense in the face of increasing customer consolidation and the commoditization of technology at more mature,
conventional levels. Companies must find ways to keep 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” and it is an
“outside in” approach to complement traditional “inside out” methods. TSMC has adopted this path to innovate via its Open
Innovation Platform® 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 using TSMC’s IP, design implementation and design for
manufacturability (DFM) 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 electronic design automation certification program, delivering timely
design tool enhancement required by new process technologies;
● comprehensive design ecosystem alliance programs covering
market-leading EDA, library, IPs, and design service partners.
TSMC’s OIP alliance consists of 21 EDA partners, 40 IP partners,
and 23 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.
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.
TSMC held its 2017 Open Innovation Platform® Ecosystem
Forum in September in Santa Clara, California with over 1,300
attendees. The annual event demonstrates how TSMC and
our ecosystem partners jointly develop design solutions on top
of TSMC’s advanced technologies through OIP collaboration.
TSMC executive delivered key messages to help customer
products’ time-to-market. TSMC has expanded design
ecosystem solutions to address market demands with four
application specific design platforms consisting of Mobile,
High Performance Computing (HPC), Internet of Things and
Automotive. In addition, TSMC continues to enhance 3DIC
solutions to integrate high bandwidth memory (HBM) on
integrated fan-out design flow to meet customers’ system
integration and high memory bandwidth requirements.
Furthermore, machine learning is being leveraged to enhance
customers’ design power, performance and area (PPA) and
productivity.
5.5 Human Capital
TSMC believes that all employees, including contractors, and
interns, should be treated with dignity and respect. Reflecting
this commitment to employees, the Company has implemented
a “TSMC Human Rights Policy,” which is based on “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,” and adopts Responsible Business Alliance (RBA)
Code of Conduct.
TSMC participates in the Responsible Business Alliance, RBA as
a full member; the Company refrains from forcing employees
to do unwilling labor service, listens to the employees, keeps
communication channels open, respects employees’ right
to form a labor union, and does not in any way impede
employees’ freedom of association.
5.5.1 Workforce Structure
At the end of 2017, TSMC had 48,602employees worldwide,
including 5,107 managers, 21,895 professionals, 4,082
assistants, and 17,518 technicians. The following table
summarizes TSMC’s workforce as of the end of February, 2018:
12/31/2016
12/31/2017
02/28/2018
Job
Total
Gender
Education
Managers
Professionals
Assistant
Engineer/Clerical
Technician
Male (%)
Female (%)
Ph.D.
Master’s
Bachelor’s
Other Higher
Education
High School
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%
5,107
21,895
4,082
17,518
48,602
60.7%
39.3%
4.6%
41.5%
26.3%
11.4%
5,150
21,913
4,102
17,445
48,610
60.8%
39.2%
4.7%
41.6%
26.2%
11.4%
16.2%
16.1%
35.7
8.4
35.8
8.5
Human capital is TSMC’s most treasured asset. In this regard,
the Company’s main role is to provide jobs with challenging,
meaningful work in a safe environment with excellent
compensation and benefits. TSMC goes beyond this, however,
Average Years of Age
Average Years of Service
084
085
5.5.2 Recruitment
The key elements of TSMC’s success and growth depend on
our employee who shares common goals and interests. In
order to strengthen growth momentum, the Company is
dedicated to recruiting top-notch professionals for all positions
available. TSMC is an equal opportunity employer and operates
on the principles of open and fair recruitment. The hiring
principals are integrity and ability, and 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 more than 3,600 employees in 2017, including over
2,500 managers and professionals, as well as over 1,000
assistants and technicians.
5.5.3 People Development
Employee development is an integral and critical factor for
the growth of any company and should be goal oriented,
disciplined and planned. TSMC is committed to stretching
employees’ potential by providing challenging work, global
workplace and internal rotation opportunities. TSMC also
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.
In order to actively develop talent and create a
high-performance work environment, TSMC integrates
internal and external resources and designs diversified
development programs based on business objectives, the
nature of the individual’s job, work performance and career
development path. The Company provides employees a diverse
network of learning resources, including on-the-job training,
classroom training, e-learning, coaching, mentoring and job
rotation; it also creates an educational atmosphere through
learning activities in response to organization development
requirements and employee capability enhancement goals.
The Company provides employees with a wide range of onsite
general, professional and management training programs. 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 – for basic training and job orientation.
In addition, 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 – 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
and personal effectiveness.
● Professional/functional – 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 – management development programs
tailored to the needs of managers at all levels based on their
managerial capabilities and responsibilities, including new,
experienced, and senior managers; optional courses are also
available.
● Direct labor – training for production-line employees to
acquire the knowledge, skills and approaches they need to
perform their jobs well and to pass certification for operating
equipment. Includes direct labor skill training, technician
“Train the Trainer” training, and manufacturing leader
training.
● Customized – programs tailored to the needs of the
organization and/or the employee’s development plan.
In 2017, TSMC conducted 973 internal training sessions, which
translated to a companywide total of 627,063 training hours
with the participation of 539,334 attendees. Employees on
average attended over 13 hours of training with total training
expenses reaching NT$63,277,222.
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
Employment at TSMC entitles employees to a comprehensive
compensation and benefits program above the industry
average. 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 sound business results for
the past 30 years, the actual total compensation received by
employees has also been above the industry’s average.
TSMC’s compensation program includes a monthly salary,
employee cash bonuses based on quarterly business results,
and an employee profit sharing bonus based on annual profits.
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 so as to achieve
win-win among the Company, shareholders and employees.
The Company determines the amount of the cash bonus and
profit sharing bonus based on operating results and industry
practice in the Republic of China. The amount and distribution
approach of the employee cash bonus and profit sharing
bonus are recommended by the Compensation Committee
to the Board of Directors for approval. Individual rewards are
based on each employee’s job responsibility, contribution and
performance.
The same philosophy applies to TSMC’s compensation
programs of overseas subsidiaries. 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 with the Company.
5.5.5 Employee Engagement
The Company encourages employees to maintain a healthy and
well-balanced life while pursuing their goals effectively. TSMC
continuously facilitate employee communication, and provide
employee caring, benefit, rewards and recognition programs,
including:
Employee Communication
TSMC values two-way communication and is committed to
keeping communication channels open and transparent for
the management, subordinates and peers. To ensure that
employees’ opinions and voices are heard and their issues
are addressed effectively, impartial submission mechanisms,
including quarterly labor-management communication
meetings, are in place to provide fair and 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 administered by the
audit committee and the ombudsman system led by an
appointed vice president – two distinct channels, each with
strict confidentiality – to handle complaints regarding major
management, financial, auditing, ethics and business conduct
issues.
● The employee opinion box, which 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.
086
087
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
TSMC has many internal communication channels, a major reason why the relationship between management and employees has
been harmonious these years. The Company respects the employees’ right to form a labor union, however, no employees have
pursued this avenue or issued a request to form one so far.
In 2017 and in 2018 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 78 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 four fabs in Hsinchu,
Taichung, 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:
● TSMC 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 TSMC technicians
and group leaders whose outstanding performances 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 encourages and
recommended employees to participate in external talent
activities and competitions. In 2017, distinguished TSMC
employees continued to be recognized through a host of
national awards, including National Model Labor Award,
Distinguished Engineers Award, Outstanding Young Engineer
Award, and National Manager Excellence Award.
5.5.6 Retention
Employees’ overall satisfaction with the Company’s efforts are
reflected in the 2016 TSMC Core Values Survey, which is held
biennially in 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% 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 2017, the Company recorded a manageable turnover rate
of 4.2%. Although a bit lower than healthy employee outflow
defined as 5% to 10%, the Company is still in continuous
growth mode and the total number of new staff 3,600
accounts for 7.5% of all employees, making the organization
stay energized.
5.5.7 Retirement Policy
TSMC’s retirement policy is set according to Republic of China
laws as well as to the local labor standards and labor pension
practices of various respective regions. With the Company’s
sound financial system, TSMC ensures employees solid pension
contributions 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 71-72.
088
089
090
090
091
091
6.
Financial Highlights and Analysis
6.1 Financial Highlights
6.1.1 Condensed Balance Sheet
Condensed Balance Sheet from 2013 to 2017 (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
2013
2014
(Adjusted)
2015
2016
2017
358,486,654
626,565,639
746,743,991
89,183,810
30,056,279
34,993,583
817,729,126
46,153,916
857,203,110
41,569,074
792,665,913
818,198,801
853,470,392
997,777,687
1,062,542,322
11,490,383
11,228,217
13,531,510
6,696,857
14,065,880
8,244,452
14,614,846
10,179,727
14,175,140
16,371,997
1,263,054,977
1,495,049,086
1,657,518,298
1,886,455,302
1,991,861,643
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
212,228,594
367,810,877
222,655,225
434,883,819
590,466,102
259,286,171
259,296,624
259,303,805
55,858,626
55,989,922
56,300,215
318,239,273
499,751,936
178,164,903
496,404,176
677,916,839
259,303,805
56,272,304
358,706,680
(Note 4)
110,395,320
469,102,000
(Note 4)
259,303,805
56,309,536
518,193,152
440,407,301
14,170,306
705,165,274
588,481,793
25,749,291
894,293,586
738,711,303
11,774,113
1,072,008,169
1,233,362,010
890,495,506
(Note 4)
1,663,983
(26,917,818)
847,508,255
1,046,201,111
1,221,671,719
1,389,248,261
1,522,057,533
769,722,404
929,517,630
1,066,089,436
1,207,735,598
266,830
127,221
962,760
802,865
(Note 4)
702,110
847,775,085
1,046,328,332
1,222,634,479
1,390,051,126
1,522,759,643
769,989,234
929,644,851
1,067,052,196
1,208,538,463
(Note 4)
Note 1: The financial statements for 2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the financial statements for 2014-2017 were prepared in accordance with 2013 Taiwan-IFRSs
version. The financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments included 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$652,585 thousand in total equity before distribution.
Note 2: Long-term investments consist of noncurrent available-for-sale financial assets, held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 3: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 4: Pending shareholders’ approval.
Condensed Balance Sheet from 2013 to 2017 (Unconsolidated) (Note 1)
Unit: NT$ 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
2013
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
2017
426,913,080
326,330,737
831,784,912
9,391,418
5,265,368
443,781,164
397,290,976
436,769,337
464,401,415
979,401,337
1,016,355,970
10,047,991
6,816,676
9,870,127
11,992,542
1,208,579,003
1,422,961,653
1,599,685,515
1,837,338,144
1,939,389,391
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
489,689,877
139,912,669
448,089,883
629,602,546
308,383,240
(Note 4)
108,948,618
417,331,858
(Note 4)
259,286,171
259,296,624
259,303,805
259,303,805
259,303,805
55,858,626
55,989,922
56,300,215
56,272,304
56,309,536
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
1,233,362,010
738,711,303
890,495,506
(Note 4)
11,774,113
1,663,983
(26,917,818)
847,508,255
1,046,201,111
1,221,671,719
1,389,248,261
1,522,057,533
769,722,404
929,517,630
1,066,089,436
1,207,735,598
(Note 4)
Note 1: The financial statements for 2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the financial statements for 2014-2017 were prepared in accordance with 2013 Taiwan-IFRSs
version. The financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments included 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$652,610 thousand in total equity before distribution.
Note 2: Long-term investments consist of held-to-maturity financial assets, financial assets carried at cost and investments accounted for using equity method.
Note 3: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 4: Pending shareholders’ approval.
092
093
6.1.2 Condensed Statement of Comprehensive Income
6.1.3 Financial Analysis
Condensed Statement of Comprehensive Income from 2013 to 2017 (Consolidated) (Note 1)
Financial Analysis from 2013 to 2017 (Consolidated) (Note 1)
Unit: NT$ 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
2013
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
204,371,185
275,568,979
2015
2016
2017
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
977,447,241
494,826,402
385,559,223
10,573,807
396,133,030
343,146,848
(28,821,631)
314,325,217
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)
188,146,790
263,881,771
306,573,837
334,247,180
343,111,476
(127,853)
(117,813)
(17,670)
91,056
35,372
204,505,782
275,670,991
291,867,757
323,186,736
314,294,993
(134,597)
7.26
(102,012)
10.18
(25,772)
11.82
84,311
12.89
30,224
13.23
Note 1: The financial statements for 2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the financial statements for 2014-2017 were prepared in accordance with 2013 Taiwan-IFRSs
version. The financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments included 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$46,054 thousand in total comprehensive income for the year.
Note 2: Based on weighted average shares outstanding in each year.
Condensed Statement of Comprehensive Income from 2013 to 2017 (Unconsolidated) (Note 1)
Unit: NT$ 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
2013
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
204,505,782
275,670,991
Basic Earnings Per Share (Note 2)
7.26
10.18
2015
2016
2017
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
969,136,109
478,937,691
374,690,117
18,626,059
393,316,176
343,111,476
(28,816,483)
314,294,993
13.23
Note 1: The financial statements for 2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the financial statements for 2014-2017 were prepared in accordance with 2013 Taiwan-IFRSs
version. The financial statements of 2014 were adjusted to retrospectively apply newly effected GAAP. Adjustments included 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$)
Cash Flow
Cash Flow Ratio (%)
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 (%)
There’s no deviation of 2017 vs. 2016 over 20%.
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
183.05
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
54
12.38
9.03
2017
23.55
153.70
238.97
217.94
119.95
7.74
47.16
7.88
46.32
16.82
0.95
0.50
17.84
23.57
148.69
152.77
35.11
13.23
13.23
163.17
112.41
11.08
2.16
1.01
91
58
3.11
2.65
Note 1: Before 2012, financial statements were prepared in accordance with R.O.C GAAP. The financial statements for 2012-2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the
financial statements for 2014-2017 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)
094
095
Financial Analysis from 2013 to 2017 (Unconsolidated) (Note)
6.1.4 Auditors’ Opinions from 2013 to 2017
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
There’s no deviation of 2017 vs. 2016 over 20%.
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
2017
21.52
160.48
141.63
118.68
144.04
7.86
46.44
8.39
43.49
16.39
0.97
0.51
18.29
23.57
144.50
151.68
35.40
13.23
13.23
184.45
99.42
10.98
2.22
1.01
Note: Before 2012, financial statements were prepared in accordance with R.O.C GAAP. The financial statements for 2012-2013 were prepared in accordance with 2010 Taiwan-IFRSs version, and the
financial statements for 2014-2017 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
2013
2014
2015
2016
2017
CPA
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Hung-Wen Huang
Yih-Hsin Kao, Yu-Feng Huang
Yih-Hsin Kao, Yu-Feng Huang
Audit Opinion
An Unqualified Opinion
An Unqualified Opinion
An Unqualified Opinion
An Unmodified Opinion (Note)
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 2017 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 13, 2018
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 2017 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.
096
097
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
2017
857,203,110
41,569,074
1,062,542,322
14,175,140
16,371,997
2016
817,729,126
46,153,916
997,777,687
14,614,846
10,179,727
1,991,861,643
1,886,455,302
358,706,680
110,395,320
469,102,000
259,303,805
56,309,536
1,233,362,010
(26,917,818)
1,522,057,533
1,522,759,643
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
Difference
39,473,984
(4,584,842)
64,764,635
(439,706)
6,192,270
105,406,341
40,467,407
(67,769,583)
(27,302,176)
0
37,232
161,353,841
(28,581,801)
132,809,272
132,708,517
%
5%
-10%
6%
-3%
61%
6%
13%
-38%
-5%
0%
0%
15%
-1,718%
10%
10%
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 other assets: The increase was mainly due to increase in deferred income tax assets and refundable deposits.
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.
Decrease in other equity: The decrease was mainly due to increase in currency exchange loss arising from translation of foreign
operations in 2017.
● 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
2017
436,769,337
464,401,415
1,016,355,970
9,870,127
11,992,542
2016
443,781,164
397,290,976
979,401,337
10,047,991
6,816,676
1,939,389,391
1,837,338,144
308,383,240
108,948,618
417,331,858
259,303,805
56,309,536
1,233,362,010
(26,917,818)
1,522,057,533
308,177,214
139,912,669
448,089,883
259,303,805
56,272,304
1,072,008,169
1,663,983
1,389,248,261
Difference
(7,011,827)
67,110,439
36,954,633
(177,864)
5,175,866
102,051,247
206,026
(30,964,051)
(30,758,025)
0
37,232
161,353,841
(28,581,801)
132,809,272
%
-2%
17%
4%
-2%
76%
6%
0%
-22%
-7%
0%
0%
15%
-1,718%
10%
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 other assets: The increase was mainly due to increase in deferred income tax assets and refundable deposits.
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.
Decrease in other equity: The decrease was mainly due to increase in currency exchange loss arising from translation of foreign
operations in 2017.
● Major Impact on Financial Position
The above deviations had no major impact on TSMC’s financial position.
● Future Plan on Financial Position: Not applicable.
098
099
6.2.2 Financial Performance
Consolidated
Unit: NT$ thousands
Item
Net Revenue
Cost of Revenue
Gross Profit before Unrealized Gross Profit on Sales to
Associates
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 Loss, 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
2017
977,447,241
482,616,286
494,830,955
(4,553)
494,826,402
107,901,668
(1,365,511)
385,559,223
10,573,807
396,133,030
52,986,182
343,146,848
(28,821,631)
314,325,217
343,111,476
314,294,993
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
Difference
29,508,897
9,539,113
19,969,784
24,520
19,994,304
10,997,535
(1,395,324)
7,601,445
2,572,205
10,173,650
1,365,038
8,808,612
(17,754,442)
(8,945,830)
8,864,296
(8,891,743)
%
3%
2%
4%
-84%
4%
11%
-4,680%
2%
32%
3%
3%
3%
-160%
-3%
3%
-3%
● Analysis of Deviation over 20%
Decrease in unrealized gross profit on sales to associates: The decrease was mainly due to lower sales to associates in the fourth
quarter of 2017.
Decrease in other operating income and expenses, net: The decrease was mainly due to higher net loss on disposal of property,
plant and equipment in 2017.
Increase in non-operating income and expenses: The increase was mainly due to higher interest income in 2017.
Increase in other comprehensive loss, net of income tax: The increase was mainly due to increase in currency exchange loss
arising from translation of foreign operations in 2017.
● Sales Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders” on page 4-7 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 Unrealized Gross Profit on Sales to
Subsidiaries and Associates
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 Loss, Net of Income Tax
Total Comprehensive Income for the Year
2017
969,136,109
490,196,856
478,939,253
(1,562)
478,937,691
102,985,909
(1,261,665)
374,690,117
18,626,059
393,316,176
50,204,700
343,111,476
(28,816,483)
314,294,993
2016
936,387,291
474,552,913
461,834,378
(26,082)
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
Difference
32,748,818
15,643,943
17,104,875
24,520
17,129,395
10,824,181
(1,345,630)
4,959,584
3,167,632
8,127,216
(737,080)
8,864,296
(17,756,039)
(8,891,743)
%
3%
3%
4%
-94%
4%
12%
-1,603%
1%
20%
2%
-1%
3%
-161%
-3%
● Analysis of Deviation over 20%
Decrease in unrealized gross profit on sales to subsidiaries and associates: The decrease was mainly due to lower sales to subsidiaries
and associates in the fourth quarter of 2017.
Decrease in other operating income and expenses, net: The decrease was mainly due to higher net loss on disposal of property,
plant and equipment in 2017.
Increase in non-operating income and expenses: The increase was mainly due to higher share of profits of subsidiaries and
associates in 2017.
Increase in other comprehensive loss, net of income tax: The increase was mainly due to increase in currency exchange loss arising
from translation of foreign operations in 2017.
● Sales Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders” on page 4-7 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.
100
101
6.2.3 Cash Flow
Consolidated
Unit: NT$ thousands
Cash Balance 12/31/2016
Net Cash Provided by
Operating Activities in 2017
Net Cash Used in Investing
and Financing Activities in
2017
Cash Balance 12/31/2017
Remedy for Liquidity Shortfall
Investment Plan
Financing Plan
541,253,833
585,318,167
(573,180,304)
553,391,696
None
None
● Analysis of Cash Flow
NT$585.3 billion net cash generated by operating activities: mainly from net income and depreciation and amortization expenses.
NT$336.2 billion net cash used in investing activities: primarily for capital expenditures and net purchase of marketable financial
instruments.
NT$237.0 billion net cash used in financing activities: primarily for cash dividend payment and repayment of corporate bonds.
● Remedial Actions for Liquidity Shortfall: As a result of positive operating cash flows and cash on-hand, remedial actions are not
required.
● Cash Flow Projection for Next Year: Not applicable.
Unconsolidated
Unit: NT$ thousands
Cash Balance 12/31/2016
Net Cash Provided by
Operating Activities in 2017
Net Cash Used in Investing
and Financing Activities in
2017
Cash Balance 12/31/2017
Remedy for Liquidity Shortfall
Investment Plan
Financing Plan
249,878,563
568,800,331
(579,502,053)
239,176,841
None
None
● Analysis of Cash Flow
NT$568.8 billion net cash generated by operating activities: mainly from net income and depreciation and amortization expenses.
NT$285.3 billion net cash used in investing activities: primarily for capital expenditures.
NT$294.2 billion net cash used in financing activities: primarily for cash dividend payment, capital injection in subsidiaries and
repayment of corporate bonds.
● Remedial Actions for Liquidity Shortfall: As a result of positive operating cash flows and cash on-hand, remedial actions are not
required.
● Cash Flow Projection for Next Year: Not applicable.
6.2.4 Recent Years Major Capital Expenditures and Impact on Financial and Business
Unit: NT$ thousands
Plan
Actual or Planned Source of Capital
Production Facilities, R&D and
Production Equipment
Cash flow generated from operations
Total Amount for 2017 and
2016
Actual Use of Capital
2017
2016
652,789,502
327,317,670
325,471,832
Others
Total
Cash flow generated from operations
5,843,956
3,270,518
2,573,438
658,633,458
330,588,188
328,045,270
Based on capital expenditures listed above, TSMC’s annual production capacity increased by approximately 1 million 12-inch
equivalent wafers in 2017.
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 2017, the investment
gains from these investments amounted to NT$2,985,941
thousand on a consolidated basis, decreasing from previous
year mainly due to a significant appreciation in NT dollar and a
decline in ASP. 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
reports 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 corporate risks as they are identified.
Scope of Risk Management
Strategic Perspective
● Regulatory change & compliance
● Government policies
● Changes in technology & industry
● Technology development & competition
● Demand & capacity Expansion
Operational Perspective
● Sales & purchase concentration
● Intellectual property rights
● Recruiting qualified personnel
● Corporate image
Financial Perspective
● Interest rate, foreign exchange, inflation & deflation, Taxation
● External financing
● High-risk/high-leveraged investment, financial derivative
transactions
● Strategic investments
Hazardous Events
● Earthquake & natural hazards
● Fire or chemical spill
● Climate change
Enterprise Risk Management Framework
Risk Identification & Assessment
● RM Steering Committee & Audit Committee review &
approve implementation of risk management strategy
and prioritization of risk controls
● RM Executive Council assesses risks using Risk Map
considering likelihood & severity of risk events
Risk Control & Mitigation
● Cross-function risk communication to determine
cost-effective risk controls
● RM Executive is responsible for risk control
implementation
● Risk controls reviewed in annual Control Self Assessment
Risk Response
● Crisis management & response plans
● Scenario-based crisis response drills
● Business Continuity Plans
Risk Monitoring & Reporting
● Risk Management organization annually briefs Audit
Committee on the focus of enterprise risk management,
risks assessment and mitigation efforts
To mitigate the operational impacts of crisis events, 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 raise risk awareness and strengthen the risk
management culture in TSMC, top management completed a
series of crisis management workshops and a drill for operation
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of Central Crisis Command Center with Co-CEOs’ oversight
in 2017. The scenario-based crisis response drills were also
conducted for critical risk events such as fire, earthquake, IT
service disruption, supply chain disruption, environmental
events and utility supply disruption. In order to continuously
mitigate corporate risks, drills are used to test 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 2017.
As TSMC continued to expand production capacity with
advanced technology, 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
TSMC’s Risk Management organization annually briefs the
Audit Committee on the focus of enterprise risk management,
risk assessment and mitigation efforts. The Audit Committee’s
Chairperson also briefs the Board on such discussion and
actions.
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 programs and ensures effectiveness;
Improves transparency and how risks are managed.
● RM program
Coordinates and facilitates functional risk management
activities;
Initiates cross-functional communication for risk mitigation;
Consolidates ERM reports into the RM steering committee.
6.3.2 Strategic Risks
Risks Associated with Changes in Technology and
Industry
● Industry Developments
The electronics industries and semiconductor market
are cyclical and subject to significant and often rapid
fluctuations in product demand, which could impact TSMC’s
semiconductor 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 downturns and overcapacity. Because TSMC is,
and will continue to be, dependent on the requirements of
electronics and semiconductor companies for our services,
periods of downturns and overcapacity in the general
electronics and semiconductor industries could lead to reduced
demand for overall 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, margin, and earnings will likely suffer
during periods of downturns and overcapacity.
● Changes in Technology
The semiconductor industry and its technologies are constantly
changing. TSMC competes by developing process technologies
using increasingly advanced nodes and on manufacturing
products with more functions. We also compete by developing
new derivative technologies. If TSMC does not anticipate
these changes in technologies and rapidly develop new and
innovative technologies, or if the Company’s competitors
unforeseeably 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 launched into the market. If TSMC is unable to
meet these shorter product time-to-market, it risks losing these
customers. These factors have also been intensified by the shift
of the global technology market to consumer driven products
such as mobile devices, and 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 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.
Regarding the response measures for the above-mentioned
risks, please refer to “2.2.4 TSMC Position, Differentiation and
Strategy” on page 14-15 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 our services in communication devices,
personal computers, consumer electronics products and
industrial/standard products. The demand for our products are
significantly affected by the outlook of the major and emerging
end markets for our products, such as mobile devices,
high-performance computing (including cryptocurrency
mining), automotive electronics and the Internet of things
(“IoT”). Any deterioration in or a slowdown in the growth of
such end markets resulting in a substantial decrease in the
demand for overall global semiconductor foundry services,
including TSMC’s products and services, could adversely affect
the Company’s revenue. 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 TSMC’s 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
a number of integrated device manufacturers. Some of these
companies may have access to more advanced technologies
than TSMC. Other companies may have greater financial
and other resources than TSMC, such as the possibility of
receiving direct or indirect government subsidy, economic
stimulus funds, or other incentives that may be unavailable
to TSMC. For example, Chinese companies are expected to be
key players for new semiconductor fab development and fab
equipment spending through 2020. There are over twenty new
semiconductor fab projects that have been announced or are
being developed within China in part due to various incentives
provided by the Chinese government.
Furthermore, the Company’s competitors may, from time to
time, also decide to undertake aggressive pricing initiatives in
one or several technology nodes. These competitive activities
may decrease TSMC’s customer base, or its ASP, or both. If
TSMC is unable to compete effectively with these new and
aggressive competitors on technology, manufacturing capacity,
and 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. During 2017 and as
of February 28, 2018, the following changes or developments
in governmental policies and regulations may influence the
Company’s business operations:
Effective from 2018, the R.O.C. Income Tax Law was amended,
which abolished the imputation system, raised the corporate
income tax rate from 17% to 20%, and reduced the rate of
surtax imposed on unappropriated earnings from 10% to 5%.
However, since we are still eligible for a five-year tax exemption
for capital investments made in previous years, we do not
expect the R.O.C. tax amendment to have a significant impact
on our effective tax rate for 2018.
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 increase the operating
costs of the Company. Such increase of costs, however, can
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be mitigated in 2018 due to the re-amendment of the Labor
Standards Act released on January 31, 2018, which readjusted
the calculation formula for overtime pay for work on days of
rest.
With respect to environmental laws, the changes include (1) In
order to enforce the new law of “Greenhouse Gas Reduction
and Management Act” in response to climate change, the
“Regulations for Periodic Regulatory Goals and Approaches of
the Greenhouse Gas Emissions” was released in March 2017
to stipulate the national goals and schedules of greenhouse
gas reduction. TSMC has taken various measures to mitigate
possible impacts on future operational expansion plans;
(2) The “Collection Rate for Stationary Pollution Source Air
Pollutant Emissions Fees” and “Emergency Control Regulation
for Dealing with Serious Deterioration of Air Quality” were
adopted in May and June 2017 which create a new fee type,
called the “seasonal” air pollution control fee, and further
authorize local governments to set up local control plans
in their regions respectively, both of which would increase
the Company’s operational costs; and (3) In June 2017,
the regulation “Guidelines for Defining the Enterprise’s
Due Care Obligations When Commissioning the Clearance
and Disposal of its Industrial Waste” was newly adopted to
reflect the new requirement under “Waste Disposal Act”
amended at the same year, which provides guidance on what
enterprises shall do to monitor the commissioned personnel
with due care if it outsources the disposal of its industrial
waste. TSMC will amend the relevant internal procedures and
agreements with the commissioning entities to enhance the
selections and audits of the outsourcing contractual vendors
in compliance with the law requirements. In addition, some
other environmental laws were proposed to be amended (such
as “Environmental Impact Assessment Act” and “Air Pollution
Control Act”), the exact effects of which are still uncertain as
the amendments have not been finalized yet. However, we
expect these amendments may affect our future expansion
plans and increase the Company’s operational costs.
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.
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, TSMC’s market demand
forecast may change significantly at any time. During periods
of decreased demand, certain manufacturing lines or tools
in some of the Company’s 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 to take
advantage of the upturn.
According to the market demand forecast, TSMC has recently
been adding capacity in its 300mm wafer fabs to meet
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, its financial performance may be adversely
affected by these increased costs.
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.
Risks Associated with Sales Concentration
Over the years, TSMC’s customer profile and the nature of
its customers’ business have changed dramatically. While it
generates revenue from hundreds of customers worldwide,
TSMC’s ten largest customers in 2015, 2016, and 2017
accounted for approximately 63%, 69% and 67% of its net
revenue in the respective year. The Company’s largest customer
in 2015, 2016, and 2017 accounted for 16%, 17% and 22%
of its net revenue in the respective year. The Company’s second
largest customer in 2015 and 2016 accounted for 16% and
11% of its net revenue in the respective year. In 2017, the
Company’s second largest customer accounted for less than
10% of its net revenue.
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. These are only a limited number
of customers who are successfully exploiting this new business
model paradigm.
Also, in order to respond to the new business model paradigm,
TSMC has seen the changes of nature in its customers’ business
models. For example, there is a growing trend toward the
rise of system houses that operate in a manner which makes
their products and services more marketable in a changing
consumer market. Also, since the global semiconductor
industry is becoming increasingly competitive, some of TSMC’s
customers have engaged in industry consolidations in order
to remain competitive. Such consolidations have taken the
form of mergers and acquisitions. If more of TSMC’s major
customers consolidate, this will further decrease the overall
number of its customer pool. The loss of, or significant
curtailment of purchases by, one or more of the Company’s
top customers, including curtailments 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 may adversely affect TSMC’s results
of operations and financial condition.
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 suppliers
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 the industry
had a negative impact on TSMC’s gross margin in 2017 and
the trend is expected to continue in 2018. 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 of its
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 its 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 extensively with primary
suppliers on managing quality and capacity issues in order 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 meetings to extend supply chain best practices to
its upstream suppliers. Moreover, TSMC continually refines its
planning system and enhances demand forecast alignments
with critical suppliers for more accurate supply capacity
planning, especially for the steep production ramp-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
BCP (Business Continuity Plan). To ultimately empower these
suppliers to take responsibility for their supply chain, on-site
audits are conducted regularly. 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.
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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 depends in part on the continued strength of
its intellectual property portfolio. While we actively enforce
and protect our 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, manufacturing
processes, or the design IPs 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 within the industry 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. Also, as the Company
expended its manufacturing operations into certain non-R.O.C.
jurisdictions, we have faced increasing challenges to manage
risks of intellectual property misappropriation. Despite our
efforts to adopt robust measures to mitigate the risk of
intellectual property misappropriation in such new jurisdictions,
we cannot guarantee that the protection measures we adopted
will be sufficient to prevent us from potential infringements by
others, or at all.
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 alleged intellectual property matters occurs, it could: (1)
prevent the Company from manufacturing particular products
or selling particular services or applying particular technologies;
and (2) 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 Litigious and Non-litigious Matters
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.
Currently, TSMC’s material legal proceedings are as follows:
In May 2017, Uri Cohen filed a complaint in the U.S. District
Court for the Eastern District of Texas alleging that TSMC,
TSMC North America and other companies infringe four
U.S. patents. Cohen’s case has been transferred to and
consolidated with the responsive declaratory judgment case
for non-infringement of Cohen’s asserted patents filed by
TSMC and TSMC North America in the U.S. District Court for
the Northern District of California. The outcome cannot be
determined and the Company cannot make a reliable estimate
of the contingent liability at this time.
On September 28, 2017, TSMC was contacted by the
European Commission (the “Commission”), which has
asked us for information and documents concerning alleged
anti-competitive practices in relation to semiconductor sales.
We are cooperating with the Commission to provide the
requested information and documents. In light of the fact that
this proceeding is still in its preliminary stage, it is premature
to predict how the case will proceed, the outcome of the
proceeding or its impact.
Other than the matters described above, as of the date of
this Annual Report, TSMC is not currently a party to any other
material legal proceedings.
Risks Associated with Mergers and Acquisitions
During 2017 and in 2018 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 we
lose, for whatever reasons, the services and contributions of
some of these personnel and we cannot adequately replace
them. TSMC may be required to increase or reduce the
number of employees in connection with 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 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 79-80 of this annual report.
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 2017, TSMC was honored with awards and recognition for
achievements in operations, corporate governance, innovation,
profit growth, investor relations, environmental protection,
corporate sustainability and other fields. These included:
the Taiwan Institute for Sustainable Energy 2017 Taiwan
Corporate Sustainability Awards No.1 for Domestic Corporates,
Gold Medal For Sustainability Report, and Circular Economy
Leadership Award; No.1 in the R.O.C. Ministry of Economic
Affairs (MOEA) Intellectual Property Office ranking of “Top
100 Patent Applications”; 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 The MOEA award for
Outstanding Greenhouse Gas Reduction, and Benchmark
Company for Energy Conservation. In addition, TSMC was
selected to Corporate Knights Magazine’s 2018 Global 100
Most Sustainable Corporations in the World index for the first
time, and was also selected as a component of the Dow Jones
Sustainability Indices for the 17th 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 a Corporate Social Responsibility
Committee, which serves as a decision-making center and
communications platform for CSR. Committee members
represent departments including legal, customer service,
materials management, quality and reliability, research and
development, risk management, finance, investor relations,
operations, environment, safety and health (ESH), human
resources, the TSMC Education and Culture Foundation, the
TSMC Charity Foundation, and public relations to coordinate
the Company’s resources and collaborate to further enhance
TSMC’s positive corporate reputation.
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,
To address crisis events that could affect the Company’s
public reputation, including earthquakes, fires and workplace
accidents, TSMC employs numerous preventative measures and
maintains a “TSMC Crisis Command Center Control Instruction”
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and a “TSMC Emergency Response Procedure” to establish
its emergency response command structure. Each TSMC fab
holds regular monthly meetings of the ESH committee, and
relevant departments hold regular drills as well as continuously
improve their emergency response and notification procedures
to ensure clear channels of communication to stakeholders
in crisis management. The public relations department serves
as the designated window for external communications. In
the event of an emergency, 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 clear and consistent disclosure regarding
the situation to maintain the Company’s reputation.
Risks Associated with Change in Management
In October 2017, Dr. Morris Chang, as TSMC Chairman for
the last thirty years, announced his plan to retire from the
Company immediately after the Annual Shareholders’ Meeting
in early June, 2018. All present directors of the board, except
himself, have unanimously agreed to be nominated, and if
elected, will serve as directors of the board during the next
term. They all have agreed to have TSMC under the dual
leadership of Dr. Mark Liu and Dr. C.C. Wei, who are TSMC’s
presidents and Co-CEOs currently. Dr. Liu will be the Chairman
of the Board, and Dr. Wei will be the Chief Executive Officer.
6.3.4 Financial Risks
Economic Risks
● Interest Rate Fluctuation
TSMC is exposed to interest rate risks primarily related to
its outstanding debt and investment portfolio, which 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 and
marketable securities and the fair value of those securities, as
well as interest paid on and the fair value of its outstanding
debt.
As of December 31, 2017, all of TSMC’s term debt have fixed
interest rates and are measured at amortized cost. As such,
changes in interest rate would not affect the future cash flows.
The primary objective of TSMC’s investment policy is to
achieve a return that will allow the Company to preserve
principal and maintain liquidity requirements. TSMC generally
invests in investment grade fixed income securities and
limits the amount of credit exposure to any one issuer. The
Company’s investments in both fixed- and floating-rated
fixed income securities carry a degree of interest rate risk. A
majority of the Company’s fixed rate securities are classified as
available-for-sale, and may have their market value adversely
impacted due to the rise in interest rates.
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 offset only a small
portion of the financial impact from movements in interest
rates.
● Foreign Exchange Volatility
More than 90% of the Company’s sales were denominated
in US dollar and over one-half of TSMC’s capital expenditures
are denominated in currencies other than NT dollar, primarily
in US dollar, Japanese yen and Euro. Because TSMC’s
functional currency is denominated in NT dollar, any significant
fluctuation to its disadvantage in such exchange rates would
have an adverse effect on TSMC’s financial condition. For
example, every 1 percent depreciation of the US dollar against
the NT dollar would result in approximately 0.4 percentage
point decrease in TSMC’s operating margin based on TSMC’s
2017 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 may use derivative, such as currency forward contracts
and cross-currency swaps, and non-derivative financial
instruments, such as foreign currency-denominated debt, to
partially hedge its existing and certain forecasted currency
exposure. These hedges will offset only a portion of, but do
not eliminate, the financial impact from movements in foreign
currency exchange rates.
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. For example, recent
implementation of “balance sheet normalization” program by
the U.S. Federal Reserve and the possible changes in economic,
fiscal and/or trade policies in the U.S. have exacerbated
fluctuations in inflationary expectations. Such 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
commercially reasonable terms to the Company, 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, modify 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 2017 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, 2018, TSMC had intercompany loans of
RMB$4.4 billion arranged among the Company’s subsidiaries,
which were all in compliance with relevant rules and
regulations.
In 2017, 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 pages 33-34 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 Impairment Charges
Under Taiwan-IFRSs, TSMC is required to evaluate its
investments, tangible assets 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 as 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 several 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 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 may have a material adverse effect on the
Company’s net income.
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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 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 attain the above certifications within 18
months after acquiring factory registration certification.
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 to ensure effective and successful continuation
of business activities. 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 in February 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 risks that cannot be completely eliminated arising
from explosion, fire, or environmental influences. 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
sales and 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 with Other International Laws,
Regulations and Accords
Because TSMC engages in manufacturing activities in
multiple jurisdictions and conducts business with 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.
The Company’s failure to comply with any such laws or
regulations, as amended from time to time, and our failure to
comply with any information and document sharing requests
from the relevant authorities in a timely manner 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;
● challenges from customers that place TSMC at a significant
competitive disadvantage, such as loss of actual or potential
sales contracts in case the Company is unable to satisfy the
applicable legal standard or customer requirement;
● 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 the Company is not
entitled to; and
● damages to TSMC’s goodwill and reputation.
Complying with applicable laws and regulations, such as
environmental and climate related laws and regulations, could
also require TSMC, among other things, to do the following:
(1) purchase, use or install remedial equipments; (2) implement
remedial programs such as climate change mitigation
programs; (3) modify 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.
TSMC’s inability to timely obtain approvals necessary for the
conduct of our business could impair our operational and
financial results. For example, if the Company is 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 its expansion plans that could also in turn
adversely affect its business and operational results. In light
of increased public interest in environmental issues, TSMC’s
operations and expansion plans may be adversely affected or
delayed responding to public concern and social environmental
pressures even if the Company complies 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
competitiveness. Climate change has the potential to create
legal, physical and other risks. TSMC’s control measures are as
follows:
● 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 impacts in 2016 and 2017. TSMC continues
to monitor legislative trends and communicate with various
governments through industrial organizations and associations
to set reasonable and feasible legal requirements.
● Conflict Minerals Risks
For additional details, please refer to the Supplier and
Contractor Management section under ”7.2.3 Safety and
Health” on page 130-131 of this annual report.
● 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 sustain electricity and raw water supplies,
therefore, in addition to water-saving measures the Company
undertakes at its 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 issues and disaster responses.
● Other Climate Risks
Climate change is a concern to the global supply chain,
necessitating energy conservation, carbon reduction, and
disaster prevention. For example, The Responsible Business
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Alliance (RBA) 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 major suppliers to establish a GHG inventory system
and conduct reduction programs. TSMC insists that its major
suppliers submit GHG emissions and reduction information as
an important index of sustainability scoring in its procurement
strategy.
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 (PFCs), 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 participated in an annual survey conducted by the
nonprofit Carbon Disclosure Project (CDP) since 2005. The
survey 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 TSMC’s existing shareholders may, from time
to time, dispose of significant numbers of TSMC common
shares or ADSs. For example, the National Development Fund
of Taiwan, R.O.C. which owned 6.38% of TSMC’s outstanding
shares as of February 28, 2018, 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 ,such as its manufacturing
operations and enterprise accounting, would be completely
immune to crippling cyber attacks by any third party to
gain unauthorized access to its internal network systems,
to sabotage its operations and goodwill or otherwise. 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. While TSMC also seeks to annually review and
assess its cybersecurity policies and procedures to ensure
their adequacy and effectiveness, it cannot guarantee that
the Company will not be susceptible to new and emerging
risks and attacks in the evolving landscape of cybersecurity
threats. 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 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 implementing remedial and improvement measures to
enhance the Company’s cybersecurity network, and may also
expose the Company to significant legal liabilities arising from
or related to legal proceedings or regulatory investigations
associated with, among other things, leakage of customer or
third party information which TSMC has an obligation to keep
confidential. During 2017 and as of the date of this Annual
Report, the Company had not been aware of any material
cyber attacks or incidents that had or would expected to have
a material adverse effect on its business and operations, nor
had it been involved in any legal proceedings or regulatory
investigations related thereof.
In addition, the Company employs certain third party service
providers for TSMC and its affiliates worldwide with whom
the Company needs to share highly sensitive and confidential
information to enable them to provide the relevant services.
Despite that TSMC requires the third party service providers
to comply with the confidentiality and/or Internet security
requirements in its service agreements with them, there is no
assurance that each of them will strictly fulfill such obligations,
or at all. The on-site network systems of and the off-site cloud
computing networks such as servers maintained by such
service provider and/or its contractors are also subject to risks
associated with cyber attacks. If TSMC or its service providers
are not able to timely resolve the respective technical difficulties
caused by such cyber attacks, or ensure the integrity and
availability of its data (and data belonging to its customers
and other third parties) or control of its or its service providers’
computing systems, the Company’s commitments to its
customers and other stakeholders may be materially impaired
and its results of operations, financial condition, prospects and
reputation may also be materially and adversely affected as a
result.
Risks of Trade Policies
As TSMC's revenue is primarily derived from sales to major
economies in the world (please refer to "2.2.4 TSMC Position,
Differentiation and Strategy" on page 14 of this annual report),
any changes in the trade policies (such as the adoption of
trade barriers) of such major economies can affect the sales
of TSMC or its customers and thereby affect TSMC's operating
results. Accordingly, TSMC continues to monitor the recent
shifts in trade policies and measures among the relevant major
economies and will take corresponding responsive actions in
accordance with subsequent developments.
Other Material Risks
During 2017 and in 2018 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.
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7.
Corporate Social Responsibility
7.1 Overview
TSMC is the global leader in dedicated semiconductor foundry services. In addition to succeeding in its core businesses, TSMC
also diligently strives to carry out the responsibilities of a good corporate citizen. By pursuing and maintaining active, positive
relationships with employees, shareholders/investors, customers, suppliers, government and society, TSMC seeks to create a
sustainable future for all stakeholders and embraces “uplifting society” as its main vision.
The Scope of Corporate Social Responsibility
Corporate Social Responsibility Policy is TSMC’s overall guiding principle for sustainable development. Following the Company vision
of Uplifting Society, the three primary missions of TSMC are: Acting with Integrity, Strengthening Environmental Protection, and
Caring for the Disadvantaged. The CSR matrix below, put forward by Chairman Dr. Morris Chang, clearly defines the scope of that
responsibility. The horizontal axis shows the seven areas where TSMC aims to set a benchmark for sustainability: 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
TSMC Charity Foundation
TSMC 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
The Corporate Social Responsibility Committee is comprised of representatives from each functional unit within the Company and is
chaired by the CFO. The committee serves as a decision-making center and cross-departmental communication platform for TSMC’s
corporate social responsibility. As the highest-level CSR group within TSMC, the committee sets the Company’s CSR strategies,
targets and vision for material issues of the year and monitors the execution of budgets and performance by each department.
The committee meets each quarter to discuss issues of interest to stakeholders, namely employees, shareholders/investors,
customers, suppliers, government, society, and others. It also coordinates among all departments regarding the issues of economic,
environmental and social sustainability and monitors the progress and effectiveness of CSR projects. In 2017 the CSR committee
focused on the establishment of the TSMC Charity Foundation, the proposals and discussion of “TSMC i-Charity Platform,” and CSR
communication enhancement.
Besides the regular meetings that are held quarterly, the chairperson of the CSR committee reports annually to the Board of
Directors on implementation results for the year and the work plan for the upcoming year. The 2017 report focused on green
manufacturing strategies and performance, fulfilling RBA Code of Conduct requirements with respect to supply chain management,
setting targets to drive local procurement, and the achievements and highlights of TSMC Education and Culture Foundation, as well
as TSMC Charity Foundation. The CSR plan for 2018 calls for TSMC to continue to align its sustainability targets with the United
Nations Sustainability Development Goals (SDGs), expand its coverage of CSR management for TSMC’s overseas fabs and major
affiliates, and execute social impact valuation projects.
Functions related to CSR at TSMC include legal, customer service, materials management, quality and reliability, research and
development, risk management, finance, investor relations, operations, environment, health and safety, human resources, the TSMC
Education and Culture Foundation, the TSMC Charity Foundation, and public relations. By adhering to the vision and mission of
TSMC Corporate Social Responsibility Policy, the guiding principles of corporate social responsibility policy are conveyed promptly
and effectively to all departments, and are systematically implemented in the Company’s daily operations.
Stakeholder Engagement
TSMC values the rights and concerns of all its stakeholders. In order to understand the level of stakeholder interest in sustainability
issues, TSMC conducted three studies focused on identification, prioritization and validation with regard to these material issues.
Multiple and systematic channels were established to communicate with stakeholders including a “Stakeholder Engagement”
section on the corporate website, as well as a CSR mailbox, an important channel for TSMC to gather views from the public.
Submissions were sent to relevant departments according to the nature and range of the issues involved, and the Company’s
dedicated personnel gave timely responses. In 2017, the TSMC CSR mailbox received 124 submissions, including requests for
visits, inquiries about daily operations, suggestions and complaints from the public, and requests for endorsement, donation and
collaboration, as well as event invitations.
Stakeholders and Communication Channels in 2017
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 resources representatives
● Regular and ad-hoc communication meetings, such as manager development consulting committee, Operations engineer training committee,
manufacturing department technical committee, etc.
● Employee voice channels, such as immediate response system, employee opinion box, wellness center, wellness website, each function’s PIP committee,
employee PIP opinion dedicated line, etc.
● Ombudsman System
● Audit Committee Whistleblower System
● EWC event questionnaire survey
● 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
● Customer satisfaction survey
● Customer meetings
● Customer audits
● Email responses to the issues that customers are concerned about occasionally
● Supplier meetings
● Supplier onsite audits
● Supply chain management forum
● Supply chain ESH forum
● Supplier ethics code awareness training
● Official correspondence
● Meetings (such as communication meetings, public hearings, forums or seminars)
● 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 youth development events
● 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, Jacana Ecology Education Park, remote schools and TSMC
ecological parks to provide volunteer services
● Annual volunteer activities in collaboration with TSMC fabs and divisions
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TSMC believes that no enterprise can exist in a vacuum separate from society. By maintaining proactive communications and positive
relationships with all stakeholders in economic, environmental and social dimensions, TSMC is laying the foundation of an enterprise
built to last and creating sustainable value for the Company and society going forward.
2017 CSR Awards and Recognitions
Category
Overall CSR
Organization
Awards and Recognitions
Dow Jones Sustainability Indices (DJSI)
● Membership in the Dow Jones Sustainability World Index for the 17th consecutive year
● RobecoSAM Sustainability Award - Gold Class
Responsibilities of TSMC CSR Committee Members
Committee Members
Responsibilities
Legal
Customer Service
Materials Management
Quality and Reliability
Corporate Governance, Code of Conduct, Legal Compliance (including fair competition, privacy and personal
information, and protection for whistle-blowers), Intellectual Property, Protection of Confidential Information
Customers Service and Satisfaction, Customer Trust, Customer Confidentiality, RBA and its Code of Conduct
Materials and Supply Chain Risk Management, Supplier Management, Conflict Minerals, RBA and its Code of Conduct
Suppliers
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
Financial Disclosure, Dividend Policy, Tax Strategy
Investor Relations
Operations
Environment, Health, and Safety
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 Attraction and Retention, Proprietary Information Protection, Employees’ Physical and Mental Well-Being and
Work-Life Balance, Labor-Management Relations and Employee Engagement, Labor Rights, Training and Development,
Mobility, RBA and its Code of Conduct
TSMC Education and Culture Foundation,
TSMC Charity Foundation
Philanthropy, Community Relations
Public Relations
Stakeholder Engagement, Mechanism for Reflecting Issues of Social Concern, Media Relations
Note: Society includes community, non-governmental organizations, non-profit organizations, and the public.
Stakeholders
Employees
Government
Society (Note)
Customers
Customers
Suppliers
Employees
Customers
Suppliers
Employees
Investors
Customers
Suppliers
Government
Society
Employees
Investors
Customers
Suppliers
Government
Investors
Customers
Investors
Suppliers
Employees
Investors
Customers
Suppliers
Government
Society
Employees
Society
Society
As the only semiconductor company chosen for the Dow Jones Sustainability World Indices over the past 17 consecutive years,
TSMC is built on the cornerstone of integrity. TSMC believes that customer trust is enhanced if the Company follows the law and
values corporate governance. Investors will be more willing to invest in the Company over the long term if the Company maintains
solid financial performance and a sustainable dividend policy. Employees are TSMC’s most important asset and they have made a
reciprocal commitment to the Company to fulfill its core values. At TSMC’s urging, suppliers – both upstream and downstream –
have been devoting more resources to manufacturing processes and working together to build green factories and supply chains
that are friendly to the environment. With the engagement of all stakeholders, TSMC combines the strengths that drive society
forward, and hopes to build a better future together.
MSCI ESG Indexes
FTSE4Good Index
FORTUNE
Forbes
● Selected as MSCI ESG Leaders Indexes component
● Selected as MSCI SRI Indexes component
● Selected as FTSE4Good Emerging Index component
● Selected as FTSE4Good TIP Taiwan ESG Index component
● Selected as one of the World’s Most Admired Companies
● Selected as one of the Top Regarded Companies
Institutional Investor Magazine
● Selected as Most Honored Company (Technology/Semiconductor) - All-Asia
Newsweek
oekom research AG
Corporate Knights
Taiwan Institute of Sustainable Energy
● Selected as Newsweek Green Rankings Top Green Companies in the World
● Rated “Prime” by oekom Corporate Rating
● Selected as one of the Global 100 Most Sustainable Corporations
● The Most Prestigious Sustainability Awards - Top Ten Domestic Corporates
● Taiwan Top 50 Corporate Responsibility Report Awards - IT & IC Manufacturing Industry - Gold Class
● Circular Economy Leadership Award
● Chairman Dr. Morris Chang was honored with Sustainability Lifetime Achievement Award
Cheers Magazine
● Most Admired Company in Technology/Manufacturing Group for the New Generation
Economy, Governance
Institutional Investor Magazine
IR Magazine
FORTUNE
Forbes
● 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) - 1st Place (sell-side) - All-Asia
● Best Investor Relations Program (Technology/Semiconductor) - 1st Place (buy-side and sell-side) - All-Asia
● Best Investor Relations Program (Technology/Semiconductor) - 1st Place (buy-side) - All-Asia
● Best Investor Relations Program (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 ranking of the best investor relations programs
● Selected as member of Fortune Global 500
● Forbes Global 2000
● Chairman Dr. Morris Chang was honored as one of The World’s 100 Greatest Living Business Minds
● Selected as one of the Top Multinational Performers
Clarivate Analytics
● Top 10 Global Innovators in Semiconductor Industry
The Bizz
Nikkei
Taiwan Stock Exchange
R.O.C. Ministry of Economic Affairs
Intellectual Property Office
PricewaterhouseCoopers
● Award for Business Excellence
● Nikkei Asia 300 Indexes
● Ranked in top 5% in Corporate Governance Evaluation of Listed Companies for the 3rd consecutive year
● Selected as TWSE Corporate Governance 100 Index component
● Ranked No.1 in Top 100 Invention Patent Filers in Taiwan
● Ranked No.1 in Taiwan by PricewaterhouseCoopers Global Innovation 1,000 Study
● Listed in Global Top 100 Companies by market capitalization
China Credit Information Service
● Ranked No.1 in Profitability of large Taiwan Companies
CommonWealth Magazine
● The company with the highest net profit in Top 2,000 Survey
(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 12 Phase 3 Manufacturing Facility and Office Building, Advanced Backend Fab 2
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
Hsinchu Science Park Administration
● “Diamond” class certification - Fab 14 Phase 7 Manufacturing Facility
● “Gold” class certification - Fab 12 Phase 7 Manufacturing Facility, Fab 14A
● Enterprise Green Procurement Award - Fab 2 and Fab 5, Fab 6, Fab 8, Fab 12A, Fab 14A, Fab 14B, Advanced Backend
Fab 2
● Environmental Education Award - Fab 14A
● Excellence in Carbon Reduction Award - Fab 2 and Fab 5, Fab 6
● Excellence in Energy Conservation - Fab 14B
● Green Factory Label - Fab 12A, Fab 14B
● Water Conservation Award - Fab 2 and Fab 5, Fab 12 Phase 7
● Excellence in Labor Safety and Hygiene Award - Fab 2 and Fab 5, Fab 12A, Fab 12 Phase 6
● Excellence in Waste Reduction and Resource Recycling Award - Fab 2 and Fab 5
● Excellence in Environmental Education Partner Award - Fab 2 and Fab 5
● Safety and Health Expert Platform Outstanding Contribution Award - Fab 2 and Fab 5
● Safety and Health Outstanding Contribution Award - Fab 2 and Fab 5
Central Taiwan Science Park Administration
● Excellence in Labor Safety and Hygiene Award - Fab 15A
● Enterprise Green Procurement Award - Fab 15A
Southern Taiwan Science Park Administration
● Excellence in Environmental Protection - Fab 14B
Hsinchu County Environmental Protection Bureau
Hsinchu City Environmental Protection Bureau
● Enterprise Green Procurement Award - Fab 2 and 5, Fab 12A
● Enterprise Road Adoption Award - Fab 12 Phase 6
● Enterprise Green Procurement Award - Fab 8, Fab 12A
● Enterprise Environmental Protection Evaluation - Fab 12A
Society
Forbes
● Selected as one of the World’s Best Employers
Tainan City Environmental Protection Bureau
● Enterprise Green Procurement Award - Fab 6, Fab 14A, Fab 14B, Advanced Backend Fab 2
Taiwan Stock Exchange
● Selected as Taiwan High Compensation 100 Index component
● Selected as Taiwan Employment Creation 99 Index component
R.O.C. Ministry of Labor
● Excellence in Labor Safety and Hygiene Award - Fab 2 and Fab 5
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: 2015 certification for environmental management systems and OHSAS
18001: 2007 certification for occupational safety and health management systems. 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), Perfluorooctane Sulfonates (PFOS), Perfluorooctanoic
acid (PFOA) and its related substances restriction standards.
In response to “Water Pollution Control Act,” Article 14-1,
enterprises must reduce hazardous substance in discharged
wastewater to lower environmental and human health risks,
TSMC started a reduction project for a hazardous substance,
n-methylpyrrolidinone (NMP), to avoid discharging to
wastewater. This project is scheduled for completion in 2018.
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.
In order to establish the healthiest workplace possible, in 2017
TSMC formed a corporate-level health promotion committee,
led by two vice presidents of operations. Committee members
included site directors, Safety and Health department
managers, Wellness, HR and Legal Affairs etc., as well as
external experts invited in to discuss the potential risks of
occupational diseases in semiconductor manufacturing and
develop occupational disease prevention plans. To minimize
health risks to employees, suppliers, and contractors in the
workplace, TSMC adopted rigorous safety and health control
measures designed to prevent occupational injuries and
diseases and promote employee safety and mental health.
To mitigate the supply chain risk and fulfill corporate social
responsibility, TSMC not only does its best to manage ESH but
also strives to improve ESH performance of its supply chain
through audits and counselling.
Since 2007, TSMC has used priority work management and
self-management to govern work performed by contractors.
We require 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. For on-site contractor personnel, in 2017 TSMC
began to standardize safety and health training courses and
increase their frequency, with the aim of improving training
effectiveness and safety awareness. To facilitate the program
and mitigate on-site operational risks, TSMC has initiated to
establish a two-way electronic communication platform that
enables instant requirements delivery.
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, hazardous substance management, fire
protection, and natural disaster mitigation. TSMC not only
performs ESH audits at its suppliers’ manufacturing sites but
also proactively assists them with improving ESH performance.
TSMC also monitors potential climate-change related risks
in the supply chain, requests suppliers to conduct carbon
emissions inventory and encourages suppliers to implement
measures to save energy, reduce carbon emissions, conserve
water and reduce waste.
In recent years, TSMC suppliers’ performance on pollution
control and safety management has made good progress
in procedure establishment and implementation; so TSMC
takes a step further to pay more attention to occupational
hygiene issues directly related to labor health. In 2017, TSMC
and the Ministry of Labor Occupational Safety and Health
Administration (OHSA) jointly launched the “Semiconductor
Supply Chain Safety and Health Promotion Project”. TSMC
invited suppliers to participate in the project. As engaged by
OSHA, a professional team has taken on the responsibility
of providing consultation through document review and
on-site inspection to participating suppliers on management
procedures and hardware setup in order to improve the
working environment and labor health management.
7.2.1 Environmental Protection
Greenhouse Gas (GHG) Emission Reduction
TSMC actively participates in the World Semiconductor
Council (WSC) in its efforts to set up a global voluntary PFC
(perfluorinated compounds) emissions reduction goal for
the 2011 to 2020, 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
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123
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.
In 2005, TSMC was the leading semiconductor company to
complete the GHG (Greenhouse Gas) 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 PFCs, which are used in the semiconductor
manufacturing process. The primary indirect GHG emission is
electricity consumption.
In order to cope with the global climate change and the
R.O.C. “Greenhouse Gas Reduction and Management Act”
promulgated in 2015, TSMC initiated a cross-functional
platform for corporate carbon management in 2016. The
three focuses of this platform are legal compliance, carbon
emission reduction, and carbon credit acquisition. In addition
to participating in official regulatory consultation and
communications meetings, TSMC also sets medium- and
long-term reduction targets through the “Energy and Carbon
Reduction Committee” led by VPs of operations, which are
carried out by energy and carbon reduction teams of individual
fabs, as the Company continues to strengthen climate
mitigation and adaption. Because 70% of GHG emissions
come from electricity consumption, TSMC emphasizes energy
saving and carbon reduction initiatives. TSMC has not only
adopted energy-conserving designs in its manufacturing fabs
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” for three consecutive years. In 2017,
TSMC was the largest green power purchaser in Taiwan,
purchasing 100 million kilowatt hours (kWh) of green power
that made up nearly 50% 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 100 million kWh of green power
will eliminate over 52.9 million kilograms of CO2 emissions,
equivalent to the carbon absorbed by approximately 5.3
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. We also promise that in the
future, renewable energy sources will be purchased directly
under the conditions of regulatory and market supply. This is
a clear manifestation of the Company’s active support of the
United Nations Sustainable Development Goals (SDGs).
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, 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) onsite reuse; and (3) offsite recycling. The last option consists of
treatment or disposal. To achieve raw material reduction, resource recycling and the goal of zero waste, for example 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.
In 2017, TSMC’s fabs in Taiwan achieved a 95% waste recycling rate for the ninth consecutive year, with a landfill rate below 1%
for the eighth consecutive year. Also during the year, TSMC amended its articles of incorporation to add four business items for
chemical materials to ensure waste flow and reduce risks of improper waste disposal by commissioned agencies. TSMC also set up
on-site resource activation facilities to regenerate waste resources produced from process activities into products to provide on-site
or sell to other factories so as to become the leading company for waste resources regeneration. Also in 2017, TSMC not only
regenerated used copper sulfate into copper tubes but also took the further step of collaborating with raw material suppliers to
produce electronic grade copper anodes using copper tubes regenerated in the TSMC manufacturing process.
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 2017, 719 environmental projects of TSMC fabs were completed and the total benefits, including waste
recycling, were more than NT$2,370 million.
2017 Environmental Cost of TSMC Fabs in Taiwan
Unit: NT$ thousands
Classification
1. Direct Costs for Reducing Environmental Impact
Description
Expense
Investment
(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
4,560,760
-
1,718,891
260,889
3,771,513
1,012,000
-
173,243
-
-
6,540,540
4,956,756
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125
2017 Environmental Efficiency of TSMC Fabs in Taiwan
Unit: NT$ thousands
Category
Description
1. Cost Savings of Environmental Protection
Energy savings: completed 452 projects
Projects
Water savings: completed 15 projects
Waste reduction: completed 252 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
1,280,000
25,170
814,000
251,000
2,370,170
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 2017, 24 of TSMC’s fabs and office buildings have achieved LEED
certifications (3 platinum-class and 21 gold-class). Meanwhile, TSMC also received 5 Taiwan Intelligent Building diamond class
certifications and 19 Taiwan EEWH (ecology, energy saving, waste reduction and health) certifications (16 diamond-class, 3
gold-class).
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 2017, 11,522 visitors from 300 different industrial, 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 9 labels in total as of the end
of 2017.
7.2.2 Sustainable 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 Near-Vt (Near
Threshold Voltage, NVT) chips for wearables and Internet of Things (IoT), ultra-low power chips for narrowband IoT, low power
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 girds, and other
applications. In addition to helping customers design low-power consumption, high-performance products to reduce resource
consumption over the product’s life cycle, TSMC’s green manufacturing practices provide further “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
● To improve sustainability, 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. In each new technology
generation, circuitry line widths shrink, making transistors smaller and reducing product power consumption.
● As TSMC quickly ramped up its 28nm and newer generation
technologies, the combined wafer revenue contribution grew
significantly from 12% in 2012 to 58% in 2017. TSMC’s
objective is to continue R&D efforts and to increase the wafer
revenue contribution in 28nm and beyond technologies,
helping the Company achieve both profitable growth and
sustainability.
TSMC Wafer Revenue Contribution from 28nm and Beyond Technologies
2013
30%
2014
42%
2015
48%
2016
54%
2017
58%
Chip Die Size Cross-Technology Comparison
Die size reduces as line width shrinks
1
0.53
0.48
0.25
0.11
0.068
0.048
55nm
45nm
40nm
28nm 16FFC/12FFC 10nm
7nm
Chip Total Power Consumption
Cross-Technology Comparison
More power is saved as line width shrinks
1
0.6
0.3
0.07
0.06
N55LP
(1.2V)
N40LP
(1.1V)
N28HPM N16FFC/12FFC
(0.9V)
(0.8V)
10nm
(0.75V)
0.04
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 supply and regulate 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 2017, TSMC’s HV/Power technologies collectively shipped
more than 2.5 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)
2013
2014
2015
2016
2017
>1,300K
>1,800K
>2,000K
>2,100K
>2,500K
3. Drive Industry-leading, Comprehensive Ultra-low Power
(ULP) Technology Platform
To meet low-power consumption requirements for the
wearable and IoT markets, TSMC continues to invest in
expanding and enhancing its ultra-low power processes.
TSMC provides industry’s leading and comprehensive ultra-low
power (ULP) technology platform to support innovations
for IoT and wearable applications. TSMC’s leading offerings,
including 55nm ULP, 40nm ULP, 28nm ULP, 22nm ULP/ULL
(ultra-low leakage), have been widely adopted by various IoT
and wearable applications. TSMC extends its offering with
NVT (Near Threshold Voltage) technology for extreme low
power applications. In 2017, TSMC uses its leading 40nm NVT
technology to power the world’s lowest energy consumption
wearable connected device and IoT solutions for customer.
4. Develop Greener Manufacturing to Lower 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. For total energy savings and benefits
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realized in 2017 through TSMC’s green manufacturing, see
“Environmental Accounting“ on page 125-126 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 in the following ways: (1) new TSMC
process technologies help 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
technologies also help chips reduce power consumption.
Mobile devices can therefore be used 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 segments, such as baseband,
RF transceivers, application processors (AP), wireless local
area networks (WLAN), CMOS image sensors, near field
communication (NFC), Bluetooth, and global positioning
systems (GPS) among others, represented 50% of TSMC
wafer revenue in 2017.
TSMC Wafer Revenue Contribution from Mobile Computing Related Products
2013
44%
2014
48%
2015
51%
2016
52%
2017
50%
Note: Mobile computing related products were re-classified in 2014.
2. Unleash Customers’ CIS (CMOS image sensor) and MEMS
(Micro-electromechanical Systems) Innovations that
Enhance Human Health and Safety
TSMC continues to enhance or develop innovative CIS and
MEMS technologies, which are extended from traditional
sensing to machine sensing, such as NIR (near infrared),
ultrasound, and micro-actuators. These new technologies
can support more product applications, from smartphones
and consumer electronics to automotive and health services.
By combining advantages of traditional sensing and
machine sensing, new products using TSMC CIS and MEMS
technologies can be made smaller and faster, consume less
power, and greatly enhance human convenience, health, and
safety. For instance, TSMC 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 significantly improved
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.
For epidemics, TSMC has established company-level prevention
committees and procedures for emergency response to
outbreaks of infectious diseases.
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, requires safety
approvals for bringing new tools online, updates safety rules,
and implements seismic protection 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, the Company
maintains 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 Hazardous Factors Management
TSMC conducts workplace hazard assessments 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
has performed exposure assessments and used 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.
● Health Promotion Program
In order to establish the healthiest possible workplace and
prevent from occurrence of occupational disease, TSMC
formed a corporate-level committee charged with three tasks
to execute health promotion programs covering three scopes:
(1) Exposure assessment and health risks assessment: develop
an exposure assessment system to identify high health risk
employees.
(2) Hazardous training and notification: use standardized
training materials for employee, and contractors in all TSMC
fabs. Let them understand the health risks and prevention
measures at workplace before working or providing any
services there.
(3) Strengthen management of high health concerned
chemicals: sample raw materials used in the manufacturing
process to confirm that they do not contain any
carcinogenic, mutagenic or toxic-reproductive materials.
Suppliers were required that all materials provided to TSMC
must comply with applicable laws including clear disclosure
of any hazardous substances.
● Emergency Response
The planning and execution of an effective emergency
response should identify potential high-risk events via 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 best
practice in the industry. TSMC’s onsite service contractors are
required 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
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personnel also hold emergency response drills to prepare for
events such as earthquakes, chemical spills, ammonia release,
fires and traffic 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 continuity plan to
address manpower shortages and minimize business impact.
● Employee Physical and Mental Health Enhancement
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. 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 2017, through planned personal
health management, the personnel diagnosed at middle and
high risk for cardiovascular disease has decreased from 0.62%
to 0.54%. 710 female employees participated in the maternal
health program were all at the first degree risk (there was no
harm to the mother, infant, and baby). For six consecutive
years TSMC has held a series of physical and mental health
activities. 896 employees have joined the weight-loss program,
losing a total of 2,867 kilograms collectively. 431 attendees
completed the sleep quality improvement program to improve
quality of life.
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 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 in the event of a
natural disaster.
Since becoming a full member of the Responsible Business
Alliance (RBA) in 2015, TSMC has completed the adoption
of the RBA Code of Conduct throughout 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 Responsible
Business Alliance and the Global e-Sustainability Initiative
(GeSI), and this will help the Company’s suppliers source
conflict-free minerals through their jointly developed
Responsible Minerals Initiative (RMI). Since 2011, TSMC has
asked its suppliers to disclose and make timely updates to
information on smelters and mines. The Company encourages
suppliers to source minerals from facilities or smelters that
have received a “conflict-free” designation by a recognized
industry group (such as the RBA) and also requires those who
have not received such designation to become compliant with
Responsible Minerals Initiative 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, led by TSMC
Vice Chairman F.C. Tseng, who serves as the foundation’s
chairman, was established in 1998 to make CSR contributions.
In 2017, to fulfill TSMC’s social responsibility, the TSMC
Education and Culture Foundation contributed over NT$76.79
million to the three main engagements: caring about the
educationally disadvantaged, supporting youth with multiple
educational platforms, and promoting arts and culture.
In 2017, the TSMC Education and Culture Foundation
collaborated with the Teach for Taiwan Foundation (TFT)
to support young teachers devoted to education in remote
townships to narrow the urban-rural gap. The Ministry of
Culture bestowed the Art & Business Award upon the TSMC
Education and Culture Foundation for its contributions to
two projects that have been active for more than ten years:
the “TSMC Youth Literature Award” and the “TSMC Youth
Calligraphy and Seal-Carving Competition”. 2017 also marked
the TSMC Hsinchu Arts Festival’s 15th anniversary. To celebrate
the special moment, the Festival invited Peony Pavilion – Young
Lovers’ Edition by Pai Hsien-yung, to present the Chinese
exquisite theatric beauty as a gift to the community.
Collaboration with Educational Partners
Narrowing Educational Gap between Cities and Rural
Regions
In July 2016, the National Development Council of Taiwan
Government conducted a survey of educational conditions
in remote townships. The survey showed that educational
gaps between city and rural regions had widened owing to
several trends including low birth rate, globalization, and
informatization. The TSMC Education and Culture Foundation
has been focusing on the issue. Cooperating with several social
groups, non-governmental organizations, and educational
institutions, the TSMC Education and Culture Foundation
provided resources of the arts, sciences, reading and digital
education for disadvantaged children. In 2017, the Foundation
began to support TFT’s Teacher Training Program to fulfill the
need for qualified teachers in rural regions.
The TSMC Education and Culture Foundation believes in the
power of reading. As the initial philanthropy partner of “Hope
Reading” of the CommonWealth Foundation, the TSMC
Education and Culture Foundation has been donating 100
good books to each of 200 high schools and primary schools in
Taiwan’s remote townships every year since 2004. More than
260,000 children have been helped with more than 230,000
books donated. In response to the needs of the digital era, in
2016, the TSMC Education and Culture Foundation further
sponsored “Hope Reading 2.0” with NT$6 million in three
years to provide schools with tablets and e-learning systems to
encourage students to read. With the building of the digital
platform, 545 students read 10,000 books in one semester,
demonstrating a significant improvement in reading habits.
The TSMC Education and Culture 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 2017, more than 3,600
students participated in these tours. To date, the Foundation
has sponsored over NT$95 million to take more than 100,000
students from rural primary schools on tours to expand their
aesthetic vision and inspire their scientific interests.
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To extend care to the educationally disadvantaged, in addition
to the cooperation with Junyi Academy and Boyo Social
Welfare Foundation, which provide digital learning tools and
tutors, in 2017 the TSMC Education and Culture Foundation
began sponsoring the Teacher Recruitment and Training
Program of TFT, which recruits passionate youths to undergo
orientation and training to become qualified educators.
Following the program, the young teachers will be deployed to
rural schools to provide disadvantaged students with suitable
and superior education. For economically disadvantaged
students in top universities, the TSMC Education and Culture
Foundation sponsors the “Rising Sun Plan” of National
Tsing Hua University and the “Sunflower Plan” of National
Central University. In 2017, the TSMC Education and Culture
Foundation provided 29 students with NT$2.42 million in
scholarships and launched textbook donations to lighten their
economic burden and enable them to focus on their studies.
Building Educational Platforms
Encouraging the Youth to Reach Their Dreams
The TSMC Education and Culture Foundation has been
holding multiple activities both in science and humanity as
well as Dream Builders platform to encourage young people
to explore and extend their interests and visions. In 2017, the
Ministry of Culture of the Taiwan Government bestowed the
Art & Business Award in the category of Cultivation of Arts
and Culture Talents upon the TSMC Education and Culture
Foundation for long-term contributions to two projects: the
“TSMC Youth Literature Award” and “TSMC Youth Calligraphy
and Seal-Carving Competition”. To raise the humanity sprit
of our young generation, these two projects not only provide
senior high school students with the chance to access literature
and calligraphy beyond school academics, but also encourage
the literature and calligraphy lovers to showcase their talent.
The TSMC Education and Culture Foundation has held
the “TSMC Youth Literature Award” and “TSMC Youth
Calligraphy and Seal-Carving Competition” since 2004 and
2008, respectively, to encourage young people to develop
proficiency in literature and calligraphy. For the literature
award, there were 616 works in total submitted in 2017.
Furthermore, the Foundation ran a campaign to vote for the
youth’s favorite writer to inspire the junior writers to look
up to senior ones. This year is the tenth anniversary of the
“TSMC Youth Calligraphy and Seal-Carving Competition”. The
TSMC Education and Culture Foundation newly corporates
seal calligraphy and tracking calligraphy into the contest. The
contest and extensive workshops attracted more than 900
attendees in total.
To encourage those in the younger generation to pursue their
dreams, the TSMC Education and Culture Foundation held
the second “TSMC Dream Builders of Youth Project”. More
than 66 teams from Taoyuan, Hsinchu and Miaoli applied
for the project and, after three-stage reviews by professional
committees, 6 teams were awarded prizes totaling NT$3
million. Within a year, they will dedicate themselves to various
programs, including self-exploration, culture preservation,
humanity care and so on to demonstrate their creativity and
potential.
According to the Program for International Student
Assessment, Taiwanese students excel in mathematics
and sciences but are less proficient at logical thinking,
argumentation and presentation. Therefore, the TSMC
Education and Culture 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 must read a wide variety of
scientific materials, write popular introductory articles, give
scientific speeches and answer the questions from their
opponents, in order to improve their science presentation
skills. In 2017, the theme of the competition was mathematics,
which attracted 212 teams composed of over 700 students
from K9 to K12. Through the assigned novels, movies, and TV
series, the students discovered and absorbed how mathematics
is used in everyday life.
The TSMC Education and Culture 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 479 senior high
school students and teachers the opportunity to meet and
learn from world-class scientists and Nobel Prize masters with
the objective of inspiring the students and helping them realize
their potential.
Promoting the Arts and Culture
Presenting the Chinese Exquisite Theatric Beauty
The TSMC Education and Culture Foundation is devoted to
promoting arts and culture. In addition to actively supporting
prominent international and Taiwanese artistic performances,
cultivating local talented groups and having continued
supports to classic arts, the TSMC Education and Culture
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
uplift the community’s spiritual life.
News to organize monthly literary lectures, inviting authors to
read their works in the Sun Yun-Suan Memorial Museum and
to offer community residents a chance to experience the charm
of literature up close and in person.
2017 is the TSMC Hsin-Chu Arts Festival’s 15th anniversary.
To celebrate, the Foundation presented the classic Chinese
Kun Opera, Peony Pavilion – Young Lovers’ Edition by Pai
Hsien-yung at National Taichung Theatre. The production has
been not presented for 13 years in Taiwan. It is meaningful
for the Foundation to present the marvelous Kun Opera as
the opening performance of the Festival. For classical music
programs, the Festival invited three well-known masters
– Kun Woo Paik, Kolja Blacher, and Rudolf Buchbinder to
perform Ludwig von Beethoven’s classic pieces. In addition,
the Festival also organized the carnival, “Green Park Nearby
My Home,” to convey to the community the education of
eco-environmental protection through thetheatric play and
workshops. The Foundation also invited renowned writers to
share their understanding of their favorite Nobel Literature
Award writers and their works. The 2017 TSMC Hsin-Chu Arts
Festival arranged 36 fine arts activities, attracting nearly 20,000
attendees.
The TSMC Education and Culture Foundation also supports
various Taiwanese art groups. In 2017, the TSMC Education
and Culture Foundation again sponsored National Symphony
Orchestra to produce Giacomo Puccini’s Il trittico, Il tabarro,
Suor Angelica, and Gianni Schicchi, premiered in Taiwan. The
opera was directed by James Robinson, the Artistic Director
of Opera Theatre of St. Louis. The stage, props, and costumes
were made to international standards. The production
attracted more than 3,700 fans and gained overwhelmingly
positive responses.
The TSMC Education and Culture Foundation has a long-term
commitment to relive historic buildings and to promote
Chinese Traditional Classics. Since 2008, the TSMC Education
and Culture Foundation has invited Professor Yih-yun Hsin to
teach traditional Chinese philosophy and wisdom through
broadcast programs on the IC Radio Broadcasting Station. In
2017, Professor Hsin finished the Analects of Confucius and
the lectures were made into a collection of audio books, which
are extremely popular and followed by Chinese audiences all
over the world. The TSMC Education and Culture Foundation
also collaborates with Literary Supplement of United Daily
7.4 TSMC Charity Foundation
In order to reinforce TSMC’s corporate social responsibilities
and set a comprehensive mechanism for management, TSMC
established the TSMC Charity Foundation in June 2017. Sophie
Chang assumed the chairperson’s role with the intention
of leading the foundation to create a “brilliant influence for
spreading love”, continuously listening to the needs of society
and inspire the efforts needed to make great progress in
Taiwan.
To leverage internal and external resources to optimize the
influence of power, TSMC Charity Foundation, when first
started, aligned with TSMC’s corporate social responsibilities
policy and with the United Nations’ Sustainable Development
Goals (SDGs) and defined four key themes for the foundation:
taking care of elders, promoting filial piety, caring for the
disadvantaged and protecting the environment. By providing
services in these four areas, TSMC’s Charity Foundation can
help to build a better society in Taiwan, and also make the
world a better place to live.
● Take care of elders: Through Networking of Love, the
resources of the hospitals in Taiwan have been integrated
to provide prevention and treatment and promote mental
health and wellbeing for the elderly who live alone. Currently
partners in Networking of Love include: Taipei Veterans
General Hospital, Old Five Old Foundation, Miaoli General
Hospital, Feng Yuan Hospital, China Medical University
Hospital, Lin Welfare and Charity Foundation, Tainan Puli
Association, Sin-Lau Medical Foundation, Jianan Psychiatric
Center, Hengchun Tourism Hospital, Mennonite Christian
Hospital and its Charity Foundation.
● Promote filial piety: Promoting and reviving the younger
generation’s appreciation of filial piety and promoting the
value of filial piety in Eastern culture can help solve many
social issues in an aged society, enhance the capability of
sustainable develop of the society. In 2017, TSMC Charity
Foundation collaborated with K-12 Education Administration,
Ministry of Education and to edit and publish teaching
materials on filial piety.
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Non-
implementation
and Its Reason(s)
None
Assessment Item
Implementation Status
Yes
No
Summary
3. Promotion of Social Welfare
V
(1) Does the Company set policies and procedures in compliance with
regulations and internationally recognized human rights principles?
(1) Please refer to “5.5 Human Capital” on page 85-89 of this Annual Report.
(2) Has the Company established appropriately managed employee appeal
(2) Please refer to “5.5 Human Capital” on page 85-89 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 page 128-131 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 page 85-89 of this Annual Report.
(5) Has the Company established effective career development training
(5) Please refer to “5.5 Human Capital” on page 85-89 of this Annual Report.
plans?
(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 130-131 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
page 118-135 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 Standards and verified by certifying bodies.
● Care for the disadvantaged: Providing goods and medical resources to disadvantaged groups can ensure they can have safe,
effective, quality and affordable essential medicines and vaccines. Ensuring disadvantaged groups have inclusive and equitable
quality education will also go a long way towards achieving the United Nations’ goal to “End poverty in all its forms”. TSMC’s
volunteers in this effort now number more than 8,000.
● Protect the environment: Promoting environmental education and knowledge will increase people’s awareness of the importance
of prevention and adaptation regarding climate change. This includes TSMC’s ecology volunteers, who provide ecology tours in
Hsinchu Fab 12B, Taichung Fab 15, Tainan Jacana Ecology Education Park, and TSMC’s professional energy-saving volunteers,
who are organized by employees of the Company and 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.
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 2017, 3,825 attendees participated in the following projects, as over NT$8 million in contributions were received:
● Library Repairing and Reconstruction for Nanhua Elementary School
● School Repairing and Reconstruction for Tainan Jin-Hu Elementary School
● School Repairing, Reconstruction and Expansion for Chiayi Shuishang After-class School
From 2014 to 2017, TSMC i-Charity platform has received over NT$52 million in contributions. 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
V
V
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
Non-
implementation
and Its Reason(s)
None
(1) Please refer to “7. Corporate Social Responsibility” on page 118-135 of this
Annual Report.
(2) Please refer to “3.5 Code of Ethics and Business Conduct” on page 46-50 of
this Annual Report
(3) Please refer to “7. Corporate Social Responsibility” on page 118-135 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 indices. For further details,
please refer to “5.5 Human Capital” on page 85-89 of this Annual Report.
Please refer to “7.2.1 Environmental Protection” on page 123-126 of this
Annual Report.
None
(Continued)
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136
136
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8.
Subsidiary Information and
Other Special Notes
8.1 Subsidiaries
8.1.1 TSMC Subsidiaries Chart
TSMC Development, Inc.
Shareholding: 100%
WaferTech, LLC
Shareholding: 100%
TSMC Technology, Inc.
Shareholding: 100%
TSMC Design Technology Canada Inc.
Shareholding: 100%
InveStar Semiconductor Development
Fund, Inc. (Note 1)
Shareholding: 97.09%
InveStar Semiconductor Development
Fund, Inc. (II) LDC. (Note 1)
Shareholding: 97.09%
TSMC North America
Shareholding: 100%
TSMC Europe B.V.
Shareholding: 100%
TSMC Japan Limited
Shareholding: 100%
TSMC Korea Limited
Shareholding: 100%
TSMC Partners, Ltd.
Shareholding: 100%
TSMC Global Ltd.
Shareholding: 100%
TSMC China Company Limited
Shareholding: 100%
TSMC Nanjing Company Limited
Shareholding: 100%
VisEra Technologies Company Ltd.
Shareholding: 86.94%
VentureTech Alliance Fund II, L.P.
Shareholding: 98%
Taiwan
Semiconductor
Manufacturing
Company Limited
VentureTech Alliance Fund III, L.P.
Shareholding: 98%
Growth Fund Limited
Shareholding: 100%
TSMC Solar Europe GmbH (Note 2)
Shareholding: 100%
Note 1: InveStar Semiconductor Development Fund, Inc. and InveStar Semiconductor Development Fund, Inc. (II) LDC. are under liquidation procedures.
Note 2: TSMC Solar Europe GmbH is under liquidation procedures.
8.1.2 Business Scope of TSMC and Its Subsidiaries
TSMC and its subsidiaries strive to provide the best foundry services. Subsidiaries in North America, Europe, Japan, China and South
Korea are dedicated to instantly 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 12/31/2017
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 12/31/2017
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 2, 2006
Seoul, Korea
TSMC China Company Limited
Aug. 04, 2003
Shanghai, China
US$
EUR
JPY
KRW
RMB
11,000
Selling and marketing of integrated circuits and
semiconductor devices
100
Customer service and supporting activities
300,000
Customer service and supporting activities
400,000
Customer service and supporting activities
4,502,080
Manufacturing, selling, testing, and computer-aided design
of integrated circuits and other semiconductor devices
TSMC Nanjing Company Limited
May 16, 2016
Nanjing, China
RMB
6,133,276
Manufacturing, selling, testing, and computer-aided design
of integrated circuits and other semiconductor devices
TSMC Technology, Inc.
Feb. 20, 1996
Delaware, U.S.
InveStar Semiconductor Development Fund,
Inc. (Note 1)
InveStar Semiconductor Development Fund, Inc.
(II) LDC. (Note 1)
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
TSMC Global Ltd.
Jul. 13, 2006
British Virgin Islands
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
TSMC Solar Europe GmbH (Note 2)
Dec. 17, 2010
Hamburg, Germany
US$
US$
US$
US$
US$
US$
CAD
US$
US$
US$
US$
EUR
0.001
Engineering support activities
489
Investing in new start-up technology companies
0
Investing in new start-up technology companies
0.001
Investing in companies involved in the manufacturing
related business in the semiconductor industry
0
Manufacturing, selling, and testing 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
and other investment activities
2,434
Engineering support activities
9,284,000
Investment activities
8,450
Investing in new start-up technology companies
96,522
Investing in new start-up technology companies
2,154
Investing in new start-up technology companies
400
Selling of solar modules and related products and providing
customer service
VisEra Technologies Company Ltd.
Dec.1, 2003
Hsinchu, Taiwan
NT$
2,911,531
Engaged in manufacturing electronic spare parts and in
researching, developing, designing, manufacturing, selling,
packaging and testing of color filter
Note 1: InveStar Semiconductor Development Fund, Inc. and InveStar Semiconductor Development Fund, Inc. (II) LDC. have started the liquidation procedures.
Note 2: The dissolution procedures of TSMC Solar Europe GmbH are expected to be completed by the end of June 2018.
138
139
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 12/31/2017
WaferTech, LLC
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
TSMC Technology, Inc.
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
David Keller
Wendell Huang
Maria Marced
Maria Marced
Chih-Chun Tsai
Makoto Onodera
Lora Ho
Makoto Onodera
C.C.Pan
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
InveStar Semiconductor Development
Fund, Inc. (Note 1)
Director
Wendell Huang
InveStar Semiconductor Development
Fund, Inc. (II) LDC (Note 1)
Director
Wendell Huang
TSMC Development, Inc.
Chairman
Director
President
Lora Ho
Sylvia Fang
Lora Ho
-
-
-
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$920,000,000)
-
-
-
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
-
-
-
100%
-
-
-
100%
-
-
-
-
100%
-
-
-
100%
-
-
-
-
-
(100%)
-
-
-
-
-
-
(100%)
-
-
-
100%
-
97.09%
-
97.09%
-
-
-
100%
(Continued)
Director
Director
President
Director
Director
President
Director
Director
Director
President
Director
Director
None
None
None
M.C. Tzeng (Note 3)
Steve Tso (Note 3)
Tsung-Chia Kuo
Lora Ho
Sylvia Fang
Lora Ho
Cliff Hou
Cormac Michael O’Connell
Sylvia Fang
Cliff Hou
Lora Ho
Sylvia Fang
None
None
None
TSMC Partners, Ltd.
TSMC Design Technology Canada Inc.
TSMC Global Ltd.
VentureTech Alliance Fund II, L.P.
VentureTech Alliance Fund III, L.P.
Growth Fund Limited
TSMC Solar Europe GmbH (Note 2)
Liquidator
Liham Chu
VisEra Technologies Company Ltd.
Chairman
Director
Director
Supervisor
President
Robert Kuan
J.K. Lin
George Liu
Wendell Huang
S.C. Hsin
-
-
-
TSMC Development, Inc. holds 293,636,833 shares
-
-
-
TSMC holds 988,268,244 shares
-
-
-
-
TSMC Partners, Ltd. holds 2,300,000 shares
-
-
TSMC holds 9,284 shares
(TSMC’s investment US$8,151,905)
(TSMC’s investment US$94,591,952)
(VentureTech Alliance Fund III, L.P.’s investment
US$2,153,768)
-
TSMC holds 800 shares
54,600 shares
-
-
-
-
TSMC holds 253,120,000 shares
-
-
-
100%
-
-
-
100%
-
-
-
-
100%
-
-
100%
(98.00%)
(98.00%)
(100%)
-
100%
0.02%
-
-
-
-
86.94%
Note 1: InveStar Semiconductor Development Fund, Inc. and InveStar Semiconductor Development Fund, Inc. (II) LDC. have started the liquidation procedures.
Note 2: The dissolution procedures of TSMC Solar Europe GmbH are expected to be completed by the end of June 2018.
Note 3: Vice President J.K. Lin and Senior Director Wendell Huang replaced Senior Vice President and Chief Information Officer Dr. Steve Tso and Vice President M.C. Tzeng as TSMC’s representative
directors in WaferTech effective on March 8, 2 018.
140
141
8.1.6 Operational Highlights of TSMC Subsidiaries
Unit: NT$ thousands, except EPS (NT$)
TSMC Development, Inc.
0.03
26,136,658
Company
TSMC North America
TSMC Europe B.V.
TSMC Japan Limited
TSMC Korea Limited
TSMC Partners, Ltd.
TSMC Global Ltd.
WaferTech, LLC
As of 12/31/2017
Basic Earning
(Loss) Per
Share
Capital
Stock
Assets
Liabilities
Net Worth
Net
Revenues
Income
(Loss) from
Operation
Net Income
(Loss)
326,249
101,252,896
97,251,893
4,001,003
656,786,045
206,713
5,859
0.53
3,545
78,870
11,160
544,923
179,703
41,856
29,311,048
49,863,409
137,599
50,257
2,645
0
0
407,325
129,446
39,211
494,366
209,193
24,267
53,145
40,557
202,784.41
8,819
2,230
3,600
1,970
600.07
24.62
26,136,658
1,557,029
1,556,722
1,448,900
144,889,982.80
49,863,409
2,231,879
2,225,601
2,225,601
2.25
275,354,156
345,671,142
36,459,265
309,211,877
6,390,773
5,028,339
5,026,024
652,229.12
0
5,756,837
687,279
5,069,559
8,619,322
2,220,672
1,248,658
TSMC China Company Limited
20,504,723
56,428,282
5,266,467
51,161,815
21,728,470
8,900,991
8,938,933
TSMC Nanjing Company Limited
27,934,006
55,413,191
28,344,818
27,068,373
0
(871,695)
(867,563)
VisEra Technologies Company Ltd.
2,911,531
5,911,829
605,263
5,306,566
2,519,211
210,891
207,557
TSMC Technology, Inc.
0.03
1,057,567
538,951
518,616
1,908,259
57,585
14,502
219,788
37,459
182,329
253,031
513
52
90,888
23,003
44
18,990
1,899,043.20
15,597
44
6.78
0.07
4.25
NA
NA
0.71
TSMC Design Technology Canada Inc.
InveStar Semiconductor Development Fund,
Inc.
InveStar Semiconductor Development Fund,
Inc. (II) LDC.
VentureTech Alliance Fund II, L.P.
VentureTech Alliance Fund III, L.P.
TSMC Solar Europe GmbH
Growth Fund Limited
0
1,052
250,622
2,862,758
14,180
63,879
320,701
132,009
14,380
46,334
6
187
0
0
507
864
320,701
132,009
34,597
(20,217)
0
46,334
446,855
378,299
378,299
39.50
151,461
133,784
133,597
2,218
0
0
(25,234)
(12,629)
(1,385)
NA
NA
(25,234)
(12,706)
(15,882.38)
(1,385)
NA
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 2017 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 2017 and as of the Date of this Annual Report
In 2017 and as of the date of this Annual Report, the Company complied with the Taiwan Company Law and Securities Trading
Act relevant laws and regulations. The competent authority issued a minor fine of NT$20,000 for the deficiency of TSMC’s overtime
calculation rules. After communicating with the authority, TSMC has completed the remedial measures.
8.3.3 Any Events in 2017 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.
142
143
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: +886-2-40516888
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© 2017 by Taiwan Semiconductor Manufacturing Company, Ltd. All rights reserved.
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Contents
Consolidated Financial Statements for the
Years Ended December 31, 2017 and 2016 and
Independent Auditors’ Report
Parent Company Only Financial Statements for the
Years Ended December 31, 2017 and 2016 and
Independent Auditors’ Report
1
97
Taiwan Semiconductor Manufacturing
Company Limited and Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2017 and 2016 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, 2017, under the Criteria Governing
the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of
Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in
conformity with the International Financial Reporting Standard 10, “Consolidated Financial Statements.” In
addition, the information required to be disclosed in the combined financial statements is included in the
consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited
and Subsidiaries do not prepare a separate set of combined financial statements.
Very truly yours,
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED
By
MORRIS CHANG
Chairman
February 13, 2018
- 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 34)
Other receivables from related parties (Note 34)
Inventories (Notes 5, 12 and 38)
Other financial assets (Notes 35 and 38)
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 and 16)
Deferred income tax assets (Notes 5 and 29)
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)
Hedging derivative financial liabilities (Note 10)
Accounts payable
Payables to related parties (Note 34)
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to directors and supervisors (Notes 23 and 31)
Payables to contractors and equipment suppliers
Income tax payable (Notes 5 and 29)
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 29)
Net defined benefit liability (Notes 5 and 21)
Guarantee deposits (Note 22)
Others
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, 2017
Amount
%
December 31, 2016
Amount
%
$ 553,391,696
569,751
93,374,153
1,988,385
34,394
121,133,248
1,184,124
171,058
73,880,747
7,253,114
4,222,440
28
-
5
-
-
6
-
-
4
-
-
$ 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
-
-
857,203,110
43
817,729,126
44
18,833,329
4,874,257
17,861,488
1,062,542,322
14,175,140
12,105,463
1,283,414
2,983,120
1
-
1
53
1
1
-
-
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
-
-
-
1,134,658,533
57
1,068,726,176
56
$ 1,991,861,643
100
$ 1,886,455,302
100
$
63,766,850
26,709
15,562
28,412,807
1,656,356
14,254,871
23,419,135
55,723,774
33,479,311
13,961,787
58,401,122
65,588,396
$
3
-
-
1
-
1
1
3
2
1
3
3
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
358,706,680
18
318,239,273
17
91,800,000
-
302,205
8,850,704
7,586,790
1,855,621
110,395,320
5
-
-
1
-
-
6
153,093,557
21,780
141,183
8,551,408
14,670,433
1,686,542
178,164,903
8
-
-
-
1
-
9
469,102,000
24
496,404,176
26
259,303,805
56,309,536
13
3
259,303,805
56,272,304
14
3
241,722,663
991,639,347
1,233,362,010
12
49
61
(26,917,818)
(1)
208,297,945
863,710,224
1,072,008,169
1,663,983
11
46
57
-
Equity attributable to shareholders of the parent
1,522,057,533
76
1,389,248,261
74
NONCONTROLLING INTERESTS
Total equity
TOTAL
702,110
-
802,865
-
1,522,759,643
76
1,390,051,126
74
$ 1,991,861,643
100
$ 1,886,455,302
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)
2017
2016
Amount
%
Amount
%
NET REVENUE (Notes 5, 24, 34 and 40)
$ 977,447,241
100
$ 947,938,344
100
COST OF REVENUE (Notes 5, 12, 31, 34 and 38)
482,616,286
49
473,077,173
50
GROSS PROFIT BEFORE UNREALIZED GROSS
PROFIT ON SALES TO ASSOCIATES
494,830,955
51
474,861,171
50
UNREALIZED GROSS PROFIT ON SALES TO
ASSOCIATES
GROSS PROFIT
OPERATING EXPENSES (Notes 5, 31 and 34)
Research and development
General and administrative
Marketing
(4,553)
-
(29,073)
-
494,826,402
51
474,832,098
50
80,732,463
21,196,717
5,972,488
8
2
1
71,207,703
19,795,593
5,900,837
7
2
1
Total operating expenses
107,901,668
11
96,904,133
10
OTHER OPERATING INCOME AND EXPENSES,
NET (Notes 16, 25 and 31)
(1,365,511)
(1)
29,813
-
INCOME FROM OPERATIONS (Note 40)
385,559,223
39
377,957,778
40
NON-OPERATING INCOME AND EXPENSES
Share of profits of associates (Note 14)
Other income (Note 26)
Foreign exchange gain (loss), net (Note 39)
Finance costs (Note 27)
Other gains and losses, net (Note 28)
2,985,941
9,610,294
(1,509,473)
(3,330,313)
2,817,358
Total non-operating income and expenses
10,573,807
1
1
-
-
-
2
3,495,600
6,454,901
1,161,322
(3,306,153)
195,932
8,001,602
-
1
-
-
-
1
INCOME BEFORE INCOME TAX
396,133,030
41
385,959,380
41
INCOME TAX EXPENSE (Notes 5 and 29)
52,986,182
6
51,621,144
6
NET INCOME
343,146,848
35
334,338,236
35
(Continued)
- 9 -
- 9 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 14, 21, 23 and 29)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit obligation
Share of other comprehensive loss of 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
Cash flow hedges
Share of other comprehensive income (loss) of
associates
Income tax expense related to items that may be
reclassified subsequently
2017
2016
Amount
%
Amount
%
(254,681)
(20,853)
30,562
(244,972)
-
-
-
-
$
(1,057,220)
(19,961)
126,867
(950,314)
-
-
-
-
(28,259,627)
(3)
(9,379,477)
(1)
(218,832)
4,683
(99,347)
(3,536)
-
-
-
-
(692,523)
-
16,301
(61,176)
-
-
-
-
(28,576,659)
(3)
(10,116,875)
(1)
Other comprehensive loss for the year, net of income
tax
(28,821,631)
(3)
(11,067,189)
(1)
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR
$ 314,325,217
32
$ 323,271,047
34
NET INCOME ATTRIBUTABLE TO:
Shareholders of the parent
Noncontrolling interests
TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Shareholders of the parent
Noncontrolling interests
$ 343,111,476
35,372
35
-
$ 334,247,180
91,056
35
-
$ 343,146,848
35
$ 334,338,236
35
$ 314,294,993
30,224
32
-
$ 323,186,736
84,311
34
-
$ 314,325,217
32
$ 323,271,047
34
(Continued)
- 10 -
- 10 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2017
Income Attributable to
Shareholders of
the Parent
2016
Income Attributable to
Shareholders of
the Parent
EARNINGS PER SHARE (NT$, Note 30)
Basic earnings per share
Diluted earnings per share
$
$
13.23
13.23
$
$
12.89
12.89
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
- 11 -
- 11 -
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-
-
2
2
1
1
-
-
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
Interest income
Loss (gain) on disposal or retirement of property, plant and equipment, net
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 on disposal of investments accounted for using equity method, net
Loss (gain) from disposal of subsidiaries
Unrealized gross profit on sales to associates
Gain on foreign exchange, net
Dividend income
Loss (gain) arising from fair value hedges, net
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
2017
2016
$ 396,133,030
$ 385,959,380
255,795,962
4,346,736
3,330,313
(2,985,941)
(9,464,706)
1,097,908
13,520
29,603
(76,986)
(12,809)
-
(17,343)
4,553
(9,118,580)
(145,588)
30,293
5,645,093
1,061,805
(214,565)
(13,873)
(25,229,101)
(502,306)
12,085
(1,276,130)
2,572,072
394,182
582,054
220,084,998
3,743,406
3,306,153
(3,495,600)
(6,317,500)
(46,548)
-
122,240
4,014
(37,241)
259,960
36,105
29,073
(2,656,406)
(137,401)
(16,973)
(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
525,129
30,435,424
(4,057,900)
44,615
648,938,549
(63,620,382)
1,935,113
3,693,638
7,931,877
46,163
585,777,893
(45,943,301)
Net cash generated by operating activities
585,318,167
539,834,592
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets carried at cost
Property, plant and equipment
Intangible assets
Land use right
(100,510,905)
(1,997,076)
(1,313,124)
(330,588,188)
(4,480,588)
(819,694)
(83,275,573)
(33,625,353)
(533,745)
(328,045,270)
(4,243,087)
(805,318)
(Continued)
- 13 -
- 13 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
Proceeds from disposal or redemption of:
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets carried at cost
Property, plant and equipment
Proceeds from return of capital of financial assets carried at cost
Derecognition of hedging derivative financial instruments
Interest received
Proceeds from government grants - property, plant and equipment
Proceeds from government grants - land use right and others
Cash outflow from disposal of subsidiary
Other dividends received
Dividends received from investments accounted for using equity method
Refundable deposits paid
Refundable deposits refunded
Decrease in receivables for temporary payments
$
2017
2016
$
69,480,675
17,980,640
58,237
326,232
14,828
33,008
9,526,253
2,629,747
1,811
(4,080)
145,588
4,245,772
(1,326,983)
432,944
-
29,967,979
10,550,000
160,498
98,069
65,087
8,868
6,353,195
738,643
798,469
-
137,420
5,478,790
(144,982)
169,912
706,718
Net cash used in investing activities
(336,164,903)
(395,439,680)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Repayment of bonds
Repayment of long-term bank loans
Interest paid
Guarantee deposits received
Guarantee deposits refunded
Cash dividends
Donation from shareholders
Decrease in noncontrolling interests
10,394,290
(38,100,000)
(31,460)
(3,482,703)
950,928
(3,823,183)
(181,512,663)
20,837
(113,675)
18,968,936
(23,471,600)
(8,540)
(3,302,420)
6,354,677
(523,234)
(155,582,283)
-
(235,733)
Net cash used in financing activities
(215,697,629)
(157,800,197)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
(21,317,772)
(8,029,812)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
12,137,863
(21,435,097)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
541,253,833
562,688,930
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 553,391,696
$ 541,253,833
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
- 14 -
- 14 -
Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
1. GENERAL
Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.)
corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor
industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design
of integrated circuits and other semiconductor devices and the manufacturing of masks.
On September 5, 1994, TSMC’s shares were listed on the Taiwan Stock Exchange (TWSE). On October
8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of
American Depositary Shares (ADSs).
The address of its registered office and principal place of business is No. 8, Li-Hsin Rd. 6, Hsinchu Science
Park, Taiwan. The principal operating activities of TSMC’s subsidiaries are described in Note 4.
2. THE AUTHORIZATION OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements were approved and authorized for issue by the Board
of Directors on February 13, 2018.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC)
(collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)
Except for the following, the initial application of the amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by
the FSC did not have a significant effect on TSMC and its subsidiaries’ (collectively as the “Company”)
accounting policies:
1) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities
Issuers
The amendments stipulate that other companies or institutions of which the chairman of the board
of directors or president serves as the chairman of the board of directors or the president, or is the
spouse or second immediate family of the chairman of the board of directors or president of the
Company are deemed to have a substantive related party relationship, unless it can be demonstrated
that no control, joint control, or significant influence exists. Furthermore, the amendments require
the disclosure of the names of the related parties and the relationship with whom the Company has
transaction. If the transaction or balance with a specific related party is 10% or more of the
Company’s respective total transaction or balance, such transaction should be separately disclosed
by the name of each related party.
When the amendments are applied retrospectively from January 1, 2017, the disclosure of related
party transactions is enhanced, please refer to Note 34.
- 15 -
- 15 -
b. The IFRSs issued by International Accounting Standards Board (IASB) and endorsed by FSC with
effective date starting 2018
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB
Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of
Note 1
January 1, 2018
Share-based Payment Transactions”
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
January 1, 2018
January 1, 2018
IFRS 9 and Transition Disclosure”
IFRS 15 “Revenue from Contracts with Customers”
Amendment to IFRS 15 “Clarifications to IFRS 15”
Amendment to IAS 7 “Disclosure Initiative”
Amendment to IAS 12 “Recognition of Deferred Tax Assets for
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
Unrealized Losses”
IFRIC 22 “Foreign Currency Transactions and Advance
January 1, 2018
Consideration”
Note 1: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after
January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.
Except for the following items, the Company believes that the adoption of aforementioned standards or
interpretations will not have a significant effect on the Company’s accounting policies.
1) IFRS 9 “Financial Instruments” and related amendments
Classification, measurement and impairment of financial assets
All recognized financial assets currently in the scope of IAS 39, “Financial Instruments:
Recognition and Measurement,” will be subsequently measured at either the amortized cost or the
fair value. The classification and measurement requirements in IFRS 9 are stated as follows:
For the invested debt instruments, if the contractual cash flows that are solely for payments of
principal and interest on the principal amount outstanding, the classification and measurement
requirements are stated as follows:
a) If the objective of business model is to hold the financial asset to collect the contractual cash
flows, such assets are measured at the amortized cost. Interest revenue should be recognized
in profit or loss by using the effective interest method, continuously assessed for impairment
and the impairment loss or reversal of impairment loss should be recognized in profit and loss.
b) If the objective of business model is to hold the financial asset both to collect the contractual
cash flows and to sell the financial assets, such assets are measured at fair value through other
comprehensive income (FVTOCI) and are continuously assessed for impairment. Interest
revenue should be recognized in profit or loss by using the effective interest method. A gain
or loss on a financial asset measured at fair value through other comprehensive income should
be recognized in other comprehensive income, except for impairment gains or losses and
foreign exchange gains and losses. When such financial asset is derecognized or reclassified,
the cumulative gain or loss previously recognized in other comprehensive income is reclassified
from equity to profit or loss.
- 16 -
- 16 -
The other financial assets which do not meet the aforementioned criteria should be measured at the
fair value through profit or loss (FVTPL). However, the entity may irrevocably designate an
investment in equity instruments that is not held for trading as measured at FVTOCI. All relevant
gains and losses shall be recognized in other comprehensive income, except for dividends which are
recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative
gain or loss previously recognized in other comprehensive income cannot be reclassified from
equity to profit or loss.
IFRS 9 adds a new expected loss impairment model to measure the impairment of financial assets.
A loss allowance for expected credit losses should be recognized on financial assets measured at
amortized cost and investments in debt instruments measured at fair value through other
comprehensive income. If the credit risk on a financial instrument has not increased significantly
since initial recognition, the loss allowance for that financial instrument should be measured at an
amount equal to 12-month expected credit losses. If the credit risk on a financial instrument has
increased significantly since initial recognition and is not deemed to be a low credit risk, the loss
allowance for that financial instrument should be measured at an amount equal to the lifetime
expected credit losses. A simplified approach is allowed for accounts receivables and the loss
allowance could be measured at an amount equal to lifetime expected credit losses.
The Company elects not to restate prior reporting period when applying the requirements for the
classification, measurement and impairment of financial assets and financial liabilities under IFRS 9
with the cumulative effect of the initial application recognized at the date of initial application.
The anticipated impact on measurement categories, carrying amount and related reconciliation for
each class of the Company’s financial assets and financial liabilities when retrospectively applying
IFRS 9 on January 1, 2018 is detailed below:
Financial Assets
IAS 39
IFRS 9
IAS 39
IFRS 9
Note
Measurement Category
Carrying Amount
(1)
(2)
(3)
(3)
(4)
(1)
Cash and cash equivalents
Derivatives
Equity securities
Debt securities
Loans and receivables
Held for trading
Hedging instruments
Available-for-sale
Available-for-sale
Amortized cost
Mandatorily at FVTPL
Hedging instruments
FVTOCI
Mandatorily at FVTPL
$ 553,391,696 $ 553,391,696
569,751
34,394
8,389,438
779,489
569,751
34,394
7,422,311
-
Notes and accounts receivable
(including related parties),
other receivables and
refundable deposits
Financial Liabilities
Derivatives
Short-term loans, accounts
payable (including related
parties), payables to
contractors and equipment
suppliers, accrued expenses
and other current liabilities,
bonds payable and
guarantee deposits
Held-to-maturity
Loans and receivables
FVTOCI
Amortized cost
Amortized cost
90,826,099
20,821,714
90,046,610
20,813,462
131,024,958 131,269,731
$
26,709
15,562
340,501,266 340,501,266
26,709 $
15,562
Held for trading
Hedging instruments
Amortized cost
Mandatorily at FVTPL
Hedging instruments
Amortized cost
- 17 -
- 17 -
Carrying
Amount as of
December 31,
2017 (IAS 39)
Reclassifi-
cations
Remea-
surements
Carrying
Amount as of
January 1, 2018
(IFRS 9)
Retained
Earnings
Effect on
January 1,
2018
Other Equity
Effect on
January 1,
2018
Note
$
569,751
$
-
$
-
$
569,751
$
-
$
-
-
569,751
-
779,489
779,489
-
-
-
-
779,489
1,349,240
-
(10,085 )
(10,085 )
-
10,085
10,085
-
(3)
-
-
-
-
-
7,422,311
967,127
8,389,438
1,294,528
(325,858 )
(2)
90,046,610
97,468,921
-
-
967,127
-
90,046,610
98,436,048
-
(30,658 )
1,263,870
-
20,821,714
(8,252 ) 20,813,462
(8,252 )
-
-
34,394
684,416,654
705,238,368
-
244,773
684,661,427
236,521 705,474,889
34,394
-
244,773
236,521
-
30,658
(295,200 )
(3)
-
-
-
-
-
(4)
(1)
Financial Assets
FVTPL
- Debt instruments
Add: From available for
sale
FVTOCI
- Equity instruments
Add: From available for
sale
- Debt instruments
Add: From available for
sale
Amortized cost
Add: From held to
maturity
Add: From loans and
receivables
Hedging instruments
Total
$
604,145
$ 803,486,778
$ 1,203,648
$ 805,294,571
$ 1,490,306
$
(285,115 )
Carrying
Amount as of
December 31,
2017
(IAS 39)
Adjustments
Arising from
Initial
Application
Carrying
Amount as of
January 1, 2018
(IFRS 9)
Retained
Earnings
Effect on
January 1,
2018
Other Equity
Effect on
January 1,
2018
Note
Investments accounted for using equity method $ 17,861,488
$
8,258
$ 17,869,746
$
33,984
$
(25,726)
(5)
(1) Cash and cash equivalents, notes and accounts receivable (including related parties), other
receivables and refundable deposits were classified as loans and receivables under IAS 39 are
now classified at amortized cost with assessment of future 12-month or lifetime expected credit
loss under IFRS 9. As a result of retrospective application, the adjustments for accounts
receivable would result in a decrease in loss of allowance of NT$244,773 thousand and an
increase in retained earnings of NT$244,773 thousand on January 1, 2018.
(2) As equity investments that were previously classified as available-for-sale financial assets under
IAS 39 are not held for trading, the Company elected to designate all of these investments as at
FVTOCI under IFRS 9. As a result, the related other equity-unrealized gain/loss on
available-for-sale financial assets of NT$228,304 thousand is reclassified to increase other
equity - unrealized gain/loss on financial assets at FVTOCI.
As equity investments previously measured at cost under IAS 39 are remeasured at fair value
under IFRS 9, the adjustments would result in an increase in financial assets at FVTOCI of
NT$967,127 thousand, an increase in other equity-unrealized gain/loss on financial assets at
FVTOCI of NT$968,670 thousand and a decrease in noncontrolling interests of NT$1,543
thousand on January 1, 2018.
For those equity investments previously classified as available-for-sale financial assets
(including measured at cost financial assets) under IAS 39, the impairment losses that the
Company had recognized have been accumulated in retained earnings. Since these
investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is
required, the adjustments would result in a decrease in other equity - unrealized gain/loss on
financial assets at FVTOCI of NT$1,294,528 thousand and an increase in retained earnings of
NT$1,294,528 thousand on January 1, 2018.
- 18 -
- 18 -
(3) Debt investments were previously classified as available-for-sale financial assets under IAS 39.
Under IFRS 9, except for debt instruments of NT$779,489 thousand whose contractual cash
flows are not solely payments of principal and interest on the principal outstanding and
therefore are classified as at FVTPL with the related other equity-unrealized gain/loss on
available-for-sale financial assets of NT$10,085 thousand being consequently reclassified to
decrease retained earnings, the remaining debt investments are classified as at FVTOCI with
assessment of future 12-month expected credit loss because these investments are held within a
business model whose objective is both to collect the contractual cash flows and sell the
financial assets. The related other equity-unrealized gain/loss on available-for-sale financial
assets of NT$434,403 thousand is reclassified to decrease other equity-unrealized gain/loss on
financial assets at FVTOCI. As a result of retrospective application of future 12-month
expected credit loss, the adjustments would result in an increase in other equity - unrealized
gain/loss on financial assets at FVTOCI of NT$30,658 thousand and a decrease in retained
earnings of NT$30,658 thousand on January 1, 2018.
(4) Debt investments previously classified as held-to-maturity financial assets and measured at
amortized cost under IAS 39 are classified as measured at amortized cost with assessment of
future 12-month expected credit loss under IFRS 9 because the contractual cash flows are solely
payments of principal and interest on the principal outstanding and these investments are held
within a business model whose objective is to collect the contractual cash flows. As a result of
retrospective application of future 12-month expected credit loss, the adjustments would result
in an increase in loss allowance of NT$8,252 thousand and a decrease in retained earnings of
NT$8,252 thousand on January 1, 2018.
(5) With the retrospective adoption of IFRS 9 by associates accounted for using equity method, the
corresponding adjustments made by the Company would result in an increase in investments
accounted for using equity method of NT$8,258 thousand, a decrease in other equity- unrealized
gain/loss on financial assets at FVTOCI of NT$23,616 thousand, a decrease in other equity-
unrealized gain/loss on available-for-sale financial assets of NT$2,110 thousand and an increase
in retained earnings of NT$33,984 thousand on January 1, 2018.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost
of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between the
hedging instrument and the hedged item.
A preliminary assessment of the Company’s current hedging relationships indicates that they will
qualify as continuing hedging relationships under IFRS 9. The Company will prospectively apply
the requirements for hedge accounting upon initial application of IFRS 9.
2) IFRS 15 “Revenue from Contracts with Customers” and related amendments
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue,” IAS 11 “Construction Contracts,” and a number of
revenue-related interpretations.
When applying IFRS 15, the Company shall recognize revenue by applying the following steps:
Identify the contract with the customer;
Identify the performance obligations in the contract;
(cid:122)
(cid:122)
(cid:122) Determine the transaction price;
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(cid:122) Allocate the transaction price to the performance obligations in the contract; and
(cid:122) Recognize revenue when the entity satisfies a performance obligation.
The Company elects only to retrospectively apply IFRS 15 to contracts that were not completed on
January 1, 2018 and elects not to restate prior reporting period with the cumulative effect of the
initial application recognized at the date of initial application.
The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on
January 1, 2018 is detailed below:
Carrying
Amount as of
December 31,
2017
(IAS 18 and
Revenue-related
Interpretations)
Adjustments
Arising from
Initial
Application
Carrying
Amount as of
January 1, 2018
(IFRS 15)
Note
Inventories
Other financial assets-current
Investments accounted for using
equity method
$ 73,880,747 $
7,253,114
(19,746) $ 73,861,001
7,287,291
34,177
(1)
(1)
17,861,488
19,483
17,880,971
(1)
Total effect on assets
$
33,914
Provisions - current
Accrued expenses and other
current liabilities
13,961,787 $ (13,961,787)
-
(2)
65,588,396
13,961,787
79,550,183
(2)
Total effect on liabilities
$
-
Retained earnings
Non-controlling interests
1,233,362,010 $
702,110
32,029 1,233,394,039
703,995
1,885
(1)
(1)
Total effect on equity
$
33,914
(1) Prior to the application of IFRS 15, the Company recognizes revenue based on the accounting
treatment of the sales of goods. Under IFRS 15, certain subsidiaries and associates accounted
for using equity method will change to recognize revenue over time because customers are
deemed to have control over the products when the products are manufactured. As a result, the
Company will recognize contract assets (classified under other financial assets) and adjust
related assets and equity accordingly.
(2) Prior to the application of IFRS 15, the Company recognized the estimation of sales returns and
allowance as provisions. Under IFRS 15, the Company recognizes such estimation as refund
liability (classified under accrued expenses and other current liabilities).
Except for the aforementioned impact, as of the date the accompanying consolidated financial
statements were authorized for issue, the Company continues in evaluating the impact on its financial
position and financial performance as a result of the initial adoption of the other standards or
interpretations. The related impact will be disclosed when the Company completes the evaluation.
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c. The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB
Annual Improvements to IFRSs 2015–2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
January 1, 2019
January 1, 2019
Compensation”
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 16 “Leases”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
January 1, 2019 (Note 2)
January 1, 2019
Amendments to IAS 28 “Long-term Interests in Associates and Joint
January 1, 2019
Ventures”
IFRIC 23 “Uncertainty over Income Tax Treatments”
January 1, 2019
Note 2: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting January 1,
2019.
Except for the following items, the Company believes that the adoption of aforementioned standards or
interpretations will not have a significant effect on the Company’s accounting policies.
1) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of
related interpretations.
Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities
for all leases on the consolidated balance sheets except for low-value and short-term leases. The
Company may elect to apply the accounting method similar to the accounting for operating lease
under IAS 17 to the low-value and short-term leases. On the consolidated statements of
comprehensive income, the Company should present the depreciation expense charged on the
right-of-use asset separately from interest expense accrued on the lease liability; interest is
computed by using effective interest method. On the consolidated statements of cash flows, cash
payments for both the principal and interest portion of the lease liability are classified within
financing activities.
When IFRS 16 becomes effective, the Company may elect to apply this Standard either
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect
of the initial application of this Standard recognized at the date of initial application.
Except for the aforementioned impact, as of the date the accompanying consolidated financial
statements were authorized for issue, the Company continues in evaluating the impact on its financial
position and financial performance as a result of the initial adoption of the other standards or
interpretations. The related impact will be disclosed when the Company completes the evaluation.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For the convenience of readers, the accompanying consolidated financial statements have been translated
into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict
between the English version and the original Chinese version or any difference in the interpretation of the
two versions, the Chinese-language consolidated financial statements shall prevail.
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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.
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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,
2017
December 31,
2016
Note
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 other semiconductor devices
U.S.A.
Customer service and supporting activities
Yokohama, Japan
Investing in companies involved in the
Tortola, British Virgin
design, manufacture, and other related
business in the semiconductor industry and
other investment activities
Islands
Customer service and supporting activities
Seoul, Korea
TSMC Europe B.V. (TSMC
Customer service and supporting activities
Amsterdam, the
Europe)
TSMC Global, Ltd. (TSMC
Investment activities
Global)
TSMC China Company
Manufacturing, selling, testing and
Limited (TSMC China)
computer-aided design of integrated
circuits and other semiconductor devices
Netherlands
Tortola, British Virgin
Islands
Shanghai, China
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
TSMC Nanjing Company
Manufacturing, selling, testing and
Nanjing, China
100%
100%
TSMC Partners
VisEra Technologies
Company Ltd. (VisEra
Tech)
TSMC Design Technology
Canada Inc. (TSMC
Canada)
TSMC Technology, Inc.
(TSMC Technology)
TSMC Development, Inc.
(TSMC Development)
Limited (TSMC Nanjing)
computer-aided design of integrated
circuits and other semiconductor devices
VentureTech Alliance Fund
III, L.P. (VTAF III)
VentureTech Alliance Fund
Investing in new start-up technology
Cayman Islands
companies
Investing in new start-up technology
Cayman Islands
II, L.P. (VTAF II)
companies
TSMC Solar Europe GmbH Selling of solar related products and
Hamburg, Germany
providing customer service
Engaged in manufacturing electronic spare
parts and in researching, developing,
designing, manufacturing, selling,
packaging and testing of color filter
Hsinchu, Taiwan
Engineering support activities
Delaware, U.S.A.
Investing in companies involved in the
manufacturing related business in the
semiconductor industry
Delaware, U.S.A.
InveStar Semiconductor
Investing in new start-up technology
Cayman Islands
Development Fund, Inc.
(ISDF)
companies
InveStar Semiconductor
Investing in new start-up technology
Cayman Islands
Development Fund, Inc.
(II) LDC. (ISDF II)
companies
98%
98%
100%
87%
98%
98%
100%
87%
100%
100%
97%
97%
100%
100%
97%
97%
Engineering support activities
Ontario, Canada
100%
100%
-
a)
a)
a)
a)
-
-
b)
a)
a)
a), c)
d)
a)
a)
-
a) , e)
a) , e)
TSMC Development
WaferTech, LLC
Manufacturing, selling and testing of
Washington, U.S.A.
100%
100%
-
(WaferTech)
integrated circuits and other semiconductor
devices
VTAF III
Mutual-Pak Technology
Co., Ltd. (Mutual-Pak)
VTAF III, VTAF II
and TSMC
Growth Fund Limited
(Growth Fund)
VentureTech Alliance
Holdings, LLC (VTA
Holdings)
Manufacturing of electronic parts,
New Taipei, Taiwan
39%
58%
a) , f)
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.
100%
-
100%
100%
a)
a) , g)
companies
Note a: This is an immaterial subsidiary for which the consolidated financial statements are not audited by the Company’s independent accountants.
Note b: Under the investment agreement entered into with the municipal government of Nanjing, China on March 28, 2016, the Company will make an investment in Nanjing in the amount of
approximately US$3 billion to establish a subsidiary operating a 300mm wafer fab with the capacity of 20,000 12-inch wafers per month, and a design service center. TSMC Nanjing
was established in May 2016.
Note c: TSMC Solar Europe GmbH is under liquidation procedures.
Note d: To simplify investment structure, VisEra Tech owned by VisEra Holding Company (VisEra Holding) was transferred to TSMC in the third quarter of 2016. In October 2016, VisEra
Holding was incorporated into TSMC Partners, the subsidiary of TSMC.
Note e:
ISDF and ISDF II are under liquidation procedures.
Note f:
Starting December 2017, the Company no longer had the majority of voting power and control over Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for
using the equity method.
Note g: VTA Holdings completed the liquidation procedures in April 2017.
Foreign Currencies
The financial statements of each individual consolidated entity were expressed in the currency which
reflected its primary economic environment (functional currency). The functional currency of TSMC and
presentation currency of the consolidated financial statements are both New Taiwan Dollars (NT$). In
preparing the consolidated financial statements, the operating results and financial positions of each
consolidated entity are translated into NT$.
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In preparing the financial statements of each individual consolidated entity, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing
at the dates of the transactions. At the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Such exchange differences are
recognized in profit or loss in the year in which they arise. Non-monetary items measured at fair value
that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair
value was determined. Exchange differences arising on the retranslation of non-monetary items are
included in profit or loss for the year except for exchange differences arising on the retranslation of
non-monetary items in respect of which gains and losses are recognized directly in other comprehensive
income, in which case, the exchange differences are also recognized directly in other comprehensive
income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not
retranslated.
For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s
foreign operations are translated into NT$ using exchange rates prevailing at the end of each reporting
period. Income and expense items are translated at the average exchange rates for the period. Exchange
differences arising, if any, are recognized in other comprehensive income and accumulated in equity
(attributed to noncontrolling interests as appropriate).
Classification of Current and Noncurrent Assets and Liabilities
Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or
consumed within one year from the end of the reporting period. Current liabilities are obligations incurred
for trading purposes and obligations expected to be settled within one year from the end of the reporting
period. Assets and liabilities that are not classified as current are noncurrent assets and liabilities,
respectively.
Cash Equivalents
Cash equivalents, for the purpose of meeting short-term cash commitments, consist of highly liquid time
deposits and investments that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Financial Instruments
Financial assets and liabilities shall be recognized when the Company becomes a party to the contractual
provisions of the instruments.
Financial assets and liabilities are initially recognized at fair values. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognized immediately in profit or loss.
Financial Assets
Financial assets are classified into the following specified categories: Financial assets “at FVTPL”,
“held-to-maturity” financial assets, “available-for-sale” financial assets and “loans and receivables”. The
classification depends on the nature and purpose of the financial assets and is determined at the time of
initial recognition. Regular way purchases or sales of financial assets are recognized and derecognized on
a trade date or settlement date basis for which financial assets were classified in the same way, respectively.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets
within the time frame established by regulation or convention in the marketplace.
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Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset is either held
for trading or it is designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising
on remeasurement recognized in profit or loss.
Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and
fixed maturity dates that the Company has the positive intent and ability to hold to maturity. Subsequent
to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective
interest method less any impairment.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated as
available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity financial assets or (c)
financial assets at fair value through profit or loss.
Available-for-sale financial assets are measured at fair value. Interest income from available-for-sale
monetary financial assets and dividends on available-for-sale equity investments are recognized in profit or
loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other
comprehensive income. When the investment is disposed of or is determined to be impaired, the
cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or
loss.
Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s
right to receive the dividends is established.
Available-for-sale equity instruments that do not have a quoted market price in an active market and whose
fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end
of each reporting period. Such equity instruments are subsequently remeasured at fair value when their
fair value can be reliably measured, and the difference between the carrying amount and fair value is
recognized in profit or loss or other comprehensive income.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Loans and receivables including cash and cash equivalents, notes and
accounts receivable and other receivables are measured at amortized cost using the effective interest
method, less any impairment, except for those loans and receivables with immaterial discounted effect.
Impairment of financial assets
Financial assets, other than those carried at FVTPL, are assessed for indicators of impairment at the end of
each reporting period. Those financial assets are considered to be impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the financial
assets, their estimated future cash flows have been affected.
For financial assets carried at amortized cost, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. The Company
assesses the collectability of receivables by performing the account aging analysis and examining current
trends in the credit quality of its customers.
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For financial assets carried at amortized cost, the amount of the impairment loss is the difference between
the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial
asset’s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment loss
was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent
that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed
what the amortized cost would have been had the impairment loss not been recognized.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognized in other comprehensive income are reclassified to profit or loss in the year.
In respect of available-for-sale equity instruments, impairment losses previously recognized in profit or loss
are not reversed through profit or loss. Any increase in fair value subsequent to the recognition of an
impairment loss is recognized in other comprehensive income and accumulated under the heading of
unrealized gains or losses from available-for-sale financial assets.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference between
the asset’s carrying amount and the present value of the estimated future cash flows discounted at the
current market rate of return for a similar financial asset. Such impairment loss will not be reversed in
subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets
with the exception of trade receivables, where the carrying amount is reduced through the use of an
allowance account. When a trade receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account.
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the
financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the financial asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss that had
been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.
Financial Liabilities and Equity Instruments
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity
in accordance with the substance of the contractual arrangements and the definitions of a financial liability
and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds
received, net of direct issue costs.
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Financial liabilities
Financial liabilities are subsequently measured either at amortized cost using effective interest method or at
FVTPL.
Financial liabilities are classified as at fair value through profit or loss when the financial liability is either
held for trading or is designated as at fair value through profit or loss.
Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses
arising on remeasurement recognized in profit or loss.
Financial liabilities other than those held for trading purposes and designated as at FVTPL are subsequently
measured at amortized cost at the end of each reporting period.
Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s obligations are
discharged, cancelled or they expire. The difference between the carrying amount of the financial liability
derecognized and the consideration paid and payable is recognized in profit or loss.
Derivative Financial Instruments
Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are
entered into and are subsequently remeasured to their fair value at the end of each reporting period. The
resulting gain or loss is recognized in profit or loss immediately unless the derivative financial instrument is
designated and effective as a hedging instrument, in which event the timing of the recognition in profit or
loss depends on the nature of the hedge relationship.
Financial Instruments Designated as at Fair Value through Profit or Loss
A financial instrument may be designated as at FVTPL upon initial recognition. The financial instrument
forms part of a group of financial assets or financial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with the Company’s documented risk
management or investment strategy, and information about the grouping is provided internally on that basis.
Hedge Accounting
Fair Value Hedge
The Company designates certain hedging instruments, such as interest rate futures contracts, to partially
hedge against the price risk caused by changes in interest rates in the Company’s investments in fixed
income securities as fair value hedge. Changes in the fair value of hedging instrument that are designated
and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in
the fair value of the hedged asset that are attributable to the hedged risk.
Cash Flow Hedge
The Company designates certain hedging instruments, such as forward exchange contracts, to partially
hedge its foreign exchange rate risks associated with certain highly probable forecast transactions, such as
capital expenditures. The effective portion of changes in the fair value of hedging instruments is
recognized in other comprehensive income. When the forecast transactions actually take place, the
associated gains or losses that were recognized in other comprehensive income are removed from equity
and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating
to the ineffective portion are recognized immediately in profit or loss.
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For the aforementioned fair value hedge and cash flow hedge, hedge accounting is discontinued
prospectively when the Company revokes the designated hedging relationship, or when the hedging
instruments expire or are sold, terminated, or exercised, or no longer meet the criteria for hedge accounting.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost
and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value
represents the estimated selling price of inventories less all estimated costs of completion and costs
necessary to make the sale.
Investments Accounted for Using Equity Method
Investments accounted for using the equity method are investments in associates.
An associate is an entity over which the Company has significant influence and that is neither a subsidiary
nor a joint venture. Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over those policies.
The operating results and assets and liabilities of associates are incorporated in these consolidated financial
statements using the equity method of accounting. Under the equity method, an investment in an associate
is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to
recognize the Company’s share of profit or loss and other comprehensive income of the associate as well as
the distribution received. The Company also recognizes its share in the changes in the equities of
associates.
Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable
assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized
as goodwill, which is included within the carrying amount of the investment. Any excess of the
Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the
cost of acquisition, after reassessment, is recognized immediately in profit or loss.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment
as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell)
with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the
investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount
of the investment subsequently increases.
The Company discontinues the use of the equity method from the date when the Company ceases to have
significant influence over an associate. When the Company retains an interest in the former associate, the
Company measures the retained interest at fair value at that date. The difference between the carrying
amount of the associate at the date the equity method was discontinued, and the fair value of any retained
interest and any proceeds from disposing of a part interest in the associate is included in the determination
of the gain or loss on disposal of the associate. In addition, the Company shall account for all amounts
recognized in other comprehensive income in relation to that associate on the same basis as would be
required if the associate had directly disposed of the related assets or liabilities. If the Company’s
ownership interest in an associate is reduced as a result of disposal, but the investment continues to be an
associate, the Company should reclassify to profit or loss only a proportionate amount of the gain or loss
previously recognized in other comprehensive income.
When the Company subscribes to additional shares in an associate at a percentage different from its existing
ownership percentage, the resulting carrying amount of the investment differs from the amount of the
Company’s proportionate interest in the net assets of the associate. The Company records such a
difference as an adjustment to investments with the corresponding amount charged or credited to capital
surplus. If the Company’s ownership interest is reduced due to the additional subscription to the shares of
associate by other investors, the proportionate amount of the gains or losses previously recognized in other
- 28 -
- 28 -
comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as
would be required if the associate had directly disposed of the related assets or liabilities.
When a consolidated entity transacts with an associate, profits and losses resulting from the transactions
with the associate are recognized in the Company’s consolidated financial statements only to the extent of
interests in the associate that are not owned by the Company.
Property, Plant and Equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment. Costs include any incremental costs that are directly attributable to the construction or
acquisition of the item of property, plant and equipment.
Properties in the course of construction for production, supply or administrative purposes are carried at cost,
less any recognized impairment loss. Such properties are classified to the appropriate categories of
property, plant and equipment when completed and ready for intended use. Depreciation of these assets,
on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation is recognized so as to write off the cost of the assets less their residual values over their useful
lives, and it is computed using the straight-line method over the following estimated useful lives: land
improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 2 to 5 years; office
equipment - 3 to 5 years; and leased assets - 20 years. The estimated useful lives, residual values and
depreciation method are reviewed at the end of each reporting period, with the effect of any changes in
estimates accounted for on a prospective basis. Land is not depreciated.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the
lease term, assets are depreciated over the shorter of the lease term and their useful lives.
An item of property, plant and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal
or retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in profit or loss.
Leases
Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant
lease.
The Company as lessee
Assets held under finance lease are initially recognized as assets of the Company at the fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is recognized as an obligation under finance lease.
Lease payments are apportioned between finance expense and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
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- 29 -
Intangible Assets
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of
the business less accumulated impairment losses, if any.
Other intangible assets
Other separately acquired intangible assets with finite useful lives are carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized using the straight-line
method over the following estimated useful lives: Technology license fees - the estimated life of the
technology or the term of the technology transfer contract; software and system design costs - 3 years or
contract period; patent and others - the economic life or contract period. The estimated useful life and
amortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Impairment of Tangible and Intangible Assets
Goodwill
Goodwill is not amortized and instead is tested for impairment annually, or more frequently when there is
an indication that the cash generating unit may be impaired. For the purpose of impairment testing,
goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units
that are expected to benefit from the synergies of the combination. If the recoverable amount of a
cash-generating unit is less than its carrying amount, the difference is allocated first to reduce the carrying
amount of any goodwill allocated to such cash generating unit and then to the other assets of the cash
generating unit pro rata based on the carrying amount of each asset in the cash generating unit. Any
impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for
goodwill is not reversed in subsequent periods.
Other tangible and intangible assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an
individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the
asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are
also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount,
the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An
impairment loss is recognized immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognized for
the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized
immediately in profit or loss.
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- 30 -
Provision
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a
past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to settle the present obligation,
its carrying amount is the present value of those cash flows.
Guarantee Deposit
Guarantee deposit mainly consists of cash received under deposit agreements with customers to ensure they
have access to the Company’s specified capacity; and as guarantee of accounts receivable to ensure
payment from customers. Cash received from customers is recorded as guarantee deposit upon receipt.
Guarantee deposits are refunded to customers when terms and conditions set forth in the deposit agreements
have been satisfied.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for
estimated customer returns, rebates and other similar allowances.
Sale of goods
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which
time all the following conditions are satisfied:
(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.
- 31 -
- 31 -
Employee Benefits
Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount
of the benefits expected to be paid in exchange for service rendered by employees.
Retirement benefits
For defined contribution retirement benefit plans, payments to the benefit plan are recognized as an expense
when the employees have rendered service entitling them to the contribution. For defined benefit
retirement benefit plans, the cost of providing benefit is recognized based on actuarial calculations.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit
retirement benefit plans are determined using the Projected Unit Credit Method. Service cost (including
current service cost), and net interest on the net defined benefit liability (asset) are recognized as employee
benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses and the
return on plan assets (excluding interest), is recognized in other comprehensive income in the period in
which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in
retained earnings and will not be reclassified to profit or loss.
Net defined benefit liability represents the actual deficit in the Company’s defined benefit plan.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) is
expensed in the year the shareholders approved the appropriation of earnings which is the year subsequent
to the year the earnings are generated.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities
in the consolidated financial statements and the corresponding tax bases used in the computation of taxable
profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred
tax assets are generally recognized for all deductible temporary differences, net operating loss
carryforwards and tax credits for research and development expenses to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, except where the Company is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments are only
recognized to the extent that it is probable that there will be sufficient taxable profits against which to
utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of
the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also
reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient
taxable profits will be available to allow all or part of the deferred tax asset to be recovered.
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- 32 -
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in
which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities
and assets reflects the tax consequences that would follow from the manner in which the Company expects,
at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are
recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax
are also recognized in other comprehensive income or directly in equity, respectively.
Insurance Claim
The Company recognizes insurance claim reimbursement for losses incurred related to disaster damages.
Insurance claim reimbursements are recorded, net of any deductible amounts, at the time while there is
evidence that the claim reimbursement is virtually certain to be received.
Government Grants
Government grants are not recognized until there is reasonable assurance that the Company will comply
with the conditions attaching to them and that the grants will be received.
Government grants whose primary condition is that the Company should purchase, construct or otherwise
acquire non-current assets (mainly including land use right and depreciable assets) are recognized as a
deduction from the carrying amount of the related assets and recognized as a reduced depreciation or
amortization charge in profit or loss over the contract period or useful lives of the related assets.
Government grants that are receivables as compensation for expenses already incurred are deducted from
incurred expenses in the period in which they become receivables.
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND
UNCERTAINTY
In the application of the aforementioned Company’s accounting policies, the Company is required to make
judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or
in the year of the revision and future years if the revision affects both current and future years.
Revenue Recognition
The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company
also records a provision for estimated future returns and other allowances in the same period the related
revenue is recorded. Provision for estimated sales returns and other allowances is generally made and
adjusted based on historical experience and the consideration of varying contractual terms, and the
Company periodically reviews the adequacy of the estimation used.
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- 33 -
Impairment of Tangible and Intangible Assets Other than Goodwill
In the process of evaluating the potential impairment of tangible and intangible assets other than goodwill,
the Company is required to make subjective judgments in determining the independent cash flows, useful
lives, expected future revenue and expenses related to the specific asset groups with the consideration of the
nature of semiconductor industry. Any changes in these estimates based on changed economic conditions
or business strategies could result in significant impairment charges or reversal in future years.
Impairment of Goodwill
The assessment of impairment of goodwill requires the Company to make subjective judgment to determine
the identified cash-generating units, allocate the goodwill to relevant cash-generating units and estimate the
recoverable amount of relevant cash-generating units.
Impairment Assessment on Investment Using Equity Method
The Company assesses the impairment of investments accounted for using the equity method whenever
triggering events or changes in circumstances indicate that an investment may be impaired and carrying
value may not be recoverable. The Company measures the impairment based on a projected future cash
flow of the investees, including the underlying assumptions of sales growth rate and capacity utilization rate
formulated by such investees’ internal management team. The Company also takes into account market
conditions and the relevant industry trends to ensure the reasonableness of such assumptions.
Realization of Deferred Income Tax Assets
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be
available against which those deferred tax assets can be utilized. Assessment of the realization of the
deferred tax assets requires the Company’s subjective judgment and estimate, including the future revenue
growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning
strategies. Any changes in the global economic environment, the industry trends and relevant laws and
regulations could result in significant adjustments to the deferred tax assets.
Valuation of Inventory
Inventories are stated at the lower of cost or net realizable value, and the Company uses judgment and
estimate to determine the net realizable value of inventory at the end of each reporting period.
Due to the rapid technological changes, the Company estimates the net realizable value of inventory for
obsolescence and unmarketable items at the end of reporting period and then writes down the cost of
inventories to net realizable value. The net realizable value of the inventory is mainly determined based
on assumptions of future demand within a specific time horizon.
Recognition and Measurement of Defined Benefit Plans
Net defined benefit liability and the resulting defined benefit costs under defined benefit pension plans are
calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate
of employee turnover, and future salary increase rate. Changes in economic circumstances and market
conditions will affect these assumptions and may have a material impact on the amount of the expense and
the liability.
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- 34 -
6. CASH AND CASH EQUIVALENTS
Cash and deposits in banks
Agency bonds
Commercial paper
Repurchase agreements collateralized by corporate bonds
December 31,
2017
December 31,
2016
$ 551,919,770
776,025
695,901
-
$ 536,895,344
-
1,997,239
2,361,250
$ 553,391,696
$ 541,253,833
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
Designated as at FVTPL
Time deposit
Forward exchange contracts
Financial liabilities
Held for trading
Forward exchange contracts
Designated as at FVTPL
Forward exchange contracts
December 31,
2017
December 31,
2016
$
$
569,751
-
569,751
142,406
10,976
153,382
-
-
-
6,297,708
22
6,297,730
$
569,751
$ 6,451,112
$
26,709
$
91,585
-
99,550
$
26,709
$
191,135
The Company entered into derivative contracts to manage exposures due to fluctuations of foreign
exchange rates. These derivative contracts did not meet the criteria for hedge accounting. Therefore, the
Company did not apply hedge accounting treatment for these derivative contracts.
- 35 -
- 35 -
Outstanding forward exchange contracts consisted of the following:
December 31, 2017
Sell NT$/Buy EUR
Sell NT$/Buy JPY
Sell US$/Buy JPY
Sell US$/Buy RMB
Sell US$/Buy NT$
Sell RMB /Buy EUR
Sell RMB/Buy JPY
Sell RMB/Buy GBP
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
Maturity Date
Contract Amount
(In Thousands)
January 2018 to February 2018
February 2018
January 2018
January 2018
January 2018 to February 2018
January 2018
January 2018
January 2018
NT$6,002,786/EUR169,000
NT$996,294/JPY3,800,000
US$2,191/JPY246,724
US$558,000/RMB3,679,575
US$1,661,500/NT$49,673,320
RMB38,967/EUR4,994
RMB409,744/JPY7,062,536
RMB3,637/GBP413
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
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/Agency mortgage-backed securities
Asset-backed securities
Government bonds
Publicly traded stocks
Commercial paper
December 31,
2017
December 31,
2016
$ 40,165,148
29,235,388
13,459,545
7,817,723
2,548,054
148,295
$ 29,999,508
14,880,482
11,254,757
8,457,362
3,196,658
-
$ 93,374,153
$ 67,788,767
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- 36 -
9. HELD-TO-MATURITY FINANCIAL ASSETS
Corporate bonds
Structured product
Commercial paper
Negotiable certificate of deposit
Current portion
Noncurrent portion
10. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets- current
Fair value hedges
Interest rate futures contracts
Cash flow hedges
Forward exchange contracts
Financial liabilities- current
Cash flow hedges
Forward exchange contracts
December 31,
2017
December 31,
2016
$ 19,338,764
1,482,950
-
-
$ 23,849,701
1,609,950
8,628,176
4,829,850
$ 20,821,714
$ 38,917,677
$ 1,988,385
18,833,329
$ 16,610,116
22,307,561
$ 20,821,714
$ 38,917,677
December 31,
2017
December 31,
2016
$ 27,016
$ 5,550
7,378
-
$ 34,394
$ 5,550
$ 15,562
$
-
The Company entered into interest rate futures contracts, which are used to hedge against the price risk
caused by changes in interest rates in the Company’s investments in fixed income securities.
The outstanding interest rate futures contracts consisted of the following:
Maturity Period
December 31, 2017
March 2018
December 31, 2016
March 2017
Contract Amount
(US$ in Thousands)
US$ 169,400
US$ 53,600
The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks
associated with certain highly probable forecast transactions, such as capital expenditures. These contracts
have maturities of 12 months or less.
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- 37 -
Outstanding forward exchange contracts consisted of the following:
Maturity Date
Contract Amount
(In Thousands)
December 31, 2017
Sell NT$/Buy EUR
February 2018 to May 2018
NT$2,649,104/EUR75,000
11. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable
Allowance for doubtful receivables
December 31,
2017
December 31,
2016
$ 121,604,989
(471,741)
$ 128,815,389
(480,118)
Notes and accounts receivable, net
$ 121,133,248
$ 128,335,271
In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from
the end of the month of when the invoice is issued. The allowance for doubtful receivables is assessed by
reference to the collectability of receivables by performing the account aging analysis, historical experience
and current financial condition of customers.
Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at
the end of the reporting period is summarized in the following table. There was no impairment concern
for the accounts receivable that were past due without recognizing a specific allowance for doubtful
receivables since there was no significant change in the credit quality of its customers after the assessment.
In addition, the Company has obtained guarantee against certain receivables.
Aging analysis of notes and accounts receivable, net
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
Past due over 121 days
December 31,
2017
December 31,
2016
$ 105,295,219
$ 108,411,408
13,984,125
929,672
582,821
341,411
15,017,824
1,844,726
3,061,313
-
$ 121,133,248
$ 128,335,271
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- 38 -
Movements of the allowance for doubtful receivables
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Total
Balance at January 1, 2017
Reversal/Write-off
Effect of exchange rate changes
$
1,848
(1,848)
-
$ 478,270
(6,305)
$ 480,118
(8,153)
(224)
(224)
Balance at December 31, 2017
$
-
$ 471,741
$ 471,741
Balance at January 1, 2016
Provision
Reversal/Write-off
Effect of exchange rate changes
$ 10,241
-
(8,393)
-
$ 478,010
321
-
(61)
$ 488,251
321
(8,393)
(61)
Balance at December 31, 2016
$
1,848
$ 478,270
$ 480,118
Aging analysis of accounts receivable that is individually determined as impaired
Past due over 121 days
12. INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
December 31,
2017
December 31,
2016
$
-
$ 1,848
December 31,
2017
December 31,
2016
$ 9,923,338
53,362,160
7,143,806
3,451,443
$ 8,521,873
33,330,870
4,012,190
2,817,300
$ 73,880,747
$ 48,682,233
Reversal of write-down of inventories resulting from the increase in net realizable value (excluding
earthquake losses) and write-down of inventories to net realizable value (excluding earthquake losses) in
the amount of NT$840,861 thousand and NT$1,542,779 thousand, respectively, were included in the cost
of revenue for the years ended December 31, 2017 and 2016. Please refer to related earthquake losses in
Note 38.
13. FINANCIAL ASSETS CARRIED AT COST
Non-publicly traded stocks
Mutual funds
December 31,
2017
December 31,
2016
$ 2,532,287
2,341,970
$ 2,944,859
1,157,608
$ 4,874,257
$ 4,102,467
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- 39 -
Since there is a wide range of estimated fair values of the Company’s investments in non-publicly traded
stocks, the Company concludes that the fair value cannot be reliably measured and therefore should be
measured at the cost less any impairment.
The stocks of Aquantia and Impinj, Inc. were listed in November 2017 and July 2016, respectively.
Accordingly, the Company reclassified the aforementioned investments from financial assets carried at cost
to available-for-sale financial assets.
14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
Associates consisted of the following:
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,
2017
2016
2017
Vanguard International
Manufacturing, selling,
Hsinchu, Taiwan
$ 8,568,344
$ 8,806,384
28%
Semiconductor
Corporation (VIS)
packaging, testing and
computer-aided design of
integrated circuits and other
semiconductor devices and the
manufacturing and design
service of masks
Systems on Silicon
Manufacturing and selling of
Singapore
5,677,640
7,163,516
Manufacturing Company
Pte Ltd. (SSMC)
Xintec Inc. (Xintec)
integrated circuits and other
semiconductor devices
Wafer level chip size packaging
and wafer level post
passivation interconnection
service
Taoyuan, Taiwan
2,292,100
2,599,807
Global Unichip Corporation
Researching, developing,
Hsinchu, Taiwan
1,300,194
1,174,181
(GUC)
Mutual-Pak
manufacturing, testing and
marketing of integrated circuits
Manufacturing of electronic parts,
wholesaling and retailing of
electronic materials, and
researching, developing and
testing of RFID
New Taipei,
Taiwan
23,210
-
39%
41%
35%
39%
$ 17,861,488
$ 19,743,888
2016
28%
39%
41%
35%
-
Starting December 2017, the Company no longer had the majority of voting power and control over
Mutual-Pak. As a result, Mutual-Pak is no longer consolidated and is accounted for using the equity
method.
Starting June 2016, the Company has no longer served as Motech’s board of director. As a result, the
Company exercises no significant influence over Motech. Therefore, Motech is no longer accounted for
using the equity method. Further, such investment was reclassified to available-for-sale financial assets
and the Company recognized a disposal loss of NT$259,960 thousand.
As of December 31, 2017, no investments in associates are individually material to the Company. As of
December 31, 2016, the summarized financial information in respect of each of the Company’s material
associates is set out below. The summarized financial information below represents amounts shown in the
associate’s financial statements prepared in accordance with Taiwan-IFRSs adjusted by the Company using
the equity method of accounting.
- 40 -
- 40 -
a. VIS
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net revenue
Income from operations
Net income
Other comprehensive income
Total comprehensive income
Cash dividends received
December 31,
2016
$ 25,662,921
$ 9,501,442
$ 5,476,672
804,107
$
Year Ended
December 31,
2016
$ 25,828,634
$ 6,083,625
$ 5,520,645
$
5,592
$ 5,526,237
$ 1,206,981
Reconciliation of the above summarized financial information to the carrying amount of the interest in
the associate was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Carrying amount of the investment
b. SSMC
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net revenue
Income from operations
Net income
Total comprehensive income
Cash dividends received
- 41 -
- 41 -
December 31,
2016
$ 28,883,584
28%
8,179,830
626,554
$ 8,806,384
December 31,
2016
$ 14,585,150
$ 5,360,076
$ 1,746,602
286,340
$
Year Ended
December 31,
2016
$ 14,045,927
$ 4,921,735
$ 4,918,140
$ 4,918,140
$ 4,076,170
Reconciliation of the above summarized financial information to the carrying amount of the interest in
the associate was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Other adjustments
Carrying amount of the investment
December 31,
2016
$ 17,912,284
39%
6,948,175
213,984
1,357
$ 7,163,516
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
Year Ended
December 31,
2016
$ 23,140
(5,244)
$
$ 17,896
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
15. PROPERTY, PLANT AND EQUIPMENT
December 31,
2017
December 31,
2016
$ 30,638,751
$ 11,905,404
$ 9,180,759
$ 26,089,360
$ 3,664,997
$ 3,622,227
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, 2017
Additions (Deductions)
Disposals or retirements
Reclassification
Effect of disposal of subsidiary
Effect of exchange rate changes
$
4,049,292
-
-
-
-
(66,049 )
$
304,404,474
75,594,667
(36,957 )
-
-
(827,571 )
$ 2,042,867,744
458,605,807
$
(9,552,995 )
8,791
(51,216 )
(4,125,866 )
$
34,729,640
8,195,896
(377,798 )
1,507
(14,750 )
(142,979 )
Balance at December 31, 2017
$
3,983,243
$
379,134,613
$ 2,487,752,265
$
42,391,516
$
Accumulated depreciation and impairment
Balance at January 1, 2017
Additions
Disposals or retirements
Reclassification
Effect of disposal of subsidiary
Effect of exchange rate changes
$
524,845
27,790
-
-
-
(42,137 )
$
174,349,077
20,844,584
(28,816 )
-
-
(718,324 )
$ 1,577,377,509
229,985,588
$
(8,114,327 )
8,195
(42,830 )
(3,765,293 )
23,221,707
4,938,000
(377,470 )
1,466
(13,838 )
(102,921 )
Balance at December 31, 2017
$
510,498
$
194,446,521
$ 1,795,448,842
$
27,666,944
Carrying amounts at December 31, 2017
$
3,472,745
$
184,688,092
$
692,303,423
$
14,724,572
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
387,199,675
(219,902,510 )
$ 2,773,250,825
322,493,860
-
-
(518 )
56,843
(9,967,750 )
10,298
(66,484 )
(5,105,622 )
$
167,353,490
$ 3,080,615,127
$
$
-
-
-
-
-
-
-
$ 1,775,473,138
255,795,962
(8,520,613 )
9,661
(56,668 )
(4,628,675 )
$ 2,018,072,805
$
167,353,490
$ 1,062,542,322
(Continued)
- 42 -
- 42 -
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 and impairment
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
$
$
$
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
(Concluded)
The significant part of the Company’s buildings includes main plants, mechanical and electrical power
equipment and clean rooms, and the related depreciation is calculated using the estimated useful lives of 20
years, 10 years and 10 years, respectively.
16. INTANGIBLE ASSETS
Goodwill
Technology License
Fees
Software and
System Design
Costs
Patent and Others
Total
Cost
Balance at January 1, 2017
Additions
Retirements
Reclassification
Effect of disposal of subsidiary
Effect of exchange rate changes
$
$
$
6,007,975
-
-
-
(13,499 )
(345,774 )
9,546,007
897,861
-
-
-
(611 )
$
$
22,243,595
3,021,085
(75,237 )
7,662
(7,662 )
(3,225 )
5,386,435
349,265
-
(17,960 )
-
(1,594 )
43,184,012
4,268,211
(75,237 )
(10,298 )
(21,161 )
(351,204 )
Balance at December 31, 2017
$
5,648,702
$
10,443,257
$
25,186,218
$
5,716,146
$
46,994,323
Accumulated amortization and impairment
Balance at January 1, 2017
Additions
Retirements
Reclassification
Impairment
Effect of disposal of subsidiary
Effect of exchange rate changes
Balance at December 31, 2017
Carrying amounts at December 31, 2017
Cost
Balance at January 1, 2016
Additions
Retirements
Effect of exchange rate changes
$
$
$
$
$
$
-
-
-
-
13,520
(13,499 )
(21 )
6,147,200
1,548,263
-
-
-
-
(606 )
$
$
18,144,428
2,310,742
(75,237 )
7,409
-
(7,554 )
(3,095 )
4,277,538
487,731
-
(17,070 )
-
-
(566 )
28,569,166
4,346,736
(75,237 )
(9,661 )
13,520
(21,053 )
(4,288 )
-
$
7,694,857
$
20,376,693
$
4,747,633
$
32,819,183
5,648,702
$
2,748,400
$
4,809,525
$
968,513
$
14,175,140
$
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 and impairment
Balance at January 1, 2016
Additions
Retirements
Effect of exchange rate changes
Balance at December 31, 2016
Carrying amounts at December 31, 2016
$
$
$
-
-
-
-
-
$
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
- 43 -
- 43 -
The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the
recoverable amount is determined based on the value in use. The value in use was calculated based on the
cash flow forecast from the financial budgets covering the future five-year period, and the Company used
annual discount rates of 8.5% and 8.4% in its test of impairment as of December 31, 2017 and 2016,
respectively, to reflect the relevant specific risk in the cash-generating unit.
For the year ended December 31, 2017, the Company assessed goodwill impairment and recognized an
impairment loss of NT$13,520 thousand related to a subsidiary since the operating result of this cash
generating unit was not as expected and the recoverable amount of goodwill was nil. Such impairment
loss was recognized in other operating income and expenses. For the year ended December 31, 2016, the
Company did not recognize any impairment loss on goodwill.
17. OTHER ASSETS
Tax receivable
Prepaid expenses
Others
Current portion
Noncurrent portion
18. SHORT-TERM LOANS
Unsecured loans
Amount
Original loan content
US$ (in thousands)
Annual interest rate
Maturity date
December 31,
2017
December 31,
2016
$ 4,021,602
1,559,963
1,623,995
$ 2,325,825
1,007,026
1,553,003
$ 7,205,560
$ 4,885,854
$ 4,222,440
2,983,120
$ 3,385,422
1,500,432
$ 7,205,560
$ 4,885,854
December 31,
2017
December 31,
2016
$ 63,766,850
$ 57,958,200
$ 2,150,000
1.54%-1.82%
Due by February
$ 1,800,000
0.87%-1.07%
Due by January
2018
2017
- 44 -
- 44 -
19. PROVISIONS
The Company’s current provisions were provisions for sales returns and allowances.
Year ended December 31, 2017
Balance, beginning of year
Provision
Payment
Effect of exchange rate changes
Balance, end of year
Year ended December 31, 2016
Balance, beginning of year
Provision
Payment
Effect of exchange rate changes
Balance, end of year
Sales Returns
and Allowances
$ 18,037,789
44,833,557
(48,884,704)
(24,855)
$ 13,961,787
$ 10,163,536
36,519,312
(28,569,318)
(75,741)
$ 18,037,789
Provisions for sales returns and allowances are estimated based on historical experience and the
consideration of varying contractual terms, and are recognized as a reduction of revenue in the same year of
the related product sales.
20. BONDS PAYABLE
Domestic unsecured bonds
Overseas unsecured bonds
Less: Discounts on bonds payable
Less: Current portion
December 31,
2017
December 31,
2016
$ 116,100,000
34,107,850
150,207,850
(6,728)
(58,401,122)
$ 154,200,000
37,028,850
191,228,850
(35,293)
(38,100,000)
$ 91,800,000
$ 153,093,557
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
A
B
A
September 2011 to
September 2016
September 2011 to
September 2018
January 2012 to
January 2017
$ 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
(Continued)
- 45 -
- 45 -
Issuance
Tranche
Issuance Period
Total Amount
Coupon
Rate
Repayment and
Interest Payment
100-2
101-1
101-2
101-3
101-4
102-1
102-2
102-3
102-4
102-4
B
A
B
A
B
-
A
B
C
A
B
C
A
B
A
B
A
B
C
D
E
F
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
$ 7,000,000
1.46%
Bullet repayment;
interest payable
annually
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
September 2013 to
March 2019
1,500,000
1,500,000
8,500,000
1,400,000
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
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
- 46 -
- 46 -
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 and VisEra Tech have made monthly contributions equal to
6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North
America, TSMC China, TSMC Nanjing, TSMC Europe, TSMC Canada, TSMC Technology and
TSMC Solar Europe GmbH also make monthly contributions at certain percentages of the basic salary
of their employees. Accordingly, the Company recognized expenses of NT$2,369,940 thousand and
NT$2,164,900 thousand for the years ended December 31, 2017 and 2016, respectively.
b. Defined benefit plans
TSMC has defined benefit plans under the R.O.C. Labor Standards Law that provide benefits based on
an employee’s length of service and average monthly salary for the six-month period prior to retirement.
The Company contributes an amount equal to 2% of salaries paid each month to their respective
pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee
(the Committee) and deposited in the Committee’s name in the Bank of Taiwan. Before the end of
each year, the Company assesses the balance in the Funds. If the amount of the balance in the Funds
is inadequate to pay retirement benefits for employees who conform to retirement requirements in the
next year, the Company is required to fund the difference in one appropriation that should be made
before the end of March of the next year. The Funds are operated and managed by the government’s
designated authorities; as such, the Company does not have any right to intervene in the investments of
the Funds.
Amounts recognized in respect of these defined benefit plans were as follows:
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(gain) arising from changes in financial
assumptions
Actuarial loss arising from changes in demographic
assumptions
Components of defined benefit costs recognized in other
comprehensive income
Years Ended December 31
2017
2016
$
$
145,026
126,525
271,551
132,786
139,355
272,141
29,290
483,846
45,721
38,195
(258,455)
694,632
-
278,672
254,681
1,057,220
Total
$
526,232
$ 1,329,361
- 47 -
- 47 -
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
2017
2016
$ 175,357
75,340
16,669
4,185
$ 176,977
73,395
17,367
4,402
$ 271,551
$ 272,141
The amounts arising from the defined benefit obligation of the Company were as follows:
December 31,
2017
December 31,
2016
Present value of defined benefit obligation
Fair value of plan assets
$ 12,774,593
(3,923,889)
$ 12,480,480
(3,929,072)
Net defined benefit liability
$ 8,850,704
$ 8,551,408
Movements in the present value of the defined benefit obligation were as follows:
Balance, beginning of year
Current service cost
Interest expense
Remeasurement losses (gains):
Actuarial loss arising from experience adjustments
Actuarial loss (gain) arising from changes in financial
assumptions
Actuarial loss arising from changes in demographic
assumptions
Benefits paid from plan assets
Years Ended December 31
2017
2016
$ 12,480,480
145,026
185,561
$ 11,318,174
132,786
212,909
483,846
38,195
(258,455)
694,632
-
(261,865)
278,672
(194,888)
Balance, end of year
$ 12,774,593
$ 12,480,480
Movements in the fair value of the plan assets were as follows:
Balance, beginning of year
Interest income
Remeasurement losses:
Years Ended December 31
2017
2016
$ 3,929,072
59,036
$ 3,870,148
73,554
Return on plan assets (excluding amounts included in net
interest expense)
Contributions from employer
Benefits paid from plan assets
(29,290)
226,936
(261,865)
(45,721)
225,979
(194,888)
Balance, end of year
$ 3,923,889
$ 3,929,072
- 48 -
- 48 -
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,
2017
December 31,
2016
$
707,477
1,993,336
1,223,076
$
818,426
1,852,950
1,257,696
$ 3,923,889
$ 3,929,072
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:
Discount rate
Future salary increase rate
Measurement Date
December 31,
2017
December 31,
2016
1.65%
3.00%
1.50%
3.00%
Through the defined benefit plans under the R.O.C. Labor Standards Law, the Company is exposed to
the following risks:
1) Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc.
The investment is conducted at the discretion of the government’s designated authorities or under
the mandated management. However, under the R.O.C. Labor Standards Law, the rate of return
on assets shall not be less than the average interest rate on a two-year time deposit published by the
local banks and the government is responsible for any shortfall in the event that the rate of return is
less than the required rate of return.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of the
defined benefit obligation; however, this will be partially offset by an increase in the return on the
debt investments of the plan assets.
Assuming a hypothetical decrease in interest rate at the end of the reporting period contributed to a
decrease of 0.5% in the discount rate and all other assumptions were held constant, the present
value of the defined benefit obligation would increase by NT$890,116 thousand and NT$970,282
thousand as of December 31, 2017 and 2016, respectively.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan participants will
increase the present value of the defined benefit obligation.
Assuming the expected salary rate increases by 0.5% at the end of the reporting period and all other
assumptions were held constant, the present value of the defined benefit obligation would increase
by NT$873,801 thousand and NT$951,424 thousand as of December 31, 2017 and 2016,
respectively.
The sensitivity analysis presented above may not be representative of the actual change in the defined
benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one
another as some of the assumptions may be correlated.
- 49 -
- 49 -
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit
obligation has been calculated using the projected unit credit method at the end of the reporting period,
which is the same as that applied in calculating the defined benefit obligation liability.
The Company expects to make contributions of NT$233,745 thousand to the defined benefit plans in
the next year starting from December 31, 2017. The weighted average duration of the defined benefit
obligation is 13 years.
22. GUARANTEE DEPOSITS
Capacity guarantee
Receivables guarantee
Others
Current portion (classified under accrued expenses and other current
liabilities)
Noncurrent portion
December 31,
2017
December 31,
2016
$ 13,346,550
2,427,548
306,521
$ 20,929,350
5,559,960
181,312
$ 16,080,619
$ 26,670,622
$ 8,493,829
7,586,790
$ 12,000,189
14,670,433
$ 16,080,619
$ 26,670,622
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,
2017
December 31,
2016
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, 2017, 1,068,165 thousand ADSs of TSMC were traded on the NYSE. The
number of common shares represented by the ADSs was 5,340,823 thousand shares (one ADS
represents five common shares).
- 50 -
- 50 -
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,
2017
December 31,
2016
$ 24,184,939
22,804,510
8,892,847
118,792
289,240
19,208
$ 24,184,939
22,804,510
8,892,847
107,798
282,155
55
$ 56,309,536
$ 56,272,304
Under the relevant laws, the capital surplus generated from donations and the excess of the issuance
price over the par value of capital stock (including the stock issued for new capital, mergers and
convertible bonds) may be used to offset a deficit; in addition, when the Company has no deficit, such
capital surplus may be distributed as cash dividends or stock dividends up to a certain percentage of
TSMC’s paid-in capital. The capital surplus from share of changes in equities of subsidiaries and
associates and dividend of a claim extinguished by a prescription may be used to offset a deficit;
however, when generated from issuance of restricted shares for employees, such capital surplus may not
be used for any purpose.
c. Retained earnings and dividend policy
In accordance with the amendments to the R.O.C. Company Act in May 2015, the recipients of
dividends and bonuses are limited to shareholders and do not include employees. The amendments to
TSMC’s Articles of Incorporation on earnings distribution policy had been approved by TSMC’s
shareholders in its meeting held on June 7, 2016. For policy about the profit sharing bonus to
employees, please refer to Note 31.
TSMC’s amended Articles of Incorporation provide that, when allocating the net profits for each fiscal
year, TSMC shall first offset its losses in previous years and then set aside the following items
accordingly:
1) Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve
equals TSMC’s paid-in capital;
2) Special capital reserve in accordance with relevant laws or regulations or as requested by the
authorities in charge;
3) Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.
TSMC’s Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash
dividend and/or stock dividend. However, distribution of earnings shall be made preferably by way of
cash dividend. Distribution of earnings may also be made by way of stock dividend; provided that the
ratio for stock dividend shall not exceed 50% of the total distribution.
- 51 -
- 51 -
Any appropriations of the profits are subject to shareholders’ approval in the following year.
The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in
capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for
the portion in excess of 25% of the paid-in capital if the Company incurs no loss.
Pursuant to existing regulations, the Company is required to set aside additional special capital reserve
equivalent to the net debit balance of the other components of stockholders’ equity, such as the
accumulated balance of foreign currency translation reserve, unrealized valuation gain/loss from
available-for-sale financial assets, gain/loss from changes in fair value of hedging instruments in cash
flow hedges, etc. For the subsequent decrease in the deduction amount to stockholders’ equity, any
special reserve appropriated may be reversed to the extent that the net debit balance reverses.
The appropriations of 2016 and 2015 earnings have been approved by TSMC’s shareholders in its
meetings held on June 8, 2017 and June 7, 2016, respectively. The appropriations and dividends per
share were as follows:
Appropriation of Earnings
For Fiscal
Year 2015
For Fiscal
Year 2016
Dividends Per Share
(NT$)
For Fiscal
Year 2016
For Fiscal
Year 2015
$ 33,424,718 $ 30,657,384
Legal capital reserve
Cash dividends to shareholders 181,512,663 155,582,283
$
7
$
6
$ 214,937,381 $ 186,239,667
TSMC’s appropriations of earnings for 2017 had been approved in the meeting of the Board of
Directors held on February 13, 2018. The appropriations and dividends per share were as follows:
Legal capital reserve
Special capital reserve
Cash dividends to shareholders
Appropriation
of Earnings
For Fiscal Year
2017
Dividends Per
Share (NT$)
For Fiscal Year
2017
$ 34,311,148
26,907,527
207,443,044
$ 268,661,719
$
8
The appropriations of earnings for 2017 are to be presented for approval in the TSMC’s shareholders’
meeting to be held on June 5, 2018 (expected).
Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident
shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on
earnings generated since January 1, 1998.
- 52 -
- 52 -
d. Others
Changes in others were as follows:
Year Ended December 31, 2017
Foreign
Currency
Translation
Reserve
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges
Reserve
Unearned
Stock-Based
Employee
Compensation
Total
Balance, beginning of year
Exchange differences arising on translation of
$ 1,661,237
$
2,641
$
105 $
- $ 1,663,983
foreign operations
(28,257,449 )
-
-
(28,257,449 )
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
Gain/(loss) arising on changes in the fair
value of hedging instruments
Transferred to initial carrying amount of
hedged items
Share of other comprehensive income (loss)
of associates
Share of unearned stock-based employee
compensation of associates
Income tax effect
-
-
-
(154,680 )
(61,182 )
-
-
-
-
-
-
99,534
(94,851 )
(101,468 )
2,121
-
-
-
-
(2,974 )
-
(562 )
(10,290 )
-
-
-
-
-
-
(154,680 )
(61,182 )
99,534
(94,851 )
(99,347 )
(10,290 )
(3,536 )
Balance, end of year
$ (26,697,680 ) $
(214,074 ) $
4,226
$
(10,290 ) $ (26,917,818 )
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 disposal 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
Other comprehensive loss
reclassified to profit or loss
upon disposal of associates
Income tax effect
36,105
-
-
(915)
(4,712)
-
-
-
(696,240)
4,071
24,684
(3,469)
(61,176)
-
-
-
-
712
-
-
(9,409,190)
36,105
(696,240)
4,071
24,481
(8,181)
(61,176)
Balance, end of year
$ 1,661,237
$
2,641
$
105
$ 1,663,983
The aforementioned other equity includes the changes in other equities of TSMC and TSMC’s share of
its subsidiaries and associates.
- 53 -
- 53 -
24. NET REVENUE
Net revenue from sale of goods
Net revenue from royalties
25. OTHER OPERATING INCOME AND EXPENSES, NET
Gain (loss) on disposal or retirement of property, plant and
equipment, net
Others
26. OTHER INCOME
Interest income
Bank deposits
Available-for-sale financial assets
Held-to-maturity financial assets
Structured product
Dividend income
27. FINANCE COSTS
Interest expense
Corporate bonds
Bank loans
Others
Years Ended December 31
2017
2016
$ 976,923,256
523,985
$ 947,415,900
522,444
$ 977,447,241
$ 947,938,344
Years Ended December 31
2017
2016
$ (1,097,908)
$
(267,603)
46,548
(16,735)
$ (1,365,511)
$
29,813
Years Ended December 31
2017
2016
$ 6,412,823
2,091,435
568,552
391,896
9,464,706
145,588
$ 4,892,652
816,185
383,261
225,402
6,317,500
137,401
$ 9,610,294
$ 6,454,901
Years Ended December 31
2017
2016
$ 2,563,544
766,625
144
$ 3,014,753
291,178
222
$ 3,330,313
$ 3,306,153
- 54 -
- 54 -
28. OTHER GAINS AND LOSSES, NET
Gain (loss) on disposal of financial assets, net
Available-for-sale financial assets
Financial assets carried at cost
Loss on disposal of investments accounted for using equity method,
$
76,986
12,809
$
(4,014)
37,241
Years Ended December 31
2017
2016
net
Gain (loss) from disposal of subsidiaries
Other gains
Net gain (loss) on financial instruments at FVTPL
Held for trading
Designated as at FVTPL
Gain (loss) arising from fair value hedges, net
Impairment loss of financial assets
Financial assets carried at cost
Other losses
29. 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)
Effect of tax rate changes
The origination and reversal of temporary differences
Investment tax credits and operating loss carryforward
-
17,343
409,852
2,253,651
131,037
(30,293)
(259,960)
(36,105)
176,734
467,051
(37,369)
16,973
(29,603)
(24,424)
(122,240)
(42,379)
$ 2,817,358
$
195,932
Years Ended December 31
2017
2016
$ 57,503,831
(896,147)
152,790
56,760,474
$ 54,315,433
(1,041,762)
122,461
53,396,132
561,818
(4,336,110)
-
(3,774,292)
-
(1,775,023)
35
(1,774,988)
Income tax expense recognized in profit or loss
$ 52,986,182
$ 51,621,144
- 55 -
- 55 -
A reconciliation of income before income tax and income tax expense recognized in profit or loss was
as follows:
Years Ended December 31
2017
2016
Income before tax
$ 396,133,030
$ 385,959,380
Income tax expense at the statutory rate
Tax effect of adjusting items:
Deductible items in determining taxable income
Tax-exempt income
Additional income tax on unappropriated earnings
Effect of tax rate changes on deferred income tax
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
$ 69,608,602
$ 66,945,088
(1,410,955)
(16,901,134)
11,835,948
561,818
(4,336,110)
(5,628,630)
-
53,729,539
(896,147)
152,790
(51,324)
(19,594,962)
11,957,213
-
(1,775,023)
(4,940,147)
(400)
52,540,445
(1,041,762)
122,461
Income tax expense recognized in profit or loss
$ 52,986,182
$ 51,621,144
For the years ended December 31, 2017 and 2016, the Company applied a tax rate of 17% for entities
subject to the R.O.C. Income Tax Law; for other jurisdictions, the Company measures taxes by using
the applicable tax rate for each individual jurisdiction.
In January 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, starting
from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the tax rate
applicable to unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and
deferred tax liabilities recognized as of December 31, 2017 are expected to be adjusted and would
increase by NT$1,473,065 thousand and NT$15,096 thousand, respectively, in 2018.
b. Income tax expense recognized in other comprehensive income
Deferred income tax benefit (expense)
Related to remeasurement of defined benefit obligation
Related to unrealized gain/loss on available-for-sale
financial assets
Related to gain/loss on cash flow hedges
Years Ended December 31
2017
2016
$ 30,562
$ 126,867
(2,974)
(562)
(61,176)
-
$ 27,026
$ 65,691
- 56 -
- 56 -
c. Deferred income tax balance
The analysis of deferred income tax assets and liabilities 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
Others
Operating loss carryforward
Deferred income tax liabilities
Temporary differences
Unrealized exchange gains
Available-for-sale financial assets
Cash flow hedges
December 31,
2017
December 31,
2016
$ 8,401,266
1,637,713
975,324
629,442
266,521
195,197
-
$ 4,244,214
1,512,061
939,543
737,247
378,740
445,133
14,483
$ 12,105,463
$ 8,271,421
$
(169,480) $
(95,421)
(37,304)
(48,736)
(92,447)
-
$
(302,205) $
(141,183)
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and
allowance
Net defined benefit liability
Unrealized loss on inventories
Deferred compensation cost
Others
Operating loss carryforward
Deferred income tax liabilities
Temporary differences
Unrealized exchange gains
Available-for-sale financial
assets
Cash flow hedges
Year Ended December 31, 2017
Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehensive
Income
Effect of
Disposal of
Subsidiary
Effect of
Exchange Rate
Changes
Balance, End of
Year
$
4,244,214
$
4,207,209
$
1,512,061
939,543
737,247
378,740
445,133
14,483
129,971
5,219
(105,068 )
(83,124 )
(222,429 )
-
$
-
-
30,562
-
-
-
-
-
-
-
-
-
-
(14,483 )
$
(50,157 )
$
8,401,266
(4,319 )
-
(2,737 )
(29,095 )
(27,507 )
-
1,637,713
975,324
629,442
266,521
195,197
-
$
8,271,421
$
3,931,778
$
30,562
$
(14,483 )
$
(113,815 )
$ 12,105,463
$
(48,736 )
$
(120,744 ) $
-
$
(92,447 )
-
-
(36,742 )
(2,974 )
(562 )
$
(141,183 )
$
(157,486 )
$
(3,536 )
$
-
-
-
-
$
$
-
-
-
-
$
(169,480 )
(95,421 )
(37,304 )
$
(302,205 )
- 57 -
- 57 -
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
$
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
$
(31,271 )
-
$
-
(48,736 )
$
(61,176 )
-
$
$
(31,271 )
$
(48,736 )
$
(61,176 )
$
-
-
-
$
(92,447 )
(48,736 )
$
(141,183 )
d. The investment operating loss carryforward and deductible temporary differences for which no deferred
income tax assets have been recognized
The information of the operating loss carryforward for which no deferred tax assets have been
recognized was as follows:
Expiry period
1 - 4 years
5 - 10 years
December 31,
2017
December 31,
2016
$
$
-
-
-
$ 136,703
41,389
$ 178,092
As of December 31, 2017 and 2016, the aggregate deductible temporary differences for which no
deferred income tax assets have been recognized amounted to NT$26,536,307 thousand and
NT$1,919,784 thousand, respectively.
e. Unused tax-exemption information
As of December 31, 2017, the profits generated from the following projects of TSMC are exempt from
income tax for a five-year period:
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, 2017 and 2016, the aggregate taxable temporary differences associated with
investments
to
NT$95,003,344 thousand and NT$83,181,401 thousand, respectively.
in subsidiaries not recognized as deferred
liabilities amounted
income
tax
- 58 -
- 58 -
g. Integrated income tax information
Balance of the Imputation
Credit Account - TSMC
December 31,
2017
December 31,
2016
$ 114,264,283
$ 82,072,562
The estimated and actual creditable ratio for distribution of TSMC’s earnings of 2017 and 2016 were
14.69% and 13.90%, respectively; while the creditable ratio for individual shareholders residing in the
R.O.C. is half of the original creditable ratio according to the R.O.C. Income Tax Law. However,
effective from January 1, 2018, integrated income tax system were abrogated and imputation credit
account is no longer applicable based on amended R.O.C. Income Tax Law in January 2018.
All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated.
h. Income tax examination
The tax authorities have examined income tax returns of TSMC through 2014. All investment tax
credit adjustments assessed by the tax authorities have been recognized accordingly.
30. EARNINGS PER SHARE
Basic EPS
Diluted EPS
EPS is computed as follows:
Years Ended December 31
2017
2016
$ 13.23
$ 13.23
$ 12.89
$ 12.89
Number of
Shares
(Denominator)
(In Thousands)
Amounts
(Numerator)
EPS (NT$)
Year ended December 31, 2017
Basic/Diluted EPS
Net income available to common shareholders
of the parent
$ 343,111,476
25,930,380
$ 13.23
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
- 59 -
- 59 -
31. ADDITIONAL INFORMATION OF EXPENSES BY NATURE
Years Ended December 31
2017
2016
a. Depreciation of property, plant and equipment
Recognized in cost of revenue
Recognized in operating expenses
Recognized in other operating income and expenses
$ 235,985,189
19,746,263
64,510
$ 203,476,848
16,583,067
25,083
b. Amortization of intangible assets
Recognized in cost of revenue
Recognized in operating expenses
$ 255,795,962
$ 220,084,998
$ 2,135,521
2,211,215
$
2,028,492
1,714,914
$ 4,346,736
$
3,743,406
c. Research and development expenses
$ 80,732,463
$ 71,207,703
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
$ 2,369,940
271,551
2,641,491
101,488,608
$
2,164,900
272,141
2,437,041
97,248,082
$ 104,130,099
$ 99,685,123
$ 61,026,107
43,103,992
$ 58,493,500
41,191,623
$ 104,130,099
$ 99,685,123
In accordance with the amendments to the R.O.C. Company Act in May 2015 and the amended TSMC’s
Articles of Incorporation approved by TSMC’s shareholders in its meeting held on June 7, 2016, TSMC
shall allocate compensation to directors and profit sharing bonus to employees of TSMC not more than
0.3% and not less than 1% of annual profits during the period, respectively.
TSMC accrued profit sharing bonus to employees based on a percentage of net income before income tax,
profit sharing bonus to employees and compensation to directors during the period, which amounted to
NT$23,019,082 thousand and NT$22,418,339 thousand for the years ended December 31, 2017 and 2016,
respectively; compensation to directors was expensed based on estimated amount payable. If there is a
change in the proposed amounts after the annual consolidated financial statements are authorized for issue,
the differences are recorded as a change in accounting estimate.
- 60 -
- 60 -
TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of
NT$23,019,082 thousand and NT$368,919 thousand in cash for 2017, respectively, and profit sharing
bonus to employees and compensation to directors in the amounts of NT$22,418,339 thousand and
NT$376,432 thousand in cash for 2016, respectively, had been approved by the Board of Directors of
TSMC held on February 13, 2018 and February 14, 2017, respectively. There is no significant difference
between the aforementioned approved amounts and the amounts charged against earnings of 2017 and 2016,
respectively.
TSMC’s profit sharing bonus to employees and compensation to directors in the amounts of
NT$20,556,888 thousand and NT$356,186 thousand in cash for 2015, respectively, had been approved by
the Board of Directors on February 2, 2016. The profit sharing bonus to employees and compensation to
directors in cash for 2015 had been reported to TSMC’s shareholders in its meeting held on June 7, 2016,
after the amended TSMC’s Articles of Incorporation had been approved. The aforementioned approved
amount has no difference with the one recognized in the consolidated financial statements for the year
ended December 31, 2015.
The information about the appropriations of TSMC’s profit sharing bonus to employees and compensation
to directors is available at the Market Observation Post System website.
32. CAPITAL MANAGEMENT
The Company requires significant amounts of capital to build and expand its production facilities and
acquire additional equipment. In consideration of the industry dynamics, the Company manages its capital
in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital
needs, capital asset purchases, research and development activities, dividend payments, debt service
requirements and other business requirements associated with its existing operations over the next 12
months.
33. FINANCIAL INSTRUMENTS
a. Categories of financial instruments
Financial assets
FVTPL (Note 1)
Available-for-sale financial assets (Note 2)
Held-to-maturity financial assets
Hedging derivative financial assets
Loans and receivables (Note 3)
Financial liabilities
FVTPL (Note 1)
Hedging derivative financial liabilities
Amortized cost (Note 4)
Note 1: Including held for trading and designated as at FVTPL.
Note 2: Including financial assets carried at cost.
- 61 -
- 61 -
December 31,
2017
December 31,
2016
$
569,751
98,248,410
20,821,714
34,394
684,416,654
$
6,451,112
71,891,234
38,917,677
5,550
673,592,938
$ 804,090,923
$ 790,858,511
$
26,709
15,562
340,501,266
$
191,135
-
387,046,137
$ 340,543,537
$ 387,237,272
Note 3: Including cash and cash equivalents, notes and accounts receivable (including related parties),
other receivables and refundable deposits.
Note 4: Including short-term loans, accounts payable (including related parties), payables to
contractors and equipment suppliers, accrued expenses and other current liabilities, bonds
payable, long-term bank loans, and guarantee deposits.
b. Financial risk management objectives
The Company seeks to ensure sufficient cost-efficient funding readily available when needed. The
Company manages its exposure to foreign currency risk, interest rate risk, equity price risk, credit risk
and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties
may have on its financial performance.
The plans for material treasury activities are reviewed by Audit Committees and/or Board of Directors
in accordance with procedures required by relevant regulations or internal controls. During the
implementation of such plans, Corporate Treasury function must comply with certain treasury
procedures that provide guiding principles for overall financial risk management and segregation of
duties.
c. Market risk
The Company is exposed to the financial market risks, primarily changes in foreign currency exchange
rates, interest rates and equity investment prices.
Foreign currency risk
Most of the Company’s operating activities are denominated in foreign currencies. Consequently, the
Company is exposed to foreign currency risk. To protect against reductions in value and the volatility
of future cash flows caused by changes in foreign exchange rates, the Company utilizes derivative
financial instruments, such as forward exchange contracts and cross currency swaps, and non-derivative
financial instruments, such as foreign currency-denominated debt, to partially hedge its currency
exposure.
The Company’s sensitivity analysis of foreign currency risk mainly focuses on the foreign currency
monetary items and the derivatives financial instruments at the end of the reporting period. Assuming
an unfavorable 10% movement in the levels of foreign exchanges relative to the New Taiwan dollar, the
net income for the years ended December 31, 2017 and 2016 would have decreased by NT$867,910
thousand and NT$111,347 thousand, respectively, and the other comprehensive income for the year
ended December 31, 2017 would have decreased by NT$265,875 thousand.
Interest rate risk
The Company is exposed to interest rate risk primarily related to its outstanding debt and investments in
fixed income securities. All of the Company’s bonds payable have fixed interest rates and are
measured at amortized cost. As such, changes in interest rates would not affect the future cash flows.
On the other hand, because interest rates of the Company’s long-term bank loans are floating, changes
in interest rates would affect the future cash flows but not the fair value.
Assuming the amount of the long-term bank loans at the end of the reporting period had been
outstanding for the entire period and all other variables were held constant, a hypothetical 100 basis
point (1.00%) increase in interest rates would have resulted in an increase in the interest expense, net of
tax, by approximately NT$261 thousand for the year ended December 31, 2016. As of December 31,
2017, the Company had no outstanding long-term bank loans.
- 62 -
- 62 -
The Company classified its investments in fixed income securities as held-to-maturity and
available-for-sale financial assets. Because held-to-maturity fixed income securities are measured at
amortized cost, changes in interest rates would not affect the fair value. On the other hand,
available-for-sale fixed income securities are exposed to fair value fluctuations caused by changes in
interest rates. The Company utilized interest rate futures to partially hedge the interest rate risk on its
available-for-sale fixed income investments. These hedges may offset only a small portion of the
financial impact from movements in interest rates.
Based on a sensitivity analysis performed at the end of the reporting period, a hypothetical 100 basis
points (1.00%) increase in interest rates across all maturities would have resulted in a decrease in other
comprehensive income by NT$2,119,713 thousand and NT$1,600,929 thousand for the years ended
December 31, 2017 and 2016, respectively.
Other price risk
The Company is exposed to equity price risk arising from available-for-sale equity investments.
Assuming a hypothetical decrease of 5% in prices of the equity investments at the end of the reporting
period for the years ended December 31, 2017 and 2016, the other comprehensive income would have
decreased by NT$351,520 thousand and NT$342,565 thousand, respectively.
d. Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
financial loss to the Company. The Company is exposed to credit risk from operating activities,
primarily trade receivables, and from investing activities, primarily deposits, fixed-income investments
and other financial instruments with banks. Credit risk is managed separately for business related and
financial related exposures. As of the end of the reporting period, the Company’s maximum credit
risk exposure is mainly from the carrying amount of financial assets.
Business related credit risk
The Company has considerable trade receivables outstanding with its customers worldwide. A
substantial majority of the Company’s outstanding trade receivables are not covered by collateral or
credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on
trade receivables, there can be no assurance such procedures will effectively limit its credit risk and
avoid losses. This risk is heightened during periods when economic conditions worsen.
As of December 31, 2017 and 2016, the Company’s ten largest customers accounted for 70% and 74%
of accounts receivable, respectively. The Company believes the concentration of credit risk is not
material for the remaining accounts receivable.
Financial credit risk
The Company regularly monitors and reviews the concentration limit applied to counterparties and
adjusts the concentration limit according to market conditions and the credit standing of the
counterparties. The Company mitigates its exposure by limiting the exposure to any individual
counterparty and by selecting counterparties with investment-grade credit ratings.
e. Liquidity risk management
The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its
business requirements associated with existing operations over the next 12 months. The Company
manages
liquidity risk by maintaining adequate cash and cash equivalent, short-term
available-for-sale financial assets and short-term held-to-maturity financial assets.
its
- 63 -
- 63 -
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, 2017
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 63,801,977
$
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)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
30,069,163
55,723,774
24,659,738
60,176,818
$
-
-
-
$
-
-
-
-
-
-
$ 63,801,977
30,069,163
55,723,774
-
68,378,787
-
7,777,715
-
18,203,601
24,659,738
154,536,921
8,493,829
242,925,299
7,503,151
75,881,938
83,639
7,861,354
-
18,203,601
16,080,619
344,872,192
67,393,539
(67,957,919 )
(564,380 )
-
-
-
-
-
-
-
-
-
67,393,539
(67,957,919 )
(564,380 )
$ 242,360,919
$ 75,881,938
$
7,861,354
$ 18,203,601
$ 344,307,812
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
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;
- 64 -
- 64 -
(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, 2017
Financial assets at FVTPL
Held for trading
Forward exchange contracts
Available-for-sale financial assets
Corporate bonds
Agency bonds/Agency
mortgage-backed securities
Asset-backed securities
Government bonds
Publicly traded stocks
Commercial paper
Hedging derivative financial
assets
Fair value hedges
$
$
-
-
$
569,751
$
$ 40,165,148
$
-
-
7,715,980
2,548,054
-
29,235,388
13,459,545
101,743
-
148,295
$ 10,264,034
$ 83,110,119
$
Interest rate futures contracts
$
27,016
$
-
$
Cash flow hedges
Forward exchange contracts
-
7,378
$
27,016
$
7,378
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
$
-
$
26,709
$
Hedging derivative financial
liabilities
Cash flow hedges
-
-
-
-
-
-
-
-
-
-
-
-
$
569,751
$ 40,165,148
29,235,388
13,459,545
7,817,723
2,548,054
148,295
$ 93,374,153
$
27,016
7,378
$
34,394
$
26,709
Forward exchange contracts
$
-
$
15,562
$
-
$
15,562
- 65 -
- 65 -
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
$
$
Available-for-sale financial assets
Corporate bonds
Agency bonds/Agency
mortgage-backed securities
Asset-backed securities
Government bonds
Publicly traded stocks
-
-
-
-
-
-
$
142,406
10,976
$
6,297,708
22
$ 6,451,112
$
$ 29,999,508
$
-
-
8,346,989
3,196,658
14,880,482
11,254,757
110,373
-
$ 11,543,647
$ 56,245,120
$
Hedging derivative financial
assets
Fair value hedges
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
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
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
In the fourth quarter of 2017, the Company reassessed the bid-ask spread and the transaction
volume of the fixed income securities in determining whether there were quoted prices in active
markets. Accordingly, the Company classified the fair value hierarchy levels of corporate bonds,
agency bonds, agency mortgage-backed securities and some government bonds as level 2. To
have consistent comparative basis, the Company had revised prior year classification from level 1 to
level 2.
There were no purchases and disposals for assets classified as Level 3 for the years ended
December 31, 2017 and 2016, respectively.
Valuation techniques and assumptions used in Level 2 fair value measurement
The fair values of financial assets and financial liabilities are determined as follows:
(cid:121) The fair values of corporate bonds, agency bonds, agency mortgage-backed securities,
asset-backed securities, and government bonds are determined by quoted market prices.
(cid:121) Forward exchange contracts and cross currency swap contracts are measured using forward
exchange rates and the discounted curves that are derived from quoted market prices. For
investments in commercial paper and time deposit designated as FVTPL, the fair values are
determined by the present value of future cash flows based on the discounted curves that are
derived from the quoted market prices.
- 66 -
- 66 -
3) Fair value of financial instruments that are not measured at fair value
Except as detailed in the following table, the Company considers that the carrying amounts of
financial instruments in the consolidated financial statements that are not measured at fair value
approximate their fair values.
December 31, 2017
December 31, 2016
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Financial assets
Held-to-maturity financial
assets
Corporate bonds
Structured product
Commercial paper
Negotiable certificate of
deposit
Financial liabilities
$ 19,338,764 $ 19,541,419 $ 23,849,701 $ 23,996,429
1,609,738
8,630,769
1,475,350
-
1,609,950
8,628,176
1,482,950
-
-
-
4,829,850
4,847,785
Measured at amortized cost
Bonds payable
150,201,122 152,077,728 191,193,557 192,845,296
Fair value hierarchy
The table below sets out the fair value hierarchy for the Company’s assets and liabilities which are
not required to measure at fair value:
Level 1
Level 2
Level 3
Total
December 31, 2017
Financial assets
Held-to-maturity securities
Corporate bonds
Structured product
Financial liabilities
Measured at amortized cost
Bonds payable
$
$
-
-
-
$ 19,541,419
1,475,350
$
$ 21,016,769
$
-
-
-
$ 19,541,419
1,475,350
$ 21,016,769
$
-
$ 152,077,728
$
-
$ 152,077,728
Level 1
Level 2
Level 3
Total
December 31, 2016
Financial assets
Held-to-maturity securities
Corporate bonds
Commercial paper
Negotiable certificate of deposit
Structured product
$
$
-
-
-
-
-
$
$ 23,996,429
8,630,769
4,847,785
1,609,738
$ 39,084,721
$
-
-
-
-
-
$ 23,996,429
8,630,769
4,847,785
1,609,738
$ 39,084,721
Financial liabilities
Measured at amortized cost
Bonds payable
$
-
$ 192,845,296
$
-
$ 192,845,296
- 67 -
- 67 -
In the fourth quarter of 2017, the Company reassessed the bid-ask spread and the transaction
volume of the fixed income securities in determining whether there were quoted prices in active
markets. Accordingly, the Company classified the fair value hierarchy levels of corporate bonds
and bonds payable as level 2. To have consistent comparative basis, the Company had revised
prior year classification from level 1 to level 2.
Valuation techniques and assumptions used in Level 2 fair value measurement
The fair values of corporate bonds, negotiable certificate of deposit, and structured products are
determined by quoted market prices.
The fair value of commercial paper is determined by the present value of future cash flows based on
the discounted curves that are derived from the quoted market prices.
The fair value of the Company’s bonds payable is determined by quoted market prices.
34. RELATED PARTY TRANSACTIONS
Intercompany balances and transactions between TSMC and its subsidiaries, which are related parties of
TSMC, have been eliminated upon consolidation; therefore those items are not disclosed in this note. The
following is a summary of significant transactions between the Company and other related parties:
a. Related party name and categories
Related Party Name
Related Party Categories
GUC
VIS
SSMC
Xintec
Mutual-Pak
TSMC Education and Culture Foundation
TSMC Charity Foundation
b. Net revenue
Associates
Associates
Associates
Associates
Associates
Other related parties
Other related parties
Item
Related Party Categories
Net revenue from sale of goods Associates
Other related parties
Years Ended December 31
2017
2016
$ 8,495,937
133
$ 5,929,141
-
$ 8,496,070
$ 5,929,141
Net revenue from royalties
Associates
$
482,537
$
516,749
- 68 -
- 68 -
c. Purchases
Related Party Categories
Associates
d. Receivables from related parties
Years Ended December 31
2017
2016
$ 9,904,637
$ 10,108,210
December 31,
2017
December 31,
2016
Item
Related Party Name/Categories
Receivables from related
parties
GUC
Xintec
$ 1,022,892
161,232
$
969,136
423
$ 1,184,124
$
969,559
Other receivables from related SSMC
$
parties
VIS
Other Associates
$
83,099
78,141
9,818
60,641
86,038
109
e. Payables to related parties
$
171,058
$
146,788
December 31,
2017
December 31,
2016
Item
Related Party Name/Categories
Payables to related parties
Xintec
VIS
SSMC
Other Associates
f. Others
$
$
817,930
409,950
406,959
21,517
124,541
587,407
506,121
44,105
$ 1,656,356
$ 1,262,174
Years Ended December 31
2017
2016
Item
Related Party Categories
Manufacturing expenses
Associates
$ 2,196,141
$ 1,389,164
Research and development
Associates
$
69,841
$
161,735
expenses
General and administrative
Other related parties
$
101,500
$
60,000
expenses
- 69 -
- 69 -
The sales prices and payment terms to related parties were not significantly different from those of sales
to third parties. For other related party transactions, price and terms were determined in accordance
with mutual agreements.
The Company leased factory and office from associates. The lease terms and prices were both
determined in accordance with mutual agreements. The rental expenses were paid to associates
monthly; the related expenses were both classified under manufacturing expenses.
The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to
related parties (transactions with associates), and then recognized such gain/loss over the depreciable
lives of the disposed assets.
g. Compensation of key management personnel
The compensation to directors and other key management personnel for the years ended December 31,
2017 and 2016 were as follows:
Short-term employee benefits
Post-employment benefits
Years Ended December 31
2017
2016
$ 2,170,280
3,727
$ 2,023,971
3,992
$ 2,174,007
$ 2,027,963
The compensation to directors and other key management personnel were determined by the
Compensation Committee of TSMC in accordance with the individual performance and the market
trends.
35. PLEDGED ASSETS
The Company provided certificate of deposits recorded in other financial assets as collateral mainly for
building lease agreements. As of December 31, 2017 and 2016, the aforementioned other financial assets
amounted to NT$165,618 thousand and NT$185,698 thousand, respectively.
36. SIGNIFICANT OPERATING LEASE ARRANGEMENTS
The Company’s major significant operating leases are arrangements on several parcels of land, machinery
and equipment and office premises.
The Company expensed the lease payments as follows:
Minimum lease payments
$ 2,178,054
$ 1,135,735
Years Ended December 31
2017
2016
- 70 -
- 70 -
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,
2017
December 31,
2016
$ 3,116,209
5,174,729
8,905,848
$ 1,321,546
3,677,432
6,623,957
$ 17,196,786
$ 11,622,935
37. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
Significant contingent liabilities and unrecognized commitments of the Company as of the end of the
reporting period, excluding those disclosed in other notes, were as follows:
a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C.
Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity provided
TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is
for five years beginning from January 1, 1987 and is automatically renewed for successive periods of
five years unless otherwise terminated by either party with one year prior notice. As of December 31,
2017, the R.O.C. Government did not invoke such right.
b. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30,
1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in
Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, in September 2006, Philips
spun-off its semiconductor subsidiary which was renamed as NXP B.V. Further, TSMC and NXP
B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the
Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently
own approximately 39% and 61% of the SSMC shares, respectively. TSMC and NXP B.V. are
required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not
required to purchase more than 28% of the capacity. If any party defaults on the commitment and the
capacity utilization of SSMC falls below a specific percentage of its capacity, the defaulting party is
required to compensate SSMC for all related unavoidable costs. There was no default from the
aforementioned commitment as of December 31, 2017.
c. TSMC joined the Customer Co-Investment Program of ASML and entered into the investment
agreement in August 2012. The agreement includes an investment of EUR837,816 thousand by
TSMC Global to acquire 5% of ASML’s equity with a lock-up period of 2.5 years. TSMC Global has
acquired the aforementioned equity on October 31, 2012. The lock-up period expired on May 1, 2015
and as of October 8, 2015, all ASML shares had been disposed.
Both parties also signed the research and development funding agreement whereby TSMC shall provide
EUR276,000 thousand to ASML’s research and development programs from 2013 to 2017. As of
September 30, 2017, the amount has been fully paid.
d. In May 2017, Mr. Uri Cohen filed a complaint in the U.S. District Court for the Eastern District of
Texas alleging that TSMC, TSMC North America and other companies infringe four U.S. patents. In
response, TSMC and TSMC North America filed a declaratory judgment complaint against Cohen in
the U.S. District Court for the Northern District of California seeking a judgment declaring that there is
no infringement of the same four patents. TSMC also filed a motion to transfer Cohen’s lawsuit in the
U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Northern District
of California. Cohen agreed to the transfer, and as of December 2017, the cases are consolidated and
pending in the U.S. District Court for the Northern District of California. The outcome cannot be
determined and the Company cannot make a reliable estimate of the contingent liability at this time.
- 71 -
- 71 -
e. On September 28, 2017, TSMC was contacted by the European Commission (“Commission”) for
information and documents concerning alleged anti-competitive practices of TSMC in relation to
semiconductor sales. This proceeding is still in its preliminary stage, and it is premature to predict
how the case will proceed, the outcome of the proceeding or its impact. TSMC will continue to
cooperate fully with the Commission.
f. TSMC entered into long-term purchase agreements of silicon wafer with multiple suppliers. The
relative minimum purchase quantity and price are specified in the agreements.
g. Amounts available under unused letters of credit as of December 31, 2017 and 2016 were NT$94,909
thousand and NT$122,356 thousand, respectively.
38. SIGNIFICANT LOSS FROM DISASTER
On February 6, 2016, an earthquake struck Taiwan. The resulting damage was mostly to inventories and
equipment. The Company recognized earthquake losses of NT$2,492,138 thousand, net of insurance
claim, for the year ended December 31, 2016. Such losses were primarily included in cost of revenue.
The related insurance claim was finalized in the first quarter of 2017, and the accumulated earthquake
losses were NT$2,386,824 thousand, net of insurance claim. The Company recognized a reduction of
such losses of NT$105,314 thousand for the three months ended March 31, 2017.
39. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND
LIABILITIES
The following information was summarized according to the foreign currencies other than the functional
currency of the Company. The exchange rates disclosed were used to translate the foreign currencies into
the functional currency. The significant financial assets and liabilities denominated in foreign currencies
were as follows:
Foreign
Currencies
(In Thousands)
Exchange Rate
(Note 1)
Carrying
Amount
(In Thousands)
December 31, 2017
Financial assets
Monetary items
USD
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
$
5,668,611
580,555
236,474
34,335,661
6.512 (Note 2)
29.659
35.45
0.2629
$ 168,125,342
17,218,674
8,383,015
9,026,845
285,336
3.80
1,084,276
4,048,384
415,819
43,205,838
29.659
35.45
0.2629
120,071,030
14,740,766
11,358,815
(Continued)
- 72 -
- 72 -
December 31, 2016
Financial assets
Monetary items
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)
$
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
(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.
Please refer to the consolidated statements of comprehensive income for the total of realized and unrealized
foreign exchange gain and loss for the years ended December 31, 2017 and 2016, respectively. Since
there were varieties of foreign currency transactions and functional currencies within the subsidiaries of the
Company, the Company was unable to disclose foreign exchange gain (loss) towards each foreign currency
with significant impact.
40. OPERATING SEGMENTS INFORMATION
a. Operating segments, segment revenue and operating results
From 2016, the Company has only one operating segment, the foundry segment. The foundry segment
engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of
integrated circuits and other semiconductor devices and the manufacturing of masks.
The Company uses the income from operations as the measurement for the basis of performance
assessment. The basis for such measurement is the same as that for the preparation of financial
statements. Please refer to the consolidated statements of comprehensive income for the related
segment revenue and operating results.
- 73 -
- 73 -
b. Geographic information
Net Revenue from External
Customers
Years Ended December 31
2016
2017
Non-current Assets
December 31,
December 31,
2017
2016
Taiwan
United States
Asia
Europe, the Middle East and
Africa
Others
$
90,129,390
620,948,718
194,477,093
$ 127,062,984
610,371,107
146,907,470
$ 1,027,963,202
7,515,835
44,213,422
$ 991,567,870
8,245,054
14,071,364
68,538,366
3,353,674
58,042,311
5,554,472
8,123
-
8,677
-
$ 977,447,241
$ 947,938,344
$ 1,079,700,582
$ 1,013,892,965
The Company categorized the net revenue mainly based on the country in which the customer is
headquartered. Non-current assets include property, plant and equipment, intangible assets and other
noncurrent assets.
c. Production information
Production
Wafer
Others
Years Ended December 31
2017
2016
$ 874,572,620
102,874,621
$ 861,170,855
86,767,489
$ 977,447,241
$ 947,938,344
Starting in 2017, revenue from packaging and testing services is reclassified from wafer revenue to
other revenue. To have consistent comparative basis, the Company had revised prior year
classification.
d. Major customers representing at least 10% of net revenue
Years Ended December 31
2017
2016
Amount
%
Amount
%
Customer A
Customer B
$ 214,228,766
64,096,227
22
7
$ 157,185,418
107,463,238
17
11
41. ADDITIONAL DISCLOSURES
Following are the additional disclosures required by the Securities and Futures Bureau for TSMC:
a. Financings provided: Please see Table 1 attached;
b. Endorsement/guarantee provided: Please see Table 2 attached;
c. Marketable securities held (excluding investments in subsidiaries and associates): Please see Table 3
attached;
d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of
the paid-in capital: Please see Table 4 attached;
- 74 -
- 74 -
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.
- 75 -
- 75 -
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T
Taiwan Semiconductor Manufacturing
Company Limited
Parent Company Only Financial Statements for the
Years Ended December 31, 2017 and 2016 and
Independent Auditors’ Report
- 97 -
- 98 -
- 99 -
- 100 -
- 101 -
- 102 -
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)
Hedging derivative financial assets (Note 9)
Notes and accounts receivable, net (Note 10)
Receivables from related parties (Note 32)
Other receivables from related parties (Note 32)
Inventories (Notes 5, 11 and 35)
Other financial assets (Note 35)
Other current assets (Note 15)
Total current assets
NONCURRENT ASSETS
Financial assets carried at cost
Investments accounted for using equity method (Notes 5 and 12)
Property, plant and equipment (Notes 5 and 13)
Intangible assets (Notes 5 and 14)
Deferred income tax assets (Notes 5 and 27)
Refundable deposits
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 16)
Financial liabilities at fair value through profit or loss (Note 7)
Hedging derivative financial liabilities (Note 9)
Accounts payable
Payables to related parties (Note 32)
Salary and bonus payable
Accrued profit sharing bonus to employees and compensation to directors (Notes 21 and 29)
Payables to contractors and equipment suppliers
Income tax payable (Notes 5 and 27)
Provisions (Notes 5 and 17)
Long-term liabilities - current portion (Note 18)
Accrued expenses and other current liabilities (Note 20)
Total current liabilities
NONCURRENT LIABILITIES
Bonds payable (Note 18)
Deferred income tax liabilities (Notes 5 and 27)
Net defined benefit liability (Notes 5 and 19)
Guarantee deposits (Note 20)
Others
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock (Note 21)
Capital surplus (Note 21)
Retained earnings (Note 21)
Appropriated as legal capital reserve
Unappropriated earnings
Others (Note 21)
Total equity
TOTAL
The accompanying notes are an integral part of the parent company only financial statements.
- 103 -
- 103 -
December 31, 2017
Amount
%
December 31, 2016
Amount
%
$ 239,176,841
373,351
2,393,555
-
7,378
26,655,427
92,141,837
3,143,872
70,297,445
94,839
2,484,792
12
-
-
-
-
2
5
-
4
-
-
$ 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
-
-
436,769,337
23
443,781,164
24
415,051
463,986,364
1,016,355,970
9,870,127
10,829,473
1,163,069
-
24
52
-
1
-
435,268
396,855,708
979,401,337
10,047,991
6,446,781
369,895
-
22
53
1
-
-
1,502,620,054
77
1,393,556,980
76
$ 1,939,389,391
100
$ 1,837,338,144
100
$
63,766,850
18,764
15,562
25,605,223
4,829,664
12,283,321
23,388,002
50,363,976
32,950,667
13,174,825
24,300,000
57,686,386
$
3
-
-
1
-
1
1
3
2
1
1
3
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
308,383,240
16
308,177,214
17
91,800,000
302,205
8,850,704
7,582,479
413,230
108,948,618
5
-
1
-
-
6
116,100,000
141,183
8,551,408
14,666,542
453,536
139,912,669
6
-
-
1
-
7
417,331,858
22
448,089,883
24
259,303,805
56,309,536
13
3
259,303,805
56,272,304
14
3
241,722,663
991,639,347
1,233,362,010
12
51
63
(26,917,818)
(1)
208,297,945
863,710,224
1,072,008,169
1,663,983
12
47
59
-
1,522,057,533
78
1,389,248,261
76
$ 1,939,389,391
100
$ 1,837,338,144
100
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2017
2016
Amount
%
Amount
%
NET REVENUE (Notes 5, 22 and 32)
$ 969,136,109
100
$ 936,387,291
100
COST OF REVENUE (Notes 5, 11, 29, 32 and 35)
490,196,856
51
474,552,913
51
GROSS PROFIT BEFORE UNREALIZED GROSS
PROFIT ON SALES TO SUBSIDIARIES AND
ASSOCIATES
UNREALIZED GROSS PROFIT ON SALES TO
SUBSIDIARIES AND ASSOCIATES
478,939,253
49
461,834,378
49
(1,562)
-
(26,082)
-
GROSS PROFIT
478,937,691
49
461,808,296
49
OPERATING EXPENSES (Notes 5, 29, and 32)
Research and development
General and administrative
Marketing
79,887,723
20,049,405
3,048,781
8
2
1
70,366,179
18,697,463
3,098,086
8
2
-
Total operating expenses
102,985,909
11
92,161,728
10
OTHER OPERATING INCOME AND EXPENSES,
NET (Notes 23 and 29)
(1,261,665)
-
83,965
-
INCOME FROM OPERATIONS
374,690,117
38
369,730,533
39
NON-OPERATING INCOME AND EXPENSES
Share of profits of subsidiaries and associates (Note
12)
Other income (Note 24)
Foreign exchange gain (loss), net (Note 36)
Finance costs (Note 25)
Other gains and losses, net (Note 26)
18,757,236
1,696,595
(670,371)
(2,749,640)
1,592,239
Total non-operating income and expenses
18,626,059
2
-
-
-
-
2
14,941,372
1,816,803
609,345
(2,643,193)
734,100
15,458,427
2
-
-
-
-
2
INCOME BEFORE INCOME TAX
393,316,176
40
385,188,960
41
INCOME TAX EXPENSE (Notes 5 and 27)
50,204,700
5
50,941,780
5
NET INCOME
343,111,476
35
334,247,180
36
(Continued)
- 104 -
- 104 -
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 12, 19, 21 and 27)
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
2017
2016
Amount
%
Amount
%
$
(254,681)
-
$
(1,057,220)
(20,853)
30,562
(244,972)
-
-
-
(19,961)
126,867
(950,314)
-
-
-
-
foreign operations
(28,270,770)
(3)
(9,439,776)
(1)
Changes in fair value of available-for-sale
financial assets
Cash flow hedges
Share of other comprehensive income (loss) of
subsidiaries and associates
Income tax expense related to items that may be
reclassified subsequently
(425,692)
4,683
123,804
(3,536)
-
-
-
-
47,506
-
(656,684)
(61,176)
-
-
-
-
(28,571,511)
(3)
(10,110,130)
(1)
Other comprehensive loss for the year, net of
income tax
(28,816,483)
(3)
(11,060,444)
(1)
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR
$ 314,294,993
32
$ 323,186,736
35
EARNINGS PER SHARE (NT$, Note 28)
Basic earnings per share
Diluted earnings per share
$
$
13.23
13.23
$
$
12.89
12.89
The accompanying notes are an integral part of the parent company only financial statements.
(Concluded)
- 105 -
- 105 -
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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
Loss (gain) on disposal or retirement of property, plant and
equipment, net
Gain on disposal of intangible assets, net
Impairment loss on financial assets
Gain on disposal of available-for-sale financial assets, net
Loss on disposal of investments accounted for using equity method,
net
Unrealized gross profit on sales to subsidiaries and associates
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
2017
2016
$ 393,316,176
$ 385,188,960
250,597,135
4,325,028
2,749,640
(18,757,236)
(1,554,792)
213,977,324
3,724,066
2,643,193
(14,941,372)
(1,683,150)
1,008,989
(3,198)
6,137
(115,690)
(100,503)
-
4,537
(101,411)
-
1,562
(9,118,776)
(141,803)
296,065
26,082
(2,656,406)
(133,653)
(196,337)
7,253,120
(5,296,267)
(733,023)
(23,793,099)
2,029,903
510,739
1,275,185
(10,337)
712,816
(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
directors
Accrued expenses and other current liabilities
Provisions
Net defined benefit liability
Cash generated from operations
Income taxes paid
593,231
29,615,847
(3,823,540)
44,615
630,496,025
1,881,697
3,891,345
7,961,632
46,163
577,935,510
(45,387,724)
(61,695,694)
Net cash generated by operating activities
568,800,331
532,547,786
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Available-for-sale financial assets
Held to maturity financial assets
Investments accounted for using equity method
Equity interest in subsidiary
Property, plant and equipment
Intangible assets
- 107 -
- 107 -
-
(1,695,771)
(172)
(11,242,766)
(445,012)
(1,630,700)
(311,763,999) (323,009,940)
(4,207,065)
(Continued)
(4,351,050)
-
-
Taiwan Semiconductor Manufacturing Company Limited
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
Proceeds from disposal or redemption of:
Available-for-sale financial assets
Held-to-maturity financial assets
Equity interest in subsidiary
Property, plant and equipment
Intangible assets
Proceeds from return of capital of financial assets carried at cost
Derecognition of hedging derivative financial instruments
Interest received
Other dividends received
Dividends received from investments accounted for using equity
method
Refundable deposits paid
Refundable deposits refunded
Decrease in receivables for temporary payments
Cash inflow from incorporation of subsidiary
$
2017
2016
$
140,395
13,160,000
-
13,226,816
27,409
14,080
38,097
1,552,725
141,803
126,289
10,550,000
2,325
104,020
-
7,493
-
1,748,570
133,653
5,005,132
(1,227,010)
416,600
-
-
5,469,549
(138,204)
169,464
47,924
396,262
Net cash used in investing activities
(285,314,773) (321,918,310)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Repayment of bonds
Interest paid
Guarantee deposits received
Guarantee deposits refunded
Cash dividends
Payment of partial acquisition of interests in subsidiaries
Proceeds from partial disposal of interests in subsidiaries
Donation from shareholders
10,394,485
(38,100,000)
(2,916,969)
205,075
(89,507)
18,968,936
(12,000,000)
(2,644,187)
420,719
(421,002)
(181,512,663) (155,582,283)
(74,130,714)
144,035
-
(82,433,287)
257,648
7,938
Net cash used in financing activities
(294,187,280) (225,244,496)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(10,701,722)
(14,615,020)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
249,878,563
264,493,583
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 239,176,841
$ 249,878,563
The accompanying notes are an integral part of the parent company only financial statements.
(Concluded)
- 108 -
- 108 -
Taiwan Semiconductor Manufacturing Company Limited
NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
1. GENERAL
Taiwan Semiconductor Manufacturing Company Limited (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 13, 2018.
3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports
by Securities Issuers and the International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC)
(collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)
Except for the following, the initial application of the amendments to the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by
the FSC did not have a significant effect on the Company’s accounting policies:
1) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities
Issuers
The amendments stipulate that other companies or institutions of which the chairman of the board
of directors or president serves as the chairman of the board of directors or the president, or is the
spouse or second immediate family of the chairman of the board of directors or president of the
Company are deemed to have a substantive related party relationship, unless it can be demonstrated
that no control, joint control, or significant influence exists. Furthermore, the amendments require
the disclosure of the names of the related parties and the relationship with whom the Company has
transaction. If the transaction or balance with a specific related party is 10% or more of the
Company’s respective total transaction or balance, such transaction should be separately disclosed
by the name of each related party.
When the amendments are applied retrospectively from January 1, 2017, the disclosure of related
party transactions is enhanced, please refer to Note 32.
- 109 -
- 109 -
b. The IFRSs issued by International Accounting Standards Board (IASB) and endorsed by FSC with
effective date starting 2018
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB
Annual Improvements to IFRSs 2014-2016 Cycle
Amendment to IFRS 2 “Classification and Measurement of Share-based
Note 1
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”
IFRS 15 “Revenue from Contracts with Customers”
Amendment to IFRS 15 “Clarifications to IFRS 15”
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, 2017
January 1, 2017
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
January 1, 2018
Note 1: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after
January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.
Except for the following items, the Company believes that the adoption of aforementioned standards or
interpretations will not have a significant effect on the Company’s accounting policies.
1) IFRS 9 “Financial Instruments” and related amendments
Classification, measurement and impairment of financial assets
All recognized financial assets currently in the scope of IAS 39, “Financial Instruments:
Recognition and Measurement,” will be subsequently measured at either the amortized cost or the
fair value. The classification and measurement requirements in IFRS 9 are stated as follows.
The invested equity instruments should be measured at the fair value through profit or loss
(FVTPL). However, the entity may irrevocably designate an investment in equity instruments that
is not held for trading as measured at fair value through other comprehensive income (FVTOCI).
All relevant gains and losses shall be recognized in other comprehensive income, except for
dividends which are recognized in profit or loss. No subsequent impairment assessment is
required, and the cumulative gain or loss previously recognized in other comprehensive income
cannot be reclassified from equity to profit or loss.
IFRS 9 adds a new expected loss impairment model to measure the impairment of financial assets.
A loss allowance for expected credit losses should be recognized on financial assets measured at
amortized cost. If the credit risk on a financial instrument has not increased significantly since
initial recognition, the loss allowance for that financial instrument should be measured at an amount
equal to 12-month expected credit losses. If the credit risk on a financial instrument has increased
significantly since initial recognition and is not deemed to be a low credit risk, the loss allowance
for that financial instrument should be measured at an amount equal to the lifetime expected credit
losses. A simplified approach is allowed for accounts receivables and the loss allowance could be
measured at an amount equal to lifetime expected credit losses.
- 110 -
- 110 -
The Company elects not to restate prior reporting period when applying the requirements for the
classification, measurement and impairment of financial assets and financial liabilities under IFRS 9
with the cumulative effect of the initial application recognized at the date of initial application.
The anticipated impact on measurement categories, carrying amount and related reconciliation for
each class of the Company’s financial assets and financial liabilities when retrospectively applying
IFRS 9 on January 1, 2018 is detailed below:
Financial Assets
IAS 39
IFRS 9
IAS 39
IFRS 9
Note
Measurement Category
Carrying Amount
Loans and receivables
Held for trading
Hedging instruments
Available-for(cid:486)sale
Loans and receivables
Amortized cost
Mandatorily at FVTPL
Hedging instruments
FVTOCI
Amortized cost
$ 239,176,841 $ 239,176,841
373,351
7,378
3,377,145
123,199,044 123,443,817
373,351
7,378
2,808,606
(1)
(2)
(1)
Held for(cid:3)trading
Hedging instruments
Amortized cost
Mandatorily at FVTPL
Hedging instruments
Amortized cost
18,764
15,562
294,856,247 294,856,247
18,764
15,562
Cash and cash equivalents
Derivatives
Equity securities
Notes and accounts receivable
(including related parties),
other receivables and
refundable deposits
Financial Liabilities
Derivatives
Short-term loans, accounts
payable (including related
parties), payables to
contractors and equipment
suppliers, accrued expenses
and other current liabilities,
bonds payable and
guarantee deposits
Carrying
Amount as of
December 31,
2017 (IAS 39)
Reclassifi-
cations
Remea-
surements
Carrying
Amount as of
January 1, 2018
(IFRS 9)
Retained
Earnings
Effect on
January 1,
2018
Other Equity
Effect on
January 1,
2018
Note
$
373,351
-
$
$
-
-
$
-
-
373,351
-
$
$
-
-
-
-
-
-
-
2,808,606
2,808,606
-
568,539
568,539
-
3,377,145
3,377,145
-
-
-
7,378
362,375,885
362,375,885
-
244,773
244,773
-
362,620,658
362,620,658
7,378
534,270
534,270
-
244,773
244,773
-
(2)
(1)
34,269
34,269
-
-
-
-
Financial Assets
FVTPL
FVTOCI
- Equity instruments
Add: From available for
sale
Amortized cost
Add: From loans and
receivables
Hedging instruments
Total
$
380,729
$ 365,184,491
$
813,312
$ 366,378,532
$
779,043
$
34,269
Carrying
Amount as of
December 31,
2017
(IAS 39)
Adjustments
Arising from
Initial
Application
Carrying
Amount as of
January 1, 2018
(IFRS 9)
Retained
Earnings
Effect on
January 1,
2018
Other Equity
Effect on
January 1,
2018
Note
Investments accounted for using equity method $ 463,986,364
$
400,137 $ 464,386,501
$
745,247
$
(345,110 )
(3)
(1) Cash and cash equivalents, notes and accounts receivable (including related parties), other
receivables and refundable deposits were classified as loans and receivables under IAS 39 are
now classified at amortized cost with assessment of future 12-month or lifetime expected credit
loss under IFRS 9. As a result of retrospective application, the adjustments for accounts
receivable would result in a decrease in loss of allowance of NT$244,773 thousand and an
increase in retained earnings of NT$244,773 thousand on January 1, 2018.
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(2) As equity investments that were previously classified as available-for-sale financial assets under
IAS 39 are not held for trading, the Company elected to designate all of these investments as at
FVTOCI under IFRS 9. As a result, the related other equity-unrealized gain/loss on
available-for-sale financial assets of NT$206,015 thousand is reclassified to increase other
equity - unrealized gain/loss on financial assets at FVTOCI.
As equity investments previously measured at cost under IAS 39 are remeasured at fair value
under IFRS 9, the adjustments would result in an increase in financial assets at FVTOCI of
NT$568,539 thousand and an increase in other equity-unrealized gain/loss on financial assets at
FVTOCI of NT$568,539 thousand on January 1, 2018.
For those equity investments previously classified as available-for-sale financial assets
(including measured at cost financial assets) under IAS 39, the impairment losses that the
Company had recognized have been accumulated in retained earnings. Since these
investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is
required, the adjustments would result in a decrease in other equity - unrealized gain/loss on
financial assets at FVTOCI of NT$534,270 thousand and an increase in retained earnings of
NT$534,270 thousand on January 1, 2018.
(3) With the retrospective adoption of IFRS 9 by associates accounted for using equity method, the
corresponding adjustments made by the Company would result in an increase in investments
accounted for using equity method of NT$400,137 thousand, a decrease in other equity-
unrealized gain/loss on financial assets at FVTOCI of NT$765,199 thousand, an increase in
other equity- unrealized gain/loss on available-for-sale financial assets of NT$420,089 thousand
and an increase in retained earnings of NT$745,247 thousand on January 1, 2018.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting
to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes
include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening
the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost
of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing
retrospective effectiveness assessment with the principle of economic relationship between the
hedging instrument and the hedged item.
A preliminary assessment of the Company’s current hedging relationships indicates that they will
qualify as continuing hedging relationships under IFRS 9. The Company will prospectively apply
the requirements for hedge accounting upon initial application of IFRS 9.
2) IFRS 15 “Revenue from Contracts with Customers” and related amendments
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue,” IAS 11 “Construction Contracts,” and a number of
revenue-related interpretations.
When applying IFRS 15, the Company shall recognize revenue by applying the following steps:
Identify the contract with the customer;
Identify the performance obligations in the contract;
(cid:122)
(cid:122)
(cid:122) Determine the transaction price;
(cid:122) Allocate the transaction price to the performance obligations in the contract; and
(cid:122) Recognize revenue when the entity satisfies a performance obligation.
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The Company elects only to retrospectively apply IFRS 15 to contracts that were not completed on
January 1, 2018 and elects not to restate prior reporting period with the cumulative effect of the
initial application recognized at the date of initial application.
The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on
January 1, 2018 is detailed below:
Carrying
Amount as of
December 31,
2017
(IAS 18 and
revenue-related
interpretations)
Adjustments
Arising from
Initial
Application
Carrying
Amount as of
January 1, 2018
(IFRS 15)
Note
Investments accounted for using
equity method
$ 463,986,364 $
32,029 $ 464,018,393
(1)
Total effect on assets
$
32,029
Provisions - current
Accrued expenses and other
current liabilities
13,174,825 $ (13,174,825)
-
(2)
57,686,386
13,174,825
70,861,211
(2)
Total effect on liabilities
$
-
Retained earnings
1,233,362,010 $
32,029 1,233,394,039
(1)
Total effect on equity
$
32,029
(1) Prior to the application of IFRS 15, the Company recognizes revenue based on the accounting
treatment of the sales of goods. Under IFRS 15, certain subsidiaries and associates accounted
for using equity method will change to recognize revenue over time because customers are
deemed to have control over the products when the products are manufactured. As a result, the
Company will adjust related investments and equity accordingly.
(2) Prior to the application of IFRS 15, the Company recognized the estimation of sales returns and
allowance as provisions. Under IFRS 15, the Company recognizes such estimation as refund
liability (classified under accrued expenses and other current liabilities).
Except for the aforementioned impact, as of the date the accompanying 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.
c. The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC
New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB
Annual Improvements to IFRSs 2015-2017 Cycle
Amendments to IFRS 9 “Prepayment Features with Negative
January 1, 2019
January 1, 2019
Compensation”
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”
(Continued)
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New, Revised or Amended Standards and Interpretations
Effective Date Issued
by IASB
IFRS 16 “Leases”
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019
Ventures”
IFRIC 23 “Uncertainty over Income Tax Treatments”
January 1, 2019
(Concluded)
Note 2: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting January 1,
2019.
Except for the following items, the Company believes that the adoption of aforementioned standards or
interpretations will not have a significant effect on the Company’s accounting policies.
1) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of
related interpretations.
Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities
for all leases on the 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 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 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
financial
instrument may be designated as at FVTPL upon
A
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.
recognition.
initial
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Hedge Accounting
Cash Flow Hedge
The Company designates certain hedging instruments, such as forward exchange contracts, to partially
hedge its foreign exchange rate risks associated with certain highly probable forecast transactions, such as
capital expenditures. The effective portion of changes in the fair value of hedging instruments is
recognized in other comprehensive income. When the forecast transactions actually take place, the
associated gains or losses that were recognized in other comprehensive income are removed from equity
and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating
to the ineffective portion are recognized immediately in profit or loss.
Hedge accounting is discontinued prospectively when the Company revokes the designated hedging
relationship, or when the hedging instruments expire or are sold, terminated, or exercised, or no longer meet
the criteria for hedge accounting.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories are recorded at standard cost
and adjusted to approximate weighted-average cost at the end of the reporting period. Net realizable value
represents the estimated selling price of inventories less all estimated costs of completion and costs
necessary to make the sale.
Investments Accounted for Using Equity Method
Investments accounted for using the equity method 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 by other investors, the proportionate amount of the gains or losses previously recognized in other
comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as
would be required if the associate had directly disposed of the related assets or liabilities.
When the Company transacts with an associate, profits and losses resulting from the transactions with the
associate are recognized in the Company’s 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.
- 122 -
- 122 -
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for
estimated customer returns, rebates and other similar allowances.
Sale of goods
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which
time all the following conditions are satisfied:
(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.
- 123 -
- 123 -
Net defined benefit liability represents the actual deficit in the Company’s defined benefit plan.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Income tax on unappropriated earnings 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 tax credits for
research and development expenses to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, except where the Company is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments are only
recognized to the extent that it is probable that there will be sufficient taxable profits against which to
utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of
the deferred tax asset to be recovered. The deferred tax assets which originally not recognized is also
reviewed at the end of each reporting period and recognized to the extent that it is probable that sufficient
taxable profits will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in
which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities
and assets reflects the tax consequences that would follow from the manner in which the Company expects,
at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are
recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax
are also recognized in other comprehensive income or directly in equity, respectively.
Insurance Claim
The Company recognizes insurance claim reimbursement for losses incurred related to disaster damages.
Insurance claim reimbursements are recorded, net of any deductible amounts, at the time while there is
evidence that the claim reimbursement is virtually certain to be received.
- 124 -
- 124 -
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND
UNCERTAINTY
In the application of the aforementioned Company’s accounting policies, the Company is required to make
judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or
in the year of the revision and future years if the revision affects both current and future years.
Revenue Recognition
The Company recognizes revenue when the conditions described in Note 4 are satisfied. The Company
also records a provision for estimated future returns and other allowances in the same period the related
revenue is recorded. Provision for estimated sales returns and other allowances is generally made and
adjusted based on historical experience and the consideration of varying contractual terms, and the
Company periodically reviews the adequacy of the estimation used.
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.
- 125 -
- 125 -
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,
2017
December 31,
2016
Cash and deposits in banks
Repurchase agreements collateralized by corporate bonds
Commercial paper
$ 239,176,841
-
-
$ 245,520,074
2,361,250
1,997,239
$ 239,176,841
$ 249,878,563
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,
2017
December 31,
2016
$ 373,351
-
$ 140,094
10,976
$ 373,351
$ 151,070
$ 18,764
$ 62,441
The Company entered into derivative contracts to manage exposures due to fluctuations of foreign
exchange rates. These derivative contracts did not meet the criteria for hedge accounting. Therefore, the
Company did not apply hedge accounting treatment for these derivative contracts.
- 126 -
- 126 -
Outstanding forward exchange contracts consisted of the following:
December 31, 2017
Sell NT$/Buy EUR
Sell NT$/Buy JPY
Sell US$/Buy NT$
December 31, 2016
Sell NT$/Buy EUR
Sell NT$/Buy JPY
Sell US$/Buy EUR
Sell US$/Buy NT$
Maturity Date
Contract Amount
(In Thousands)
January 2018 to February 2018
February 2018
January 2018
NT$6,002,786/EUR169,000
NT$996,294/JPY3,800,000
US$1,643,000/NT$49,120,205
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
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. HELD-TO-MATURITY FINANCIAL ASSETS
Commercial paper
Corporate bonds
9. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets- current
Cash flow hedges
Forward exchange contracts
Financial liabilities- current
Cash flow hedges
Forward exchange contracts
- 127 -
- 127 -
December 31,
2016
$ 8,628,176
2,819,362
$ 11,447,538
December 31,
2017
$ 7,378
$ 15,562
The Company entered into forward exchange contracts to partially hedge foreign exchange rate risks
associated with certain highly probable forecast transactions, such as capital expenditures. These contracts
have maturities of 12 months or less.
Outstanding forward exchange contracts consisted of the following:
Maturity Date
Contract Amount
(In Thousands)
December 31, 2017
Sell NT$/Buy EUR
February 2018 to May 2018
NT$2,649,104/EUR75,000
10. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable
Allowance for doubtful receivables
December 31,
2017
December 31,
2016
$ 27,124,552
(469,125)
$ 40,492,727
(475,430)
Notes and accounts receivable, net
$ 26,655,427
$ 40,017,297
In principle, the payment term granted to customers is due 30 days from the invoice date or 30 days from
the end of the month of when the invoice is issued. The allowance for doubtful receivables is assessed by
reference to the collectability of receivables by performing the account aging analysis, historical experience
and current financial condition of customers.
Except for those impaired, for the rest of the notes and accounts receivable, the account aging analysis at
the end of the reporting period is summarized in the following table. There was no impairment concern
for the accounts receivable that were past due without recognizing a specific allowance for doubtful
receivables since there was no significant change in the credit quality of its customers after the assessment.
In addition, the Company’s subsidiary has obtained guarantee of NT$2,427,548 thousand against 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
Past due over 121 days
December 31,
2017
December 31,
2016
$ 19,632,314
$ 28,511,717
5,169,209
929,672
582,821
341,411
6,755,262
1,693,463
3,056,855
-
$ 26,655,427
$ 40,017,297
- 128 -
- 128 -
Movements of the allowance for doubtful receivables
Balance at January 1, 2017
Reversal/Write-off
Balance at December 31, 2017
Balance at January 1, 2016
Provision
Reversal/Write-off
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Total
$
$
$
-
-
-
$ 475,430
(6,305)
$ 475,430
(6,305)
$ 469,125
$ 469,125
8,393
-
(8,393)
$ 475,109
321
-
$ 483,502
321
(8,393)
Balance at December 31, 2016
$
-
$ 475,430
$ 475,430
11. INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
December 31,
2017
December 31,
2016
$ 9,596,837
52,166,234
6,566,716
1,967,658
$ 8,324,267
32,317,210
3,864,429
1,998,440
$ 70,297,445
$ 46,504,346
Reversal of write-down of inventories resulting from the increase in net realizable value (excluding
earthquake losses) and write-down of inventories to net realizable value (excluding earthquake losses) in
the amount of NT$878,346 thousand and NT$1,508,452 thousand, respectively, were included in the cost
of revenue for the years ended December 31, 2017 and 2016. Please refer to related earthquake losses in
Note 35.
12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
Investments accounted for using the equity method consisted of the following:
Subsidiaries
Associates
December 31,
2017
December 31,
2016
$ 446,148,086
17,838,278
$ 377,111,820
19,743,888
$ 463,986,364
$ 396,855,708
- 129 -
- 129 -
a. Investments in subsidiaries
Subsidiaries consisted of the following:
Subsidiaries
Principal Activities
Investment activities
Manufacturing, selling, testing
and computer-aided design of
integrated circuits and other
semiconductor devices
Place of
Incorporation
and Operation
Tortola, British
Virgin Islands
Shanghai, China
Carrying Amount
% of Ownership and Voting
Rights Held by the Company
December 31,
December 31,
December 31,
December 31,
2017
2016
$ 309,211,877
$ 265,634,729
51,060,885
42,618,308
2017
100%
100%
2016
100%
100%
TSMC Global Ltd.
(TSMC Global)
TSMC China
Company Limited
(TSMC China)
TSMC Partners, Ltd.
(TSMC Partners)
TSMC Nanjing
Company Limited
(TSMC Nanjing)
VisEra Technologies
Company Ltd.
(VisEra Tech)
TSMC Europe B.V.
(TSMC Europe)
VentureTech Alliance
Fund II, L.P.
(VTAF II)
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)
TSMC North America Selling and marketing of
Investing in companies involved
Tortola, British
49,684,287
51,749,910
100%
100%
Virgin Islands
Nanjing, China
26,493,740
6,331,094
100%
100%
Hsinchu, Taiwan
4,667,162
5,234,883
87%
87%
in the design, manufacture, and
other related business in the
semiconductor industry and
other investment activities
Manufacturing, selling, testing
and computer-aided design of
integrated circuits and other
semiconductor devices
Engaged in manufacturing
electronic spare parts and in
researching, developing,
designing, manufacturing,
selling, packaging and testing
of color filter
integrated circuits and other
semiconductor devices
Customer service and supporting
activities
Investing in new start-up
technology companies
Investing in new start-up
technology companies
San Jose,
California,
U.S.A.
Amsterdam, the
Netherlands
Cayman Islands
4,001,003
4,340,303
100%
100%
407,324
353,695
320,533
467,171
100%
98%
100%
98%
Cayman Islands
152,836
219,350
98%
98%
Customer service and supporting
Yokohama, Japan
129,446
132,999
activities
Customer service and supporting
Seoul, Korea
39,210
35,706
activities
Selling of solar related products
Hamburg,
(20,217 )
(6,328 )
and providing customer service
Investing in new start-up
technology companies
Germany
Delaware, U.S.A.
-
-
100%
100%
100%
-
100%
100%
100%
7%
TSMC Solar Europe GmbH is under liquidation procedures.
VTA Holdings completed the liquidation procedures in April 2017.
$ 446,148,086
$ 377,111,820
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%.
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 operating a 300mm wafer fab with the capacity of
20,000 12-inch wafers per month, and a design service center. TSMC Nanjing was established in May
2016. In both 2017 and 2016, the Company continually increased its investment in TSMC Nanjing for
the amount of NT$21,724,892 thousand and 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 2017 and 2016, the Company continually increased its investment
in TSMC Global for the amount of NT$60,683,010 thousand and NT$64,451,983 thousand,
respectively. This project was approved by the Investment Commission, MOEA.
- 130 -
- 130 -
b. Investments in associates
Associates consisted of the following:
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,
2017
2016
2017
2016
28%
Vanguard International
Manufacturing, selling,
Hsinchu, Taiwan
$
8,568,344
$
8,806,384
28%
Semiconductor
Corporation (VIS)
Systems on Silicon
Manufacturing
Company Pte Ltd.
(SSMC)
packaging, testing and
computer-aided design of
integrated circuits and other
semiconductor devices and the
manufacturing and design
service of masks
Manufacturing and selling of
Singapore
5,677,640
7,163,516
39%
39%
integrated circuits and other
semiconductor devices
Xintec Inc. (Xintec)
Wafer level chip size packaging
Taoyuan, Taiwan
2,292,100
2,599,807
41%
41%
and wafer level post
passivation interconnection
service
Global Unichip
Researching, developing,
Hsinchu, Taiwan
1,300,194
1,174,181
35%
35%
Corporation (GUC)
manufacturing, testing and
marketing of integrated circuits
$ 17,838,278
$ 19,743,888
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.
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%.
As of December 31, 2017, no investments in associates are individually material to the Company. As
of December 31, 2016, the summarized financial information in respect of each of the Company’s
material associates is set out below. The summarized financial information below represents amounts
shown in the associate’s financial statements prepared in accordance with the Accounting Standards
Used in Preparation of the Parent Company Only Financial Statements, which is 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
Total comprehensive income
Cash dividends received
- 131 -
- 131 -
December 31,
2016
$ 25,662,921
$ 9,501,442
$ 5,476,672
804,107
$
Year Ended
December 31,
2016
$ 25,828,634
$ 6,083,625
$ 5,520,645
$
5,592
$ 5,526,237
$ 1,206,981
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Carrying amount of the investment
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
$ 28,883,584
28%
8,179,830
626,554
$ 8,806,384
December 31,
2016
$ 14,585,150
$ 5,360,076
$ 1,746,602
286,340
$
Year Ended
December 31,
2016
$ 14,045,927
$ 4,921,735
$ 4,918,140
$ 4,918,140
$ 4,076,170
Reconciliation of the above summarized financial information to the carrying amount of the interest
in the associate was as follows:
Net assets
Percentage of ownership
The Company’s share of net assets of the associate
Goodwill
Other adjustments
Carrying amount of the investment
December 31,
2016
$ 17,912,284
39%
6,948,175
213,984
1,357
$ 7,163,516
- 132 -
- 132 -
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
Year Ended
December 31,
2016
$ 42,457
$ (17,777)
$ 24,680
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
13. PROPERTY, PLANT AND EQUIPMENT
December 31,
2017
December 31,
2016
$ 30,638,751
$ 11,905,404
$ 9,180,759
$ 26,089,360
$ 3,664,997
$ 3,622,227
Land
Buildings
Machinery and
Equipment
Office Equipment
Equipment under
Installation and
Construction in
Progress
Total
Cost
Balance at January 1, 2017
Additions (Deductions)
Disposals or retirements
$
3,212,000
-
-
$
281,936,412
75,491,595
(36,957 )
$ 1,960,457,480
458,690,837
(49,921,595 )
$
31,830,657
7,888,336
(315,776 )
$
384,197,526
(239,420,648 )
-
$ 2,661,634,075
302,650,120
(50,274,328 )
Balance at December 31, 2017
$
3,212,000
$
357,391,050
$ 2,369,226,722
$
39,403,217
$
144,776,878
$ 2,914,009,867
Accumulated depreciation and
impairment
Balance at January 1, 2017
Additions
Disposals or retirements
$
Balance at December 31, 2017
$
-
-
-
-
$
156,854,513
19,798,087
(28,816 )
$ 1,504,061,808
226,251,816
(34,831,423 )
$
$
21,316,417
4,547,232
(315,737 )
$
176,623,784
$ 1,695,482,201
$
25,547,912
$
-
-
-
-
$ 1,682,232,738
250,597,135
(35,175,976 )
$ 1,897,653,897
Carrying amounts at December 31, 2017
$
3,212,000
$
180,767,266
$
673,744,521
$
13,855,305
$
144,776,878
$ 1,016,355,970
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 and
impairment
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
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.
- 133 -
- 133 -
14. INTANGIBLE ASSETS
Cost
Goodwill
Technology
License Fees
Software and
System Design
Costs
Patent and
Others
Total
Balance at January 1, 2017
Additions
$
1,567,756
-
$
9,490,320
897,855
$ 22,063,589
2,900,120
$
5,241,203
349,189
$ 38,362,868
4,147,164
Balance at December 31, 2017
$
1,567,756
$ 10,388,175
$ 24,963,709
$
5,590,392
$ 42,510,032
Accumulated amortization and
impairment
Balance at January 1, 2017
Additions
Balance at December 31, 2017
Carrying amounts at December 31, 2017
Cost
Balance at January 1, 2016
Additions
Retirements
$
$
$
$
-
-
-
$
6,091,513
1,548,262
$ 17,991,500
2,290,957
$
4,231,864
485,809
$ 28,314,877
4,325,028
$
7,639,775
$ 20,282,457
$
4,717,673
$ 32,639,905
1,567,756
$
2,748,400
$
4,681,252
$
872,719
$
9,870,127
$
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 and
impairment
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
The Company’s goodwill has been tested for impairment at the end of the annual reporting period and the
recoverable amount is determined based on the value in use. The value in use was calculated based on the
cash flow forecast from the financial budgets covering the future five-year period, and the Company used
annual discount rates of 8.5% and 8.4% in its test of impairment as of December 31, 2017 and 2016,
respectively, to reflect the relevant specific risk in the cash-generating unit.
For the years ended December 31, 2017 and 2016, the Company did not recognize any impairment loss on
goodwill.
15. OTHER ASSETS
Tax receivable
Prepaid expenses
Others
December 31,
2017
December 31,
2016
$ 1,992,258
492,247
287
$ 2,182,159
821,648
855
$ 2,484,792
$ 3,004,662
- 134 -
- 134 -
16. SHORT-TERM LOANS
Unsecured loans
Amount
Original loan content
US$ (in thousands)
Annual interest rate
Maturity date
17. PROVISIONS
December 31,
2017
December 31,
2016
$ 63,766,850
$ 57,958,200
$ 2,150,000
1.54%-1.82%
Due by February
2018
$ 1,800,000
0.87%-1.07%
Due by January
2017
The Company’s current provisions were provisions for sales returns and allowances.
Year ended December 31, 2017
Balance, beginning of year
Provision
Payment
Balance, end of year
Year ended December 31, 2016
Balance, beginning of year
Provision
Payment
Balance, end of year
Sales Returns
and Allowances
$ 16,991,612
44,244,876
(48,061,663)
$ 13,174,825
$ 9,011,863
35,699,912
(27,720,163)
$ 16,991,612
Provisions for sales returns and allowances are estimated based on historical experience and the
consideration of varying contractual terms, and are recognized as a reduction of revenue in the same year of
the related product sales.
18. BONDS PAYABLE
Domestic unsecured bonds
Less: Current portion
December 31,
2017
December 31,
2016
$ 116,100,000
(24,300,000)
$ 154,200,000
(38,100,000)
$ 91,800,000
$ 116,100,000
- 135 -
- 135 -
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)
- 136 -
- 136 -
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)
19. 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$1,905,444 thousand and NT$1,735,492 thousand for the years ended December 31, 2017 and 2016,
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.
- 137 -
- 137 -
Amounts recognized 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(gain) arising from changes in financial
assumptions
Actuarial loss arising from changes in demographic
assumptions
Components of defined benefit costs recognized in other
comprehensive income
Years Ended December 31
2017
2016
$
$
145,026
126,525
271,551
132,786
139,355
272,141
29,290
483,846
45,721
38,195
(258,455)
694,632
-
278,672
254,681
1,057,220
Total
$
526,232
$ 1,329,361
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
2017
2016
$ 175,357
75,340
16,669
4,185
$ 176,977
73,395
17,367
4,402
$ 271,551
$ 272,141
The amounts arising from the defined benefit obligation of the Company were as follows:
December 31,
2017
December 31,
2016
Present value of defined benefit obligation
Fair value of plan assets
$ 12,774,593
(3,923,889)
$ 12,480,480
(3,929,072)
Net defined benefit liability
$ 8,850,704
$ 8,551,408
- 138 -
- 138 -
Movements in the present value of the defined benefit obligation were as follows:
Balance, beginning of year
Current service cost
Interest expense
Remeasurement losses (gains):
Actuarial loss arising from experience adjustments
Actuarial loss (gain) arising from changes in financial
assumptions
Actuarial loss arising from changes in demographic
assumptions
Benefits paid from plan assets
Years Ended December 31
2017
2016
$ 12,480,480
145,026
185,561
$ 11,318,174
132,786
212,909
483,846
38,195
(258,455)
694,632
-
(261,865)
278,672
(194,888)
Balance, end of year
$ 12,774,593
$ 12,480,480
Movements in the fair value of the plan assets were as follows:
Balance, beginning of year
Interest income
Remeasurement losses:
Years Ended December 31
2017
2016
$ 3,929,072
59,036
$ 3,870,148
73,554
Return on plan assets (excluding amounts included in net
interest expense)
Contributions from employer
Benefits paid from plan assets
(29,290)
226,936
(261,865)
(45,721)
225,979
(194,888)
Balance, end of year
$ 3,923,889
$ 3,929,072
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,
2017
December 31,
2016
$
707,477
1,993,336
1,223,076
$
818,426
1,852,950
1,257,696
$ 3,923,889
$ 3,929,072
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,
2017
December 31,
2016
1.65%
3.00%
1.50%
3.00%
Discount rate
Future salary increase rate
- 139 -
- 139 -
Through the defined benefit plans under the R.O.C. Labor Standards Law, the Company is exposed to
the following risks:
1) Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc.
The investment is conducted at the discretion of the government’s designated authorities or under
the mandated management. However, under the R.O.C. Labor Standards Law, the rate of return
on assets shall not be less than the average interest rate on a two-year time deposit published by the
local banks and the government is responsible for any shortfall in the event that the rate of return is
less than the required rate of return.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of the
defined benefit obligation; however, this will be partially offset by an increase in the return on the
debt investments of the plan assets.
Assuming a hypothetical decrease in interest rate at the end of the reporting period contributed to a
decrease of 0.5% in the discount rate and all other assumptions were held constant, the present
value of the defined benefit obligation would increase by NT$890,116 thousand and NT$970,282
thousand as of December 31, 2017 and 2016, respectively.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan participants will
increase the present value of the defined benefit obligation.
Assuming the expected salary rate increases by 0.5% at the end of the reporting period and all other
assumptions were held constant, the present value of the defined benefit obligation would increase
by NT$873,801 thousand and NT$951,424 thousand as of December 31, 2017 and 2016,
respectively.
The sensitivity analysis presented above may not be representative of the actual change in the defined
benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one
another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit
obligation has been calculated using the projected unit credit method at the end of the reporting period,
which is the same as that applied in calculating the defined benefit obligation liability.
The Company expects to make contributions of NT$233,745 thousand to the defined benefit plans in
the next year starting from December 31, 2017. The weighted average duration of the defined benefit
obligation is 13 years.
20. GUARANTEE DEPOSITS
Capacity guarantee
Others
Current portion (classified under accrued expenses and other current
liabilities)
Noncurrent portion
- 140 -
- 140 -
December 31,
2017
December 31,
2016
$ 13,346,550
282,572
$ 20,929,350
176,992
$ 13,629,122
$ 21,106,342
$ 6,046,643
7,582,479
$ 6,439,800
14,666,542
$ 13,629,122
$ 21,106,342
Some of guarantee deposits were refunded to customers by offsetting related accounts receivable.
21. EQUITY
a. Capital stock
Authorized shares (in thousands)
Authorized capital
Issued and paid shares (in thousands)
Issued capital
December 31,
2017
December 31,
2016
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, 2017, 1,068,165 thousand ADSs of the Company were traded on the NYSE. The
number of common shares represented by the ADSs was 5,340,823 thousand shares (one ADS
represents five common shares).
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,
2017
December 31,
2016
$ 24,184,939
22,804,510
8,892,847
118,792
289,240
19,208
$ 24,184,939
22,804,510
8,892,847
107,798
282,155
55
$ 56,309,536
$ 56,272,304
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 and dividend of a claim extinguished by a prescription may be used to offset a deficit;
however, when generated from issuance of restricted shares for employees, such capital surplus may not
be used for any purpose.
c. Retained earnings and dividend policy
In accordance with the amendments to the R.O.C. Company Act in May 2015, the recipients of
dividends and bonuses are limited to shareholders and do not include employees. The amendments to
the Company’s Articles of Incorporation on earnings 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 29.
- 141 -
- 141 -
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 earnings shall be made
preferably by way of cash dividend. Distribution of earnings may also be made by way of stock
dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.
Any appropriations of the profits are subject to shareholders’ approval in the following year.
The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in
capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for
the portion in excess of 25% of the paid-in capital if the Company incurs no loss.
Pursuant to existing regulations, the Company is required to set aside additional special capital reserve
equivalent to the net debit balance of the other components of stockholders’ equity, such as the
accumulated balance of foreign currency translation reserve, unrealized valuation gain/loss from
available-for-sale financial assets, gain/loss from changes in fair value of hedging instruments in cash
flow hedges, etc. For the subsequent decrease in the deduction amount to stockholders’ equity, any
special reserve appropriated may be reversed to the extent that the net debit balance reverses.
The appropriations of 2016 and 2015 earnings have been approved by the Company’s shareholders in
its meetings held on June 8, 2017 and June 7, 2016, respectively. The appropriations and dividends
per share were as follows:
Appropriation of Earnings
For Fiscal
For Fiscal
Year 2015
Year 2016
Dividends Per Share
(NT$)
For Fiscal For Fiscal
Year 2016 Year 2015
Legal capital reserve
Cash dividends to shareholders
$ 33,424,718
181,512,663
$ 30,657,384
155,582,283
$7
$6
$ 214,937,381
$ 186,239,667
The Company’s appropriations of earnings for 2017 had been approved in the meeting of the Board of
Directors held on February 13, 2018. The appropriations and dividends per share were as follows:
Legal capital reserve
Special capital reserve
Cash dividends to shareholders
- 142 -
- 142 -
Appropriation
of Earnings
For Fiscal Year
2017
Dividends Per
Share (NT$)
For Fiscal Year
2017
$ 34,311,148
26,907,527
207,443,044
$ 268,661,719
$
8
The appropriations of earnings for 2017 are to be presented for approval in the Company’s
shareholders’ meeting to be held on June 5, 2018 (expected).
Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident
shareholders are allowed a tax credit for their proportionate share of the income tax paid by the
Company on earnings generated since January 1, 1998.
d. Others
Changes in others were as follows:
Year Ended December 31, 2017
Foreign
Currency
Translation
Reserve
Unrealized
Gain/Loss from
Available-for-
sale Financial
Assets
Cash Flow
Hedges
Reserve
Unearned
Stock-Based
Employee
Compensation
Total
Balance, beginning of year
Exchange differences arising on translation of
$ 1,661,237
$
2,641
$
105 $
- $ 1,663,983
foreign operations
(28,270,770 )
-
-
(28,270,770 )
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
Gain/(loss) arising on changes in the fair
value of hedging instruments
Transferred to initial carrying amount of
hedged items
Share of other comprehensive income (loss)
of associates
Share of unearned stock-based employee
compensation of associates
Income tax effect
-
-
-
(310,002 )
(115,690 )
-
-
-
-
-
-
99,534
(94,851 )
(88,147 )
211,951
-
-
-
-
(2,974 )
-
(562 )
(10,290 )
-
-
-
-
-
-
(310,002 )
(115,690 )
99,534
(94,851 )
123,804
(10,290 )
(3,536 )
Balance, end of year
$ (26,697,680 ) $
(214,074 ) $
4,226
$
(10,290 ) $ 26,917,818
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
(9,439,776)
-
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 (loss) of subsidiaries and
associates
Other comprehensive loss
reclassified to profit or loss
upon disposal of associates
Income tax effect
-
-
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
- 143 -
- 143 -
The aforementioned other equity includes the changes in other equities of the Company and the
Company’s share of its subsidiaries and associates.
22. NET REVENUE
Net revenue from sale of goods
Net revenue from royalties
23. OTHER OPERATING INCOME AND EXPENSES, NET
Gain (loss) on disposal or retirement of property, plant and
equipment, net
Others
24. OTHER INCOME
Interest income
Bank deposits
Held-to-maturity financial assets
Dividend income
25. FINANCE COSTS
Interest expense
Corporate bonds
Bank loans
Related parties
- 144 -
- 144 -
Years Ended December 31
2017
2016
$ 968,611,860
524,249
$ 935,864,491
522,800
$ 969,136,109
$ 936,387,291
Years Ended December 31
2017
2016
$ (1,008,989)
(252,676)
$
100,503
(16,538)
$ (1,261,665)
$
83,965
Years Ended December 31
2017
2016
$ 1,522,579
32,213
1,554,792
141,803
$ 1,634,873
48,277
1,683,150
133,653
$ 1,696,595
$ 1,816,803
Years Ended December 31
2017
2016
$ 1,967,750
766,001
15,889
$ 2,353,251
289,942
-
$ 2,749,640
$ 2,643,193
26. OTHER GAINS AND LOSSES, NET
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
Loss on disposal of investments accounted for using equity method,
net
Impairment loss of financial assets
Financial assets carried at cost
Other losses
27. 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
2017
2016
$
115,690
245,483
$
101,411
125,282
1,252,759
-
899,991
(76,691)
-
(296,065)
(6,137)
(15,556)
(4,537)
(15,291)
$ 1,592,239
$
734,100
Years Ended December 31
2017
2016
$ 55,187,468
(938,292)
150,168
54,399,344
$ 53,577,418
(1,039,175)
168,040
52,706,283
Deferred income tax benefit
The origination and reversal of temporary differences
(4,194,644)
(1,764,503)
Income tax expense recognized in profit or loss
$ 50,204,700
$ 50,941,780
A reconciliation of income before income tax and income tax expense recognized in profit or loss was
as follows:
Years Ended December 31
2017
2016
Income before tax
$ 393,316,176
$ 385,188,960
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 on unappropriated earnings
$ 66,863,750
$ 65,482,123
(1,438,813)
(16,467,720)
11,835,948
121,152
(19,075,801)
11,957,213
(Continued)
- 145 -
- 145 -
The origination and reversal of temporary differences
Income tax credits
Income tax adjustments on prior years
Other income tax adjustments
Years Ended December 31
2017
2016
$
(4,194,644) $
(5,605,697)
50,992,824
(938,292)
150,168
(1,764,503)
(4,907,269)
51,812,915
(1,039,175)
168,040
Income tax expense recognized in profit or loss
$ 50,204,700
$ 50,941,780
(Concluded)
In January 2018, it was announced that the Income Tax Law in the R.O.C. was amended and, starting
from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the tax rate
applicable to unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and
deferred tax liabilities recognized as of December 31, 2017 are expected to be adjusted and would
increase by NT$1,464,963 thousand and NT$15,096 thousand, respectively, in 2018.
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
Related to gain/loss on cash flow hedges
Years Ended December 31
2017
2016
$ 30,562
$ 126,867
(2,974)
(562)
(61,176)
-
$ 27,026
$ 65,691
c. Deferred income tax balance
The analysis of deferred income tax assets and liabilities 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
Unrealized exchange gains
Available-for-sale financial assets
Cash flow hedges
- 146 -
- 146 -
December 31,
2017
December 31,
2016
$ 7,668,535
1,580,979
975,324
604,635
-
$ 3,284,735
1,428,787
939,543
698,858
94,858
$ 10,829,473
$ 6,446,781
$
(169,480) $
(95,421)
(37,304)
(48,736)
(92,447)
-
$
(302,205) $
(141,183)
Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehensive
Income
Balance,
End of Year
$ 3,284,735
$ 4,383,800
$
-
$ 7,668,535
Net defined benefit liability
Unrealized loss on inventories
Others
1,428,787
939,543
698,858
94,858
152,192
5,219
(94,223)
(94,858)
-
30,562
-
-
1,580,979
975,324
604,635
-
$ 6,446,781
$ 4,352,130
$
30,562
$ 10,829,473
$
(48,736)
$
(120,744)
$
-
$
(169,480)
(92,447)
-
-
(36,742)
(2,974)
(562)
(95,421)
(37,304)
$
(141,183)
$
(157,486)
$
(3,536)
$
(302,205)
$ 1,874,632
$ 1,410,103
$
-
$ 3,284,735
Year Ended December 31, 2017
Deferred income tax assets
Temporary differences
Depreciation
Provision for sales returns and
allowance
Deferred income tax liabilities
Temporary differences
Unrealized exchange gains
Available-for-sale financial
assets
Cash flow hedges
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)
d. The deductible temporary differences for which no deferred income tax assets have been recognized
As of December 31, 2017 and 2016, the aggregate deductible temporary differences for which no
deferred income tax assets have been recognized amounted to NT$26,536,307 thousand and
NT$1,919,784 thousand, respectively.
- 147 -
- 147 -
e. Unused tax-exemption information
As of December 31, 2017, 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, 2017 and 2016, the aggregate taxable temporary differences associated with
investments
liabilities amounted to
NT$95,003,344 thousand and NT$83,181,401 thousand, respectively.
in subsidiaries not recognized as deferred
income
tax
g. Integrated income tax information
Balance of the Imputation
Credit Account
December 31,
2017
December 31,
2016
$ 114,264,283
$ 82,072,562
The estimated and actual creditable ratio for distribution of the Company’s earnings of 2017 and 2016
were 14.69% and 13.90%, respectively; while the creditable ratio for individual shareholders residing in
the R.O.C. is half of the original creditable ratio according to the R.O.C. Income Tax Law. However,
effective from January 1, 2018, integrated income tax system were abrogated and imputation credit
account is no longer applicable based on amended R.O.C. Income Tax Law in January 2018.
All 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 2014. All investment
tax credit adjustments assessed by the tax authorities have been recognized accordingly.
28. EARNINGS PER SHARE
Basic EPS
Diluted EPS
Years Ended December 31
2017
$13.23
$13.23
2016
$12.89
$12.89
- 148 -
- 148 -
EPS is computed as follows:
Year ended December 31, 2017
Basic/Diluted EPS
Number of
Shares
(Denominator)
(In Thousands)
Amounts
(Numerator)
EPS (NT$)
Net income available to common shareholders $ 343,111,476
25,930,380
$13.23
Year ended December 31, 2016
Basic/Diluted EPS
Net income available to common shareholders $ 334,247,180
25,930,380
$12.89
29. ADDITIONAL INFORMATION OF EXPENSES BY NATURE
Years Ended December 31
2017
2016
a. Depreciation of property, plant and equipment
Recognized in cost of revenue
Recognized in operating expenses
Recognized in other operating income and expenses
$ 231,042,615
19,490,010
64,510
$ 197,595,313
16,357,124
24,887
b. Amortization of intangible assets
Recognized in cost of revenue
Recognized in operating expenses
$ 250,597,135
$ 213,977,324
$
2,119,899
2,205,129
$
2,014,814
1,709,252
$
4,325,028
$
3,724,066
c. Research and development expenses
$ 79,887,723
$ 70,366,179
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
- 149 -
- 149 -
$
$
1,905,444
271,551
2,176,995
90,611,476
1,735,492
272,141
2,007,633
86,133,216
$ 92,788,471
$ 88,140,849
$ 55,902,877
36,885,594
$ 53,109,947
35,030,902
$ 92,788,471
$ 88,140,849
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.
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$23,019,082 thousand and NT$22,418,339 thousand for the years ended December 31,
2017 and 2016, respectively; compensation to directors was expensed based on estimated amount payable.
If there is a change in the proposed amounts after the annual parent company only financial statements are
authorized for issue, the differences are recorded as a change in accounting estimate.
The Company’s profit sharing bonus to employees and compensation to directors in the amounts of
NT$23,019,082 thousand and NT$368,919 thousand in cash for 2017, respectively, and profit sharing
bonus to employees and compensation to directors in the amounts of NT$22,418,339 thousand and
NT$376,432 thousand in cash for 2016, respectively, had been approved by the Board of Directors of the
Company held on February 13, 2018 and February 14, 2017, respectively. There is no significant
difference between the aforementioned approved amounts and the amounts charged against earnings of
2017 and 2016, respectively.
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 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.
30. 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.
31. FINANCIAL INSTRUMENTS
a. Categories of financial instruments
Financial assets
FVTPL
Available-for-sale financial assets (Note 1)
Held-to-maturity financial assets
Hedging derivative financial assets
Loans and receivables (Note 2)
- 150 -
- 150 -
December 31,
2017
December 31,
2016
$
373,351
2,808,606
-
7,378
362,375,885
$
151,070
3,279,220
11,447,538
-
380,199,491
$ 365,565,220
$ 395,077,319
(Continued)
Financial liabilities
FVTPL
Hedging derivative financial liabilities
Amortized cost (Note 3)
December 31,
2017
December 31,
2016
$
18,764
15,562
294,856,247
$
62,441
-
344,572,867
$ 294,890,573
$ 344,635,308
(Concluded)
Note 1: Including financial assets carried at cost.
Note 2: Including cash and cash equivalents, notes and accounts receivable (including related parties),
other receivables and refundable deposits.
Note 3: Including short-term loans, accounts payable (including related parties), payables to
contractors and equipment suppliers, accrued expenses and other current liabilities, bonds
payable, and guarantee deposits.
b. Financial risk management objectives
The Company seeks to ensure sufficient cost-efficient funding readily available when needed. The
Company manages its exposure to foreign currency risk, interest rate risk, equity price risk, credit risk
and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties
may have on its financial performance.
The plans for material treasury activities are reviewed by Audit Committees and/or Board of Directors
in accordance with procedures required by relevant regulations or internal controls. During the
implementation of such plans, Corporate Treasury function must comply with certain treasury
procedures that provide guiding principles for overall financial risk management and segregation of
duties.
c. Market risk
The Company is exposed to the financial market risks, primarily changes in foreign currency exchange
rates, interest rates and equity investment prices.
Foreign currency risk
Most of the Company’s operating activities are denominated in foreign currencies. Consequently, the
Company is exposed to foreign currency risk. To protect against reductions in value and the volatility
of future cash flows caused by changes in foreign exchange rates, the Company utilizes derivative
financial instruments, such as forward exchange contracts and cross currency swaps, and non-derivative
financial instruments, such as foreign currency-denominated debt, to partially hedge its currency
exposure.
The Company’s sensitivity analysis of foreign currency risk mainly focuses on the foreign currency
monetary items and the derivatives financial instruments at the end of the reporting period. Assuming
an unfavorable 10% movement in the levels of foreign exchanges relative to the New Taiwan dollar, the
net income for the years ended December 31, 2017 and 2016 would have decreased by NT$849,248
thousand and NT$116,345 thousand, respectively, and the other comprehensive income for the year
ended December 31, 2017 would have decreased by NT$265,875 thousand.
- 151 -
- 151 -
Interest rate risk
The Company is exposed to interest rate risk primarily related to its outstanding debt at fixed interest
rates and investments in fixed income securities. All of the Company’s bonds payable have fixed
interest rates and are measured at amortized cost. As such, changes in interest rates would not affect
the future cash flows.
The Company classified its investments in 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 prices of the equity investments at the end of the reporting
period for the years ended December 31, 2017 and 2016, the other comprehensive income would have
decreased by NT$120,835 thousand and NT$141,570 thousand, respectively.
d. Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
financial loss to the Company. The Company is exposed to credit risk from operating activities,
primarily trade receivables, and from investing activities, primarily deposits, fixed-income investments
and other financial instruments with banks. Credit risk is managed separately for business related and
financial related exposures. As of the end of the reporting period, the Company’s maximum credit
risk exposure is mainly from the carrying amount of financial assets.
Business related credit risk
The Company has considerable trade receivables outstanding with its customers worldwide. A
substantial majority of the Company’s outstanding trade receivables are not covered by collateral or
credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on
trade receivables, there can be no assurance such procedures will effectively limit its credit risk and
avoid losses. This risk is heightened during periods when economic conditions worsen.
As of December 31, 2017 and 2016, the Company’s ten largest customers both accounted for 74% of
accounts receivable. The Company believes the concentration of credit risk is not material for the
remaining accounts receivable.
Financial credit risk
The Company regularly monitors and reviews the concentration limit applied to counterparties and
adjusts the concentration limit according to market conditions and the credit standing of the
counterparties. The Company mitigates its exposure by limiting the exposure to any individual
counterparty and by selecting counterparties with investment-grade credit ratings.
e. Liquidity risk management
The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its
business requirements associated with existing operations over the next 12 months. The Company
liquidity risk by maintaining adequate cash and cash equivalent, short-term
manages
available-for-sale financial assets and short-term held-to-maturity financial assets.
its
The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments, including principal and interest.
- 152 -
- 152 -
Less Than
1 Year
2-3 Years
4-5 Years
5+ Years
Total
December 31, 2017
Non-derivative financial liabilities
Short-term loans
Accounts payable (including related
$ 63,801,977
$
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)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
30,434,887
50,363,976
20,561,411
25,791,842
$
-
-
-
$
-
-
-
-
-
-
$ 63,801,977
30,434,887
50,363,976
-
68,378,787
-
7,777,715
-
18,203,601
20,561,411
120,151,945
6,046,643
197,000,736
7,498,840
75,877,627
83,639
7,861,354
-
18,203,601
13,629,122
298,943,318
48,169,933
(48,530,989 )
(361,056 )
-
-
-
-
-
-
-
-
-
48,169,933
(48,530,989 )
(361,056 )
$ 196,639,680
$ 75,877,627
$
7,861,354
$ 18,203,601
$ 298,582,262
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)
Derivative financial instruments
Forward exchange contracts
Outflows
Inflows
Cross currency swap contracts
Outflows
Inflows
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
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
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;
- 153 -
- 153 -
(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, 2017
Financial assets at FVTPL
Held for trading
Forward exchange contracts
$
-
$
373,351
$
Available-for-sale financial assets
Publicly traded stocks
$ 2,393,555
$
-
$
Hedging derivative financial
assets
Cash flow hedges
Forward exchange contracts
$
Financial liabilities at FVTPL
Held for trading
Forward exchange contracts
$
Hedging derivative financial
liabilities
Cash flow hedges
-
-
$
7,378
$
$
18,764
$
-
-
-
-
$
373,351
$ 2,393,555
$
7,378
$
18,764
Forward exchange contracts
$
-
$
15,562
$
-
$
15,562
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
$
-
-
-
-
-
$
140,094
10,976
$
151,070
$ 2,843,952
$
62,441
There were no transfers between Level 1 and Level 2 for the years ended December 31, 2017 and
2016, respectively.
- 154 -
- 154 -
There were no purchases and disposals for assets classified as Level 3 for the years ended
December 31, 2017 and 2016, respectively.
Valuation techniques and assumptions used in Level 2 fair value measurement
The fair values of financial assets and financial liabilities are determined as follows:
(cid:121) Forward exchange contracts and cross currency swap contracts are measured using forward
exchange rates and the discounted curves that are derived from quoted market prices.
3) Fair value of financial instruments that are not measured at fair value
Except as detailed in the following table, the Company considers that the carrying amounts of
financial instruments in the parent company only financial statements that are not measured at fair
value approximate their fair values.
December 31, 2017
December 31, 2016
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Financial assets
Held-to-maturity financial
assets
Commercial paper
Corporate bonds
Financial liabilities
$
$
-
-
-
-
$ 8,628,176
2,819,362
$ 8,630,769
2,821,660
Measured at amortized cost
Bonds payable
116,100,000
118,020,699
154,200,000
155,930,125
Fair value hierarchy
The table below sets out the fair value hierarchy for the Company’s assets and liabilities which are
not required to measure at fair value:
Level 1
Level 2
Level 3
Total
December 31, 2017
Financial liabilities
Measured at amortized cost
Bonds payable
Financial assets
Held-to-maturity securities
Commercial paper
Corporate bonds
Financial liabilities
Measured at amortized cost
Bonds payable
$
-
$ 118,020,699
$
-
$ 118,020,699
Level 1
Level 2
Level 3
Total
December 31, 2016
$
$
-
-
-
$
8,630,769
2,821,660
$
$
11,452,429
$
-
-
-
$
8,630,769
2,821,660
$
11,452,429
$
-
$ 155,930,125
$
-
$ 155,930,125
- 155 -
- 155 -
In the fourth quarter of 2017, the Company reassessed the bid-ask spread and the transaction
volume of the fixed income securities in determining whether there were quoted prices in active
markets. Accordingly, the Company classified the fair value hierarchy levels of corporate bonds
and bonds payable as level 2. To have consistent comparative basis, the Company had revised
prior year classification from level 1 to level 2.
Valuation techniques and assumptions used in Level 2 fair value measurement
The fair values of corporate bonds are determined by quoted market prices.
The fair value of commercial paper is determined by the present value of future cash flows based on
the discounted curves that are derived from the quoted market prices.
The fair value of the Company’s bonds payable is determined by quoted market prices.
32. 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. Related party name and categories
Related Party Name
Related Party Categories
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
TSMC Global
TSMC China
TSMC Nanjing
VisEra Tech
TSMC North America
TSMC Europe
TSMC Japan
TSMC Korea
TSMC Solar Europe GmbH
TSMC Design Technology Canada Inc. (TSMC Canada) Indirect Subsidiaries
Indirect Subsidiaries
TSMC Technology, Inc. (TSMC Technology)
Indirect Subsidiaries
WaferTech, LLC (WaferTech)
Associates
GUC
Associates
VIS
Associates
SSMC
Associates
Xintec
Other related parties
TSMC Education and Culture Foundation
Other related parties
TSMC Charity Foundation
- 156 -
- 156 -
b. Net revenue
Item
Related Party Name/Categories
Years Ended December 31
2017
2016
Net revenue from sale of goods TSMC North America
Associates
Other subsidiaries
Other related parties
Item
Related Party Categories
Net revenue from royalties
Associates
Subsidiaries
c. Purchases
Related Party Categories
Subsidiaries
Associates
d. Receivables from related parties
$ 650,351,537
6,941,089
487,112
133
$ 633,917,888
5,084,397
5,687
-
$ 657,779,871
$ 639,007,972
$ 482,537
264
$ 516,749
355
$ 482,801
$ 517,104
Years Ended December 31
2017
2016
$ 30,843,591
9,903,917
$ 27,788,470
10,107,719
$ 40,747,508
$ 37,896,189
December 31,
2017
December 31,
2016
Item
Related Party Name/Categories
Receivables from related
parties
TSMC North America
Associates
Other subsidiaries
$ 91,329,510
777,730
34,597
$ 85,874,678
931,787
39,105
Other receivables from related TSMC Nanjing
parties
TSMC North America
Associates
Other subsidiaries
$ 92,141,837
$ 86,845,570
$
$ 1,754,484
1,246,101
127,459
15,828
-
800,657
146,621
1,522
$ 3,143,872
$
948,800
- 157 -
- 157 -
e. Payables to related parties
Item
Related Party Name/Categories
December 31,
2017
December 31,
2016
Payables to related parties
TSMC China
WaferTech
Xintec
VIS
SSMC
Other subsidiaries
Other related parties
Other associates
f. Disposal of property, plant and equipment
Related Party Name/Categories
TSMC Nanjing
Other subsidiaries
Associates
Related Party Name/Categories
TSMC Nanjing
Other subsidiaries
Associates
Related Party Name/Categories
TSMC Nanjing
Other subsidiaries
- 158 -
- 158 -
$ 1,440,141
1,328,094
817,876
409,950
406,959
405,127
12,000
9,517
$ 1,775,774
1,303,795
123,586
587,407
505,655
499,679
-
44,105
$ 4,829,664
$ 4,840,001
Proceeds
Years Ended December 31
2017
2016
$ 14,336,846
120,790
1,355
$
-
10,622
-
$ 14,458,991
$
10,622
Gains
Years Ended December 31
2017
2016
$ 81,272
50,361
1,355
$
-
49,108
-
$ 132,988
$ 49,108
Deferred Gains from Disposal of
Property, Plant and Equipment
December 31,
2016
December 31,
2017
$ 574,633
192,554
-
$
144,689
$ 767,187
$ 144,689
g. Others
Years Ended December 31
2017
2016
Item
Related Party Name/Categories
Manufacturing expenses
Associates
Subsidiaries
Research and development
expenses
Subsidiaries
Associates
$ 2,098,141
9,318
$ 1,376,763
15,954
$ 2,107,459
$ 1,392,717
$ 2,205,906
69,841
$ 2,179,813
161,671
$ 2,275,747
$ 2,341,484
Marketing expenses -
commission
TSMC Europe
Other subsidiaries
$
437,561
370,243
$
451,801
421,316
General and administrative
expenses
Other related parties
Subsidiaries
$
101,500
3,910
$
60,000
-
$
807,804
$
873,117
$
105,410
$
60,000
The sales prices and payment terms to related parties were not significantly different from those of sales
to third parties. For other related party transactions, price and terms were determined in accordance
with mutual agreements.
The Company leased factory and office from associates. The lease terms and prices were both
determined in accordance with mutual agreements. The rental expenses were paid to associates
monthly; the related expenses were both classified under manufacturing expenses.
The Company deferred the disposal gain/loss derived from sales of property, plant and equipment to
related parties 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,
2017 and 2016 were as follows:
Short-term employee benefits
Post-employment benefits
Years Ended December 31
2017
2016
$ 2,071,171
3,375
$ 1,926,654
3,617
$ 2,074,546
$ 1,930,271
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.
- 159 -
- 159 -
33. SIGNIFICANT OPERATING LEASE ARRANGEMENTS
The Company’s major significant operating leases are arrangements on several parcels of land and
machinery and equipment.
The Company expensed the lease payments as follows:
Minimum lease payments
$ 1,748,190
$
815,178
Future minimum lease payments under the above non-cancellable operating leases are as follows:
Years Ended December 31
2017
2016
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
December 31,
2017
December 31,
2016
$ 2,622,896
4,340,428
7,849,690
$
777,233
2,683,437
5,300,624
$ 14,813,014
$ 8,761,294
34. 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, 2017, the R.O.C. Government did not invoke such right.
b. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30,
1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in
Singapore. 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, 2017.
- 160 -
- 160 -
c. 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 September 30, 2017, the amount has been fully paid.
d. In May 2017, Mr. Uri Cohen filed a complaint in the U.S. District Court for the Eastern District of
Texas alleging that the Company, TSMC North America and other companies infringe four U.S.
patents. In response, the Company and TSMC North America filed a declaratory judgment complaint
against Cohen in the U.S. District Court for the Northern District of California seeking a judgment
declaring that there is no infringement of the same four patents. The Company also filed a motion to
transfer Cohen’s lawsuit in the U.S. District Court for the Eastern District of Texas to the U.S. District
Court for the Northern District of California. Cohen agreed to the transfer, and as of December 2017,
the cases are consolidated and pending in the U.S. District Court for the Northern District of California.
The outcome cannot be determined and the Company cannot make a reliable estimate of the contingent
liability at this time.
e. On September 28, 2017, the Company was contacted by the European Commission (“Commission”) for
information and documents concerning alleged anti-competitive practices of the Company in relation to
semiconductor sales. This proceeding is still in its preliminary stage, and it is premature to predict
how the case will proceed, the outcome of the proceeding or its impact. The Company will continue
to cooperate fully with the Commission.
f. The Company entered into long-term purchase agreements of silicon wafer with multiple suppliers.
The relative minimum purchase quantity and price are specified in the agreements.
g. As of December 31, 2017, the Company provided financial guarantees of NT$34,107,850 thousand to
its subsidiary, TSMC Global, in respect of the issuance of unsecured corporate bonds.
h. As of December 31, 2017, the Company provided endorsement guarantees of NT$2,468,023 thousand
to its subsidiary, TSMC North America, in respect of providing endorsement guarantees for office
leasing contract.
35. SIGNIFICANT LOSS FROM DISASTER
On February 6, 2016, an earthquake struck Taiwan. The resulting damage was mostly to inventories and
equipment. The Company recognized earthquake losses of NT$2,492,138 thousand, net of insurance
claim, for the year ended December 31, 2016. Such losses were primarily included in cost of revenue.
The related insurance claim was finalized in the first quarter of 2017, and the accumulated earthquake
losses were NT$2,386,824 thousand, net of insurance claim. The Company recognized a reduction of
such losses of NT$105,314 thousand for the three months ended March 31, 2017.
- 161 -
- 161 -
36. 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, 2017
Financial assets
Monetary items
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
December 31, 2016
Financial assets
Monetary items
USD
EUR
JPY
Non-monetary items
HKD
Financial liabilities
Monetary items
USD
EUR
JPY
$
5,494,191
236,279
34,012,314
29.659
35.45
0.2629
$ 162,952,207
8,376,078
8,941,837
285,336
3.80
1,084,276
3,880,441
410,686
35,365,911
29.659
35.45
0.2629
115,090,012
14,558,807
9,297,698
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
Note: Exchange rate represents the number of N.T. dollars for which one foreign currency could be
exchanged.
Please refer to the parent company only statements of comprehensive income for the total of realized and
unrealized foreign exchange gain and loss for the years ended December 31, 2017 and 2016, respectively.
Since there were varieties of foreign currency transactions of the Company, the Company was unable to
disclose foreign exchange gain (loss) towards each foreign currency with significant impact.
- 162 -
- 162 -
37. 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 and associates): Please see Table 3
attached;
d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of
the paid-in capital: Please see Table 4 attached;
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 9;
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 32.
38. OPERATING SEGMENTS INFORMATION
The Company has provided the operating segments disclosure in the consolidated financial statements.
- 163 -
- 163 -
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T
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 ACCOUNTS PAYABLES
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 15
5
Note 13
Note 13
Note 14
Note 20
Note 27
6
7
8
9
Note 17
10
11
12
13
14
Note 25
15
- 184 -
- 184 -
STATEMENT 1
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF CASH AND CASH EQUIVALENTS
DECEMBER 31, 2017
(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
$
330
25,958,240
35,231,163
177,987,108
Including US$778,555 thousand @29.659,
JPY33,992,762 thousand @0.2629 and
EUR90,361 thousand @35.45
From 2017.05.31 to 2018.09.28, interest
rates at 0.001%-2.16%, including
NT$155,849,074 thousand, US$574,900
thousand @29.659 and EUR143,500
@35.45
Total
$ 239,176,841
- 185 -
- 185 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE, NET
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Client Name
Client A
Client B
Client C
Client D
Client E
Client F
Others (Note 1)
Less: Allowance for doubtful accounts
Total
STATEMENT 2
Amount
$ 4,331,550
4,182,954
2,348,708
2,006,820
1,390,409
1,357,239
11,506,872
27,124,552
(469,125)
$ 26,655,427
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$5,902 thousand. The Company’s
subsidiary has obtained guarantee against these receivables, thus there was no impairment concern for
the notes and accounts receivable.
- 186 -
- 186 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF RECEIVABLES FROM RELATED PARTIES
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Client Name
TSMC North America
Others (Note)
Total
STATEMENT 3
Amount
$ 91,329,510
812,327
$ 92,141,837
Note: The amount of individual client included in others does not exceed 5% of the account balance.
- 187 -
- 187 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF INVENTORIES
DECEMBER 31, 2017
(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
$
9,596,837
$ 26,645,348
52,166,234
213,045,079
6,566,716
6,611,434
1,967,658
1,999,552
$ 70,297,445
$ 248,301,413
- 188 -
- 188 -
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Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF ACCOUNTS PAYABLES
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Vendor Name
Vendor A
Others (Note)
Total
STATEMENT 7
Amount
$ 1,423,525
24,181,698
$ 25,605,223
Note: The amount of individual vendor in others does not exceed 5% of the account balance.
- 191 -
- 191 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF PAYABLES TO RELATED PARTIES
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Vendor Name
TSMC China
WaferTech
Xintec
VIS
SSMC
TSMC Technology
Others (Note)
Total
STATEMENT 8
Amount
$ 1,440,141
1,328,094
817,876
409,950
406,959
266,599
160,045
$ 4,829,664
Note: The amount of individual vendor in others does not exceed 5% of the account balance.
- 192 -
- 192 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
STATEMENT 9
Vendor Name
Vendor B
Vendor C
Vendor D
Vendor E
Others (Note)
Total
Amount
$ 13,232,731
10,942,580
3,378,171
2,893,271
19,917,223
$ 50,363,976
Note: The amount of individual vendor included in others does not exceed 5% of the account balance.
- 193 -
- 193 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Item
Receipts in advance
Guarantee deposit
Others (Note)
Total
Note: The amount of each item in others does not exceed 5% of the account balance.
STATEMENT 10
Amount
$ 31,078,331
6,046,643
20,561,412
$ 57,686,386
- 194 -
- 194 -
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Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF NET REVENUE
FOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)
Shipments
(Piece) (Note)
10,449,058
Item
Wafer
Other
Net revenue
Note: 12-inch equivalent wafers.
STATEMENT 12
Amount
$ 869,210,414
99,925,695
$ 969,136,109
- 196 -
- 196 -
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF COST OF REVENUE
FOR THE YEAR ENDED DECEMBER 31, 2017
(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 13
Amount
$
3,864,429
39,679,243
(6,566,716)
(8,153,898)
(105,122)
28,717,936
14,088,114
439,610,993
482,417,043
32,317,210
(52,166,234)
(13,503,059)
449,064,960
8,324,267
41,252,348
(9,596,837)
(8,449,639)
(294,486)
480,300,613
9,896,243
$ 490,196,856
- 197 -
- 197 -
STATEMENT 14
Taiwan Semiconductor Manufacturing Company Limited
STATEMENT OF OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2017
(In Thousands of New Taiwan Dollars)
Item
Research and
Development
Expenses
General and
Administrative
Expenses
Selling
Expenses
Payroll and related expense
$ 27,419,259
$ 7,125,078
$ 2,028,116
Consumables
18,846,071
203,831
Depreciation expense
18,652,520
816,327
Repair and maintenance expense
3,426,711
1,679,314
Moving expense
Service fee
Patents
Management fees of the Science Park Administration
Commission
Others (Note)
Total
503,573
1,824,079
78,244
1,063,848
17,682
-
-
-
1,761,405
1,776,508
-
-
-
804,144
10,961,345
3,799,015
170,836
$ 79,887,723
$ 20,049,405
$ 3,048,781
3,376
21,163
2,940
524
Note: The amount of each item in others does not exceed 5% of the account balance.
- 198 -
- 198 -
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