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Financial Status and Operating Results

Financial Status

Unconsolidated

Unit: NT$ thousands

Item 2012 2011 Difference %
Current Assets 207,815,340 158,563,352 49,251,988 31%
Fixed Assets 586,603,294 454,373,533 132,229,761 29%
Other Assets 12,006,629 19,070,145 (7,063,516) -37%
Total Assets 946,173,183 761,407,874 184,765,309 24%
Current Liabilities 138,795,878 109,514,430 29,281,448 27%
Long-term Liabilities 84,179,591 22,299,930 61,879,661 277%
Total Liabilities 222,975,469 131,814,360 91,161,109 69%
Capital Stock 259,244,357 259,162,226 82,131 0%
Capital Surplus 56,137,809 55,846,357 291,452 1%
Retained Earnings 410,601,289 322,191,155 88,410,134 27%
Total Shareholders’ Equity 723,197,714 629,593,514 93,604,200 15%

The increase in current assets was mainly due to increase in cash and cash equivalents and receivables from related parties.
The increase in fixed assets was mainly due to acquisition of advanced technology equipment during 2012.
The decrease in other assets was mainly due to return of refundable deposits and decrease in deferred income tax assets.
The increase in total assets was mainly due to increase in fixed assets.
The increase in current liabilities was mainly due to increase in payables to contractors and equipment suppliers, short-term loans and income tax payable.
The increase in long-term liabilities was mainly due to issuance of corporate bonds of $62 billion in 2012.
The increase in total liabilities was mainly due to increase in long-term liabilities.
The increase in retained earnings was mainly due to net income of 2012, partially offset by distribution of 2011 earnings.

The above deviations had no major impact on TSMC’s financial position.

Consolidated

Unit: NT$ thousands

Item 2012 2011 Difference %
Current Assets 252,288,635 225,260,396 27,028,239 12%
Fixed Assets 617,529,446 490,374,916 127,154,530 26%
Other Assets 19,430,182 24,171,126 (4,740,944) -20%
Total Assets 955,034,605 774,264,942 180,769,663 23%
Current Liabilities 142,435,944 117,006,687 25,429,257 22%
Long-term Liabilities 86,844,962 25,214,704 61,630,258 244%
Total Liabilities 229,280,906 142,221,391 87,059,515 61%
Capital Stock 259,244,357 259,162,226 82,131 0%
Capital Surplus 56,137,809 55,846,357 291,452 1%
Retained Earnings 410,601,289 322,191,155 88,410,134 27%
Equity Attributable to Shareholders of
the Parent		 723,197,714 629,593,514 93,604,200 15%
Total Shareholders’ Equity 725,753,699 632,043,551 93,710,148 15%

The increase in fixed assets was mainly due to acquisition of advanced technology equipment during 2012.
The decrease in other assets was mainly due to return of refundable deposits and decrease in deferred income tax assets.
The increase in total assets was mainly due to increase in fixed assets and long-term investments.
The increase in current liabilities was mainly due to increase in payables to contractors and equipment suppliers, short-term loans and income tax payable.
The increase in long-term liabilities was mainly due to issuance of corporate bonds of $62 billion in 2012.
The increase in total liabilities was mainly due to increase in long-term liabilities.
The increase in retained earnings was mainly due to net income of 2012, partially offset by distribution of 2011 earnings.

The above deviations had no major impact on TSMC’s financial position.

Financial Performance

Unconsolidated

Unit: NT$ thousands

Item 2012 2011 Difference %
Gross Sales 506,697,738 421,472,087 85,225,651 20%
Sales Returns & Allowances (6,825,851) (3,226,594) (3,599,257) 112%
Net Sales 499,871,887 418,245,493 81,626,394 20%
Cost of Sales 265,538,540 233,083,068 32,455,472 14%
Gross Profit before Affiliates Elimination 234,333,347 185,162,425 49,170,922 27%
Realized (Unrealized) Gross Profit from
Affiliates		 (25,029) 398,440 (423,469) -106%
Gross Profit 234,308,318 185,560,865 48,747,453 26%
Operating Expenses 57,506,548 46,655,102 10,851,446 23%
Income from Operations 176,801,770 138,905,763 37,896,007 27%
Non-operating Income & Gains 11,188,077 7,287,046 3,901,031 54%
Non-operating Expenses & Losses 4,359,899 1,484,965 2,874,934 194%
Income before Income Tax 183,629,948 144,707,844 38,922,104 27%
Income Tax Expenses (17,471,146) (10,506,565) (6,964,581) 66%
Net Income 166,158,802 134,201,279 31,957,523 24%

Increase in gross sales and net sales: The increase was the result of higher wafer shipment and growth in 28-nanometer technology during 2012.
Increase in sales returns and allowance: The increase was mainly due to higher provision of sales returns and allowances resulting from higher sales.
Increase in gross profit before affiliates elimination and gross profit: The increase was mainly due to higher wafer shipment during 2012.
Increase in unrealized gross profit from affiliates: The increase was due to higher sales to affiliates in 4Q’12.
Increase in operating expenses: The increase was mainly due to higher research and development expenditures for advanced technologies.
Increase in income from operations: The increase was mainly due to realized gross profit increased at a higher rate than the increase in operating expenses.
Increase in non-operating income and gains: The increase was primarily due to increase in earnings of equity method investees.
Increase in non-operating expenses and losses: The increase was primarily due to impairment loss of financial assets recognized in 2012.
Increase in income before income tax: The increase was mainly due to higher income from operations.
Increase in income tax expenses: The increase was mainly due to higher taxable income and tax rate.
Increase in net income: The increase was mainly due to higher income before income tax.

For additional details, please refer to "Letter to Shareholders" of this Annual Report.

Consolidated

Unit: NT$ thousands

Item 2012 2011 Difference %
Gross Sales 513,435,603 430,490,500 82,945,103 19%
Sales Returns & Allowances (7,187,023) (3,409,855) (3,777,168) 111%
Net Sales 506,248,580 427,080,645 79,167,935 19%
Cost of Sales 262,628,681 232,937,388 29,691,293 13%
Gross Profit before Affiliates Elimination 243,619,899 194,143,257 49,476,642 25%
Unrealized Gross Profit from Affiliates (25,029) (74,029) 49,000 -66%
Gross Profit 243,594,870 194,069,228 49,525,642 26%
Operating Expenses 62,537,677 52,511,810 10,025,867 19%
Income from Operations 181,057,193 141,557,418 39,499,775 28%
Non-operating Income & Gains 6,782,037 5,358,527 1,423,510 27%
Non-operating Expenses & Losses 6,285,254 1,768,268 4,516,986 255%
Income before Income Tax 181,553,976 145,147,677 36,406,299 25%
Income Tax Expenses (15,590,287) (10,694,417) (4,895,870) 46%
Net Income 165,963,689 134,453,260 31,510,429 23%
Net Income Attributable to Shareholders
of the Parent		 166,158,802 134,201,279 31,957,523 24%

Increase in sales returns and allowance: The increase was mainly due to higher provision of sales returns and allowances resulting from higher sales.
Increase in gross profit before affiliates elimination and gross profit: The increase was mainly due to higher wafer shipment during 2012.
Decrease in unrealized gross profit from affiliates: The decrease was due to lower sales to affiliates in 4Q’12.
Increase in income from operations: The increase was mainly due to gross profit increased at a higher rate than the increase in operating expenses.
Increase in non-operating income and gains: The increase was primarily due to increase in earnings of equity method investees.
Increase in non-operating expenses and losses: The increase was primarily due to higher impairment loss of financial assets.
Increase in income before income tax: The increase was mainly due to higher income from operations.
Increase in income tax expenses: The increase was mainly due to higher taxable income and tax rate.
Increase in net income and net income attributable to shareholders of the parent: The increase was mainly due to higher income before income tax.

For additional details, please refer to “Letter to Shareholders“ of this Annual Report.

Cash Flow

Unconsolidated

NT$277.3 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization.
NT$241.9 billion net cash used in investing activities: Primarily for capital expenditures.
NT$11.5 billion net cash used in financing activities: Mainly for payment of cash dividends, partially offset by issuance of corporate bonds.

Consolidated

NT$289.1 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization.
NT$273.2 billion net cash used in investing activities: Primarily for capital expenditures.
NT$13.8 billion net cash used in financing activities: Mainly for payment of cash dividends, partially offset by issuance of corporate bonds.

Major Capital Expenditure

Major Capital Expenditures and Sources of Funding

Expected Future Benefits

Based on capital expenditures listed above and projected for 2013, it is estimated that TSMC’s annual production capacity will increase by approximately 1.62 million 8-inch equivalent wafers in 2013.

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 the strategic value of an investment is no longer valid, it may be considered a financial investment. In 2012, the investment gain from these investments amounted to NT$8,127,748 thousands (NT$2,028,611 thousands on consolidated basis), increasing significantly compared to 2011 mainly due to the high growth of mobile computing products. For future investments, TSMC will continue to focus on strategic purposes through prudent assessments.