Taiwan Semiconductor Manufacturing Company, Ltd.
Annual Report 1999
Printed on March 8, 2000
MAJOR FACILITIES
Corporate Headquarters & FAB II, FAB V
No.121, Park Ave. III,
Science-Based Industrial Park,
Hsin-Chu, Taiwan 300, R.O.C.
TEL: 886-3-578-0221 FAX: 886-3-578-1546
FAB I
Building 67, No. 195, Sec. 4, Chung-Hsing Rd.,
Chu-Tung, Hsin-Chu, Taiwan 310, R.O.C.
TEL: 886-3-582-1240 FAX: 886-3-582-2616
FAB III & FAB IV
No. 9, Creation Rd. I,
Science-Based Industrial Park,
Hsin-Chu, Taiwan 300, R.O.C.
TEL: 886-3-578-1688 FAX: 886-3-578-1548
FAB VI
No. 1, Nan-Ke North Rd.,
Science-Based Industrial Park,
Shan-Hwa, Tainan, Taiwan 741, R.O.C.
TEL: 886-6-505-2000 FAX: 886-6-505-2058
TSMC North America
1740 Technology Drive, Suite 660, San Jose,
CA 95110, U.S.A.
TEL: 1-408-437-8762 FAX: 1-408-441-7713
TSMC Europe
World Trade Center, Strawinskylaan 1145,
1077 XX Amsterdam, The Netherlands
TEL: 31-20-305-9900 FAX: 31-20-305-9911
TSMC Japan
16F, Queen's Tower C, 2-3-5
Minato Mirai, Nishi-Ku, Yokohama,
Kanagawa 220-6216, Japan
TEL: 81-45-682-0670 FAX: 81-45-682-0673
TSMC SPOKESMAN
Name: Y. C. Huang
Title: Vice President
TEL: 886-3-578-0221 FAX: 886-3-578-1545
AUDITORS
Company: T N SOONG & CO
Auditors: S. C. Huang, Edward Way
Address: 12Fl., No.156, Sec.3, Min-Sheng
E. Rd., Taipei, Taiwan 105, R.O.C.
TEL: 886-2-2545-9988 FAX: 886-2-2545-9966
STOCK TITLE TRANSFER
Company: China Trust Commercial Bank
Transfer Agency Department
Address: 5Fl., No.83, Sec.1, Chung-Ching
S. Rd., Taipei, Taiwan 100, R.O.C.
TEL: 886-2-2361-3033 FAX: 886-2-2311-6723
ADR DEPOSITARY BANK
Company: Citibank, N.A.
Depositary Services Department
Address: 21Fl., 111 Wall Street, New York,
NY 10043, U.S.A.
TEL: 1-212-657-1853 FAX: 1-212-825-2103
WEB SITE
http://www.tsmc.com.tw
Ta b l e o f C o n t e n t s
LETTER TO OUR SHAREHOLDERS
A BRIEF INTRODUCTION TO TSMC
1. Company Profile
2. Organization
3. Common Shares, Corporate Bonds and ADR Issuance
OPERATIONAL HIGHLIGHTS
1. Business Activities
2. Marketing and Sales
3. Market Outlook
4. Labor Relations
5. Personnel Growth over the Last Two Years
6. Environmental Protection Measures
7. Major Contracts
8. Litigation Proceedings
BUSINESS AND FINANCIAL PLANS
1. Production and Sales Plans for 2000
2. Year 2000 Plans for Disposition or Acquisition of Real Estate or Long-Term Investment
3. Research and Development Plans
4. Financing Plans
5. TSMC Education and Culture Foundation
FINANCIAL STATEMENTS
1. Brief Balance Sheet
2. Brief Statements of Income
3. Financial Analysis
4. Net Worth, Earning, Dividends and Market Price Per Share
5. Auditor’s Opinion
6. Supervisors’ Report
7. Review and Analysis of Financial Status and Operating Result
8. Financial Statements and Independent Auditors’ Report
9. Consolidated Financial Statements
SPECIFIC NOTES
1. Affiliates Information
2. Dividend Policy
3. Statement of Internal Control
4. Other Necessary Supplement
1
B u s i n e s s P h i l o s o p h y
TSMC is committed to:
Integrity
Focus on Our Core Business - IC Foundry
Globalization
Long-term Vision and Strategies
Treating Customers as Partners
Building Quality into all Aspects of Our Business
Unceasing Innovation
Fostering a Dynamic and Fun Work Environment
Keeping Communication Channels Open
Caring for Employees and Shareholders, and
Being a Good Corporate Citizen
synergism
noun [New Latin synergismus, from Greek synergos] (1910): interaction of discrete agencies (as industrial firms), agents (as drugs), or conditions such that the total effect
is greater than the sum of the individual effects. (Merriam - Webster’s Collegiate Dictionary, 1996, p. 1873)
Letter to Our Shareholders
Dear Shareholders,
1999 was a year of upturn for the global semiconductor industry. In 1999, TSMC reached another record high both in
revenues and profits. Sales revenues for 1999 reached NT$73.13 billion, a 45.6 percent increase over 1998 revenues. Net
income totaled NT$24.56 billion, an increase of 60 percent over NT$15.3 billion in 1998. Diluted earnings per common
share were NT$3.24 versus NT$2.00 a year ago.
The past year was memorable in several ways. TSMC survived the most devastating earthquake to strike Taiwan in nearly
100 years. Fortunately, our operations returned to normal in less than 10 days, due largely to a well-prepared disaster
recovery plan and the untiring efforts of our dedicated employees. Our recovery efforts were focused on minimizing the
impact of the earthquake on customers businesses and securing Taiwan s reputation in the global electronics industry.
As a result of our quick recovery, customer confidence in TSMC has increased and the partnership between TSMC and our
customers has deepened. In addition, our speedy restoration to full production has earned TSMC international acclaim
and received wide recognition by the global media. Out of this disaster, TSMC has further built a solid reputation as our
customers "Virtual Fab", providing the best available services and maintaining our leadership position in the dedicated IC
foundry industry.
Our meticulous Y2K preparations enabled us to successfully transit into year 2000 without interruption to our operations.
Given that TSMC has numerous individual pieces of highly automated semiconductor manufacturing equipment and
computer-based systems, this represented a well-executed plan instated well in advance. In this endeavor, we again won
recognition from the global community in demonstrating our strong ability to meet the challenges of a fast-changing
environment.
Morris Chang
Chairman
3
Advanced Technology
Continuous aggressive advancement in process technology is yet another major competitive advantage for TSMC. Our
focused commitment to new technology development and increased production capacity has kept us in the lead position
in the foundry industry, and propelled us into an elite position in the global IC industry.
In 1999, TSMC achieved many milestones in technology, including volume availability of leading-edge 0.18µm process
technology, which provides the performance and density necessary for true system-on-chip (SOC) design. In addition,
TSMC was the first dedicated foundry to deliver high-yield copper interconnects for increased performance and flexibility.
Moreover, our research and development team has made tremendous advances in developing 0.15 and 0.13µm
technology. Our 0.15µm process technology will be available in the beginning of 2000, and the development of 0.13µm
technology will be completed in the first quarter of 2001. These accomplishments are evidence of our commitment to
provide customers with the most advanced and reliable technology available.
Increased Capacity
After a slow period in the IC industry, customer orders took a strong upward turn in the second quarter of 1999. To
meet this sudden increase in demand, TSMC focused first on expanding the available capacity of our existing fabs,
including Fabs III, IV, and V, and on increasing the percentage of manufacturing volume devoted to advanced 0.25µm
and 0.18µm process technology. In addition, we added capacity from our affiliates at WaferTech, Vanguard International
Semiconductor Corporation, and TSMC-Acer Semiconductor Manufacturing Corporation (TASMC) to provide our
customers with critically needed wafers. Overall, our total wafer shipments increased to approximately 1.8 million eight-
inch equivalent wafers in 1999, a 50% increase from 1.2 million wafers in 1998.
In the meantime, TSMC has taken aggressive action in the area of new fab construction. TSMC’s Fab VI, located in the
new Tainan Science-Based Industrial Park, began pilot production at the end of 1999, fully one quarter ahead of
schedule. Also in December, TSMC broke ground for fab XII, our first 12-inch fab, in the Hsin-Chu Science-Based
Industrial Park. Construction continued at Systems on Silicon Manufacturing Company, our joint venture with Philips in
F.C.Tseng
President
synergism
noun [New Latin synergismus, from Greek synergos] (1910): interaction of discrete agencies (as industrial firms), agents (as drugs), or conditions such that the total effect
is greater than the sum of the individual effects. (Merriam - Webster’s Collegiate Dictionary, 1996, p. 1873)
Singapore, with a plan to begin volume production by the end of 2000. In addition, we secured merger agreements with
TASMC at the end of 1999 and with Worldwide Semiconductor Manufacturing Corporation at the beginning of 2000,
both of which are expected to close in June of 2000. By the end of 2000, TSMC expects to increase its total wafer
capacity to 3.4 million wafers. All of these actions should help satisfy our customers most urgent needs in this strong
semiconductor market, creating significant benefit for TSMC and our shareholders.
Vision and Future Outlook
TSMC s vision is to be the most reputable, service-oriented and maximum-total-benefits silicon foundry in the world,
thereby earning the reward of also being the largest and most profitable foundry. To fulfill this vision, we maintain a
consistent focus on our foundry business and concentrate on our commitment to being our customers "Virtual Fab".
Looking forward into 2000, the IC industry is expected to continue the steep climb which began in 1999 and is expected
to end with yet another outstanding performance. From a broader perspective, foundry services will play an increasingly
important role in IC manufacturing worldwide. Fabless IC companies already depend on foundries, and integrated device
manufacturers (IDMs) are expected to cement stronger business relationships with foundries for their IC manufacturing.
We believe that our "Virtual Fab" strategy enables us to capitalize on all of these trends. This strategy will also generate a
positive impact on our financial performance in the coming year, and will further consolidate our leadership in the IC
foundry industry.
In closing, 1999 was a fine and memorable year. We would like to thank all of our customers, shareholders and
employees for your continued support and dedication in the future.
Morris Chang
Chairman
F.C.Tseng
President
5
Believing in Synergism, TSMC treats all other semiconductor companies as partners.
synergism
[Gk synerg - (on) working together +-ism] Interaction of discrete agencies (as of industrial firms or physical equipment) in combination such that the total effect is greater
than the sum of the individual effects. (Time Dictionary, 1999, p. 1772)
A Brief Introduction to TSMC
1. Company Profile
Founded in 1987, Taiwan Semiconductor Manufacturing Company (TSMC) is a dedicated independent semiconductor
foundry based in Taiwan s "Silicon Valley," Hsin-Chu Science-Based Industrial Park. We are listed on the Taiwan Stock
Exchange (TSE) and the New York Stock Exchange (NYSE) under the symbol TSM.
TSMC was the first pure integrated circuit (IC) foundry in the world. Since the beginning, we have been dedicated to
providing manufacturing services for advanced ICs. Our company s charter prevents us from designing or making our own
brand-name IC products. TSMC therefore is a partner, not a competitor, to other semiconductor companies. TSMC s
success in the foundry business has served as a model for many new entrants to the market. With TSMC as the engine of
change, what was once only a concept a pure foundry is today a multi-billion dollar industry. As the semiconductor
industry faces greater consolidation and spiraling IC fab construction costs, dedicated foundry companies like TSMC stand
to become the primary sources to meet the growing worldwide IC demand.
TSMC is the largest IC foundry in the world. At the end of 1999, we operated two 6-inch wafer fabs (Fab I & II), six 8-inch
fabs (Fab III, IV,V,VI and Fabs I and II of TASMC), with annual capacity of 1.9 million top-quality, high-yield 8-inch
equivalent wafers. To further expand our capacity, TSMC has broken ground for the company s first 12-inch fab in the
Hsin-Chu Science Park in December 1999. TSMC s Fab VI, located in the new Tainan Science-Based Industrial Park will
begin volume production from the first quarter of 2000. In addition, the merger with TSMC-Acer Semiconductor
Manufacturing Corporation and Worldwide Semiconductor Manufacturing Corporation have been proceeding as
scheduled and are expected to close in June of 2000.
TSMC is an international company that serves the worldwide IC market. Consequently, we have established facilities in
locations other than Taiwan, including marketing and engneering support offices in the United States, Europe and Japan.
WaferTech, TSMC s first joint venture foundry in the United States, was established in an alliance with several long-
standing customers and began volume production in mid-1998. A joint venture fab with Philips Semiconductor and
Singapore EDB Investments - Systems on Silicon Manufacturing Company - is scheduled to start operation in Singapore in
the year 2000.
In addition to maintaining a competitive edge through steadily increasing capacity, TSMC also provides consistent volume
production levels of new generation technologies. TSMC offers a comprehensive set of technology processes, including
process to manufacture CMOS logic, mixed-signal, volatile and non-volatile memory, embedded memory, BiCMOS ICs and
copper technology. Our firm commitment to the continued pursuit of advanced technology ensures that TSMC will provide
the best possible value-added services and become true partners to our customers.
TSMC’s objective is to become our customers’ "Virtual Fab." That is, to provide customers with the benefits of an in-house
fabrication plant without the associated expense or organizational complexities. Our intent is to make our foundry services
as transparent to customers as possible, so that they can run their operations as if they have their own dedicated fabs.
TSMC is committed to continued improvement of its services, developing a long-term competitive advantage by
strengthening the bond between ourselves and our customers through continued leadership in the global IC foundry
business.
As a good corporate citizen, TSMC takes the job of community service and employee relations seriously. For example, the
TSMC Culture and Education Foundation was formed in 1998 to support activities in Taiwan that promote education,
technology, art and culture. The Foundation aims toward creating a better quality of life for our society through our long-
term community development efforts. TSMC s concerned efforts have been recognized by many distinguished entities,
ranging from the Taiwan government (for environmental protection, health and safety, arts sponsorship, employee
benefits, employee training and social welfare) to leading media in Taiwan and around the world.
In addition, our Chairman Dr. Morris Chang has also received many honors worldwide. In 1999, for example, Dr. Chang
was honored by the Fabless Semiconductor Association (FSA) with its first-ever "Exemplary Leadership award", which will be
permanently named "The Dr. Morris Chang Award for Exemplary Leadership" in recognition of his outstanding contribution
to the fabless semiconductor industry.
7
2.Organization
2-1 Organziation Chart
synergism
[Gk synerg - (on) working together +-ism] Interaction of discrete agencies (as of industrial firms or physical equipment) in combination such that the total effect is greater
than the sum of the individual effects. (Time Dictionary, 1999, p. 1772)
2-2 Directors, Supervisors, & Major Officers (As of December 31,1999)
Title
Name
Date
Elected
Term
(Year)
Shareholding*
Spouse &
Minor
Shareholding*
Education & Experience
Remarks
Chairman & CEO
1997.05.13
3
45,109,604
0
Ph.D., Electrical Engineering, Stanford University
Morris Chang
Chairman, Vanguard International Semiconductor Corp.
Chairman, WYSE Technology Inc.
Director
1997.05.13
3
1,295,885,897
0
B.S., Electronic Engineering, Eindhoven Technical University
Philips Electronics N.V.
A.P.M. van der Poel
Chairman and CEO, Philips Semiconductors International B.V.
Representative of Legal Entity
Director
J.C. Lobbezoo
Director
L.P. Hsu
1997.05.13
3
1,295,885,897
0
B.A., Business Economics, Erasmus University
Philips Electronics N.V.
Chief Financial Officer, Philips Semiconductors International B.V
Representative of Legal Entity
1997.05.13
3
1,295,885,897
0
B.S., Physics, National Cheng-Kung University
Philips Electronics N.V .
Executive Vice President, Philips Taiwan
Representative of Legal Entity
Director
1997.05.13
3
1,158,545,600
0 Master of Comparative Law, University of Michigan
Development Fund, Executive Yuan
Ching - Chang Yen
Director
Chintay Shih
Deputy Minister, Ministry of Finance, R.O.C.
Representative of Legal Entity
1997.05.13
3
1,158,545,600
0
Ph.D., Electrical Engineering, Princeton University
Development Fund, Executive Yuan
President, Industrial Technology Research Institute
Representative of Legal Entity
Director & President
1997.05.13
3
12,132,090
49,828
Ph.D., Electrical Engineering, National Cheng-Kung University
F.C. Tseng
Senior Vice President of Operations, TSMC
President, Vanguard International Semiconductor Corp.
Supervisor
1997.05.13
3
1,295,885,897
0 MBA, Business School of Erasmus University /
Philips Electronics N.V.
Jan Kees van Vliet
Supervisor
George Shiu
Delft University of Technology
Executive Vice President, Philips Taiwan
Representative of Legal Entity
1997.05.13
3
1,158,545,600
0 Master degree in Economics, John Hopkins University
Development Fund, Executive Yuan
Deputy Executive Secretary Development Fund, Executive Yuan
Representative of Legal Entity
Supervisor
1997.05.13
3
10,812
0 M.S., Chemical Engineering, University of Michigan
Jerome S.N. Hu
Chairman, Chao Ting-Chen Cultural Education Foundation
* As per the actual reported number of shares on December 31, 1999
9
3. Common Shares, Corporate Bonds and ADR Issuance
3-1 Capital & Shares
Type of Stock
Authorized Capital
Unit: Share
Total
Issued Shares
Un-issued Shares
Reserved Shares for Bond Conversion
Listed
Non-listed
Total
Common Stock
7,670,881,717
-
7,670,881,717
51,516,965
1,377,601,318
9,100,000,000
3-2 Status of Bond and Preferred Stock Issuance
Issuance
Issuing Date
Tenor
Coupon Rate
(or YTM)
Outstanding
Use of
Proceeds
Status
Description
US$350 million
July 3, 1997
5 years
YTM=6.28% p.a.
TSMC exercised the right to redeem this bond
Eurodollar
Convertible Bond
(Zero-coupon,
on November 5, 1999. US$341,821,000 was converted into
136.23% payable
common shares and US$8,179,000 was repaid.
at maturity, if not
converted or redeemed)
NT$4 billion
March 4, 1998
5 years
7.71% p.a.
NT$4 billion
Repay long-term
Completed
Corporate Bond
bank loan
NT$6 billion
November 18, 1998 -
5 years
7.12% p.a.
NT$6 billion
Upgrade of Fab III
Completed
Corporate Bond December 1, 1998
and Fab IV
equipment
NT$10 billion
October 21, 1999
Tranche A: 3 years
Tranche A: 5.67% p.a.
Tranche A: NT$5 billion
Procure equity
Completed
Corporate Bond
Tranche B: 5 years
Tranche B: 5.95% p.a.
securities of
Tranche B: NT$5 billion
TASMC as long-term
investment
and Fab V equipment
synergism
[Gk synerg - (on) working together +-ism] Interaction of discrete agencies (as of industrial firms or physical equipment) in combination such that the total effect is greater
than the sum of the individual effects. (Time Dictionary, 1999, p. 1772)
3-3 Status of American Depositary Shares (ADSs) Issuance
Issuance & Listing: New York Stock Exchange (NYSE)
Symbol: TSM
1 ADS = 5 TSMC common shares
Depositary Bank: Citibank, N.A. - New York Branch
Custodian Bank: Citibank, N.A. - Taipei Branch
As of December 31, 1999, total number of issued ADSs is 77,356,859, and total number of outstanding ADSs is 76,893,859.
Date
Issuing Units*
Total Amount
Underlying Securities
October 8, 1997
24,000,000 ADSs
US$ 594,720,000
TSMC common shares from Selling Shareholders
November 20, 1998
12,094,000 ADSs
US$ 184,554,440
TSMC common shares from Selling Shareholders
January 12, 1999, January 14, 1999
2,000,000 ADSs
US$
35,125,000
TSMC common shares from Selling Shareholders
July 15, 1999
12,094,000 ADSs
US$ 296,499,640
TSMC common shares from Selling Shareholders
August 17, 1999 - September 16, 1999
5,486,000 ADSs
US$158,897,088.5
TSMC common shares from Selling Shareholders
pursuant to ADR conversion sale program
* The difference between total number of issued ADSs and total number of each issuing unit is resulted from 45% and 23% stock dividend distribution in 1998 and 1999,
respectively.
11
Over the past 13 years, customers have utilized TSMC's advanced IC manufacturing services
for a diverse range of end-product applications.
1. Business Activities
synergy
If you say that there is synergy between two or more organizations or groups, you mean that when they combine or work together, they are more successful than they
are when they are on their own; used mainly by business people. (Collins Cobuild English Dictionary, 1995, p. 1695)
OPERATIONAL HIGHLIGHTS
(1) Business Scope
TSMC is dedicated to high integrity in business and has a single-minded focus on the foundry industry. The company
provides advanced IC manufacturing services of the highest quality to the worldwide semiconductor industry. Building on
our core competencies of excellent manufacturing and attentive customer support, we offer a full range of
manufacturing services, including ULSI and VLSI wafer manufacturing, wafer probing, IC assembly and test, mask
production, and design services. Wafer manufacturing accounted for approximately 88 percent of total revenue in 1999.
Over the past 13 years, customers have utilized TSMC s manufacturing services in virtually every product and end market
segment across the entire semiconductor application spectrum. We estimate that in 1999 TSMC produced approximately
5 percent of the world s supply of wafers.
(2) Customer Applications
The advanced ICs produced by TSMC for customers are used in a diverse range of the end-product applications, including
PCs, network servers, computer peripherals, Internet appliances, wired and wireless communication systems, consumer
electronics, automotive and industrial equipment.
2. Marketing and Sales
3. Market Outlook
The recovery in the worldwide IC market coupled with the exceptional growth of the fabless IC companies, pushed
TSMC s sales up 45.6 percent to NT$73.13 billion.
The company’s superior performance can be attributed to three major factors. First, we maintained close relationships
with a large customer base. TSMC has served over 400 customers in the past 13 years and approximately 280 customers
in 1999 alone. Second, anticipating the steady long term growth of the IC industry and responding to strong immediate
demand from key customers, TSMC expanded advanced manufacturing capacity aggressively at seven internal or
affiliated 8-inch fabs. The company also broke ground for one of the industries first production scale 12-inch facilities.
Third, we have approached our business as a service business from day one. We continue to re-engineer this approach
with a strong commitment to e-Commerce as a new tool in realizing TSMC s vision — to become our customers "Virtual
Fab" for semiconductor manufacturing.
These factors extended our leading market position and when combined with our ability to produce the latest generation
technologies, allowed the company to maintain excellent results through a turbulent year.
After a slow period, strong recovery emerged in the worldwide IC market with 19 percent growth in 1999. Although the
overall logic market grew at a rate of 14 percent, demand for foundry wafers grew at a rate of over 40 percent driven by
accelerated growth of the fabless IC companies and expanded outsourcing from the IDMs. In 2000, the overall IC market
is predicted to register yet stronger growth in the range of 20 percent over 1999, which should sustain a continuation of
robust demand for foundry services. The growth rate for the logic component market will increase to about 15 percent,
with the foundry-dependent fabless IC companies expected to grow at nearly twice that rate due to the higher value
added applications that their chips address.
Responding to strong demand from customers and anticipating the continuing recovery of the worldwide IC industry,
TSMC quickly adopted the strategic actions necessary to expand capacity aggressively in support of our customer base. In
the area of capacity expansion the company added capacity in its 8-inch fabs (Fabs 3,4,5) while at the same time running
the fully equipped 6-inch fabs (Fabs 1, 2A, 2B) at greater than 100 percent of rated output. To further bolster deliveries
to customers, the company secured additional 8-inch capacity through co-operation arrangements with TSMC-Acer
Semiconductor Manufacturing Corporation and Vanguard International Semiconductor Corporation, as well as
continuing to ramp capacity at its affiliate 8-inch fab in WaferTech, LLC at Camas, Washington. At the same time the
company accelerated initial output at its newest 8-inch fab (Fab 6) in Tainan, continued construction of its joint venture
fab with Philips in Systems on Silicon Manufacturing Company in Singapore and broke ground for its first 12-inch facility
(Fab12) in Hsin-Chu.
13
While supporting record breaking growth for the fabless IC companies, TSMC continues to diversify its customer base.
Major, long-term, customer opportunities have begun to emerge from the ranks of the Integrated Device Manufacturers
(IDMs). These companies, with their large established customer bases and rich product portfolios, can give significant
acceleration to the foundry industry as their outsourcing activities increase.
Over the years, TSMC has strategically managed its exposure to the memory market by limiting the commitment of our
memory manufacturing services to a certain percentage of sales revenue. Considering the current shortage of logic
production capability and the historically high volatility of memory markets, TSMC will maintain the same policy in 2000
even as we work to expand our share of the emerging market for embedded memory products.
In 1999, TSMC s customer base increased in the graphics, broadband communications, digital consumer electronics, and
wireless communication markets. All of these markets are high growth segments and demand advanced manufacturing
technologies. New customers in these markets utilized large volumes of wafers in 1999 and are expected to benefit
TSMC increasingly over the next several years as these markets continue to grow. End market leaders such as Altera,
Broadcom and Qualcomm drive TSMC’s demand from the fabless segment while leading IDMs such as Philips and
Motorola are also significant customers. Through 2000, TSMC will continue targeted marketing efforts, engaging
customers in similar high growth segments of the logic component markets.
In the long run, we at TSMC believe that foundry services will play an increasingly important role in the manufacturing
sector of the worldwide IC industry. Fabless companies already depend on foundries, and IDMs are expected to evolve
stronger business connections with foundries for IC manufacturing. Industry forecasts predict that by the year 2000,
more than 15 percent of world-wide IC production will come from foundries, increasing to about 30 percent by the year
2008. As better design automation and IP integration tools emerge, product development risks will continue to
decrease and facilitate system companies ability to shift part of their IC needs directly to foundries. TSMC will continue
to be a leader in reducing the barriers to entry to the IC business.
At the supply chain level, TSMC believes that it is in an ideal position to benefit from the current trend toward "dis-
integration," whereby fabless and systems companies and IDMs focus on their core competencies, shifting
manufacturing and other services to partners with expertise in those areas. The frictionless business processes enabled
by the Internet will add to the speed at which this trend continues. As TSMC continues to grow it will be able to
positively influence other supply chain partners to expand support for the foundry model. Leading equipment and
material suppliers such as Applied Material, ASML, Tokyo Electron, Taisil, Komatsu and Shinetsu continue to expand
technology and service programs targeted at foundries.
At the technological level, consumer demand for lower cost and higher functionality of products is expected to compel
our customers to increasingly integrated chip design, creating a need for the higher density of our advanced
technologies. TSMC hopes to be able to maintain high average selling prices for wafers as the company s production
capacity evolves through more and more advanced technologies.
Production over the Last Two Years
Wafers
Year
1998
1999
Capacity
Quantity
Amount
1,617,231
1,685,112
1,202,922
1,681,007
28,169,217
43,759,960
Unit: Capacity/Quantity (8"wafer) /Amount (NT$k)
Net Sales over the Last Two Years
TSMC fully understands that we will face serious competition in
the future. Therefore, to ensure TSMC s continuing leadership and
profitability in 2000 and beyond, we are determined to establish
closer partnerships with customers and to provide the most
advanced technologies and the most comprehensive services.
Wafers
Package
Other
Total
Year
1998
1999
Quantity
Amount
Quantity
Amount
Quantity
Amount
Quantity
Amount
1,131,512
1,686,433
44,871,574
64,428,905
44,891
67,832
3,566,003
5,131,796
-
-
1,795,431
3,570,505
1,176,403
1,754,265
50,233,008
73,131,206
Unit: Quantity (8"wafer) /Amount (NT$k)
synergy
If you say that there is synergy between two or more organizations or groups, you mean that when they combine or work together, they are more successful than they
are when they are on their own; used mainly by business people. (Collins Cobuild English Dictionary, 1995, p. 1695)
For primary technologies, TSMC will focus on the following offerings:
(1) Advanced CMOS Logic Process
TSMC began mass-production of 0.22 and 0.18µm CMOS Logic processes in the beginning of 1999 and 0.18µm low-
voltage process by the end of the same year. The company is expected to enter volume production of a 0.15µm generic
and low-voltage CMOS Logic process in the second quarter of 2000. In addition, TSMC plans to introduce 0.18 and
0.15µm low-power processes in the second and fourth quarters of 2000, respectively, for customers in the portable
electronic device markets. The 0.13µm CMOS Logic process is expected to be available in early 2001. The move into
those advanced technologies will help TSMC’s customers develop higher-density and higher-performance chips that will
be competitive in world markets.
(2) Advanced Mixed-Signal Process
In the mixed digital-and-analog market, TSMC has successfully developed the 0.25µm 1-layer-poly, 6-layer-metal mixed-
signal and radio frequency (RF) processes to meet the demands of communication and consumer ICs in the second half
of 1999. This process also makes it easier for TSMC’s customers to integrate digital-signal processors and/or data-
compression chips with analog circuitry for the fast-growing multimedia market. The 0.18µm mixed-signal and RF
processes will be available in early 2000.
(3) Advanced SRAM/Embedded SRAM Processes
TSMC’s 0.18µm high-speed SRAM process became available to customers in late 1999. The 0.18µm low-power SRAM
process should begin mass-production in the first quarter of 2000. The 0.15µm high-speed and low-power processes
are expected to be available in the fourth quarter of 2000. On the embedded SRAM front, the company completed the
development of a 0.18µm 1-layer-poly, 6-layer-metal process in early 1999. The 0.15µm Embedded SRAM process
should be ready at the same time as the 0.15µm Logic process in the second quarter of 2000. These processes will
enable TSMC customers to further reduce their costs and enhance performance.
(4) Advanced DRAM/Embedded DRAM Processes
In 1999, TSMC completed development of the 0.22 and 0.21µm DRAM processes and began mass-production. TSMC
finished the development of our 0.25µm embedded DRAM process for production, followed by a formal release to
customers in the third quarter of 1999. The embedded DRAM solution offers great opportunities for TSMC’s customers
in the notebook graphics, disk storage, communications, and digital consumer electronics markets. The 0.19µm DRAM
and 0.18µm embedded DRAM processes will be introduced in the first and fourth quarters of 2000, respectively.
(5) Advanced Flash/Embedded Flash Processes
In non-volatile memory, TSMC finished development of a 0.25µm logic based 2-layer-poly, 2-layer-metal, split-gate Flash
process in the third quarter of 1999 and a 0.25µm mixed-signal 2-layer-poly, 5-layer-metal, split-gate embedded Flash
process in the fourth quarter of 1999. The embedded Flash process will help customers integrate Flash with logic,
especially in microcontroller, digital signal processor and other system-on-chip applications requiring a high degree of
integration. The 0.18µm Flash/embedded Flash development is expected to be completed and available for volume
production by the end of 2000.
(6) Special Logic Processes
In addition to these advanced processes, TSMC began to develop the special logic processes in 1998, including CMOS
image sensor, color filter, and high voltage processes, for our customers to target unique markets. The 0.5µm CMOS image
15
4. Labor Relations
sensor processes were available in early 1999 and the 0.35µm processes were ready in late 1999. The 0.25µm development
is expected to be finished and available for production by the end of 2000. The 6- and 8-inch versions of CMOS color filter
processes were available in 1999. The development of 0.6µm 2-layer-poly, 3-layer-metal and 1.0µm 2-layer-poly, 2-layer-
metal high-voltage processes were completed and ready for production in 1999. By the end of the same year, TSMC began
to develop 0.5µm 2-layer-poly, 3-layer-metal high-voltage processes and should enter production in early 2000.
(7) Design Services
1999 has been a prosperous year for TSMC in design services, which includes libraries, intellectual property cores (IP) and
design engineering services. TSMC rolled out 0.18µm libraries with third-party library partners, introduced a broad
network of providers of key IP blocks, and expanded its network of engineering service partners to cover customers’
design implementation needs. In 2000, TSMC is expected to present the high-performance 0.15µm libraries and key IP as
well as a productized design reference flow – to further strengthen our design services capability. Greatly expanded use of
the Internet will aid customer access to all levels of design service information.
TSMC's labor relations record is one of outstanding harmony. For the past two years, there was not a single company- or
division-wide labor dispute or labor-related work disruption. On the contrary, TSMC has been nominated by the Executive
Yuan (the Cabinet) for several years running as an organization whose employee welfare, labor training, employee
housing, public health conditions and working environments are among the best in Taiwan. Forecasting the future, we
are confident that the possibility of loss resulting from labor dispute is extremely low. In fact, TSMC anticipates
outstanding recruitment and retention prospects for the foreseeable future, for a number of reasons. These include:
(1) Industry Leadership Status
TSMC's unassailable position as the foundry industry leader attracts excellently skilled and qualified engineering talent.
As an example, in 1999 alone, 38,000 candidates applied for work at TSMC, 9,144 interviews took place and 2,049 of
these were hired.
(2) Employee Development Programs
Persistently developing people, in terms of both TSMC's short-term productivity and long-term skill development, TSMC's
Performance Management and Development system was enacted companywide in 1999, with a focus on helping people
improve their performance and develop their talents to maximum potential. Also in 1999, 492 training courses were
offered and some 36,913 employees were enrolled. On average, every TSMC employee receives about 32 hours of
training per year.
(3) Excellent Employee Benefits
Our harmonious employee relations can be attributed in part to well-planned employee benefits, provided without the
requirement for labor unions or group-hire contracts. TSMC employees receive a variety of amenities for working here,
including a free shuttle bus system, a discount restaurant, convenience store, dormitories, health care and insurance.
(4) Coordinated Employee Activities
TSMC's Employee Welfare Committee operates a variety of social clubs and employee welfare activities designed to
maintain a continuously improving work environment for all TSMC employees. In 1999, NT$67million was allocated to
sponsorship of employee-welfare-related activities.
synergy
If you say that there is synergy between two or more organizations or groups, you mean that when they combine or work together, they are more successful than they
are when they are on their own; used mainly by business people. (Collins Cobuild English Dictionary, 1995, p. 1695)
(5) Profit-Sharing System
All TSMC employees join in TSMC’s profit-sharing system, a move which inspired the concept that "employees are the
owners of TSMC."
(6) Protected Intellectual Property
TSMC’s sound Proprietary Information Protection (PIP) policy shields valuable information, and protects employees from
unnecessary entanglements.
5. Personnel Growth over the Last Two Years
Number of Employees
Direct
Labor Engineer Manager Total
Year
Average Average
Years of
Age
Service
Percentage by Education
Ph.D. MS/MA BS/BA High School Others Total
1998 2,711
1999 3,675
2,467
2,716
730
1,069
5,908
7,460
29
29
3.9
3.8
2.2% 22.2% 37.7%
2.3% 23.1% 38.5%
37.8%
36.1%
0.1% 100.0%
0.1% 100.0%
6. Environmental Protection Measures
TSMC has been ISO14001 certified since 1996. This certification has been successfully renewed and is effective until
August, 2002. This renewed certification comes from the cooperative endeavors and hard work of every TSMC employee.
The major spirit of ISO 14001, i.e. pollution prevention and constant improvement in that area, has been fully fulfilled at
each fab during daily operation. Beginning with its handling of raw materials, TSMC merges cost-reduction programs
with industrial waste reduction concepts by optimizing manufacturing processes, automating and improving the use of
equipment and facilities and recycling. These are used to continually undertake waste reduction and more efficient
management practices to ultimately decrease consumption. The programs conducted in 1999 include evaluating greener
packaging materials by working with raw material suppliers, encouraging vendors/supplier’s EP performance by site visits,
studying to replace C2F6 with C3F8 to reduce PFC emission, and recycling of plastic wafer carriers by encouraging the
supplier to adapt to these changes.
The results of these improvements are manifested in TSMC’s receipt of numerous awards and citations, including
"Enterprise Environmental Protection", "National Industrial Waste Reduction Outstanding Factory" and "Energy
Conservation" awards. Also, recommended by the Hsinchu County EPA, TSMC was honored by an "Special Award of
Outstanding Environmental Performance" by the ex-director of the Taiwan Department of Environmental Protection, Mr.
Long-Chi Chen.
In the aspect of the compliance of EP regulations, on January 6, 1999, the EPA has promulgated the "Semiconductor
Industry Air Emissions Standards" which regulate the emission of VOCs (Volatile Organic Compounds) and mineral acids.
TSMC had already established VOC abatement systems a few years before this regulation was announced. We believe this
is a good demonstration of a proactive attitude of not only compliance but also to go beyond current regulatory
standards. In the past two years TSMC has completely complied with EPA regulations, and did not receive any penalties
for incidences or non-compliance. In the future we expect to invest another NT$2.05 billion on the improvement of
pollution control equipment throughout TSMC’s fab facilities.
17
7. Important Contracts
(1) Technology Cooperation Agreement
Term of Agreement: 7/9/1997 - 7/8/2007
Summary: Under this agreement, TSMC is obliged to pay to Philips Electronics N.V. royalty at a fixed percentage of
net sales for certain products.
Contracting Party: Philips Electronics N.V.
(2) Submicron Technology Licensing Agreement
Term of Agreement: 11/20/1990 - 12/31/2000
Summary: Under this agreement, TSMC is obliged to pay a licensing fee of NT$129.4 million to the Industrial
Technology Research Institute over a five-year period, plus royalty fees at fixed percentages of net sales for certain
products. The entire licensing fee had been paid by December 31, 1995.
Contracting Party: Industrial Technology Research Institute
(3) Building and Equipment Leasing Agreement (FAB I )
Term of Agreement: 4/1/1997 - 3/31/2002
Summary: Under this agreement, TSMC leases certain buildings and equipment from the Ministry of Economic
Affairs.
Contracting Party: Ministry of Economic Affairs
(4) Land and Public Facility Leasing Agreement (FAB I)
Term of Agreement: 4/1/1997 - 3/31/2002
Summary: Under this agreement, TSMC leases certain land and public facilities from the Industrial
Technology Research Institute.
Contracting Party: Industrial Technology Research Institute
(5) Foundry Related Agreements
Term of Agreement: 1995 - 2006
Summary: Under these agreements, TSMC guarantees a pre-determined capacity for a set number of years
to customers in the United States, Europe, and Asia. In return, custormers deposit fees with TSMC. As of the end of
1999, more than ten companies had signed foundry related agreements with TSMC.
Contracting Parties: More than 10 companies in the U.S.A., Europe, and Asia.
(6) Manufacturing Agreement
Term of Agreement: three years, upon commencement of production at WaferTech, LLC
Summary: Under this agreement, TSMC is obliged for three years, upon commencement of production at
WaferTech, LLC, to purchase a minimum of eighty-five percent of calculated installed capacity of WaferTech,
LLC. TSMC has the option to purchase up to one hundred percent of the calculated installed capacity of
WaferTech, LLC.
Contracting Party: WaferTech, LLC
(7) Purchase Agreement
Term of Agreement: three years upon commencement of production at WaferTech, LLC.
Summary: Under this agreement, TSMC is obliged to supply, and the three customers are obliged to
purchase, a certain portion of wafers produced by WaferTech, LLC.
Contracting Parties: Analog Devices, Inc., Altera Corporation and Integrated Silicon Solutions, Inc.
(8) Shareholders Agreement
Term of Agreement: May be terminated as provided in the Agreement
Summary: Under this agreement, TSMC, Philips and EDBI agreed to form a joint venture "Systems on Silicon
synergy
If you say that there is synergy between two or more organizations or groups, you mean that when they combine or work together, they are more successful than they
are when they are on their own; used mainly by business people. (Collins Cobuild English Dictionary, 1995, p. 1695)
Manufacturing Company Pte Ltd." ("SSMC") to build an IC foundry in Singapore. TSMC holds 32 % of the
shares. Philips and TSMC committed to purchase a certain percentage of SSMC’s capacity.
Contracting Party: Philips Electronics N. V. ("Philips") and EDB Investments Pte Ltd. ("EDBI")
(9) Technology Cooperation Agreement
Term of Agreement: 3/30/1999 - 3/29/2008
Summary: Under this agreement, TSMC shall transfer its process technologies to SSMC and SSMC shall pay
TSMC remuneration at a certain percentage of net selling prices of its products.
Contracting Party: Systems on Silicon Manufacturing Company Pte Ltd. ("SSMC")
(10) Technology Cooperation Agreement
Term of Agreement: 7/21/1999 - 7/20/2008
Summary: Under this agreement, TSMC shall transfer its process technologies to TASMC and TASMC shall pay
TSMC remuneration by way of giving discount to the selling prices of products sold to TSMC.
Contracting Party: TSMC-Acer Semiconductor Manufacturing Corporation ("TASMC")
(11) Merger Agreement
Term of Agreement: Nil
Summary: Under this agreement, TSMC will acquire and merge with TASMC. TSMC shall be the surviving
company and TASMC shall be dissolved after the merger. The consolidation date is tentatively scheduled for
June 30, 2000.
Contracting Party: TSMC-Acer Semiconductor Manufacturing Corporation ("TASMC")
(Note: TSMC has signed a merger agreement with Worldwide Semiconductor Manufacturing Corporation on January 7,
2000.)
8. Litigation Proceedings
(1) Antidumping Investigation Against SRAMs
On February 25, 1997, Micron Technology Inc. filed a petition for the antidumping investigation against SRAMs from
Korea and Taiwan. Following the U. S. International Trade Commission’s final determination in April 1998 that U. S.
industry is materially injured by imports from Taiwan, the U. S. Department of Commerce announced the antidumping
duty order. Taiwan industry has appealed to the U. S. Court of International Trade. SRAMs account for a very small
portion of TSMC’s total sales and TSMC’s direct sales to the U. S. is even less. Thus, the impact on TSMC’s business is
expected to be very limited.
(2) Antidumping Investigation Against DRAMs
On October 22, 1998, Micron Technology Inc. filed a petition for the antidumping investigation against DRAMs from
Taiwan. U. S. International Trade Commission made the final determination in November 1999 that the U. S. industry is
not materially injured or threatened with material injury by DRAM imports from Taiwan. U. S. Customs subsequently
instructed all field offices to discontinue suspension of liquidation of all shipments of DRAMs from Taiwan and to release
the collected bonds or deposits.
19
The intellectual capital of our
employees is the most
important asset and greatest
wealth to TSMC.
syn(cid:127)er(cid:127)gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Business and Financial Plans
1. Production and Sales Plans for 2000
2. Year 2000 Plans for Disposition or Acquisition of Real Estate or Long-term Investment
Amount of disposing real estate / long-term investment up to NT$ 300 million or 20% of paid in Capital
Company
Nature
Quantity
Location Date
Price
Funding Source Purpose
TSMC-Acer
Long-term
Common share: 348,936,000
Hsin Chu
June 30, 2000
-
-
Merger for increasing
Semiconductor
investment
Manufacturing
Corp.
Preferred share B: 376,815,000
consolidation
date
capacity to enhance
competitiveness
Amount of acquiring real estate / long-term investment up to NT$ 300 million or 20% of paid in Capital
Nature
Quantity
Location
Date
Price
Funding Source Purpose
Name of
Real
Estate or
Company
Buildings
Real estate
401,838m2
Hsin Chu
Starting from
NT$12,912
Retained
&
Tainan
Q1, 2000
million
Earnings or
Bank Borrowing
enhance
Systems on
Long-term
Common share: 63,870
Singapore
Starting from
NT$958
Retained
Silicon
investment
Q1, 2000
million
Earnings or
Increase
capacity to
competitiveness
Increase
capacity to
enhance
Bank
Borrowing
competitiveness
Manufacturing
Company
Pte. Ltd.
21
3. Research and Development Plans
TSMC’s Research and Development develops a broad spectrum of leading-edge logic, mixed-signal/RF, embedded
memory, color image sensor, and high-voltage process technologies for volume manufacturing. These state-of-the-art
processes are then used by our customers to enable system-on-chip (SOC) designs for a wide range of applications, such
as PC, communication (network, wireless), information/infotainment appliances, and consumer electronics. Through
hard work, innovation, and long-term R&D investment, TSMC has established technology leadership not only in the
dedicated foundry business but also in the semiconductor industry as a whole. Our research and development
commitment is to continue to stay ahead of the ITRS (International Technology Roadmap for Semiconductors) roadmap.
TSMC’s semiconductor R&D organization is generally regarded as
one of the best in the world. The success of the dedicated
foundry model pioneered by TSMC has attracted both overseas
and domestic talents and skills, thereby increasing the relative
strength of our R&D organization day by day. Our overall R&D
investment and expenditure is over NT$ 2.39 billion on R&D in
1999, approximately a 22 percent increase over the year 1998.
Our R&D efforts continue to receive recognition, as well as
harvest intellectual property rights (IPR), which enhances our
strength in cross-license relationships with other IPR owners.
TSMC was awarded 289 US patents and 169 ROC patents in
1999. We are the only Taiwan company among Top 50 US patent
awardees in 1999. Over the years, TSMC received many awards,
including the National Bureau of Standards’ prestigious National
Invention Award, First Prize Gold Medal, in 1998 and the
Distinguished Award for Industrial Technology Advancement
presented by Ministry of Economic Affairs, R.O.C. in 1999.
* The number of R&D expenditure has been
reclassified to conform to 1999 classification.
Complimentary to its independent R&D capabilities, TSMC collaborates with international technology leaders. In addition
to being the sole Taiwanese member of the International Sematech and 300 mm (I300I), we maintain a strong presence
in various consortia dedicated to technology development in the areas of IC process, tool and materials.
Our R&D capability has earned TSMC the position of a technology forerunner in the IC industry. Our work in the
development and introduction of low voltage, low power and high performance logic process technology is at the leading
edge. In the core logic technology area, TSMC was among the first IC companies to release the state-of-the-art 0.18µm
generation CMOS logic technology to production in 1999, consistent with the SIA technology roadmap. This 0.18µm
logic process has the most aggressive design rules and geometry in the world, enabling world-class advanced low-voltage
and high-performance transistors with gate lengths of less than 0.13µm. This technology is capable of supporting
greater than 600MHz microprocessor and graphics chip performance levels. Our process also has the most advanced
low-k (low dielectric constant) insulator integrated with conventional AlCu metallization scheme to reduce interconnect
RC (resistance x capacitance) delay and improve customers’ product performance. In addition, in 1999 TSMC R&D also
released our advanced copper interconnect process as a fully design-rule-compatible option of our 0.18µm logic
technology. This copper interconnect process has the world’s tightest design rules and is the first to be commercially
available from a dedicated foundry.
In early year 2000, TSMC will lead the world with the release and mass production of a 0.15µm generation logic
technology. This technology is expected to cover the entire application spectrum with three product lines: A high-
syn(cid:127)er(cid:127)gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
performance, low-voltage technology for processor applications (e.g., microprocessors, network processors, media
processors, etc.); A low-leakage technology for battery operation or wireless applications (e.g., cell phones); And a
standard ASIC-logic technology. This industry-leading technology will have both aluminum/low-k as well as Cu/low-k
interconnect options. Excellent yield has been achieved and qualification is under way.
In the rapidly growing CMOS mixed-signal/RF area, TSMC R&D released a 0.25µm mixed-signal/RF process in 1999. This
process has a rich set of modular analog devices and passive components. For example, high-Q metal-insulator-metal
capacitors can enable modem, audio, and other mixed-digital-analog SOC applications, while high-Q inductors enable RF
and wireless/baseband applications. The development of a 0.18µm version is nearly complete with successful prototype
production and is expected to be in production in early 2000. Next-generation 0.13µm mixed signal, baseband, and RF
technology development is underway to provide further performance and density value for SOC applications.
During the past year, TSMC has also made great progress in the continuous scaling of Embedded Memory technology
(Emb-SRAM, Emb-DRAM, Emb-Flash) that is an essential part of SOC integration. These value-added embedded memory
technologies are fully compatible with their respective core Logic Technology platforms. They are also supported by a
complete set of compilers, design kits, and test support, to enable SOC designs and product introduction.
Our Emb-SRAM technology has been an integral part of the TSMC high performance logic technology platform since the
0.25µm generation. TSMC offers a variety of competitive 6T SRAM cells in terms of density, performance, and standby
leakage. For example, cell size less than 3.5µm2 are available in the 0.15µm logic platform with compiler performance
capable of reaching 1GHz. The same 6T SRAM platform also supports high density, high performance or low standby
leakage stand-alone SRAM applications.
TSMC's 0.25µm embedded DRAM has been successfully demonstrated on customers' products. This technology offers a
very small cell size of 0.78µm2 and can incorporate 1 - 64 Mb memory sizes with different I/Os. This technology has
been transferred to manufacturing for volume production. The 0.18µm Embedded DRAM technology is in development
and is expected to be ready in 2000.
Our 0.35µm Embedded Flash technology was introduced in 1999. Technology qualification was completed and several
products have been demonstrated with good yield. The development of 0.25µm Embedded Flash technology is nearly
completed, with process qualification ongoing. Our 4Mb Flash test vehicle has been proven with respectable yield. A
version utilizing 0.18µm technology has been started with the goal to scale the cell size aggressively. The expected date
for risk production is fourth quarter of 2000.
In addition to advanced mixed-signal/RF and embedded memory processes, TSMC also offers color image sensors and
high voltage technologies for system-on-chip (SOC) applications. The color image sensor is ideal for camera-on-a-chip
applications. In 1999, we released 0.35µm color image sensor process to production, in addition to the existing
production of 0.8, 0.6, 0.5µm color imager sensor processes. A 0.25µm imager process is under development for
production by the end of 2000. These image sensors are further enhanced by color filters with micro-lens to double the
sensitivity. A 6-inch TCF1 (TSMC Color Filter-1) with resolution down 5µm pixel size has been in production since 1998,
and an 8-inch version (TCF3) will be released in early 2000. In the high voltage/power area, TSMC enriched the existing
production of 1µm 16V and 40V processes by introducing 0.6 and 0.5µm versions of these processes, as well as a 0.8µm
40V BiCMOS version, in 1999. These processes are fully compatible with TSMC generic logic and mixed signal processes
for mixed 5V and high voltage system integration.
23
TSMC has one of the largest in-house mask fabrication capabilities anywhere. Our mask shops are well known for
excellent quality and cycle time to support fast prototyping, production, and mask technology R&D. Our facilities have all
the key state-of-the-art Ebeam mask writer and inspection tools necessary to support both R&D and commercial use,
including advanced optical-proximity-correction (OPC) and phase-shift mask (PSM) technology for use in the 0.15µm and
0.13µm logic processes and future technology generations.
TSMC R&D began 0.13µm development in full steam in 1999 as well as exploratory work on future 0.1µm generation
and beyond, such as <0.07µm devices, unit processes, advanced high-k gate insulator, and extreme low-k (k<=2)
interconnect insulator materials. TSMC has the first 193nm step and scan photolithographic production equipment in
Taiwan, capable of sub-0.13µm and 0.1µm production. We also participate in international next generation lithography
(NGL) consortia to maintain leadership in sub-0.1µm lithography and process technology. TSMC has been building the
first 12-inch fab in Taiwan with target volume production in early 2001. This 12-inch fab will also support future R&D of
0.10 m generation and beyond.
With the skilled, experienced, and dedicated R&D management and research/development staff, the significant
investment in the most advanced process tools and materials, and the commitment to excellence, innovation, quality, and
value, TSMC R&D strives to be the cornerstone of the "Virtual Fab" for semiconductor manufacturing. We will continue
to deliver the world's best and most cost-effective system-on-a-chip technology for fabless, IDM, and system partners and
customers in the future.
4. Financing Plans
4.1 Capital Increase for Expansion Plans for 2000
Item
Amount (NT$M)
Objectives
FabXII - Construction
8,805
Scheduled to produce 12" wafers
FabVII - Construction
8,640
Scheduled to produce 12" wafers
FabVI
FabV
42,033
Increase 8" wafer output capacity to 40K pcs/month by the end of 2000
8,783
Increase 8" wafer output capacity to 38K pcs/month by the end of 2000
FabI~FabIV
3,208
Upgrade product mix
300MM pilot line
13,860
Exercise advanced module & integration
Replacement and Others
10,307
Maintain technology superiority and competitiveness
Total
95,636
Captital expenditures will be funded by internally generated cash flow or/and external funding activities.
4.2 Previous Financing Plans and Implementation
(1) Financing Plan
On October 21, 1999, TSMC issued NT$ 10 billion corporate bonds, the third time the Company tapped in the local debt
market, to finance its procurement of machinery and equipment for Fab 5 and its long-term investment in TASMC. Out of
the total fund raised in this issuance, NT$8,169,634,000 was used to acquire equity interests of TASMC and
NT$1,830,366,000 was used to purchase equipment for Fab 5. The bonds was issued in two NT$5 billion tranches with
tenors of 3 years and 5 years and the coupon rates are 5.67%, and 5.95%, respectively.
(2) Status of Implementation
By the end of December 1999, TSMC has completed this plan of procurement of manufacturing equipment for Fab 5 and
investment in TASMC.
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
5. TSMC Education and Culture Foundation
Fundamental to TSMC s business philosophy, TSMC is committed to its role as a corporate citizen and its care for
Taiwan s social development through monetary grants as well as time and talents of its employees. To satisfy the rising
diversity of societal needs through a formal vehicle, TSMC established the "TSMC Education and Culture Foundation"
(TSMC Foundation) in 1998. TSMC Foundation s mission is guided by the following three principles:
(1) Commitment to Education
To help develop university students talents in high technology, management and intellectual property rights, TSMC
Foundation established three educational grant programs - "TSMC Undergraduate International Exchange Program
Scholarship", "TSMC Intellectual Property Scholarship" and "TSMC Visiting Chair Professorship" - with Tsing Hua University,
Chiao Tung University and Cheng Kung University.
(2) Contributions to the Community
TSMC Foundation supports community services in Hsin-chu and Tainan, where TSMC has major facilities, with both
funding and volunteers to build a sound environment for our employees and neighbors. TSMC Foundation directs its
efforts at arts and cultural activities, environmental protection, health, athletics, and similar programs to enhance the
quality of life in our communities.
(3) Sponsorship of National Arts and Cultural Activities
Without grants from industry or government, major national arts and cultural activities cannot take place. We hope to
increase the popular pursuit of national arts and cultural activities through TSMC Foundation s sponsorship. Our
sponsorship of the "Le Monde de Picasso exhibition" at the National Palace Museum and production of the TV series, "The
people who made dreams for Taiwan", are striking examples of that effort.
Due to the devastating earthquake of September 21, 1999, TSMC s ongoing operations were substantially affected.
However, the losses and misfortunes of the quake victims were clearly much more severe. After TSMC and its employees
donated NT$200 million to the earthquake victims, TSMC further committed itself to the continuing support of spiritual
recovery through sponsorship of arts performances and cultural activities. For example, "The Jose Carreras 1999 Taipei
Concert" exclusively sponsored by TSMC Foundation, joined the call to provide quake victims with a "Mobile Library" made
up of container trucks.
In addition to annual activities, TSMC Foundation provides seed grants to selected arts and cultural organizations on a
long-term basis, to support these organizations in developing themselves as cultural resources of Taiwanese society. One
of the most significant examples was TSMC Foundation s endowment to the Cloud Gate Dance Theatre Foundation.
Income from the endowment will be used to support long-term development of the dance group.
25
28
Financial Statements
1. Brief Balance Sheets
Financial analysis from 1995 to 1999
Item
Current assets
1995
1996
1997
1998
1 9 9 9
Unit: NT$K
16,070,964
16,529,359
23,790,795
26,378,422 38,770,670
Long-term stock investments
4,989,037
12,608,506
19,220,371
17,537,765 28,208,643
Fixed assets
Other assets
Current liabilities
Before distribution
After distribution
Long-term liabilities
Other liabilities
Capital stock
Capital surplus
Retained earnings
Before distribution
After distribution
Total Assets
Total Liabilities
Before distribution
After distribution
Total Equity
Before distribution
After distribution
26,643,665
41,978,952
61,697,723
73,636,209 89,566,029
599,369
2,018,827
3,804,923
6,554,817
4,877,392
5,075,481
5,357,895
10,088,672
8,138,796 14,469,329
5,926,696
5,926,138
10,250,285
8,276,867
*
5,556,381
5,720,000
20,009,357
25,025,206 20,000,000
4,091,928
9,943,809
9,001,390
6,872,545
6,183,565
14,390,000
26,542,000
40,813,000
60,471,760 76,708,817
19,428
59,086
62,082
164,219 11,831,411
19,165,640
25,523,456
28,641,292
24,162,113 33,320,615
6,162,425
10,684,213
8,820,919
9,010,971
*
48,303,035
73,135,644
108,513,812
124,107,213 161,422,734
14,723,790
21,021,704
39,099,419
40,036,547 40,652,894
15,575,005
21,589,947
39,261,032
40,174,618
*
33,579,245
52,113,940
69,414,393
84,070,666 120,769,840
32,728,030
51,545,697
69,252,780
83,932,595
*
* Subject to change after shareholders’ meeting resolution
2. Brief Statements of Income
Financial analysis from 1995 to 1999
Item
Net sales
Gross profit*
Unit: NT$K(Except EPS: NT$)
1995
1996
1997
1998
1999
28,765,991
39,400,179
43,935,627
50,233,008
73,131,206
15,740,746
21,411,531
20,134,920
20,336,042
32,215,693
Income from operations
13,897,006
18,235,246
15,489,780
16,202,245
25,916,619
Interest revenue
Interest expense
Profit before tax
Net profit
Earnings per share
367,986
258,000
653,462
277,161
501,434
546,490
566,020
808,616
981,388
1,415,527
14,314,528
18,972,932
15,517,103
13,648,622
24,109,865
15,081,273
19,400,689
17,960,075
15,344,203
24,559,884
10.48 **
2.00 ***
7.31 **
2.57 ***
4.40**
2.38***
2.54**
2.03***
3.24 * *
-
Capitalized interest
102,926
181,168
255,054
661,414
305,312
* Certain accounts of 1995 through 1998 have been reclassified to conform to 1999 classifications
** Based on weighted average shares outstanding in each year
*** Retroactive adjustment for capitalizations of unappropriated earnings and bonus to employees
28
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
3. Financial Analysis
Financial analysis from 1995 to 1999
Item
1995
1996
1997
1998
1999
Capital Structure Analysis
Debts ratio (%)
Long-term fund to fixed assets (%)
Liquidity Analysis
Current ratio (%)
Quick ratio (%)
Times interest earned (times)
Operating Performance Analysis
Average collection turnover (times)
Average collection days
Average inventory turnover (times)*
Average inventory turnover days*
Fixed assets turnover (times)
Total assets turnover (times)
Profitability Analysis
Return on total assets (%)
Return ratio on stockholders’ equity (%)
Operating income to capital stock (%)
Profit before tax to capital stock (%)
Profit after tax to net sales (%)
Net worth per share (NTD)
Earnings per share (NTD)
Dividends per share (NTD)
Cash dividends (NTD)
Stock dividends (NTD)
Cash Flow
Cash flow ratio (%)
Cash flow adequacy ratio (%)
Cash flow reinvestment ratio (%)
Leverage
Operating leverage
Financial leverage
30.48
146.89
28.74
137.77
36.03
144.94
32.26
25.18
148.16
157.17
316.64
257.83
40.38
308.50
247.77
42.40
235.82
185.78
20.04
324.11
273.86
8.91
267.95
233.95
14.83
8.12
44.95
7.73
47.22
1.08
0.60
41.23
57.55
96.57
99.48
52.43
23.34
8.80
41.00
7.24
50.43
0.94
0.54
32.40
45.28
68.70
71.48
49.24
19.63
6.22
58.68
6.12
59.69
0.71
0.41
20.35
29.56
37.95
38.02
40.88
17.01
5.90
61.85
6.82
53.49
0.68
0.40
14.04
19.99
26.79
22.57
30.55
13.90
2.0 **
2.57 **
2.38**
2.03 **
8.00
-
8.00
8.00
-
8.00
5.00
-
5.00
4.50
-
4.50
7.18
50.82
9.96
36.66
0.82
0.45
18.19
23.98
33.79
31.43
33.58
15.74
3.24
2.30
* * *
2.30
348.45
111.94
31.94
452.74
113.70
28.21
201.55
97.96
16.28
417.00
102.04
21.65
273.50
106.00
19.31
1.69
1.02
1.79
1.02
2.15
1.04
2.69
1.06
2.47
1.06
Certain accounts of 1995 through 1998 have been reclassified to conform to 1999 classifications
*
** Retroactive adjustment for capitalizations of unappropriated earnings and bonus to employees
*** Subject to change after shareholders’ meeting resolution
29
4. Net Worth, Earnings, Dividends and Market Price Per Share
Market price per share
Highest market price
Lowest market price
Average market price
Net worth per share
Before distribution
After distribution
Earnings per share
1997
1998
1999
173.00
55.50
109.35
17.01
11.45
173.00
56.50
100.80
13.90
11.12
171.00
68.00
117.10
15.74
-
Weighted average shares
4,081,300,000
6,047,176,000
7,572,598,000
Earnings per share
Earnings per share1
Dividends per share
Cash dividends
Stock dividends
Dividends from retained earnings
Dividends from capital surplus
Return on investment
Price/Earning ratio2
Price/Dividend ratio3
Cash dividend yield rate4
4.40
2.38
-
5.00
-
24.85
-
0
2.54
2.03
-
4.50
-
3.24
-
*
2.30
*
39.69
36.14
-
0
*
*
*Subject to change after shareholders’ meeting resolution
Note 1. Retroactive adjustment for capitalizations of unappropriated earnings and bonus to employees
Note 2. Price/Earning ratio = Average market price/Earnings per share
Note 3. Price/Dividend ratio = Average market price/Cash dividends per share
Note 4. Cash dividend yield rate = Cash dividends per share/Average market price
30
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
5. Auditors’ Opinion from 1995 to 1999
Year
1995
1996
1997
1998
1999
C P A
Audit Opinion
S.C. Huang, Edward Way
An Unqualified Opinion, except the adoption
of Statement of Financial Accounting
Standards No.22.
S.C. Huang, Edward Way
An Unqualified Opinion
S.C. Huang, Edward Way
An Unqualified Opinion
S.C. Huang, Edward Way
An Unqualified Opinion
S.C. Huang, Edward Way
An Unqualified Opinion
12F, No.156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan, R.O.C.
Tel: 886-2-2545-9988
6. Supervisors’ Report
The Board of Directors have prepared and submitted to us the Company’s 1999 business report, balance sheet,
inventories of major assets, statement of profit and loss, statements of changes in shareholders’ equity, statements of
cash flows, and proposal for allocating profit. The CPAs of T. N. SOONG & CO. were retained to audit the balance sheet,
inventories of major assets, statement of profit and loss, statements of changes in shareholders’ equity and statements of
cash flows and have submitted a report relating thereto. The above reports, statements and proposal have been further
examined as being correct and accurate by the undersigned, the supervisors of Taiwan Semiconductor Manufacturing
Company Limited. According to Article 219 of the Company Law, we hereby submit this report.
Taiwan Semiconductor Manufacturing Company Limited
Supervisor Jan Kees van Vliet
Supervisor George C. Shiu
Supervisor Jerome S. N. Hu
February 18 , 2000
31
7. Review and Analysis of Financial Position and Operating Results
Reversal of allowance for losses on short-term investments
120,766
SALES RETURNS AND ALLOWANCES
(905,729)
(1,208,564)
302,835
$74,036,935
$51,441,572
22,595,363
(1) Liquidity Analysis
Item
Current ratio
Quick ratio
(2) Analysis of Operating Result
Item
GROSS SALES
NET SALES
COST OF SALES
GROSS PROFIT
OPERATING EXPENSES
INCOME FROM OPERATIONS
NON-OPERATING INCOME
Interest
Insurance compensation
Premium income
Gain on sale of investments
Foreign exchange gain - net
Other
Total Non-Operating Income
NON-OPERATING EXPENSES
Interest
Investment loss - net
Bond issue costs
Loss on option contracts
Foreign exchange loss - net
Loss on disposal of short-term investments
Loss on disposal of properties
Provision for loss on short-term investments
Other
December 31
1999
December 31
1998
267.95%
233.95%
324.11 %
273.86 %
Change %
(17.33%)
(14.57%)
1999
1998 Change Amount
Unit: NT$K
Change %
73,131,206
50,233,008
22,898,198
40,915,513
29,896,966
11,018,547
32,215,693
20,336,042
11,879,651
6,299,074
4,133,797
2,165,277
25,916,619
16,202,245
9,714,374
808,616
184,607
63,809
29,041
-
42,867
566,020
-
-
8,280
242,596
184,607
120,766
55,529
756,522
(727,481)
97,229
66,607
(97,229)
(23,740)
1,249,706
1,494,658
(244,952)
1,415,527
981,388
434,139
1,191,891
2,707,170
(1,515,279)
114,839
143,644
(28,805)
86,746
81,436
75,366
35,810
-
54,845
-
-
-
2,507
121,926
91,646
86,746
81,436
75,366
33,303
(121,926)
(36,801)
(991,821)
43.92%
(25.06%)
45.58%
36.86%
58.42%
52.38%
59.96%
42.86%
-
-
670.64%
(96.16%)
(100.00%)
(35.64%)
(16.39%)
44.24%
(55.97%)
(20.05%)
-
-
-
1328.40%
(100.00%)
(40.16%)
(24.50%)
76.65%
(73.46%)
60.06%
Total Non-Operating Expenses
3,056,460
4,048,281
INCOME BEFORE INCOME TAX
24,109,865
13,648,622
10,461,243
INCOME TAX BENEFIT
NET INCOME
450,019
1,695,581
(1,245,562)
$24,559,884
$15,344,203
9,215,681
32
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
8. Financial Statements & Independent Auditors’ Report
We have audited the balance sheets of Taiwan Semiconductor Manufacturing Company Ltd. as of December 31, 1999
and 1998, and the related statements of income, changes in shareholders’ equity and cash flows for the years then
ended. These financial statements are the responsibility of the management of Taiwan Semiconductor Manufacturing
Company Ltd. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Taiwan Semiconductor Manufacturing Company Ltd. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended, in conformity with the regulations governing the preparation of
financial statements of public companies and generally accepted accounting principles.
January 24, 2000
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash
flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those
of another jurisdictions. The standards, procedures and practices to audit such financial statements are those generally
accepted and applied in the Republic of China.
33
BALANCE SHEETS
December 31, 1999 and 1998
(In Thousand New Taiwan Dollars Except Par Value)
ASSETS
CURRENT ASSETS
1999
Amount
%
1998
Amount
%
Cash and cash equivalents (Notes 2 and 3)
$16,650,017
1 0
$8,292,152
Short-term investments(Notes 2 and 4)
Receivable from related parties (Note 13)
Notes receivable
Accounts receivable
Allowance for doubtful receivables (Note 2)
Allowance for sales returns and allowances (Note 2)
Inventories (Notes 2 and 5)
Deferred income tax assets (Notes 2 and 12)
Prepayments and others (Notes 2, 13 and 16)
236,250
468,903
164,134
13,380,253
(422,202)
(706,886)
4,529,714
2,329,000
2,141,487
-
-
-
8
-
-
3
1
2
5,661,327
234,507
34,868
7,936,255
(283,090)
(441,973)
3,688,777
406,739
848,860
7
5
-
-
6
-
-
3
-
1
Total Current Assets
38,770,670
2 4
26,378,422
22
LONG-TERM INVESTMENTS (Notes 2 and 6)
28,208,643
1 7
17,537,765
14
PROPERTIES (Notes 2, 7 and 13)
Cost
Buildings
Machinery and equipment
Office equipment
Total cost
Accumulated depreciation
Prepayments and construction in progress
Net Properties
OTHER ASSETS
Deferred charges - net
Deferred income tax assets (Notes 2 and 12)
Refundable deposits
Miscellaneous
Total Other Assets
TOTAL ASSETS
The accompanying notes are an integral part of the financial statements.
21,337,655
102,672,163
1,939,392
125,949,210
1 3
6 4
1
7 8
20,037,080
77,290,435
1,657,981
98,985,496
17
62
1
80
(57,969,725)
( 3 6)
(40,786,249)
(33)
21,586,544
89,566,029
1 4
5 6
15,436,962
73,636,209
12
59
578,544
4,273,252
16,346
9,250
4,877,392
-
3
-
-
3
711,822
5,811,827
21,918
9,250
6,554,817
-
5
-
-
5
$161,422,734
1 0 0 $124,107,213
100
34
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Payable to related parties (Note 13)
Accounts payable
Other payable - construction and equipment
Income tax payable (Notes 2 and 12)
Current portion of long-term bank loans (Note 8)
Accrued expenses and others
Total Current Liabilities
NON-CURRENT LIABILITIES
Bonds payables (Note 2 and 9)
Guarantee deposits
Accrued pension obligations (Notes 2 and 11)
Bank loans(Notes 7 and 8)
Total non-current liabilities
1999
Amount
$1,916,526
2,525,086
6,958,098
146,300
-
2,923,319
14,469,329
1998
Amount
$359,097
2,047,871
3,181,099
775,508
299,449
1,475,772
8,138,796
%
-
2
3
1
-
1
7
%
1
2
4
-
-
2
9
20,000,000
1 2
22,631,717
18
5,185,362
998,203
-
3
1
-
6,123,825
748,720
2,393,489
5
-
2
26,183,565
1 6
31,897,751
25
Total Liabilities
40,652,894
2 5
40,036,547
32
SHAREHOLDERS’ EQUITY (Notes 2 and 10)
Capital stock- $10 par value
Authorized - 9,100,000 thousand shares in 1999
and 8,500,000 thousand shares in 1998
Issued - 7,670,882 thousand shares in 1999 and
6,047,176 thousand shares in 1998
76,708,817
4 7
60,471,760
49
Capital surplus
Legal reserve
Unappropriated earnings
Cumulative translation adjustment
Total Shareholders’ Equity
11,831,411
8,258,359
7
5
164,219
6,724,240
25,062,256
1 6
17,437,873
(1,091,003)
-
(727,426)
120,769,840
7 5
84,070,666
-
5
14
-
68
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$161,422,734
1 0 0 $124,107,213
100
The accompanying notes are an integral part of the financial statements.
35
STATEMENTS OF INCOME
For the Years Ended December 31, 1999 and 1998
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
1999
Amount
%
1998
Amount
%
$74,036,935
(905,729)
$51,441,572
(1,208,564)
73,131,206
1 0 0
50,233,008
100
40,915,513
32,215,693
5 6
4 4
29,896,966
20,336,042
2,097,835
1,810,701
2,390,538
6,299,074
3
2
4
9
1,367,301
809,302
1,957,194
4,133,797
60
40
3
1
4
8
25,916,619
3 5
16,202,245
32
808,616
184,607
120,766
63,809
29,041
-
42,867
1,249,706
1,415,527
1,191,891
114,839
86,746
81,436
75,366
35,810
-
54,845
1
1
-
-
-
-
-
2
2
2
-
-
-
-
-
-
-
566,020
-
-
8,280
756,522
97,229
66,607
1,494,658
981,388
2,707,170
143,644
-
-
-
2,507
121,926
91,646
1
-
-
-
2
-
-
3
3
5
-
-
-
-
-
-
-
3,056,460
24,109,865
450,019
4
3 3
1
4,048,281
13,648,622
1,695,581
$24,559,884
3 4
$15,344,203
8
27
3
30
$ 3.24
$ 2.54
$ 2.03
GROSS SALES (Notes 2 and 13)
SALES RETURNS AND ALLOWANCES
NET SALES
COST OF SALES (Note 13)
GROSS PROFIT
OPERATING EXPENSES (Note 13)
General and administrative
Marketing
Research and development
Total Operating Expenses
INCOME FROM OPERATIONS
NON-OPERATING INCOME
Interest
Insurance compensation
Reversal of allowance for losses on short-term investments
Premium income (Notes 2 and 17)
Gain on sale of investments
Foreign exchange gain - net (Note 2)
Other
Total Non-Operating Income
NON-OPERATING EXPENSES
Interest (Notes 7 and 17)
Investment loss - net (Notes 2 and 6)
Bond issue costs
Loss on option contracts (Notes 2 and 17)
Foreign exchange loss - net (Note 2)
Loss on disposal of short-term investments
Loss on disposal of properties
Provision for loss on short-term investments
Other
Total Non-Operating Expenses
INCOME BEFORE INCOME TAX
INCOME TAX BENEFIT (Notes 2 and 12)
NET INCOME
EARNINGS PER SHARE
Based on weighted-average number of
shares outstanding - 7,572,598 thousand in 1999
and 6,047,176 thousand in 1998
Based on 7,548,483 thousand shares
The accompanying notes are an integral part of the financial statements.
36
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For the Years Ended December 31, 1999 and 1998
(In Thousand New Taiwan Dollars)
CUMULATIVE
TRANSLATION
TOTAL
ADJUSTMENT
SHAREHOLDERS’
CAPITAL STOCK ISSUED
CAPITAL SURPLUS (Note 2)
RETAINED EARNINGS (Note 10)
(Note 2)
EQUITY
From
Excess
On Foreign
Shares
Long-Term
Bond
Gain on
Disposal
of
(Thousand)
Amount
Investments
Investments
Properties
Donation
Total
Legal
Reserve
Unappropriated
Earnings
Total
BALANCE, JANUARY 1, 1998
4,081,300
$40,813,000
$ -
$ -
$62,027
$55
$62,082
$4,928,532
$23,712,760
$28,641,292
($101,981)
$69,414,393
Appropriations of prior year’s earnings (Note 10)
Legal reserve
-
-
Bonus to employees - Stock
129,291
1,292,910
Stock dividends - 45%
1,836,585
18,365,850
Bonus to directors and supervisors
Net income in 1998
Gain on disposal of properties
Adjusting arising from changes in
ownership percentage in investees
Translation adjustment
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
99,128
-
BALANCE, DECEMBER 31, 1998
6,047,176
60,471,760
99,128
Appropriations of prior year’s earnings (Note 10)
Legal reserve
-
-
Bonus to employees - Stock
110,457
1,104,566
Stock dividends - 23%
1,390,850
13,908,505
Bonus to directors and supervisors
Net income in 1999
-
-
-
-
Conversion of foreign bonds
122,399
1,223,986
Gain on disposal of properties
Gain on disposal of properties of investees -
Adjusting arising from changes in
ownership percentage in investees
Translation adjustment
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
246,218
126,954
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,289,998
-
-
-
-
-
-
-
-
-
3,009
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,009
99,128
-
1,795,708
(1,795,708)
-
-
-
-
-
-
-
-
(1,292,910)
(1,292,910)
(18,365,850)
(18,365,850)
(161,613)
(161,613)
15,344,203
15,344,203
(3,009)
(3,009)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(161,613)
15,344,203
-
99,128
(625,445)
(625,445)
65,036
55
164,219
6,724,240
17,437,873
24,162,113
(727,426)
84,070,666
-
-
-
-
-
-
4,022
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,289,998
4,022
246,218
126,954
-
1,534,119
(1,534,119)
-
-
-
-
-
-
-
-
-
-
(1,104,566)
(1,104,566)
(13,908,505)
(13,908,505)
(138,071)
(138,071)
24,559,884
24,559,884
-
-
(4,022)
(4,022)
(246,218)
(246,218)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(138,071)
24,559,884
12,513,984
-
-
126,954
(363,577)
(363,577)
BALANCE, DECEMBER 31, 1999
7,670,882
$76,708,817
$472,300
$11,289,998
$69,058
$55
$11,831,411
$8,258,359
$25,062,256
$33,320,615
($1,091,003)
$120,769,840
The accompanying notes are an integral part of the financial statements.
37
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
(In Thousand New Taiwan Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income tax
Investment loss recognized by equity method - net
Accretion in redemption value of bonds
Accrued pension liabilities
Provisions for:
Sales returns and allowances
Doubtful receivables
Loss (gain) on disposal of properties - net
Gain on disposal of long-term investments
Changes in operating assets and liabilities
Receivable from related parties
Notes receivable
Accounts receivable
Inventories
Prepayments and others
Payable to related parties
Accounts payable
Income tax payable
Accrued expenses and others
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Properties
Long-term investments
Proceeds from sales of:
Properties
Long-term investments
Decrease (increase) in short-term investments
Increase in deferred charges
Decrease in refundable deposits
Net Cash Used in Investing Activities
38
1999
1998
$24,559,884
$15,344,203
18,041,320
14,592,897
(383,686)
1,191,891
585,614
249,483
264,913
139,112
31,854
(9,881)
(234,396)
(129,266)
(5,443,998)
(840,937)
(1,292,627)
1,557,429
477,215
(629,208)
1,439,372
(2,471,239)
2,707,170
875,760
261,015
(93,241)
(9,997)
(371)
(756,522)
268,533
200,044
1,697,948
1,031,254
505,748
(435,216)
(612,275)
775,508
57,544
39,574,088
33,938,763
(29,842,159)
(28,066,471)
(12,105,618)
(1,676,239)
36,824
16,106
5,425,077
(433,187)
5,572
3,476
1,466,879
(690,495)
(322,735)
51,667
(36,897,385)
(29,233,918)
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term bonds payable
9,450,634
9,772,500
1999
1998
Payments of:
Long-term bank loans
Commercial papers payable
Decrease in guarantee deposits
Bonus paid to directors and supervisors
Adjustment of forward contract payable
Net Cash Provided by Financing Activities
(2,692,938)
-
(938,463)
(138,071)
-
5,681,162
(5,332,962)
(250,000)
(2,389,860)
(161,613)
(585,000)
1,053,065
NET INCREASE IN CASH AND CASH EQUIVALENTS
8,357,865
5,757,910
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
8,292,152
2,534,242
CASH AND CASH EQUIVALENTS, END OF YEAR
$16,650,017
$8,292,152
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized amounts)
Income tax paid
Noncash investing and financing activities
Effect of exchange rate changes on cash and cash equivalents
Current portion of long-term bank loans
Cash paid for acquisition of properties
Total acquisitions
Other payable - construction and equipment
$1,300,591
$540,873
$850,661
$17,457
($66,376)
$ -
($150,518 )
$299,449
$33,619,158
$26,281,585
(3,776,999)
1,784,886
$29,842,159
$28,066,471
Conversion of foreign bonds into common stocks and capital surplus
$12,513,984
$ -
The accompanying notes are an integral part of the financial statements.
39
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousand New Taiwan Dollars, Unless Specified Otherwise)
(1) GENERAL
The Company is engaged mainly in the: (a) manufacture, sale, packaging, testing and computer-aided design of
integrated circuits and other semiconductor devices; and, (b) manufacture and design of masks.
The Company’s shares are listed and traded in the Taiwan Stock Exchange.
On October 8, 1997, the Company offered shares of stock in the New York Stock Exchange in the form of American
Depositary Receipts (ADRs).
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in conformity with regulations governing the preparation of financial
statements of public companies, and generally accepted accounting principles in the Republic of China.
Cash equivalents
Government bonds acquired under repurchase agreements and commercial papers with original maturities of less than
three months are classified as cash equivalents.
Short-term investments
Short-term investments are carried at the lower of cost or market value. The costs of investments sold are determined by
the specific identification method.
Allowance for doubtful receivables
Allowance for doubtful receivables is provided based on a review of the collectibility of individual receivables.
Sales and allowance for sales returns and others
Sales are recognized when products are shipped to customers. Allowances for sales returns and others are provided
based on experience; such provisions are deducted from sales and the related costs are deducted from cost of sales.
Inventories
Inventories are stated at the lower of standard cost (adjusted to approximate weighted average cost) or market value.
Market value represents net realizable value for finished goods and work in process, and replacement value for raw
materials, supplies and spare parts.
Long-term investments
Investments in shares of stock for which the Company exercises significant influence on the investees are accounted for by
equity method. The difference between the investment cost and the Company’s proportionate share in the net asset of
the investee at the date of acquisition is amortized on a straight-line method over five years. Such amortization and the
Company’s proportionate share in the earnings or losses of investee companies are recognized as part of "Investment
income or loss" account in the Statement of Income. The increase or decrease in the Company’s share in the net assets of
the investee companies because of the changes in its equity interest resulting from the issuance of additional new shares
by the investee companies, on which the Company did not subscribe according to the original percentage of ownership,
are accounted for as adjustment to the investment carrying value and capital surplus.
Other stock investments are accounted for by cost method. These investments are stated at cost less decline in market
40
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
value of listed stocks or decline in value of unlisted stocks which is considered irrecoverable; such reductions are charged
to shareholders’ equity or current income, respectively. Stock dividends received are recognized only as increase in the
number of stocks held on the ex-dividend date.
Investments in foreign mutual funds are stated at the lower of cost or net asset value (NAV). Writedowns of cost and
write-ups to original acquisition cost resulting from subsequent recovery in NAV are debited or credited to shareholders’
equity.
The costs of investments sold are determined by the weighted average method.
If an investee company’s net income or net loss includes gains from the disposal of properties, the after-tax amount of
such gains or losses shall be recognized as investment gains or losses in the year of occurrence in proportion to the
Company’s equity interest and transferred in to capital surplus from retained earnings. When the Company subsequently
disposed such investment in shares of stock, such capital surplus shall be transferred back to retained earnings.
Gains or losses on transactions with investee companies wherein the Company owned at least 20% of the outstanding
common stock but less than a controlling interest are deferred in proportion to ownership percentage until realized
through a subsequent transaction with a third party. If the unrealized gains or losses stated above are due to a sale by
the subsidiary to the parent, an adjustment should be made in accordance with ownership percentage.
Properties
Properties are stated at cost less accumulated depreciation. Major additions, renewals and betterment, and interest
expense incurred during the construction period are capitalized while maintenance and repairs are expensed currently.
Depreciation is provided on the straight-line method over estimated service lives which range as follows: buildings - 10
to 20 years; machinery and equipment - 5 to 10 years; office equipment - 3 to 5 years.
Upon sale or disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and
any gain or loss is credited or charged to income. Any such gain, less applicable income tax, is transferred to capital
surplus at the end of the year.
Deferred charges
Deferred charges, consisting of software and system design costs, issuance costs of bonds, and short-term credit
instruments, are amortized over three years, five years, and the contract period of credit instruments, respectively.
Convertible bonds
The excess of the stated redemption price over the face value of the bond is amortized and recognized as interest
expense over a period starting from the issue date to the last day of the redemption period or the actual redemption
date, whichever is earlier, using the effective interest method.
Capital stock account is credited for the face value of the bond converted into the Company’s shares of stock and the
excess of the carrying value of the bond as of the date of its conversion over its face value is credited to capital surplus
account.
Pension costs
Net periodic pension costs are recorded based on actuarial calculations. Unrecognized net transition obligation is
amortized over 25 years.
41
Income tax
The Company adopted interperiod tax allocation. Deferred income taxes are recognized for the tax effects of temporary
differences, unused tax credits, and operating loss carryforwards. Valuation allowance is provided for deferred income tax
assets that are not certain to be realized. A deferred tax asset or liability should, according to the classification of its
related asset or liability, be classified as current or non-current. However, if a deferred asset or liability cannot be related to
a asset or liability in the financial statements, then it should be classified as current or non-current based on the expected
length of time before it is recovered.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
Income taxes (10%) on undistributed earnings are recorded as expense in the year when the shareholders have resolved
that the earnings shall be retained.
Derivative financial instruments
Foreign currency forward exchange contracts (forward contracts), entered into for purpose other than trading, are
recorded in New Taiwan dollars as assets or liabilities using the spot rates at the inception dates of the contracts. The
differences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the
contracted forward rates are also recognized as premiums or discounts at the inception dates of the forward contracts.
Such premiums or discounts are amortized over the terms of the forward contracts using the straight-line method and
the amortizations are either deferred or recognized in income.
At the balance sheet dates, the receivables or payables arising from forward contracts are restated using the prevailing
spot rates and the resulting differences are recognized consistent with the recognition of the amortization of the
premiums or discounts described above. Also, the receivables and payable related to the forward contracts are netted out
and the resulting net amount is presented as either an asset or liability.
Interest rate swap transactions entered into to manage liabilities are accounted for on an accrual basis, in which cash
settlement receivable or payable is recorded as an adjustment to interest income or expense.
The notional amounts of the foreign currency option contracts entered into for hedging purposes are not recognized as
either asset or liability on the contract dates. However, amounts received on call options written are recognized as assets
and amounts paid on put options bought are recognized as liabilities. Such amounts are amortized using the straight-
line method over the period of the contracts and charged to current income. Gains or losses on the exercise of the
options are also recognized in current income.
Foreign-currency transactions
Foreign-currency transactions, except derivative financial instruments, are recorded in New Taiwan dollars at the rates of
exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign
exchange rates when cash in foreign currency is converted into New Taiwan dollar, or when foreign-currency receivables
and payables are settled, are credited or charged to income in the year of conversion or settlement. At year-end, the
balances of foreign-currency assets and liabilities are restated at prevailing exchange rates, and the resulting differences
are recorded as follows:
a. Long-term investments accounted for by equity method - as cumulative translation adjustment under shareholders’
equity.
b. Long-term investments accounted for by cost method - as translation adjustment (same as above) if the translated
New Taiwan dollar amount is lower than cost; otherwise, no adjustment is made.
c. Other assets and liabilities - credited or charged to current income.
42
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
1999
1998
$16,575,032
$7,453,517
74,985
-
804,564
34,071
$16,650,017
$8,292,152
1999
1998
$236,250
-
-
236,250
-
$530,640
4,625,769
626,844
5,783,253
(121,926)
$236,250
$5,661,327
1999
1998
$653,347
3,618,693
320,685
718,344
5,311,069
(781,355)
$467,368
2,346,837
371,874
619,971
3,806,050
(117,273)
$ 4,529,714
$ 3,688,777
Reclassifications
Certain accounts in 1998 have been reclassified to conform to 1999 classifications.
(3) CASH AND CASH EQUIVALENTS
Cash and bank deposits
Government bonds acquired under repurchase agreements
Commercial papers
(4) SHORT-TERM INVESTMENTS
Marketable equity securities
U.S. Treasury bonds
Corporate bonds
Allowance for losses
(5) INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
Allowance for losses
43
(6) LONG-TERM INVESTMENTS
Shares of Stock
Equity method
1999
1998
Carrying
Value
% of
Ownership Value
Carrying
% of
Ownership
TSMC International Investment
$10,078,880
1 0 0
$11,096,090
Vanguard International Semiconductor
TSMC-ACER Semiconductor
TSMC - North America
TSMC - Europe
TSMC - Japan
5,010,897
3,630,193
255,025
25,956
10,168
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) 360,177
2 5
3 2
1 0 0
1 0 0
1 0 0
3 2
2 5
2 5
2 5
2 5
2 5
2 5
1 0 0
4,723,014
-
178,294
25,077
9,287
-
100,657
100,659
100,680
100,661
100,641
100,643
9,653
103,017
103,012
102,773
102,770
103,003
103,005
9,968
19,998,844
16,645,356
Po Cherng Investment
Chi Hsin Investment
Kung Cherng Investment
Chi Cherng Investment
Hsin Ruey Investment
Cherng Huei Investment
TSMC Partners
Cost method
Listed Stock - Taiwan Mask
32,129
Unlisted
Taiwan - ACER Semiconductor - preferred stocks
4,854,742
Taiwan Semiconductor Technology
Lian Ya
Shin-Etsu Handotai Taiwan Company Ltd.
W.K. Technology Fund IV
Hon Tung Venture Capital
Fund
Crimson Asia Capital
Horizon Ventures Fund
Stock paid in advance
TSMC International Investment
500,000
146,250
105,000
50,000
80,000
5,768,121
34,534
31,744
66,278
2,375,400
$28,208,643
Net investment loss recognized by equity method in 1999 and 1998 were as follows:
TSMC International Investment
Vanguard International Semiconductor
Others
44
1999
($1,007,218)
(527,823)
343,150
($1,191,891)
2
2 8
1 9
1 1
7
4
1 0
-
-
-
32,129
-
500,000
146,250
105,000
50,000
40,000
873,379
19,030
-
19,030
-
$17,537,765
1998
($1,356,890)
(1,400,026)
49,746
($2,707,170)
100
26
-
100
100
100
-
25
25
25
25
25
25
100
2
-
19
11
7
4
10
-
-
-
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The carrying values of investments accounted for by equity method and the related investment income and loss for the
years ended December 31, 1999 and 1998 were based on audited financial statements of the investees, except for TSMC -
Japan.
Information on the investments is as follows:
Market value of listed stocks
Equity in the net assets of unlisted stocks
Net asset value of fund
(7) PROPERTIES
Accumulated depreciation consisted of the following:
Buildings
Machinery and equipment
Office equipment
1999
1998
$ 19,753,642
$10,196,822
20,177,278
12,718,756
66,278
18,504
1999
1998
$7,441,342
49,369,894
1,158,489
$5,475,083
34,390,645
920,521
$57,969,725
$40,786,249
Information on the manufacturing plant construction as of December 31, 1999 are as follows:
Manufacturing Plant
Estimated cost
Accumulated
Expenditures
Expected date
of start of operations
Sixth
Seventh
Twelfth
$66,846,000
$40,238,232
9,711,000
9,392,000
266,063
252,415
March 2000
June 2002
June 2002
Interest expense capitalized for the twelve months ended December 31, 1999 and 1998 were $305,312 and $661,414, respectively.
As of December 31, 1999, properties with an aggregate net book value of $4,488,327 are mortgaged as collateral for long-term
bank loans (Note 8).
(8) LONG-TERM BANK LOANS
N.T. dollar loans
Bank acceptance - 6.95%interest; repayable by December 1999 but was prepaid in January 1999
Commercial paper - 7.00%-7.08% interest repayable by May 2003 but was prepaid in October 1999
Current portion
Unused credit lines as of December 31, 1999 aggregate about $10,610,290.
1998
$299,449
2,393,489
2,692,938
(299,449)
$2,393,489
45
(9) LONG-TERM BONDS PAYABLE
Foreign convertible bonds - US$350,000 thousands, non-interest bearing,
repayable in July 2002
Accretion in redemption value of bonds
Converted into common stocks
Redeemed before maturity
Domestic unsecured bonds:
1999
1998
$11,322,500
$11,322,500
1,894,831
13,217,331
(12,914,338)
(302,993)
1,309,217
12,631,717
-
-
-
12,631,717
Repayable in March 2003, 7.71% annual interest payable semi-annually
Repayable in November 2003, 7.12% annual interest payable annually
4,000,000
6,000,000
4,000,000
6,000,000
Repayable in October 2002 and 2004, 5.67% and 5.95% annual interest
payable annually, respectively
10,000,000
-
$20,000,000
$22,631,717
The foreign convertible bonds can be converted into common stocks of the Company prior to its maturity at a price per
share determined using an agreed formula. The Company may redeem the bonds prior to its maturity when certain
conditions are met. As of December 31, 1999, $1,223,986 bonds with face value totaling to $1,223,986 were converted
into 122,399 thousand shares of common stocks. The Company has redeemed the unconverted part prior to the maturity,
on November 1999.
The holders of the bonds with an aggregate face value of $6,000,000 and the Company can exercise resale agreements or
repurchase agreements, respectively, thirty days before the second and third anniversaries of the issuance date, which
range from November 18 to December 1, 1998.
(10) SHAREHOLDERS’ EQUITY
According to Company Law, capital surplus can only be used to offset a deficit or transferred to capital.
The Company’s Articles of Incorporation provides that the following shall be appropriated from the annual net income (less any
deficit):
a) 10% legal reserve;
b) Bonus to directors and supervisors and to employees equal to 1% and at least 1% of the remainder, respectively.
These appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the
following year and given effect to in the financial statements of that year.
The aforementioned appropriation for legal reserve shall be made until the reserve equals the Company’s capital. Such
reserve can only be used to offset a deficit; or, when it has reached 50% of the paid-in capital, up to 50% thereof can be
transferred to capital.
Under the Integrated Income Tax System which became effective on January 1, 1998, non-corporate shareholders are
allowed a tax credit for the income tax paid or payable by the Company on earnings generated in 1998 and onwards. An
Imputation Credit Account (ICA) is maintained by the Company for such income tax and the tax credit allocated to each
shareholder. The maximum credit available for allocation to each shareholder cannot exceed the balance shown in the
ICA on the date of distribution of dividends.
46
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(11) PENSION PLAN
The Company has a pension plan for all regular employees, which provides benefits based on length of service and average
monthly salary for the last six months prior to retirement.
The Company makes monthly contributions, equal to 2% of salaries, to a pension fund which is administered by a pension
fund monitoring committee and deposited in the committee’s name in the Central Trust of China.
The changes in the fund and accrued pension cost are summarized as follows:
a. Components of pension cost
Service cost
Interest cost
Projected return on plan assets
Amortization of prior period service cost
1999
1998
$248,378
$212,398
78,961
(22,317)
8,300
69,390
(16,992)
8,300
$313,322
$273,096
b. Reconciliation of the fund status of the plan and accrued pension Iiabilities
Benefit obligation
Vested benefit obligation
Nonvested benefit obligation
Accumulated benefit obligation
Additional benefits based on future salaries
Projected benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net transitional obligation
Unrecognized net gain
Additional liability
$ -
428,257
428,257
975,345
1,403,602
(364,994)
1,038,608
-
(174,291)
135,448
-
$579
310,430
311,009
817,006
1,128,015
(287,493)
840,522
-
(182,591)
91,059
-
Accrued pension liabilities
$999,765
$748,990
Vested benefit
$ -
$677
c. Actuarial assumptions
Discount rated used in determining present values
Future salary increase rate
Expected rate of return plan on assets
6 . 5%
6 . 0%
6 . 5%
7.0%
6.5%
7.0%
d. Contributions to pension fund
$67,227
$51,055
e. Payments from pension fund
$3,591
$ -
47
(12) INCOME TAX BENEFIT
A reconciliation of income tax current payable before tax credits is shown below:
Income tax on pretax income at statutory rate (20%)
$4,821,973
$2,729,724
1999
1998
The tax effects of adjustments:
Tax-exempt income
Temporary differences
Income tax current payable
Income tax benefit as of December 31, 1999 and 1998 consist of :
(3,434,802)
(1,413,371)
221,129
(19,353)
$1,608,300
$1,297,000
1999
1998
Income tax current payable before tax credits
$1,608,300
$1,297,000
Tax credits
Adjustment of prior years’ taxes
(1,587,000)
21,300
(87,633)
(751,492)
545,508
230,000
Net change in deferred income tax for the year Investment tax credits
(1,798,325)
(2,590,089)
Temporary differences
Valuation allowance
111,139
1,303,500
119,000
-
($450,019)
($1,695,581)
Deferred income tax assets and liabilities as of December 31, 1999 and 1998 consist of:
Current :
Investment tax credits
Noncurrent:
Investment tax credits
Valuation allowance
Temporary differences
Depreciation
Integrated income tax information:
1999
1998
$2,329,000
$406,739
$5,806,891
$5,930,827
(1,303,500)
197,268
(427,407)
-
247,844
(366,844)
$4,273,252
$5,811,827
1999
1998
Ending balances of imputation Credit account
$1,497
$22,633
The expected and actual creditable ratio for 1999 and 1998 are 0.006% and 3.51%, respectively.
The imputation credit allocated to each shareholder shall be based on the balance in the ICA on the date of distribution of
dividends, thus the expected creditable ratio for 1999 may be adjusted according to the difference between the expected
and actual imputation credit allowed under the regulation.
48
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The unappropraited retained earnings as of December 31, 1999 and 1998 included the earnings prior to 1997 of
$752,612 and $2,096,679, respectively.
The effective tax rates for deferred income tax in 1999 and 1998 are 5.9% and 9.5%.
Unused investment tax credits arising from investments in machinery and equipment, and research and development
expenditures as of December 31, 1999 will expire as follows:
Year of Expiry
2000
2001
2002
2003
The income from the following projects and services are exempt from income tax:
Amount
$1,588,644
3,250,623
2,222,961
1,073,663
Tax-Exemption Period
Expansion of second manufacturing plant and computer-aided design services, and third
1996 to 1999
manufacturing plant
Expansion of first manufacturing plant, second manufacturing plant -
modules A and B and third manufacturing plant, and fourth manufacturing plant
1997 to 2000
Expansion of first manufacturing plant, second manufacturing plants-
modules A and B, third manufacturing plant and fourth manufacturing plant,
and fifth manufacturing plant
1999 to 2002
Income tax returns through 1996 have been examined by the tax authorities.
(13) RELATED PARTY TRANSACTIONS
The Company engages in business transactions with the following related parties:
a. Industrial Technology Research Institute (ITRI); its director is the Company’s chairman
b. Philips Electronics N.V., a major shareholder
c. Subsidiaries
TSMC International Investment (TSMC-BVI)
TSMC North America
TSMC Europe
TSMC Japan
d. Vanguard International Semiconductor Corporation (VIS), an investee
e. TSMC-Acer Semiconductor Manufacturing Corporation (TASMC), an investee
f. Systems on Silicon Manufacturing Company Pte Ltd. (SSMC), an investee
g. WaferTech, LLC, an indirect investee of TSMC-BVI
h. TSMC Technology, an investee of TSMC-BVI.
49
The transactions with the foregoing parties in addition to those disclosed in other notes, are summarized as follows:
For the year
Sales
ITRI
Philips and its affiliates
VIS
TASMC
WaferTech
Purchase
WaferTech
TASMC
VIS
Rental expense - ITRI
Manufacturing expenses Technical assistance fee - Philips
General and administrative expenses Consulting fee - VIS
Marketing expenses
TSMC - North America (commissions)
TSMC - North America (service charges)
TSMC - Europe (commissions)
TSMC - Japan (commissions)
Sale of Property - WaferTech
At end of year
Receivable
ITRI
Philips and its affiliates
TSMC - Japan
VIS
WaferTech
TSMC Technology
SSMC
TASMC
Prepayments and other current assets
Prepayment - Rental to ITRI
Payable
Philips and its affiliates
TSMC - North America
TSMC - Europe
TSMC - Japan
VIS
WaferTech
TSMC Technology
TASMC
50
1999
Amount
$132,507
2,864,149
48,473
22,246
59,438
$3,126,813
%
-
4
-
-
-
4
$4,636,780
4 0
808,926
381,989
$5,827,695
$161,488
7
3
5 0
5 4
$862,398
1 0 0
$20,400
-
1998
Amount
%
$173,375
3,422,090
65,301
-
38,452
$3,699,218
$ -
-
-
$ -
-
7
-
-
-
7
-
-
-
-
$161,477
$637,136
$ -
67
100
-
$ 692,927
3 8
$388,513
99,087
87,414
81,951
5
5
4
78,448
25,975
51,665
$961,379
5 2
$544,601
$350,969
1 0 0
$ -
$18,458
133,245
17,550
25,674
198,163
47,343
5,353
23,117
4
2 8
4
6
4 2
1 0
1
5
$30,668
162,750
17,550
7,884
6,405
9,250
-
-
48
10
3
6
67
-
13
69
8
3
3
4
-
-
$468,903
1 0 0
$234,507
100
$42,541
2
$42,462
$305,756
1 6
$155,086
5
43
17
3
3
-
60,746
10,713
9,603
-
122,949
34
-
-
-
-
125,637
13,422
13,189
184,741
730,483
3,832
539,466
6
1
1
1 0
3 8
-
2 8
$1,916,526
1 0 0
$359,097
100
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Sales to related parties are based on normal selling prices and collection terms.
Payable to WaferTech includes purchases of finished goods and compensation for violation of manufacturing agreement.
As there is no comparable sales of properties and purchases, they were in accordance with contracts.
(14) LONG-TERM OPERATING LEASES
The Company leases the land, building and certain machinery and equipment of its first manufacturing plant from ITRI
under agreements which will expire in March 2002, at annual rentals and other charges aggregating $170,166. The
agreements are renewable upon expiration.
The Company leases the land sites of its second through tenth manufacturing plants from the Science-Based Industrial
Park Administration under agreements which will expire on various dates from March 2008 to April 2018 with annual
rentals aggregating $42,149. The agreements are also renewable upon expiration.
Future annual minimum rentals under the aforementioned leases are as follows:
Year
2000
2001
2002
2003
2004
2005-2018
Amount
$212,315
212,315
84,690
42,149
42,149
313,250
$906,868
(15) COMMITMENTS AS OF DECEMBER 31, 1999
a. Under a technical cooperation agreement with Philips, as amended on May 12, 1997, the Company shall pay technical
assistance fee at a percentage of net sales of certain products, less specified deductions. The agreement shall remain in
force up to July 9, 2007 and thereafter automatically renewed for successive periods of three years. Under the
amended agreement, the fee is subject to reduction by the amounts the Company pays to any third party for settling
any licensing/ infringement issue after the first five-year periods of the amended agreement, provided that the fee after
reduction will not be below a certain percentage of the net selling price.
b. Subject to certain equity ownership and notification requirements, Philips and its affiliates can avail each year up to
30% of the Company’s production capacity.
c. Under a submicron technology license agreement with ITRI, the Company shall pay license fees of $129,400 (including
5% value-added tax) to ITRI plus royalty fee at an agreed percentage of net sales of certain products through December
31, 1998. As of December 31, 1995, the Company has paid the entire license fee.
d. Under a technical cooperation agreement with ITRI, the Company shall reserve and allocate up to 35% of its
production capacity for use by the Ministry of Economic Affairs (MOEA) or any other party designated by the MOEA.
51
e. Under a manufacturing agreement, the Company shall buy at least 85% of the calculated installed capacity of the
wafer-fabrication plant ("WaferTech, LLC") constructed by TSMC Development, Inc. for three years from start of
production. If the Company is unable or unwilling to buy the minimum purchase allocation, it shall compensate TSMC
Development, Inc. at the selling price of the products less certain variable costs. Later, TSMC Development, Inc.
transferred its rights under the agreement to WaferTech, LLC.
f. Under a purchase agreement with three customers, the Company shall supply them with, and the three customers
shall buy, a certain portion of wafers produced by WaferTech, LLC. If the Company or any of the customers is unable
or unwilling to supply or buy the minimum purchase allocation, the defaulting party shall compensate the other party
at the selling price of the products, less certain variable costs.
g. Under several foundry agreements, the Company shall allocate a portion of its production output for sale to certain
major customers from whom guarantee deposits of US$164,765 thousand had been received as of December 31,
1999.
h. On February 27, 1998, the Tax Bureau assessed the Company additional income taxes of about $105,000 and
$125,000 for 1994 and 1995, respectively, arising from the contention by the Bureau that the Company’s first
manufacturing plant was not a science-based industry under the Science-Based Industrial Park Regulations. The
Company is contesting the assessment, but has already accrued the amount of tax assessment. The additional income
tax for 1994 has been reassessed to be $21,887.
i. Under a Shareholders Agreement entered into by Philips and EDB Investments Pte Ltd. dated March 30, 1999, the
parties agreed to: (a) form a joint venture company to be called Systems on Silicon Manufacturing Company Pte Ltd.
(SSMC) for the purpose of building an integrated circuit foundry in Singapore, (b) set SSMC’s total authorized capital
at about S$1.2 billion (about NT$22,800,000), and, (c) allow the Company to invest 32% of SSMC’s capital. The
Company and Philips committed to buy a certain percentage of the production capacity of SSMC. If any party is
unable or unwilling to buy the committed purchase allocation and the capacity utilization of SSMC falls below a
certain percentage of total available capacity, such party shall compensate SSMC for all related unavoidable costs.
j. Under a Technical Cooperation Agreement with SSMC signed on May 12, 1999, SSMC shall pay TSMC remuneration
for the technology service provided by SSMC at a certain percentage of net selling prices of its products. The
agreement shall remain in force for ten years, and thereafter automatically continue for successive periods of five years
unless and until terminated by either party under certain conditions.
k. The Company provides collateral for loans of US$68,000 thousand obtained by TSMC Development, Inc.
l. Under a Technical Cooperation Agreement with TSMC-Acer Semiconductor Manufacturing Corporation ("TASMC")
signed on July 21, 1999, TASMC shall pay TSMC remuneration by way of giving discount to the selling price of
products sold to TSMC. The agreement shall remain in force for 10 years, unless and until terminated by either party
under certain conditions prior to its expiration, the parties shall meet 6 months prior to the expiration date to decide
whether the Agreement shall be renewed.
m. Unused credit lines as of December 31, 1999 are approximately $138,738.
52
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(16) OTHER SIGNIFICANT EVENTS
TSMC has two merger agreements signed on December 30, 1999 and January 7, 2000, with TASMC and WSMC,
respectively. TSMC will acquire and merge TASMC and WSMC. TSMC shall be the surviving company, and TASMC and
WSMC shall be dissolved after the merger. The consolidation date is tentatively scheduled for June 30, 2000. The agreed
exchange ratio is five shares of TASMC to one share of TSMC, (The exchange ratio will be adjusted again based on the
same proportion of TSMC’s stock dividends once such dividends are declared by the consolidation date.), and two shares
of WSMC to one share of TSMC. The Agreement shall be further granted approval by the shareholders from both
companies and the governing regulator. The capital of TSMC will be expected to increase by 1,488,684 thousand shares
of common stock (such number will be adjusted after declaration of TSMC’s 1999 stock dividend.)
(17) FINANCIAL INSTRUMENTS
The Company entered into derivative financial instrument transactions for the twelve months ended December 31, 1999
and 1998 to hedge foreign-currency denominated receivables or payables, and interest rate fluctuations. The strategy is to
hedge most of the market price risks. Certain information on these contracts is as follows:
a. Outstanding forward exchange contracts as of December 31, 1999 and 1998:
Contract Amount
Fair Value
Maturity Amount
Year
Currency
(Thousands)
(Thousands)
Maturity
(Thousands)
1999
Buy
Sell
Sell
Sell
1998
Buy
Sell
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
25,000
81,367
16,000
30,000
JPY 2,472,080
JPY 8,303,350
NLG
34,926
NTD 941,847
Jul 2000
NTD
879,154
Jan to July 2000
NTD 2,564,297
Jan 2000
Jan 2000
NTD
NTD
497,159
947,880
US$ 110,000
NTD 3,574,885
Jan. 1999
NTD 3,580,421
US$
40,000
NTD 1,296,959
Jan. to Feb. 1999
NTD 1,262,120
Receivables and payables from forward exchange contracts (shown in the balance sheets as part of "Other current assets"
or "Other current liabilities" accounts) as of December 31, 1999 aggregate about $19,144 and $102,784, respectively; and
receivables (shown in the balance sheets as part of "Other current assets" account) as of December 31, 1998 aggregate
about $21,572.
Net exchange gains for the years ended December 31, 1999 and 1998 were $105,859 and $336,807, respectively.
The net assets or liabilities that have been hedged by the above forward exchange contracts are as follows:
Accounts receivable
Accounts payable and other payable - construction and equipment
Guarantee deposits
53
1999
Thousands
1998
US$375,749
US$206,926
151,392
764,765
66,397
189,058
b. Interest rate swaps
The Company has entered into interest rate swap transactions to hedge exposure to rise interest rates on its floating rate
long-term bank loans. These transactions are summarized as follows:
Contract Date
April 28, 1998
April 29, 1998
June 26, 1998
June 26, 1998
Period
May 21, 1998 to May 21, 2003
May 21, 1998 to May 21, 2003
June 26, 1998 to June 26, 2003
July 6, 1998 to July 6, 2003
Amount
$2,000,000
1,000,000
1,000,000
1,000,000
Interest expense on these loans for the twelve months ended December 31, 1999 and 1998 were $112,213 and $13,367,
respectively.
c. Option
The Company has entered into foreign currency option contracts to hedge risks of exchange rate fluctuations arising from
its anticipated U.S. dollar cash receipts from its export sales or Japanese Yen obligations related to its importation of
materials and machinery and equipment.
Outstanding option contracts as of December 31, 1999 were as follows:
Contract
Currency
Call option sell
Call option sell
US$
US$
Contract
Amount
(Thousands)
Carrying
Value
Fair
Value
Strike Price
Maturity
US$100,000
$3,911
$3,911
$0.9785~0.9940 (US$/EUR)
Jan 2000
US$ 60,000
3,035
3,035
106.6
(US$/JPY)
Jan 2000
The Company has no outstanding option contracts as of December 31, 1998.
For the twelve months ended December 31, 1999 and 1998, the Company realized premium income of $63,809 and
$8,280, respectively, on foreign currency put options written and incurred losses of $86,746 on foreign currency call
options bought for 1999.
d. Transaction risk
1) Credit risk: the banks with which the Company has entered into the above contracts are reputable and, therefore, the
Company is not expected to be exposed to significant credit risks.
2) Market price risk: All derivative financial instruments are for hedging receivables or payables denominated in foreign
currencies and interest rate fluctuations. Gains or losses from forward exchange contracts are likely to be offset by
gains or losses realized from the settlement of the related receivables and payables. Interest rate risks are also
controlled as the expected cost of capital is fixed. Thus, market price risks from exchange rate and interest rate
fluctuations are minimal.
3) Liquidity and cash flow: The purpose of forward exchange contracts is to limit the Company’s exposure to loss resulting
from adverse fluctuations in assets and liabilities denominated in foreign currency. Interest rate swap transactions
result in adjustments for interest only. Therefore, no significant extra cash requirement is expected.
54
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
e. Fair value of financial instruments
Non-derivative financial instruments
Assets
1999
1998
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Cash and cash equivalents
$16,650,017
$16,650,017
$8,292,152
$8,292,152
Short-term investments
Receivable from related parties
236,250
468,903
241,850
468,903
5,661,327
5,691,566
234,507
234,507
Accounts and notes receivable
13,544,387
13,544,387
7,971,123
7,971,123
Long-term investments
Refundable deposits
Liabilities
28,208,643
39,997,198
17,537,765
22,934,082
16,346
16,346
21,918
21,918
Payable to related parties
1,916,526
1,916,526
359,097
359,097
Accounts payable
2,525,086
2,525,086
2,047,871
2,047,871
Other payable - construction and equipment
6,958,098
6,958,098
3,181,099
3,181,099
Long-term bank loans
Long-term bonds payable
Guarantee deposits
Derivative financial instruments
-
-
2,692,938
2,692,938
20,000,000
20,013,774
22,631,717
21,948,204
5,185,362
5,185,362
6,123,825
6,123,825
Forward exchange contracts (buy)
784,875
760,906
3,590,850
3,574,885
Forward exchange contracts (sell)
3,998,698
3,998,108
1,294,000
1,296,959
Interest rate swaps
Option
7,488
6,946
7,488
6,946
7,423
-
7,423
-
Fair values of financial instruments were determined as follows:
(1) Short-term financial instruments -- carrying values.
(2) Short-term investments -- market values.
(3) Long-term investments - market value for listed companies and net equity value for the others.
(4) Refundable deposits -- carrying values.
(5) Long-term bank loans are forecasted using cash flows discounted at present value, using discount rates which are
interest rates of similar long-term liabilities. Long-term bonds payable are discounted at present values. Fair values of
other long-term liabilities are also their carrying values as they use floating interest rates.
6) Derivative financial instruments -- based on outright forward rates and interest rate in each contract.
7) Financial instruments or non-financial instruments are not necessarily all disclosed at fair values; accordingly, the sum of
the fair values of the financial instruments listed above does not equal to the fair value of the company.
(18) SEGMENT FINANCIAL INFORMATION
a. Export sales
Area
America
Asia
Europe
The export sales information is presented by billed regions.
b. No single customer accounts for more than 10% of total sales.
55
1999
1998
$38,084,870
$26,438,864
16,493,721
4,778,646
9,667,353
3,595,809
$59,357,237
$39,702,026
9. Consolidated Financial Statements
(1) CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In Thousand New Taiwan Dollars, Except Par Value)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Short-term investments
Receivable from related parties
Notes receivable
Accounts receivable
Allowance for doubtful receivables
Allowance for sales returns and allowances
Inventories
Deferred income tax assets
Prepayments and other current assets
Total Current Assets
1999
Amount
%
1998
Amount
$17,643,762
1 0
$9,679,273
927,216
205,847
164,134
13,380,253
(422,202)
(706,886)
5,841,965
2,447,163
2,202,895
1
-
-
7
-
-
3
1
1
5,906,339
201,301
34,868
7,940,062
(283,090)
(441,973)
4,056,508
411,350
1,035,862
%
7
4
-
-
6
-
-
3
-
1
41,684,147
2 3
28,540,500
21
LONG-TERM INVESTMENTS
16,164,676
9
6,659,117
5
PROPERTIES
Cost
Land and land improvements
Buildings
Machinery and equipment
Office equipment
Total cost
Accumulated depreciation
Prepayments and construction in progress
Net Properties
OTHER ASSETS
Deferred charges - net
Deferred income tax assets
Refundable deposits
Miscellaneous
Total Other Assets
783,809
28,421,769
123,940,807
2,728,204
-
1 6
6 8
1
807,087
27,010,514
88,466,784
2,312,238
155,874,589
8 5
118,596,623
-
19
63
2
84
(61,879,509)
( 3 4)
(41,489,543)
(29)
26,684,587
120,679,667
1 5
6 6
21,594,489
98,701,569
15
70
642,091
4,485,340
20,814
10,039
5,158,284
-
2
-
-
2
773,637
6,039,395
23,755
23,509
6,860,296
-
4
-
-
4
TOTAL ASSETS
$183,686,774
1 0 0 $140,761,482
100
56
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Payable to related parties
Accounts payable
Other payable - construction and equipment
Income tax payable
Current portion of long term bank borrowings
Accrued expenses and other current liabilities
Total Current Liabilities
NON-CURRENT LIABILITIES
Bonds payables
Guarantee deposits
Accrued pension obligations
Bank loans
Other
Total Non-current Liabilities
MINORITY INTEREST IN SUBSIDIARIES
Total Liabilities
SHAREHOLDERS’ EQUITY
Capital stock, $10 par value; authorized - 9,100,000 thousand
shares in 1999 and 8,500,000 thousand shares in 1998, issued -
7,670,882 thousand shares in 1999 and 6,047,176 thousand
shares in 1998
Capital surplus
Legal reserve
Unappropriated earnings
Cumulative translation adjustment
Total Shareholders’ Equity
1999
Amount
$1,029,964
2,927,915
8,663,286
155,127
-
3,470,914
16,247,206
%
-
2
5
-
-
2
9
1998
Amount
$155,086
2,176,023
3,601,832
777,424
299,449
1,773,804
8,783,618
%
-
2
3
-
-
1
6
20,000,000
1 1
22,631,717
17
5,185,362
999,998
12,952,462
7,738
39,145,560
7,524,168
62,916,934
3
-
7
-
2 1
4
3 4
6,123,825
750,222
8,620,864
79,689
38,206,317
9,700,881
56,690,816
76,708,817
4 2
60,471,760
11,831,411
8,258,359
25,062,256
(1,091,003)
120,769,840
6
5
1 4
( 1)
6 6
164,219
6,724,240
17,437,873
(727,426)
84,070,666
4
-
6
-
27
7
40
43
-
5
12
-
60
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$183,686,774
1 0 0 $140,761,482
100
57
(2) CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999 and 1998
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
GROSS SALES
SALES RETURNS AND ALLOWANCES
NET SALES
COST OF SALES
GROSS PROFIT
OPERATING EXPENSES
General and administrative
Marketing
Research and development
Total Operating Expenses
INCOME FROM OPERATIONS
NON-OPERATING INCOME
Interest
Insurance compensation
Gain on disposal of short-term investments - net
Reversal of allowance for losses on short-term investments
Gain on disposal of long-term investments
Premium Income
Foreign exchange gain - net
Other
Total Non-Operating Income
NON-OPERATING EXPENSES
Interest
Investment loss recognized by equity method - net
Issuance costs of bonds
Loss on option contracts
Foreign exchange loss - net
Loss on disposal of properties
Loss on decline in value of long-term investments
Other
Provision for loss on short-term investments
Total Non-Operating Expenses
INCOME BEFORE INCOME TAX
INCOME TAX CREDIT
INCOME BEFORE MINORITY INTEREST
MINORITY INTEREST IN LOSS OF SUBSIDIARIES
NET INCOME
EARNINGS PER SHARE
1999
Amount
%
1998
Amount
%
$74,060,145
(993,624)
$51,645,934
(1,223,521)
73,066,521
1 0 0
50,422,413
100
41,560,169
31,506,352
5 7
4 3
32,282,644
18,139,769
2,616,518
1,669,399
2,390,538
6,676,455
4
2
3
9
1,638,379
736,834
1,957,194
4,332,407
24,829,897
3 4
13,807,362
896,223
184,607
48,575
140,137
67,772
63,809
-
43,025
1,444,148
1,878,182
288,500
114,839
86,746
81,436
35,843
31,568
99,576
-
1
-
-
-
-
-
-
-
1
3
-
-
-
-
-
-
-
-
704,928
-
-
-
781,647
8,280
105,509
58,400
1,658,764
1,026,936
1,400,026
143,644
-
-
4,421
5,862
99,568
121,926
2,616,690
23,657,355
386,631
24,043,986
515,898
$24,559,884
3
3 2
1
3 3
1
3 4
2,802,383
12,663,743
1,664,852
14,328,595
1,015,608
$15,344,203
62
38
3
2
6
11
27
1
-
-
-
2
-
-
-
3
2
3
-
-
-
-
-
-
-
5
25
3
28
2
30
Based on weighted-average shares outstanding of 7,572,598 thousand
in 1999 and 6,047,176 thousand in 1998
$3.24
Based on 7,548,483 thousand shares
$2.54
$2.03
58
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Specific Notes
1. Affiliates Information
(1) TSMC Affiliated Companies Chart
Unit: Shares, %
Taiwan Semiconductor Manufacturing Company, Ltd.
TSMC, North America
TSMC, Europe B.V.
TSMC, Japan K.K.
Shareholding: 100%
Shareholding: 100%
Shareholding: 100%
TSMC Int’l
Investment Ltd.
Shareholding: 100%
TSMC Partners, Ltd.
Shareholding: 100%
Reinvested in TSMC:
ADR 302,434
TSMC Development, Inc.
TSMC Technology, Inc.
Shareholding: 100%
Shareholding: 100%
InveStar Semiconductor
Development Fund Inc.
Shareholding: 97%
WaferTech, LLC
Shareholding: 68%
59
Vanguard Int’l
Semiconductor Corp.
Shareholding:25%
TSMC-Acer
Semiconductor
Manufacturing Inc.
Common Shares: 32%
Perferred Shares: 28%
Kung Cherng
Investment Co., Ltd.
Shareholding:25%
Po Cherng: 15%
Chi Cherng: 15%
Chi Hsin: 15%
Cherng Huei : 15%
Hsin Ruey: 15%
Reinvested in TSMC:
984,000
Chi Cherng
Investment Co., Ltd.
Shareholding: 25%
Po Cherng: 15%
Kung Cherng: 15%
Chi Hsin: 15%
Cherng Huei: 15%
Hsin Ruey: 15%
Reinvested in TSMC:
984,000
Chi Hsin
Investment Co., Ltd.
Shareholding: 25%
Po Cherng: 15%
Kung Cherng: 15%
Chi Cherng: 15%
Cherng Huei: 15%
Hsin Ruey: 15%
Reinvested in TSMC:
641,500
Po Cherng
Investment Co., Ltd.
Shareholding: 25%
Kung Cherng: 15%
Chi Cherng: 15%
Chi Hsin: 15%
Cherng Huei: 15%
Hsin Ruey: 15%
Reinvested in TSMC:
641,500
Cherng Huei
Investment Co., Ltd.
Shareholding: 25%
Po Cherng: 15%
Kung Cherng: 15%
Chi Hsin: 15%
Chi Cherng: 15%
Hsin Ruey: 15%
Reinvested in TSMC:
641,500
Hsin Ruey
Investment Co., Ltd.
Shareholding: 25%
Po Cherng: 15%
Kung Cherng: 15%
Chi Hsin: 15%
Chi Cherng: 15%
Cherng Huei 15%
Reinvested in TSMC:
641,500
(2) TSMC Affiliated Companies
December 31, 1999
Company
TSMC North America
TSMC Europe B.V.
TSMC Japan K.K.
Unit: NT(US, NLG, JPY) $K
Date of
Incorporation Registration
Place of
Paid-in Capital Business Activities
Jan. 18, 1988
San Jose, California, USA
US$
1,000
Marketing & Engineering support
Mar. 4, 1994
Amsterdam, The Netherlands NLG
200
Marketing & Engineering support
Sep. 10, 1997
Yokohama, Japan
JPY
30,000
Marketing & Engineering support
TSMC Int’l Investment Ltd.
Apr. 9, 1996
Tortola, British Virgin Islands US$
389,788
Investment
TSMC Partners, Ltd.
TSMC Development, Inc.
TSMC Technology, Inc.
Mar. 26, 1998
Tortola, British Virgin Islands US$
300
Investment
Feb. 16, 1996
Delaware, USA
US$
168,601
Investment
InveStar Semiconductor Development Fund Inc.
Sep. 10, 1996
Cayman Island
Feb. 20, 1996
Delaware, USA
US$
US$
0.001
Investment
46,350
Investment
WaferTech, LLC
Jun. 3, 1996
Washington, USA
US$
768,828
Wafer Manufacturing
Po Cherng Investment Co., Ltd.
Chi Hsin Investment Co., Ltd.
Jul. 6, 1998
Jul. 6, 1998
Taipei, Taiwan
Taipei, Taiwan
NT$
400,000
Investment
NT$
400,000
Investment
Cherng Huei Investment Co., Ltd.
Jul. 10, 1998
Taipei, Taiwan
NT$
400,000
Investment
Hsin Ruey Investment Co., Ltd.
Jul. 13, 1998
Taipei, Taiwan
NT$
400,000
Investment
Kung Cherng Investment Co., Ltd.
Jul. 14, 1998
Taipei, Taiwan
NT$
400,000
Investment
Chi Cherng Investment Co., Ltd.
Jul. 15, 1998
Taipei, Taiwan
NT$
400,000
Investment
Vanguard Int’l Semiconductor Corp.
Dec. 5, 1994
Hsin-Chu, Taiwan
NT$22,000,000
IC Design & Manufacturing
TSMC-Acer Semiconductor Manufacturing Inc.
Mar. 31, 1990
Hsin-Chu, Taiwan
NT$24,191,696
IC Design & Manufacturing
NOTE: Foreign exchange rate on the reporting date is shown below:
US$1 = NT$31.395
NLG1 = NT$14.33
JPY1 = NT$0.3078
60
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(3) Business Scope of TSMC and its Affiliated Companies
TSMC and its affiliates work together to provide dedicated foundry services to our customers around the world. In addition, few of TSMC’s affiliate companies
are focused on conducting investment businesses. In general, TSMC and its affiliates give each other support in technology, capacity, marketing and services
with an aim to create the maximum synergy, enabling TSMC to provide our worldwide customers with the best dedicated foundry services worldwide. The
ultimate goal of this strategy is to ensure TSMC’s leading position in the global IC market.
(4) TSMC Shareholders Representing Both Holding Companies and Subordinates
December 31, 1999
Reasoning
Name (Note 1)
Shareholding (Note 2 )
Date of Incorporation
Place of Registration
Paid-in Capital
Business Activities
Unit: NT$K, except Shareholding
Shares
Holding %
None
The presumed interested parties representing both holding companies and subordinates include the company’s Director, the shareholders conducting business
on behavior of the company, and the shareholde
61
(5) Rosters of Directors, Supervisors, and Presidents of TSMC’s Affiliated Companies
December 31, 1999
Company
Title
Name
TSMC North America
Director
F.C.Tseng
Director
Ronald C. Norris
TSMC Europe B.V.
Director
Morris Chang
Director
Steve Tso
Director
Quincy Lin
Director
Andrew Shen
President
Hans Rohrer
TSMC Japan K.K.
Chairman Morris Chang
Director
F.C.Tseng
Director
Ronald C. Norris
Director
Makoto Onodera
Supervisor Harvey Chang
TSMC Int’l Investment Ltd.
Director
Morris Chang
President
F.C.Tseng
TSMC Partners, Ltd.
Director
F.C.Tseng
Director
Rick Tsai
Director
Quincy Lin
Director
Steve Tso
Director
K.C. Chen
Director
Harvey Chang
TSMC Development, Inc.
Chairman Morris Chang
President Morris Chang
TSMC Technology, Inc.
Chairman Morris Chang
President Morris Chang
InveStar Semiconductor
Director
Kenneth Tai
Development Fund Inc.
62
Unit: NT$, except Shareholding
Shareholding
%
-
-
Amount
-
-
(TSMC holds 1,000,000 shares )
(100%)
-
-
-
-
-
-
-
-
-
-
(TSMC holds 200 shares )
(100%)
-
-
-
-
-
-
-
-
-
-
(TSMC holds 600 shares )
(100%)
-
-
-
-
(TSMC holds 464,788,244 shares )
(100%)
-
-
-
-
-
-
-
-
-
-
-
-
(TSMC holds 300,000 shares )
(100%)
-
-
-
-
(TSMC International Investment Ltd.
(100%)
holds 168,600,800,000 shares)
-
-
-
-
(TSMC International Investment Ltd.
(100%)
holds 1,000 shares)
-
(TSMC International Investment Ltd.
holds 46,350,000 shares)
-
(97%)
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Company
Title
Name
WaferTech, LLC
Director
Morris Chang
Director
Ronald C. Norris
Director
Ken Smith
Director
Rick Tsai
Director
Gerald Fishman
Director
Rodney Smith
Director
Jimmy Lee
President
Ken Smith
Unit: NT$, except Shareholding
Shareholding
Amount
Common Share 262,500
Preferred Share 324,820
-
Common Share 525,000
Preferred Share 32,581
-
Common Share 33,334
Common Share 33,334
Common Share 33,334
%
0.10%
0.13%
-
0.21%
0.01%
-
0.01%
0.01%
0.01%
(TSMC Development, Ltd
holds 171,539,960 Preferred Shares)
(67.27%)
Po Cherng Investment Co., Ltd.
Director
K.C. Chen (Representative of Chi Hsin Investment Co., Ltd.)
(Chi Hsin’s investment NT$60,000,000)
(TSMC’s investment NT$99,999,960)
Chi Hsin Investment Co., Ltd.
Director
Harvey Chang (Representative of Po Cherng Investment Co., Ltd.)
(Po Cherng’s investment NT$60,000,040)
(TSMC’s investment NT$99,999,960)
Cherng Huei Investment Co., Ltd. Director
Rick Tsai (Representative of Hsin Ruey Investment Co., Ltd.)
(Hsin Ruey’s investment NT$60,000,040)
(TSMC’s investment NT$99,999,960)
(15%)
(25%)
(15%)
(25%)
(15%)
(25%)
Hsin Ruey Investment Co., Ltd.
Director
Rick Tsai (Representative of Cherng Huei Investment Co., Ltd.)
(Cherng Huei’s investment NT$60,000,000)
(15%)
Kung Cherng Investment Co., Ltd.Director
F.C.Tseng (Representative of Chi Cherng Investment Co., Ltd)
(Chi Cherng’s investment NT$60,000,040)
(TSMC’s investment NT$99,999,960)
(TSMC’s investment NT$99,999,960)
(25%)
(15%)
(25%)
Chi Cherng Investment Co., Ltd Director
F.C.Tseng (Representative of Kung Cherng Investment Co., Ltd.)
(Kung Cherng’s investment NT$60,000,000)
(15%)
Vanguard Int’l
Chairman Morris Chang
Semiconductor Corp.
Director
Liu, Bor-Hong
(TSMC’s investment NT$99,999,960)
(25%)
3,240,448 shares
(The Development Fund
0.15%
(29.08%)
(Representative of The Development Fund, Executive Yuan, R.O.C.)
holds 639,713,750 shares)
Director
Liou, Ming-Jong
(Representative of The Development Fund, Executive Yuan, R.O.C.)
Director
Shih, Chin-Tay
(Representative of The Development Fund, Executive Yuan, R.O.C.)
Director
Wu, Quintin Y.G (Representative of USI Far East Corp.)
(USI Far East Corp.
(7.09%)
Director
Rick Tsai (Representative of TSMC)
(TSMC holds 556,133,496 shares)
(25.28%)
holds 155,978,533 shares)
63
Company
Title
Name
Vanguard Int’l
Director
F.C.Tseng (Representative of TSMC)
Semiconductor Corp.
Director
Chiao, Yu-Heng (Representative of Walsin Lihwa Corp.)
Unit: NT$, except Shareholding
Shareholding
Amount
(Walsin Lihwa Corp.
holds 58,827,741 shares)
%
(2.67%)
Director
Du, Eugene C.Y. (Representative of Orient Semiconductor Ltd.)
(Orient Semiconductor Ltd.
(2.60%)
Director
Miau, Matthew F.C. (Representative of Union Petrochemical Corp.)
(Union Petrochemical Corp.
(1.24%)
holds 57,203,580 shares)
holds 27,384,827 shares)
Supervisor Yeh, Huey-Ching
(Representative of The Development Fund, Executive Yuan, R.O.C.)
Supervisor Chow, Sidney H. (Representative of Maw Chong Investment Co.,Ltd.)
(Maw Chong Investment Co.,Ltd.
(1.96%)
Supervisor Hu, Benny T. (Representative of China Development Industrial Bank Inc.)
(China Development Industrial Bank Inc.
(1.94%)
holds 43,092,356 shares)
President
Rick Tsai
holds 42,709,252 shares)
2,095,353 shares
0.10%
TSMC-Acer Semiconductor
Chairman
F.C.Tseng (Representative of TSMC)
(TSMC holds : Common Share 348,936,000
32.00%
Manufacturing Inc.
Preferred B 376,815,000)
28.36%
Director
Morris Chang (Representative of TSMC)
Director
K.C. Chen (Representative of TSMC)
Director
J.B. Chen (Representative of TSMC)
Director
Stan Shin (Representative of Acer Inc.)
Director
Simon Lin (Representative of Acer Inc.)
Director
Ronald Chwang (Representative of Acer Inc.)
(Acer holds : Common Share 312,784,872
28.68%
Preferred B 298,342,580)
22.45%
Director
Hui-Ming Cheng
(China Development Industrial Bank Inc.
4.44%
(Representative of China Development Industrial Bank Inc.)
holds : Common Share 48,431,563
Director
Tieh-Min Soong
Preferred B
137,059,612)
10.31%
(Kuang-Hwa Investment Holding Co., Ltd
(Representative of Kuang-Hwa Investment Holding Co., Ltd)
holds : Common Share 71,396,368
Preferred B
- )
Supervisor Harvey Chang (Representative of TSMC)
Supervisor George Huang (Representative of Acer Inc.)
Supervisor Raymond Soong
President
J.B. Chen
Common Share 1,000
Preferred B
216
Common Share 300,000
Preferred B
500,000
6.55%
-
0.00%
0.00%
0.03%
0.04%
64
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(6) Operational Highlights for TSMC’s Affiliated Companies
December 31, 1999
Company
TSMC North America
TSMC Europe B.V.
TSMC Japan K.K.
Paid-in
Capital
Assets
Liabilities
Net Worth
Net Sales*
Unit: NT$K, except EPS($)
Income
from
Operation*
Net
Income*
(net of tax)
EPS*
(net of tax)
31,395
339,066
2,866
9,234
35,280
24,868
84,044
9,329
14,699
255,022
792,648
128,857
25,952
10,168
87,918
81,527
7,995
4,205
84,345
5,572
150
84.34
27,862.29
249.76
TSMC Int’l Investment Ltd.
12,237,394
12,768,566
345
12,768,221
(1,662,062)
(1,661,707)
(1,007,218)
TSMC Partners, Ltd.
9,419
125,894
116,005
9,889
1,905
549
121
TSMC Development, Inc.
5,293,228
13,018,596
11,699,441
1,319,155
(1,002,566)
(1,005,505)
(1,798,379)
0.031
176,879
513,120
(336,240)
91,459
11,562
(14,953)
1,455,158
1,577,599
283
1,577,316
336,385
109,028
125,369
24,137,355
33,565,682
13,482,740
20,082,942
5,065,535
(1,224,303)
(1,522,128)
400,000
400,000
400,000
400,000
400,000
400,000
413,083
413,054
413,030
413,021
411,710
411,715
1,016
1,004
1,011
1,010
619
634
412,067
412,050
412,019
412,011
411,091
411,081
6,767
6,771
6,766
6,766
6,927
6,918
6,530
6,514
6,529
6,529
6,621
6,682
9,438
9,415
9,446
9,448
8,371
8,436
22,000,000
37,038,554
17,585,292
19,453,262
13,026,814
(2,007,016 )
(1,849,186)
(0.90)
24,191,696
36,755,710
20,533,582
16,222,128
10,655,995
(5,794,994 )
(6,127,604)
(5.62)
(2.20)
0.40
N.A.
N.A.
2.70
N.A.
0.24
0.24
0.24
0.24
0.21
0.21
TSMC Technology, Inc
InveStar Semiconductor
Development Fund Inc.
WaferTech, LLC
Po Cherng Investment Co., Ltd.
Chi Hsin Investment Co., Ltd.
Cherng Huei Investment Co., Ltd.
Hsin Ruey Investment Co., Ltd.
Kung Cherng Investment Co., Ltd.
Chi Cherng Investment Co., Ltd.
Vanguard Int’l
Semiconductor Corp.
TSMC-Acer
Semiconductor
Manufacturing Inc.
* For the year ended December 31, 1999
65
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Combined Financial Statements as of December 31, 1999
Representation Letter
The combined financial statements of Taiwan Semiconductor Manufacturing Company Ltd., TSMC-Acer Semiconductor
Manufacturing Inc. and Vanguard International Semiconductor Corporation for the period January 1, 1999 to December
31, 1999 were prepared in conformity with the requirements on public companies and their affiliates, taken as a whole,
of Securities and Futures Committee (SFC) in the Republic of China (ROC), the ROC regulations governing the preparation
of financial statements of public companies and ROC generally accepted accounting principles.
The accounting records underlying the financial statements accurately and fairly reflect, in reasonable detail, the
transactions of the company and affiliates. There are no plans or intentions that may materially affect the carrying values
or classifications of assets and liabilities.
Very truly yours,
Taiwan Semiconductor Manufacturing Company Ltd.
By
Morris Chang
Chairman
66
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Ltd.
We have reviewed the combined financial statements of Taiwan Semiconductor Manufacturing Company Ltd., TSMC-Acer
Semiconductor Manufacturing Inc. and Vanguard International Semiconductor Corporation for the year then ended. Our
reviews were made in accordance with the guidelines for the review of combined financial statements of affiliates. It is
substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the combined financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the combined financial
statements referred to above in order for them to be in conformity with "Regulations Governing the Preparation of
Affiliates’ Combined Operating Report, Combined Financial Statements and Relationship Report" in the Republic of China.
T N SOONG & CO
Taiwan, ROC
A member firm of Andersen Worldwide S.C.
January 24, 2000
Notice to Readers
The combined financial statements were not prepared with a view to complying with the published guidelines of the
United States Securities and Exchange Commission or the American Institute of Certified Public Accountants ("AICPA") and
have not been examined or otherwise reported upon under AICPA guidelines. They are not presented in accordance with
generally accepted accounting principles in the United States of America for consolidated financial statements.
67
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
COMBINED BALANCE SHEETS
December 31, 1999
(In Thousand New Taiwan Dollars, Except Par Value)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)
Short-term investments (Notes 2 and 5)
Receivable from related parties (Note 17)
Notes receivable
Accounts receivable
Allowance for doubtful receivables (Note 2)
Allowance for sales returns and allowances (Note 2)
Inventories (Notes 2 and 6)
Prepayments and other current assets (Notes 17 and 22)
Deferred income tax assets (Notes 2 and 16)
Total Current Assets
LONG-TERM INVESTMENTS (Notes 2 and 7)
PROPERTIES (Notes 2, 8, 17 and 19)
Cost
Land and land improvements
Buildings
Machinery and equipment
Office equipment
Leased assets
Total cost
Accumulated depreciation
Allowance for valuation loss
Prepayments and construction in progress
Net Properties
COMBINED DEBIT (Note 2)
OTHER ASSETS
Deferred charges - net (Notes 2 and 9)
Deferred income tax assets (Notes 2 and 16)
Refundable deposits
Pledged or mortgaged assets (Note 19)
Miscellaneous
Total Other Assets
TOTAL ASSETS
68
Amount
%
$23,235,699
927,216
1,114,259
164,134
15,157,187
(460,111)
(919,925)
9,967,233
4,748,520
2,547,130
56,481,342
7,130,226
783,809
41,987,989
185,754,339
4,683,233
562,039
9
-
1
-
6
-
-
4
2
1
2 3
3
-
1 7
7 6
2
-
233,771,409
9 5
(95,900,299)
( 3 9)
(2,534,642)
( 1)
28,746,476
164,082,944
1 2
6 7
2,784,765
5,942,748
9,126,737
37,596
357,530
22,558
15,487,169
1
2
4
-
-
-
6
$245,966,446
1 0 0
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Amount
%
CURRENT LIABILITIES
Short-term loans (Note 10)
Notes and accounts payable
Payable to related parties (Note 17)
Other payable - construction and equipment
Income tax payable (Notes 2 and 16)
Current portion of non-current liabilities (Notes 11,12,13 and 19)
Accrued expenses and other current liabilities (Note 22)
Total Current Liabilities
NON-CURRENT LIABILITIES
Bank loans (Notes 11,17 and 19)
Bonds payables (Notes 2 and 12)
Lease obligation payable (Notes 2 and 13)
Guarantee deposits (Note 20)
Accrued pension obligations (Notes 2 and 15)
Unrealized gain on sale - leaseback (Notes 2 and 8)
Other
Total Other Liabilities
MINORITY INTEREST IN AFFILIATES (Note 2)
Total Liabilities
SHAREHOLDER’S EQUITY (Notes 2 and 14)
Capital stock, $10 par value; authorized - 9,100,000 thousand shares;
issued - 7,670,882 thousand shares
Capital surplus
Legal reserve
Unappropriated earnings
Cumulative translation adjustment
Total Shareholders’ Equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of the combined financial statements.
$795,581
4,473,284
468,628
10,728,272
160,977
6,118,311
6,747,606
-
2
-
4
-
3
3
29,492,659
1 2
33,644,085
1 4
22,250,000
138,757
5,185,362
1,342,115
652,682
3,370
63,216,371
33,573,999
126,283,029
9
-
2
1
-
-
2 6
1 3
5 1
76,708,817
3 1
10,744,988
8,258,359
25,062,256
(1,091,003)
119,683,417
5
3
1 0
-
4 9
$245,966,446
1 0 0
69
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
COMBINED STATEMENTS OF INCOME
For the Year Ended December 31, 1999
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
GROSS SALES (Note 17)
SALES RETURNS AND ALLOWANCES
NET SALES
COST OF SALES (Note 17)
GROSS PROFIT
OPERATING EXPENSES (Note 17)
General and administrative
Marketing
Research and development
Total Operating Expenses
INCOME FROM OPERATIONS
NON-OPERATING INCOME
Interest (Note 22)
Gain on disposal of properties
Insurance compensation
Reversal of allowance for losses on short-term investments
Rental revenue
Gain on disposal of short-term investments - net
Premium Income (Notes 2 and 22)
Gain on disposal of long-term investments
Foreign exchange gain - net (Note 2)
Other
Total Non-Operating Income
NON-OPERATING EXPENSES
Interest (Notes 2, 8, and 22)
Provision for loss on properties (Note 8)
Issuance costs of bonds
Loss on disposal of properties
Loss on option contracts (Notes 2 and 22)
Investment loss recognized by equity method - net (Notes 2 and 7)
Other
Total Non-Operating Expenses
INCOME BEFORE INCOME TAX
INCOME TAX BENFFIT (Notes 2 and 16)
INCOME BEFORE MINORITY INTEREST
MINORITY INTEREST IN LOSS OF AFFILIATES
COMBINED NET INCOME
COMBINED EARNINGS PER SHARE
Amount
%
$97,094,224
(1,606,528)
95,487,696
1 0 0
65,568,467
29,919,229
3,829,366
1,975,913
4,968,149
10,773,428
19,145,801
1,758,935
783,515
415,202
140,137
216,004
48,575
63,809
53,491
50,041
105,278
3,634,987
4,747,624
2,534,642
114,839
95,805
86,746
68,670
215,614
7,863,940
14,916,848
1,065,391
15,982,239
8,577,645
$24,559,884
6 9
3 1
4
2
5
1 1
2 0
2
1
-
-
-
-
-
-
-
-
3
5
3
-
-
-
-
-
8
1 5
1
1 6
9
2 5
Based on weighted-average shares outstanding of 7,572,598 thousand
$3.24
The accompanying notes are an integral part of the combined financial statements.
70
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts in Thousand New Taiwan Dollars, Except Per Share
(1) GENERAL
Taiwan Semiconductor Manufacturing Company Ltd. (TSMC), a Republic of China corporation, and its affiliates - Vanguard
International Semiconductor Corporation (VIS) and TSMC-Acer Semiconductor Manufacturing Inc. (TASMC), are engaged
mainly in the manufacture, sale, packaging, testing and computer-aided design of integrated circuits and other
semiconductor devices, and the manufacture and design of masks.
Notice to Readers:
The combined financial statements include the consolidated accounts of TSMC plus the accounts of VIS and TASMC ,
neither of which are consolidated subsidiaries of TSMC. TSMC’s consolidated financial statements prepared in accordance
with U.S. generally accepted accounting principles, would not include the assets, liabilities, revenues or expenses of VIS
and TASMC.
In September 1994, its shares were listed on the Taiwan Stock Exchange. In 1997, TSMC offered shares of stock in the
New York Stock Exchange in the form of American Depositary Receipts. VIS’s shares are traded on the Republic of China
(ROC) Over-the-Counter Securities Exchange starting March 25, 1998.
TSMC has thirteen affiliates including eleven wholly-owned subsidiaries, namely, TSMC North America, Taiwan
Semiconductor Manufacturing Company Europe B.V (TSMC Europe), TSMC Japan, TSMC International Investment, TSMC
Partners, and 25%-owned affiliates - Po Cherng Investment, Chi Hsin Investment, Kung Cherng Investment, Chi Cherng
Investment, Hsin Ruey Investment, and Cherng Huei Investment, and two which TSMC exercises significant influence - VIS
(25%-owned) and TASMC (32%-owned).
The presence of significant influence of TSMC on VIS results from the fact that the chairman of VIS is also the chairman of
TSMC, whereas presence of significant influence of TSMC on TASMC results from the fact that the chairman of TASMC is
the CEO of TSMC and that the CEO of TASMC is assigned by TSMC. Therefore, the combined financial statements include
all of the aforementioned affiliates. However, the total assets or revenues of Vanguards Affiliates Inc., which is an affiliate
of VIS, and its subidiaires are less than 10% of those of TSMC and, therefore, the combined financial statements did not
include the information of these affiliates.
TSMC North America, TSMC Europe and TSMC Japan are engaged mainly in marketing & engineering support. All of the
other affiliates are engaged in investments. As of December 31, 1999, TSMC International Investment has two wholly-
owned subsidiaries -- TSMC Development, Inc. and TSMC Technology Inc., -- and a 97%-owned subsidiary -- InveStar
Semiconductor Development Fund, Inc. TSMC Development Inc. in turn has a 68%-owned subsidiary, namely, WaferTech,
LLC.
71
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The combined financial statements include the accounts of TSMC and the aforementioned affiliates (hereinafter, referred
to individually or collectively as "Company"). All significant intercompany accounts and transactions have been
eliminated. Minority interests in the affiliates, including InveStar, WaferTech, VIS and TASMC are presented separately in
the financial statements.
Cash equivalents
Government bonds acquired under repurchase agreements, commercial paper, and mutual fund acquired under
repurchase agreements with original maturities of less than three months are classified as cash equivalents.
Short-term investments
Short-term investments are stated at the lower cost or market value. The costs of investments sold are determined by the
specific identification method.
Allowance for doubtful receivables
Allowance for doubtful receivables is provided on the basis of a review of the collectibility of individual receivables.
Sales and allowance for sales returns and others
Sales are recognized when products are shipped to customers. Allowance for sales returns and others are provided based
on experience; such provisions are deducted from sales and the related costs are deducted from cost of sales.
Inventories
Inventories are stated at the lower of standard cost (adjusted to approximate weighted average cost) or market value.
Market value represents net realizable value for finished goods and work in process, and replacement value for raw
materials, supplies and spare parts.
Long-term investments
Investments in shares of stock for which the Company exercises significant influences on the investee companies are
accounted for by equity method. The difference between the investment cost and the Company’s proportionate share in
the net asset of the investee companies at the date of acquisition is amortized on a straight - line method over five years.
Such amortization and the Company’s proportionate share in the earnings or losses of investee companies are recognized
as part of "Investment income or loss" account in the Statement of Income.
Other investments in shares of stocks are stated at cost less decline in market value of listed stocks or decline in value of
unlisted stocks which is considered irrecoverable; such reductions are charged to shareholders’ equity or current income,
respectively. Stock dividends received are recognized only as increase in the number of stocks held on the ex-dividend
date.
Investments in foreign mutual funds are stated at the lower of cost or net asset value (NAV). Write-downs of cost and
write-ups to original acquisition cost resulting from subsequent recovery in NAV are debited or credited to shareholders’
equity.
Convertible notes and stock purchase warrants are carried at cost.
72
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The costs of investments sold are determined by the weighted average method.
Gains or losses on transactions with investee companies wherein the Company owned at least 20% of the outstanding
common stock but less than a controlling interest are deferred in proportion to ownership percentage until realized
through a subsequent transaction with a third party. If the gains or losses stated above are arisen form transactions
involving sales by the subsidiary to the parent, an adjustment should be made in accordance with ownership percentage.
Properties
Properties are stated at cost less accumulated depreciation. Major additions, renewals and betterment, and interest
expense incurred during the construction period are capitalized, while maintenance and repairs are expensed currently.
Depreciation is provided on the straight-line method over estimated service lives which range as follows: buildings - 5 to
55 years; machinery and equipment - 5 to 10 years; office equipment - 2 to 7 years; leased assets - 2 to 3 years.
Upon sale or disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and
any gain or loss is credited or charged to income. Any such gain, less applicable income tax, is transferred to capital
surplus at the end of the year.
Properties covered by agreements qualifying as capitl leases are carried at the lower of the present value of all minimum
future rental payments, or its market value at the inception date of the lease. The lessee’s periodic rental payment
includes the purchase price of the leased property, and the interest expense.
Combined debit
Combined debit is the excess amount of the acquisition cost of a parent over the net equity of the affiliates.
Deferred charges
Deferred charges are amortized on the straight-line method over the following periods: patents - 5 to 10 years; software
design costs - 3 to 5 years; bonds issuance costs - 7 years and short-term credit instruments - contract period of credit
instruments.
Convertible bonds
The excess of the contracted redemption price over the face value of the bond is amortized and recognized as interest
expense over a period starting from the issue date to the last day of the redemption period or the actual redemption
date, whichever is earlier, using the effective interest method.
Capital stock account is credited for the face value of the bond converted into the Company’s shares of stock and the
excess of the carrying value of the bond as of the date of its conversion over its face value is credited to capital surplus
account.
Pension benefits
Net periodic pension costs are recorded on the basis of actuarial calculations. Unrecognized net transition obligation is
amortized over 15 to 25 years, and unrecognized net transaction asset is amortized over 26 years.
73
Unrealized gain or loss on sale-leaseback
The gain or loss resulting from the sale of leased property is deferred as unearned gain or loss on sales-leaseback. The
unearned gain or loss on sales-leaseback is amortized depending on the nature of the lease. For operating leases, the
unearned gain or loss is amortized over the lease term. For capital leases, however, the unearned gain or loss on sales-
leaseback is amortized over the estimated service life of the leased property and the amount of amortization is accounted
for as adjustment to depreciation.
Income tax
The company adopted interperiod tax allocation. Deferred income tax assets are recognized for the tax effects of
temporary differences, unused tax credits, and operating loss carryforwards. Valuation allowance is provided for deferred
income tax assets that are not certain to be realized. A deferred tax asset or liability should, according to the classification
of its related asset or liability, be classified as current or non-current. However, if a deferred asset or liability cannot be
related to an asset or liability in the financial statements, then it should be classified as current or non-current based on
the expected length of time before it is recovered.
Income taxes (10%) on undistributed earnings are recorded as expenses in the year when the shareholders have resolved
that the earnings shall be retained.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
Derivative financial instruments
Foreign currency forward exchange contracts (forward contracts), entered into for purpose other than trading, are
recorded in New Taiwan dollars as assets or liabilities using the spot rates at the inception dates of the contracts. The
differences in the New Taiwan dollar amounts translated using the spot rates and the amounts translated using the
contracted forward rates are also recognized as premiums or discounts at the inception dates of the forward contracts.
Such premiums or discounts are amortized over the terms of the forward contracts using the straight-line method and
the amortizations are either deferred or recognized in income.
At the balance sheet dates, the receivables or payables arising from forward contracts are restated using the prevailing
spot rates and the resulting differences are recognized consistent with the recognition of the amortization of the
premiums or discounts described above. The receivables and payable related to the forward contracts are netted out and
the resulting net amount is presented as either an asset or liability. Also, the balances of forward exchange receivables or
payables are translated on the basis of prevailing exchange rates and the resulting exchange gains or losses are credited
or charged to current income. However, any premium or discount, and exchange gain or loss from hedging an
identifiable foreign currency commitment is deferred to the actual transaction date and recorded as an adjustment to the
transaction price.
Interest rate swap transactions entered into to manage liabilities are accounted for on an accrual basis, in which cash
settlement receivable or payable is recorded as an adjustment to interest income or expense.
The notional amounts of the foreign currency option contracts entered into for hedging purposes are not recognized as
either assets or liabilities on the contract dates. However, amounts received on call options written are recognized as
74
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
assets and amounts paid on put options bought are recognized as liabilities. Such amounts are amortized using the
straight-line method over the period of the contracts and charged to current income. Gains or losses on the exercise of
the options are also recognized in current income.
Foreign-currency transactions
Foreign-currency transactions, except derivative financial instruments, are recorded in New Taiwan dollars at the rates of
exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign
exchange rates when cash in foreign currency is converted into New Taiwan dollar, or when foreign-currency receivables
and payables are settled, are credited or charged to income in the year of conversion or settlement. At year-end, the
balances of foreign-currency assets and liabilities are restated at prevailing exchange rates, and the resulting differences
are credited or charged to current income.
Translation of financial statements of foreign companies
When the financial statements of a foreign company, accounted for by the equity method, are translated into the
reporting currency, the exchange gains or losses resulting from such translation process are recorded as "cumulative
translation adjustments" which are included as a seperate component of stockholders’ equity. Such cumulative translation
adjustments are transferred into current income or loss when the foreign investee dissolved or when share in the foreign
company no longer held.
75
(3) SIGNIFICANT ELIMINATING ENTRIES
Company
Account
Amount
Transaction Entity
TSMC
Payable to related parties
$125,637
TSMC North America
13,422
13,189
3,832
730,483
539,466
184,741
47,343
198,163
17,550
23,117
25,674
59,438
22,246
48,473
TSMC Europe
TSMC Japan
TSMC Technology
WaferTech, LLC
TASMC
VIS
TSMC Technology
WaferTech, LLC
TSMC Japan
TASMC
VIS
WaferTech, LLC
TASMC
VIS
4,636,780
WaferTech, LLC
808,926
381,989
692,927
99,087
87,414
81,951
20,400
8,175
TASMC
VIS
TSMC North America
TSMC North America
TSMC Europe
TSMC Japan
VIS
WaferTech, LLC
1,672,552
TSMC Development
97,717
TSMC Technology
7,873,941
TSMC Development
313,950
627,724
25,029
142,957
13,790
64,055
63,050
TSMC Technology
TSMC Development
TSMC Technology
WaferTech, LLC
WaferTech, LLC
WaferTech, LLC
WaferTech, LLC
Receivable from related parties
Sales
Purchase
Marketing expenses(commissions)
Marketing expenses (service charges)
Marketing expenses (commissions)
Marketing expenses (commissions)
General and administrative expenses (consulting fee)
Deferred revenue
TSMC
Interest receivable
International
Investment
Notes Receivable
Interest revenue
TSMC
Deferred revenue
Technology
Licensing Fee
Sales
Receivable
76
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(4) CASH AND CASH EQUIVALENTS
Bank deposits
Commercial papers
Mutual funds
Government bonds acquired under repurchase agreements
(5) SHORT-TERM INVESTMENTS
Short-term investments aggregating $927,216 are marketable equity securities.
(6) INVENTORIES
Finished goods
Work in process
Raw materials
Supplies and spare parts
Allowance for losses
1999
$22,100,501
74,985
7,541
1,052,672
$23,235,699
1999
$1,313,523
7,659,840
997,004
1,124,240
11,094,607
(1,127,374)
$9,967,233
77
(7) LONG-TERM INVESTMENTS
Common Stocks
Accounted for by equity method
VIS Affiliates Inc.
Systems on Silicon Manufacturing Company Pte Ltd. ( SSMC )
Accounted for by cost method
Taiwan Mask (Listed stock)
Powerchip Semiconductor Corp.
Etron Technology Inc.
Taiwan Semiconductor Technology
Lian Ya
Shin-Etsu Handotai Taiwan
W.K. Technology Fund IV
Hong Tung Venture Capital
Global Test
ChipStrate Technology
Ritch Technology
Scenix Semiconductor
Walson Advanced Electronics
Megic
Form Factor Inc.
Preferred Stocks
Programmable Microelectronics
Marvell Technology
Integrated Memory Logic
Divio
Integrated Micromachines
SiRF Technology
Rise Technology
Capella Microsystems
Sensory
Flow Wise Networks
Equator Technologies
Light Speed Semiconductor
Centillium Technology
Scenix Semiconductor
Lara Technology
Rapid Stream
78
1999
Carrying
Value
% of
Ownership
$765,530
360,177
1,125,707
32,129
2,651,216
386,545
500,000
175,500
105,000
50,000
80,000
71,613
32,927
7,407
5,407
414,481
150,000
64,360
4,726,585
47,092
139,055
23,546
15,698
4,709
41,860
47,092
12,040
39,244
15,697
42,011
68,562
23,546
66,277
83,197
32,965
1 0 0
3 2
2
9
5
1 9
1 3
7
4
1 0
5
2
1
-
1 0
1 5
1
3
1 0
2
1
-
3
3
1
3
1
3
5
2
5
6
2
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Premier R. F.
Krypton Isolation
Pico Turbo
Sonics
3Dfx Interactive
Nanoamp Solutions
T-Span System
Memsic
Menolithie Power System
Formfactor
Reflectivity
Signia
Convertible Note
Integrated Memory Logic
Sonics
Rise
Funds
Crimson Asia Capital
Horizon Ventures Fund
Warrant
Flow Wise Networks
Allowance for loss
1999
Carrying
Value
% of
Ownership
2
3
3
2
-
2
1
3
4
4
4
3
2
2
1
-
-
-
31,395
39,244
39,244
31,395
9,326
26,537
15,698
47,088
62,790
62,790
62,790
47,090
1,177,978
31,395
23,546
9,419
64,360
34,534
31,744
66,278
6
(30,688)
$7,130,226
The carrying values of investments accounted for by equity method and the related investment income and loss for the
year ended December 31, 1999 were based on audited financial statements of the investees in the same year as follows:
1999
($75,977)
7,307
($68,670)
SSMC
Others
79
Information on the investments is as follows:
Market value of listed stocks
Equity in unlisted stocks
Net assets value of fund
1999
$8,031,082
4,134,917
66,278
As of December 31, 1999, the Company has unexercised stock warrants for purchase of shares, as follows:
Shares
Share (US$)
Exercise
Price Per
Exercise Period
6,082
63,525
69,642
190,177
34,616
41,746
5,556
450,000
66,666
317,307
45,490
90,980
5.610
0.650
0.700
0.001
4.333
0.250
6.000
1.000
7.500
1.625
2.000
0.200
Stock(Maximum)
Equator Technologies Preferred
Equator Technologies Common
Equator Technologies Common
Flow Wise Networks Common
Marvell Technology Preferred
Capella Microsystems Common
SiRF Technology Preferred
Sonics Preferred
Formfactor Preferred
Lara Common
Scenix Semiconductor Preferred
Scenix Semiconductor Common
(8) PROPERTIES
Accumulated depreciation consists of the following:
Land improvements
Buildings
Machinery and equipment
Office equipment
Leased assets and leasehold improvement
03/27/98-03/27/00
03/27/98-03/27/03
08/11/98-08/11/04
04/25/97-03/25/02
12/10/97-06/27/00
-
01/16/98-01/16/03
09/25/98-09/25/01
07/30/99-07/30/04
01/29/99-01/29/09
12/23/98-12/23/03
03/22/99-12/23/03
1999
$33,691
10,786,435
82,337,897
2,594,122
148,154
$95,900,299
80
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The status of the expansion plans as of December 31, 1999, is as follows:
Expansion Plan
TSMC’s sixth manufacturing plant
TSMC’s seventh manufacturing plant
TSMC’s twelfth manufacturing plant
VIS’s second manufacturing plant
Interest expense capitalized in 1999 was $443,254.
Estimated
Total Cost
Accumulated
Expenditures
Date of Start
of Operations
$66,846,000
$40,238,232
March 2000
9,711,000
9,392,000
6,912,000
266,063
252,415
June 2002
June 2002
555,700
January 2003
According to TASMC’s transformation project, in original manufacturing process of 0.25-micron logic IC technology
related factory facilities, including machinery and equipment need to be rearranged and reinstalled in. The rearrangement,
reinstallation and testing cost were totaling to $2,151,329 and were deferred and recorded as machinery and equipment
cost in 1998. During the rearrangement and reinstallation period, the machinery equipment was not ready for use. As a
result, the above machinery and equipment are ceased to be depreciated in accordance was the original schedule. The
impact of depreciation totaled $2,168,661 in 1998.
The management of TASMC evaluates the aforementioned machinery equipment and recognizes $2,534,642 of loss on
value reduction on these assets in 1999.
(9) DEFERRED CHARGES - NET
Technical assistant fee
Technology
Patent
Software design costs
Cost of issuance of bonds
Others
(10) SHORT-TERM LOANS
Bank loans: total of US$13,650 thousand, repayable by June 2000, interest 6.275%-6.83%
Short-term notes and bills payable - repayable by March 2000, interest 4.40%-5.51%
Discount on short-term notes and bills payable
Unused credit lines as of December 31, 1999 aggregate about $12,908,627 thousand.
81
1999
$3,793,947
912,254
388,794
670,130
47,559
130,064
$5,942,748
1999
$427,694
370,000
(2,113)
$795,581
(11) LONG - TERM BANK LOANS
Loans (thousands)
1999
US$345,000 repayable by May 2001, interest at 6.408% in 1999
$10,831,275
US$67,565, repayable by October 2002, interest at 6.83%
Repayable in semi-annual installments through June 2004, interest at 6.35%-6.80%
Repayable in semi-annual installments through October 2005, interest at 6.42%-6.89%
Repayable in semi-annual installments through February 2005, interest at 6.515%-6.795%
Repayable in semi-annual installments through July 2004, interest at 6.765%-6.795%
Repayable in semi-annual installments through February 2003, interest at 6.765%-6.795%
Repayable in semi-annual installments through May 2002, interest at 6.765%-6.795%
Repayable in 16 semi-annual installments commencing April 22,1994, interest at
floating rate 6.12%~7.24%
Repayable in 21 consecutive quarterly installments
commencing June 27, 1998, interest at floating rate 8.07%~8.10%
Repayable in 11 semi-annual installments
commencing May 29, 1999 , interest at floating rate 6.04%~7.10%
Repayable in 21 consecutive quarterly installments
commencing September 23, 2000 , interest at floating rate 6.82%~6.85%
Repayable in 20 consecutive quarterly installments
commencing October 15, 2000 , interest at floating rate 6.19%~6.22%
Repayable in 4 semi-annual installments commencing
September 23, 2000 , interest at floating rate 8.73%
Repayable once at December 23, 1999 and repayable
In 4 semi-annual installments commencing
September 18, 2000 , interest at floating rate 6.34%~6.94%
Repayable in 15 consecutive quarterly installments
commencing April 18, 2001, interest at floating rate 6.35%~7.52%
Current portion
2,121,187
7,020,000
3,680,000
400,000
364,000
256,000
184,000
486,623
1,199,800
3,275,440
400,000
497,000
4,000,000
2,072,070
2,000,000
38,787,395
(5,143,310)
$33,644,085
The loan agreements require, among other things, the maintenance of specific financial ratios. As of December 31, 1999,
only TASMC has not complied to maintain the specific financial ratios for its loans, and the management of TASMC
expected TSMC to negotiate with the banks as merging with TSMC is forthcoming. However, there is no final conclusion
yet.
Unused credit lines as of December 31, 1999 aggregate about $10,930,290 and US$5,000 thousand.
82
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(12) BONDS PAYABLE
Foreign convertible bonds - US$350,000 thousands, non-interest bearing, repayable in July 2002
$11,322,500
1999
Accretion in redemption value of bonds
Converted into common stocks
Redeemed before maturity
Domestic unsecured bonds
Repayable in March 2003, 7.71% annual interest payable semi-annually
Repayable in November 2003, 7.12% annual interest payable annually
1,894,831
13,217,331
(12,914,338)
(302,993)
-
4,000,000
6,000,000
Repayable in October 2002 and 2004, 5.67% and 5.95% annual interest payable annually, respectively
10,000,000
Repayable in annual installments from November 6, 2000 to November 6, 2003,
interest at 6.59% guaranteed by financial institution
Current portion
3,000,000
23,000,000
(750,000)
$22,250,000
The foreign convertible bonds can be converted into common stocks of the Company prior to its maturity at a price per
share determined using an agreed formula. The Company may redeem the bonds prior to its maturity when certain
conditions are met. As of December 31, 1999, $1,223,986 bonds with face value totaling to $1,223,986 were converted
into 122,399 thousand shares of common stocks. The Company has redeemed the unconverted part prior to the maturity,
on November 1999.
The holders of the bonds with an aggregate face value of $6,000,000 and the Company can exercise resale agreements or
repurchase agreements, respectively, thirty days before the second and third anniversaries of the issuance date, which
range from November 18 to December 1, 1998.
83
(13) LEASE OBLIGATION PAYABLE
Lease obligations payable
Current portion
1 9 9 9
$363,758
(225,001)
$138,757
(14) SHAREHOLDERS’ EQUITY
According to the ROC Company Law, capital surplus can only be used to offset a deficit or transferred to capital.
The Articles of Incorporation of TSMC provide that the following shall be appropriated from the annual net income (less
any deficit):
a) 10% legal reserve;
b) Bonus to directors and supervisors and to employees equal to 1% and at least 1% of the remainder, respectively.
These appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the
following year and given effect to in the financial statements of that year.
Under the Integrated Income Tax System which became effective on January 1, 1998, non-corporate resident shareholders
are allowed a tax credit for the income tax paid or payable by TSMC on earnings generated in 1998 and onwards. An
Imputation Credit Account (ICA) is maintained by the Company for such income tax and the tax credit allocated to each
shareholder. The maximum credit available for allocation to each shareholder cannot exceed the balance shown in the
ICA on the date of distribution of dividends.
The aforementioned appropriation for legal reserve shall be made until the reserve equals the Company’s capital. Such
reserve can only be used to offset a deficit; or, when it has reached 50% thereof the paid-in capital, up to 50% thereof
can be transferred to capital.
84
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(15) PENSION PLAN
TSMC, VIS and TASMC each has a pension plan covering all regular employees, which provides benefits based on length of
service and average monthly salary at the time of retirement. The company makes monthly contributions, equal to 2% of
salaries to a pension fund which is administered by the employees pension fund monitoring committee and deposited in
the committee’s name in the Central Trust of China. Pension cost is accrued at 3%-6% of salaries and wages.
Pension information are summarized as follows:
a. Components of pension cost
Service cost
Interest cost
Projected return on plan assets
Amortization of prior period service cost
b. Reconciliation of the fund status of the plan and accrued pension liabilities
Benefit obligation
Vested benefit obligation
Nonvested benefit obligation
Accumulated benefit obligation
Additional benefits based on future salaries
Projected benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net transitional obligation
Unrecognized net gain
Additional liability
Accrued pension liabilities
Vested benefit
c. Actuarial assumptions
Discount rate used in determining present values
Future salary increase rate
Expected rate of return on plan assets
d. Contributions to pension fund
e. Payments from pension fund
1999
$341,559
104,391
(34,821)
7,335
$418,464
$ -
559,680
559,680
1,249,944
1,809,624
(578,265)
1,231,359
-
(166,754)
277,277
-
$1,341,882
$ -
6.5%
5%-6.5%
6.5%
$99,514
$3,591
85
(16) INCOME TAX
Current
Domestic
Foreign
Deferred
Domestic
Valuation allowance
Foreign
Adjustment of prior year’s income taxes
Income tax benefit
Deferred income tax assets consist of the following:
Current
Investment tax credit
Accrued liabilities and others
Valuation allowance
Non-current
Investment tax credit
Operating loss carryforwards
Interest expense
Differences in depreciation for tax and financial purposes
Deferred revenue
Others
Valuation allowance
Integrated income tax information of TSMC:
Ending balances of imputation credit account
86
1999
($21,379)
(63,388)
(84,767)
2,379,368
(1,303,500)
1,075,868
7,818
1,083,686
66,472
$1,065,391
1999
$2,981,076
212,054
(646,000)
$2,547,130
$11,545,027
2,427,765
201,798
(451,207)
43,753
(180,431)
13,586,705
(4,459,968)
$9,126,737
1999
$1,497
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The expected creditable ratio for 1999 was 0.006%.
The imputation credit of TSMC allocated to each shareholder shall be based on the balance in the ICA on the date of
distribution of dividends, thus the expected creditable ratio for 1999 may be adjusted according to the difference
between the expected and actual imputation credit allowed under the regulation.
The unappropraited retained earnings of TSMC and VIS as of December 31, 1999 included the earnings prior to 1997 of
$752,612 and $743,888, respectively.
The effective tax rates for deferred income tax applied were: TSMC- 5.9%; VIS- 20%; and TASMC -5%.
Unused investment tax credits arising from investments in machinery and equipment, and research and development
expenditures as of December 31, 1999 will expire as follows:
Year of Expiry
2000
2001
2002
2003
The income from the following projects and services are exempt from income tax:
Amount
$2,921,989
5,168,052
4,362,890
2,073,172
Tax-Exemption Period
Expansion of second manufacturing plant and computer-aided
design services, and third manufacturing plant
1996 to 1999
Expansion of first manufacturing plant, second manufacturing
plant - modules A and B and third manufacturing plant, and
fourth manufacturing plant
Expansion of first manufacturing plant, second manufacturing
plants-modules A and B, third manufacturing plant and
fourth manufacturing plant, and fifth manufacturing plant
1997 to 2000
1999 to 2002
TASMC is entitled to an income tax exemption for a period of four years for the income generated as a result of the capital
increase effected in 1995. TASMC decided to commence such tax exemption from January 1, 1998.
Income tax returns of TSMC through 1996 and income tax returns of VIS and TASMC through 1997 have been examined
by the tax authorities. However, TASMC is contesting the assessment of tax authority for 1995 and 1996.
87
(17) RELATED PARTY TRANSACTIONS
The Company engages in business transactions with the following related parties:
a.
Industrial Technology Research Institute (ITRI); its director is TSMC’s chairman.
b. Philips Electronics N.V., (Philips), a major shareholder of TSMC.
c. Systems on Silicon Manufacturing Company Pte Ltd. (SSMC), an investee of TSMC
d. VIS America: an investee of VIS’s subsidiary (VIS Affiliates Inc.)
e. VIS Micro: an investee of VIS’s subsidiary (VIS Affiliates Inc.)
f. Orient Semiconductor Electronics Ltd. (OSE): a director of VIS
g. Walsin Lihwa Corporation (WLC): a director of VIS
h. WYSE Technology Taiwan LTD. (WYSE): of the same chairman with TSMC
i. Acer Inc. (AI), TASMC’s supervisor and a member of board of directors of TASMC
j. China Development Corporation (CDC), supervisor and a member of board of directors of TASMC
k. Chiao Tung Bank (BOT), supervisor and major shareholder of TASMC before August 11, 1999.
l.
Investee of AI:
Apacer Technology Inc. (APT)
Acer Sertek Inc. (ASI)
Addonics Technology Corp. (AT)
AOpen Inc. (AOI)
Taiwan Semiconductor (TSI)
Acer Labs. Inc. (ALI)
Acer Twp Corporation (ATC)
m. Acer Testing Inc. (ATI): TASMC is a member of its board of directors and supervisor before March 31, 1998.
n. Acer Semiconductor America Inc. (ASA), TASMC’s subsidiary.
88
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
The transactions with the foregoing parties in addition to those disclosed in other notes, are summarized as follows:
1999
Amount
%
During the year
Sales
ITRI
Philips and its affiliates
WYSE
APT
ASI
AT
AOI
TSI
Purchase
APT
ASI
TSI
Rental expense
ITRI
Cost of Sales
OSE
ITRI
Philips (technical assistance fee)
ATI
TSI
General and administrative expenses
ITRI
VIS Micro
AI
Marketing expenses
VIS Micro
ASA
ITRI
Research and development expenses
VIS America
ITRI
Interest expenses
CDC
BOT
89
$132,507
2,864,149
26.436
3,673,798
839,568
459,969
317,301
211,357
$8,525,085
$7,476
20,186
25,291
$52,953
$161,488
$82,836
3,484
862,398
170,053
37,935
$1,156,706
$115
9 9
13,821
$14,035
$30,575
13,043
1 4 3
$43,761
$355,246
5 1 4
$355,760
$81,010
77,732
$158,742
-
3
-
4
1
-
-
-
8
-
-
-
-
-
-
8
-
-
8
-
-
-
-
2
1
-
3
7
-
7
-
-
-
Purchase of machinery and equipment
WLC
ASI
At end of year
Receivable
ITRI
Philips and its affiliates
SSMC
WYSE
APT
ASI
AOI
TSI
Prepayments and other current assets
Prepaid rental - ITRI
Payable
Philips and its affiliates
VIS America
OSE
VIS Micro
ITRI
WLC
ASI
TSI
ATI
Others
Long-term bank loans
CDC
BOT
1999
Amount
%
$938
22,083
$23,021
$18,458
133,245
5,353
6,327
632,380
166,765
120,020
31,711
-
-
-
2
1 2
-
-
5 7
1 5
1 1
3
$1,114,259
1 0 0
$42,541
$305,756
34,855
12,574
3,532
2,001
9 3 8
8,717
37,182
62,155
9 1 8
$468,628
$1,600,000
897,000
$2,497,000
1
6 5
8
3
1
-
-
2
8
1 3
-
1 0 0
5
2
7
Transactions with related parties are based on normal prices and collection or payment terms except for that VIS America
and VIS Micro perform research and development and marketing activities for VIS, respectively and VIS pays actual
expenses incurred related to such undertakings plus a 5% mark-up.
90
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(18) LONG-TERM LEASES
TSMC leases the land, building and certain machinery and equipment of its first manufacturing plant from ITRI under
agreements which will expire in March 2002, at annual rentals and other charges aggregating $170,166. The
agreements are renewable upon expiration.
TSMC leases the land sites of its second through tenth manufacturing plants from the Science-Based Industrial Park
Administration under agreements which will expire on various dates from March 2008 to April 2018 with annual rentals
aggregating $42,149. The agreements are also renewable upon expiration.
TSMC North America leases its office premises and certain equipment under non-cancelable operating agreement which
will expire in June 2003. TSMC Europe entered into a lease agreement for its office premises which will expire in 2001,
annual rent currently is totaled to $ 37,328.
VIS leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-Based Industrial Park
Administration under agreements which will expire on April 2010, June 2015 and March 2018, but renewable upon
expiration. Annual rentals aggregate to $32,668.
VIS also leases machinery and equipment from Condisco Trade Inc. in terms of operating lease through December 2002.
Annual rentals aggregate to $263,218 (US$8,409 thousand).
TASMC entered into a twenty-year land lease agreement with Science-Based Industrial Park Administration to lease its
plant site. The annual lease payment was $32,343. To renew the lease, TASMC must submit a written application three
months before the lease expires.
Future minimum rentals under the aforementioned leases are as follows:
Year
2000
2001
2002
2003
2004
2005-2018
(19) PLEDGED OR MORTGAGED ASSETS
Certain assets have been pledged or mortgaged as collateral as follows:
Time deposit
Properties (net) - for bank loans
91
Amount
$585,873
533,965
389,199
115,161
115,161
1,225,077
$2,964,436
1999
$357,530
60,074,850
$60,432,380
(20) COMMITMENTS AS OF DECEMBER 31, 1999
a. Under a technical cooperation agreement entered into by TSMC and Philips, as amended on May 12, 1997, TSMC shall
pay technical assistance fee at a percentage of net sales of certain products, less specified deductions. The agreement
shall remain in force up to July 9, 2007 and thereafter automatically renewed for successive periods of three years.
Under the amended agreement, the fee is subject to reduction by the amounts TSMC pays to any third party for
settling any licensing/ infringement issue after the first five-year periods of the amended agreement, provided that the
fee after reduction will not be below a certain percentage of the net selling price.
b. Subject to certain equity ownership and notice requirements, Philips and its affiliates can avail each year up to 30% of
TSMC’s production capacity.
c. Under a submicron technology license agreement entered into by TSMC and ITRI, TSMC shall pay ITRI with license fees
of $129,400 (including 5% value-added tax) plus royalty fee at an agreed percentage of net sales of certain products
through December 31, 1998. As of December 31, 1995, TSMC has paid the entire license fee.
d. Under a technical cooperation agreement entered into by TSMC and ITRI, TSMC shall reserve and allocate up to 35% of
its production capacity, for use by the Ministry of Economic Affairs (MOEA) or any other party as designated by the
MOEA.
e. Under a purchase agreement with three customers, TSMC shall supply them with, and the three customers shall buy, a
certain portion of wafers produced by WaferTech, LLC. If TSMC or any of the customers is unable or unwilling to supply
or buy the minimum purchase allocation, the defaulting party shall compensate the other party at the full price of the
products, less certain costs.
f. Under several foundry agreements entered into by TSMC, TSMC shall allocate a portion of its production output for
sale to certain major customers from whom guarantee deposits of US$164,765 thousand had been received as of
December 31, 1999.
g. On February 27, 1998, the Tax Bureau assessed TSMC additional income taxes of about $105,000 and $125,000 for
1994 and 1995, respectively, arising from the contention by the Bureau that TSMC’s first manufacturing plant was not
a science-based industry under the Science-Based Industrial Park Regulations. TSMC is contesting the assessment, but
has already accrued the amount of tax assessment. The additional income tax for 1994 has been reassessed to be
$21,887.
h. Under a Shareholders Agreement entered into by TSMC, Philips and EDB Investments Pte Ltd. dated March 30, 1999,
the parties agreed to: (a) form a joint venture company to be called Systems on Silicon Manufacturing Company Pte
Ltd. (SSMC) for the purpose of building an integrated circuit foundry in Singapore, (b) set SSMC’s total authorized
capital at about S$1.2 billion (about NT$22,800,000), and, (c) allow the Company to invest 32% of SSMC’s capital.
TSMC and Philips committed to buy a certain percentage of the production capacity of SSMC. If any party is unable or
unwilling to buy the committed purchase allocation and the capacity utilization of SSMC falls below a certain
percentage of total available capacity, such party shall compensate SSMC for all related unavoidable costs.
i. Under a Technical Cooperation Agreement with SSMC signed on May 12, 1999, SSMC shall pay TSMC remuneration
for the technology service provided by SSMC at a certain percentage of net selling prices of its products. The
agreement shall remain in force for ten years, and thereafter automatically continue for successive periods of five years
unless and until terminated by either party under certain conditions.
j. VIS shall pay royalties under various patent/license agreements as follows:
1) ITRI - at a specific percentage of sales of certain products for five years from November 11, 1994.
2) LUCENT Technologies, Inc. - a) at a specific percentage of net sales of certain products for five years from January
1996; b) at a specific amount for product and technology development, within a certain period from January 1998;
c) at a specific amount in three installments within three years and a percentage of net sales of certain products for
three years from January 1998; d) at a specific amount and a specific percentage of net sales of certain products
within two years from January 1998.
92
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
3) Texas Instruments Incorporated- at a specific percentage of net sales of certain products for ten years from January
1997.
4) HITACHI Corporation - at a specific amount in semi-annual installments within five years from May 1997.
5) Motorola Corporation - at a specific amount in four installments from September 1997 to December 2000.
6) Sun Microsystems - at a specific amount and a specific percentage of net sales of certain products before March
2003.
7) NEC Corporation - at a specific amount in six installments from February 1999 to 2003.
8) Mitsubishi Corporation - at a specific amount from August 1999.
k. Under a new product development agreement between VIS and VIS America (an investee of VIS Affiliates Inc.), VIS
shall pay a design fee covering the related expenses with a 5% mark-up.
l. Under a product and technology development agreement entered into by VIS and Etron Technology Inc., VIS shall pay
a specific amount of development fee within seven years and a specific percentage of net sales of certain product from
September 1998.
m. VIS provides guarantee of borrowings of VIS America for US$1,500 thousand
n. Under a management agreement entered into by TSMC and InveStar Capital Inc. (ISC) of the Cayman Islands provides
investment and administrative services to TSMC for which ISC shall receive quarterly, commencing from October 1,
1996, a management fee of 2% each year of total weighted average paid-in capital and capital surplus of TSMC
excluding retained earnings and losses.
o. WaferTech has recorded a reserve of USD 16,000 thousand for the litigation. The litigation alleges that the Company
caused the contractors to incur additional labor and material costs outside the contracts. The reserve is reflected in
accrued construction and equipment payables with the offset to construction in progress. On January 19,
2000,WaferTech entered into a settlement agreement with one of the construction contractors in the amount of USD
$10,750 thousand. Payment of the settlement amount will be made in four installments throughout fiscal year 2000.
p. In 1996, WaferTech adopted an Executive Incentive Plan, which was amended in 1997. Under the 1997 amendment,
the Board of Directors approved the Senior Executive Incentive Plan and the Employee Incentive Plan ("Plan") under
which officers, key employees and nonemployee directors may be granted option rights. As WaferTech is a limited
liability company and does not have shares of stock, each option right granted pursuant to the Plans provides grantees
rights to purchase ownership interests in WaferTech. The Plans provide for approximately 6% of the total ownership
interests to be available for grant, represented by 13.5 million option rights. For option rights granted to date, the
option purchase price exceeded fair value at the date of grant. While WaferTech may grant option rights to employees
which become exercisable at different times or within different periods, it has generally granted option rights to
employees which are exercisable on a cumulative basis in annual installments of 33-1/3% each on the third, fourth and
fifth anniversaries of the date of grant.
93
The following table summarizes information about the Plans:
Outstanding
Option Rights
Option
Rights
Available
For Grant
Number of
Option
Rights
Balance, January 1, 1999
Options granted
Option price > fair market value
Options exercised
Options canceled
Balance, December 31, 1999
6,400,252
7,099,748
(3,084,305)
3,084,305
1,119,323
(1,119,323)
838,650
(838,650)
5,273,920
8,226,080
Exercise
Price
0.74
0.86
0.74
0.74
0.78
These options will expire if not exercised at specific dates from May 2006 to December 2009.
WaferTech has elected to follow U. S. APB Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for its option plan. Under APB No. 25, because the exercise price of WaferTech’s option rights
exceeds the market value of the underlying ownership interests on the date of grant, no compensation
expense is recognized in WaferTech’s financial statements. WaferTech has computed for pro forma
disclosure purposes the fair value of each option grant, as defined by U.S. Statement of Financial Accounting
Standards No. 123, "Stock-Based Compensation" (SFAS 123), using the Black-Scholes option pricing model
with the following assumptions:
Risk free interest rate
Expected dividend yield
Expected lives
1999
7.00%
0
5 years
As WaferTech is not publicly traded, a volatility factor was not utilized in the pricing computation.
q.TSMC provides collateral for loans of US$68,000 thousand obtained by TSMC Development, Inc.
r. TSMC has unused credit lines as of December 31, 1999 aggregating about $138,738.
s. VIS has unused letters of credit aggregating about US$3,576 thousand and JPY601,375 thousand.
t. TASMC has unused credit lines as of December 31, 1999 aggregating about $1,030,451.
u.TASMC has entered into a technology licensing agreement with other companies in June 1998. According
to the agreement, TASMC would pay certain technical service fees in several installments to obtain logic IC
manufacturing technologies.
94
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(21) OTHER SIGNIFICANT EVENTS
TSMC has two merger agreements signed on December 30, 1999 and January 7, 2000, with TASMC and WSMC,
respectively. TSMC will acquire and merge TASMC and WSMC. TSMC shall be the surviving company, and TASMC and
WSMC shall be dissolved after the merger. The consolidation date is tentatively scheduled for June 30, 2000. The agreed
exchange ratio is five shares of TASMC to one share of TSMC, (The exchange ratio will be adjusted again based on the
same proportion of TSMC’s stock dividends once such dividends are declared by the consolidation date.), and two shares
of WSMC to one share of TSMC. The Agreement shall be further granted approval by the shareholders from both
companies and the governing regulator. The capital of TSMC will be expected to increase by 1,488,684 thousand shares
of common stock (such number will be adjusted after declaration of TSMC’s 1999 stock dividend.)
(22) FINANCIAL INSTRUMENTS
The Company entered into derivative financial instrument transactions for the twelve months ended December 31, 1999
to hedge foreign-currency denominated receivables or payables, interest rate fluctuations and identifiable foreign currency
commitments. The strategy is to hedge most of the market price risks. Certain information on these contracts is as
follows:
a. Outstanding forward exchange contracts as of December 31, 1999:
1999
Currency
Contract
Amount
(Thousands)
Fair Value
(Thousands)
Maturity
Maturity
Amount
(Thousands)
Buy
Buy
Buy
Sell
Sell
Sell
Sell
US$
JPY
NLG
US$
US$
US$
US$
US$ 25,000
JPY2,472,080
Jul. 2000
NTD 879,154
JPY1,916,783
US$ 19,050
Feb. to Aug. 2000
USD
18,957
NLG 65,133
US$ 30,185
Mar. to Sep. 2000
USD
31,604
US$ 81,367
JPY8,303,350
Jan. to Jul. 2000
NTD 2,564,297
US$ 16,000
NLG 34,926
US$ 30,000
NTD 941,847
Jan. 2000
Jan. 2000
NTD 497,159
NTD 947,880
US$ 23,000
NTD 721,769
Jan. to Jun. 2000
NTD 725,426
Receivables and payables from forward exchange contracts (shown in the balance sheets as part of "Other current assets"
or "Other current liabilities" accounts) as of December 31, 1999 aggregate about $29,797 and $147,314, respectively.
Net exchange gains for the year ended December 31, 1999 was $108,695.
The net assets or liabilities hedged by the above forward exchange contracts are as follows:
Accounts receivable
Accounts payable and other payable - construction and equipment
Guarantee deposits
Commitemets for purchase of properties
95
Thousands
1999
U S $ 415,537
151,392
764,765
J P Y1,916,783
N L G 65,133
b. Interest rate swaps
Interest rate swap transactions entered into to hedge exposure to rising interest rates on its floating rate for long-term
bank loans. These transactions are summarized as follows:
Contract Date
April 28, 1998
April 29, 1998
June 26, 1998
June 26, 1998
October 13,1997
April 27,1998
October 26,1997
December 9,1997
January 14,1998
Period
Amount(Thousands)
May 21, 1998 to May 21, 2003
May 21, 1998 to May 21, 2003
June 26, 1998 to June 26, 2003
July 6,1998 to July 6, 2003
October 15,1997 to October 15,2000
April 29,1998 to October 29,2000
October 28,1997 to October 28,2000
December 11,1997 to December 11,2000
January 16,1998 to January 16,2003
NTD2,000,000
NTD1,000,000
NTD1,000,000
NTD1,000,000
USD 100,000
USD
USD
USD
USD
50,000
50,000
50,000
5,000
Interest revenue and expense on these loans for the twelve months ended December 31, 1999 were $2,927 and
$112,213, respectively.
c. Option contracts
Foreign currency option contracts are entered into by TSMC to hedge risks of exchange rate fluctuations arising from
its anticipated U.S. dollar cash receipts from its export sales or Japanese Yen obligations related to its importation of
materials and machinery and equipment.
Outstanding option contracts as of December 31, 1999 were as follows:
Contract
Currency
Contract
Amount
(Thousands)
Carrying Value
Fair Value
Strike Price
Maturity
Call option sell
US$
US$100,000
$3,911
$3,911
$0.9785~0.9940
Jan 2000
Call option sell
US$
US$60,000
3,035
3,035
106.6 (US$/JPY)
Jan 2000
(US$/EUR)
For the twelve months ended December 31, 1999, the Company realized premium income of $63,809 on foreign
currency put options written and incurred losses of $86,746 on foreign currency call options bought.
96
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
d. Exchange and interest rate swap
Exchange and interest rate swap are entered into by TASMC to hedge foreign currency needs arising from transactions
of imports, exports and the financing arrangement of foreign currency. These transactions are summarized as follows:
December 31,1999
National Amount
Maturity date
Interest rate range - Paid
Interest rate range - Received
USD 13,333
USD 14,286
USD 14,286
USD
7,143
USD 10,000
USD
USD
5,000
8,333
September 23, 2000
90 day NTD rate plus 0.28%
Six month USD LIBOR
May 29, 2002
May 29, 2002
May 29, 2002
April 19, 2000
April 19, 2000
April 22, 2002
90 day NTD rate plus 0.28%
Six month USD LIBOR
90 day NTD rate plus 0.28%
Six month USD LIBOR
90 day NTD rate plus 0.25%
Six month USD LIBOR
90 day NTD rate plus 0.1%
Three month USD LIBOR
90 day NTD rate plus 0.1%
Three month USD LIBOR
90 day NTD rate plus 0.14%
Six month USD LIBOR
As of December 31, 1999, payables from exchange and interest rate swap aggregate about $53,330 (shown in the
balance sheets as part of "Other current liabilities" account). Foreign exchange loss and interest expense arising from these
contracts for the twelve months ended December 31, 1999 were $77,786 and $39,556, respectively.
e. Transaction risk
1) Credit risk: the banks with which the Company has entered into the above contracts are reputable and, therefore,
the Company is not expected to be exposed to significant credit risks.
2) Market price risk: All derivative financial instruments are for hedging receivables or payables denominated in foreign
currencies, interest rate fluctations and foreign currency commitments. Gains or losses from forward exchange
contracts for hedging foreign currency denominated assets or liabilities are likely to be offset by gains or losses
realized. Gain or loss from hedging an identifiable foreign currency commitment is deferred to the actual
transaction date and recorded as an adjustment to the transaction price. Interest rate risks are also controlled as the
expected cost of capital is fixed. Thus, market price risks from exchange rate and interest rate fluctuations are
minimal.
3) Liquidity and cash flow: The purpose of forward exchange contracts and option contracts is to limit the Company’s
exposure to loss resulting from adverse fluctuations in assets and liabilities denominated in foreign currency and
foreign currency purchase commitments. Interest rate swap transactions result in adjustments for interest only.
Therefore, no significant extra cash requirement is expected.
97
f. The estimated fair values of the company’s financial instruments are as follows:
Non-derivative financial instruments
Assets
Cash and cash equivalents
Short-term investments
Receivables from related parties
Accounts and notes receivable
Long-term investments
Refundable deposits
Liabilities
Payable to related parties
Notes and Accounts payable
Other payable - construction and equipment
Bank loans (includes current portion)
Guarantee deposits
Derivative financial instruments
Forward exchange contracts (buy)
Forward exchange contracts (sell)
Interest rate swaps
Option
December 31, 1999
Carrying/Notional
Amount
Fair Value
$23,235,699
$23,235,699
927,216
1,114,259
15,321321
7,130,226
37,596
468,628
4,473,284
10,728,272
62,151,153
5,185,362
2,372,219
4,718,598
9,898
6,946
2,554,428
1,114,259
15,321,321
12,232,277
37,596
468,628
4,473,284
10,728,272
62,219,503
5,185,362
2,306,638
4,719,877
8,750
6,946
Fair values of financial instruments were determined as follows:
1) Short-term financial instruments -- carrying values.
2) Short-term investments -- market values.
3) Long-term investments - market value for listed companies and net equity value for the others.
4) Refundable deposits -- carrying values.
5) Long-term bank loans are forecasted using cash flows discounted at present value, using discount rates which are
interest rates of similar long-term liabilities. Long-term bonds payable are discounted at present values. Fair values of
other long-term liabilities are also their carrying values as they use floating interest rates.
6) Derivative financial instruments -- based on outright forward rates and interest rate in each contract.
7) Financial instruments or non-financial instruments are not necessarily all disclosed at fair values; accordingly, the sum
of the fair values of the financial instruments listed above does not equal to the fair value of TSMC and its affiliates.
98
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(23) SEGMENT FINANCIAL INFORMATION
a. Geographic information
1999
Sales to unaffiliated customers
Transfers between geographic areas
Total sales
Gross profit
Operating expenses
Non-operating income
Non-operating expenses
Income before income tax
Minority interest
Identifiable assets
Long-term investments
Total assets
b. Gross Export sales
Area
America
Asia
Europe
Others
Overseas
Domestic
Adjustments and
Elimination
$12,059,737
975,431
$13,035,168
$4,962,308
$83,427,959
4,696,218
$88,124,177
$30,628,570
$ -
(5,671,649)
($5,671,649)
($5,671,649)
$34,807,935
$204,829,696
($801,411)
Combined
$95,487,696
-
$95,487,696
$29,919,229
(10,773,428)
3,634,987
(7,863,940)
$14,916,848
($8,577,645)
$238,836,220
7,130,226
$245,966,446
1999
$42,591,567
17,445,429
6,769,052
2,603
$66,808,651
The export sales information of TSMC is presented by billed regions.
c. No single customer accounts for more than 10% of total sales.
99
(24) ADDITIONAL DISLCLOSURES REQUIRED FOR PUBLIC COMPANIES
According to the requirements of SFC as announced on March 31, 1999, TSMC and affiliates should make additional
disclosures as follows:
a. Financing provided to related parties: please see table 1 attached.
b. Collateral provided to related parties: please see table 2 attached.
c. Marketable Securities held at the end of the year: please see table 3 attached.
d. Balance of Marketable securities acquired, disposed of and held, exceeding 100 million or 20% of the issued capital:
please see table 4 attached.
e. Acquisition of long-term equity investment, properties exceeding 100 million or 20% of issued capital: please see table
5 attached.
f. Transaction of purchase or sales with related parties amounting to more than 100 million or 20% of the issued capital:
please see table 6 attached.
g. Receivable from related parties amounting to more than 100 million or 20% of the issued capital : please see table 7
attached.
h. Financial instruments of the investees: none
i.
Information on investees on which the Company exercises significant influences: please see table 8 attached.
100
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Financing provided to related parties
For the twelve months ended December 31, 1999
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Maximum
balance for
the period
Ending
balance
(thousand)
Interest
Issue
Allowance
for bad debt
per book
Mortage
Item Value
Transaction Financing
amount
limit (Note2)
Table 1
Financing provider
Accounts
Transaction entity Limit on
No.
Name
0
TSMC
Receivables
SSMC
(Note1)
from related WaferTech, LLC
parties
TSMC Japan K.K
TSMC Technology
VIS
TASMC
Prepaid rents
ITRI
Prepayments WaferTech, LLC
to Suppliers
Payments for others
$ -
$ 5,597
350,969
184,877
17,550
47,753
2,750
9,777
80,985
662,029
$ 5,353
-
184,877
17,550
47,343
1,608
4,159
42,541
-
-
-
-
-
-
-
-
-
-
Sale of Equipment
Excess on payment made
Payments for others
Payments for others
Payments for others
Payments for others
Rental expenditure
Sales receipts
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
$ 5,597
$ 15,341,763
-
-
-
-
-
-
-
-
-
-
-
-
-
350,969
184,877
17,550
47,753
2,750
9,777
161,488
4,636,780
-
-
407,538
-
355,246
1
2
BVI
VIS
Other
TSMC Development
-
USD 304,077
USD 304,077
7.75% Operating capital
receivables
TSMC Technology
USD 13,112
USD 13,112
7.75% Operating capital
Receivables
TSMC
(Note 1)
20,400
20,400
from related
parties
Prepaid
expenses
ITRI
VIS-America
50
78,510
-
-
-
-
-
Rental income and
408
technology revenue
Return on royalty
Prepayments for
product development
-
-
Note 1: not exceeding 10% of the issued capital of the Company for each transaction entity, but also limiting to 30% of the issued capital of each transaction entity
Note 2: not exceeding 20% of the issued capital of the Company
101
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Collateral provided to related parties
For the twelve months ended December 31, 1999
Table 2 (Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Collateral provider
No.
Name
Name
Transaction Entity
Nature of the
relationship
Limitation on amount Maximum outstanding
of collateral
amount (Thousands)
Ending balance
(Thousands)
Amount of
% of accumulated
collateral guaranteed amount of collateral on of collateral
by properties
provided(Note 1)
Limit on amount
net equity of the latest
financial statement
0
1
TSMC
TSMC
Affiliate of
(Note 2 )with the exception
$ 4,608,276
$ 2,134,860
Development
TSMC
of approval by BOD
(USD 145,500)
(USD 68,000)
VIS
VIS- America
Subsidiary of
(Note 2)
VIS Affiliates Inc.
46,950
46,950
(USD1,500)
(USD1,500)
-
-
1.77%
$ 23,012,645
0.24%
6,600,000
Note 1:30% of the issued capital of the Company
Note 2:not exceeding 10% of the issued capital of the Company,but limiting to the issued capital of the collateral provider.
102
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Marketable Securities held as of December 31, 1999
Table 3
TSMC:
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
December 31, 1999
Carrying value
% of ownership
Market value or
net asset value
Type
Marketable securities
Relation with
the issuer
Account
Stock
Taipei Bank
-
Short-term investment
TSMC North America
Subsidiary
Long-term investment
TSMC Europe B.V.
TSMC Japan K.K.
VIS
Subsidiary
Long-term investment
Subsidiary
Long-term investment
Investee
Long-term investment
TSMC International Investment, Ltd. Subsidiary
Long-term investment
Po Cherng Investment Co., Ltd.
Chi Hsin Investment Co., Ltd.
Investee
Investee
Long-term investment
Long-term investment
Kung Cherng Investment Co., Ltd.
Investee
Long-term investment
Chi Cherng Investment Co., Ltd.
Hsin Ruey Investment Co., Ltd.
Investee
Investee
Long-term investment
Long-term investment
Cherng Huei Investment Co., Ltd.
Investee
Long-term investment
TSMC Partners, Ltd.
Subsidiary
Long-term investment
SSMC
TASMC (Common)
TASMC (Preferred)
Taiwan Mask Corp.
United Industrial Gases Co., Ltd.
Shin-Etsu Handotai Taiwan Co., Ltd.
W.K. Technology Fund IV
Investee
Investee
Investee
-
-
-
-
Taiwan Semiconductor Technology Corp. -
Hon Tung Ventures Capital
Fund
Crimson Asia Capital
Horizon Ventures Fund
-
-
-
TSMC International Investment, Inc.:
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Shares
(thousand)
8,750
1,000
-
1
556,133
389,788
-
-
-
-
-
-
300
26
348,936
376,815
6,261
10,058
10,500
5,000
50,000
8,000
N/A
N/A
$ 236,250
255,025
25,956
10,168
5,010,897
12,454,280
103,017
103,012
102,773
102,770
103,003
103,005
9,968
360,177
3,630,193
4,854,742
32,129
146,250
105,000
50,000
500,000
80,000
34,534
31,744
Stock
InveStar Semiconductor
Subsidiary
Long-term investment
45,000
USD 48,778
Development Fund Inc.
TSMC Development
Subsidiary
Long-term investment
TSMC Technology
3DFX, Interactive
Subsidiary
Long-term investment
-
Long-term investment
1
1
68
USD 42,018
(USD 2,020)
USD 297
103
N/A
100
100
100
25
100
25
25
25
25
25
25
100
32
32
28
2
11
7
4
19
10
N/A
N/A
97
100
100
-
$ 241,850
255,025
25,956
10,168
19,575,899
12,454,280
103,017
103,012
102,773
102,770
103,003
103,005
9,968
360,177
1,841,747
3,768,150
177,743
154,477
74,290
67,040
458,340
80,157
34,534
31,744
USD 48,778
USD 42,018
(USD 2,020)
USD 625
V I S :
Type
Marketable securities
Relation with
the issuer
Account
Stock
VIS Associates Inc.
Investee
Long-term investment
Powerchip Semiconductor Corp.
Investee
Long-term investment
Walson Advanced Electronics Ltd.
Investee
Long-term investment
Etron Technology, Inc.
MEGIC Corporation
Form Factor Inc.
Investee
Investee
Investee
Long-term investment
Long-term investment
Long-term investment
United Industrial Gases Co., Ltd.
Investee
Long-term investment
Shares
(thousand)
23,570
151,110
31,410
5,775
15,000
267
2,011
December 31, 1999
Carrying value
% of ownership
765,530
2,651,216
414,481
386,545
150,000
64,360
29,250
100
9
10
5
15
1
2
Market value or
net asset value
Note
7,238,856
Note
614,483
Note
Note
Note
TSMC Development:
Equity
Interest WaferTech, LLC
Subsidiary
Long-term investment
-
USD 401,464
68
USD 401,464
InveStar Semiconductor Development Fund Inc.:
Stock
Common Global Test Corp.
Chipstrate Technology, Inc.
Rictech Technology, Inc.
Sage,Inc
Silicon Image
Scenix Semiconductor, Inc
Vtesse Semiconductor
Long-term investment
Long-term investment
Long-term investment
Short-term investment
Short-term investment
Long-term investment
Short-term investment
Preferred Programmable Microelectronics Corp.
Long-term investment
Marvell Technology Group, Ltd.
Integrated Memory Logic, Inc.
Long-term investment
Long-term investment
Divio, Inc. (Next Wave Technology, Inc.)
Long-term investment
Integrated Micromachines, Inc.
SiRF Technology, Inc.
Rise Technology Company
Capella Microsystems, Inc.
Sensory, Inc.
Flow Wise Networks, Inc.
Equator Technologies, Inc.
Light Speed Semiconductor, Corp.
Centillium Technology, Corp.
Scenix Semiconductor, Inc.
Lara Technology, Inc.
Rapid Stream, Inc.
Troopian, Inc. (Premier R.F. Inc.)
Krypton Isolation, Inc.
104
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
71,613
32,927
7,407
45,523
47,093
5,407
21,617
47,092
139,055
23,546
15,698
4,709
41,860
47,092
12,040
39,244
15,697
42,011
68,562
23,546
66,277
83,197
32,965
31,395
39,244
5
2
1
-
-
-
-
3
10
2
1
-
3
3
1
3
1
3
5
2
5
6
2
2
3
74,738
35,874
7,587
251,663
942,692
5,407
110,004
62,162
150,985
23,546
45,000
5,651
54,418
47,093
9,368
39,244
11,228
42,011
101,238
28,256
42,731
117,446
70,152
61,824
39,244
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
InveStar Semiconductor Development Fund Inc.:
Type
Marketable securities
Relation with
the issuer
Account
Menolithi Power System, Inc.
Formfactor, Inc.
Reflectivity, Inc.
Signia, Inc.
Warrant
Flow Wise Networks, Inc.
Convertible Rise,Inc
notes
Integrated Memory Logic, Inc.
Sonics, Inc.
Note: No market value available for unlisted stocks.
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
Long-term investment
December 31, 1999
Carrying value
% of ownership
Shares
(thousand)
Market value or
net asset value
62,790
62,790
62,790
47,090
6
9,419
31,395
23,546
4
4
4
3
-
1
2
2
62,790
62,790
62,790
47,093
6
9,419
31,395
23,546
105
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Balance of Marketable securities acquired, disposed of and held exceeding 100 million or 20% of the issued capital
For the twelve months ended December 31, 1999
Table 4
T S M C :
Marketable Securities
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Balance. as of
January 1, 1999
Acquisition
Disposal
No. of shares
(thousands)
Amount
(thousands)
No. of shares
(thousands)
Amount
(thousands)
No. of shares
(thousands)
Amount
(thousands)
Balance as of
December 31, 1999
Amount
(thousands)
(Note 1)
No. of shares
(thousands)
Gain(loss)
on disposal
International Commercial Bank of China- stock
4,117
$ 144,095
-
$ -
$ -
$ 9,025
The Wan Pao Securities Investment Trust Fund
China Money Mgm’t Securities Investment Trust Fund
Kwang Hua Bond Fund
Jin-sun Bond Fund
Capital Safe Income Securities Investment Trust Fund
First Global Investment Trust Wan Tai Bond Fund
President Home run Bond Fund
Grand Cathay Bond Fund
TASMC- common stock
TASMC- preferred stock
Systems on Silicon Manufacturing Company(SSMC) - stock
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Etron Technology, Inc. - stock
5,156
386,545
13,385
8,829
13,574
15,113
14,015
15,443
13,814
18,612
348,936
376,815
26
-
164,000
110,000
170,000
170,000
170,000
180,000
160,000
200,000
3,314,892
4,854,742
442,792
4,117
13,385
8,829
13,574
15,113
14,015
15,443
13,814
18,612
-
-
-
$ 114,095
164,000
110,000
170,000
170,000
170,000
180,000
160,000
200,000
-
-
-
-
5,156
386,545
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
873
760
1,227
1,227
1,212
1,192
1,061
1,292
-
-
-
348,936
3,630,193
376,815
4,854,742
360,177
26
-
-
(1,160)
TSMC International Investment Ltd. - stock
379,788
11,096,090
85,000
2,705,400
TSMC North America - stock
1,000
178,294
-
-
VIS - stock
521,418
4,723,014
34,716
694,320
Po Cherng Investment Co, Ltd. - stock
Chi Hsin Investment Co, Ltd. - stock
Kung Cherng Investment Co, Ltd. - stock
Chi Cherng Investment Co, Ltd. - stock
Hsin Ruey Investment Co, Ltd. - stock
Cherng Huei Investment Co, Ltd. - stock
-
-
-
-
-
-
Taiwan Semiconductor Technology Corp. - stock
United Industrial Gases Co., Ltd. - stock
Shin-Etsu Handotai Taiwan Co., Ltd. - stock
50,000
8,746
10,500
100,657
100,659
100,680
100,661
100,641
100,643
500,000
146,250
105,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
464,788
12,454,280
1,000
255,025
556,133
5,010,897
-
-
-
-
-
-
50,000
10,058
10,500
103,017
103,012
102,773
102,770
103,003
103,005
500,000
146,250
105,000
-
-
-
-
-
-
-
-
-
-
-
-
Taipei Bank - stock
U.S. TREASURY NOTES
U.S.AGENCY BACKED BONDS
FEDERAL HOME LN MTG CORP
FNMA
NATIONS BANK CORP NOTE
NORWEST CORP MTN
ABN AMRO BK GLOBAL SUB-NOTE
106
-
-
-
-
-
-
-
-
-
10,000
270,000
1,250
33,750
8,750
236,250
613
2,820,718
864,202
612,422
240,753
103,977
67,427
66,599
-
-
-
-
-
-
-
-
988,405
-
-
-
63,010
52,523
-
-
-
-
-
-
-
2,820,718
1,852,607
612,422
240,753
103,977
130,437
119,122
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Marketable Securities
Balance. as of
January 1, 1999
Acquisition
Disposal
No. of shares
(thousands)
Amount
(thousands)
No. of shares
(thousands)
Amount
(thousands)
No. of shares
(thousands)
Amount
(thousands)
Balance as of
December 31, 1999
Amount
(thousands)
(Note 1)
No. of shares
(thousands)
Gain(loss)
on disposal
DISCOVERY CARD MASTER TIER I SERIAL 98-4
CITI CORP MTN
-
-
-
50,172
TSMC International Investment Ltd.:
InveStar Semiconductor Development Fund Inc. - stock
45,000
USD 45,009
TSMC Development Inc. - stock
1
USD 12,705
-
-
-
-
128,373
114,902
-
USD 85,000
128,373
165,074
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45,000 USD 48,778
1 USD 42,018
5,775
386,545
151,110
2,651,216
15,000
23,570
31,410
150,000
765,530
414,481
-USD 401,464
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
313
1,116
826
5,254
128
3,289
291
368
333
5,477
285
V I S :
Etron Technology, Inc. - stock
Powerchip Semiconductor Corp. - stock
MEGIC Corporation - stock
VIS Associates, Inc. - stock
Walsin Advanced Electronics Ltd. - stock
TSMC Development:
-
-
-
-
-
-
5,156
151,110
15,000
23,570
31,410
780,247
414,481
386,545
2,651,216
150,000
-
-
USD 145,065
-
-
-
WaferTech, LLC - equity interest
- USD 287,468
TAS MC:
Grand Cathay Bond Fund
The GP ROC Bond Fund
Money Mgmt Fund
Money Mgmt II Fund
The First Global Fixed Income II Fund
Kwang Hua Bond Fund
Taiwan Bond Fund
Bond Fund
Increment Securities Investment Trust Fund
Sheng Hua 1699 Bond Fund
Truswell Bond Fund
-
3,340
-
890
-
40,000
-
27,012
32,420
47,692
288,900
396,500
576,500
27,012
35,760
47,692
288,900
436,500
576,500
10,079
266,111
3,114,500
267,001
3,124,579
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,182
100,000
8,182
100,000
150,394
1,874,700
150,394
1,874,700
16,732
1,234
25,007
252,236
18,886
192,500
166,100
304,000
16,732
1,234
25,007
192,500
166,100
304,000
2,559,500
252,236
2,559,500
199,500
18,886
199,500
Note 1: Balance as of December 31, 1999 includes investment gain or loss recognized by equity method and accumulated translation adjustment.
107
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Acquisition of long-term equity investment, properties exceeding 100 million or 20% of issued capital
For the twelve months ended December 31, 1999
Table 5
T S M C :
Property
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Transaction
Date
Transaction
amount
Payment term
Transaction entity
Nature of
relationship
Former transaction detail
when transacting with
related parties
Owner
Relationship Transferdate Amount
Reference of price
determined
Purpose of
acquisition
Other
commitments
TSMC International Investment Ltd. - stock 88/04/21
$ 330,000
Lump-sum payment
TSMC International
88/12/29
2,375,400
Lump-sum payment
Investment Ltd.
SSMC-Stock
88/04/14
30,496
Lump-sum payment
SSMC
88/07/19
158,080
Lump-sum payment
88/10/21
254,216
Lump-sum payment
TASMC-Stock
88/07/21
5,469,634
Lump-sum payment
Acer Inc. and China
88/09/14
2,700,000
Lump-sum payment
TASMC
Development Corporation
VIS-Stock
88/09/30
694,320
Lump-sum payment
VIS
TSMC International Investment Ltd.:
TSMC Development - stock
88/04/21 USD 10,000
Lump-sum payment
TSMC Development
88/12/29 USD 75,000
Lump-sum payment
TSMC Development:
-
-
-
-
-
-
N/A
N/A
N/A
N/A
Approval of board
Long-term
None
of directors
investment
N/A
N/A
N/A
N/A
Issuance price of the
Long-term
None
cash subscription
investment
N/A
N/A
N/A
N/A
Expert opinion
Long-term
None
investment
N/A
N/A
N/A
N/A
Issuance price of the
Long-term
None
cash subscription
investment
N/A
N/A
N/A
N/A
Issuance price of the
Long-term
None
cash subscription
investment
N/A
N/A
N/A
N/A
Approval of board
Long-term
None
of directors
investment
88/01/28 USD 77,501
Lump-sum payment
Analog Devices, Inc (ADI)
Customer
N/A
N/A
N/A
N/A
Contract price
Long-term
None
Integrated Silicon
of TSMC
Solution, Inc. (ISSI)
investment
88/10/13
67,564
Lump-sum payment
WaferTech, LLC
WaferTech, LLC -
equity interest
V I S :
MEGIC Corporation - stock
88/05/18
$ 150,000
Lump-sum payment
MEGIC Corporation
Etron Technology, Inc. - stock
88/08/10
386,515
Lump-sum payment
TSMC
-
-
Shareholder
of the
company
N/A
N/A
N/A
N/A
Approval of board
Long-term
None
of directors
investment
N/A
N/A
N/A
N/A
Par value of new
Long-term
None
Kingwell N/A
Investment
Corp. &
Wellta
Investment
Corp. etc.
N/A
N/A
87/11/25 386,545
investment
Long-term
investment
None
stock issuance
Contract price
approved
by board of
director
N/A
N/A
Contract price
Long-term
None
approved by
investment
board of director
Powerchip Semiconductor Corp. - stock
88/08/10
2,651,216
Installments
Mitsubishi Electric Corp.
-
& Kanematsu Corp. etc.
108
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Transaction of purchase or sales with related parties amounting to more than 100 million or 20% of the issued capital
For the twelve months ended December 31, 1999
Table 6
T S M C :
Transaction party
Nature of
relationship
Purchase
(Sales)
Amount
Phillips and its affiliates
Major shareholder
Sales
$ 2,864,149
WaferTech, LLC
Indirect Investee of
Purchase
4,636,780
the subsidiary
(TSMC International
Investment, Ltd.)
It’s director is
Sales
132,507
TSMC’s chairman
Investee
Investee
Purchase
Purchase
808,926
381,989
Major shareholder
Sales
378,754
ITRI
TASMC
VIS
V I S :
TSMC
WaferTech, LLC:
TSMC
TAS MC:
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Transaction Detail
Abnormal
transaction
Notes, accounts payable or
receivables
%
4
40
-
7
3
3
Collection terms
Unit price Collection
Net 30 days from monthly closing date
Net 30 days from monthly closing date
None
None
terms
None
None
Ending
Balance
$ 133,245
(730,483)
Net 45 days from monthly closing date
None
None
18,458
Net 30 days from monthly closing date
Net 30 days from monthly closing date
None
None
None
None
(539,466)
(184,741)
Net 45 days from monthly closing date
None
None
170,533
%
28
(38)
4
(28)
(10)
Major shareholder
Sales
4,636,780
98
Net 30 days from monthly closing date
None
None
730,483
100
Apacer Technology, Inc.
Investee of AI
Acer Inc.
TSMC
Investee of AI
Major shareholder
Addonics Technology Corp.
Investee of AI
Aopen Inc.
Investee of AI
Taiwan Semiconductor
Investee of AI
Technology Corp.
Sales
Sales
Sales
Sales
Sales
Sales
3,673,798
34
Net 30 days from monthly closing date
839,568
780,808
459,969
317,301
211,357
8
8
4
3
2
Net 30 days from monthly closing date
Net 30 days from monthly closing date
14 days
14 days
14 days
None
None
None
None
None
None
None
None
None
None
None
None
632,380
166,765
568,055
-
120,020
31,711
42
11
37
-
8
2
109
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Receivable from related parties amounting to more than 100 million or 20% of the issued capital
For the twelve months ended December 31, 1999
Table 7
T S M C :
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
Transaction party
Nature of relationship
Ending balance
Turnover
Amount
Management
Overdue
Amounts received from
December 31, 1999
up-to-date
Allowance for bad
debts accrued
Phillips and its affiliates
Major shareholder
$ 133,245
WaferTech, LLC
Indirect investee of
( account receivables )
19 days
60 days
$ 4,055
225
TSMC International
13,286
Investment Ltd.
( account receivables )
N/A
184,877
(excess on payment made )
V I S :
TSMC
Major shareholder
190,933
89 days
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 6,362
213
-
-
-
-
-
-
-
-
-
-
-
-
-
3,819
-
-
-
-
-
-
-
-
1,672,552
(interest receivable )
7,873,941
(notes receivable )
97,717
(interest receivable )
313,950
(notes receivable )
N/A
N/A
N/A
N/A
632,380
568,055
166,765
120,020
42 days
133 days
36 days
69 days
81,872
8,063
-
109,078
TSMC International Investment Ltd.:
TSMC Development
Subsidiary
TSMC Technology
Subsidiary
T AS MC:
Apacer Technology Inc.
Investee of AI
TSMC
Acer Inc.
Major shareholder
Investee of AI
Addonics Technology Corp.
Investee of AI
110
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
Taiwan Semiconductor Manufacturing Company Ltd.,
TSMC-Acer Semiconductor Manufacturing Inc. and Vanguard
International Semiconductor Corporation
Information on investee on which the Company exercises significant influences
For the twelve months ended December 31, 1999
Table 8
Investee
Location
Business Activity
Owned by the company
No. of shares
(thousand)
%
Carrying value
Net Income(loss)
of the investee
Investment
income(loss)
recognized
Note
(Amounts in Thousand New Taiwan Dollars, unless otherwise specified)
389,788
556,133
100
25
$ 12,454,280
($ 1,007,218 )
($ 1,007,218)
Subsidiary
5,010,897
(1,849,186)
(527,823)
Investee
1,000
100
255,025
84,345
84,345
Subsidiary
-
1
-
-
-
-
-
-
300
26
100
25,956
5,572
5,572
Subsidiary
100
10,168
150
150
Subsidiary
25
25
25
25
25
25
100
32
32
28
103,017
103,012
102,773
102,770
103,003
103,005
9,968
360,177
9,438
9,415
8,371
8,436
9,448
9,446
121
2,360
2,354
2,093
2,109
2,362
2,362
Investee
Investee
Investee
Investee
Investee
Investee
121
Subsidiary
(236,923)
(75,977)
Investee
3,630,193
(6,127,604)
315,301
Investee
4,854,742
-
-
Investee
TSMC International Investment Ltd.
Tortola, British Virgin Islands
Investment
VIS
Hsin-Chu, Taiwan
TSMC North America
San Jose, California, USA
IC Design &
manufacturing
Marketing &
Engineering
Support
TSMC Europe B.V.
Amsterdam , The Netherlands
Marketing &
TSMC Japan K.K.
Yokohama, Japan
Po Cherng Investment Co., Ltd.
Taipei, Taiwan
Chi Hsin Investment Co., Ltd.
Taipei, Taiwan
Kung Cherng Investment Co., Ltd.
Taipei, Taiwan
Chi Cherng Investment Co., Ltd.
Taipei, Taiwan
Hsin Ruey Investment Co., Ltd.
Taipei, Taiwan
Cherng Huei Investment Co., Ltd.
Taipei, Taiwan
Engineering
Support
Marketing &
Engineering
Support
Investment
Investment
Investment
Investment
Investment
Investment
TSMC Partners, Ltd.
Tortola, British Virgin Islands
Investment
Systems on Silicon Manufacturing
Singapore
Company Pte Ltd. (SSMC)
Wafer
Manufacturing
TASMC - common
Hsin-Chu, Taiwan
IC Design &
348,936
manufacturing
TASMC - preferred
Hsin-Chu, Taiwan
IC Design &
376,815
manufacturing
111
2. Dividend Policy and Implementation Status
(1) Dividend Policy (approved by the Board of Director; to be resolved in shareholders’ meeting)
The dividend shall be allocated according to the following principles per resolution of the meeting of shareholders:
1) Except distribution of reserve in accordance with item 2) below, this Corporation shall not pay dividends or bonuses
when there is no profit; however, where the legal capital reserve reaches over 50% of the authorized capital or the
sums set aside as capital reserve in profitable years have exceeded 20% of such profits, this Corporation may, for the
purpose of stabilization of market prices of this Corporation’s shares, distribute the amount in excess as dividends and
bonuses. Profits of this Corporation may be distributed by way of cash dividend and/or stock dividend. Since this
Corporation is in a capital-intensive industry, distribution of profits shall be made preferably by way of stock dividend.
Distribution of profits may also be made by way of cash dividend. Profits may be distributed in total after taking into
consideration financial, business and operational factors.
2) In case there is no profit for distribution in a certain year, or the profit of a certain year is far less than the profit
actually distributed by this Corporation in the previous year, or considering the financial, business or operational
factors of this Corporation, this Corporation may allocate a portion or all of its reserves for distribution in accordance
with relevant laws or regulations or the orders of the authorities in charge.
The dividend policy for the coming 3 years shall follow the principles above. This Corporation is in a growth stage and
retained earning is to be re-invested. Distribution of profits for the coming 3 years is expected to be mostly in the form of
stock dividend.
112
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
(2) Implementation Status: Impact on Business Performance, EPS and return on investment for
shareholders resulted from stock dividend distribution over the past two years.
Unit: New Taiwan Dollars for earning per share; Thousand New Taiwan Dollars for other items
Item
Year
1998
1999
Paid in Capital (beginning of year)
40,813,000
60,471,760
Dividend Payment
Cash Dividend (per share)
Stock Dividend from Retained Earnings (share/per share)
Stock Dividend from Capital Surplus(share/per share)
-
0.45
-
-
0.23
-
Business Performance
Income from Operations
16,202,245
25,916,619
% Change of Income from Operation (YOY)
4.60
59.96
Net Income
15,344,203
24,559,884
% Change of Net Income (YOY)
Earnings Per Share
% Change of EPS (YOY) (Note)
Average Return on Investment (%)
(Reciprocal of Average P/E Ratio)
Pro Forma EPS &
If Retained Earnings
Pro Forma Earnings Per Share
P/E Ratio
Distributed in Cash
Pro Forma Average Return on
Dividend
Investment (%)
If Capital Surplus not
Pro Forma Earning Per Share
Distributed in Stock
Pro Forma Average Return on
Dividend
Investment (%)
If Retained Earnings
Pro Forma Earnings Per Share
Distributed in Cash
Pro Forma Average Return on
Dividend &
Investment (%)
Capital Surplus not
Distributed in Stock
Dividend
(14.56)
2.54
(14.48)
2.52
3.43
3.40
-
-
-
-
60.06
3.24
59.61
2.77
3.81
3.25
-
-
-
-
Note: Based on weighted average shares ajusted from stock dividend and employee stock bonus.
113
Financial data adopted in the table is as follows:
1. Financial statement as of December 31, 1999 and 1998 together with independent auditors’ report at 24 January,
2000; and
2. Tax rates applied as effective tax rates, 5.9% for 1999 and 9.5% for 1998; and the annual rate based on Bank of Taiwan
- 7.5%.
We have reviewed the historical financial information and underlying assumptions used in obtaining the pro forma data in
the table, Based on our review, we are not aware of any material modification that should be made.
TN Soong & Co
A Member Firm of Andersen Worldwide, SC
Taipei, Taiwan
The Republic of China
February 18, 2000
Note:
1. Pro Forma EPS if retained earnings are all distributed in cash dividend = [Net Income - Pro Forma Interest Expenses on
retained earnings if distributed in cash x (1 - tax rate ) ] / (number of shares at the end of year - number of shares
from retained earning distributed in stock)
Pro Forma Interest Expenses on retained earnings if distributed in cash = Retained earning distributed in stock x one-
year prime rate
Number of shares from retained earning distributed in stock: The number of shares increased from previous year’s
retained earning distributed in stock
2. Avg. P/E ratio = Avg. share price / EPS
114
syn¥er¥gy
technical additional energy that is produced by two people combining their energy and ideas. (Longman Dictionary of Contemporary English, 1995, p. 1465)
3. Statement of Internal Control
Taiwan Semiconductor Manufacturing Co., Ltd.
Statement of Internal Control
(Translation)
Date: February 18, 2000
TSMC has conducted a self-assessment of internal controls for the period of January 1, 1999 to December 31, 1999,
based on TSMC’s internal control system. The results are as follows:
1. TSMC acknowledges that the Board of Directors and management personnel are responsible for establishing,
performing, and maintaining an internal control system, which has already been established. The purpose of the
internal control system is to provide a reasonable assurance for achieving the company’s goals: efficient and effective
operations (including profit, efficiency and the safeguard of assets, etc.), reliability of financial reports, and
compliance with applicable laws and regulations.
2. The internal control system has an inherent constraint. No matter how impeccable the system is, it can only provide a
reasonable assurance of achieving the three goals abovementioned. Due to the changes in the environment and
changing circumstances, the effectiveness of the internal control system may vary accordingly. However, TSMC’s
internal control system has self-monitoring functions with which once a shortcoming is found, action will be taken to
cure.
3. TSMC evaluates the effectiveness in the design and performance of its internal control system in accordance with the
items for evaluating the effectiveness of internal control system as indicated in the Points Governing the Establishment
of Internal Control Systems by Public Companies (the "Points") announced by the Securities and Futures Commission of
the Ministry of Finance. Based on management control process, the items for assessing the internal control system
specified in the Points divide internal control into five components: 1. Control Environment; 2. Risk Assessments; 3.
Control Activities; 4. Information and Communication; 5. Monitoring. Each component comprises certain factors.
For the said factors please refer to the Points.
4. TSMC has evaluated the effectiveness in the design and performance of its internal control system in accordance with
the aforesaid factors.
5. Based upon the results of evaluation abovementioned, TSMC is of the opinion that the design and performance of its
internal control, including the efficiency and effectiveness of operations, reliability of financial reports, and compliance
with applicable laws and regulations, during the period of January 1, 1999 to December 31, 1999 is effective and
provide a reasonable assurance of achieving the abovementioned goals.
6. This Statement of Internal Control will be a prominent feature of TSMC’s annual report and prospectus, and will be
released to the public. Should any statement herein involve forgery, concealment or any other illegality, Articles 20,
32, 171 and 174 of the Security Transaction Law shall apply.
7. This Statement of Internal Control has been approved by TSMC’s Board of Directors at the meeting of February 18,
2000 with 10 directors present at the meeting and 0 director disagreeing with this Statement of Internal Control.
Morris Chang
Chairman of the Board
F.C. Tseng
President
Taiwan Semiconductor Manufacturing Company, Ltd.
115
4. Other Necessary Supplement
Any Events in 1999 which had significant impact on shareholders’ rights or the prices for the
securities as stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law:
The Board of Directors of TSMC has approved the merger of the Company with TSMC-Acer Semiconductor
Manufacturing Corp.([TASMC]) and Worldwide Semiconductor Manufacturing Corp. ([WSMC]) on the meetings dated
Dec.30,1999 and Jan.7,2000 respectively. TSMC shall be the surviving company after the merger, while TASMC and
WSMC shall be dissolved after the merger. The consolidation date of the merger is targeted on Jun.30,2000. The
exchange ratio for TASMC to TSMC was originally set at 6 to 1; however, this ratio was later adjusted to 5 to 1. The
exchange ratio for TASMC to TSMC is to be adjusted proportionately should the paid-in capital of TSMC is increased due
to distribution of stock dividend. The exchange ratio for WSMC to TSMC was set at 2 to 1, and this ratio shall remain
unchanged should the paid-in capital of TSMC is increased due to distribution of stock dividend.
116
Taiwan Semiconductor Manufacturing Company, Ltd.
No. 121, Park Ave. III, Science-Based Industrial Park, Hsin-Chu, Taiwan 300, R.O.C.
Tel: 886-3-578-0221 Fax:886-3-578-1546
http://www.tsmc.com.tw
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
Morris Chang, Chairman