TSMC
Annual Report 2009

Plain-text annual report

TWSE: 2330 NYSE: TSM TSMC ANNUAL REPORT 2009 (I) (cid:339) Taiwan Stock Exchange Market Observation Post System: http://newmops.tse.com.tw (cid:339) TSMC annual report is available at http://www.tsmc.com/english/e_investor/e02_annual/e02_annual.htm Printed on March 12, 2010 9 0 0 2 T R O P E R L A U N N A C M S T S E U L A V E R O C & N O I S I V C M S T TSMC VISION & CORE VALUES TSMC’s Vision Our vision is to be the most advanced and largest technology and foundry services provider to fabless companies and IDMs, and in partnership with them, to forge a powerful competitive force in the semiconductor industry. To realize our vision, we must have a trinity of strengths: (1) be a technology leader, competitive with the leading IDMs (2) be the manufacturing leader (3) be the most reputable, service-oriented and maximum-total-benefits silicon foundry. TSMC Core Values Integrity – Integrity is our most basic and most important core value. We tell the truth. We believe the record of our accomplishments is the best proof of our merit. Hence, we do not brag. We do not make commitments lightly. Once we make a commitment, we devote ourselves completely to meeting that commitment. We compete to our fullest within the law, but we do not slander our competitors and we respect the intellectual property rights of others. With vendors, we maintain an objective, consistent, and impartial attitude. We do not tolerate any form of corrupt behavior or politicking. When selecting new employees, we place emphasis on the candidates’ qualifications and character, not connections or access. Commitment – TSMC is committed to the welfare of customers, suppliers, employees, shareholders, and society. These stakeholders all contribute to TSMC’s success, and TSMC is dedicated to serving their best interests. In return, TSMC hopes all these stakeholders will make a mutual commitment to the Company. Innovation – Innovation is the wellspring of TSMC’s growth, and is a part of all aspects of our business, from strategic planning, marketing and management, to technology and manufacturing. At TSMC, innovation means more than new ideas, it means putting ideas into practice. Customer Partnership – At TSMC, customers come first. Their success is our success, and we value their ability to compete as we value our own. We strive to build deep and enduring relationships with our customers, who trust and rely on us to be part of their success over the long term. TABLE OF CONTENTS 1. LETTER TO SHAREHOLDERS 2. COMPANY PROFILE 3. CORPORATE GOVERNANCE 4. CAPITAL AND SHARES 5. OPERATIONAL HIGHLIGHTS 6. FINANCIAL HIGHLIGHTS 7. CORPORATE SOCIAL RESPONSIBILITY 8. AFFILIATE INFORMATION AND OTHER SPECIAL NOTES 2.1 An Introduction to TSMC 2.2 Market/Business Summary 2.3 Organization 2.4 Board Members 2.5 Management Team 3.1 Board of Directors 3.2 Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission 3.3 Major Resolutions of Shareholders’ Meeting and Board Meetings 3.4 Internal Control System Execution Status 3.5 Status of Personnel Responsible for Preparing Financial Reports 3.6 Information Regarding TSMC’s Independent Auditor 3.7 Material Information Management Procedure 2 6 7 8 10 12 18 24 25 27 29 30 31 31 31 32 33 4.1 Capital and Shares 39 4.2 Issuance of Corporate Bonds 39 4.3 Preferred Shares 40 4.4 Issuance of American Depositary Shares 4.5 Status of Employee Stock Option Plan 42 4.6 Status of New Share Issuance in Connection with Mergers and Acquisitions 42 42 4.7 Financing Plans and Implementation 5.1 Business Activities 5.2 Technology Leadership 5.3 Manufacturing Excellence 5.4 Customer Partnership 5.5 Employees 5.6 Material Contracts 6.1 Financial Status and Operating Results 6.2 Risk Management 7.1 Typhoon Morakot Disaster Relief Project 7.2 Environmental, Safety and Health (ESH) Management 7.3 TSMC Education and Culture Foundation 8.1 Affiliates 8.2 Status of TSMC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries 8.3 Special Notes 44 45 46 50 52 54 56 58 59 62 68 69 70 74 76 77 81 81 9 0 0 2 T R O P E R L A U N N A C M S T S R E D L O H E R A H S O T R E T T E L 2 1. LETTER TO SHAREHOLDERS Dear Shareholders, At the start of 2009, we managed the sharp business downturn that gripped the global economy, and then enhanced our core strengths by committing more resources into technology innovations, recruiting talents, and expanding our production capacity to meet customers’ needs. Now the global economy is on its gradual recovery course and the outlook for semiconductor industry in 2010 appears robust, TSMC is in a stronger position to compete. The steep downturn in the global semiconductor industry in 4Q’08 and 1Q’09 was followed by a recovery the rate of which was unprecedented in the history of the foundry segment. At the start of the slump, management moved with speed to minimize the negative financial impact. Later on, when demand fast recovered, we demonstrated remarkable agility in quickly ramping up production capacity and capturing the pursuant recovery. In the process, the Company lowered its breakeven utilization rate and maintained profitability throughout the downturn. TSMC is now headed forward on a course to capture greater share within the dedicated foundry segment through continued development of the leading-edge process technology nodes, while aggressively broadening the Company’s business portfolio into derivative technologies across all legacy technology nodes. Financial Results Total consolidated revenue for 2009 was NT$295.74 billion, an 11.2 percent decrease compared with NT$333.16 billion in 2008. Net income decreased 10.7 percent to NT$89.22 billion from NT$99.93 billion, while diluted earnings per share decreased 9.6 percent to NT$3.44 compared with NT$3.81 a year earlier. In US dollars, TSMC’s 2009 revenue was US$9 billion and net income was US$2.71 billion, compared with revenue of US$10.61 billion and net income of US$3.18 billion in 2008. Among other highlights in 2009, TSMC achieved: ● Gross profit margin of 43.7 percent; and ● Operating profit margin of 31.1 percent. During the year, TSMC shipped 7.74 million eight-inch equivalent wafers, representing about 7.6 percent of global IC wafer shipments, compared with 7.4 percent a year ago. Morris Chang, Chairman and CEO 3 Technology, Capacity and Customers While the semiconductor industry will grow strongly in 2010, it is likely to grow at an average mid-single-digit rate in the 2011- 2016 period. On the one hand, it is vital for TSMC to maintain and augment its leadership position in the foundry segment by intensifying the pace of semiconductor manufacturing innovation and by expanding its own capabilities to enlarge market opportunities. On the other hand, TSMC also embarked on a vigorous program to expand the base of our business to encompass adjacent opportunities that fit our strengths in engineering capabilities and the ability to manage massive scale operations. In addition, to start the development of new businesses, Dr. Rick Tsai has been assigned to devote his full time to this task as President of New Businesses, starting June 12, 2009. Meanwhile, I resumed CEO responsibility. Today, TSMC serves more than four hundred customers and manufactures more than seven thousand products for them in a year. We are proud to count every major player in each of the semiconductor logic applications as our customers. We build customer partnership with our technology leadership and manufacturing excellence, both of which are executed under an overall corporate culture centered on servicing customers’ needs. In order to better focus on strengthening our customer partnership, the Company has further re-organized to form an Operations Organization to facilitate manufacturing operations excellence, and a Business Development Organization to coordinate customer partnership. We continue to focus resources on strengthening our leading position in our core business of outsourced manufacturing for advanced IC producers. The Company has invested US$2.7 billion in 2009 to further expand its advanced technology capacity for 12-inch wafer fabs, with 85% of the spending on capacities for 40/45nm and 65nm technologies, which are expected to contribute over 40% of our wafer revenue in 2010. Technology Innovation TSMC continues to be a technology leader in the semiconductor industry with the development of the most advanced logic technologies both with conventional (poly SiON) as well as high-K/metal gate (HKMG) stacks at the 28-nanometer (28nm) node. Early in 2009, we became the first foundry to achieve 28nm functional 64Mb SRAM yield on our high performance (28HP) as well as low leakage (28HPL) HKMG technologies. With our 28nm shuttle program, functional silicon was delivered in both conventional and HKMG platforms. We are well on track for qualification and risk production in 2010 for our 28nm technology offerings. Corporate Developments In November, TSMC agreed to a settlement with SMIC. The litigation and settlement have resulted in the full protection of TSMC’s trade secrets in the possession of SMIC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments totaling US$200 million and other valuable considerations to TSMC. Both parties also agreed to terminate the patent cross-licensing agreement signed in 2005. TSMC also invested US$193 million for a 20% equity stake in Motech, the largest solar cell manufacturer in Taiwan. The Motech investment allows TSMC to accelerate our time to market, to better evaluate opportunities along the solar value chain, and to further formulate our overall solar strategy. 9 0 0 2 T R O P E R L A U N N A C M S T S R E D L O H E R A H S O T R E T T E L 4 Honors and Awards TSMC continued to garner recognition and awards from around the world as a corporate role model. TSMC’s disclosure and transparency and its focus on shareholder value have won top honors from AsiaMoney, The Asset Magazine, Corporate Governance Asia, FinanceAsia, GlobalView Magazine, and the IR Magazine in the areas of Corporate Governance, Management, Investor Relations, and Corporate Social Responsibilities. Both the Wall Street Journal and CommonWealth Magazine voted TSMC as Taiwan’s Overall Most Admired Company. As a leader in good corporate citizenship, TSMC is included in the Dow Jones Sustainability Index. Outlook Improvement in the global macroeconomic environment is likely to continue into 2011. With the fast growing emerging economies consuming an increasing amount of semiconductors, we expect the industry to grow at a rate in the teens and the foundry segment to outpace the overall semiconductor industry at a growth rate exceeding 20 percent in 2010. TSMC has aggressive plans to gain market share in this upturn by further strengthening our technology leadership and by providing sufficient capacity to meet the strong demand from our customers. Management believes TSMC can surpass both the Company’s 2008 revenue record and its 2006 net income record, after adjusting for employee profit sharing, in 2010. Morris Chang Chairman and Chief Executive Officer Capacity Plan Sales Breakdown by Technology 2008 13% 2009 6% 2010 13% 9.38 million 9.96 million 11.28 million 2008 2009 2010 0% 36% 33% 26% 64% 67% 74% 100% Annual Growth Rate Capacity: 8-inch equivalent wafers ≥ 0.15 μm 2010 wafer shipment is expected to be ≤ 0.13 μm approximately 10.8 million 8-inch equivalent wafers. 5 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 6 2. COMPANY PROFILE 2.1 An Introduction to TSMC TSMC is the world’s largest pure-play semiconductor foundry. Founded on February 21, 1987 and headquartered in Hsinchu, Taiwan, TSMC pioneered the business model of focusing solely on manufacturing customers’ semiconductor designs. As a pure-play semiconductor foundry, the Company does not design, manufacture, or market semiconductor products under its own brand name, ensuring that TSMC does not compete directly with its customers. With a diverse global customer base, TSMC-manufactured microchips are used in a broad variety of applications that cover various segments of the computer, communications and consumer electronics markets. Total capacity of the manufacturing facilities managed by TSMC, including subsidiaries and joint ventures, totaled 9.96 million 8-inch equivalent wafers in 2009. In Taiwan, TSMC operates two advanced 12-inch wafer fabs, four 8-inch wafer fabs, and one 6-inch wafer fab. TSMC also manages two 8-inch fabs at wholly owned subsidiaries: WaferTech in the United States and TSMC China Company Limited. In addition, TSMC obtains 8-inch wafer capacity from other companies in which the Company has an equity interest. TSMC provides customer service through its account management and engineering services offices in North America, Europe, Japan, China, South Korea, and India. The Company employed more than 24,000 people worldwide as of the end of 2009. TSMC continued to lead the foundry segment of the semiconductor industry in advanced process technologies. Already the first foundry to provide 65nm and 40nm production capacity, TSMC also announced it will deliver 28nm as a full node technology, and, in 2009, reported the addition of 28HPL (High-k metal gate with low power) to enrich its 28nm offering. In addition to general-purpose logic process technology, TSMC supports the wide-ranging needs of its customers with embedded non-volatile memory, embedded DRAM, mixed signal/RF, high voltage, CMOS image sensor, color filter, MEMS, and silicon germanium technologies. In December 2009, TSMC also announced the automotive industry’s first process qualification specification and service package for automotive-grade semiconductor manufacturing in the China market. TSMC Fab 10 in Shanghai, along with multiple fabs in Taiwan, is capable of supporting the automotive service package. In addition, in order to better manage TSMC’s long-term strategic growth opportunities, TSMC has decided to invest in LED lighting and solar energy related-industries. With differentiated technology offerings and with unique value proposition to customers, TSMC will pursue new opportunities in these fields. The Company is listed on the Taiwan Stock Exchange (TWSE) under ticker number 2330, and its American Depositary Shares trade on the New York Stock Exchange (NYSE) under the symbol “TSM”. 7 2.2 Market/Business Summary 2.2.1 TSMC Achievements In 2009, TSMC maintained its leading position in the pure-play foundry segment of the global semiconductor industry, with an estimated market segment share of 48%. TSMC achieved this result amid fierce competition from both established players and relatively new entrants to the business. Leadership in advanced process technologies is a key factor in TSMC’s strong market position. In 2009, 67% of TSMC’s wafer revenue came from manufacturing processes with geometries of 0.13μm and below. A critical milestone was reached in September 2009, when TSMC shipped its one-millionth 65nm 12-inch wafer. Moreover, TSMC also achieved volume production of the 45/40nm process as well as development of the leading-edge 28nm process, both foundry firsts. As of the fourth quarter of 2009, 39% of TSMC’s wafer revenue came from 65nm processes and below. In addition to advanced technologies, TSMC also offers innovative services in line with its unwavering focus on customer partnership. Among the many innovative services unveiled in 2009 was automotive process qualification specification and automotive service package, tapping the growth momentum of automotive electronics. TSMC also launched foundry’s first integrated sign-off flow, mixed signal/radio frequency (RF) reference design kit and interoperable process design kit, which enriched the Open Innovation PlatformTM to facilitate timely innovation among the semiconductor design community. TSMC continued to advance the semiconductor roadmap in 2009. Examples of technologies the Company developed or rolled out include: ● 28nm low power technology with functional static random access memory (SRAM) ● 40nm technology for low power and radio frequency (RF) ● 55nm low power technology ● 65nm multi-time programmable non-volatile memory technology ● 0.11μm hybrid general performance technology ● 0.11μm high voltage process for small panel single chip drivers ● 0.13μm slim platform for analog and power management System-on-Chip (SoC) applications ● 0.15μm high voltage process for large panel source drivers In addition, TSMC further strengthened its comprehensive development of specialty technologies in 2009, including 90/65nm embedded flash, 90/65nm CMOS image sensor and 0.13μm analog technologies. In 2009, TSMC also revealed foundry-first 3D Micro-Electro-Mechanical Systems (MEMS) platform for the integration of CMOS and motion sensors. These specialty technologies are key differentiators from our competitors and provide customers more value. 2.2.2 Market Overview such as TSMC reached US$19 billion, or 8% of total semiconductor industry revenue, and TSMC’s total revenue was US$9 billion. In 2009, the largest geographic market (based on the location of customers’ corporation headquarters) for pure-play foundry services, North America was accounting for 61% of overall pure-play foundry revenue. The second largest geographic market was Asia Pacific (excluding Japan), which accounted for 27% of pure-play foundry revenue in 2009. European-based customers accounted for 9%, and orders from companies based in Japan contributed 3%. 2.2.3 Industry Outlook, Opportunities and Threats Industry Demand and Supply Outlook 2009 was a challenging year for the semiconductor industry, which experienced a decline of 9% year-over-year (YoY). After the sharp market decline in the final quarter of 2008, foundry sales bottomed out in the first quarter of 2009. Driven by better-than-expected demand and supply chain inventory replenishment, foundry sales recovered significantly throughout the rest of 2009. According to IC Insights, pure-play foundry sales declined by 10% in 2009 compared to 2008. IC Insights forecasts pure-play foundry sales to grow at 24% YoY in 2010. As for the longer term, with improving global economic outlook, increasing semiconductor content in electronics devices and the increasing IDM outsourcing, pure-play foundry sales are expected to display an 14% compound annual growth rate (CAGR) from 2009 through 2014, higher than the 11% CAGR for total IC industry. As the upstream supplier in the semiconductor supply chain, the foundry segment is tightly correlated with the market health of the 3Cs: computer, communications and consumer. ● Computer The computer sector posted an impressive year despite the economic downturn, with a positive unit shipment growth of 3%. The consumer PC segment showed stronger momentum, offsetting the weak corporate PC segment. Lower cost PCs (e.g., netbooks) and new usage models, such as telecom carrier bundled promotion with netbook, also helped to lift the PC market. Market momentum was especially strong in China and the US. Moving into 2010, it is expected the corporate PC refresh, together with the launch of new Microsoft Windows 7 Operating System, will help drive the market while consumer PC continues to maintain its growth momentum. New applications and form factors such as touch screen, thin-and-light PC, “smartbook”, and “virtualization” will also help spur PC sales. In terms of IC product design, the requirements of lower power and higher performance for key components in computers, such as CPU, GPU, Chipset, etc., will drive near-term demand for advanced process technologies such as 40nm and 28nm. It is estimated that the semiconductor market in 2009 reached US$226 billion in revenue, a 9% decrease compared to 2008. According to IC Insights, total foundry, a manufacturing sub-segment of the semiconductor industry, generated total revenues of US$22 billion in 2009, -11% year-on-year. Revenues from pure-play foundries ● Communications The communications sector, particularly the handsets segment, declined by 4% in unit shipment for 2009 from 2008. However, the growing number of new subscribers in emerging countries such as China and India has helped to offset the sales drop in developed countries. In the 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 8 meantime, high-end smartphone, which has much higher semiconductor content, has been a bright spot in the overall handset market. communications, 16% from consumer products, and 15% from other categories, such as industrial products. The growing popularity of 3G cellular phones will add positive momentum to the market. Smartphones with increasing performance, lower power and more intelligent applications will continue to propel the buying momentum of new handsets in the coming 2010. Low power IC design is a must-have feature in the handset segment. The System on Chip (SoC) design and the hunger for higher performance to run complicated software will also speed up the migration to advanced process technologies in which TSMC is already the leader. ● Consumer Aggregated digital consumer electronics device unit shipments resulted in 1% YoY growth in 2009, despite the economic downturn. Government (e.g., China and Japan) incentive programs, analog-to-digital TV transition in the US and EU, and “stay-at-home” economics drove demand during the economic downturn. Sharp average selling price (ASP) declines for consumer products, such as LCD TV and Blu-ray DVD, have also spurred the buying sentiment. Moving into 2010, new products with attractive features may stimulate sales of consumer products. Continuing the trend toward the transition of analog-to-digital broadcast in certain countries and the unceasing drop of ASP will still be the catalysts to drive sales of products like DTV, STB and Blu-ray DVD. Increasing innovations in the digital consumer sector have encouraged new usage models, such as motion recognition for game consoles and internet-enabled home appliances. Besides the need for advanced technologies, “More Than Moore” technologies such as CIS, High-voltage drivers and MEMS are becoming prominent requirements. With its comprehensive technology portfolio, TSMC will be able to capitalize on these trends. Supply Chain The electronics industry comprises a long and complex supply chain, the elements of which are highly dependent and correlated with each other. At the upstream IC manufacturing stage, it is important for IC vendors to have sufficient and flexible supply to support the dynamic market situation. IC foundry vendors are playing an important role to ensure the health of the supply chain. As a leader in the IC foundry services segment, TSMC provides leading technologies and large scale capacity to complement the innovations created along the downstream chain. 2.2.4 TSMC Position, Differentiation and Strategy Position As the leader in the pure-play foundry segment of the semiconductor manufacturing industry, TSMC commanded a 48% share of this segment in 2009, with total consolidated revenue of US$9 billion. In terms of geographic distribution of wafer revenue, 69% came from companies headquartered in North America, 15% from the Asia Pacific region, excluding China and Japan, 10% from Europe, 3% from China and 3% from Japan. In terms of end product application, 28% of total wafer revenue came from the computer sector, 41% from Differentiation TSMC’s leadership position is based on a trinity of key differentiating strengths: technology leadership, manufacturing excellence, and customer partnership. As a technology leader, TSMC has consistently been the first pure-play foundry to develop the next generation of leading-edge technologies. As a manufacturing leader, TSMC is renowned for its yield management, and offers best-in-class support services to expedite time-to-market and time-to-volume. And, in customer partnership, TSMC works closely with its customers on end-to-end collaboration to optimize design and manufacturing efficiencies. Going forward, TSMC will continue building on this trinity of strengths to provide the best overall value to its customers. Strategy TSMC is confident its differentiating strengths will enable it to leverage the attractive growth opportunities in the foundry sector going forward. TSMC works constantly to ensure that these strengths are maintained and improved. For example, TSMC is intensively working on the leading-edge 28nm and 20nm processes to maintain its technology leadership position. Numerous efforts are also underway to ensure manufacturing excellence, such as continuing enhancement of Design-For-Manufacturing (DFM) support services to increase yield and efficiency. TSMC also expanded its Open Innovation PlatformTM initiative, a set of ecosystem interfaces and collaborative components initiated and supported by TSMC that efficiently empowers innovation throughout the supply chain to enhance timely innovation. Finally, TSMC conducted throughout the year customer reviews and surveys to better understand customer needs and wants, and accordingly may adjust its offerings in response, thereby strengthening its partnership with customers. To address the challenges of falling wafer prices and fiercer competition from other semiconductor manufacturing companies, TSMC persists in strengthening its core competitiveness, and properly deploys its short-term and long-term technology and business development plans in order to hold ROI and growth. ● Short-term business development plan 1) To substantially ramp up the business and sustain market segment share of advanced technologies with further investment in capacity. 2) To maintain market segment share of mainstream technology by expanding business into new customers and market segments with off-the-shelf technologies. 3) To grow business with IDMs by deepening the partnership on technology development and business model arrangement. ● Long-term business development plan 1) To continue developing the leading edge technologies consistent with Moore’s law. 2) To broaden “More-than-Moore” business contribution by further developing derivative technologies. 3) To further expand TSMC’s business and service infrastructure into emerging and developing markets. 4) To explore and establish new businesses to a significant level within the next 5 years, such as solar energy and LED lighting. 9 2.3 Organization 2.3.1 Organization Chart Audit Committee Compensation Committee Shareholders’ Meeting Board of Directors Chairman Vice Chairman CEO New Businesses Operations Business Development Corporate Planning Quality and Reliability Worldwide Sales and Marketing Research and Development 2.3.2 Major Corporate Functions New Businesses ● Develop and build new businesses for the Company’s long-term Worldwide Sales and Marketing ● Brand management, market research, customer service, and revenue and profitability growth regional operations Operations ● Manufacturing operations, new fab planning, manufacturing Research and Development ● Advanced technology research and development, exploratory technology integration, advanced product engineering, backend research and development and design services and technology technology and service, mask manufacturing platform development Business Development ● Solidify customer partnership, identify new applications and Information Technology ● Technology and business system integration, Information markets, build new partnership in computer business, consumer, technology infrastructure, and IT development and operation communication business, and industrial business Corporate Planning ● Operation resources planning, production and demand planning, and business process integration Quality and Reliability ● Quality and reliability management Note: To meet our long-term growth projection, a New Businesses organization was established on May 6, 2009. Materials Management and Risk Management ● Purchasing, warehousing, import and export, logistics support, industrial safety, and environmental protection Human Resources ● Human resources management and organizational development 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 10 Audit Committee Compensation Committee Shareholders’ Meeting Board of Directors Chairman Vice Chairman CEO New Businesses Operations Corporate Planning Business Development Quality and Reliability Worldwide Sales and Marketing Research and Development Information Technology Materials Management and Risk Management Human Resources Finance & Spokesperson Legal Internal Audit Finance & Spokesperson ● Corporate finance, accounting, investor relations, public relations, tax, financial planning, investment management, and strategic program ● Corporate spokesperson Legal ● Corporate legal affairs, litigation, commercial transactions, patents and other intellectual property management Internal Audit ● Internal audit and process compliance 11 2.4 Board Members 2.4.1 Information Regarding Board Members Title/Name Chairman Morris Chang Vice Chairman F.C. Tseng National Development Fund, Executive Yuan Representatives: (Notes 1, 4, 5) Director Tain-Jy Chen Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Date Elected Term Expires Date First Elected 06/10/2009 06/09/2012 12/10/1986 Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares 118,047,697 % 0.46% Shares 118,587,914 % 0.46% Shares 85,217 % Selected Education, Past Positions & Current Positions at Non-profit Organizations Selected Current Positions at TSMC and Other Companies 0.00% B.S. and M.S. degrees in Mechanical Engineering, MIT CEO, TSMC 06/10/2009 06/09/2012 05/13/1997 36,144,509 0.14% 35,002,675 0.14% 132,855 0.00% Ph.D. in Electrical Engineering, National Chengkung University, Taiwan 06/10/2009 06/09/2012 12/10/1986 1,645,482,861 6.42% 1,653,709,980 6.38% - - - - 14,276 0.00% Bachelor Degree in Electrical Engineering, National Taiwan University 06/10/2009 06/09/2012 06/03/2003 33,768,636 0.13% 33,654,505 0.13% 06/10/2009 06/09/2012 05/07/2002 05/16/2006 06/09/2009 05/07/2002 - - - - - - - - 06/10/2009 06/09/2012 04/14/2000 1,472,922 0.01% 1,480,286 0.01% 16,116 0.00% BSEE and MSEE in National Chiao Tung University, Taiwan Group Chairman, iD SoftCapital 06/10/2009 (Note 3) 05/16/2006 - - - - - Bachelor Degree in Medieval History and Philosophy, Stanford University Chairman and CEO, Carly Fiorina Enterprises Chairman of: - TSMC China Company Limited - Global Unichip Corp. Director of: - digimax, Inc. - Allegro Manufacturing Pte, Ltd. President, New Businesses, TSMC Director, TSMC subsidiaries Director of: - Sony Corporation, Japan - L.M. Ericsson, Sweden - Actis Capital LLP, London Member of: - The Longreach Group Advisory Board - The Sony Corporation Advisory Board - New Venture Partners LLP Advisory Board Advisor to Apax Partners LLP Board Mentor, CMi Senior Advisor to Rothschild, London Ph.D. in Electrical Engineering, Stanford University Former Group Senior Vice-President, Texas Instrument Former President & COO, General Instrument Corporation Former Chairman, Industrial Technology Research Institute Life Member Emeritus of MIT Corporation Member of National Academy of Engineering, USA Former President, Vanguard International Semiconductor Corp. Former President, TSMC Former Deputy CEO, TSMC - - - Ph.D. in Economics, Pennsylvania State University, University Park, USA Former President, Chung-Hua Institution for Economic Research Former Minister of the Council for Economic Planning and Development, Executive Yuan Professor, Dept. of Economics, National Taiwan University Ph.D. in Material Science, Cornell University, USA Former President, Vanguard International Semiconductor Corp. Former Executive Vice President, Worldwide Marketing and Sales, TSMC Former COO, TSMC Former President & CEO, TSMC Honours Degree in Engineering, Loughborough University Chairman of the Supervisory Board, NXP Fellow of the Royal Academy of Engineering Former Chairman and CEO, ICL Plc Former CEO and Chairman of the Executive Committee, British Telecommunications Plc Vice President, the British Quality Foundation - Mentor Graphics Corporation Inc., Oregon, USA - Ph.D., Economics, Harvard University Former Dean, Sloan School of Management, MIT Jerome and Dorothy Lemelson Professor of Management and Economics, Sloan School of Management, MIT Former Director, Analog Devices Inc. Honorary EE Ph.D. in National Chiao Tung University, Taiwan Honorary Doctor of Technology, The Hong Kong Polytechnic University Honorary Fellowship, University of Wales, Cardiff, UK Director of: - Acer Incorporated - Qisda Corporation Ho norary Doctor of International Law, Thunderbird, American Graduate School of International - Wistron Corporation Management, USA Former Chairman, CEO and Co-Founder, Acer Group - Nan Shan Life Insurance Company, Ltd. Ma ster Degree in Business Administration, Robert H. Smith School of Business, University of Maryland at College Park, Md. Master Degree in Science, MIT's Sloan School Former Senior Management, AT&T and Lucent Technologies Former President and CEO, Hewlett-Packard Former Chairman of the Board, Hewlett-Packard Member, MIT Corporation Chairman, Technology Policy Institute, Washington, D.C. Vice-Chairman, Initiative for Global Development - - - - - 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 12 Title/Name Chairman Morris Chang Vice Chairman F.C. Tseng Representatives: (Notes 1, 4, 5) Director Tain-Jy Chen Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) National Development Fund, Executive Yuan 06/10/2009 06/09/2012 12/10/1986 1,645,482,861 6.42% 1,653,709,980 6.38% 06/10/2009 06/09/2012 06/03/2003 33,768,636 0.13% 33,654,505 0.13% 06/10/2009 06/09/2012 05/07/2002 05/16/2006 06/09/2009 05/07/2002 - - - - - - - - - - - - - - - - Date Elected Term Expires Date First Elected 06/10/2009 06/09/2012 12/10/1986 Shares 118,047,697 % 0.46% Shares 118,587,914 % 0.46% Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares 85,217 % 0.00% 06/10/2009 06/09/2012 05/13/1997 36,144,509 0.14% 35,002,675 0.14% 132,855 0.00% - - 14,276 0.00% - - - - - - 06/10/2009 06/09/2012 04/14/2000 1,472,922 0.01% 1,480,286 0.01% 16,116 0.00% Selected Education, Past Positions & Current Positions at Non-profit Organizations Selected Current Positions at TSMC and Other Companies As of 02/28/2010 B.S. and M.S. degrees in Mechanical Engineering, MIT Ph.D. in Electrical Engineering, Stanford University Former Group Senior Vice-President, Texas Instrument Former President & COO, General Instrument Corporation Former Chairman, Industrial Technology Research Institute Life Member Emeritus of MIT Corporation Member of National Academy of Engineering, USA Ph.D. in Electrical Engineering, National Chengkung University, Taiwan Former President, Vanguard International Semiconductor Corp. Former President, TSMC Former Deputy CEO, TSMC CEO, TSMC Chairman of: - TSMC China Company Limited - Global Unichip Corp. Director of: - digimax, Inc. - Allegro Manufacturing Pte, Ltd. Bachelor Degree in Electrical Engineering, National Taiwan University Ph.D. in Economics, Pennsylvania State University, University Park, USA Former President, Chung-Hua Institution for Economic Research Former Minister of the Council for Economic Planning and Development, Executive Yuan Professor, Dept. of Economics, National Taiwan University Ph.D. in Material Science, Cornell University, USA Former President, Vanguard International Semiconductor Corp. Former Executive Vice President, Worldwide Marketing and Sales, TSMC Former COO, TSMC Former President & CEO, TSMC Honours Degree in Engineering, Loughborough University Fellow of the Royal Academy of Engineering Former Chairman and CEO, ICL Plc Former CEO and Chairman of the Executive Committee, British Telecommunications Plc Vice President, the British Quality Foundation President, New Businesses, TSMC Director, TSMC subsidiaries Chairman of the Supervisory Board, NXP Director of: - Sony Corporation, Japan - L.M. Ericsson, Sweden - Mentor Graphics Corporation Inc., Oregon, USA - Actis Capital LLP, London Member of: - The Longreach Group Advisory Board - The Sony Corporation Advisory Board - New Venture Partners LLP Advisory Board Advisor to Apax Partners LLP Board Mentor, CMi Senior Advisor to Rothschild, London Ph.D., Economics, Harvard University Former Dean, Sloan School of Management, MIT Jerome and Dorothy Lemelson Professor of Management and Economics, Sloan School of Management, MIT Former Director, Analog Devices Inc. BSEE and MSEE in National Chiao Tung University, Taiwan Honorary EE Ph.D. in National Chiao Tung University, Taiwan Honorary Doctor of Technology, The Hong Kong Polytechnic University Honorary Fellowship, University of Wales, Cardiff, UK Ho norary Doctor of International Law, Thunderbird, American Graduate School of International Management, USA Former Chairman, CEO and Co-Founder, Acer Group Group Chairman, iD SoftCapital Director of: - Acer Incorporated - Qisda Corporation - Wistron Corporation - Nan Shan Life Insurance Company, Ltd. 06/10/2009 (Note 3) 05/16/2006 - - Bachelor Degree in Medieval History and Philosophy, Stanford University Ma ster Degree in Business Administration, Robert H. Smith School of Business, University of Chairman and CEO, Carly Fiorina Enterprises Maryland at College Park, Md. Master Degree in Science, MIT's Sloan School Former Senior Management, AT&T and Lucent Technologies Former President and CEO, Hewlett-Packard Former Chairman of the Board, Hewlett-Packard Member, MIT Corporation Chairman, Technology Policy Institute, Washington, D.C. Vice-Chairman, Initiative for Global Development (Continued) 13 Title/Name Date Elected Term Expires Date First Elected Independent Director Thomas J. Engibous 06/10/2009 06/09/2012 06/10/2009 Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares - % - Shares - % - Shares - % - Selected Education, Past Positions & Current Positions at Non-profit Organizations Selected Current Positions at TSMC and Other Companies Lead Director, J. C. Penney Company Inc. Former Executive Vice President and President of the Semiconductor Group, Texas Instruments Inc. Bachelor Degree in Electrical Engineering, Purdue University Master Degree in Electrical Engineering, Purdue University Honorary Doctorate in Engineering, Purdue University Member, National Academy of Engineering Former President and CEO, Texas Instrument Inc. Former Chairman of the Board, Texas Instrument Inc. Former Chairman of the Board of Catalyst Honorary Director of Catalyst Trustee, Southwestern Medical Foundation Member, The Business Council Remarks: 1. No member of the Board of Directors held TSMC shares by nominee arrangement. 2. No member of the Board of Directors had a spouse or relative within two degrees of consanguinity serving as a manager or director at TSMC. Note 1: Effective on April 22, 2009, Mr. Tian-Jy Chen was appointed as the representative of National Development Fund, Executive Yuan. Note 2: All directors had been re-elected at the 2009 Annual Shareholders’ Meeting. Professor Lester C. Thurow was not re-elected as an independent director of TSMC. Therefore, the tenure of Professor Lester C. Thurow expired on June 9, 2009. Note 3: Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009. Note 4: Major Shareholder of TSMC’s Director that is an Institutional Shareholder. Director that is an Institutional Shareholder of TSMC National Development Fund, Executive Yuan Note 5: Major institutional shareholders of National Development Fund: Not applicable. Top 10 Shareholders Not Applicable 2.4.2 Directors’ Professional Qualifications and Independence Analysis According to the relevant requirements set by Taiwan’s Securities and Futures Bureau, the professional qualifications and independence status of the Company’s Board members are listed in the table below. Name/Criteria Chairman Morris Chang Vice Chairman F.C. Tseng Director Tian-Jy Chen Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Independent Director Thomas J. Engibous (Note 4) Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Criteria (Note 1) An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialists Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company Have Work Experience in the Area of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company 1 2 3 4 5 6 7 8 9 10 Number of Other Taiwanese Public Companies Concurrently Serving as an Independent Director ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 0 0 0 0 0 0 0 0 Note 1: Directors, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes: 1. Not an employee of the company or any of its affiliates; 2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50% of the voting shares; 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the company or ranking in the top 10 in holdings; 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs; 5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds 5% or more of the total number of outstanding shares of the company or that holds shares ranking in the top five in holdings; 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the company; 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof; 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company; 9. Not been a person of any conditions defined in Article 30 of the Company Law; and 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law. Note 2: Professor Lester Thurow’s tenure expired on June 9, 2009 because he was not re-elected at the 2009 Annual Shareholders’ Meeting. Note 3: Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009. Note 4: Mr. Thomas Engibous was elected as TSMC’s independent director at the 2009 Annual Shareholders’ Meeting on June 10, 2009. 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 14 Title/Name Date Elected Term Expires Date First Elected Independent Director Thomas J. Engibous 06/10/2009 06/09/2012 06/10/2009 Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares - % - Shares - % - Shares - % - Selected Education, Past Positions & Current Positions at Non-profit Organizations Selected Current Positions at TSMC and Other Companies Lead Director, J. C. Penney Company Inc. Bachelor Degree in Electrical Engineering, Purdue University Master Degree in Electrical Engineering, Purdue University Honorary Doctorate in Engineering, Purdue University Member, National Academy of Engineering Former Executive Vice President and President of the Semiconductor Group, Texas Instruments Inc. Former President and CEO, Texas Instrument Inc. Former Chairman of the Board, Texas Instrument Inc. Former Chairman of the Board of Catalyst Honorary Director of Catalyst Trustee, Southwestern Medical Foundation Member, The Business Council Remarks: 1. No member of the Board of Directors held TSMC shares by nominee arrangement. 2. No member of the Board of Directors had a spouse or relative within two degrees of consanguinity serving as a manager or director at TSMC. Name/Criteria Chairman Morris Chang Vice Chairman F.C. Tseng Director Tian-Jy Chen Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Independent Director Thomas J. Engibous (Note 4) ˇ ˇ Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Criteria (Note 1) An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialists Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company Have Work Experience in the Area of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company 1 2 3 4 5 6 7 8 9 10 Number of Other Taiwanese Public Companies Concurrently Serving as an Independent Director ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ ˇ 0 0 0 0 0 0 0 0 0 15 2.4.3 Remuneration Paid to Directors (Note 1) Unit: NT$ thousands Title/Name Chairman & CEO Morris Chang Vice Chairman F.C. Tseng Director & President of New Businesses Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Independent Director Thomas J. Engibous (Note 4) National Development Fund, Executive Yuan Representatives: Director Tain-Jy Chen Base Compensation (A) Severance Pay and Pensions (B) (Note 5) Bonus to Directors (C) (Note 6) Allowances (D) (Note 7) Remuneration Total Remuneration (A+B+C+D) as a % of 2009 Net Income Base Compensation, Bonuses, Severance Pay and Pensions and Allowances (E) (Note 8) (F) (Note 5) Employee Profit Sharing (G) (Note 9) Compensation Earned as Employees of TSMC or of TSMC’s Consolidated Entities Exercisable Employee Stock Options (H) (Note 10) Total Compensation (A+B+C+D+E+F+G) as a % of 2009 Net Income (Note 11) From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities From TSMC Consolidated From TSMC Consolidated From TSMC Consolidated From TSMC Consolidated From All Entities From All Entities From TSMC From All Consolidated Entities Cash Stock (Fair Market Value) Cash Stock (Fair Market Value) From All Entities Compensation Paid to Directors from Non- consolidated Affiliates From All Entities 25,792 25,792 1,858 1,858 59,692 59,692 275 275 0.11% 0.11% 149,806 149,806 671 671 140,814 0 140,814 0 827 827 0.43% 0.43% None 0 0 0 0 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 0 Note 1: Remuneration Policies: The base compensation for the Chairman, Vice-Chairman and directors are determined in accordance with the procedures set forth in TSMC’s Articles of Incorporation. The Articles of Incorporation also provides that TSMC shall allocate no more than 0.3% of earnings available for distribution as bonus to directors. The distribution of compensation to directors shall be made in accordance with TSMC’s “Rules for Distribution of Compensation to Directors“. Note 2: Professor Lester Thurow’s tenure expired on June 9, 2009 because he was not re-elected at the 2009 Annual Shareholders’ Meeting. Note 3: Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009. Note 4: Mr. Thomas Engibous was elected as TSMC’s independent director at the 2009 Annual Shareholders’ Meeting on June 10, 2009. Note 5: Pensions funded according to applicable law. Note 6: The Board adopted a proposal for 2009 bonus to TSMC’s directors in the amount of NT$67,692 thousand at its meeting on February 9, 2010. The proposed bonus will be effected upon the approval of shareholders at the Annual Shareholders’ Meeting on June 15, 2010. Note 7: Includes the expense for company cars and gasoline reimbursement. The cars were fully depreciated. Excludes compensation paid to company drivers totaled NT$4,110 thousand. Note 8: Includes the employees’ cash bonus distributed on February 12, 2010. Note 9: The Board adopted a proposal for 2009 employee profit sharing distribution in 2010 with respect to 2009 earnings at its meeting on February 9, 2010. The above-mentioned figures are preliminary and the proposed employee profit sharing distribution will be processed after the approval of the same by shareholders at the Annual Shareholders’ Meeting on June 15, 2010. Note 10: Represents the number of cumulative employee stock options exercisable as of the date of this Annual Report. (Unit: thousand shares) Note 11: Total remuneration and compensation earned as employees paid to TSMC’s directors in 2008 was NT$303,403 thousand, accounting for 0.3% of 2008 net income. Remuneration Paid to Directors Under NT$2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total Total Remuneration (A+B+C+D) Total Compensation (A+B+C+D+E+F+G) From All Consolidated Entities From TSMC From All Consolidated Entities 2009 From TSMC Rick Tsai (Note) National Development Fund, Executive Yuan Lester Carl Thurow, Stan Shih, Thomas J. Engibous National Development Fund, Executive Yuan Lester Carl Thurow, Stan Shih, Thomas J. Engibous Sir Peter Leahy Bonfield, Carleton (Carly) S. Fiorina Sir Peter Leahy Bonfield, Carleton (Carly) S. Fiorina Morris Chang (Note), F.C. Tseng F.C. Tseng 9 Morris Chang (Note), Rick Tsai (Note) 9 Note: According to the Company’s Articles of Incorporation, directors who also serve as executive officers of this Corporation are not entitled to receive bonus to directors. As a result, no director bonus was paid to Dr. Rick Tsai. Effective on June 12, 2009, Dr. Morris Chang was appointed as Chief Executive Officer of TSMC, no director bonus was paid to him afterwards. 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 16 Title/Name Chairman & CEO Morris Chang Vice Chairman F.C. Tseng Director & President of New Businesses Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Independent Director Thomas J. Engibous (Note 4) National Development Fund, Executive Yuan Representatives: Director Tain-Jy Chen Base Compensation (A) Bonus to Directors (C) (Note 6) Allowances (D) (Note 7) Remuneration Severance Pay and Pensions (B) (Note 5) Total Remuneration (A+B+C+D) as a % of 2009 Net Income Base Compensation, Bonuses, and Allowances (E) (Note 8) Severance Pay and Pensions (F) (Note 5) Employee Profit Sharing (G) (Note 9) Compensation Earned as Employees of TSMC or of TSMC’s Consolidated Entities Exercisable Employee Stock Options (H) (Note 10) Total Compensation (A+B+C+D+E+F+G) as a % of 2009 Net Income (Note 11) From TSMC Consolidated From TSMC Consolidated From TSMC Consolidated From TSMC Consolidated From TSMC Consolidated From TSMC From All Entities From All Entities From All Entities From All Entities From All Entities From All Consolidated Entities From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities Cash Stock (Fair Market Value) Cash Stock (Fair Market Value) From TSMC From All Consolidated Entities From TSMC From All Consolidated Entities Compensation Paid to Directors from Non- consolidated Affiliates 25,792 25,792 1,858 1,858 59,692 59,692 275 275 0.11% 0.11% 149,806 149,806 671 671 140,814 0 140,814 0 827 827 0.43% 0.43% None 0 0 0 0 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 0 17 2.5 Management Team 2.5.1 Information Regarding Management Team Title/Name On-board Date (Note 1) Chairman & CEO Morris Chang (Note 2) 01/01/1987 Shareholding Spouse & Minor Shareholding 118,587,914 % 0.46% Shareholding 85,217 % 0.00% President New Businesses Rick Tsai Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Stephen T. Tso Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Senior Vice President Research & Development Shang-yi Chiang Vice President Mainstream Fab Operations/Affiliates M.C. Tzeng Vice President & General Counsel Legal Richard Thurston Vice President, Chief Financial Officer & Spokesperson Finance Lora Ho Vice President Materials Management and Risk Management P.H. Chang (Note 3) Vice President Operations Wei-Jen Lo Vice President Worldwide Sales and Marketing Jason C.S. Chen Vice President & Chief Technology Officer Research and Development Jack Sun Vice President Deputy Head of Research and Development Design and Technology Platform Fu-Chieh Hsu Vice President Operations Y.P. Chin Vice President Quality and Reliability N.S. Tsai Vice President President of TSMC North America Rick Cassidy Vice President Human Resources L.C. Tu 12/18/1989 33,654,505 0.13% 12/16/1996 15,055,693 0.06% 11/15/1993 13,000,573 0.05% - - - - - - 02/01/1998 8,444,325 0.03% 261 0.00% 11/10/2009 2,412,481 0.01% - - 01/01/1987 7,699,595 0.03% 102,722 0.00% 01/02/2002 1,939,892 0.01% - - 06/01/1999 6,221,080 0.02% 110,268 0.00% 07/01/2000 5,098,778 0.02% 07/01/2004 2,881,127 0.01% - - - - 03/31/2005 2,488,320 0.01% 122 0.00% 06/02/1997 4,817,095 0.02% 03/31/2006 2,015,726 0.01% - - - - 01/01/1987 6,184,823 0.02% 140,808 0.00% 03/01/2000 2,051,180 0.01% 1,103,253 0.00% 11/14/1997 0 0.00% - - 01/01/1987 9,310,067 0.04% 1,252,481 0.00% Note 1: On-board date means the offical date joining TSMC. Note 2: Effective June 12, 2009, the Chairman of the Board, Dr. Morris Chang, was appointed as Chief Executive Officer of TSMC. Note 3: Mr. P.H. Chang’s special retirement has been approved and will be effective starting from March 31, 2010. 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 18 TSMC Shareholding by Nominee Arrangement (Shares) Education & Selected Past Positions Selected Current Positions at Other Companies Managers Who are Spouses or within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - - - - Department Manager M.J. Tzeng Siblings Ph.D., Materials Science & Engineering, University of California, Berkeley, USA Director, TSMC subsidiaries Ph.D., Electrical Engineering & Computer Science, University of California, Berkeley, USA None Ph.D., Electrical Engineering, Stanford University, USA Chairman, Industrial Technology Research Institute President & Chief Operation Officer, General Instrument Corporation Group Senior Vice-President, Texas Instrument Ph.D., Material Science, Cornell University, USA Chief Executive Officer, TSMC Chief Operating Officer, TSMC Executive Vice President, Worldwide Marketing and Sales, TSMC President, Vanguard International Semiconductor Corp. President, WaferTech, L.L.C. Senior Vice President, Operations, TSMC Senior Vice President, Advanced Technology Business, TSMC Vice President, South Site Operation, TSMC President, Worldwide Semiconductor Manufacturing Corp. Ph.D., Electrical Engineering, Yale University, USA Senior Vice President, Mainstream Technology Business, TSMC Vice President, South Site Operation, TSMC Senior Vice President, Chartered Semiconductor Manufacturing Ltd. Ph.D., Electrical Engineering, Stanford University, USA Senior Vice President, Research and Development, TSMC Master, Applied Chemistry, Chungyuan University, Taiwan Vice President, Mainstream Technology Business, TSMC Senior Director, Fab 2 Operation, TSMC J.D., Rutgers School of Law, State University of New Jersey, USA Ph.D., History, University of Virginia, USA Partner, Haynes Boone, LLP. None Director, TSMC subsidiaries Director, TSMC subsidiaries Director, TSMC affiliates Director, TSMC subsidiaries Director, TSMC affiliates None Director, TSMC subsidiaries Director, TSMC affiliates Vice President Corporate Staff, Assistant General Counsel, Texas Instruments Incorporated Master, Business Administration, National Taiwan University, Taiwan Director and/or Supervisor, TSMC subsidiaries Director, Accounting, TSMC Vice President & CFO, TI-Acer Semiconductor Manufacturing Corp. Director, TSMC affiliates Ph.D., Materials Science & Engineering, Purdue University, USA None Vice President, Human Resources, TSMC Senior Director, Materials Management, TSMC Vice President, Worldwide Semiconductor Manufacturing Corp. Ph.D., Solid State Physics & Surface Chemistry, University of California, Berkeley, USA None Vice President, Advanced Technology Business, TSMC Vice President, Research & Development, TSMC Vice President, Operation II, TSMC Director, Advanced Technology Development & CTM Plant Manager, Intel Master, Business Administration, University of Missouri-Columbia, USA Vice President & Co-Director of Worldwide Sales & Marketing Group, Intel Ph.D., Electrical Engineering, University of Illinois at Urbana-Champaign, USA None Director, TSMC subsidiaries Ph.D., Electrical Engineering and Computer Sciences, University of California, Berkeley, USA Director, TSMC subsidiaries Senior Director, Logic Technology Division, TSMC R&D, International Business Machines Chairman, Monolithic System Technology Inc. Chairman, Myson Technology Inc. Vice President, Integrated Device Technology Inc. Master, Electrical Engineering, National Cheng Kung University, Taiwan Vice President, Advanced Technology Business, TSMC Senior Director, Product Engineering & Services, TSMC Ph.D., Material Science, Massachusetts Institute of Technology, USA Senior Director, Assembly Test Technology & Service, TSMC Vice President, Operations, Vanguard International Semiconductor Corp. Bachelor, Engineering Technology, United States Military Academy at West Point, USA Director, TSMC North America Vice President of TSMC North America Account Management None None None Master, Business Administration, Tulane University, USA Senior Director, Corporate Planning Organization, TSMC Senior Director, Fab 5 Operation, TSMC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Shareholding Spouse & Minor Shareholding 118,587,914 % 0.46% Shareholding 85,217 % 0.00% TSMC Shareholding by Nominee Arrangement (Shares) Chairman & CEO Morris Chang (Note 2) 01/01/1987 12/18/1989 33,654,505 0.13% Senior Vice President & Chief Information Officer 12/16/1996 Information Technology & Materials Management 15,055,693 0.06% 11/15/1993 13,000,573 0.05% 02/01/1998 8,444,325 0.03% 261 0.00% 11/10/2009 2,412,481 0.01% Mainstream Fab Operations/Affiliates 01/01/1987 7,699,595 0.03% 102,722 0.00% Vice President & General Counsel 01/02/2002 1,939,892 0.01% President New Businesses Rick Tsai and Risk Management Stephen T. Tso Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Senior Vice President Research & Development Shang-yi Chiang Vice President M.C. Tzeng Legal Richard Thurston Spokesperson Finance Lora Ho Vice President Vice President Operations Wei-Jen Lo Materials Management and Risk Management P.H. Chang (Note 3) 07/01/2000 5,098,778 0.02% 07/01/2004 2,881,127 0.01% 03/31/2005 2,488,320 0.01% 122 0.00% Vice President & Chief Technology Officer 06/02/1997 4,817,095 0.02% 03/31/2006 2,015,726 0.01% 01/01/1987 6,184,823 0.02% 140,808 0.00% 03/01/2000 2,051,180 0.01% 1,103,253 0.00% President of TSMC North America 11/14/1997 0 0.00% 01/01/1987 9,310,067 0.04% 1,252,481 0.00% Vice President Worldwide Sales and Marketing Jason C.S. Chen Research and Development Deputy Head of Research and Development Design and Technology Platform Jack Sun Vice President Fu-Chieh Hsu Vice President Operations Y.P. Chin Vice President Quality and Reliability N.S. Tsai Vice President Rick Cassidy Vice President Human Resources L.C. Tu - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Title/Name On-board Date (Note 1) Education & Selected Past Positions Selected Current Positions at Other Companies Ph.D., Electrical Engineering, Stanford University, USA Chairman, Industrial Technology Research Institute President & Chief Operation Officer, General Instrument Corporation Group Senior Vice-President, Texas Instrument Ph.D., Material Science, Cornell University, USA Chief Executive Officer, TSMC Chief Operating Officer, TSMC Executive Vice President, Worldwide Marketing and Sales, TSMC President, Vanguard International Semiconductor Corp. None Director, TSMC subsidiaries Ph.D., Materials Science & Engineering, University of California, Berkeley, USA President, WaferTech, L.L.C. Senior Vice President, Operations, TSMC Director, TSMC subsidiaries Ph.D., Electrical Engineering & Computer Science, University of California, Berkeley, USA Senior Vice President, Advanced Technology Business, TSMC Vice President, South Site Operation, TSMC President, Worldwide Semiconductor Manufacturing Corp. None Ph.D., Electrical Engineering, Yale University, USA Senior Vice President, Mainstream Technology Business, TSMC Vice President, South Site Operation, TSMC Senior Vice President, Chartered Semiconductor Manufacturing Ltd. Ph.D., Electrical Engineering, Stanford University, USA Senior Vice President, Research and Development, TSMC Master, Applied Chemistry, Chungyuan University, Taiwan Vice President, Mainstream Technology Business, TSMC Senior Director, Fab 2 Operation, TSMC J.D., Rutgers School of Law, State University of New Jersey, USA Ph.D., History, University of Virginia, USA Partner, Haynes Boone, LLP. Vice President Corporate Staff, Assistant General Counsel, Texas Instruments Incorporated Director, TSMC subsidiaries Director, TSMC affiliates Director, TSMC subsidiaries Director, TSMC affiliates None Director, TSMC subsidiaries Director, TSMC affiliates Vice President, Chief Financial Officer & 06/01/1999 6,221,080 0.02% 110,268 0.00% Master, Business Administration, National Taiwan University, Taiwan Director, Accounting, TSMC Vice President & CFO, TI-Acer Semiconductor Manufacturing Corp. Director and/or Supervisor, TSMC subsidiaries Director, TSMC affiliates Ph.D., Materials Science & Engineering, Purdue University, USA Vice President, Human Resources, TSMC Senior Director, Materials Management, TSMC Vice President, Worldwide Semiconductor Manufacturing Corp. Ph.D., Solid State Physics & Surface Chemistry, University of California, Berkeley, USA Vice President, Advanced Technology Business, TSMC Vice President, Research & Development, TSMC Vice President, Operation II, TSMC Director, Advanced Technology Development & CTM Plant Manager, Intel None None Master, Business Administration, University of Missouri-Columbia, USA Vice President & Co-Director of Worldwide Sales & Marketing Group, Intel Director, TSMC subsidiaries Ph.D., Electrical Engineering, University of Illinois at Urbana-Champaign, USA Senior Director, Logic Technology Division, TSMC R&D, International Business Machines None Ph.D., Electrical Engineering and Computer Sciences, University of California, Berkeley, USA Chairman, Monolithic System Technology Inc. Chairman, Myson Technology Inc. Vice President, Integrated Device Technology Inc. Director, TSMC subsidiaries Master, Electrical Engineering, National Cheng Kung University, Taiwan Vice President, Advanced Technology Business, TSMC Senior Director, Product Engineering & Services, TSMC Ph.D., Material Science, Massachusetts Institute of Technology, USA Senior Director, Assembly Test Technology & Service, TSMC Vice President, Operations, Vanguard International Semiconductor Corp. None None Bachelor, Engineering Technology, United States Military Academy at West Point, USA Vice President of TSMC North America Account Management Director, TSMC North America Master, Business Administration, Tulane University, USA Senior Director, Corporate Planning Organization, TSMC Senior Director, Fab 5 Operation, TSMC None As of 02/28/2010 Managers Who are Spouses or within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - Department Manager M.J. Tzeng Siblings - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 2.5.2 Compensation Paid to CEO, President and Vice Presidents (Note 1) Unit: NT$ thousands Title Name From TSMC From All Consoildated Entities From TSMC From All Consoildated Entities From TSMC From All Consoildated Entities From TSMC From All Consoildated Entities Cash Stock (Fair Market Value) Cash Stock (Fair Market Value) From TSMC From TSMC From All Consoildated Entities Salary Severance Pay and Pensions (Note 5) Bonuses and Allowances (Note 6) Employee Profit Sharing (Note 7) Total Compensation as a % of 2009 Net Exercisable Employee Stock Options Income (Note 8) (Note 9) Compensation Received from Non-consoildated Affiliates From All Consoildated Entities Chairman & Chief Executive Officer Morris Chang (Note 2) President New Businesses Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Senior Vice President Operations Senior Vice President Business Development Senior Vice President Research and Development Vice President Mainstream Fab Operations/Affiliates Vice President & General Counsel Legal Vice President, Chief Financial Officer & Spokesperson Finance Vice President Materials Management and Risk Management Vice President Operations Vice President Worldwide Sales and Marketing Vice President & Chief Technology Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations Vice President Quality and Reliability Vice President President of TSMC North America Vice President Human Resources Rick Tsai Stephen T. Tso Mark Liu C.C. Wei Shang-yi Chiang (Note 3) M.C. Tzeng Richard Thurston Lora Ho P.H. Chang Wei-Jen Lo Jason C.S. Chen Jack Sun Fu-Chieh Hsu Y.P. Chin N.S. Tsai Rick Cassidy L.C. Tu (Note 4) 54,570 65,621 5,575 13,008 420,989 487,275 395,314 0 395,314 0 0.98% 1.08% 2,626 3,597 None Note 1: Compensation Policy: The cash compensation and profit sharing paid to CEO, the President and each vice president are also reviewed by the Compensation Committee individually based on their job responsibility, contribution, performance and projected future risks facing the Company before the compensation and profit sharing proposals are submitted to the Board of Directors for approval. Note 2: Effective June 12, 2009, the Chairman of the Board, Dr. Morris Chang, was appointed as Chief Executive Officer of TSMC. Note 3: Mr. Shang-yi Chiang was appointed as Senior Vice President on November 10, 2009. Note 4: Mr. L.C. Tu was promoted on August 11, 2009. Note 5: Pensions funded according to applicable law. Note 6: Includes the expense for company cars, gasoline reimbursement and employees’ cash bonus distributed on February 12, 2010. Excludes compensation paid to company drivers totaled NT$3,285 thousand. Note 7: The Board adopted a proposal for 2009 employee profit sharing distribution in 2010 with respect to 2009 earnings at its meeting on February 9, 2010. The above-mentioned figures are preliminary and the proposed employee profit sharing distribution will be processed after the approval of the same by shareholders at the Annual Shareholders’ Meeting on June 15, 2010. Note 8: Total compensation paid to TSMC’s President and vice presidents in 2008 was NT$784,464 thousand, accounting for 0.78% of 2008 net income. Note 9: Represents cumulative employee stock options exercisable as of the date of this Annual Report. Compensation Paid to CEO, President and Vice Presidents Under NT$2,000,000 From NT$2,000,000 ~ NT$5,000,000 From NT$5,000,000 ~ NT$10,000,000 From NT$10,000,000 ~ NT$15,000,000 From TSMC - - - - 2009 From All Consolidated Entities - - - - From NT$15,000,000 ~ NT$30,000,000 Shang-yi Chiang, Y.P. Chin, N.S. Tsai, L.C. Tu From NT$30,000,000 ~ NT$50,000,000 M.C. Tzeng, Richard Thurston, Lora Ho, P.H. Chang, Wei-Jen Lo, Jason C.S. Chen, Jack Sun, Fu-Chieh Hsu From NT$50,000,000 ~ NT$100,000,000 Stephen T. Tso, Mark Liu, C.C. Wei, Rick Cassidy Over NT$100,000,000 Total Morris Chang, Rick Tsai 18 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 20 Salary Severance Pay and Pensions (Note 5) Bonuses and Allowances (Note 6) Employee Profit Sharing (Note 7) Total Compensation as a % of 2009 Net Income (Note 8) Exercisable Employee Stock Options (Note 9) From TSMC From TSMC From TSMC From All Consoildated Entities From All Consoildated Entities From All Consoildated Entities From TSMC From All Consoildated Entities Cash Stock (Fair Market Value) Cash Stock (Fair Market Value) From TSMC From All Consoildated Entities From TSMC From All Consoildated Entities Compensation Received from Non-consoildated Affiliates 54,570 65,621 5,575 13,008 420,989 487,275 395,314 0 395,314 0 0.98% 1.08% 2,626 3,597 None Title President New Businesses Risk Management Senior Vice President Operations Senior Vice President Business Development Legal Finance Vice President Vice President Operations Vice President Chairman & Chief Executive Officer Morris Chang (Note 2) Senior Vice President & Chief Information Officer Stephen T. Tso Information Technology & Materials Management and Senior Vice President Research and Development Vice President Mainstream Fab Operations/Affiliates Shang-yi Chiang (Note 3) M.C. Tzeng Vice President & General Counsel Richard Thurston Vice President, Chief Financial Officer & Spokesperson Lora Ho Vice President & Chief Technology Officer Jack Sun Materials Management and Risk Management Worldwide Sales and Marketing Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations Vice President Quality and Reliability Vice President President of TSMC North America Vice President Human Resources Name Rick Tsai Mark Liu C.C. Wei P.H. Chang Wei-Jen Lo Jason C.S. Chen Fu-Chieh Hsu Y.P. Chin N.S. Tsai Rick Cassidy L.C. Tu (Note 4) 21 Stock (Fair Market Value) Cash Total Employee Profit Sharing Total Employee Profit Sharing Paid to Management Team as a % of 2009 Net Income 0 421,097 421,097 0.47% 2.5.3 Employee Profit Sharing Granted to Management Team (Note 1) Unit: NT$ thousands Title Chairman & Chief Executive Officer President New Businesses Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Senior Vice President Operations Senior Vice President Business Development Senior Vice President Research and Development Vice President Mainstream Fab Operations/Affiliates Vice President & General Counsel Legal Vice President, Chief Financial Officer & Spokesperson Finance Vice President Materials Management and Risk Management Vice President Operations Vice President Worldwide Sales and Marketing Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations Vice President Quality and Reliability Vice President Human Resources Senior Director Finance Senior Director New Businesses Senior Director Corporate Planning Name Morris Chang (Note 2) Rick Tsai Stephen T. Tso Mark Liu C.C. Wei Shang-yi Chiang (Note 3) M.C. Tzeng Richard Thurston Lora Ho P.H. Chang Wei-Jen Lo Jason C.S. Chen Jack Sun Fu-Chieh Hsu Y.P. Chin N.S. Tsai L.C. Tu (Note 4) Jan Kees van Vliet Y.C. Chao (Note 5) Irene Sun (Note 6) Note 1: The Board adopted a proposal for 2009 employee profit sharing distribution in 2010 with respect to 2009 earnings at its meeting on February 9, 2010. The above-mentioned figures are preliminary and the proposed employee profit sharing distribution will be processed after the approval of the same by shareholders at the Annual Shareholders’ Meeting on June 15, 2010. Note 2: Effective June 12, 2009, the Chairman of the Board, Dr. Morris Chang, was appointed as Chief Executive Officer of TSMC. Note 3: Mr. Shang-yi Chiang was appointed as Senior Vice President on November 10, 2009. Note 4: Mr. L.C. Tu was promoted on August 11, 2009. Note 5: Mr. Y.C. Chao was promoted on May 6, 2009. Note 6: Ms. Irene Sun was promoted on August 11, 2009. 9 0 0 2 T R O P E R L A U N N A C M S T E L I F O R P Y N A P M O C 22 Chairman & Chief Executive Officer Morris Chang (Note 2) Title President New Businesses Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Stock (Fair Market Value) Cash Total Employee Profit Sharing Total Employee Profit Sharing Paid to Management Team as a % of 2009 Net Income 0 421,097 421,097 0.47% Senior Vice President Operations Senior Vice President Business Development Senior Vice President Research and Development Vice President Mainstream Fab Operations/Affiliates Vice President & General Counsel Vice President, Chief Financial Officer & Spokesperson Materials Management and Risk Management Legal Finance Vice President Vice President Operations Vice President Worldwide Sales and Marketing Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations Vice President Quality and Reliability Vice President Human Resources Senior Director Finance Senior Director New Businesses Senior Director Corporate Planning Shang-yi Chiang (Note 3) Name Rick Tsai Mark Liu C.C. Wei Stephen T. Tso M.C. Tzeng Richard Thurston Lora Ho P.H. Chang Wei-Jen Lo Jason C.S. Chen Jack Sun Fu-Chieh Hsu Y.P. Chin N.S. Tsai L.C. Tu (Note 4) Jan Kees van Vliet Y.C. Chao (Note 5) Irene Sun (Note 6) 23 9 0 0 2 T R O P E R L A U N N A C M S T E C N A N R E V O G E T A R O P R O C 24 3. CORPORATE GOVERNANCE TSMC advocates and acts upon the principles of operational transparency and respect for shareholder rights. We believe that the basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle, TSMC’s Board of Directors established an Audit Committee in 2002 and a Compensation Committee in 2003. TSMC’s corporate governance won international recognition in 2009: Corporate Governance Asia honored TSMC with its “Corporate Governance Asia Recognition in Taiwan”. FinanceAsia Magazine ranked TSMC’s corporate governance as the best among all companies in Taiwan with its “Best at Corporate Governance” for the Taiwan region. 3.1 Board of Directors TSMC’s Board of Directors consists of seven (Note) distinguished members with a great breadth of experience as world-class business leaders or scholars. Three of the seven members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter Bonfield; former Acer Group Chairman, Mr. Stan Shih; and former Texas Instrument Inc. Chairman of the Board, Mr. Thomas J. Engibous. Under the leadership of Chairman Morris Chang, TSMC’s Board of Directors takes a serious and forthright approach to its duties and is a serious, competent and independent Board. In the spirit of Chairman Chang’s approach to corporate governance, a board of directors’ primary duty is to supervise. The Board should supervise the Company’s: compliance with relevant laws and regulations; financial transparency; timely disclosure of material information, and maintaining of highest integrity within the Company. TSMC’s Board of Directors strives to perform through the Audit Committee and the Compensation Committee, the hiring of a financial expert for the Audit Committee, coordination with the Internal Audit department, and through the ombudsman reporting system. The second duty of the board of directors is to provide guidance to the management team of the Company. Quarterly, TSMC’s management reports to the TSMC Board on a variety of subjects. The management also reviews the Company’s business strategies with the Board. Furthermore, the management often reviews with and updates TSMC’s Board on the progress of the strategies, obtaining Board guidance as appropriate. The third duty of the Board of Directors is to evaluate the management’s performance and to dismiss officers of the Company when necessary. TSMC’s management has maintained a healthy and functional communication with TSMC Board of Directors, has been devoted in executing guidance of TSMC Board of Directors, and is dedicated in running the business operations, all to achieve the best interests for TSMC shareholders. Note: Throughout most of 2009, TSMC’s Board of Directors consisted of eight directors. Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009, because she planned to devote her full time and energy to US senatorial campaign. 25 9 0 0 2 T R O P E R L A U N N A C M S T E C N A N R E V O G E T A R O P R O C 26 Board of Directors Meeting Status Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings and three special meetings in 2009. The directors’ attendance status is as follows: Title Chairman Name Morris Chang Vice Chairman F.C. Tseng Director National Development Fund, Executive Yuan Representative: Tian-Jy Chen Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina Independent Director Thomas J. Engibous Attendance in Person By Proxy Attendance Rate in Person (%) Notes 7 7 2 7 4 0 7 1 3 0 0 5 0 3 2 0 5 0 100% 100% 29% Renewal of office (Re-elected on June 10) Renewal of office (Re-elected on June 10) Renewal of office (Re-elected on June 10) The former representative of the National Development Fund, Mr. Chintay Shih, resigned on November 10, 2008. Mr. Tian-Jy Chen was appointed as the representative on April 22, 2009. 100% Renewal of office (Re-elected on June 10) 57% Renewal of office (Re-elected on June 10) Sir Peter Bonfield participated in the discussion through telephone at two Special Meetings, represented by proxy. 0% Term Expired (Professor Thurow’s tenure expired on June 9, 2009 because he was not re-elected at the 2009 Annual Shareholders’ Meeting.) 100% Renewal of office (Re-elected on June 10) 17% Renewal of office (Re-elected on June 10) Ms. Fiorina resigned as an independent director of TSMC on November 30, 2009. Ms. Fiorina participated in the discussion through telephone at one special meeting, represented by proxy. 75% New office assumed (Elected on June 10) Mr. Engibous attended via telephone at one special meeting. Annotations: 1. In 2009, there were no written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualified opinion. 2. There were no recusals of Directors due to conflicts of interests in 2009. 3. Measures taken to strengthen the functionality of the Board: We believe that the basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle, TSMC’s Board of Directors has established an Audit Committee and a Compensation Committee to assist the Board in carrying out its various duties. 3.1.1 Audit Committee The Audit Committee assists the Board in carrying out its financial oversight responsibilities and other duties as set forth in the Company Act, the Securities and Exchange Act, and other applicable laws and regulations. Matters required to be reviewed by the Audit Committee include the Company’s: financial reports; auditing and accounting policies and procedures; internal control systems; material asset or derivatives transactions; offering or issuance of any equity-type securities; hiring or dismissal of an attesting CPA, or the compensation given thereto; and appointment or discharge of financial, accounting, or internal auditing officers. TSMC’s Audit Committee is empowered by its Charter to conduct any study or investigation it deems appropriate to fulfill its responsibilities. It has direct access to TSMC’s internal auditors, the Company’s independent auditors, and all employees of the Company. The Committee is authorized to retain and oversee special legal, accounting, or other consultants as it deems appropriate to fulfill its mandate. As of February 2010, the Audit Committee was comprised of all three independent directors and had engaged a financial expert consultant. The Audit Committee Charter is available on TSMC’s corporate website. Audit Committee Meeting Status Sir Peter Bonfield, Chairman of the Audit Committee, convened four regular meetings and three special meetings in 2009. The Committee members’ attendance status is as follows: Title Chair Member Member Member Member Name Sir Peter Leahy Bonfield Lester Carl Thurow Stan Shih Carleton (Carly) S. Fiorina Thomas J. Engibous Financial Expert J.C. Lobbezoo Attendance in Person By Proxy Attendance Rate in Person (%) Notes 7 1 7 3 4 7 0 2 0 2 0 0 100% Renewal of office (Note) 33% Term Expired (After the re-election of the Board of Directors at the 2009 Annual Shareholders’ Meeting on June 10, 2009, Professor Thurow did not become a member of the Audit Committee.) 100% Renewal of office (Note) 43% 100% 100% Renewal of office (Note) Ms. Fiorina resigned on November 30, 2009. New office assumed (Note) None Annotations: 1. Resolution under Securities and Exchange Act §14-5 that was not submitted to the Audit Committee* but approved by all directors at the Board of Director’s special meeting held on December 9, 2009: Resolution: To approve investment in an amount not exceeding NT$6,300 million in Motech Industries, Inc. * The urgency of the matter required an immediate resolution. Since most of the Audit Committee members were overseas, the meeting could not be effectively convened. Therefore, the matter was not submitted to the Audit Committee for approval, but it was approved by all the directors present at the Board of Director’s special meeting held on December 9, 2009. 2. There were no recusals of independent directors due to conflicts of interests in 2009. 3. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2009 (e.g. the channels, items and/or results of the audits on the corporate finance and/or operations, etc.): 1) The internal auditors have sent the audit reports to the members of the Audit Committee periodically, and presented the findings of all audit reports in the quarterly meetings of the Audit Committee. The head of Internal Audit will immediately report to the members of the Audit Committee any material matters. During 2009, the head of Internal Audit did not report any irregularity. The communication channel between the Audit Committee and the internal auditor functioned well. 2) The Company’s independent auditors have presented the findings of their quarterly audits on the company’s financial results. Under applicable laws and regulations, the independent auditors are also required to immediately communicate to the Audit Committee any material matters that they have discovered. During 2009, the Company’s independent auditors did not report any irregularity. The communication channel between the Audit Committee and the independent auditors functioned well. Note: Sir Peter Leahy Bonfield, Mr. Stan Shih, Ms. Carleton Fiorina and Mr. Thomas J. Engibous were elected as TSMC’s independent directors and became members of the Audit Committee on June 10, 2009. 3.1.2 Compensation Committee The Compensation Committee assists the Board in discharging its responsibilities related to TSMC’s compensation and benefits policies, plans and programs, and in the evaluation and compensation of TSMC’s executives. As of February 2010, the Compensation Committee was comprised of four members. All three independent directors served as voting members of the Committee; the Chairman of the Board, Dr. Morris Chang, was a non-voting member. The Compensation Committee Charter is available on TSMC’s corporate website. Compensation Committee Meeting Status Mr. Stan Shih, Chairman of the Compensation Committee, convened four regular meetings in 2009. The Committee members’ attendance status is as follows: Title Chair Member Member Member Member Member Name Stan Shih Morris Chang Sir Peter Leahy Bonfield Lester Carl Thurow Carleton (Carly) S. Fiorina Thomas J. Engibous Attendancein Person Attendance Rate in Person (%) Notes 4 4 4 0 1 3 100% 100% 100% 0% 25% Renewal of office (Note) Renewal of office (Note) Renewal of office (Note) Term Expired (After the re-election of the Board of Directors at the 2009 Annual Shareholders’ Meeting on June 10, 2009, Professor Thurow did not become a member of the Compensation Committee.) Renewal of office (Note) Ms. Fiorina resigned on November 30, 2009. 100% New office assumed (Note) Note: Mr. Stan Shih, Sir Peter Leahy Bonfield, Ms. Carleton Fiorina and Mr. Thomas J. Engibous were elected as TSMC’s independent directors and became members of the Compensation Committee on June 10, 2009. The Chairman of the Board, Dr. Morris Chang, was a non-voting member. 3.2 Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission Item Implementation Status 1. Shareholding Structure & Shareholders’ Rights (1) Method of handling shareholder suggestions or complaints TSMC has designated appropriate departments, such as Investor Relations, Public Relations, the SEC Compliance Department, Legal Department, etc., to handle shareholder suggestions or complaints. (2) The Company’s possession of a list of major shareholders and a list of ultimate owners of these major shareholders TSMC tracks the shareholdings of directors, officers, and shareholders holding more than 10% of the outstanding shares of TSMC. (3) Risk management mechanism and “firewall” between the Company and its affiliates TSMC has established appropriate guidelines in its “Internal Control System” and “TSMC Invested Entity Governance and Management Policy”. 2. Composition and Responsibilities of the Board of Directors (1) Independent Directors Sir Peter Leahy Bonfield, Prof. Lester Carl Thurow (Note 1), Mr. Stan Shih, Ms. Carleton (Carly) S. Fiorina (Note 2) and Mr. Thomas J. Engibous (Note 3) are the independent directors of TSMC. (2) Regular evaluation of external auditors’ independence The TSMC Audit Committee regularly evaluates the independence of external auditors. 3. Communication channel with stakeholders 4. Information Disclosure (1) Establishment of a corporate website to disclose information regarding the Company’s financials, business and corporate governance status (2) Other information disclosure channels (e.g., maintaining an English-language website, designating people to handle information collection and disclosure, appointing spokespersons, webcasting investors conference etc.) TSMC has designated appropriate departments, such as Investor Relations, Public Relations, the SEC Compliance Department, etc., to communicate with stakeholders on a case by case basis, as needed. Furthermore, the contact information providing access to the Company’s spokesperson and relevant departments is available on TSMC’s website. TSMC discloses information through its website http://www.tsmc.com. Since TSMC is a foreign private issuer with American Depository Receipts listed on the New York Stock Exchange (NYSE), TSMC is subject to various NYSE regulations, one of which requires TSMC to disclose the significant ways in which its corporate governance practices differ from those followed by US domestic companies under NYSE listing standards. Such disclosure information may be found at the following web address: http://www.tsmc.com/download/english/e03_governance/NYSE_Section_303A.pdf TSMC has designated appropriate departments (e.g. Investor Relations, Public Relations, the SEC Compliance Department, etc.) to handle the collection and disclosure of information as required by the relevant laws and regulations of Taiwan and other jurisdictions. TSMC has designated spokespersons as required by relevant regulations. TSMC webcasts live investor conferences. Non-implementation and Its Reason(s) None None None None 5. Operations of the Company’s Nomination Committee, Compensation Committee, or other committees of the Board of Directors TSMC’s Board of Directors has established an Audit Committee and a Compensation Committee. Please refer to the “Corporate Governance” section on pages 25-31 of this Annual Report for details. None (Continued) 27 6. If the Company has established corporate governance policies based on TSE Corporate Governance Best Practice Principles, please describe any discrepancy between the policies and their implementation. TSMC does not establish corporate governance policies. For the status of TSMC’s corporate governance, please refer to the “Corporate Governance” section on pages 25-31 of this Annual Report. 7. Other important information to facilitate better understanding of the Company’s corporate governance practices (e.g., employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors): (1) Status of employee rights and employee wellness: Please refer to the “Employees” section on pages 54-56 of this Annual Report. (2) Status of investor relations, supplier relations and rights of stakeholders: Please refer to the “Corporate Social Responsibility” on pages 69-75 of this Annual Report. (3) Status of Risk Management Policies and Risk Evaluation: Please refer to the “Risk Management” section on pages 62-67 of this Annual Report. (4) Status of Customer Relations Policies: Please refer to the “Customer Partnership” section on pages 52-53 of this Annual Report. (5) TSMC maintains D&O Insurance for its directors and officers. 8. If the Company has a self corporate governance evaluation or has authorized any other professional organization to conduct such an evaluation, the evaluation results, major deficiencies or suggestions, and improvements are stated as follows: None TSMC’s corporate governance won international recognition in 2009: Corporate Governance Asia honored TSMC with its “Corporate Governance Asia Recognition in Taiwan”. FinanceAsia Magazine ranked TSMC’s corporate governance as the best among all companies in Taiwan with its “Best at Corporate Governance” for the Taiwan region. Note 1: Professor Lester Thurow’s tenure expired on June 9, 2009 because he was not re-elected at the 2009 Annual Shareholders’ Meeting. Note 2: Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009. Note 3: Mr. Thomas Engibous was elected as TSMC’s independent director at the 2009 Annual Shareholders' Meeting on June 10, 2009. Continuing Education/Training of Directors in 2009 Date 11/20 08/13 02/19 11/23 06/11 Name Morris Chang (Note) F.C. Tseng Sir Peter Leahy Bonfield Morris Chang F.C. Tseng Sir Peter Leahy Bonfield Stan Shih Thomas J. Engibous Rick Tsai Host by Training/Speech Title Taiwan GreTai Securities Market Corporate Social Responsibility in Taiwan Taiwan Corporate Governance Association Facing the global financial crisis, how do companies deal with and create sustaining capabilities Ericsson Corporate Board Governance Programme Mentor Graphics Corporation Inc. Corporate Governance TSMC Speech: “Outlook of Taiwan Economy” by Minister Chen Tain-Jy, Council for Economic Planning and Development, the Executive Yuan Duration 0.5 hour 3 hours 1 day 0.5 day 0.5 hour 1. From time to time, TSMC provides directors with information concerning regulatory requirements and developments as related to directors’ activities. TSMC management also regularly presents updates on the Company’s business and other information to directors. 2. Regular regulatory update reports are provided by TSMC’s General Counsel and by the Company’s independent auditors at the Audit Committee meetings. Note: Selected speeches on corporate governance and related topics. Continuing Education/Training of Management in 2009 Host by Training Duration Accounting Research and Development Foundation Summary on the latest industrial developments and key points to financial analysis 3 hours Discussion on the advantages and action plans from directors, supervisors and executives in response to the implementation of IFRS (International Financial Reporting Standard) Notice on the adoption of XBRL (Extensible Business Reporting Language) – Practice and best implementation actions The legal responsibility, action plans and case study of “insider transactions” for insider in publicly-held companies Institute of Internal Audit – ROC (IIA) Control Self-assessment: Facilitation Skills for Financial Reporting 03/06 - 03/07 11/19 06/11 TSMC 2009 IIA Conference: IA Value Creation & Corporate Governance The Second Annual Chief Audit Executive Forum Speech: “Outlook of Taiwan Economy” by Minister Chen Tain-Jy, Council for Economic Planning and Development, the Executive Yuan 3 hours 3 hours 3 hours 6 hours 12 hours 8 hours 0.5 hour Date 09/24 11/11 11/11 12/10 12/21 Title/Name Director Accounting Division Jessica Chou Director Internal Audit John Liang Vice Presidents: Stephen T. Tso Mark Liu C.C. Wei Richard Thurston Lora Ho P.H. Chang Wei-Jen Lo Jason Chen Jack Sun Fu-Chieh Hsu Y.P. Chin N.S. Tsai 9 0 0 2 T R O P E R L A U N N A C M S T E C N A N R E V O G E T A R O P R O C 28 3.3 Major Resolutions of Shareholders’ Meeting and Board Meetings ● appointment of Dr. Rick Tsai as President of New Businesses, effective June 12, 2009 ● approving capital appropriation of US$130 million 3.3.1 Major Resolutions of Shareholders’ Meeting (4) Regular Board Meeting of August 11, 2009: and Implementation Status ● approving capital appropriations of US$1,166.8 million ● approving 2009 semi-annual financial statements TSMC’s 2009 regular Shareholders’ Meeting was held in Hsinchu, ● appointment of L.C. Tu as Vice President of TSMC Taiwan on June 10, 2009. At the meeting, shareholders present in (5) Regular Board Meeting of November 10, 2009: person or by proxy approved the following resolutions: (1) The 2008 Business Report and Financial Statements (2) The distribution of 2008 profits ● approving capital appropriations of US$2,541.4 million ● appointment of Dr. Shang-yi Chiang as Senior Vice President of TSMC (3) The capitalization of 2008 dividends, 2008 employee profit ● appointment of Dr. Jack Sun as Chief Technology Officer of TSMC sharing, and capital surplus ●approving acquisition of shares of Semiconductor (4) The amendments to internal policies and rules as follows: Manufacturing International Corporation (SMIC) in accordance ● Procedures for Lending Funds to Other Parties ● Procedures for Endorsement and Guarantee with relevant agreements executed between TSMC and SMIC. The actual acquisition of the SMIC shares shall be subject to the (5) Election of eight directors (including four independent directors) approval of the relevant regulatory authorities in charge. Implementation Status: All the resolutions of the Shareholders’ Meeting have been fully implemented in accordance with the ● approving investment in an amount not exceeding NT$6,300 million in Motech Industries, Inc. (6) Special Board Meeting of December 9, 2009 resolutions. (7) Regular Board Meeting of February 8 & 9, 2010: ● approving 2009 business report and financial statements The eight newly elected directors: Morris Chang, F.C. Tseng, Peter Leahy Bonfield (Independent Director), Stan Shih (Independent ● approving distribution of 2009 profits, and cash dividends and employee profit sharing Director), Carleton Sneed Fiorina (Independent Director), Thomas J. Engibous (Independent Director), Tain-Jy Chen (representative ● approving 2010 R&D and sustaining capital appropriations of US$534.6 million of National Development Fund, Executive Yuan) and Rick Tsai ● approving capital appropriations of US$2,272.4 million 3.3.2 Major Resolutions of Board Meetings ● approving amendments to TSMC’s Articles of Incorporation expanding the Company’s business scope to encompass LED lighting and solar energy During the 2009 calendar year, and through the period of January 1 ● convening the 2010 Annual Shareholders’ Meeting 3.3.3 Major Issues of Record or Written Statements Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors from January 1, 2009 to February 28, 2010: None. to February 28, 2010, five regular board meetings and three special board meetings were convened. Major resolutions approved at these meetings are summarized below: (1) Regular Board Meeting of February 10, 2009: ● approving 2008 business report and financial statements ● approving distribution of 2008 profits, and the capitalization of dividends, employee profit sharing and capital surplus ● convening the 2009 Annual Shareholders’ Meeting ● appointment of Dr. L. John Liang as the head of Internal Audit of TSMC (2) Special Board Meeting of April 17, 2009: ● listing four qualified candidates for independent directors to stand for election at TSMC’s 2009 regular Shareholders’ Meeting (3) Regular Board Meeting of June 11, 2009: ● election of Dr. Morris Chang as the Chairman and Dr. F.C. Tseng as the Vice Chairman of the Board of Directors ● appointment of Dr. Morris Chang as Chief Executive Officer concurrent with his position as Chairman of the Board, effective June 12, 2009 29 3.4 Internal Control System Execution Status Taiwan Semiconductor Manufacturing Company Limited Statement of Internal Control System Date: February 9, 2010 Based on the findings of a self-assessment, Taiwan Semiconductor Manufacturing Company Limited (TSMC) states the following with regard to its internal control system during the period from January 1, 2009 to December 31, 2009: 1. TSMC is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. TSMC has established such a system aimed at providing reasonable assurance regarding the achievement of objectives in the following categories: (1) effectiveness and efficiency of operations (including profitability, performance, and safeguarding of assets), (2) reliability of financial reporting, and (3) compliance with applicable laws and regulations. 2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three objectives mentioned above. Moreover, the effectiveness of an internal control system may be subject to changes of environment or circumstances. Nevertheless, the internal control system of TSMC contains self-monitoring mechanisms, and TSMC takes corrective actions whenever a deficiency is identified. 3. TSMC evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (1) control environment, (2) risk assessment and response, (3) control activities, (4) information and communication, and (5) monitoring. Each component further contains several items. Please refer to the Regulations for details. 4. TSMC has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria. 5. Based on the findings of the evaluation mentioned in the preceding paragraph, TSMC believes that, during the year 2009, its internal control system (including its supervision and management of subsidiaries), as well as its internal controls to monitor the achievement of its objectives concerning operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regulations, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives. 6. This Statement will be an integral part of TSMC’s Annual Report for the year 2009 and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law. 7. This Statement has been passed by the Board of Directors in their meeting held on February 9, 2010, with zero of the seven attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement. Taiwan Semiconductor Manufacturing Company Limited Morris Chang, Chairman & Chief Executive Officer The disclosure of the external auditors’ opinion on TSMC’s internal control is not applicable. 9 0 0 2 T R O P E R L A U N N A C M S T E C N A N R E V O G E T A R O P R O C 30 3.5 Status of Personnel Responsible for Preparing Financial Reports 3.5.1 Resignation or Dismissal of Personnel Responsible for Financial Report Title President & CEO Senior Director Internal Audit Name Rick Tsai Date Effective 07/01/2005 06/11/2009 Date Resigned/Dismissed Reasons for Resignation or Dismissal Jan Kees van Vliet 12/02/2003 02/10/2009 Dr. Tsai was assigned as President of New Businesses, effective on June 12, 2009. Mr. van Vliet was transferred to other department. 3.5.2 Certification Details of Employees Whose Jobs are Related to the Release of the Company’s Financial Information Certification Certified Public Accountants (CPA) US Certified Public Accountants (US CPA) Certified Internal Auditor (CIA) Chartered Financial Analyst (CFA) Certified Management Accountant (CMA) Financial Risk Manager (FRM) Cerficate in Financial Management (CFM) Certification in Control Self-Assessment (CCSA) Certified Information Systems Auditor (CISA) BS7799/ISO 27001 Lead Auditor Number of Employees Internal Audit 1 1 4 0 0 0 0 2 2 1 Finance 16 6 4 3 1 2 1 0 0 0 3.6 Information Regarding TSMC’s Independent Auditor 3.6.1 Audit Fees Unit: NT$ thousands Accounting Firm Name of CPA Audit Fee Non-audit Fee Whether the CPA’s Audit Period Covers an Entire Fiscal Year Note System Design Company Registration Human Resource Others Subtotal No Audit Period Yes ˇ Deloitte & Touche Hung-Peng Lin, Shu-Chieh Huang, and others 74,166 - 285 - 600 885 Note: Article 10-4 of Regulation Governing Information to be published in Annual Report of Public Companies was not applicable to TSMC. 3.6.2 TSMC did not replace its independent auditor during 2008, 2009, and as of February 28, 2010. 3.6.3 TSMC’s Chairman, Chief Executive Officer, Chief Financial Officer, and managers in charge of its finance and accounting operations did not hold any positions within TSMC’s independent audit firm or its affiliates during 2009. 3.7 Material Information Management Procedure TSMC has established relevant procedures for material information management and disclosure. All relevant departments and employees are required to comply with the procedures and other applicable regulations when they become aware of any potential material information and the disclosure thereof. 31 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 32 4. CAPITAL AND SHARES 4.1 Capital and Shares 4.1.1 Capitalization Unit: Share/NT$ Month/ Year Issue Price (Per Share) Authorized Share Capital Capital Stock Shares Amount Shares Amount Sources of Capital Remark Capital Increase by Assets Other than Cash 03/2009 08/2009 08/2009 09/2009 12/2009 10 10 10 10 10 28,050,000,000 280,500,000,000 25,625,437,256 256,254,372,560 28,050,000,000 280,500,000,000 25,626,012,160 256,260,121,600 28,050,000,000 280,500,000,000 25,896,009,261 258,960,092,610 28,050,000,000 280,500,000,000 25,896,353,344 258,963,533,440 28,050,000,000 280,500,000,000 25,900,662,339 259,006,623,390 Exercise of Employee Stock Options: NT$1,462,990 Exercise of Employee Stock Options: NT$5,749,040 Capitalization of Profits: NT$1,931,207,890 Capitalization of Surplus: NT$768,763,120 Exercise of Employee Stock Options: NT$3,440,830 Exercise of Employee Stock Options: NT$43,089,950 None None None None None As of 02/28/2010 Date of Approval & Approval Document No. 03/09/2009 Yuan Shang Tzu No. 0980005952 08/17/2009 Yuan Shang Tzu No. 0980023001 08/18/2009 Yuan Shang Tzu No. 0980023041 09/16/2009 Yuan Shang Tzu No. 0980026364 12/02/2009 Yuan Shang Tzu No. 0980034205 33 4.1.2 Capital and Shares Unit: Share Type of Stock Common Stock Shelf Registration: None. 4.1.3 Composition of Shareholders Authorized Share Capital Issued Shares Listed Non-listed Total Unissued Shares As of 02/28/2010 Total 25,903,538,310 0 25,903,538,310 2,146,461,690 28,050,000,000 Common Share Type of Shareholders Number of Shareholders Shareholding Holding Percentage (%) Government Agencies 13 Financial Institutions 198 Other Juridical Persons Foreign Institutions & Natural Persons Domestic Natural Persons 963 2,880 479,073 Total 483,127 1,745,950,910 731,601,487 902,372,727 18,686,656,654 3,829,771,566 25,896,353,344 6.74% 2.83% 3.48% 72.16% 14.79% 100.00% As of 07/21/2009 (last record date) Distribution Profile of Share Ownership Common Share Shareholder Ownership (Unit: Share) Number of Shareholders 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 Over 1,000,001 Total 161,754 203,203 54,267 24,470 8,878 10,742 4,792 2,966 5,553 2,622 1,463 537 268 214 1,398 483,127 Preferred Share: None. 4.1.4 Major Shareholders Common Share Shareholders ADR-Taiwan Semiconductor Manufacturing Company, Ltd. National Development Fund, Executive Yuan JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency JPMorgan Chase Bank N.A. Taipei Branch in custody for Capital Income Builder Inc. JPMorgan Chase Bank N.A. Taipei Branch in custody for Capital World Growth and Income Fund Inc. JPMorgan Chase Bank N.A. Taipei Branch in custody for EuroPacific Growth Fund Ivy Funds Inc. Asset Strategy Fund Government of Singapore JPMorgan Chase Bank N.A. Taipei Branch in custody for The Investment Company of America Cathay Life Insurance Co.,Ltd. Ownership 41,589,053 440,595,717 361,987,632 284,492,762 150,909,308 252,998,244 162,454,549 131,266,958 377,524,893 356,520,042 407,436,198 260,109,519 185,295,595 192,123,200 22,291,049,674 25,896,353,344 Total Shares Owned 5,487,565,383 1,653,709,980 607,363,770 384,615,272 382,385,094 358,983,677 341,009,504 293,755,207 287,648,007 274,917,909 As of 07/21/2009 (last record date) Ownership (%) 0.16% 1.70% 1.40% 1.10% 0.58% 0.98% 0.63% 0.51% 1.46% 1.38% 1.57% 1.00% 0.72% 0.74% 86.07% 100.00% As of 07/21/2009 (last record date) Ownership (%) 21.19% 6.39% 2.35% 1.49% 1.48% 1.39% 1.32% 1.13% 1.11% 1.06% 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 34 4.1.5 Net Change in Shareholding and Net Change in Shares Pledged by Directors, Management and Shareholders with 10% Shareholdings or More Unit: Share Title Name Chairman & Chief Executive Officer Morris Chang Vice Chairman F.C. Tseng Director National Development Fund, Executive Yuan Representative: Tain-Jy Chen Director & President of New Businesses Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Lester Carl Thurow (Note 2) Independent Director Stan Shih Independent Director Carleton (Carly) S. Fiorina (Note 3) Independent Director Thomas J. Engibous (Note 4) Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Stephen T. Tso Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Senior Vice President Research and Development Shang-yi Chiang (Note 5) Vice President Mainstream Fab Operations/Affiliates M.C. Tzeng Vice President & General Counsel Richard Thurston Vice President, Chief Financial Officer & Spokesperson Lora Ho Vice President Materials Management & Risk Management P.H. Chang Vice President Operations Wei-Jen Lo Vice President Worldwide Sales and Marketing Jason C.S. Chen Vice President & Chief Technology Officer Research and Development Jack Sun Vice President Deputy Head of Research and Development Design and Technology Platform Fu-Chieh Hsu Vice President Operations Y.P. Chin Vice President Quality and Reliability N.S. Tsai Vice President President of TSMC North America Rick Cassidy 2009 01/01/2010 ~ 02/28/2010 Net Change in Shareholding Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) 540,217 (1,131,834) - - 8,227,119 1,653,044,208 - (100,000) - (304,131) 1,700,000 (60,000) - - 7,364 - - (359,202) (441,778) (637,108) - - - - - - - - - - 118,557 (800,000) - - - - - (30,000) (20,000) - - - (458,323) (163,080) 364,387 (95,210) 178,350 (826,121) (64,001) (785,253) (577,908) - (700,000) (300,000) - - - - - - - - - - - (24,000) - - - (5,000) - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 35 Title Name Vice President Human Resources L.C. Tu Senior Director Finance Jan Kees van Vliet Senior Director New Businesses Y.C. Chao (Note 6) Senior Director Corporate Planning Irene Sun (Note 7) 2009 01/01/2010 ~ 02/28/2010 Net Change in Shareholding Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) 113,987 (68,745) 149,729 - - - - - - - - - - - - - Note 1: This refers to the creation of security interest over TSMC shares in favor of creditors, usually in connection with a shareholder’s own financing activities. Note 2: Professor Lester Thurow’s tenure expired on June 9, 2009 because he was not re-elected at the 2009 Annual Shareholders’ Meeting. Note 3: Ms. Carleton Fiorina resigned as an independent director of TSMC on November 30, 2009. Note 4: Mr. Thomas Engibous was elected as TSMC’s independent director at the 2009 Annual Shareholders’ Meeting on June 10, 2009. Note 5: Mr. Shang-yi Chiang was appointed on November 10, 2009. Net change in his shareholding or shares pledged was from November 10, 2009 to February 28, 2010. Note 6: Mr. Y.C. Chao was promoted on May 6, 2009. Net change in his shareholding or shares pledged was from May 6, 2009 to February 28, 2010. Note 7: Ms. Irene Sun was promoted on August 11, 2009. Net change in her shareholding or shares pledged was from August 11, 2009 to February 28, 2010. 4.1.6 Stock Trade with Related Party: None. 4.1.7 Stock Pledge with Related Party: None. 4.1.8 Information on Our 10 Largest Shareholders Who are Related Parties to Each Other: None of TSMC’s 10 largest shareholders are related parties to each other. 4.1.9 Long-term Investment Ownership TSMC China Company Limited Not Applicable (Note 1) Long-term Investment Equity Method: TSMC Partners, Ltd. TSMC Global, Ltd. TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited Systems on Silicon Manufacturing Co. Pte Ltd. Vanguard International Semiconductor Corp. Xintec Inc. Global Unichip Corporation Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Cost Method: Non-publicly Traded United Industrial Gases Co. Ltd. Shin-Etsu Handotai Taiwan Co. Ltd. W.K. Technology Fund IV Funds Horizon Ventures Fund I, L.P. Crimson Asia Capital Ltd., L.P. Ownership by TSMC (1) Direct/Indirect Ownership by Directors and Management (2) Total Ownership (1) + (2) As of 12/31/2009 Shares % Shares Shares % 988,268,244 1,284 11,000,000 200 6,000 80,000 313,603 628,223,493 93,081,225 46,687,859 Not Applicable (Note 1) Not Applicable (Note 1) Not Applicable (Note 1) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 38.8% 37.4% 41.1% 35.4% 99.5% 98.0% 98.0% % 0% 0% 0% 0% 0% 0% 988,268,244 1,284 11,000,000 200 6,000 80,000 0 0 0 0 0 0 0 0 0% Not Applicable (Note 1) 0% 313,603 274,029,592 16.3% (Note 2) 902,253,085 0 0 0 0 0 0% 0% 93,081,225 46,687,859 0% Not Applicable (Note 1) 0% Not Applicable (Note 1) 0% Not Applicable (Note 1) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 38.8% 53.7% 41.1% 35.4% 99.5% 98.0% 98.0% 16,782,937 10,500,000 4,000,000 9.8% Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) 7.0% Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) 1.9% Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Available (Note 3) Not Applicable (Note 1) 12.1% Not Applicable (Note 1) Not Available (Note 3) Not Applicable (Note 1) Not Available (Note 3) Not Applicable (Note 1) 1.0% Not Applicable (Note 1) Not Available (Note 3) Not Applicable (Note 1) Not Available (Note 3) Note 1: Not applicable. These firms do not issue shares. TSMC’s investment is measured as a percentage of ownership. Note 2: 16.3% represents the shareholding owned by National Development Fund, Executive Yuan Note 3: Not available. Not all information is available to TSMC as of the report date. 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 36 4.1.10 Share Information TSMC’s earnings per share decreased 9.6% in 2009 to NT$3.44 per share. The following table details TSMC’s net worth, earnings, dividends and market price per common share in 2009, as well as other data regarding return on investment. Net Worth, Earnings, Dividends, and Market Price Per Common Share Unit: NT$, except for weighted average shares and return on investment ratios Item Market Price Per Share Highest Market Price Lowest Market Price Average Market Price Net Worth Per Share Before Distribution After Distribution Earnings Per Share Weighted Average Shares (thousand shares) Diluted Earnings Per Share (Note 1) Adjusted Diluted Earnings Per Share (Note 2) Dividends Per Share Cash Dividends Stock Dividends Dividends from Retained Earnings Dividends from Capital Surplus Accumulated Undistributed Dividend Return on Investment Price/Earnings Ratio (Note 3) Price/Dividend Ratio (Note 4) Cash Dividend Yield (Note 5) 2008 2009 01/01/2010 ~ 02/28/2010 61.60 (Note 2) 34.65 (Note 2) 51.36 (Note 2) 18.59 15.59 26,106,676 3.83 3.81 3.00 0.02 0.03 - 13.48 17.12 6% 65.00 (Note 2) 37.28 (Note 2) 53.94 (Note 2) 19.11 (Note 6) 25,913,603 3.44 (Note 6) (Note 6) 3.00 (Note 6) - (Note 6) - (Note 6) - (Note 6) (Note 6) (Note 6) 64.90 57.20 61.04 - - - - - - - - - - - - Note 1: Since 2008, the calculation of diluted earning per share is after consideration of expensing estimated profit sharing to employees and bonus to directors based on the regulation. Note 2: Retroactively adjusted for stock dividends and profit sharing to employees in stock Note 3: Price/Earnings Ratio = Average Market Price/Adjusted Diluted Earnings Per Share Note 4: Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 5: Cash Dividend Yield = Cash Dividends Per Share/Average Market Price Note 6: Pending for shareholders’ approval 4.1.11 Dividend Policy TSMC’s profits may be distributed by way of cash dividend and/or stock dividend. The preferred method of distributing profits is by way of an annual cash dividend. Under TSMC’s Articles of Incorporation, stock dividend shall not exceed 50% of the total dividend distribution in any given fiscal year. Except under certain conditions specified in the Company’s Articles of Incorporation, TSMC does not pay dividends when there is no profit or retained earnings. 37 4.1.12 Distribution of Profit The Board adopted a proposal for 2009 profit distribution at its Meeting on February 9, 2010. The proposal will be effected according to the relevant regulations, upon the approval of shareholders at the Annual Shareholders’ Meeting on June 15, 2010. In addition, according to the Company’s Articles of Incorporation, TSMC shall allocate no more than 0.3% of earnings available for distribution (net income after a regulatory required deduction for prior years’ losses and contributions to legal and special reserves) as a bonus to directors, and not less than 1% as a bonus to employees. Profit sharing to employees to be distributed after 2010 Annual Shareholders’ Meeting was recorded as a charge to earnings of approximately 7.5% of net income in year 2009; bonuses to directors were accrued with an estimate based on historical experience. The proposal will be effected according to the relevant regulations, upon the approval of shareholders at the Annual Shareholders’ Meeting on June 15, 2010. If the actual amounts subsequently resolved by the shareholders differ from the above estimated amounts, the differences will be recorded in the year of shareholders’ resolution as a change in accounting estimate. Proposal to Distribute 2009 Profits Unit: NT$ Cash Dividends to Common Shareholders (NT$3.0 per share) Note: Employees’ cash bonus and profit sharing and bonus to directors for the year 2009 which have been expensed under the Company’s income statements are listed below: －NT$6,691,337,704 distributed employees’ cash bonus －NT$6,691,337,704 employees’ cash profit sharing to be distributed after 2010 Annual Shareholders’ Meeting －NT$67,692,222 directors’ bonus to be paid after 2010 Annual Shareholders’ Meeting 2008 Directors’ Bonus and Employee Profit Sharing Board Resolution (02/10/2009) Actual Result (Note 1) 77,708,119,866 Directors’ Bonus (Cash) Employee Profit Sharing in Cash Employee Profit Sharing in Stock Total Amount (NT$) Underlying Number of Shares Dilution (%) Amount (NT$) 158,080,488 7,494,987,577 7,494,987,578 158,080,488 7,494,987,577 7,494,987,578 - - 141,869,914 (Note 2) 15,148,055,643 15,148,055,643 - - - 0.55% - Note 1: Each of the above three items, being approved by the Board, has been expensed at the same amount under the company’s 2008 income statements. Note 2: The number of shares was calculated based on the closing price one day prior to the 2009 Annual Shareholders’ Meeting on an ex-dividend basis, i.e., NT$52.83 per share. The fractional share, being less than one full share, was distributed in cash. 4.1.13 Impact to 2010 Business Performance and EPS Resulting from Stock Dividend Distribution: Not applicable. 4.1.14 Buyback of Common Stock: Not applicable. 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 38 4.2 Issuance of Corporate Bonds 4.2.1 Corporate Bonds As of 02/28/2010 Domestic Unsecured Bond (V) 01/10/2002 - 01/24/2002 NT$1,000,000 NT$5,000,000 Par NT$15,000,000,000 Tranche A: 2.60% p.a. Tranche B: 2.75% p.a. Tranche C: 3.00% p.a. Tranche A: 5 years Maturity: 01/10/2007 - 01/22/2007 Tranche B: 7 years Maturity: 01/10/2009 - 01/24/2009 Tranche C: 10 years Maturity: 01/10/2012 - 01/24/2012 None TC Bank Not Applicable Yan-an International Law Office TN Soong & Co (now Deloitte & Touche) Bullet NT$4,500,000,000 None Customary Covenants twAAA (Taiwan Ratings Corporation, 09/21/2009) None Not Applicable None None Issuance Issuing Date Denomination Offering Price Total Amount Coupon Rate Tenure Guarantor Trustee Underwriter Legal Counsel Auditor Repayment Outstanding Redemption or Early Repayment Clause Covenants Credit Rating Other Rights of Bondholders Conversion Right Amount of Converted or Exchanged Common Shares, ADRs or Other Securities Dilution Effect and Other Adverse Effects on Existing Shareholders Custodian 4.2.2 Convertible Bond: None. 4.2.3 Exchangeable Bond: None. 4.2.4 Shelf Registration: None. 4.2.5 Bond with Warrants: None. 4.3 Preferred Shares 4.3.1 Preferred Share: None. 4.3.2 Preferred Share with Warrants: None. 39 4.4 Issuance of American Depositary Shares Issuing Date 10/08/1997 11/20/1998 01/12/1999 - 01/14/1999 07/15/1999 08/23/1999 - 09/09/1999 02/22/2000 - 03/08/2000 04/17/2000 06/07/2000 - 06/15/2000 06/12/2001 11/27/2001 02/07/2002 - 02/08/2002 11/21/2002 - 12/19/2002 07/14/2003 - 07/21/2003 11/14/2003 05/23/2007 08/10/2005 - 09/08/2005 Issuance & Listing NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE Total Amount (US$) 594,720,000 184,554,440 35,500,000 296,499,641 158,897,089 379,134,599 224,640,000 1,167,873,850 240,999,660 297,649,640 320,600,000 1,001,650,000 160,097,914 908,514,880 1,077,000,000 1,402,036,500 2,563,200,000 Offering Price Per ADS (US$) 24.78 15.26 17.75 24.516 28.964 57.79 56.16 35.75 NYSE 20.63 NYSE 16.03 NYSE 16.75 NYSE 8.73 NYSE 10.40 NYSE 10.77 NYSE 8.60 NYSE 10.68 Units Issued 24,000,000 12,094,000 2,000,000 12,094,000 5,486,000 6,560,000 4,000,000 32,667,800 11,682,000 14,428,000 20,000,000 59,800,000 18,348,000 87,357,200 100,000,000 163,027,500 240,000,000 Underlying Securities TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders Cash Offering and TSMC Common Shares from Selling Shareholders TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders (Pursuant to ADR Conversion Sale Program) Common Shares Represented Rights & Obligations of ADS Holders 120,000,000 60,470,000 10,000,000 60,470,000 27,430,000 32,800,000 20,000,000 163,339,000 58,410,000 72,140,000 100,000,000 299,000,000 91,740,000 436,786,000 500,000,000 815,137,500 1,200,000,000 Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Trustee Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable 05/14/2001 - 06/11/2001 NYSE 20.63 Shareholders (Pursuant to ADR Conversion Sale Program) Depositary Bank Custodian Bank (Note 1) ADSs Outstanding (Note 2) Apportionment of Expenses for Issuance & Maintenance Terms and Conditions in the Deposit Agreement & Custody Agreement Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – New York New York New York New York New York New York New York New York New York Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch 24,000,000 46,222,650 48,222,650 71,407,859 76,893,859 83,453,859 87,453,859 144,608,739 156,290,739 170,718,739 259,006,235 318,806,235 369,019,413 485,898,166 585,898,166 864,210,597 1,128,739,639 (Note 3) (Note 4) (Note 3) See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and See Deposit Agreement and Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement for Details for Details for Details for Details for Details for Details for Details for Details for Details Closing Price Per ADS (US$) 2009 01/01/2010 - 02/28/2010 High Low Average High Low Average 11.44 6.70 9.55 11.58 9.56 10.28 Note 1: Citibank, N.A., Taipei Branch has changed its name to “Citibank Taiwan Limited” on August 1, 2009. Note 2: TSMC has in aggregate issued 813,544,500 ADSs since 1997, which, if taking into consideration stock dividend distributed over the period, would amount to 1,147,835,206 ADSs. As of February 28, 2010, total number of outstanding ADSs was 1,097,513,073 after 50,322,133 ADSs were redeemed. Stock dividends distributed in 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009 was 45%, 23%, 28%, 40%, 10%, 8%, 14.08668%, 4.99971%, 2.99903%, 0.49991%, 0.50417% and 0.49998% respectively. Note 3: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne by the selling shareholders, while maintenance expenses such as annual listing fees and accountant fees were borne by TSMC. Note 4: All fees and expenses such as underwriting fees, legal fees, listing fees and other expenses related to issuance of ADSs were borne by TSMC and the selling shareholders, while maintenance expenses such as annual listing fees and accountant fees were borne by TSMC. 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 40 Issuing Date 10/08/1997 11/20/1998 07/15/1999 08/23/1999 - 09/09/1999 02/22/2000 - 03/08/2000 04/17/2000 06/07/2000 - 06/15/2000 05/14/2001 - 06/11/2001 06/12/2001 11/27/2001 02/07/2002 - 02/08/2002 11/21/2002 - 12/19/2002 07/14/2003 - 07/21/2003 11/14/2003 08/10/2005 - 09/08/2005 05/23/2007 Issuance & Listing NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE Total Amount (US$) 594,720,000 184,554,440 35,500,000 296,499,641 158,897,089 379,134,599 224,640,000 1,167,873,850 240,999,660 297,649,640 320,600,000 1,001,650,000 160,097,914 908,514,880 1,077,000,000 1,402,036,500 2,563,200,000 24.516 28.964 57.79 20.63 20.63 16.03 16.75 8.73 10.40 10.77 8.60 10.68 01/12/1999 - 01/14/1999 NYSE 17.75 NYSE 15.26 Offering Price Per ADS 24.78 (US$) NYSE 56.16 NYSE 35.75 Units Issued 24,000,000 12,094,000 2,000,000 12,094,000 5,486,000 6,560,000 4,000,000 32,667,800 11,682,000 14,428,000 20,000,000 59,800,000 18,348,000 87,357,200 100,000,000 163,027,500 240,000,000 Underlying Securities TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common TSMC Common Cash Offering and Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling Shares from Selling TSMC Common Shareholders Shareholders Shareholders Shareholders Shareholders (Pursuant to ADR Conversion Sale Program) Shareholders (Pursuant to ADR Conversion Sale Program) Shareholders Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders (Pursuant to ADR Conversion Sale Program) TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders TSMC Common Shares from Selling Shareholders 120,000,000 60,470,000 10,000,000 60,470,000 27,430,000 32,800,000 20,000,000 163,339,000 58,410,000 72,140,000 100,000,000 299,000,000 91,740,000 436,786,000 500,000,000 815,137,500 1,200,000,000 Rights & Obligations of Same as those of Common Share Holders Same as those of Common Share Same as those of Common Share Same as those of Common Share Same as those of Common Share Same as those of Common Share Same as those of Common Share Same as those of Common Share Holders Holders Holders Holders Holders Holders Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Same as those of Common Share Holders Trustee Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Depositary Bank Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – New York New York New York New York New York New York New York New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Citibank, N.A. – New York Custodian Bank (Note 1) Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Citibank, N.A. – Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch Citibank, N.A. – Taipei Branch ADSs Outstanding 24,000,000 46,222,650 48,222,650 71,407,859 76,893,859 83,453,859 87,453,859 144,608,739 156,290,739 170,718,739 259,006,235 318,806,235 369,019,413 485,898,166 585,898,166 864,210,597 1,128,739,639 (Note 3) (Note 4) (Note 3) Common Shares Represented ADS Holders (Note 2) Apportionment of Expenses for Issuance & Maintenance Terms and Conditions in See Deposit See Deposit See Deposit See Deposit See Deposit See Deposit See Deposit See Deposit the Deposit Agreement & Agreement and Agreement and Agreement and Agreement and Agreement and Agreement and Agreement and Agreement and Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement Custody Agreement for Details for Details for Details for Details for Details for Details for Details for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details See Deposit Agreement and Custody Agreement for Details Closing Price Per ADS 2009 (US$) High Low High Low Average Average 11.44 6.70 9.55 11.58 9.56 10.28 01/01/2010 - 02/28/2010 41 4.5 Status of Employee Stock Option Plan 4.5.1 Issuance of Employee Stock Options ESOP Granted Approval Date by The Securities & Futures Bureau Issue (Grant) Date Number of Options Granted Percentage of Shares Exercisable to Outstanding Common Shares Option Duration Source of Option Shares Vesting Schedule Shares Exercised Value of Shares Exercised (NT$) Shares Unexercised Original Grant Price Per Share (NT$) Adjusted Exercise Price Per Share (NT$) Percentage of Shares Unexercised to Outstanding Common Shares Impact to Shareholders’ Equity First Grant 06/25/2002 08/22/2002 18,909,700 0.10154% 10 years Second Grant 06/25/2002 11/08/2002 1,085,000 0.00583% 10 years Third Grant 06/25/2002 03/07/2003 6,489,514 0.03485% 10 years New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2,027,605 59,047,051 4,894,232 NT$53.0 NT$29.0 0.01889% 0 0 390,445 NT$51.0 NT$27.9 0.00151% 497,904 11,911,017 4,869,254 NT$41.6 NT$22.8 0.01880% Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Equity is limited Equity is limited Equity is limited Equity is limited Equity is limited Equity is limited Fourth Grant 06/25/2002 06/06/2003 23,090,550 0.12399% 10 years 2,041,274 65,671,305 11,025,557 NT$58.5 NT$32.0 0.04257% Fifth Grant 10/29/2003 12/03/2003 842,900 0.00416% 10 years 111,535 5,587,907 219,002 NT$66.5 NT$50.1 0.00085% Sixth Grant 10/29/2003 02/19/2004 15,720 0.00008% 10 years 0 0 9,941 NT$63.5 NT$47.8 0.00004% Seventh Grant Eighth Grant 10/29/2003 05/11/2004 11,167,817 0.05510% 10 years 1,024,198 44,268,630 3,343,695 NT$57.5 NT$43.2 0.01291% 10/29/2003 08/11/2004 135,300 0.00058% 10 years 6,482 247,614 31,711 NT$43.8 NT$38.0 0.00012% Ninth Grant 01/06/2005 05/17/2005 10,742,350 0.04620% 10 years 1,563,267 73,799,714 4,026,307 NT$54.3 NT$47.2 0.01554% 4.5.2 Employee Stock Options Granted to Management Team and to Top 10 Employees with an Individual Grant Value over NT$30,000,000 Title Name Number of Options Granted (Note 2) % of Shares Exercisable to Outstanding Common Shares Exercised Unexercised Shares Exercised Exercise Price Per Share Value of Shares Exercised (NT$) Shares Unexercised Adjusted Grant Price Per Share Value of Shares Unexercised (NT$) % of Shares Exercised to Outstanding Common Shares % of Shares Unexercised to Outstanding Common Shares Chairman & Chief Executive Officer President Senior Vice President Senior Vice President Senior Vice President Morris Chang (Note 1) Rick Tsai (Note 1) Stephen T. Tso (Note 1) Mark Liu (Note 1) C.C. Wei (Note 1) Vice President & General Counsel Richard Thurston (Note 1) Vice President Vice President Vice President Jack Sun (Note 1) Rick Cassidy L.C. Tu (Note 1) 5,261,152 0.02031% 1,664,091 28.0 46,575,976 0.00642% 3,597,061 25.2 90,819,287 0.01389% Note 1: TSMC granted options to certain of its officers (as listed above) as a result of their voluntary selection to exchange part of their profit sharing for stock options in 2003. This includes a voluntary exchange by Chairman Morris Chang in his capacity as Chief Executive Officer. Note 2: Number of options granted includes the additional shares due to stock dividend distributed in 2004, 2005, 2006, 2007, 2008 and 2009. 4.6 Status of New Share Issuance in Connection with Mergers and Acquisitions TSMC did not issue new shares in connection with mergers or acquisitions in 2009, and as of the date of this Annual Report. 4.7 Financing Plans and Implementation: Not applicable. 9 0 0 2 T R O P E R L A U N N A C M S T S E R A H S D N A L A T I P A C 42 Percentage of Shares Exercisable to Outstanding Common Shares ESOP Granted Approval Date by The Securities & Futures Bureau Issue (Grant) Date Number of Options Granted Option Duration Source of Option Shares Vesting Schedule Shares Exercised Value of Shares Exercised (NT$) Shares Unexercised Original Grant Price Per Share (NT$) Adjusted Exercise Price Per Share (NT$) Percentage of Shares Unexercised to Outstanding Common Shares Impact to Shareholders’ Equity First Grant 06/25/2002 08/22/2002 18,909,700 0.10154% 10 years 2,027,605 59,047,051 4,894,232 NT$53.0 NT$29.0 0.01889% Second Grant 06/25/2002 11/08/2002 1,085,000 0.00583% 10 years 0 0 390,445 NT$51.0 NT$27.9 0.00151% Third Grant 06/25/2002 03/07/2003 6,489,514 0.03485% 10 years 497,904 11,911,017 4,869,254 NT$41.6 NT$22.8 0.01880% Fourth Grant 06/25/2002 06/06/2003 23,090,550 0.12399% 10 years Fifth Grant 10/29/2003 12/03/2003 842,900 0.00416% 10 years Sixth Grant 10/29/2003 02/19/2004 15,720 0.00008% 10 years Seventh Grant Eighth Grant 10/29/2003 05/11/2004 11,167,817 0.05510% 10 years 10/29/2003 08/11/2004 135,300 0.00058% 10 years Ninth Grant 01/06/2005 05/17/2005 10,742,350 0.04620% 10 years As of 12/31/2009 New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share New Common Share 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100% 2,041,274 65,671,305 11,025,557 NT$58.5 NT$32.0 0.04257% 111,535 5,587,907 219,002 NT$66.5 NT$50.1 0.00085% 0 0 9,941 NT$63.5 NT$47.8 0.00004% 1,024,198 44,268,630 3,343,695 NT$57.5 NT$43.2 0.01291% 6,482 247,614 31,711 NT$43.8 NT$38.0 0.00012% 1,563,267 73,799,714 4,026,307 NT$54.3 NT$47.2 0.01554% Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Equity is limited Equity is limited Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Title Name Number of Options Granted % of Shares Exercisable to (Note 2) Outstanding Common Shares Exercised Unexercised Shares Exercised Exercise Price Per Share Value of Shares Exercised (NT$) % of Shares Exercised to Outstanding Common Shares Shares Unexercised Adjusted Grant Price Per Share Value of Shares Unexercised (NT$) As of 12/31/2009 % of Shares Unexercised to Outstanding Common Shares 5,261,152 0.02031% 1,664,091 28.0 46,575,976 0.00642% 3,597,061 25.2 90,819,287 0.01389% Chairman & Chief Executive Officer President Senior Vice President Senior Vice President Senior Vice President Vice President Vice President Vice President Morris Chang (Note 1) Rick Tsai (Note 1) Stephen T. Tso (Note 1) Mark Liu (Note 1) C.C. Wei (Note 1) Jack Sun (Note 1) Rick Cassidy L.C. Tu (Note 1) Vice President & General Counsel Richard Thurston (Note 1) 43 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 44 5. OPERATIONAL HIGHLIGHTS 5.1 Business Activities 5.1.1 Business Scope TSMC’s business scope is semiconductor foundry and associated services. The Company excels in all aspects of its business, including semiconductor process technology research and development, wafer manufacturing, logistics management, capacity utilization, customer service, and associated services such as design services, mask manufacturing, wafer probing, in-house bumping and testing. TSMC strives to provide the best overall value to customers, and the success of TSMC’s business is manifested in the success of its customers. Since TSMC plans to expand into new business activities in LED lighting and solar energy related industries, TSMC’s Board of Directors has proposed additions to the business scope as specified in its Articles of Incorporation, and will submit such revisions for approval at TSMC’s 2010 Annual Shareholders’ Meeting. 5.1.2 Customer Applications Over the past 22 years, more than 600 customers worldwide have relied on TSMC to manufacture chips that are used across the entire spectrum of electronic applications, including computers and peripherals, information appliances, wired and wireless communications systems, automotive and industrial equipment, consumer electronics such as DVDs, digital TVs, game consoles, digital still cameras (DSCs), and many other applications. The rapid evolution of end products drives our customers to utilize TSMC’s innovative technologies and services, while at the same time spurring TSMC’s own development of technology. As always, success depends on leading rather than following industry trends. 5.1.3 Unconsolidated Shipments and Gross Sales in 2009 and 2008 Unit: Shipments (8-inch equivalent wafers) / Gross Sales (NT$ thousands) Wafer Package Other Total Domestic Export Domestic Export Domestic Export Domestic Export 2009 2008 Shipments 1,538,951 6,150,548 3 35,440 18,221 42,355 1,557,175 6,228,343 Gross Sales 40,272,613 232,626,513 3,517 5,111,486 3,593,192 17,863,893 43,869,322 255,601,892 Shipments 1,553,636 6,806,969 1 100,050 19,518 49,512 1,573,155 6,956,531 Gross Sales 39,822,198 260,386,524 14 3,694,690 3,884,590 22,440,011 43,706,802 286,521,225 45 5.1.4 Production in 2009 and 2008 Unit: Capacity / Output (8-inch equivalent wafers) / Amount (NT$ thousands) Year 2009 2008 Wafers Capacity 9,954,558 9,376,612 Output 7,582,664 8,350,692 Amount 150,572,709 154,242,282 5.2 Technology Leadership 5.2.1 R&D Organization and Investment TSMC expanded its Research and Development in 2009 to further enhance one of its three strategic pillars: Technology Leadership. In 2009 the total R&D budget increased to 8% of total revenue. This level of R&D investment is on par with, if not more than, many leading edge technology companies. Along with the budget increase, the R&D organization increased staffing by over 25%. TSMC also brought one of its venerated leaders, Dr. Shang-yi Chiang, Chairman of VisEra and Xintec, back as Senior Vice President of R&D. TSMC recognizes that the technology challenge required to extend Moore’s Law, the business law behind CMOS scaling, is getting more and more difficult. The R&D organization is further strengthening its capability, and Dr. Chiang brings his rich industry experience to lead the R&D Expenditures (Amount: NT$ thousands) 2008 2009 01/01/2010~ 02/28/2010 4,082,623 21,480,937 21,593,398 R&D team navigating through the challenges. To assist Dr. Chiang, TSMC also appointed Dr. Jack Sun as Vice President and Chief Technology Officer to ensure the technology pipeline is both full and ahead of the competition. In 2009, TSMC offered the foundry segment’s first 40nm technology. After intense work on ramping this technology, customers started to enjoy some benefits of stable and improved yield. TSMC accelerated the development of advanced transistors, embedded memories, and Cu/low-K interconnect technologies. During 2009, the R&D organization once again proved its capabilities by offering a first-to-market 45/40nm foundry technology portfolio as well as establishing 28nm HKMG capability. TSMC also expanded its external R&D partnerships and alliances with world-class research institutions. For example, TSMC is a core partner of IMEC, the respected European R&D consortium. TSMC also has a partnership agreement with NXP to conduct exploratory researches in special “More Than Moore” technologies. In addition, TSMC strengthened its collaborations with key partners on design-process optimization. TSMC provides funding for nanotechnology researches at major universities worldwide to promote innovation and the advancement of technology. These research efforts enable the Company continuously to offer its customers the foundry-leading, first-to-market technology and design solutions that contribute to their product success in the complex and challenging market environment. 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 46 5.2.2 R&D Accomplishments in 2009 terms of minimizing the design risk and shortening the time to market. R&D Highlights ● 28nm Technology TSMC continued to lead the foundry segment with the development of the most advanced logic technologies both with conventional as well as high-K/metal gate (HKMG) stacks. The high performance (28HP) platform is aimed at high-speed GPU and CPU applications. The 28HP platform also serves as the technology backbone for high-end FPGA and SoC application domains through additional device customization for leakage management. The low-leakage (28LP and 28HPL) technologies are designed to support low-cost mobile applications as well as low-end FPGA requirements. TSMC achieved 64Mb SRAM yield breakthroughs of the foundry segment’s highest density cell (0.127μm2) early in 2009. TSMC also achieved 64Mb SRAM yield on its 28HP and 28HPL HKMG technologies. Record high transistor performances, 5th generation Cu and low-k interconnect, and the 2nd generation immersion lithography effectively establish TSMC’s continued leadership in the foundry segment’s technology development. The Company also successfully supported customer design (test-chip) evaluations through TSMC’s 28nm shuttle program. Functional silicon was delivered in both conventional poly SiON and HKMG technology platforms. TSMC’s 28nm technology offerings are all well on track for qualification and risk production in 2010, supporting a broad range of application domains from high-performance to low-leakage. ● 20nm Technology In 2009, TSMC continued to focus on 20nm technology pathfinding. To offer a leading-edge technology for both analog and digital application, the Company adopted the most advanced 193nm immersion and enhanced lithography process for smaller feature size. With the 2nd generation high-K/metal gate (HKMG), more Si strain, and new device structure, the intrinsic transistor performance continues to boost up following Moore’s Law. Meanwhile, external resistance can be effectively reduced and controlled by a specially designed process technique. The BEOL interconnect process features extreme low-K inter-metal dielectric materials and copper metallization with the novel low RC scheme. The logic transistor and SRAM bit-cell offering, using the 20nm process, will cover high performance and mobile product application. Recognizing the increasing importance of the interdependence of circuit design and process technologies, TSMC has paid attention to and made efforts to design and process co-optimization. TSMC was invited to join the special session, “Confluence of Technology and Design – Design Issues on 32/22nm and Beyond”, in the 2009 International Electron Device Meeting, and presented a paper entitled “Design and Process Co-optimization for 28/22nm and Beyond – A foundry’s Perspective”. Starting from the path-finding stage, the Company has considered the design-process correlation by including the complex layout effects in the test vehicle, generating a design-friendly design package (DRM/DRC, SPICE model, and other design enablement), and enhancing process variation monitoring. Early engagement with customers has been launched. The mindset change from developing a new technology by foundry itself to co-optimizing the design and process should help our customers in ● Lithography The 20nm optimal design gate density was achieved and is compliant with semiconductor-industry-standard double-patterning design rules by the design-integration-litho co-optimization. This accomplishment ensures the extendibility of 193nm immersion technology to 20nm and possibly to 15nm, before the next-generation lithography (NGL) matures. Another challenge is reducing k1, which enables the use of lasers with low NA, and results in lower equipment costs. This challenge was overcome with aggressive resolution-enhancement technologies and the multi-layered optical proximity correction (OPC). Low-single-digit immersion defects were achieved with track/material co-optimization. It evolved from and is better than the previous generation. To deal with various product requirements, customized OPC was used. It smoothed the 40nm manufacturing ramping up. Low-cost solutions were developed for 0.11μm logics and multi-generation technologies. For NGL technology development, a mulitple e-beam maskless pre-A tool was installed in TSMC’s fab besides the satisfactory EUV mask making and wafer exposures. ● Mask Technology Mask technology is an integral part of advanced lithography technology. TSMC has developed proprietary resolution-enhancement techniques (RET) that are co-optimized with our in-house mask-making technology. The Company integrates OPC, scanner parameter optimization, and masks together to provide a total solution in 193nm immersion lithography. TSMC’s mask-making facilities feature state-of-the-art electron-beam mask writers, etchers, inspection, repair, and verification tools for production at 28nm and R&D at 20nm. In 2009, the Company collaborated with blank suppliers to develop super-binary blanks for the 20nm generation to improve the lithography process window, mask quality and cycle time. TSMC also started to develop mask technologies for double patterning with 193nm immersion lithography and extreme-UV lithography for applications to the 20nm generation and beyond. TSMC’s strength in mask technology gives significant and unique benefits to its customers in terms of technical excellence, top quality, fast cycle time, and one-stop service. Integrated Interconnect and Packaging The Integrated Interconnect and Package Development Division (IIPD) was formed in late 2008 to develop and deliver an integrated technology solution combining the advanced interconnect with packaging technology. The introduction of extreme low-K dielectric (ELK) in 45/40nm adds more challenges among many others to the given tasks. In 2009, the major focus was to resolve interconnect/ package related bottlenecks and ensure smooth ramp of 45/40nm first wave customers’ products. Enhancement in Si backend/bump structure designs, and process optimization in bumping/assembly processes have paved the way for customers’ products delivery with reliable quality. Customers including GPU and FPGA products are in volume production (with die size >20×20mm2). 47 ● Advanced Interconnect In 2009, TSMC continued to lead the foundry segment in demonstrating the lowest RC-delay interconnect technology in the segment, which is also compatible with advanced package technology. Cu interconnect resistivity is trending up by generation node because of the size effect. To keep the RC performance for the advanced interconnect, TSMC has developed an extreme low resistance Cu – interconnect solution for 28nm and beyond technology nodes. On the 28nm test vehicle it showed an effective resistivity significantly lower than that projected by the ITRS roadmap and demonstrated promising reliability performance. On the counterpart approach, the reduction of K value of low-K material is the conventional way to drive RC delay for advanced generations. However, the package becomes main challenge for low-K with K less than 2.5. TSMC has evaluated and created advanced CVD and SOD low-K materials with much better mechanical strength and adhesion to adjacent layers for 20nm and beyond generations. Integration work based on the two key indices of RC and package performance is going on smoothly. ● Advanced Package Development To achieve “Green package” requirements and to follow the EU code for RoHS, the traditional tin-lead (Sn-Pb) based solder interconnect will be replaced by lead-free (Sn-Ag or Cu post) technology step-by-step. TSMC will continue to develop lead-free package technology (including die sizes, bump pitches, substrate types, etc.) in 2010 to further enhance customer’s product performance. Advanced Transistor Research TSMC continues to make great strides in advanced transistor research. We believe that as the conventional scaling is coming to its end, Moore’s Law can be extended by other means of scaling by equivalence. 3D transistor technology, such as FinFET, should help, and the Company has spent great efforts to make the technology toward perfection. TSMC also believes that transistor architecture needs to be complemented by material system change. R&D investigated an array of new materials that might be more suitable for the transistor channel or the contacts. TSMC, which plans to roll out these new materials in the next few nodes, formed strong collaborations with the worlds’ leading institutes on these advanced material researches. By combining TSMC’s Si capability and academic know-how, most technical issues have been overcome. Although the technology challenges ahead are great, TSMC believes that by overcoming these challenges it can produce true differentiating value to customers. These challenges, therefore, are great opportunities for TSMC, and its strategy is to move aggressively to solve them ahead of time. Spectrum of Technology Beyond the highlights above, TSMC continued to develop a broad mix of new technologies. The Company accelerated its SoC roadmap, including embedded DRAM (eDRAM) and RF with earlier availability, higher integration and more variants. ● Embedded DRAM Embedded DRAM is important for many applications, such as game consoles, digital TVs, networking, base stations, and hard-disk drives. In 2009, TSMC successfully demonstrated 40nm low-power (N40LP) eDRAM for games and hand-held applications, with low standby power. Fully functional macro was also demonstrated with reasonable yield in 40G general-purpose eDRAM technology, for high performance networking applications with 412MHz clock rate. ● Silicon Germanium BiCMOS RF Technology Having resolved thermal stress challenges, high resistive silicon-on- insulator (HR-SOI) substrate was successfully implemented into TSMC’s 0.18μm CMOS and SiGe BiCMOS process flow. On this substrate, CMOS, NPN and PNP SiGe HBTs are all demonstrated successfully. Furthermore, inductors with 60% higher Q is achieved using this technology. Lower density, no-cost-adding metal-oxide-metal (MOM) capacitors was developed in 2009 to accommodate >10V applications. ● Mixed Signal/Radio Frequency (MS/RF) Technology TSMC qualified a 40nm low-power RF process design kit with silicon-validated model to facilitate design launch for an advanced Blue-Tooth chip. Challenges in multi-finger RFMOSFET-related device drive current behavior is investigated and resolved by analyzing with distributing source/drain into multi-segments. To deliver accurate model for small unit metal-oxide-metal (MOM) capacitors for high frequency (67GHz, e.g.) applications, an innovated correlation methodology along with smart MOM modeling array is successfully implemented for 40nm, 45nm, 65nm and 90nm MOM modeling. Small capacitor with ~1fF unit could be predicted accurately and the total variation specification is thus tightened from 25% to 15% or even down to 12%. This enhances the precision level for analog and RF designs. For high-speed data link (≥10Gbits/s) needing inductor-based LC oscillators in most advanced CMOS technologies (28nm, e.g.), simulation-based RF design packages are under development and implemented to significantly shorten design cycle. ● Power IC/BCD Technology TSMC has driven multiple power IC platforms into production, including 0.35μm 3.3/5/12~40V BCD & 0.25μm 2.5/5/12~40+60V BCD. Fruitful features were enabled in these platform solutions, such as world-leading Rdson performance, cost-effective modular flexibility & customized characterization reports for friendly power IC design. 0.18μm BCD, for highly integrated SoC applications, has been officially released for 24/40V phase, while an extension phase offering more comprehensive components was qualified. TSMC also dominated technology for CCD V-drivers with 0.18μm 1.8/3.3/32V technology, together with a cost-competitive shrinkage path to 0.16μm 1.8/3.3/24V technology. Furthermore, TSMC’s offering of 0.6μm 60V BCD also achieved best-in-class Rdson, which is expected to enable competitive LED drivers for the customers. ● Panel Driver Technology TSMC has completed development of 0.13μm 32V technology for small panel driver IC applications. The technology has the smallest SRAM in the world. TSMC has also provided three high-performance and cost-effective technologies for large panel driver applications. Following them, there are newly defined technologies in development to support customer 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 48 demands. These technologies will enable SoC with power benefits for next generation products. ● CMOS Image Sensor Technology In 2009, TSMC was the first semiconductor company to have 1.4μm pixel with Back Side Illumination (BSI) technology in production that propelled our key customer to their performance leadership position. On top of that, we also successfully demonstrated world-first 12” bulk Si BSI technology with 1.1μm pixel size using 65nm design rules, with optical performance surpassing 1.75μm pixel. This technology would allow high performance sensors at density up to 16M pixels to achieve the performance not attainable by the conventional front side illumination at the same pixel size. ● Flash/Embedded Flash Technology In 2009, TSMC qualified the low power, ultra low leakage 0.18μm Flash for MCU applications. Followed the scaling path, the 90nm split gate technology also achieved excellent yield and passed the pre-qualification, and readied for first customer new product tape-outs. TSMC also attracted many IDM companies to co-develop embedded Flash solutions for automotive and consumers applications, using both 90nm and 65nm as the foundation platforms. 5.2.3 Technology Platform Modern IC designers need sophisticated design infrastructure to achieve acceptable productivity and cycle time. This includes design flow for electronic design automation (EDA), silicon proven building blocks such as libraries and IPs, simulation and verification design kits such as process design kit (PDK) and tech files. All these are built on top of the technology foundation, and each technology needs its own design infrastructure to be usable for designers. This is the concept of a technology platform. For years, TSMC and its alliance partners spent considerable effort to build TSMC technology platforms. The Company unveiled its Open Innovation PlatformTM initiative in 2008 to further enhance TSMC technology platforms. More OIP deliverables were rolled out in 2009. In April 2009, TSMC announced the foundry segment’s first Mixed Signal/Radio Frequency Reference Design Kit (MS/RF RDK). The new RDK helps resolve the long-standing challenge of full chip verification of SoCs with both analog, mixed signal and digital content. It enables a top-down MS/RF design methodology and a system-level simulation flow to reduce design cycle time and encourage IP reuse. In May 2009, TSMC unveiled iRCX, an interoperable EDA data format, for TSMC 65nm and 40nm technologies. Interconnect modeling data is getting more important as chip designs in advanced technologies require detailed views of parasitic effects for the accurate evaluation of chip performance and power consumption. EDA tools that support the iRCX format will be able to receive accurate interconnect modeling data from the iRCX files developed and supported by TSMC. Two more unified EDA data formats – interoperable design rule check (iDRC) and interoperable layout-versus-schematic (iLVS) – for TSMC 40nm process technology were announced in July 2009. Design rules for advanced process technologies are more complex and require detailed and accurate descriptions for correct chip layout creation and post-layout analyses. TSMC iDRC and iLVS formats, based on TSMC process requirements, unify process design rules specification and technology file generation, simplify data delivery, and ensure data integrity and interpretation. The Company also unveiled Reference Flow 10.0 and industry-first interoperable process design kit (iPDK) in July 2009. TSMC iPDK unified data model on industry-standard OpenAccess database enables design reuse that is not possible with multiple proprietary PDKs and design databases. It eliminates duplicate PDK development efforts, significantly reduces PDK development, validation and support costs across the design ecosystem, and promotes innovation in analog and full custom design. Reference Flow 10.0 continues the tradition of driving advances in design methodology and addresses new design challenges of 28nm process technology. To drive greater performance, advanced stage-based On-Chip Variation (OCV) optimization and analysis is made available for the first time, enabling customers to get a more realistic look at timing for the purpose of removing redundant design margins. A new electrical DFM feature was introduced for customers to take into consideration the timing impact of “silicon stress effect”, thus helping to increase yields. System-in-Package (SiP) is a viable alternative for many customers to realize their end product with the best cost and cycle time. Reference Flow 10.0 also delivers innovations to enable SiP design for the first time. It includes SiP package design, electrical analysis of package extraction, timing, signal integrity, IR drop, and thermal to physical verification of DRC and LVS. 5.2.4 Intellectual Property A strong portfolio of intellectual property rights strengthens TSMC’s technology leadership and protects our advanced and leading edge technologies. In 2009, TSMC received 308 U.S. patents, 226 Taiwanese patents, 264 PRC patents, and other patents issued in various other countries. TSMC’s patent portfolio now exceeds 12,000 patents worldwide. We continue to implement a unified model for TSMC’s intellectual capital management. Strategic considerations and close alignment with business objectives drive the timely creation, management and use of our intellectual property. At TSMC, we have built a process to extract value from our intellectual property by aligning our intellectual property strategy with our R&D, business objectives, marketing, and corporate development strategies. Intellectual property rights protect our freedom to operate, enhance our competitive position, and give us leverage to participate in many profit-generating activities. We have worked continuously to improve the quality of our intellectual property portfolio and to reduce the cost of maintaining it. We plan to continue investing in our intellectual property portfolio and intellectual property management system to ensure that we protect our technology leadership and receive maximum business value from our intellectual property rights. 49 5.2.5 Future R&D Plans 5.3 Manufacturing Excellence Following the significant successes of TSMC’s advanced technologies in 2009, the Company plans to continue to grow the R&D organization. TSMC will further expand its 300mm R&D pilot line to speed up 28nm qualification with its early engagement customers and the 20nm path-finding programs with world-leading research institutions. The Company plans to reinforce its exploratory development work on new transistors and technologies such as 3D structures, strained-layer CMOS, high mobility materials, and novel 3D-IC devices with TSV. These studies of the fundamental physics of nanometer CMOS transistors are core aspects of our efforts to improve the understanding and guide the design of transistors at advanced nodes. The findings of these studies are being applied to ensure our continued industry leadership at the 28nm and 20nm nodes. One of TSMC’s goals is to extend Moore’s Law through innovative in-house work, as well as by collaborating with industry leaders and academia to push the envelope in finding cost-effective technologies and manufacturing solutions. TSMC will continue working closely with international consortia and photolithography equipment suppliers to ensure the timely development of 193nm high-NA scanner technology, liquid immersion lithography, EUV lithography, and massively parallel E-Beam direct-write technologies. These technologies are now fundamental to TSMC’s process development efforts at the 20nm and 15nm nodes and beyond. TSMC continues to work with mask inspection equipment suppliers to develop viable inspection techniques, a collaborative partnership to help ensure the Company maintains its leadership position in mask quality and cycle time and continue to meet aggressive R&D, prototyping and production requirements. With a highly competent and dedicated R&D team, and unwavering commitment to innovation, TSMC is confident of its ability to deliver the best and most cost-effective SoC technologies for customers, and to support the Company’s business growth and profitability. TSMC R&D future major project summary: Project Name Description 28nm logic platform technology and applications 28nm technology for both digital and analog products 20nm logic platform technology and applications Next-generation technology for both digital and analog products 15nm logic platform technology and applications Exploratory technology for both digital and analog products 3D-IC Next-generation lithography Long-term research Cost-effective solution with better form factor and performance for SIP EUV and multiple E-Beam to extend Moore’s Law Special SoC technology (including new NVM, MEMS, RF, analog) and 15nm transistors Risk Production (Estimated Target Schedule) 2010 2012 2014 2011 2011 - 2012 2012 - 2014 The above plans account for roughly 70% of the total corporate R&D budget in 2010, which will be around 7~8% of 2010 revenue. 5.3.1 Efficiency Fast Yield Ramp Fast yield ramp for new products is an important factor to help TSMC’s customers shorten their time-to-market. TSMC has developed a comprehensive technology transfer methodology extending from R&D to production in order to shorten the yield learning curve of leading edge technologies. Accurate Delivery TSMC has a proven record of providing customers with consistent on-time delivery. The Company has equipped a state-of-the-art supply chain management system in an effort try to improve both our customers’ forecast processes and TSMC’s delivery schedule accuracy. In 2009, the Company was able to make over 98 percent of deliveries within one day of the scheduled delivery date. Best-in-Class Cycle Time Management Fast manufacturing cycle time is another important factor behind TSMC’s continued competitive success and that of our customers. Accordingly, TSMC has developed a sophisticated manufacturing scheduling and dispatching system, implemented industry-leading automated materials handling systems, and employed effective lean manufacturing approaches. In 2009, the Company unceasingly strived to optimize manufacturing processes and cycle time management techniques, and continued to break cycle time records. Flexible Manufacturing Management Flexible Manufacturing is a crucial element that addresses the fluctuations in demand forecast. In many cases, TSMC has the ability to meet unanticipated customer demand surges, thanks in large part to our cluster fab capability as well as to our extensive know-how in performance matching for both tools and fabs. Knowledge Management TSMC has built the industry’s leading, state-of-the-art knowledge management, and Best Known Method (BKM) systems. TSMC maintains a vast database of key TSMC knowledge, which features a sophisticated expert system that embeds captured knowledge into TSMC’s engineering system. Inventory Management As semiconductor devices become more diverse, inventory management becomes more critical. TSMC has built integrated supply and demand information into its inventory management system to improve the Company’s responsiveness to the variability of wafer demand forecasts. The speed and accuracy of TSMC’s response has been improved through real-time demand information sharing. 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 50 5.3.2 GIGAFABTM Fabrications TSMC’s 12-inch fabs are a key part of its manufacturing strategy. TSMC currently operates two 12-inch GIGAFABTM fabrication facilities – Fab 12 and Fab 14. The combined capacity of the two GIGAFABTMs reached 486,000 12-inch wafers in the fourth quarter of 2009. Production within these two facilities supports 0.13μm, 90nm, 65nm and 40nm process technologies, and their sub-nodes. Part of the capacity is reserved for research and development work and currently supports 28nm, 20nm and beyond technology development. The GIGAFABTMs are the cornerstones of TSMC’s unceasing efforts to improve manufacturing excellence and to deliver manufacturing breakthroughs. GIGAFABTMs have the inherent scale advantages over smaller fabs and also enable greater flexibility to adapt to demand fluctuations, improve product quality and yields, accelerate yield learning and time-to-volume, shorten cycle times, and minimize costly product re-qualification. 5.3.3 450mm Wafer Manufacturing Transition TSMC and other leading semiconductor companies have reached a pro-competitive agreement on the need for industry-wide collaboration to target a transition to larger, 450mm-sized wafers. The transition to larger wafers will help lower production costs and energy consumption per chip and enable continued growth of the semiconductor industry. TSMC will continue to work with International Sematech (ISMI), and material and equipment suppliers to collaborate on new materials, next wafer size transition, lithography strategy, efficient tool platform, and eco-friendly process. 5.3.4 Raw Materials and Supply Chain Risk Management In 2009, TSMC continued running monthly Supply Chain Risk Management meetings to integrate Company resources from materials management, fab operations, risk management and quality management in lowering supply chain risk. TSMC worked with its suppliers to enhance the performance of quality, delivery, risk management, and to support Green procurement, environmental protection and safety. Raw Materials Supply Major Materials Major Suppliers Market Status Procurement Strategy Raw Wafers F.S.T. MEMC S.E.H. Siltronic SUMCO These five suppliers together provide over 85% of the world’s wafer supply. ● TSMC’s suppliers of silicon wafers are required to pass stringent quality certification procedures. Each supplier has multiple manufacturing sites in order to meet customer demand, including plants in North America, Asia, and Europe. ● TSMC procures wafers from multiple sources to ensure adequate supplies for volume manufacturing and to appropriately manage supply risk. ● TSMC maintains competitive price and service agreements with its wafer suppliers, and, when necessary, enters into strategic and collaborative agreements with key suppliers. ● TSMC regularly reviews the quality, delivery, cost and service performance of its wafer suppliers. The results of these reviews are incorporated into TSMC’s subsequent purchasing decisions. ● A periodic audit of each wafer supplier’s quality assurance systems ensures that TSMC can maintain the highest quality in its own products. Chemicals Photoresist Gases Slurry, Pad, Disk Air Products ATMI BASF Dow MGC TYS AZ Nissan Shin-Etsu Chemical Sumitomo T.O.K. Air Liquide Air Products Linde Taiyo Nippon Sanso 3M Cabot DA Nano Kinik Planar Solutions Dow These six companies are the major suppliers for bulk and specialty chemicals. ● Most suppliers have relocated many of their operations closer to TSMC’s major manufacturing facilities, thereby significantly improving procurement logistics. ● The suppliers’ products are regularly reviewed to ensure that TSMC’s specifications are met and product quality is satisfactory. These five companies are the major suppliers for photoresist. ● TSMC works closely with its suppliers to ensure that they have adequate production lead time to supply the required products to TSMC. These four companies are the major suppliers of specialty gases. ● The majority of the four suppliers are located in different geographic locations, minimizing supply risk to TSMC. ● TSMC conducts periodic audits of the suppliers’ quality assurance systems to ensure that they meet TSMC’s standards. The products of these four suppliers are interchangeable. These six companies are the major suppliers for CMP materials. ● TSMC has long-term contracts with these suppliers to ensure supply stability and service quality. In addition, the availability of other domestic suppliers enables TSMC to secure better purchase terms for these gases. ● TSMC conducts periodic audits of the suppliers’ quality assurance systems to ensure that they meet TSMC’s standards. ● Most suppliers have relocated many of their operations closer to TSMC’s major manufacturing facilities, thereby improving procurement logistics and mitigating supply chain risk. ● TSMC conducts periodic audits of the suppliers’ quality assurance systems to ensure that they meet TSMC’s standards. 51 Suppliers Accounted for at least 10% of Annual Consolidated Net Procurement Unit: NT$ thousands Supplier Company A SSMC VIS Company B Others 2009 Total Net Procurement 2009 2008 Procurement Amount As % of 2009 Total Net Procurement Relation to TSMC Supplier Procurement Amount As % of 2008 Total Net Procurement Relation to TSMC 3,597,802 3,537,659 3,330,288 2,916,069 13,151,568 26,533,386 14% 13% 13% 11% 49% 100% None Company A Investee accounted for using equity method Investee accounted for using equity method SSMC VIS None Company B Others 2008 Total Net Procurement 4,535,133 4,441,795 3,260,160 3,633,076 13,723,047 29,593,211 None Investee accounted for using equity method Investee accounted for using equity method None 15% 15% 11% 12% 47% 100% 5.3.5 Quality and Reliability TSMC is committed to providing customers with the best quality wafers for their products. Our Quality and Reliability (Q&R) services lead the partnership between customers and the entire TSMC organization to achieve “quality on demand”. The goal of quality on demand is to fulfill customers’ needs regarding time-to-market, reliable quality, and market competition over a broad range of products. In the technology development and customer product design stage, Q&R technical services assist customers to design-in their product reliability requirements. Q&R has worked with R&D to successfully establish and implement new qualification methodology for high-k/metal gate since 2008. Q&R also works with design services on embedded memory, high voltage, e-Fuse and MEMS IP developments to expand TSMC’s design portfolio. In package reliability, Q&R extends characterization to the system level by establishing Power Cycling capability and methodology. Q&R has deployed systems to ensure robust quality, in managing production dynamics and in design services as the Company meets the business requirements of our customers. To sustain production quality and minimize risks to customers when deviations occur, manufacturing quality monitoring and event management span all critical stages – from raw material supply, mask making, and real-time in-process monitoring, to bumping, wafer sort and reliability performance. Advanced failure and materials analysis techniques are also developed and effectively deployed in process development, customer new product development, and product manufacturing. In 2009, new techniques were developed to correlate physical parameters to electrical performance to support ramping of 40nm products and development of 28nm technology nodes. To meet time-to-market needs of customer products in the 45/40nm technology node, in 2009 Q&R established a collaboration platform with customers and major outsource assembly & testing subcontractors (OSAT) to validate assembly and testing processes. This has enabled our customers to introduce and ramp 45 and 40nm products with effective assembly quality improvement. Q&R will continue to enhance this collaboration platform for 28nm and future technologies to support customers from wafer processing to assembly and testing quality management. TSMC Q&R is also responsible for leading the Company towards the ultimate goal of zero-defect production, through the use of continuous improvement programs. Periodic customer feedback indicates that products shipped from TSMC have consistently met or exceeded their field quality and reliability requirements. In 2009, the effectiveness of TSMC quality management system was upgraded by third-party audit to ISO/TS 16949:2009, and IECQ QC080000 certification was renewed. 5.4 Customer Partnership 5.4.1 Customers TSMC’s global customers have diverse product specialties and excellent performance records in various segments of the semiconductor industry. Fabless customers include: Altera Corporation, Advanced Micro Devices, Inc., Broadcom Corporation, Marvell Semiconductor Inc., NVIDIA Corporation, Qualcomm Inc. and MediaTek Inc. IDM customers include: Analog Devices Inc., Freescale Semiconductor Inc., NXP Semiconductors, and Texas Instruments Inc. Customer Service TSMC believes that providing superior customer service is critical to enhancing customer satisfaction and loyalty, which is the path to retaining existing customers, attracting new customers, and strengthening customer partnerships. TSMC’s goal is to maintain our position as the provider of the most advanced and largest semiconductor foundry services. 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 52 To facilitate customer interaction and information access on a real-time basis, TSMC has established a wide range of web-based services covering applications in design, engineering, and logistics collaborations, collectively branded as EFOUNDRY® service. The design collaboration focuses on content availability and accessibility, with attention to complete, accurate and current information at each level of the wafer design life cycle. The engineering collaboration includes online access to pilot lots, wafer yields, wafer acceptance test (WAT) analysis, and quality reliability data. Logistics collaboration provides access to data updated three times a day on the status of a given wafer lot during fabrication, assembly and testing, final testing, order and shipping. Customer Satisfaction TSMC conducts an annual customer satisfaction survey (ACSS) to assess customer satisfaction and to ensure that their needs and wants are adequately understood and addressed. In the survey, all active customers are invited to participate either by web or interview survey through an independent consultancy. Continual improvement plans based upon customer feedback are an integral part of this business process. TSMC has maintained a focus on customer survey data as a key indicator of corporate performance – not just of past performance, but also as a leading indicator of future performance. TSMC has acted on the belief that satisfaction leads to loyalty, and customer loyalty leads to higher levels of retention and expansion. Customers Accounted for at least 10% of Annual Consolidated Net Sales Unit: NT$ thousands Customer Customer A Customer B Others 2009 Total Net Sales 2009 Net Sales As % of 2009 Total Net Sales Relation to TSMC Customer 30,276,650 30,162,597 235,302,992 295,742,239 None None 10% 10% 80% 100% Customer A Customer B Others 2008 Total Net Sales 2008 Net Sales As % of 2008 Total Net Sales Relation to TSMC 45,592,598 29,665,642 257,899,420 333,157,660 None None 14% 9% 77% 100% 5.4.2 Design Enablement In order to lower the design barrier for customer to design on TSMC technologies, TSMC offers extensive design support to customers through its own design support team as well as its alliance partners. TSMC technology platform provides a solid foundation for design enablement. Tech File and PDK Customers heavily leverage tech files and PDK provided by TSMC. There were more than 20,000 downloads in 2009. TSMC also sees high demand on PDK for mainstream technologies and is increasing resources to support the demand. Library and IP TSMC and its alliance partners offer a rich portfolio of libraries and IPs for TSMC customers. These reusable building blocks are essential for many design projects. In 2009, nearly half of new tape-outs to TSMC adopted one or more libraries or IPs from TSMC or its IP partners. To support the high demand, TSMC also invested resource to expand the library and IP portfolio. The total number of library or IP in the portfolio increased to 2,221 in 2009 from about 1,600 in 2008. Design Methodology and Flow TSMC released the first foundry-specific Integrated Sign-Off Flow in April 2009. The Integrated Sign-Off Flow, targeting initially at 65nm process node with planned extensions into other process technology nodes, supports advanced design techniques for low power and design-for- manufacturability (DFM). With validated libraries and IP, qualified EDA tools, a full set of proper technology files, and automated installation scripts, Integrated Sign-Off Flow significantly shortens the time it normally takes a design team to set up the design environment and flow before starting the design project. The built-in advanced design methodology and proven sign-off scripts further shortens the design cycle, and improves tape-out quality. New Service PowerTrim is a new service rolled out in 2009. It is a first-of-its-kind technology that blends a layer of design technology with advanced semiconductor processing to reduce a design’s power leakage. For example, LSI Corporation achieves a 25% reduction in overall leakage in a next-generation product by implementing TSMC’s PowerTrim power optimization technology on TSMC’s 65nm low power (LP) process. Tela Innovations provides the patented PowerTrim technology and services under an exclusive license to TSMC. 53 5.5 Employees 5.5.1 Human Capital 5.5.3 People Development Continuous learning is the cornerstone of TSMC’s employee development strategy. It is especially important for Company success Human capital is one of the most important assets of TSMC. TSMC in this tough economic environment. A tailor-made individual strives to provide employees with a challenging, enjoyable and development plan is established for each employee appropriate to rewarding work environment. In 2009, TSMC was named the “Most the employee’s development needs. Employees are provided with a Admired Company in Taiwan” by Commonwealth Magazine for the 13th consecutive year. comprehensive network of resources, including on-the-job training, coaching, mentoring, job rotation, on-site courses, e-learning, and external learning opportunities. At the end of 2009, TSMC had more than 24,000 employees worldwide, including 2,792 managers and 9,861 professionals. TSMC provides employees with a wide range of on-site general, Female managers comprised 11.2% of all managers, and professional and management training programs. In addition to non-Taiwanese nationals comprised 10.1% of all TSMC managers external experts engaged as trainers, hundreds of TSMC employees and professionals. The following tables summarize TSMC’s workforce are trained as qualified instructors for training courses. During 2009, structure at the end of February, 2010: TSMC Workforce Structure Job Gender Managers Professionals Assistant Engineer/ Clerical Technician Male (%) Female (%) Ph.D. Master’s Education Bachelor’s Other higher education High school Average Age (years) Average Years of Service (years) 12/31/2008 12/31/2009 02/28/2010 2,618 8,830 824 2,792 9,861 761 2,826 10,102 774 10,571 11,052 11,558 48.6% 51.4% 3.1% 30.6% 20.2% 18.2% 27.9% 32.7 6.5 50.7% 49.3% 3.5% 32.8% 20.7% 16.5% 26.5% 37.8 6.0 50.7% 49.3% 3.5% 32.6% 21.2% 16.3% 26.4% 33.0 6.4 Total 22,843 24,466 25,260 5.5.2 Recruitment Attracting new employees and retaining and motivating existing employees are key to the success of TSMC’s human resources strategy. TSMC believes in equal opportunity employment. Recruitment is conducted via an open selection process and is based on the candidate’s ability to fulfill the needs of each position, regardless of race, gender, age, religion, nationality, or political affiliation. In order to seek out the best talents around the world, TSMC conducted 726 internal training sessions totaling 506,907 training hours. A total of 255,311 attendees participated in those trainings. The total training expenses were NT$58 million. TSMC’s training programs include: ● Management Training: includes development training programs tailored to the needs of managers at all levels. These include New Manager Program, Experienced Manager Program, and Senior Manager Program, as well as other elective courses. ● General Training: refers to training required by government regulations and Company policies. Such training includes industry-specific safety, workplace health and safety, quality, fab emergency response team, languages, and personal effectiveness training. ● Professional/Functional Training: provides technical and professional training required by various functions within the Company, offering training courses on equipment engineering, process engineering, accounting, and information technology, among others. ● Direct Labor (DL) Training: DL training enables production line employees to acquire the knowledge, skills and attitudes they need to perform their job well. It also helps employees pass required tests in order to be certified for operating equipment. Training includes DL Skill Training, Technician “Train-the-Trainer” Training, and Manufacturing Leader Training. ● New Employee Training: includes pre-job training, new employee basic training and job orientation. TSMC has established the “Procedure of Employee Training and Education”, which not only enables the on-site training courses but also best suits company and individual development objectives through external training courses. Under the guideline, employees are encouraged to participate in various training programs, and subsidies are provided when taking short courses, credit courses and TSMC employs a number of recruiting programs, including academic/ degrees. corporate collaboration programs, Joint Development Program in Campus, summer internships, job fairs, and Technology Talents Career Symposium. During 2009, TSMC recruited 143 managers, 2,289 professionals and 1,567 technicians. 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 54 5.5.4 Employee Satisfaction The company also endeavors to establish and promote policies and measures for ensuring gender equality in accordance with To enhance employee career satisfaction, TSMC has continuously employment laws and sexual harassment prevention policies to promoted programs devoted to employee benefits, employee care, create a fair working environment for employees of both sexes. employee rewards, and employee communication. TSMC works hard to enrich its employees’ working experience by providing an As a result of TSMC’s 2008 annual performance management and environment that is challenging yet enjoyable. development (PMD) appraisal, some employees separated from the Employee Benefits Programs ● TSMC Employee Welfare Committee plans and implements various welfare programs, including hobby clubs, art and cultural seminars, Company filed complaints with the Science Park Administration seeking mediations of labor disputes arising from the PMD process and result. The Company continuously communicated with those ex-employees and resolved most of the disputes amicably, by employee outings, TSMC Sports Day, and TSMC Family Day. In offering to reinstate those ex-employees, or provide financial addition, TSMC provides holiday bonuses, wedding bonuses, assistance to those who refused reinstatement. The disputes did not funeral and emergency subsidies. have a material impact on the Company’s operations or financial ● To ensure that employees have all the conveniences they need condition. while at work, TSMC provides on-site cafeteria, dry-cleaning, travel, banking, haircut services, housing, and commuting assistances. We firmly believe that harmonious labor relations provide an ● Health improvement programs and psychological consultation services are provided to employees to ensure the physical and psychological well being of all employees. ● In order to promote healthy living, the Company established TSMC Sports Center. It is open to all employees and their family members. essential basis to sustain the Company’s growth. The Company’s management team has become even more devoted to cultivating positive employee relations. To harmonize labor relations and create a win-win situation for the Company and its employees, execution of the Performance Management and Development system (PMD) And it provides a variety of workout facilities. TSMC provides should be done in a positive and constructive manner, and mutual Children Centers at Hsinchu and Tainan sites to meet employees’ and timely employee communication based on existing platforms needs for childcare. Employee Recognition In order to recognize employees’ outstanding achievement, TSMC should be enforced. 5.5.5 Retention applies various award programs including the Outstanding Engineer From the employee’s initial adjustment to professional and career Award for each fab and the Total Quality Excellence Conference development, TSMC works hard to retain outstanding employees Award. In 2009, TSMC employees were recognized nationally, through creating an innovative, challenging, and developmental including: the National Model Worker Award, the Top 10 National environment. We are committed to: Outstanding Managers Award, the Outstanding Engineer Award, and the Outstanding Young Engineer Award. Employee Communication TSMC is committed to keeping an open communication channel with ● Setting up retention and counseling plans for different groups. For example, TSMC employs a “Buddy System” to help new employees to fit in quickly through assistance provided by senior employees. ● Enabling employees to enhance professional knowledge and to its employees. Regular communication meetings are held for the pursue further career development through numerous employee various levels of managers and employees. Periodic employee development programs. satisfaction surveys are conducted. eSilicon Garden, a quarterly electronic TSMC internal publication, is issued covering things from work to fun. These all help maintain the free flow of information ● Establishing a synergized welfare platform and providing a work-life balanced environment to all employees; Enhancing employees’ loyalty and commitment through employee between TSMC and its employees. engagement programs. In order to ensure that employees’ opinions and voices can be heard, 5.5.6 Compensation responded to, and resolved, impartial and smooth voice submission mechanisms have been established: ● Whistleblower channels for complaints related to major management, financial and auditing issues directed to: 1) Independent Audit Committee Chairman 2) “Ombudsman”, headed by a vice president TSMC’s compensation program includes cash compensation and profit sharing bonus. Cash compensation includes a monthly salary and a variable incentive bonus. The employee is entitled to profit sharing of no less than one percent of TSMC’s net income after deducting the losses of previous years and contributions to legal and special reserves. The purpose of this profit sharing bonus is to reward ● Suggestion Box for employees to express their opinions regarding employees’ contributions appropriately, to encourage employees to their work and the working environment in general. work consistently to ensure the success of TSMC, and to link ● HR Call Center and employee care teams in each fab to deal with employees’ interests with those of TSMC’s shareholders. issues related to employees’ work and personal life. 55 The amount and form of the profit distribution are determined by 3) Export Control the Board of Directors based on the Compensation Committee’s 4) Principle of Fair Dealing recommendation and are subject to shareholders’ approval at the 5) Corporate Social Responsibility Annual Shareholders’ Meeting. The Company determines the amount of the profit sharing based on operating results and industry practice Conflicts of Interest and Insider Trading Prevention in the Republic of China. Individual awards are based on each 1) Avoid Conflicts of Interest employee’s job responsibility, contribution and performance. As a member of TSMC, one should maintain the highest business ethics when encountering a conflict or potential To raise TSMC’s competitiveness in recruiting, TSMC made a conflict of interest situation. structural salary increase in 2010, and distributes employees’ cash 2) Gifts and Hospitality bonus from the Company’s profits on a quarterly bases to share the TSMC’s business practice is based on objective norms and rewards of employees’ hard work in a timely fashion. integrity, and TSMC Employees do not accept gifts or special favors exceeding company policy allowed limit. In addition to providing employees of TSMC’s overseas subsidiaries 3) Insider Trading Prevention with a locally competitive base salary, the Company grants It is prohibited for TSMC Employees to trade any TSMC or other short-term and long-term bonuses as a part of total compensation. company’s securities while in possession of material non-public The performance bonus is a short-term incentive and is granted in information or to pass such information to others for personal line with local regulations, market practices, and the overall financial interests. operating performance of each subsidiary. The long-term incentive bonus is awarded based on TSMC’s financial performance and is vested over the course of several years in order to encourage Company Assets All Employees should properly manage the Company’s assets in long-term employee commitment and development within the accordance with in-house policies and rules and will not use them for Company. 5.5.7 Retirement Policy private purposes. Implementation 1) Issues & Questions TSMC’s retirement policy is in accordance with the provisions in the If Employees have any question concerning this Code, they can Labor Standards Law and Labor Pension Act of the Republic of China. consult or seek help from: immediate supervisors, Human 5.5.8 Code of Ethics and Business Conduct Resources, Company website, Legal, Employees Suggestion Boxes, and the Ombudsman system 2) Prevention and Reporting Violations Purpose & Scope Honorable, honest and legitimate business practice is one of TSMC’s All Employees must look out for any violation of this Code. When Employees find or reasonably suspect any violation of this Code, foundations for its long-term success. TSMC is known as a company it should be reported to their supervisors immediately. with an outstanding reputation for high ethical standards. 3) Exceptions to this Code need to be approved by CEO. This Code covers the behavioral norms for all Employees and Board Violation of this Code is subject to disciplinary actions. of Directors in their dealings with each other as well as with the Company, customers, suppliers, investors and the general public. 5.6 Material Contracts 4) Disciplinary Actions Statement of Commitments and Obligations In addition to strictly abiding by laws and regulations of Taiwan, ROC Shareholders Agreement Term of Agreement: and the other countries where TSMC engages in business activities, Effective as of 03/30/1999 and may be terminated as provided in the TSMC requires all Employees to employ individual integrity at all agreement times, and clearly understand and act in accordance with business Contracting Parties: ethics principles that meet or exceed the public’s heightened Koninklijke Philips Electronics N.V. (Philips) and EDB Investments Pte expectations of global companies. Ltd. (EDBI) Compliance with Laws and Regulations; Social Responsibility All Employees and Board members should comply with all applicable (In September 2006, Philips assigned its rights and obligations under this agreement to Philips Semiconductors International B.V. which has now been renamed NXP B.V. In November 2006, NXP B.V. and TSMC purchased all SSMC shares owned by EDBI; EDBI is no longer a laws, regulations, and in-house policies, including this Code, in every contracting party to this agreement.) aspect of the Company’s corporate activities at all times, including Summary: the following: TSMC, Philips and EDBI had formed a Singapore joint venture 1) Internal Controls, Keeping Accurate Books and Records “Systems on Silicon Manufacturing Company Pte Ltd.” (SSMC) for 2) Respect for Intellectual Property and Proprietary Information providing IC foundry services. Philips Semiconductor (now NXP B.V.) Protection and TSMC are committed to purchasing a certain percentage of SSMC’s capacity. 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A N O I T A R E P O 56 Technology Cooperation Agreement Term of Agreement: Patent License Agreement Term of Agreement: 03/30/1999 - 03/29/2004, automatically renewable for successive 01/01/2001 - 12/31/2011 five-year terms until and unless either party gives written notice to Contracting Party: terminate one year before the end of then existing term A multinational company Contracting Party: Summary: Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) The parties entered into a cross licensing arrangement for certain Summary: semiconductor patents. TSMC pays license fees to the contracting TSMC agreed to transfer certain process technologies to SSMC, and party. SSMC agreed to pay TSMC a certain percentage of the net selling price of SSMC products. Patent License Agreement Term of Agreement: 12/20/2007 - 12/31/2017 Contracting Party: A multinational company Settlement Agreement Effective Date of Agreement: 11/09/2009 Contracting Parties: Semiconductor Manufacturing International Corp. (SMIC) and certain of its subsidiaries Summary: Summary: The parties entered into a cross licensing arrangement for certain The parties settled their trade secret misappropriation and breach of 2005 settlement agreement disputes, whereby SMIC agrees to pay semiconductor patents. TSMC pays license fees to the contracting TSMC US$200 million, which are in addition to $135 million company. previously paid to TSMC under the 2005 settlement agreement, and other valuable consideration. Manufacturing, License, and Technology Transfer Agreement Term of Agreement: 04/01/2004 - 03/31/2006, automatically renewable for successive Amended Research and Development Collaboration Agreement Term of Agreement: one-year terms until and unless both parties decide otherwise by 01/01/2009 - 12/31/2009, renewable on annual basis upon mutual mutual consent in writing Contracting Party: Vanguard International Semiconductor Corporation (VIS) Summary: agreement Contracting Party: NXP B.V. Summary: VIS reserves certain capacity to manufacture TSMC products on The parties entered into research and development collaboration to mutually agreed terms. TSMC may also transfer certain technologies develop advanced semiconductor technologies. to VIS, for which it will in return receive royalties from VIS. Patent License Agreement Term of Agreement: 11/01/2002 - 10/31/2012 Contracting Party: A multinational company Summary: Share Subscription Agreement Effective Date of Agreement: 12/09/2009 Contracting Parties: Motech Industries, Inc. (Motech) Summary: In accordance with the terms and conditions of the Share Purchase The parties entered into a cross licensing arrangement for certain Agreement, TSMC agreed to subscribe through a private placement semiconductor patents. TSMC pays license fees to the contracting for new shares of Motech Industries Inc. (“Motech”), which party. Patent License Agreement Term of Agreement: 07/01/2002 - 06/30/2009 Contracting Party: A multinational company Summary: The parties entered into a cross licensing arrangement for certain semiconductor patents. TSMC pays license fees to the contracting party. represents 20% of the total outstanding shares of Motech. The total consideration is approximately NT$6.2 billion (US$193 million). Note: TSMC is not currently party to any other material contract, other than contracts entered into in the ordinary course of our business. The Company’s “Significant Commitments and Contingencies” are disclosed in the “Financial Information” of Annual Report (II), pages 66-67. 57 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A C N A N I F I 58 6. FINANCIAL HIGHLIGHTS TSMC’s trinity of strengths, technology leadership, manufacturing excellence, and customer partnership, are built on a foundation of financial strength. In 2009, we generated positive free cash flow (equal to operating cash flow minus capital expenditure) for the 8th consecutive year. We also returned a significant amount of cash to our shareholders through cash dividends. With our strong balance sheet and our consistent profitability, we believe we are well positioned for our future growth and for delivering increasing long-term returns to our shareholders. 6.1 Financial Status and Operating Results 6.1.1 Financial Status Unconsolidated Unit: NT$ thousands Item Current Assets Fixed Assets Other Assets Total Assets Current Liabilities Long-term Liabilities Total Liabilities Capital Stock Capital Surplus Retained Earnings Total Shareholders’ Equity 2009 185,831,537 254,751,526 18,415,746 577,426,622 72,571,095 9,772,815 82,343,910 259,027,066 55,486,010 181,882,682 495,082,712 2008 179,849,479 219,282,502 17,242,603 540,559,247 53,099,467 11,082,669 64,182,136 256,254,373 49,875,255 170,053,667 476,377,111 Difference 5,982,058 35,469,024 1,173,143 36,867,375 19,471,628 (1,309,854) 18,161,774 2,772,693 5,610,755 11,829,015 18,705,601 % 3% 16% 7% 7% 37% -12% 28% 1% 11% 7% 4% ● Analysis of Deviation over 20% The increase in both current liabilities and total liabilities was mainly due to an increase in payables to contractors and equipment suppliers. ● Major Impact on Financial Position The above deviations over 20% had no major impact on TSMC’s financial position. ● Future Plan on Financial Position: Not applicable. 59 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A C N A N I F I Consolidated Unit: NT$ thousands Item Current Assets Fixed Assets Other Assets Total Assets Current Liabilities Long-term Liabilities Total Liabilities Capital Stock Capital Surplus Retained Earnings Equity Attributable to Shareholders of the Parent Total Shareholders’ Equity 2009 259,803,748 273,674,787 23,372,182 594,696,220 79,133,288 16,514,384 95,647,672 259,027,066 55,486,010 181,882,682 495,082,712 499,048,548 2008 252,618,431 243,645,350 22,671,293 558,916,589 56,806,756 21,737,366 78,544,122 256,254,373 49,875,255 170,053,667 476,377,111 480,372,467 Difference 7,185,317 30,029,437 700,889 35,779,631 22,326,532 (5,222,982) 17,103,550 2,772,693 5,610,755 11,829,015 18,705,601 18,676,081 % 3% 12% 3% 6% 39% -24% 22% 1% 11% 7% 4% 4% ● Analysis of Deviation over 20% The increase in current liabilities was mainly due to an increase in payables to contractors and equipment suppliers. The decrease in long-term liabilities was mainly due to the reclassification of payables for acquisition of property, plant and equipment, long-term bank loans and payable for royalties from long-term liabilities to current. The increase in total liabilities was mainly due to an increase in payables to contractors and equipment suppliers. ● Major Impact on Financial Position The above deviations over 20% had no major impact on TSMC’s financial position. ● Future Plan on Financial Position: Not applicable. 6.1.2 Operating Results Unconsolidated Unit: NT$ thousands Item Gross Sales Sales Returns & Allowances Net Sales Cost of Sales Gross Profit Realized (Unrealized) Gross Profit From Affiliates Realized Gross Profit Operating Expenses Income from Operations Non-operating Income & Gains Non-operating Expenses & Losses Income before Income Tax Income Tax Expenses Income after Income Tax 2009 299,471,214 (13,728,346) 285,742,868 159,106,619 126,636,249 (160,279) 126,475,970 31,953,617 94,522,353 4,121,509 3,662,840 94,981,022 (5,763,186) 89,217,836 2008 330,228,027 (8,460,944) 321,767,083 183,589,540 138,177,543 72 138,177,615 31,887,383 106,290,232 6,725,625 2,257,039 110,758,818 (10,825,650) 99,933,168 Difference (30,756,813) (5,267,402) (36,024,215) (24,482,921) (11,541,294) (160,351) (11,701,645) 66,234 (11,767,879) (2,604,116) 1,405,801 (15,777,796) 5,062,464 (10,715,332) % -9% 62% -11% -13% -8% -100% -8% 0% -11% -39% 62% -14% -47% -11% ● Analysis of Deviation over 20% Increase in sales returns and allowance: The increase was the result of higher provision on the potential sales returns and allowances. Increase in unrealized gross profit from affiliates: The increase was due to higher sales to the affiliates in 4Q’09. Decrease in non-operating income and gains: The decrease was primarily due to lower interest income and foreign exchange gain. Increase in non-operating expenses and losses: The increase was primarily due to higher equity in losses of equity method investees but offset by lower valuation loss on financial instruments. Decrease in income tax expenses: The decrease was primarily due to lower taxable income and an increase in tax credit attributed to higher capital expenditure. ● Sales Volume Forecast and Related Information For additional details, please refer to “Letter to Shareholders” on pages 3-5 of this Annual Report. 60 Consolidated Unit: NT$ thousands Item Gross Sales Sales Returns & Allowances Net Sales Cost of Sales Gross Profit Operating Expenses Income from Operations Non-operating Income & Gains Non-operating Expenses & Losses Income before Income Tax Income Tax Expenses Net Income Net Income Attributable to Shareholders of the Parent 2009 309,655,614 (13,913,375) 295,742,239 166,413,628 129,328,611 37,366,725 91,961,886 5,653,548 2,152,787 95,462,647 (5,996,424) 89,466,223 89,217,836 2008 341,983,355 (8,825,695) 333,157,660 191,408,099 141,749,561 37,314,193 104,435,368 10,821,449 3,784,571 111,472,246 (10,949,009) 100,523,237 99,933,168 Difference (32,327,741) (5,087,680) (37,415,421) (24,994,471) (12,420,950) 52,532 (12,473,482) (5,167,901) (1,631,784) (16,009,599) 4,952,585 (11,057,014) (10,715,332) % -9% 58% -11% -13% -9% 0% -12% -48% -43% -14% -45% -11% -11% ● Analysis of Deviation over 20% Increase in sales return and allowances: The increase was the result of higher provision on the potential sales return and allowances. Decrease in non-operating income and gains: The decrease was primarily due to lower interest income and foreign exchange gain. Decrease in non-operating expenses and losses: The decrease was primarily due to lower loss on impairment of financial assets and valuation loss on financial instruments. Decrease in income tax expenses: The decrease was primarily due to lower taxable income and an increase in tax credit attributed to higher capital expenditure. ● Sales Volume Forecast and Related Information For additional details, please refer to “Letter to Shareholders” on pages 3-5 of this Annual Report. 6.1.3 Cash Flow Unconsolidated Unit: NT$ thousands Cash Balance 12/31/2008 Net Cash Provided by Operating Activities in 2009 Net Cash Outflows from Investing and Financing Activities in 2009 Cash Balance 12/31/2009 Remedy for Cash Shortfall Investment Plan Financing Plan 138,208,360 155,902,046 (177,066,863) 117,043,543 - - ● Analysis of Cash Flow NT$155.9 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. NT$92.0 billion net cash used in investing activities: Primarily for capital expenditures. NT$85.1 billion net cash used in financing activities: Mostly for the payout of cash dividends and repayment of corporate bonds. ● Remedial Actions for Cash Shortfall: In view of positive cash flows and ample cash on-hand, remedial actions are not required. ● Cash Flow Projection for Next Year: Not applicable. Consolidated Unit: NT$ thousands Cash Balance 12/31/2008 Net Cash Provided by Operating Activities in 2009 Net Cash Outflows from Investing and Financing Activities in 2009 Cash Balance 12/31/2009 Remedy for Cash Shortfall Investment Plan Financing Plan 194,613,752 159,966,465 (183,303,876) 171,276,341 - - ● Analysis of Cash Flow NT$160.0 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. NT$97.8 billion net cash used in investing activities: Primarily for capital expenditures. NT$85.5 billion net cash used in financial activities: Mostly for the payout of cash dividends and repayment of corporate bonds. ● Remedial Actions for Cash Shortfall: In view of positive cash flows and ample cash on-hand, remedial actions are not required. ● Cash Flow Projection for Next Year: Not applicable. 61 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A C N A N I F I 6.1.4 Major Capital Expenditure Major Capital Expenditure and Sources of Funding Unit: NT$ thousands Plan Actual or Planned Source of Capital Total Amount as of 12/31/2009 Status of Actual or Projected Use of Capital 2006 2007 2008 2009 Production Facilities and Equipment Cash flow generated from operations 289,395,456 73,643,829 77,925,776 56,902,459 80,923,392 R&D Equipment Cash flow generated from operations 17,156,029 3,746,173 5,401,157 1,637,643 6,371,056 Expected Future Benefits With the above-mentioned capital expenditures, it is estimated that TSMC’s annual production capacity will increase by approximately 1.3 million 8-inch equivalent wafers in 2010. 6.1.5 Long-term Investment Policy and Results TSMC’s long-term investments accounted for under equity method are all for strategic purpose. In 2009, the investment loss from these investments amounted to NT$2,695,720 thousands, significantly higher than last year mainly due to the negative impact from global financial crisis and economic downturn. For future investments, TMSC will continue to focus on strategic purpose through prudent assessments. 6.2 Risk Management TSMC and its subsidiaries are committed to proactively and cost-effectively integrating and managing strategic, operational, financial and hazardous risks together with potential consequences to operations and revenue. TSMC established its Enterprise Risk Management (ERM) program based on both its corporate vision and its long-term sustainability and responsibility to both industry and society. The ERM program seeks to provide for TSMC’s adequate management of risks on behalf of all stakeholders. In 2008 and 2009, TSMC was affected, as were other companies, by the global financial crisis. TSMC successfully managed the downside and seized opportunity by expanding capacity early to meet subsequent urgent demand from customers. Cost-effective integrated risk management efforts can reduce threats to TSMC’s corporate objectives. 6.2.1 Risk Management (RM) Organization Chart Audit Committee CEO RM Steering Committee Materials Management and Risk Management RM Working Committee RM Division Organization Description ● RM Steering Committee: Reports to Audit Committee; Is composed of functional heads; Reviews risk control progress; and Identifies and approves the prioritized risk lists. ● RM Working Committee: Is composed of representatives from each function; Aligns functional ERM activities; and Follows up the risk control action plan. 62 ● RM Division: Coordinates the RM Working Committee activities; Facilitates functional risk management activities; and Consolidates ERM reports into the RM Steering Committee. 6.2.2 Strategic Risks Industry Developments The semiconductor market and microelectronics industries have historically been cyclical and subject to significant, and often rapid, increases and decreases in product demand. TSMC’s semiconductor foundry business is affected by market conditions in such highly cyclical semiconductor and microelectronics industries. Most of the Company’s customers operate in these industries. Variations in order levels from customers result in volatility in the Company’s revenues and earnings. From time to time, the semiconductor and microelectronics industries have experienced significant, and sometimes prolonged, periods of downturns and overcapacity. Because TSMC is, and will continue to be, dependent on the requirements of semiconductor and microelectronics companies for its services, periods of downturns and overcapacity in the general semiconductor and microelectronics industries lead to reduced demand for overall semiconductor foundry services, including the Company’s services. If it cannot take appropriate actions such as reducing TSMC’s costs to sufficiently offset declines in demand, the Company’s revenues, margin and earnings will suffer during periods of downturns and overcapacity. Changes in Technology The semiconductor industry and the technologies used in it are constantly changing. TSMC competes by developing process technologies using increasingly smaller nodes and on manufacturing products with multiple or more advanced functions. If it does not anticipate these changes in technologies in a timely manner and rapidly develop new and innovative technologies, or if the Company’s competitors unforeseeably gain sudden access to more advanced technologies, TSMC may not be able to provide advanced foundry services on competitive terms. Although it has concentrated on maintaining a competitive edge in research and development, if TSMC fails to achieve advances in technologies or processes, or to obtain access to advanced technologies or processes developed by others, it may become less competitive. Decrease in Demand and Average Selling Price A vast majority of the Company’s sales revenue is derived from customers who use TSMC’s services in communication devices, personal computers, consumer electronics products and industrial devices. Any significant decrease in the demand for the products may decrease the demand for overall global semiconductor foundry services, including TSMC’s services, and may adversely affect the Company’s revenues. In addition, the historical and current trend of declining average selling prices of end-use applications places downward pressure on the prices of the components that go into such applications. If the average selling prices of end use applications continue to decrease, the pricing pressure on components produced by us may lead to a reduction of TSMC’s revenues, margin and earnings. Competition TSMC competes internationally and domestically with pure-play foundry service providers, as well as with integrated device manufacturers that devote a significant portion of their manufacturing capacity to foundry operations. Some of these companies may have access to more advanced technologies and greater financial and other resources than us, (such as the possibility of receiving direct or indirect government bailout/economic stimulus funds or other incentives that are unavailable to us). The Company’s competition may, from time to time, also decide to undertake aggressive pricing initiatives in one or more technology nodes. Competitive activities may cause us to lose customers or to decrease TSMC’s customer base, or TSMC’s average selling prices, or both. The Company competes primarily on the basis of process technology, quality and service. The level of competition differs according to the process technology involved. For example, in more mature technologies, the competition tends to be more intense. Some companies compete with TSMC in selected geographic regions or application end markets. In recent years, substantial investments have been made by others to establish new pure-play foundry companies in mainland China and elsewhere; or to spin off Integrated Device Manufacturers’ manufacturing operations and transform them into a pure-play foundry company. Risks Associated with Changes in the Government Policies and Regulatory Environment TSMC’s management team always closely monitors domestic and foreign governmental policies and regulations that might have impacts on TSMC’s business and financial operations, and establish relevant risk management procedures. 2009 saw the following changes or developments in governmental policies and regulations that may influence the Company’s business operations. Article 5 of “Income Tax Act” was amended in May 2009. The corporate income tax rate was reduced from 25% to 20% effective from 2010, which will reduce the Company’s tax burden. The tax incentive schemes under the “Statute of Upgrading Industries” expired on December 31, 2009. As of the print date of this annual report, the Taiwan legislative authority has not passed any statute containing similar or identical tax incentives. Therefore, there is a likelihood that the Company’s tax burden will increase. TSMC has taken into account the various factors which may impact its financial management, and will continue to monitor developments of relevant tax regulations. In an effort to liberalize doing business or investing in mainland China, in February 2010 the competent authority amended and promulgated relevant regulations for Taiwanese investment or technical cooperation projects in mainland China. Such liberalization will enable TSMC to adopt a more flexible mainland China investment and business strategy. The Taiwan Financial Supervisory Commission (FSC) requires listed companies to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) starting from January 1, 2013. TSMC has setup an IFRS project team and has launched the project plan for its IFRS adoption. In addition, the progress of such adoption has been regularly reported to the Board. The impact of the IFRS adoption may include changes of accounting 63 treatment for certain types of transactions and certain modification in the presentation of its financial report. We will keep monitoring the update of IFRS and the development of related laws and regulations in Taiwan and evaluate the respective impact to TSMC. In addition, the Taiwan legislative authority has been studying the relevant laws relating to environmental protection, e.g. “Greenhouse Gas Reduction Act” and Energy Tax. Since there has been no concrete guidance or laws issuing from the Taiwan government as of yet, the impacts of such laws are indeterminable at the moment. However, it is very likely that such laws may increase the operating cost of the Company. Other than the above laws and regulations, it is not expected that the relevant governmental policies and regulatory changes would materially impact TSMC’s operations and financial condition. 6.2.3 Operational Risks Risks Associated with Capacity Expansion In response to customer demand, since 2004, TSMC has steadily ramped up the production of 12-inch wafer fabs in the Hsinchu Science Park and Tainan Science Park, respectively. Total monthly capacity of the Company’s 12-inch wafer fabs was increased from 154,300 wafers in December 31, 2008 to 171,400 wafers in December 31, 2009. Overall, TSMC increased its annual production capacity by approximately 0.6 million 8-inch equivalent wafers in 2009. The total average billing utilization rate for 2009 was 75% as a result of the global economic recession in the first half. Expansion and modification of the Company’s production facilities will, among other factors, increase TSMC’s costs. For example, the Company will need to purchase additional equipment, train personnel to operate the new equipment or hire additional personnel. If it does not increase its net sales accordingly in order to offset these higher costs, TSMC’s financial performance may be adversely affected. As of the date of this Annual Report, the benefits brought about by such capacity expansion were in line with TSMC’s expectations. TSMC has established systems to evaluate and forecast market demand and refers to these forecasts and evaluations when considering whether to expand or reduce capacity. Risks Associated with Sales Concentration While it generates revenue from hundreds of customers worldwide, TSMC’s ten largest customers accounted for approximately 53% of net sales in both 2008 and 2009, and the Company’s largest customer accounted for approximately 14% and 10% of net sales in 2008 and 2009, respectively. The loss of, or significant curtailment of purchases by, one or more of the Company’s top customers, including curtailments due to a change in the design or manufacturing sourcing policies or practices of these customers, or the timing of customer or distributor inventory adjustments, may adversely affect TSMC’s results of operations and financial condition. Risks Associated with Purchase Concentration ● Raw Materials TSMC’s production operations require that it obtain adequate supplies of raw materials, such as silicon wafers, gases, chemicals, and photoresist, on a timely basis. Shortages in the supply of some materials experienced by specific vendors or by the semiconductor industry generally have in the past resulted in occasional industry-wide price adjustments and delivery delays. Also, since TSMC procures some raw materials from sole-source suppliers, there is a risk that the Company’s need for such raw materials may not be met when needed. The Company’s revenue and earnings could decline if it is unable to obtain adequate supplies of the necessary raw materials in a timely manner or if there are significant increases in the costs of raw materials that it cannot pass on to its customers. ● Equipment The Company’s operations and ongoing expansion plans depend on its ability to obtain an appropriate amount of equipment and related services from a limited number of suppliers in a market that is characterized by limited supply and long delivery cycles. During such times, supplier-specific or industry-wide lead times for delivery can be as long as nine months. To better manage its supply chain, the Company has implemented various business models and risk management contingencies with suppliers to shorten the procurement lead time. TSMC also provides its projected demand for various items to many of the Company’s equipment suppliers to help them plan their production in advance. If it is unable to obtain equipment in a timely manner and at a reasonable cost, TSMC may be unable to fulfill customers’ orders, which could negatively impact its financial condition and results of operations. Risks Associated with Intellectual Property Rights Our ability to compete successfully and to achieve future growth may depend in part on the continued strength of our intellectual property portfolio. While we actively procure, enforce and protect our intellectual property rights, there can be no assurance that our efforts will be adequate to prevent the misappropriation or improper use of our proprietary technology, trade secrets, software or know-how. Also, we cannot assure you that, as our business or business models expand into new areas, we will be able to independently develop the technology, trade secrets, software or know-how necessary to conduct our business or that we can do so without the intellectual property rights of others. As a result, we may have to rely increasingly on obtaining licenses to certain technologies from third parties. To the extent that we rely on licenses from others, there can be no assurance that we will be able to obtain any or all of the necessary licenses in the future on terms we consider reasonable or at all. The lack of necessary licenses could expose us to claims for damages and/ or injunctions from third parties, as well as claims for indemnification by our customers in instances where we have contractually agreed to indemnify our customers against damages resulting from infringement claims. We have received, from time-to-time, communications from third parties asserting that our technologies, manufacturing processes, the design of the integrated circuits made by us or the use by our customers of semiconductors made by us may infringe their patents or other intellectual property rights. And, because of the nature of the semiconductor industry, we may continue to receive such communications in the future. In some instances, these disputes have resulted in litigation. If we fail to obtain or maintain certain government, technology or intellectual property licenses and, if litigation relating to an intellectual property claim occurs, it could prevent us from manufacturing or selling certain products or using 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A C N A N I F I 64 certain manufacturing processes or technologies, which could reduce our opportunities to compete or generate revenues. Risks Associated with Litigation As is the case with many companies in the semiconductor industry, we have received from time-to-time communications from third parties asserting that our technologies, manufacturing processes, the design of the integrated circuits made by us or the use by our customers of semiconductors made by us may infringe upon patents or other intellectual property rights of others. In some instances, these disputes have resulted in litigation by or against us and certain settlement payments by us in some cases. Irrespective of the validity of these claims, we could incur significant costs in the defense thereof or could suffer adverse effects on our operations. In August 2006, we filed a lawsuit against SMIC in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against us in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against us in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. The Beijing People’s High Court on June 10, 2009 ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. We have subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and to provide TSMC with other valuable consideration. Other than the matters described above, we were not involved in any other material litigation in 2009 and are not currently involved in any material litigation. Risks Associated with Mergers and Acquisitions In 2009, and as of the date of this Annual Report, there were no such risks for TSMC. Risks Associated with Recruiting and Retaining Qualified Personnel The Company depends on the continued services and contributions of its executive officers and skilled technical and other personnel. TSMC’s business could suffer if it lost, for whatever reasons, the services and contributions of some of these personnel and it cannot adequately replace them. The Company may be required to increase the number of employees in connection with any business expansion, and since there is intense competition for the recruitment of these personnel, it cannot ensure it will be able to fulfill its personnel requirements in a timely manner. Therefore, the Compensation Committee of the Board of Directors decided to change the compensation system, including a structural increase on base salary and timely distribution of employees' cash bonus from the Company's profits in order to attract and retain talent. Future R&D Plans and Expected R&D Spending For additional details, please refer to “Future R&D Plans” on page 50 of this Annual Report. Changes in Corporate Image and Impact on Company’s Crisis Management TSMC has established an excellent corporate image for its firm belief in its core values, its rigorous corporate governance, its outstanding operations, and its vision of a society that works together towards sustainable development, equality and justice, and a harmonious environment to live and work. For its efforts the Company has won wide recognition, such as: ● The Executive Yuan’s Enterprise Sustainable Development Award ● The Ministry of Economic Affairs’ Outstanding Innovation Achievement Award ● The Council of Labor Affairs’ National Workplace Safety Award ● The Environmental Protection Administration’s National Enterprise Environmental Protection Award ● Commonwealth Magazine’s benchmark for Most Admired Company in Taiwan ● Commonwealth Magazine’s Best Corporate Citizenship for a large company ● GlobalViews Magazine’s Corporate Social Responsibility award ● Number one in the Asian Wall Street Journal’s survey of the top 10 companies in Taiwan ● First place in Cheers Magazine’s survey of Company Most Admired by the New Generation ● IR Magazine’s award for Best Corporate Governance and Best Investor Relations in Taiwan and Hong Kong Management believes this recognition is the strongest evidence of TSMC’s corporate image. In addition, the Company has established departments such as Brand Management, Customer Service, Public Relations, Employee Relations, Investor Relations, Risk Management, Internal Audit, and the TSMC Education and Culture Foundation to further improve TSMC’s corporate image and to make preparations for prevention and control of potential risks. Risks Associated with Change in Management On June 11, 2009, TSMC’s Board of Directors approved two major personnel appointments, effective June 12, 2009: ● Appointed Dr. Morris Chang to serve as Chief Executive Officer concurrent with his position as Chairman of the Board ● Appointed Dr. Rick Tsai to serve as President, New Businesses, reporting directly to the Chairman & CEO 65 6.2.4 Financial Risks Internal Management of Economic Risks ● Interest Rate Fluctuation TSMC’s exposure to interest rate risks derives primarily from long-term debt obligations incurred in the normal course of business. In order to limit its exposure to interest rate risks, TSMC finances its funding needs through internal generation of cash and the occasional issuance of long-term, fixed-rate debt. On the asset side, the primary objective of TSMC’s investments in fixed income securities is to preserve principal in highly liquid markets. In order to maintain the Company’s liquidity profile, the majority of fixed income securities are at the short end of the yield curve. ● Foreign Exchange Volatility Over half of TSMC’s capital expenditures and manufacturing costs are denominated in currencies other than NT dollars, primarily in US dollars, Japanese yen and Euros. More than 90% of the Company’s sales are denominated in U.S. dollars and currencies other than NT dollars. Therefore, any significant fluctuation to the Company’s disadvantage in such exchange rates would have an adverse effect on TSMC’s financial condition. TSMC hedged its foreign exchange exposure mainly through cross currency swaps and currency forward contracts. In addition, fluctuations in the exchange rate between the US dollar and the NT dollar may affect the US dollar value of the Company’s common shares and the market price of the Company’s American Depositary Shares (ADSs) and of any cash dividends paid in NT dollars on TSMC’s common shares represented by ADSs. ● Inflation & Deflation TSMC’s most significant export market is North America, and management does not believe that inflation or deflation in the R.O.C. or North America had a material impact on the Company’s results of operations in 2009. However, TSMC cannot provide assurance that there will be no significant variations in the nature, extent or scope of inflation or deflation within any of the Company’s key markets in the future or whether deflation possibly arising from the global economic crisis would not have a material impact on TSMC’s results of operations. Risks Associated with High-risk/High-leveraged Investment; Lending, Endorsements, and Guarantees for Other Parties; and Financial Derivative Transactions TSMC did not make high-risk or high-leveraged financial investments during 2009 and up to the date of this report. Neither did TSMC provide lending, endorsements or guarantees for other parties in the period. The financial transactions of a “derivative” nature that TSMC entered into were strictly for hedging purposes and not for any trading or speculative purpose. For more information, please refer to the “Financial Information” on pages 52-53 of Annual Report (II). The fair market value of our trading and available for sale financial investments are subject to prevailing market conditions and may fluctuate from TSMC’s carrying value from time to time, which may impact the returns of those investments. To control various types of financial transactions, the Company has established internal policies and procedures based on sound financial and business practices, all in compliance with the relevant rules and regulations issued by the Taiwan Securities and Futures Bureau. TSMC policies and procedures include “Policies and Procedures for Financial Derivative Transactions”, “Procedures for Lending Funds to Other Parties”, “Procedures for Acquisition or Disposal of Assets”, and “Procedures for Endorsement and Guarantee”. Risks Associated with Impairment Charges Under Generally Accepted Accounting Principles (GAAP) of both the Republic of China and the United States, TSMC is required to evaluate its long-lived assets and intangible assets for impairment whenever there is an indication of impairment. If certain criteria are met, TSMC is required to record an impairment charge. TSMC is also required under ROC GAAP and US GAAP to evaluate goodwill for impairment at least on an annual basis or whenever a so-called “triggering event” or an indication of impairment occurs. Management currently is unable to estimate the extent or timing of any impairment charge for future years. Any impairment charge required may have a material adverse effect on the Company’s net income. The determination of an impairment charge at any given time is substantially based on the expected results of the Company’s operations over a number of years subsequent to that time. As a result, an impairment charge is more likely to occur during a period when the Company’s operating results are otherwise already depressed. TSMC has established the process and system to closely monitor and access the outlook of capacity utilization and economic cycle. 6.2.5 Hazardous Risks TSMC maintains a comprehensive risk management system dedicated to the conservation of natural resources, safety of people, and protection of property. In order to effectively handle emergencies and natural disasters at each facility, management has developed comprehensive plans and procedures that focus on risk prevention, emergency response, crisis management, and business continuity. TSMC has adopted local and international standards for ESH management. All TSMC fabs have been ISO 14001 certified (Environmental Management System), OHSAS 18001 certified (Occupational Health and Safety Management System) and QC080000 certified (Hazardous Substance Process Management System); all fabs in Taiwan have also been TOSHMS (Taiwan Occupational Safety and Health Management System) certified. TSMC pays special attention to emergency preparedness for disasters, such as typhoon, flood, drought caused by climate change, earthquakes, environmental contamination, large-scale product returns, disruption of IT systems, strikes, pandemic (such as H1N1 influenza) and disruptions to the supply of raw materials or water, electricity, gases, and public utilities. TSMC has established a 9 0 0 2 T R O P E R L A U N N A C M S T I S T H G I L H G H L A C N A N I F I 66 company-wide task force managing water shortage risk that might be a key issue due to climate change. This task force keeps watch on external supply and internal demand of water. Cross-company consolidations and external collaborations with public agencies are also ongoing in the industrial parks to sustain stable water supply. TSMC further strengthened its business continuity plans, which include risk assessment, control implementation and the establishment of emergency task forces when necessary; the preparation of a thorough analysis of the emergency, its impact, alternatives, and solution for each possible scenario; and appropriate precautionary and/or recovery measures. Each task force is given the responsibility to ensure TSMC’s ability to conduct business while minimizing personal injuries, business disruption, and financial impact under the circumstances. Customers are informed of TSMC’s strong business continuity plan to establish their supply chain resilience and insurance placement. For the year 2009, and up to the date of this Annual Report, there are no reportable material events that have necessitated the activation of such contingency plans. In 2009, the Company also conducted the continuous improvement project for building anti-seismic capability evaluation, earthquake response drills and tool anchorage fixation and enhanced TSMC business continuity procedures reference to BS 25999 business continuity management. Some combustible materials are used in TSMC’s manufacturing processes and are therefore subject to explosion and fire risk. The Company maintains many overlapping risk prevention and protection systems, as well as comprehensive fire and casualty insurance, including insurance for loss of property and loss of profit resulting from business interruption. Nonetheless, TSMC’s risk management and insurance coverage may, in certain circumstances, be insufficient to cover all of the Company’s potential losses. If any of TSMC’s fabs were to be damaged or cease operations as a result of an explosion, fire, or environmental excursions, it could reduce the Company’s manufacturing capacity and might cause us to lose important customers, thereby having a potentially material adverse impact on TSMC’s financial performance. In addition to periodic fire protection system inspection and fire fighting drills, the Company also carried out a corporate-wide fire risk mitigation project focused on management and hardware improvements. Any of the above contingencies resulting from the actual and potential impact of local or international laws and regulations as well as international accords on environmental or climate change could harm our business and results of operations by increasing our expenses or requiring us to alter our manufacturing and assembly and test processes. Increasing climate change and environmental concerns also presents other commercial challenges because some of our customers and suppliers may request us to exceed the legal standard set for environmentally compliant products and services. If we are unable to offer such products or services, we may lose market share to our competitors. Further, energy costs in general could increase significantly to be driven by climate change regulations. Therefore our energy costs may increase significantly if utility or power companies pass on their costs, such as those associated with carbon taxes, emission cap and carbon credit trading programs, or other similar programs imposed locally or worldwide. 6.2.7 Other Risks Potential Impact and Risks Associated with Sales of Significant Numbers of Shares by TSMC’s Directors, and Major Shareholders Who Own 10% or More of TSMC’s Total Outstanding Shares The value of TSMC shareholders’ investment may be reduced by possible future sales of TSMC shares owned by the major shareholders. One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For example, the National Development Fund, who owned 6.4% of TSMC’s outstanding shares as of February 28, 2010, had sold our shares in the form of ADSs in several transactions during the period between 1997 and 2005. There is currently no shareholder who owns 10% or more of TSMC’s total outstanding shares. Changes may cause unpredictable production interruption. In order to reduce such uncertainty, TSMC has adopted a number of standards to maintain operational continuity ranging from design, procurement, and construction, to operation and decommission. Other Material Risks During 2009 and as of the date of this Annual Report, TSMC’s management is not aware of any other risk event that could impart a potentially material impact on the financial status of the Company. 6.2.6 Climate Change Risks If applicable laws, regulations or international accords directly or indirectly requires us: (a) to use certain alternative chemicals or raw materials in; and/or (b) exclude prohibited chemicals or raw materials from our products, processes and designs, we cannot offer any assurances that the resulting product, processes or designs would be as reliable or efficient. Also, our failure to manage the import, export, use, transportation, emissions, discharge, storage, recycling, or disposal of such chemicals and materials could subject us to increased costs or future liabilities. 67 9 0 0 2 T R O P E R L A U N N A C M S T Y T I L I B I S N O P S E R I L A C O S E T A R O P R O C 68 7. CORPORATE SOCIAL RESPONSIBILITY TSMC’s core values of Integrity, Commitment, Innovation, and Customer Partnership extend to every facet of its business. TSMC believes that a corporation’s most important responsibility to society is to help bring about healthy and positive changes. To fulfill this responsibility: 1) We are honest to our shareholders, to the public, and to our tens of thousands of employees. 2) We respect the rule of law, and we do not engage in illegal activity. 3) We abhor cronyism. We do not seek favoritism from the government or any government official, and we do not bribe. 4) We practice good corporate governance. 5) We do not engage in politics. 6) We aim to provide not just job opportunities, but well-paying job opportunities in a good work environment. 7) We emphasize protection of the environment and climate. 8) We practice unceasing innovation. 9) We invest in LED lighting and solar energy to directly contribute to a greener world through innovation. 10) Within our corporate means, we make contributions to cultural and educational and community activities. 7.1 Typhoon Morakot Disaster Relief Project Typhoon Morakot struck south Taiwan, causing Taiwan’s most severe flooding in 50 years. TSMC and all its employees are deeply saddened by the suffering caused by this typhoon, and we have assembled a “Typhoon Morakot Project Team” and have decided to donate NT$200 million to provide some small measure of relief to the people and places affected by this disaster. 1) Distributed NT$50 million in relief funds to more than 1,000 employees affected by the floods. As TSMC employees come from all over Taiwan, many colleagues and their families live in areas severely affected by this disaster. We therefore asked managers at all levels to inquire whether their staff was affected by the flooding and whether they need assistance. Currently, about 1,000 of our employees and their relatives live in severely flooded areas, and the great majority are production-line technicians. To provide the fastest and most direct support, TSMC will disburse up to NT$50 million in aid funds. Our employees’ direct supervisors will conduct site visits, and we will also use all our available resources to help our employees find missing family members. We hope that these efforts will demonstrate TSMC’s commitment to its employees and also reduce some of the government’s relief burden. 69 2) Provided NT$50 million to assist in the repair and restoration of order to reduce overall environmental, safety and health risk. In damaged middle and elementary schools around the South 2006, TSMC began to adopt the IECQ QC080000 Hazardous Taiwan Science Park to reopen before the beginning of the school Substance Process Management (HSPM) System in order to meet year. customer needs for management of hazardous materials and to meet the European Union’s Restriction of Hazardous Substances Many Schools near TSMC’s Tainan site were severely affected by (RoHS) directive. All TSMC manufacturing facilities were QC080000 this disaster, with heavy damage to fences, classrooms, certified in 2007. computers, schools, and other equipment. Students would be unable to begin classes on schedule if they were not restored TSMC communicates with suppliers and contractors on quickly. TSMC disbursed NT$50 million to take direct responsibility environmental, safety and health issues and encourages them to for repairing, cleaning, and rebuilding in a safe and timely fashion. improve their ESH performance. In line with this policy, TSMC uses We believe this was the most direct and efficient fashion to help priority work management and self-management to govern work restore damaged schools, help students return to school on time, performed by contractors. TSMC requires contractors performing and do our part for the disaster area. high-risk operations to complete certification for technicians, and to establish their own OHSAS 18001 safety and health management At the same time, colleagues in TSMC began a book collection system before bidding on contracts. This self-management is aimed drive inside and outside the company, which received enthusiastic at increasing contractors’ sense of ownership and responsibility, with support. TSMC received more than 50,000 books and donated the goal of promoting safety awareness and technical improvement them to schools in Tainan, Chiayi, Kaohsiung, Pingtung, Nantou, and Taitung that were affected by Typhoon Morakot for contractors in the industry. 3) Pledged NT$100 million to assist in the government’s overall relief suppliers’ and testing/assembly subcontractors since 2005. TSMC TSMC has also conducted on-site ESH audits of local material efforts. requires suppliers or subcontractors that performed poorly on ESH audits to take preventive and corrective action to improve their ESH Aboriginal villages were among the main disaster areas of management. TSMC also assists them to improve their ESH Typhoon Morakot, and aborigines have long been an management. underprivileged minority in Taiwan. TSMC has focused its relief efforts on aboriginal villages to support the government. Our goal In 2009, TSMC maintained its supplier ESH management program, is to quickly and effectively find the appropriate roles for which is tied to a sustainability index that includes three government, villagers, and the private sector in building a model components: Green Index, Social Index and Risk Index. “Green Index” of cooperation that will provide long-term support to these includes environmental management system, regulatory compliance, villages. 7.2 Environmental, Safety and Health (ESH) Management hazardous substance management, greenhouse gases inventory and green activities. “Social Index” includes labor & ethical conduct and participation of social activities. “Risk Index” includes: safety & health, fire, natural disaster, transportation, supply chain management, pandemic plan and business continuity plan. The TSMC believes its environmental, safety and health practices should sustainability index is applied to TSMC’s critical suppliers. not only comply with legal requirements, but also measure up to recognized international practices. The Company aims to prevent 7.2.1 Environmental Protection pollution, efficiently use all resources, prevent accidents, improve employee safety and health, protect property, and establish a work environment that promotes the well-being of our employees and of Greenhouse Gases (GHG) Emission Reduction TSMC is an active participant in international environmental the communities in which we operate. protection programs. In 2005, TSMC was Taiwan’s first semiconductor company to make a complete inventory of its GHG All TSMC manufacturing facilities have received ISO 14001:2004 and to gain ISO 14064 certification for its processes and outputs. certification for environmental management systems and OHSAS The purpose of the inventory was to serve as a baseline reference for 18001:2007 certification for occupational health and safety TSMC’s strategy to reduce GHG, to meet future domestic regulatory management systems. All fabs in Taiwan have also been TOSHMS requirements, and to prepare for carbon trading and corporate (Taiwan Occupational Safety and Health Management System) carbon asset management. All TSMC facilities continue to conduct a certified in 2009. TSMC strives for continuous improvement and GHG inventory on an annual basis. The inventory result shows that actively seeks to enhance pollution prevention, power and resource the major direct GHG emission is perfluorinated compounds (PFCs), conservation, waste reduction, health and safety management, fire which are used in the semiconductor manufacturing process. The and explosion prevention and other risks, such as earthquakes, in primary indirect GHG emission is electricity consumption. 9 0 0 2 T R O P E R L A U N N A C M S T Y T I L I B I S N O P S E R I L A C O S E T A R O P R O C 70 TSMC is also taking measures to reduce its emission of greenhouse gases. TSMC has endorsed a memorandum of understanding Waste Management and Recycling TSMC has established a designated unit responsible for waste between the Taiwan Semiconductor Industry Association, the ROC recycling and disposal. To meet the goal of sustainable resource Environmental Protection Administration, and the World utilization, TSMC’s first priority is to reduce process waste before Semiconductor Council, whereby TSMC is committed to reducing PFC considering recycling or disposal. TSMC carefully selects waste emissions to 10% below the average of 1997 and 1999 by 2010. This disposal and recycling contractors and performs annual audits of emissions target remains fixed as TSMC continues to grow and certification documents, site operations and transportation routes to expand its manufacturing facilities. The Company is taking the ensure legal and proper disposal of waste. Waste recycling has following measures to reduce emissions in line with recommendations achieved the goal of 90% in 2009, and the Company’s landfill rate provided by the Intergovernmental Panel on Climate Change (IPCC): has been reduced to less than 1%. ●Accurate measurement of PFC gas production and the effectiveness of exhaust gas abatement equipment in order to calculate actual Other Environmental Protection Programs TSMC has implemented an environmental accounting system, PFC emission volumes. allowing each fab to calculate cost savings or profits created by each ●Evaluation of feasible alternatives to greenhouse gases and environmental program. gradually replacement of greenhouse gases at all manufacturing facilities, 97% has been deployed in 2009. In addition, TSMC conducts “Product Life Cycle Assessments” ●Evaluation and installation of PFC exhaust gas abatement (Product LCA), collecting and analyzing data from the entire equipment, in line with effectiveness and safety considerations. The installation will be carried out from 2008 to 2010, 33% of which semiconductor manufacturing chain from raw materials suppliers to finished products, including statistics for such items as energy, raw was completed in 2009. Coal-fired power generators are a major source of electricity in Taiwan and emit large amounts of carbon dioxide (CO2). TSMC makes continuous efforts to conserve energy, which reduces both materials consumption, and pollution. The product LCA study has established “Eco-Profiles” for all TSMC fabs and will help the Company to meet future international regulations such as the European Union’s “Energy-Using Product” directive. These “Eco-Profiles” can also be provided to customers who require such carbon dioxide gas emissions and costs. TSMC has not only adopted documentation. In 2009, TSMC collaborated with its assembly energy-conservative designs for both manufacturing fabs and offices, subcontractor, Advanced Semiconductor Engineering Group (ASE) to but has also improved the energy efficiency of facilities during complete the world’s first Integrated Circuit Product Category Rule operation. In 2009, the Company collaborated with vendors to (IC PCR). This IC PCR follows ISO 14025 standards, and addresses the improve the energy and lighting efficiency assisted by some energy unique nature of semiconductor manufacturing. It was compiled efficiency consulting companies. Air and Water Pollution Control TSMC has installed effective air and water pollution control based on input from major semiconductor companies around the world. The content of the IC PCR covers energy and water consumption, pollutant production, waste production, air pollution, carbon footprint, and other factors. It can act as a reference for equipment in each wafer fab to meet regulatory emissions standards. global semiconductor companies when completing an Environmental In addition, TSMC maintains backup pollution control systems, Product Declaration Type III (EPD), and also support the global including emergency power supplies, to lower the risk of pollutant electronics supply chain in meeting requirements from Wal-Mart, the emission in the event of equipment breakdown. TSMC monitors the world’s largest retailer, for all suppliers to provide eco-labeling within operations of air and water pollution control equipment centrally 5 years. Meanwhile, TSMC and ASE followed this IC PCR to complete around the clock and tracks system effectiveness to ensure emitted an EPD Type III for integrated circuits and obtained a Carbon air and discharged water quality. Water Conservation To make the most effective use of Taiwan’s limited water resources, Footprint Certification from the Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA), taking a major step forward in manufacturing low-carbon products. all TSMC fabs make efforts to increase water reclamation rates by TSMC also maintains “green procurement” procedures, requiring raw adjusting the water usage of manufacturing equipment and materials suppliers to declare that the materials they supply to TSMC improving wastewater reclamation systems. New fabs are able to do not contain any prohibited substances. This ensures that products reclaim more than 85% of process water, meeting or exceeding the manufactured by TSMC comply with customer requirements and the standards of the Science Park Administration and outperforming regulatory requirements of the European Union’s RoHS directive. TSMC most semiconductor fabs around the world. TSMC also strives to also encourages employees to use “Green Mark” products in offices, reduce non-manufacturing-related water consumption, including such as recycled paper, desktop PCs, LCD monitors, and batteries. water used in air conditioning systems, sanitary facilities, cleaning, landscaping and kitchens. TSMC has adopted the standards of Taiwan “Green Building” and the US Leadership in Energy and Environmental Design (LEED) to apply on future new fab and office building design, which may achieve better 71 energy and resource efficiency than usual designs. In the meantime, 7.2.2 Safety and Health TSMC plans to upgrade existing office buildings to comply with the LEED standard year by year starting in 2008. In August 2008, TSMC Fab 14 Phase III facility based in Southern Taiwan Science Park won Safety and Health Management TSMC’s safety and health management is built on the framework of certification from the US Green Building Council’s Leadership in the OHSAS 18001 system, and adheres to the management principle Energy and Environmental Design – New Construction (LEED-NC) of “Plan, Do, Check, Act” to prevent accidents and protect employee green building rating system with a “gold class” score. TSMC Fab 12 safety and health as well as Company assets. In 2009, TSMC fabs in Phase IV facility based in Taiwan Hsinchu also won the same Taiwan have simultaneously received OHSAS 18001 certification and certification in 2009. Fab 14 Phase III is the first building in Taiwan to TOSHMS certification for Taiwan occupational safety and health receive certification from the US Green Building Council. In December management system. 2008, Fab 14 Phase III also has passed Taiwan’s “Diamond Class Ecology, Energy Saving, Waste Reduction, and Health (EEWH)” Besides accident prevention, TSMC has established emergency certification, which is the second “Diamond” class in Taiwan and the response procedures to protect the lives of employees and first recognized factory; TSMC Fab 12 Phase IV facility based in contractors if disasters should occur, as well as to minimize the Taiwan Hsinchu also won the same certification in 2009. negative impact on society and the environment. TSMC communicates to suppliers to reduce potential risks in the operation TSMC initiated a “Taiwan Corporate Sustainability Forum (TCSF)”, of production equipment and follows safety control procedures which unites 20 Taiwan leading companies as founders. The forum when installing production equipment. The Company places also welcomes new members. TSMC’s 2008 Green Forum is the first of a series of Taiwan Corporate Sustainability Forum events. At this stringent controls on high-risk operations and also evaluates the seismic tolerance of facilities and equipment to reduce the risk of meeting, TSMC shared its hands-on experience in obtaining the US earthquake damage. In health management, TSMC maintains regular Green Building Council’s LEED certification, and applying for wellness and professional health programs, such as kitchen GHP Taiwan’s Ecology, Energy Saving, Waste Reduction, and Health (Good Health Practice) establish, metal health appraisal and control (EEWH) certification for its Fab 14 Phase III facility. TSMC also and specific group health examination alignment. It also establishes proposed working with green building experts to draft guidelines for Company-level prevention committees when infectious diseases such green industrial buildings in Taiwan, helping more domestic as H1N1 influenza, Severe Acute Respiratory Syndrome (SARS) or companies construct their own green factories and promote green Avian Influenza pose a potential risk to the Company. manufacturing. In 2009, the TCSF continued to invite Taiwan leading companies to join the TCSF. Epson Taiwan and Mediatek have become new members. TCSF held an experience sharing for Working Environment and Employee Safety Protection TSMC’s ESH policy commits to preventing adverse incidents, performing corporate social responsibility in November 2009. improving employees’ safety and health, protecting property and establishing a secure working environment. TSMC safety and health In 2009, TSMC completed the first “Supply Chain Carbon Inventory management operations apply to: Assistance Plan” in Taiwan. With the assistance of the Taiwan Ministry of Economic Affairs Industrial Development Bureau, TSMC in ●Hardware Safety of Equipment Used by Process, Facilities, IT, and June 2009 became the first company in Taiwan to lead its suppliers General Services Departments in successfully completing and registering a carbon inventory. TSMC In addition to meeting regulatory and internal standards when not only actively inventories and reduces its own greenhouse gas building or rebuilding facilities, TSMC also maintains procedures emissions, but also requires suppliers to inventory greenhouse gas governing new equipment and raw materials management, safety emissions. Under this plan, TSMC as well as 36 factories at 20 approvals for bringing new tools online, revising safety rules, seismic partner companies registered and disclosed greenhouse gas emissions under the guidance of the Taiwan Green Productivity Foundation. Together with our supplier partners, TSMC both supports the Taiwan government’s carbon emission reduction policy, protection measures, and other safety measures. ●General Safety Management, Training and Audit All TSMC manufacturing facilities hold environmental, safety and and helps the industry prepare for the coming global trend of health committee meetings on a monthly basis. TSMC takes product carbon footprint labeling and eco-labeling. This move by preventive measures such as controls on high-risk work, contractor TSMC demonstrates that corporations can take a long-term, management, chemical safety management, personal protective macro-level view when making plans regarding climate change and equipment requirements, and safety audit management. In addition, global warming, and effectively implement these plans pragmatically TSMC also maintains detailed disaster response procedures and through the supply chain. performs regular drills to minimize harm to employees and property, as well as the impact on society and the environment in the event of Environmental Compliance Record There were no environmental penalties or fines in 2009. a disaster. 9 0 0 2 T R O P E R L A U N N A C M S T Y T I L I B I S N O P S E R I L A C O S E T A R O P R O C 72 ●Working Environment Measurement TSMC conducts working environment physical and chemical Health enhancement activities include nutritional consultation, weight-loss classes, an acupuncture weight-loss program, carotid measurements every six months to safeguard employees’ health, and thyroid ultrasound examinations, an endocrinology clinic, a including measurement of factors such as noise, air quality, chemical dermatology clinic, bone mineral densitometry examinations and exposure, and illumination. The measurement results for each item cancer screenings. Canteens also provide healthy meals with high must be compliant with regulatory requirements; otherwise fiber and low fat, as well as all-fruit meals. TSMC fabs have fitness corrective action is undertaken. ●H1N1 Influenza Since World Health Organization (WHO) announced the H1N1 influenza global pandemic alert during April 2009, TSMC Corporate centers with treadmills, exercise equipment, and aerobics classrooms to encourage employees to participate in athletic activity. In addition, all employees can find health information through the Company’s healthcare website. Pandemic Influenza Response Committee has convened to monitor the global pandemic status and developed the response strategies. Supplier and Contractor Management For the purpose of enhancing its supply chain management, TSMC is These strategies include educating its employees’ H1N1 prevention committed to communicating with and encouraging its contractors and response knowledge (such as poster everywhere, all-user mail and suppliers to improve their environmental, safety and health announcement, dedicated H1N1 web) publishing the managers’ performance. By means of communication between senior H1N1 handling guideline, guideline of employee sick-leave due to flu managers, site audits and experience sharing, TSMC collaborates and installing the alcohol-based hand sanitizers. The Committee also with major suppliers and contractors to enhance partnership and monitors the status of employee leaves due to flu status and, at the same time, develops the continuous plan of manpower shortage to ensure continual improvement for increased joint contributions to society. Contractors performing high-risk activities must lay out address both the employees’ health and business impact. clearly defined safety precautions and preventative measures. In ●Emergency Response Planning and execution of an effective emergency response requires big-picture thinking, continuous improvement and practice drills. addition, contractors working on high-risk engineering projects must establish OHSAS 18001 systems and the workers must successfully complete work skill training. TSMC’s emergency response plans include procedures for rapid In 2009, the global recession affected most companies and caused response to accidents and disaster recovery as well as establishing some of them operational difficulty because of financial issues. TSMC response procedures for potential disasters. quickly evaluated each key supplier’s financial status and took appropriate actions to help our suppliers continue their operation All TSMC fabs conduct major annual emergency response exercises and support TSMC fab operations. and evacuation drills. TSMC’s on-site service contractors also participate in emergency response planning and exercises to ensure cooperation in handling accidents and to effectively minimize damage caused by disasters. Environmental, Safety and Health-related Awards in 2009 ●Chosen for membership in the Dow Jones Sustainability World Index for a 9th consecutive year, and the only Taiwan member from 2003 to 2007 In addition to regular emergency response drills held by engineering ●Recognized by the Taiwan Institute of Sustainable Energy for “Gold and facilities departments each quarter, the Company’s laboratory, Award for Taiwan Corporate Sustainability Report Award” canteen, dormitory, and shuttle bus personnel also hold emergency ●Recognized by the Atomic Energy Council for “Excellence in response drills to prepare for events such as earthquake, chemical Radiation Protection” leakage, ammonia release, fires, and automobile accidents. ●Fab 12 Phase IV was recognized by the U.S. Green Building Council ●Employee Health Enhancement TSMC provides healthcare and staff assistance services in every fab. (USGBC) for “Golden Award for Leadership in Energy and Environmental Design of New Construction (LEED-NC)” ●Fab 12 Phase IV has passed Taiwan’s “Diamond Class Ecology, TSMC employees enjoy health services such as 24-hour nursing care, Energy Saving, Waste Reduction, and Health (EEWH)” certification annual physical examinations, psychological consultations, stress ●Fab 8 was recognized by the Science Park Administration (SPA) for management programs, workshops, and staff assistance projects. In “Low Carbon Enterprise Award” addition, the Company also provides clinical and dental care services, ●Fab 12 was recognized by the Science Park Administration (SPA) for women’s healthcare, acupuncture and massage services and “Excellence in Labor Safety and Hygiene” programs. ●Fab 6 and Fab 14 were recognized by the Southern Taiwan Science Park Administration for “Excellence in Environmental Protection” 73 7.3 TSMC Education and Culture Foundation In 2009, financial crisis engulfed the global economy and Taiwan was gravely affected. To help minimize the impact to the society and students to read and write. At the primary-school level, TSMC’s focus is on aesthetic education. TSMC Foundation has been organizing the TSMC Aesthetic Tour to bring elementary students to visit museums for the 7th consecutive year. In 2009, the Company also sponsored the exhibition “Smiling Kingdom - The Terracotta Warriors of Han sustain our confidence, TSMC continues to contribute substantial Yang Ling” to give children in remote townships opportunities to amount of resources to education and culture sponsorship. appreciate Chinese traditional art and culture. The TSMC Education and Culture Foundation, established in 1988 to 7.3.2 Contributions to Communities coordinate the Company’s sponsorship as part of its efforts in corporate social responsibility, continues to devote its resources The Foundation continues to promote arts and cultural activities in towards education, sponsorships of art and culture events, TSMC site communities of Hsinchu and Tainan. Every year the communities building, and the employee volunteer program. We are Company organizes the TSMC Hsin-Chu Art Festival to bring the committed to cultivating talents and improving the education culture activities to these high-tech cities and encourage a greater art infrastructure. In 2009, Tzi-Shueh Hall of the Chemistry Department appreciation in the communities. in National Taiwan University, donated by the TSMC Foundation, was inaugurated. The new research building will provide a strong base In an effort to minimize the local impact of the financial crisis that for scientific research and development in Taiwan. swept the world last year, the TSMC Foundation chose “Find a New 7.3.1 Commitment to Education World” as the theme of Hsin-Chu Art Festival to arrange a series of educational and cultural programs. Through these programs, we hope to sustain the confidence of our community to fight the tough Talents are essential to the development of the economy. As a leader situation, and to look forward to a better future. of Taiwan’s knowledge-based industry, TSMC regards cultivating talented people for society as a major responsibility. The festival opened with a series of lectures. Writers and experts were invited to guide people through the difficult economic situation. Tzi-Shueh Hall of the Chemistry Department in National Taiwan Promoting Chinese Theatre as an important feature of the festival, University, to which the TSMC Foundation donated 120 million NT the festival brought Kunqu Opera “The Jade Hairpin” to present the dollars, was completed and inaugurated in November 2009. The beauty of Kunqu. Also, the Hsinchu-born maestro Shao-chia Lu led naming of the new building was to honor the donation of TSMC by the National Orchestra to present a wonderful concert. Taiwan writer combining the word “Tzi” from the Chinese name of TSMC, with the Chun-Ming Huang invited Hsinchu local children to take part in the word “Shueh” taken from the Department of Chemistry. Literally drama performance. Through their participation, children developed meaning the accumulation of knowledge in Chinese, Tzi-Shueh Hall the correct attitude toward the environment. Meanwhile, several will help to prepare true talents. The Company hopes that this charity programs encouraged the care of the underprivileged from building will continue to support state of the art research activities, every corner, especially in difficult situations. foster top-notch talents, and eventually will lead basic scientific research in Taiwan. 7.3.3 Sponsorship of Arts In the meantime, TSMC continues to devote resources to various To promote the Chinese classics and culture, the TSMC Foundation programs targeting a whole range of education at different age continued to support the broadcasting program “Analects in Hsin’s levels. For secondary schools, we emphasize developing students’ View”. The program received overwhelming positive response from potential in both science and humanities. For science education, the Foundation keeps supporting the Wu Chien-Shiung and the Wu the society and overseas. As an extension of the program, the TSMC Foundation also sponsored the publishing of the records of the Ta-You Science Camps for talented science students to meet with broadcasting program to let more people easily understand the world-class scholars. For humanity education, the Company wisdom of the Confucianism. continues to sponsor the second TSMC Youth Chinese Calligraphy Contest, providing high school students an opportunity to compete TSMC continued its support of the Taiwan Literature Camp, which and learn both from masters and peers. This year the TSMC provides workshop and lectures by distinguished authors to people Foundation also organized various programs of calligraphy education interested in literature. In 2009, 400 literary devotees from across to extend the social participation in calligraphy arts. In addition, it continued the 6th TSMC Youth Literature Award to encourage young writers. For the past years, the contest has developed numerous Taiwan convened at Cheng Kung University at Tainan for opportunities to meet masters form Taiwan and China and to receive three days of training and pure inspiration. TSMC also hopes that by talented young writers, and cultivated an appreciation of literature in holding the camp to infuse the technology campus with humanities. the community. The TSMC Youth Literature Award has made an impact, and is now an important channel for encouraging young 9 0 0 2 T R O P E R L A U N N A C M S T Y T I L I B I S N O P S E R I L A C O S E T A R O P R O C 74 7.3.4 Employee Volunteer Program In addition to sponsoring education and art programs, the TSMC Foundation encourages TSMC employees to devote themselves to promote education, bridge the resources gap, and pursue energy conservation. The newly formed Energy-Saving Volunteer team provided two Hsin-chu high schools with the means to evaluate the safety and efficiency in their power usage with counseling in energy-saving programs. The result was extraordinary, with positive responses from the schools and the community. In 2009, the service has extended to 5 high schools in Hsin-chu and Tainan. The team will continue to help to reduce carbon emission and to build a better and safer community. In addition to the Energy-Saving Volunteer team, TSMC employees have also served as guides to introduce the electronic industry at the National Science Museums during weekends, and read books to the elementary students in remote townships on weekdays. Several hundred of TSMC “Museum Touring” and “Book Reading” volunteers have already served for six years. Since 2003, there are total 3,000 TSMC employees to devote themselves to the society. 75 9 0 0 2 T R O P E R L A U N N A C M S T S E T O N L A C E P S I R E H T O D N A N O I T A M R O F N I E T A I L I F F A 76 8. AFFILIATE INFORMATION AND OTHER SPECIAL NOTES TSMC’s affiliates support our core foundry business with related services such as design service and back-end assembly and test, enabling TSMC to provide customers with complete solutions meeting their needs. 8.1 Affiliates 8.1.1 TSMC Affiliated Companies Chart WaferTech, LLC Shareholding: 99.99% Taiwan Semiconductor Manufacturing Company Limited TSMC North America Shareholding: 100% TSMC Europe B.V. Shareholding: 100% TSMC Japan Limited Shareholding: 100% TSMC Korea Limited Shareholding: 100% TSMC China Company Limited Shareholding: 100% TSMC Partners, Ltd. Shareholding: 100% TSMC Global Ltd. Shareholding: 100% Global Unichip Corporation Shareholding: 35.38% Xintec Inc. Shareholding: 41.09% As of 12/31/2009 As of 12/31/2009 TSMC Technology, Inc. Shareholding: 100% TSMC Development, Inc. Shareholding: 100% InveStar Semiconductor Development Fund, Inc. Shareholding: 97.09% InveStar Semiconductor Development Fund, Inc. (II) LDC. Shareholding: 97.09% TSMC Design Technology Canada Inc. Shareholding: 100% Global Unichip Europe B.V. Shareholding: 100% Global Unichip Japan Co., Ltd. Shareholding: 100% Global Unichip Corporation-NA Shareholding: 100% Emerging Alliance Fund, L.P. Shareholding: 99.5% Global Unichip (BVI) Corp. Shareholding: 100% VentureTech Alliance Fund II, L.P. Shareholding: 98% VentureTech Alliance Fund III, L.P. Shareholding: 98% VentureTech Alliance Holdings, LLC Shareholding: 100% Mutual-Pak Technology Co., Ltd. Shareholding: 58.96% Growth Fund Limited Shareholding: 100% Note: To simplify the organization structure of investment, TSMC Partners, Ltd. merged TSMC International Investment Ltd. in June 2009. 77 8.1.2 Business Scope of TSMC and Its Affiliated Companies TSMC’s affiliates support the Company’s core business of providing dedicated foundry services and other related businesses. Some of TSMC’s affiliated companies are focused on investing in companies involved in design, manufacturing, and other related businesses in the semiconductor industry. TSMC and its affiliates provide mutual support in technology, capacity, marketing and services to maximize synergy within the group, enabling TSMC to provide its customers with the most complete dedicated foundry services worldwide and ensure TSMC’s leading position in the global foundry market. 8.1.3 TSMC Affiliated Companies Unit: NT(US, EUR, JPY, KRW, RMB, CAD)$ thousands As of 12/31/2009 Company TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC China Company Limited Date of Incorporation Place of Registration Capital Stock Business Activities Jan. 18, 1988 San Jose, California, U.S.A. US$ 11,000 Selling and marketing of integrated circuits and semiconductor devices Mar. 04, 1994 Sep. 10, 1997 May 02, 2006 Aug. 04, 2003 Amsterdam, The Netherlands EUR 100 Marketing and engineering supporting activities Yokohama, Japan Seoul, Korea Shanghai, China JPY 300,000 Marketing activities KRW 400,000 Customer service and technical supporting activities RMB 3,070,623 Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers TSMC Technology, Inc. Feb. 20, 1996 Delaware, U.S.A. US$ 0.001 Engineering supporting activities InveStar Semiconductor Development Fund, Inc. Sep. 10, 1996 InveStar Semiconductor Development Fund, Inc.(II) LDC. Aug. 25, 2000 Cayman Islands Cayman Islands US$ 7,911 Investing in new start-up technology companies US$ 22,058 Investing in new start-up technology companies TSMC Development, Inc. WaferTech, LLC Feb. 16, 1996 Jun. 03, 1996 Delaware, U.S.A. Washington, U.S.A. US$ 0.001 Investment activities US$ 330,000 Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices TSMC Partners, Ltd. Mar. 26, 1998 Tortola, British Virgin Islands US$ 988,268 Investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Design Technology Canada Inc. TSMC Global Ltd. Global Unichip Corporation Global Unichip Japan Co., Ltd. Global Unichip Corporation-NA Global Unichip Europe B.V. Global Unichip (BVI) Corp. Xintec Inc. Mutual-Pak Technology Co., Ltd. Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Growth Fund Limited VentureTech Alliance Holdings, LLC May 28, 2007 Jul. 13, 2006 Jan. 22, 1998 Jun. 16, 2005 Feb. 02, 2004 May 08, 2008 Feb. 20, 2009 Sep. 11, 1998 Mar. 22, 2006 Jan. 10, 2001 Feb. 27, 2004 Mar. 25, 2006 May 30, 2007 Apr. 25, 2007 Ontario, Canada CAD 2,434 Engineering support activities Tortola, British Virgin Islands US$ 1,284,000 Investment activities Hsin-Chu, Taiwan NT$ 1,319,749 Researching, developing, manufacturing, testing and marketing of integrated circuits Japan U.S.A. JPY 30,000 Products consulting services US$ 800 Products consulting services The Netherlands EUR 100 Products consulting services Tortola, British Virgin Islands US$ 550 Investment activities Taoyuan, Taiwan Taipei, Taiwan Cayman Islands Cayman Islands Cayman Islands Cayman Islands Delaware, U.S.A. NT$ 2,265,287 Wafer level chip size packaging service NT$ 155,690 Manufacturing and selling of electronic parts and researching, developing and testing of RFID US$ 28,095 Investing in new start-up technology companies US$ 33,055 Investing in new start-up technology companies US$ 52,950 Investing in new start-up technology companies US$ 1,550 Investing in new start-up technology companies N/A Investing in new start-up technology companies 8.1.4 Common Shareholders of TSMC and Its Subsidiaries or Its Affiliates with Deemed Control: None. 9 0 0 2 T R O P E R L A U N N A C M S T S E T O N L A C E P S I R E H T O D N A N O I T A M R O F N I E T A I L I F F A 78 8.1.5 Rosters of Directors, Supervisors, and Presidents of TSMC’s Affiliated Companies Unit: US/EUR$, except shareholding Company TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC China Company Limited TSMC Partners, Ltd. TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc. (II) LDC. TSMC Design Technology Canada Inc. TSMC Development, Inc. WaferTech, LLC TSMC Global Ltd. Global Unichip Corporation Title Director Director President Director Director Director President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Director Director President Chairman Director President Director Director Director Director Director President Chairman Director President Chairman Director President Director Director Chairman Director Director Director Director Director Name Jason Chen Rick Cassidy Rick Cassidy Jason Chen Wendell Huang Maria Marced Maria Marced Rick Tsai Jason Chen Makoto Onodera Lora Ho Makoto Onodera C.C. Pan Chih-Chun Tsai F.C.Tseng C.C.Wei Y.C. Chao Lora Ho C.H. Chen Lora Ho Richard Thurston Lora Ho Lora Ho Richard Thurston Lora Ho Wendell Huang Wendell Huang Fu-Chieh Hsu Sreedhar Natarajan Richard Thurston Cliff Hou Lora Ho Richard Thurston Lora Ho Rick Tsai Steve Tso Kuo-Chin Hsu Lora Ho Richard Thurston Representative of TSMC: F.C. Tseng Representative of TSMC: Lora Ho Representative of TSMC: Jim Lai Representative of TSMC: Fu-Chieh Hsu Re presentative of Chin Yu Investment Ltd.: C.C. Shiue Re presentative of Chuang Yi Investment Ltd.: K.C. Independent Director Independent Director Independent Director President Shih C.W. Jen W.C. Liu W.Y. Wang Jim Lai As of 12/31/2009 Shareholding Shares (Investment Amount) % (Investment Holding %) - - - TSMC holds 11,000,000 shares - - - - TSMC holds 200 shares - - - - - TSMC holds 6,000 shares - - TSMC holds 80,000 shares - - - - - (TSMC’s investment US$371,000,000) - - - TSMC holds 988,268,244shares - - - TSMC Partners, Ltd. holds 1,000 shares - TSMC Partners, Ltd. holds 7,680,107 share - TSMC Partners, Ltd. holds 21,415,133 shares - - - - TSMC Partners, Ltd. holds 2,300,000 shares - - - TSMC Partners, Ltd.holds 1,000 shares - - - TSMC Development, Inc.holds 293,636,833 shares - - TSMC holds 1,284 shares 46,687,859 shares 46,687,859 shares 47,470,644 shares 46,687,859 shares 1,391,531 shares 5,318,765 shares - - - 782,785 shares - - - 100% - - - - 100% - - - - - 100% - - 100% - - - - - (100%) - - - 100% - - - 100% - 97.09% - 97.09% - - - - 100% - - - 100% - - - 99.99% - - 100% 35.38% 35.38% 35.97% 35.38% 1.05% 4.03% - - - 0.59% (Continued) 79 Company Global Unichip Japan Co., Ltd. Global Unichip Corporation-NA Global Unichip Europe B.V. Global Unichip (BVI) Corp. Xintec Inc. Mutual-Pak Technology Co., Ltd. Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. Growth Fund Limited VentureTech Alliance Holdings, LLC Title Director Director Director Supervisor President Director Director President Director Director Director Chairman Director Director Director Director Supervisor Supervisor President Chairman Director Director Supervisor President None None None None None Name Jim Lai Chung-Lin Tsai James Cheng K.C. Shih Chung-Lin Tsai James Cheng Jim Lai Jim Lai Hwang, Yawlin Representative of GUC: Jim Lai Representative of GUC: Chien, Pei-Lun Representative of TSMC: Shang-yi Chiang Representative of TSMC: C.C.Wei Representative of TSMC: Lora Ho Re presentative of OmniVision Investment Holding Inc.: XinPing He Tzun Zing Chen Re presentative of Cheng Xin Technology Development Corp.: Toang Chiou Lu Re presentative of VisEra Holding Company: W.M. Sheng Lidon Chen Hsu-Tung Chen Lewis Hwan Re prsentative of VentureTech Alliance Fund III, L.P.: Juine-Kei Tseng Wei-Pong Lin Lewis Hwan None None None None None Shareholding Shares (Investment Amount) % (Investment Holding %) - - - - - GUC holds 600 shares - - - GUC holds 800,000 shares - (GUC’s investment EUR$100,000) - - GUC holds 550,000 shares 93,081,225 shares 93,081,225 shares 93,081,225 shares 9,616,150 shares 1,614,985 shares 1,205,793 shares 36,502,320 shares 368,813 shares 80,000 shares 1,759,000 shares 9,180,000 shares 30,000 shares 1,759,000 shares (TSMC’s investment US$27,954,767) (TSMC’s investment US$32,394,351) (TSMC’s investment US$51,891,000) (VentureTech Alliance Fund III, L.P.’s investment US$1,550,000) None - - - - - 100% - - - 100% - (100%) - - 100% 41.09% 41.09% 41.09% 4.25% 0.71% 0.53% 16.11% 0.16% 0.51% 11.30% 58.96% 0.19% 11.30% (99.5%) (98%) (98%) (100%) (100%) 9 0 0 2 T R O P E R L A U N N A C M S T S E T O N L A C E P S I R E H T O D N A N O I T A M R O F N I E T A I L I F F A 80 8.1.6 Operational Highlights of TSMC Affiliated Companies (Note) Unit: NT$ thousands, except EPS ($) Company Capital Stock Assets Liabilities Net Worth Net Sales Income from Operation Net Income (Net of Tax) Basic EPS (Net of Tax)* Remark As of 12/31/2009 TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited 352,330 26,484,291 23,622,179 2,862,112 163,703,629 287,821 4,625 104,520 11,000 243,450 169,182 20,406 83,983 33,519 1,887 159,467 135,663 18,519 344,790 232,726 14,224 43,374 10,578 1,293 197,076 35,445 4,203 2,392 TSMC China Company Limited 14,410,434 13,416,228 10,457,521 2,958,707 4,244,911 (3,068,425) (3,244,458) TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc. (II) LDC. 0.03 253,389 706,518 340,224 242,192 453,515 49,695 160 200 290,529 242,032 453,315 420,441 20,021 8,074 (49,405) 365,640 32,443 21,879 (49,673) 31,724 17.92 177,225 700.50 29.90 N/A 21,879 (6.28) 1.44 TSMC Development, Inc. 0.03 6,289,511 143 6,289,368 - WaferTech, LLC TSMC Partners, Ltd. 10,569,900 5,763,134 552,447 5,210,687 5,556,299 31,654,232 32,638,619 93,000 32,545,619 TSMC Design Technology Canada Inc. 74,281 122,951 20,686 102,265 TSMC Global Ltd. 41,126,520 45,401,566 4,310 45,397,256 Global Unichip Corporation 1,319,749 4,074,386 1,296,078 2,778,308 8,269,806 480,345 156,653 714,607 10,452 25,624 4,625 17,617 14,812 41,140 5,244 17,488 1,869 2,474 14 - 12,943 38,666 5,230 17,488 39,992 158,175 7,484 - 2,265,287 4,958,081 1,459,941 3,498,140 2,354,536 155,690 899,891 95,624 307,410 VentureTech Alliance Fund II, L.P. 1,058,752 1,141,194 VentureTech Alliance Fund III, L.P. 1,695,989 1,318,787 Growth Fund Limited VentureTech Alliance Holdings, LLC 49,647 26,354 - - 5,120 7 610 - - - 90,504 307,403 1,140,584 1,318,787 26,354 - - 11,078 53,786 3,100 1 - Global Unichip Japan Co., Ltd. Global Unichip Corporation-NA Global Unichip Europe B.V. Global Unichip (BVI) Corp. Xintec Inc. Mutual-Pak Technology Co., Ltd. Emerging Alliance Fund, L.P. 185,091 185,091 (4,139) (54,907) 6,939 (0.01) (0.06) 3.02 505,232 393,482.87 (2,932) (16,467) (54,907) 14,300 505,232 397,234 1,904 7,353 365 (134) (1,963) (43,537) (92,606) (178,442) (224,620) (4,200) 412,771 1,614 5,617 354 (133) 10,597 (36,515) (92,606) (178,442) (224,620) (4,200) - - 3.15 2,690 7.02 N/A (0.24) 0.05 (2.35) N/A N/A N/A N/A N/A *TSMC Japan Limited, TSMC Europe B.V., TSMC Korea Limited, Global, TSMC Design Technology Canada Inc., Unichip Japan Co., Ltd. and Global Unichip (BVI) Corp., the basic EPS of each group entity is calculated based on audit figures. Note: Foreign exchange rates for balance sheet amounts are as follows: $1 USD = $32.030 NT, $1 EUR = $46.250 NT, $1 JPY = $0.3484 NT, $1 RMB = $4.693NT, $1 KRW = $0.0275 NT, $1 CAD= $30.52 NT Foreign exchange rates for income statement amounts are as follows: $1 USD = $33.036 NT, $1 EUR = $46.192 NT, $1 JPY = $0.3550 NT, $1 RMB = $4.838 NT, $1 KRW = $0.0260NT, $1 CAD= $29.07 NT 8.2 Status of TSMC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries: None. 8.3 Special Notes 8.3.1 Private Placement Securities in 2009 and as of the Date of this Annual Report: None. 8.3.2 Regulatory Authorities’ Legal Penalties to the Company or Its Employees, and the Company’s Resulting Punishment on Its Employees for Violations of Internal Control System Provisions, Principal Deficiencies, and the State of Any Efforts to Make Improvements in 2009 and as of the Date of this Annual Report The authorities inspected TSMC’s human resources management procedure and job time records and issued fines totalling NT$42,000 for incompleteness of the relevant records. TSMC will work closely with the authorities to address the concerns of both sides fairly. 8.3.3 Any Events in 2009 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None. 8.3.4 Other Necessary Supplement: None. 81 TSMC ANNUAL REPORT 2009 (II) FINANCIAL INFORMATION TWSE: 2330 NYSE: TSM (cid:339) Taiwan Stock Exchange Market Observation Post System: http://newmops.tse.com.tw (cid:339) TSMC annual report is available at http://www.tsmc.com/english/e_investor/e02_annual/e02_annual.htm Printed on March 12, 2010 TABLE OF CONTENTS 1. Condensed Balance Sheet 2. Condensed Statement of Income 3. Financial Analysis 4. Auditors’ Opinions from 2005 to 2009 5. Audit Committee’s Report 6. Financial Difficulties 2 3 4 6 6 6 7. Financial Statements for the Years Ended 7 December 31, 2009 and 2008 and Independent Auditors’ Report 8. Consolidated Financial Statements for the 42 Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report 9. U.S. GAAP Financial Information 87 1. Condensed Balance Sheet 1.1 Condensed Balance Sheet from 2005 to 2009 (Unconsolidated) 1.2 Condensed Balance Sheet from 2005 to 2009 (Consolidated) Unit: NT$ thousands Unit: NT$ thousands Item Current Assets 2005 2006 2007 2008 2009 Item 2005 2006 2007 2008 2009 197,562,416 193,676,010 174,299,286 179,849,479 185,831,537 Current Assets 212,300,790 260,317,168 249,822,329 252,618,431 259,803,748 Long-term Investments 80,659,601 137,378,205 123,891,153 124,184,663 118,427,813 Long-term Investments 42,382,494 53,895,151 36,461,325 39,981,515 37,845,503 Fixed Assets Other Assets Current Liabilities Before Distribution After Distribution 214,145,633 228,235,359 234,564,558 219,282,502 254,751,526 15,172,165 14,295,330 19,017,626 17,242,603 18,415,746 32,184,415 42,905,154 43,800,810 53,099,467 72,571,095 97,699,015 125,252,816 124,798,894 129,975,779 * Fixed Assets Other Assets Current Liabilities Before Distribution After Distribution 244,823,292 254,094,190 260,252,187 243,645,350 273,674,787 20,003,013 19,178,650 24,329,385 22,671,293 23,372,182 35,122,227 46,860,531 48,706,007 56,806,756 79,133,288 100,636,827 129,208,193 129,704,091 133,683,068 * Long-term Liabilities 22,111,575 14,175,271 14,001,462 5,431,252 4,916,390 Long-term Liabilities 30,410,171 22,873,542 24,284,470 16,191,041 11,388,479 Other Liabilities Capital Stock Capital Surplus Retained Earnings Before Distribution After Distribution 7,613,476 8,523,195 6,878,949 5,651,417 4,856,425 247,300,246 258,296,879 264,271,037 256,254,373 259,027,066 57,117,886 54,107,498 53,732,682 49,875,255 55,486,010 142,771,034 197,124,532 218,864,571 170,053,667 181,882,682 70,114,801 109,687,478 133,414,062 92,664,846 * Other Liabilities Capital Stock Capital Surplus Retained Earnings Before Distribution After Distribution 7,738,483 8,612,970 7,189,178 5,546,325 5,125,905 247,300,246 258,296,879 264,271,037 256,254,373 259,027,066 57,117,886 54,107,498 53,732,682 49,875,255 55,486,010 142,771,034 197,124,532 218,864,571 170,053,667 181,882,682 70,114,801 109,687,478 133,414,062 92,664,846 * Cumulative Transaction Adjustments (640,742) (1,191,165) (1,072,853) 481,158 (1,766,667) Cumulative Transaction Adjustments (640,742) (1,191,165) (1,072,853) 481,158 (1,766,667) Unrealized Gain/loss on Financial Instruments Total Assets Total Liabilities Before Distribution After Distribution Total Equity Before Distribution After Distribution *Pending shareholders’ meeting resolution - 561,615 680,997 (287,342) 453,621 507,539,815 573,584,904 551,772,623 540,559,247 577,426,622 61,909,466 65,603,620 64,681,221 64,182,136 82,343,910 127,424,066 147,951,282 145,679,305 141,058,448 * 445,630,349 507,981,284 487,091,402 476,377,111 495,082,712 380,115,749 425,633,622 406,093,318 399,500,799 * Unrealized Gain/loss on Financial Instruments Total Assets Total Liabilities Before Distribution After Distribution Equity Attributable to Shareholders of the Parent Before Distribution After Distribution Minority Interest Total Equity Before Distribution After Distribution *Pending shareholders’ meeting resolution - 561,615 680,997 (287,342) 453,621 519,509,589 587,485,159 570,865,226 558,916,589 594,696,220 73,270,881 78,347,043 80,179,655 78,544,122 95,647,672 138,785,481 160,694,705 161,177,739 155,420,434 * 445,630,349 507,981,284 487,091,402 476,377,111 495,082,712 380,115,749 425,633,622 406,093,318 399,500,799 * 608,359 1,156,832 3,594,169 3,995,356 3,965,836 446,238,708 509,138,116 490,685,571 480,372,467 499,048,548 380,724,108 426,790,454 409,687,487 403,496,155 * 2 2. Condensed Statement of Income 2.1 Condensed Statement of Income from 2005 to 2009 (Unconsolidated) Unit: NT$ thousands (Except EPS: NT$) 2.2 Condensed Statement of Income from 2005 to 2009 (Consolidated) Unit: NT$ thousands (Except EPS: NT$) Item Net Sales Gross Profit 2005 2006 2007 2008 2009 264,588,364 313,881,635 313,647,644 321,767,083 285,742,868 Item Net Sales 2005 2006 2007 2008 2009 266,565,070 317,407,171 322,630,596 333,157,660 295,742,239 115,244,049 149,718,400 137,159,314 138,177,615 126,475,970 Gross Profit 118,202,874 155,810,090 142,350,211 141,749,561 129,328,611 Income from Operations 93,013,824 126,299,859 112,252,047 106,290,232 94,522,353 Income from Operations 90,968,559 127,264,694 111,721,907 104,435,368 91,961,886 Non-operating Income and Gains 7,381,360 *** 11,562,877 *** 11,105,792 *** 6,725,625 4,121,509 Non-operating Income and Gains 9,399,360 *** 9,839,081 *** 11,933,803 10,821,449 5,653,548 Non-operating Expenses and Losses 6,575,761 *** 3,056,237 *** 2,606,433 *** 2,257,039 3,662,840 Non-operating Expenses and Losses 6,104,672 *** 3,741,567 *** 2,013,684 3,784,571 2,152,787 Interest Revenue Interest Expense 2,506,769 *** 3,382,868 2,634,636 2,728,892 1,117,374 1,180,484 *** 661,200 584,736 355,056 142,026 Interest Revenue Interest Expense 2,806,226 *** 4,542,149 5,651,700 5,373,823 2,600,925 1,413,374 *** 890,602 842,242 614,988 391,479 93,819,423 134,806,499 120,751,406 110,758,818 94,981,022 93,575,035 127,255,917 109,177,093 99,933,168 89,217,836 Income from Operations of Continued Segments - before Tax Income from Operations of Continued Segments - after Tax 94,263,247 133,362,208 121,642,026 111,472,246 95,462,647 93,632,668 125,588,497 109,932,400 100,523,237 89,466,223 93,575,035 127,009,731 109,177,093 99,933,168 89,217,836 Net Income 93,632,668 127,195,246 109,932,400 100,523,237 89,466,223 Income from Operations of Continued Segments - before Tax Income from Operations of Continued Segments - after Tax Net Income Basic Earnings Per Share Adjusted Basic Earnings Per Share Capitalized Interest 3.79 * 3.47 ** - 4.93 * 4.70 ** - 4.14 * 4.04 ** - 3.86 * 3.84 ** - 3.45 * - - * Based on weighted average shares outstanding in each year ** Retroactively adjusted for stock dividends until 2008 and profit sharing to employees in stock until 2007 *** Certain accounts have been reclassified to conform to year 2008 classifications. Net Income Attributable to Shareholders of the Parent Basic Earnings Per Share Adjusted Basic Earnings Per Share Capitalized Interest 93,575,035 127,009,731 109,177,093 99,933,168 89,217,836 3.79 * 3.47 ** - 4.93 * 4.70 ** - 4.14 * 4.04 ** - 3.86 * 3.84 ** - 3.45 * - - * Based on weighted average shares outstanding in each year ** Retroactively adjusted for stock dividends until 2008 and profit sharing to employees in stock until 2007 *** Certain accounts have been reclassified to conform to year 2008 classifications 3 3. Financial Analysis 3.1 Financial Analysis from 2005 to 2009 (Unconsolidated) Capital Structure Analysis Debt Ratio (%) Liquidity Analysis Long-term Fund to Fixed Assets Ratio (%) Current Ratio (%) Quick Ratio (%) Times Interest Earned (Times) Operating Performance Analysis Average Collection Turnover (Times) Profitability Analysis Days Sales Outstanding Average Inventory Turnover (Times) Average Inventory Turnover Days Average Payment Turnover (Times) Fixed Assets Turnover (Times) Total Assets Turnover (Times) Return on Total Assets (%) Return on Equity (%) Operating Income to Paid-in Capital Ratio (%) Pre-tax Income to Paid-in Capital Ratio (%) Net Margin (%) Basic Earnings Per Share (NT$) (Note 1) Diluted Earnings Per Share (NT$) (Note 1) Cash Flow Cash Flow Ratio (%) Leverage Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage 2005 12.20 218.42 613.84 560.93 80.48 8.08 45.18 9.82 37.19 14.24 1.24 0.52 19.01 22.16 37.61 37.94 35.37 3.47 3.46 468.02 150.88 12.50 2.30 1.01 Analysis of Deviation over 20% for 2009 vs. 2008: 1. The debt ratio increased by 20% as a result of an increase of current liabilities, primarily due to an increase of payables to contractors and equipment suppliers. 2. The current ratio decreased by 24% and quick ratio decreased by 27%, mainly due to an increase in current liabilities. 3. The times interest earned increased by 114%, as a result of a decrease in interest expense at a higher percentage than the decrease in earning before interest and taxes. 4. The fixed asset turnover decreased by 24%, primarily due to an increase in net fixed assets and a decrease in net sales. 5. The cash flow ratio decreased by 46%, mainly due to a decrease in cash provided by operating activities and an increase in current liabilities. 6. The cash flow reinvestment ratio decreased by 46%, resulting from a decrease in cash provided by operating activities and an increase in gross fixed assets. 2006 11.44 228.78 451.40 404.49 204.39 9.26 39.40 9.27 39.37 15.81 1.38 0.55 23.60 26.64 48.90 52.06 40.46 4.70 4.69 457.01 153.75 14.18 2.04 1.01 2007 11.72 213.63 397.94 348.53 207.51 8.82 41.40 8.78 41.57 16.05 1.34 0.57 19.49 21.94 42.48 45.69 34.81 4.04 4.04 397.52 139.35 9.73 2.23 1.01 2008 11.87 219.72 338.70 312.83 312.95 11.08 32.93 10.86 33.59 20.40 1.47 0.60 18.35 20.74 41.48 43.22 31.06 3.84 3.81 399.16 134.79 12.95 2.50 1.00 2009 14.26 196.27 256.07 228.94 669.76 11.17 32.66 10.06 36.29 18.46 1.12 0.49 15.98 18.37 36.49 36.67 31.22 3.45 3.44 214.83 122.02 6.99 2.46 1.00 Note 1: Retroactively adjusted for stock dividends until 2008 and profit sharing to employees in stock until 2007. Note 2: Certain accounts of year 2005 have been reclassified to conform to year 2006 classifications. *Glossary 1. Capital Structure Analysis (1) Debt Ratio (2) Long-term Fund to Fixed Assets Ratio = (Shareholders’ Equity + Long-term Liabilities) / Net = Total Liabilities / Total Assets Fixed Assets = Current Assets / Current Liabilities = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities (4) Average Inventory Turnover Days (5) Average Payment Turnover (6) Fixed Assets Turnover (7) Total Assets Turnover 4. Profitability Analysis (1) Return on Total Assets = 365 / Average Inventory Turnover = Cost of Sales / Average Trade Payables = Net Sales / Net Fixed Assets = Net Sales / Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate) ) / Average Total Assets (2) Return on Equity (3) Operating Income to Paid-in Capital = Net Income / Average Shareholders’ Equity = Operating Income / Paid-in Capital 5. Cash Flow (1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year (3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Sum of Capital Expenditures, Inventory Additions, and Cash Dividend = Earnings before Interest and Taxes / Interest Expenses Ratio = Net Sales / Average Trade Receivables = 365 / Average Collection Turnover = Cost of Sales / Average Inventory (4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital (5) Net Margin (6) Earnings Per Share = Net Income / Net Sales = (Net Income - Preferred Stock Dividend) / Weighted Average Number of Shares Outstanding 6. Leverage (1) Operating Leverage (2) Financial Leverage Dividends) / (Gross Fixed Assets + Investments + Other Assets + Working Capital) = (Net Sales - Variable Cost) / Income from Operations = Income from Operations / (Income from Operations - Interest Expenses) 2. Liquidity Analysis (1) Current Ratio (2) Quick Ratio (3) Times Interest Earned 3. Operating Performance Analysis (1) Average Collection Turnover (2) Days Sales Ooutstanding (3) Average Inventory Turnover 4 3.2 Financial Analysis from 2005 to 2009 (Consolidated) Capital Structure Analysis Debts Ratio (%) Liquidity Analysis Long-term Fund to Fixed Assets (%) Current Ratio (%) Quick Ratio (%) Times Interest Earned (Times) Operating Performance Analysis Average Collection Turnover (Times) Profitability Analysis Days Sales Outstanding Average Inventory Turnover (Times) Average Inventory Turnover Days Average Payment Turnover (Times) Fixed Assets Turnover (Times) Total Assets Turnover (Times) Return on Total Assets (%) Return on Equity (%) Operating Income to Paid-in Capital Ratio (%) Pre-tax Income to Paid-in Capital Ratio (%) Net Margin (%) Basic Earnings Per Share (NT$) (Note 1) Diluted Earnings Per Share (NT$) (Note 1) Cash Flow Cash Flow Ratio (%) Leverage Industry Specific Key Performance Indicator Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage Billing Utilization Rate (%) Advanced Technologies (0.13-micron and below) Percentage of Wafer Sales (%) Sales Growth (%) Net Income Growth (%) 2005 14.10 194.69 604.46 549.94 67.69 7.84 46.54 8.91 40.94 14.37 1.09 0.51 18.89 22.16 36.78 38.12 35.13 3.47 3.46 447.65 154.53 12.64 2.31 1.02 94 45 3.6 1.4 Analysis of Deviation over 20% for 2009 vs. 2008: 1. The current ratio decreased by 26% and quick ratio decreased by 28%, mainly due to an increase in current liabilities. 2. The times interest earned increased by 34%, as a result of a decrease in interest expense at a higher percentage than the decrease in earnings before interest and taxes. 3. The fixed asset turnover decreased by 21%, primarily due to an increase in net fixed assets and a decrease in net sales. 4. The cash flow ratio decreased by 48%, mainly due to a decrease in cash provided by operating activities. 5. The cash flow reinvestment ratio decreased by 47%, resulting from a decrease in cash provided by operating activities and an increase in gross fixed assets 2006 13.34 209.38 555.51 506.39 152.46 8.84 41.28 8.25 44.22 15.41 1.25 0.54 23.12 26.64 49.27 52.22 40.07 4.70 4.69 437.46 156.75 14.36 1.99 1.01 102 49 19.1 35.7 Note 1: Retroactively adjusted for stock dividends until 2008 and profit sharing to employees in stock until 2007. Note 2: Capacity includes wafers committed by Vanguard. Note 3: Certain accounts of year 2005 have been reclassified to conform to year 2006 classifications. *Glossary 1. Capital Structure Analysis (1) Debt Ratio (2) Long-term Fund to Fixed Assets Ratio = (Shareholders’ Equity + Long-term Liabilities) / Net = Total Liabilities / Total Assets 2. Liquidity Analysis (1) Current Ratio (2) Quick Ratio Fixed Assets = Current Assets / Current Liabilities = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities (3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses 3. Operating Performance Analysis (1) Average Collection Turnover (2) Days Sales Outstanding (3) Average Inventory Turnover (4) Average Inventory Turnover Days (5) Average Payment Turnover (6) Fixed Assets Turnover (7) Total Assets Turnover 4. Profitability Analysis (1) Return on Total Assets = Net Sales / Average Trade Receivables = 365 / Average Collection Turnover = Cost of Sales / Average Inventory = 365 / Average Inventory Turnover = Cost of Sales / Average Trade Payables = Net Sales / Net Fixed Assets = Net Sales / Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate) ) / Average Total Assets (2) Return on Equity (3) Operating Income to Paid-in Capital = Net Income / Average Shareholders’ Equity = Operating Income / Paid-in Capital Ratio (4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital (5) Net Margin = Net Income / Net Sales 6. Leverage (1) Operating Leverage (2) Financial Leverage 2007 14.05 197.87 512.92 461.11 145.43 8.55 42.69 7.96 45.85 15.76 1.24 0.57 19.10 21.94 42.28 46.03 34.07 4.04 4.04 377.30 142.46 10.07 2.21 1.01 2008 14.05 203.81 444.70 415.32 182.26 10.73 34.01 9.88 36.94 20.02 1.37 0.60 17.89 20.74 40.75 43.50 30.17 3.84 3.81 389.91 139.50 12.98 2.53 1.01 2009 16.08 186.51 328.31 300.15 244.85 10.78 33.86 9.30 39.25 18.77 1.08 0.50 15.57 18.37 35.50 36.85 30.25 3.45 3.44 202.15 126.39 6.90 2.53 1.00 93 (Note2) 88 (Note2) 76 (Note2) 55 1.6 -14.0 64 3.3 -8.5 67 -11.2 -10.7 (6) Earnings Per Share 5. Cash Flow (1) Cash Flow Ratio = (Net Income - Preferred Stock Dividend) / Weighted Average Number of Shares Outstanding = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year (3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Sum of Capital Expenditures, Inventory Additions, and Cash Dividend Dividends) / (Gross Fixed Assets + Investments + Other Assets + Working Capital) = (Net Sales - Variable Cost) / Income from Operations = Income from Operations / (Income from Operations - Interest Expenses) 5 4. Auditors’ Opinions from 2005 to 2009 6. Financial Difficulties The Company should disclose the financial impact to the Company if the Company and its affiliated companies have incurred any financial or cash flow difficulties in 2009 and as of the date of this Annual Report: None Year 2005 2006 2007 2008 2009 CPA Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang Hung-Peng Lin, Shu-Chieh Huang Hung-Peng Lin, Shu-Chieh Huang Deloitte & Touche 12F, No. 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan, R.O.C. Tel: 886-2-2545-9988 5. Audit Committee’s Report Audit Opinion An Unqualified Opinion An Unqualified Opinion An Unqualified Opinion An Unqualified Opinion with explanatory paragraph referring to adoption of new accounting standards An Unqualified Opinion with explanatory paragraph referring to adoption of new accounting standards The Board of Directors has prepared the Company’s 2009 Business Report, Financial Statements, and proposal for allocation of profits. The CPA firm of Deloitte & Touche was retained to audit TSMC’s Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of Taiwan Semiconductor Manufacturing Company Limited. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report. Taiwan Semiconductor Manufacturing Company Limited Chairman of the Audit Committee: Sir Peter Leahy Bonfield February 9, 2010 6 7. Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report INDEPENDENT AUDITORS’ REPORT 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 any other jurisdiction. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2009 and 2008, 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 Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and 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 Limited as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China. As discussed in Note 3 to the financial statements, effective January 1, 2009, Taiwan Semiconductor Manufacturing Company Limited adopted the newly revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories”. In addition, effective January 1, 2008, Taiwan Semiconductor Manufacturing Company Limited adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, issued by the Accounting Research and Development Foundation of the Republic of China and relevant requirements promulgated by the Financial Supervisory Commission of the Executive Yuan. We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the years ended December 31, 2009 and 2008, and expressed an unqualified opinion with an explanatory paragraph relating to the adoption of the newly revised Statement of Financial Accounting Standard, Accounting for Inventories, and the adoption of Interpretation 2007-052, respectively, on such consolidated financial statements. January 22, 2010 7 Taiwan Semiconductor Manufacturing Company Limited BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss (Notes 2, 5 and 23) Held-to-maturity financial assets (Notes 2, 7 and 23) Receivables from related parties (Note 24) Notes and accounts receivable Allowance for doubtful receivables (Notes 2 and 8) Allowance for sales returns and others (Notes 2 and 8) Other receivables from related parties (Note 24) Other financial assets (Note 25) Inventories (Notes 2, 3 and 9) Deferred income tax assets (Notes 2 and 17) Prepaid expenses and other current assets Total current assets LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 23) Investments accounted for using equity method Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24) Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Advance payments and construction in progress 2009 Amount $ 117,043,543 181,743 9,944,843 22,541,773 19,884,520 (431,000) (8,583,632) 246,003 1,104,072 18,830,216 4,063,410 1,006,046 185,831,537 104,660,098 1,046,672 12,219,055 501,988 118,427,813 2008 Amount $ 138,208,360 42,460 5,881,999 11,728,204 11,441,176 (436,746) (5,868,582) 489,742 711,755 12,807,936 3,650,700 1,192,475 179,849,479 109,871,178 2,032,658 11,761,325 519,502 124,184,663 % 20 - 2 4 3 - (1) - - 3 1 - 32 18 1 2 - 21 % 26 - 1 2 2 - (1) - - 2 1 - 33 20 1 2 - 23 124,522,047 713,426,126 10,781,099 848,729,272 (627,764,323) 33,786,577 22 123 2 147 (109) 6 114,014,588 635,008,261 9,748,869 758,771,718 (557,247,254) 17,758,038 21 118 2 141 (103) 3 Net property, plant and equipment 254,751,526 44 219,282,502 41 INTANGIBLE ASSETS Goodwill (Note 2) Deferred charges, net (Notes 2 and 13) Total intangible assets OTHER ASSETS Deferred income tax assets (Notes 2 and 17) Refundable deposits Others (Note 2) Total other assets TOTAL The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 8 1,567,756 5,891,685 7,459,441 7,763,643 2,698,116 494,546 10,956,305 - 1 1 1 1 - 2 1,567,756 6,401,461 7,969,217 6,497,972 2,719,737 55,677 9,273,386 - 1 1 1 1 - 2 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES 2009 2008 Amount % Amount % Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23) Accounts payable Payables to related parties (Note 24) Income tax payable (Notes 2 and 17) Salary and bonus payable Accrued profit sharing to employees and bonus to directors (Notes 2, 3 and 19) Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 15 and 23) Current portion of bonds payable (Notes 14 and 23) $ - 9,678,849 2,039,342 8,761,120 8,677,299 6,771,338 28,756,884 7,886,263 - - 2 - 2 1 1 5 1 - $ 83,618 4,314,265 1,202,350 9,222,811 1,601,897 15,148,057 7,574,891 5,951,578 8,000,000 - 1 - 2 - 3 1 1 2 Total current liabilities 72,571,095 12 53,099,467 10 LONG-TERM LIABILITIES Bonds payable (Notes 14 and 23) Other long-term payables (Notes 15 and 23) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 16) Guarantee deposits (Note 27) Deferred credits (Notes 2 and 24) Total other liabilities Total liabilities CAPITAL STOCK - NT$10 PAR VALUE (Notes 19 and 21) Authorized: 28,050,000 thousand shares Issued: 25,902,706 thousand shares in 2009 25,625,437 thousand shares in 2008 CAPITAL SURPLUS (Notes 2 and 19) RETAINED EARNINGS (Note 19) Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings OTHERS (Notes 2, 21 and 23) Cumulative translation adjustments Unrealized gain/loss on financial instruments 4,500,000 416,390 4,916,390 3,807,176 1,001,376 47,873 4,856,425 82,343,910 259,027,066 55,486,010 77,317,710 - 104,564,972 181,882,682 (1,766,667) 453,621 (1,313,046) 1 - 1 1 - - 1 14 45 10 13 - 18 31 - - - 4,500,000 931,252 5,431,252 3,710,009 1,479,152 462,256 5,651,417 1 - 1 1 - - 1 64,182,136 12 256,254,373 49,875,255 67,324,393 391,857 102,337,417 170,053,667 481,158 (287,342) 193,816 47 9 13 - 19 32 - - - 88 100 $ 577,426,622 100 $ 540,559,247 100 TOTAL $ 577,426,622 100 $ 540,559,247 Total shareholders’ equity 495,082,712 86 476,377,111 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) GROSS SALES (Notes 2 and 24) $ 299,471,214 $ 330,228,027 NON-OPERATING EXPENSES AND LOSSES 2009 Amount % 2008 Amount % SALES RETURNS AND ALLOWANCES (Notes 2 and 8) 13,728,346 8,460,944 NET SALES 285,742,868 100 321,767,083 100 COST OF SALES (Notes 3, 9, 18 and 24) GROSS PROFIT REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2) REALIZED GROSS PROFIT OPERATING EXPENSES (Notes 18 and 24) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Settlement income (Note 27) Interest income (Note 2) Valuation gain on financial instruments, net (Notes 2, 5 and 23) Technical service income (Notes 24 and 27) Ga in on settlement and disposal of financial assets, net (Notes 2 and 23) Foreign exchange gain, net (Note 2) Equity in earnings of equity method investees, net (Notes 2 and 10) Others (Notes 2 and 24) Total non-operating income and gains 159,106,619 126,636,249 (160,279) 126,475,970 19,688,032 10,238,131 2,027,454 31,953,617 94,522,353 1,464,915 1,117,374 587,151 375,118 53,364 - - 523,587 4,121,509 56 44 - 44 7 3 1 11 33 1 - - - - - - - 1 183,589,540 138,177,543 72 138,177,615 19,737,038 9,895,617 2,254,728 31,887,383 106,290,232 951,180 2,728,892 - 619,237 452,159 1,113,406 72,568 788,183 6,725,625 57 43 - 43 6 3 1 10 33 - 1 - - - 1 - - 2 (Continued) Equity in losses of equity method investees, net (Notes 2 and 10) Foreign exchange loss, net (Note 2) Interest expense Valuation loss on financial instruments, net (Notes 2, 5 and 23) Impairment of financial assets (Notes 2 and 11) Loss on idle assets (Note 2) Others (Note 2) Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 2 and 17) 2009 Amount % 2008 Amount $ 2,695,720 630,455 142,026 - - - 194,639 3,662,840 94,981,022 5,763,186 1 - - - - - - 1 33 2 $ - - 355,056 1,230,966 247,488 210,477 213,052 2,257,039 110,758,818 10,825,650 % - - - 1 - - - 1 34 3 31 NET INCOME $ 89,217,836 31 $ 99,933,168 EARNINGS PER SHARE (NT$, Note 22) Basic earnings per share Diluted earnings per share 2009 2008 Before Income Tax After Income Tax Before Income Tax After Income Tax $ 3.68 $ 3.67 $ 3.45 $ 3.44 $ 4.25 $ 4.22 $ 3.84 $ 3.81 Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by subsidiaries is treated as available-for-sale financial assets instead of treasury stock for the year ended December 31, 2008 (Notes 2 and 21): NET INCOME EARNINGS PER SHARE (NT$) Basic earnings per share Diluted earnings per share The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 2008 $ 100,035,447 $ 3.84 $ 3.81 (Concluded) 9 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock - Common Stock Retained Earnings Shares (In Thousands) Capital Surplus Amount Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Others Unrealized Gain (Loss) on Financial Instruments Treasury Stock Total Shareholders’ Equity BALANCE, JANUARY 1, 2008 26,427,104 $ 264,271,037 $ 53,732,682 $ 56,406,684 $ 629,550 $ 161,828,337 $ 218,864,571 $ (1,072,853) $ 680,997 $ (49,385,032) $ 487,091,402 Appropriations of prior year’s earnings Legal capital reserve Reversal of special capital reserve Profit sharing to employees - in cash Profit sharing to employees - in stock Cash dividends to shareholders - NT$3.00 per share Stock dividends to shareholders - NT$0.02 per share Bonus to directors Capital surplus transferred to capital stock Net income in 2008 Ad justment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising stock options Cash dividends received by subsidiaries from the Company Valuation loss on available-for-sale financial assets Ne t change in unrealized gain (loss) on financial instruments from equity method investees Treasury stock repurchased Treasury stock retired - - - 393,988 - 51,254 - 76,881 - - - 6,027 - - - - - 3,939,883 - 512,542 - 768,813 - - - 60,266 - - - - - - - - - (768,813) - (137,063) - 166,884 102,279 - - - (1,329,817) - - (13,298,168) - - (3,220,714) 10,917,709 - - - - - - - - - - - - - - - - - (237,693) - - - - - - - - - - - - - - - (10,917,709) 237,693 (3,939,883) (3,939,883) (76,881,311) (512,542) (176,890) - 99,933,168 - - - - - - - (3,939,883) (3,939,883) (76,881,311) (512,542) (176,890) - 99,933,168 - - - - - - - (63,293,563) - - (63,293,563) - - - - - - - - - - 1,554,011 - - - - - - - - - - - - - - - - - - - (233,915) (734,424) - - - - - - - - - - - - - - - - - (30,427,413) 79,812,445 BALANCE, DECEMBER 31, 2008 25,625,437 256,254,373 49,875,255 67,324,393 391,857 102,337,417 170,053,667 481,158 (287,342) Appropriations of prior year’s earnings Legal capital reserve Reversal of special capital reserve Cash dividends to shareholders - NT$3.00 per share Stock dividends to shareholders - NT$0.02 per share Profit sharing to employees - in stock Capital surplus transferred to capital stock Net income in 2009 Ad justment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising stock options Valuation gain on available-for-sale financial assets Ne t change in unrealized gain (loss) on financial instruments from equity method investees - - - 51,251 141,870 76,876 - - - 7,272 - - - - - 512,509 1,418,699 768,763 - - - 72,722 - - - - - - 6,076,289 (768,763) - 115,418 - 187,811 - - 9,993,317 - - - - - - - - - - - - (391,857) - - - - - - - - - - (9,993,317) 391,857 (76,876,312) (512,509) - - 89,217,836 - - (76,876,312) (512,509) - - 89,217,836 - - - - - - - - - - - - - - - - - - (2,247,825) - - - - - - - - - - - - 14,014 - 726,949 - - - - - - - - - - - - - - - (3,939,883) - (76,881,311) - (176,890) - 99,933,168 (137,063) 1,554,011 227,150 102,279 (233,915) (734,424) (30,427,413) - 476,377,111 - - (76,876,312) - 7,494,988 - 89,217,836 115,418 (2,247,825) 260,533 14,014 726,949 BALANCE, DECEMBER 31, 2009 25,902,706 $ 259,027,066 $ 55,486,010 $ 77,317,710 $ - $ 104,564,972 $ 181,882,682 $ (1,766,667) $ 453,621 $ - $ 495,082,712 Note: Profit sharing to employees and bonus to directors in the amount of NT$6,771,338 thousand and NT$15,148,057 thousand, respectively, had been charged against earnings of 2009 and 2008. The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 10 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income Ad justments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Unrealized (realized) gross profit from affiliates Amortization of premium/discount of financial assets Impairment of financial assets Gain on disposal of available-for-sale financial assets, net Gain on held-to-maturity financial assets redeemed by the issuer Loss (gain) on disposal of financial assets carried at cost, net Equity in losses (earnings) of equity method investees, net Dividends received from equity method investees Ga in on disposal of property, plant and equipment and other assets, net Loss on idle assets Deferred income tax Changes in operating assets and liabilities: Decrease (increase) in: Fin ancial assets and liabilities at fair value through profit or loss Receivables from related parties Notes and accounts receivable Allowance for doubtful receivables Allowance for sales returns and others Other receivables from related parties Other financial assets Inventories Prepaid expenses and other current assets Increase (decrease) in: Accounts payable Payables to related parties Income tax payable Salary and bonus payable Accrued profit sharing to employees and bonus to directors Accrued expenses and other current liabilities Accrued pension cost Deferred credits 2009 2008 $ 89,217,836 $ 99,933,168 74,327,868 160,279 6,322 - (37,370) (16,091) 97 2,695,720 1,402,592 (138,613) - (1,678,381) (222,901) (10,813,569) (8,443,344) (5,746) 2,715,050 235,470 (392,317) (6,022,280) 290,470 4,925,758 836,992 (461,691) 7,075,402 (881,731) 1,259,544 97,167 (230,487) 74,569,562 (72) (97,381) 247,488 (443,404) - (8,755) (72,568) 1,804,351 (298,769) 210,477 2,361,261 (164,405) 14,973,444 6,470,152 (252,226) 2,011,897 43,835 (380,057) 8,179,206 (330,664) (5,171,553) (1,797,280) (1,766,153) (30,280) 15,148,057 (3,112,220) 52,330 (129,494) Net cash provided by operating activities 155,902,046 211,949,947 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property, plant and equipment Available-for-sale financial assets Held-to-maturity financial assets Investments accounted for using equity method Financial assets carried at cost Proceeds from disposal or redemption of: Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Property, plant and equipment and other assets (86,970,843) - (10,803,805) (320,443) (1,411) 1,037,370 6,293,000 18,828 71,850 (56,766,192) (23,697,000) (12,371,965) (494,765) (20,681) 45,584,934 15,004,000 10,606 2,042,899 (Continued) Proceeds from return of capital by investees Cash from merger of subsidiaries Increase in deferred charges Decrease in refundable deposits 2009 2008 $ 27,753 - (1,347,228) 21,621 $ 2,465,293 270,650 (3,199,813) 21,801 Net cash used in investing activities (91,973,308) (31,150,233) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of bonds payable Decrease in guarantee deposits Proceeds from exercise of employee stock options Cash dividends Profit sharing to employees in cash Bonus to directors Repurchase of treasury stock Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (8,000,000) (477,776) 260,533 (76,876,312) - - - (85,093,555) (21,164,817) 138,208,360 - (761,525) 227,150 (76,881,311) (3,939,883) (176,890) (33,480,997) (115,013,456) 65,786,258 72,422,102 CASH AND CASH EQUIVALENTS, END OF YEAR $ 117,043,543 $ 138,208,360 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Income tax paid INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of property, plant, and equipment Increase in payables to contractors and equipment suppliers Nonmonetary exchange trade-out price Cash paid Disposal of property, plant and equipment and other assets Decrease (increase) in other receivables from related parties Nonmonetary exchange trade-out price Cash received Repurchase of treasury stock Decrease in accrued expenses and other current liabilities Cash paid NON-CASH FINANCING ACTIVITIES Current portion of bonds payable Cu rrent portion of other long-term payable (under accrued expenses $ 351,803 $ 7,791,196 $ 355,056 $ 10,282,464 $ 108,592,471 (21,620,819) (809) $ 86,970,843 $ 64,390 8,269 (809) $ 71,850 $ - - $ - $ 58,951,343 (2,185,151) - $ 56,766,192 $ 2,051,168 (8,269) - $ 2,042,899 $ 30,427,413 3,053,584 $ 33,480,997 $ - $ 8,000,000 and other current liabilities) $ 769,144 $ 1,026,421 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 22, 2010) (Concluded) 11 Taiwan Semiconductor Manufacturing Company Limited NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. GENERAL Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). As of December 31, 2009 and 2008, the Company had 22,292 and 20,425 employees, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. Significant accounting policies are summarized as follows: Use of Estimates The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. Financial Assets/Liabilities at Fair Value Through Profit or Loss Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability. Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. The fair value of debt securities is determined using the average of bid and asked prices at the end of the year. Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized. Held-to-maturity Financial Assets Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized. Cash Equivalents Repurchase agreements collateralized by government bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company determines the amount of the allowance for doubtful receivables with a charge of 1% of the amount of outstanding receivables considering the account aging analysis and current trends in the credit quality of its customers. 12 Revenue Recognition and Allowance for Sales Returns and Others The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and others are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance. Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received. Inventories Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. Prior to January 1, 2009, inventories were stated at the lower of cost or market value. Any write-down was made on a total-inventory basis. Market value represented replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. As stated in Note 3, effective January 1, 2009, inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs. Investments Accounted for Using Equity Method Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are recorded until they are realized through transactions with third parties. If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity. Financial Assets Carried at Cost Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed. Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares. Property, Plant and Equipment, Assets Leased to Others and Idle Assets Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years. Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal. Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided 13 continuously, and the idle assets are tested for impairment on a periodical basis. Intangible Assets Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed. Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges - 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expenses when incurred. Stock-based Compensation Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment”. The Company did not grant or modify any employee stock options since January 1, 2008. Profit Sharing to Employees and Bonus to Directors Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, which requires companies to record profit sharing to employees and bonus to directors as an expense rather than as an appropriation of earnings. Treasury Stock Treasury stock is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. Pension Costs For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations. The Company’s stock held by its subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by subsidiaries and cash dividends received by subsidiaries from the Company are recorded under capital surplus - treasury stock transactions. Income Tax The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures, and investments in important technology-based enterprises are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. Foreign-currency Transactions Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings. 3. ACCOUNTING CHANGES Effective January 1, 2009, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 10, “Accounting for Inventories”. The main revisions are (1) inventories are stated at the lower of cost or net realizable value, and inventories are written down to net realizable value on an item-by-item basis except when the grouping of similar or related items is appropriate; (2) unallocated overheads are recognized as expenses in the year in which they are incurred; and (3) abnormal cost, write-downs of inventories and any reversal of write-downs are recorded as cost of sales for the year. Such changes in accounting principle did not have significant effect on the Company’s financial statements for the year ended December 31, 2009. 14 Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, issued in March 2007 by the ARDF, which requires companies to record profit sharing to employees and bonus to directors and supervisors as an expense rather than as an appropriation of earnings. The adoption of this interpretation resulted in a decrease in net income and earnings per share (after income tax and retroactively adjusted for the issuance of stock dividend) of NT$12,627,332 thousand and NT$0.48, respectively, for the year ended December 31, 2008. Outstanding forward exchange contracts consisted of the following: December 31, 2008 Sell US$/Buy NT$ Sell EUR/Buy NT$ Maturity Date Contract Amount (In Thousands) January 2009 to February 2009 January 2009 US$135,000/NT$4,430,925 EUR1,500/NT$63,150 Effective January 1, 2008, the Company adopted SFAS No. 39, “Accounting for Share-based Payment”, which requires companies to record share-based payment transactions in the financial statements at fair value. Such a change in accounting principle did not have any effect on the Company’s financial statements as of and for the year ended December 31, 2008. Outstanding cross currency swap contracts consisted of the following: Maturity Date December 31, 2009 Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received 4. CASH AND CASH EQUIVALENTS January 2010 to February 2010 US$750,000/NT$24,201,706 0.24% - 0.70% 0.00% - 0.38% Cash and deposits in banks Repurchase agreements collateralized by government bonds $ 114,023,307 3,020,236 $ 129,538,047 8,670,313 $ 117,043,543 $ 138,208,360 For the years ended December 31, 2009 and 2008, changes in fair value related to derivative financial instruments recognized in earnings was a net gain of NT$587,151 thousand and a net loss of NT$1,230,966 thousand, respectively. December 31 2009 December 31, 2008 2008 January 2009 US$307,000/NT$10,061,232 0.54% - 5.00% 0.00% - 3.83% 5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Trading financial assets Forward exchange contracts Cross currency swap contracts Trading financial liabilities Forward exchange contracts Cross currency swap contracts December 31 2009 2008 $ - 181,743 $ 28,411 14,049 $ 181,743 $ 42,460 $ - - $ 34,243 49,375 $ - $ 83,618 The Company entered into derivative contracts during the years ended December 31, 2009 and 2008 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts. Corporate bonds $ 1,046,672 $ 2,032,658 December 31 2009 2008 7. HELD-TO- MATURITY FINANCIAL ASSETS Corporate bonds Structured time deposits Government bonds Current portion December 31 2009 $ 12,266,311 7,000,000 2,897,587 22,163,898 (9,944,843) 2008 $ 16,136,752 - 1,506,572 17,643,324 (5,881,999) $ 12,219,055 $ 11,761,325 15 Structured time deposits categorized as held-to-maturity financial assets consisted of the following: 10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD December 31, 2009 Principal Amount Interest Receivable Range of Interest Rates Maturity Date Callable domestic deposits $ 7,000,000 $ 4,308 0.36% - 0.95% Ju ly 2010 to August 2011 8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS Movements of the allowance for doubtful receivables were as follows: Balance, beginning of year Provision Write-off Balance, end of year Years Ended December 31 2009 2008 $ 436,746 238,061 (243,807) $ 688,972 - (252,226) $ 431,000 $ 436,746 Movements of the allowance for sales returns and others were as follows: Balance, beginning of year Provision Write-off Balance, end of year 9. INVENTORIES Finished goods Work in process Raw materials Supplies and spare parts Years Ended December 31 2009 2008 $ 5,868,582 13,728,346 (11,013,296) $ 3,856,685 8,460,944 (6,449,047) $ 8,583,632 $ 5,868,582 December 31 2009 $ 2,355,232 14,230,318 1,420,466 824,200 2008 $ 4,444,657 7,117,049 716,870 529,360 $ 18,830,216 $ 12,807,936 Write-down of inventories to net realizable value in the amount of NT$199,732 thousand and NT$879,434 thousand, respectively, were included in the cost of sales for the years ended December 31, 2009 and 2008. December 31 2009 2008 Carrying Amount % of Ownership Carrying Amount % of Ownership TSMC Global Ltd. (TSMC Global) TSMC Partners, Ltd. (TSMC Partners) Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) TSMC China Company Limited (TSMC China) TSMC North America Xintec Inc. (Xintec) VentureTech Alliance Fund III, L.P. (VTAF III) VentureTech Alliance Fund II, L.P. (VTAF II) Global UniChip Corporation (GUC) Emerging Alliance Fund, L.P. (Emerging Alliance) Ta iwan Semiconductor Manufacturing Company Europe B.V. (TSMC Europe) TSMC Japan Limited (TSMC Japan) TSMC Korea Limited (TSMC Korea) TSMC International Investment Ltd. (TSMC International) $ 45,397,256 32,545,619 9,365,232 6,157,141 2,961,043 2,723,727 1,475,014 1,309,615 1,122,810 983,126 305,866 159,467 135,663 18,519 - 100 100 37 39 100 100 41 98 98 35 99 100 100 100 - $ 45,756,519 3,730,913 9,787,275 6,808,192 6,267,128 2,435,666 1,506,384 1,305,605 975,367 950,263 433,481 124,594 137,617 15,117 29,637,057 100 100 37 39 100 100 42 98 98 36 99 100 100 100 100 $ 104,660,098 $ 109,871,178 The Company will subscribe through a private placement for new shares of Motech Industries Inc. (“Motech”) under a Share Subscription Agreement entered into on December 9, 2009. The total consideration is approximately NT$6.2 billion (US$193 million). After the subscription of shares, the Company will own 20% of the Motech shares. The transaction is still subject to Motech’s shareholders’ approval and regulatory approval. TSMC Partners and TSMC International were both 100% owned subsidiaries of the Company. To simplify the organization structure of investment, TSMC Partners merged TSMC International in June 2009. Chi Cherng and Hsin Ruey, both 100% owned subsidiaries of the Company, were engaged in investing activities. To simplify the organization structure of investment, the Company merged Chi Cherng and Hsin Ruey into the Company in the third quarter of 2008. For the years ended December 31, 2009 and 2008, equity in earnings/losses of equity method investees was a net loss of NT$2,695,720 thousand and a net gain of NT$72,568 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the audited financial statements, except those of TSMC Japan, TSMC Europe and TSMC Korea for the year ended December 31, 2009. The Company believes that, had TSMC Japan, TSMC Europe and TSMC Korea’s financial statements been audited, any adjustments arising would have had no material effect on the Company’s financial statements. As of December 31, 2009 and 2008, fair values of publicly traded stocks in investments accounted for using equity method (VIS and GUC) were NT$18,027,990 thousand and NT$9,889,107 thousand, respectively. 16 Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows: Years Ended December 31 2009 2008 Cost Balance, beginning of year Amortization Balance, end of year $ 2,053,253 (624,135) $ 2,677,388 (624,135) $ 1,429,118 $ 2,053,253 Movements of the aforementioned difference allocated to goodwill were as follows: Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Years Ended December 31 Advance payments and construction in progress Balance, beginning of year From merger of subsidiaries Balance, end of year 2009 2008 $ 1,061,885 - $ 987,349 74,536 $ 1,061,885 $ 1,061,885 Year Ended December 31, 2008 Balance, Beginning of Year Additions (Deductions) Disposals Reclassification $ 12,115,531 49,396,313 764,414 $ 62,276,258 $ 8,010,214 63,145,978 935,140 $ 72,091,332 $ (3,324,915) $ (8,524) (3,385,502) (182,709) $ (3,576,735) $ (8,524) (1,258,542) (182,706) $ (1,449,772) $ - $ (311) (134,175) 57 $ (134,429) $ (4) (119,347) 26 $ (119,325) $ - $ 101,907,892 589,131,625 9,167,107 700,206,624 57,349,828 422,278,071 7,097,120 486,725,019 21,082,953 $ 234,564,558 Balance, End of Year $ 114,014,588 635,008,261 9,748,869 758,771,718 65,351,514 484,046,160 7,849,580 557,247,254 17,758,038 $ 219,282,502 No interest was capitalized during the years ended December 31, 2009 and 2008. 13. DEFERRED CHARGES, NET 11. FINANCIAL ASSETS CARRIED AT COST Non-publicly traded stocks Mutual funds December 31 2009 2008 $ 338,584 163,404 $ 357,509 161,993 $ 501,988 $ 519,502 Technology license fees Software and system design costs Patent and others For the year ended December 31 2008, the Company recognized impairment of financial assets carried at cost of NT$247,488 thousand. 12. PROPERTY, PLANT AND EQUIPMENT Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Advance payments and construction in progress Balance, Beginning of Year $ 114,014,588 635,008,261 9,748,869 758,771,718 65,351,514 484,046,160 7,849,580 557,247,254 17,758,038 $ 219,282,502 Year Ended December 31, 2009 Additions Disposals Reclassification $ 10,520,371 80,824,102 1,219,459 $ 92,563,932 $ 8,186,551 63,395,862 882,718 $ 72,465,131 $ 16,028,539 $ (12,978) (2,408,802) (187,163) $ (2,608,943) $ (12,971) (1,750,677) (186,979) $ (1,950,627) $ - $ 66 2,565 (66) $ 2,565 $ 66 2,565 (66) $ 2,565 $ - Balance, End of Year $ 124,522,047 713,426,126 10,781,099 848,729,272 73,525,160 545,693,910 8,545,253 627,764,323 33,786,577 $ 254,751,526 Technology license fees Software and system design costs Patent and others 14. BONDS PAYABLE Year Ended December 31, 2009 Balance, Beginning of Year $ 3,786,251 1,559,857 1,055,353 Additions Amortization Disposals Reclassification Balance, End of Year $ - 861,783 485,445 $ (806,450) (774,667) (275,887) $ - - - $ - - - $ 2,979,801 1,646,973 1,264,911 $ 6,401,461 $ 1,347,228 $ (1,857,004) $ - $ - $ 5,891,685 Year Ended December 31, 2008 Balance, Beginning of Year $ 5,349,937 1,309,272 513,204 Additions Amortization Disposals Reclassification Balance, End of Year $ - 945,279 733,342 $ (1,563,686) (680,474) (191,193) $ - (14,279) - $ - 59 - $ 3,786,251 1,559,857 1,055,353 $ 7,172,413 $ 1,678,621 $ (2,435,353) $ (14,279) $ 59 $ 6,401,461 Domestic unsecured bonds: Issued in January 2002 and repayable in January 2009 and 2012 in two installments, 2.75% and 3.00% interest payable annually, respectively Current portion December 31 2009 2008 $ 4,500,000 - $ 12,500,000 (8,000,000) $ 4,500,000 $ 4,500,000 17 15. OTHER LONG-TERM PAYABLES b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2009 and 2008 The Company’s long-term payables mainly resulted from license agreements for certain semiconductor- related patents. As of December 31, 2009, future payments for other long-term payables were as follows: Year of Payment 2010 2011 Current portion (classified under accrued expenses and other current liabilities) Amount $ 769,144 416,390 1,185,534 (769,144) $ 416,390 16. PENSION PLANS The pension mechanism under the Labor Pension Act is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$608,731 thousand and NT$657,870 thousand for the years ended December 31, 2009 and 2008, respectively. The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan. Pension information on the defined benefit plan is summarized as follows: a. Components of net periodic pension cost for the year 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 net transition obligation Prior service cost Unrecognized net loss Accrued pension cost Vested benefit c. Actuarial assumptions at December 31, 2009 and 2008 Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Funds for the year e. Payments from the Funds for the year 2009 2008 $ 123,524 3,754,388 3,877,912 2,614,358 6,492,270 (2,612,295) 3,879,975 (91,291) 161,977 (143,485) $ 114,930 4,146,366 4,261,296 3,245,483 7,506,779 (2,441,687) 5,065,092 (99,591) 169,216 (1,424,708) $ 3,807,176 $ 3,710,009 $ 135,501 $ 126,259 2009 2.25% 3.00% 1.50% 2008 2.00% 3.00% 2.25% 2009 2008 $ 191,554 $ 202,263 2009 2008 $ 37,801 $ 28,990 2009 2008 $ 166,460 149,297 (56,170) 29,134 $ 151,603 170,025 (67,315) 3,776 17. INCOME TAX $ 288,721 $ 258,089 a. A reconciliation of income tax expense based on “income before income tax” at statutory rate and income tax currently payable was as follows: Income tax expense based on “income before income tax” at statutory rate (25%) Tax effect of the following: Tax-exempt income Temporary and permanent differences Others Income tax credits used Years Ended December 31 2009 2008 $ 23,745,246 $ 27,689,695 (8,621,941) 3,124,974 247,050 (9,914,570) (9,610,935) 1,815,594 41,235 (10,967,795) Income tax currently payable $ 8,580,759 $ 8,967,794 Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 18 b. Income tax expense consisted of the following: e. All earnings generated prior to December 31, 1997 have been appropriated. Income tax currently payable Income tax adjustments on prior years Other income tax adjustments Net change in deferred income tax assets Investment tax credits Temporary differences Valuation allowance Income tax expense Years Ended December 31 2009 2008 $ 8,580,759 (1,155,113) 15,921 $ 8,967,794 (707,255) 203,850 (1,119,523) 41,456 (600,314) 1,224,537 (1,792,789) 2,929,513 $ 5,763,186 $ 10,825,650 f. As of December 31, 2009, investment tax credits consisted of the following: Law/Statute Item Statute for Upgrading Industries Purchase of machinery and equipment c. Net deferred income tax assets consisted of the following: Statute for Upgrading Industries Research and development expenditures Current deferred income tax assets Investment tax credits Temporary differences Allowance for sales returns and others Others Noncurrent deferred income tax assets Investment tax credits Temporary differences Depreciation Others Valuation allowance December 31 2009 2008 $ 3,210,254 $ 2,791,000 794,507 58,649 710,098 149,602 $ 4,063,410 $ 3,650,700 $ 11,521,487 $ 10,821,218 1,909,152 132,336 (5,799,332) 1,625,499 450,901 (6,399,646) Statute for Upgrading Industries Personnel training expenditures Statute for Upgrading Industries Investments in important technology-based enterprises $ 7,297 79,804 $ - - 2009 2010 $ 87,101 $ - Total Creditable Amount Remaining Creditable Amount Expiry Year $ 579,804 1,216,551 4,644,652 3,457,388 3,310,922 $ - - - 3,457,388 3,310,922 $ 13,209,317 $ 6,768,310 $ 2,663,784 2,671,264 2,691,517 3,250,265 $ - 1,971,732 2,691,517 3,250,265 $ 11,276,830 $ 7,913,514 2009 2010 2011 2012 2013 2010 2011 2012 2013 $ 23,146 19,293 30,624 $ - 19,293 30,624 2010 2011 2012 $ 73,063 $ 49,917 $ 7,763,643 $ 6,497,972 g. The profits generated from the following projects are exempt from income tax for a five-year period: In May 2009, the amendment of Article 5 of the Income Tax Law of the Republic of China announced that the income tax rate of profit-seeking enterprises will be reduced from 25% to 20%, and will be effective starting in 2010. The Company recalculated its deferred tax assets in accordance with the amended Article and adjusted the resulting difference as an income tax expense. Construction of Fab 14 - Module A Construction of Fab 12 - Module B and expansion of Fab 14 - Module A Construction of Fab 14 - Module B and expansion of Fab 12 and others Tax-exemption Period 2006 to 2010 2007 to 2011 2008 to 2012 d. Integrated income tax information: h. The tax authorities have examined income tax returns of the Company through 2007. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly. The balance of the imputation credit account as of December 31, 2009 and 2008 were NT$369,265 thousand and NT$521,634 thousand, respectively. The estimated and actual creditable ratios for distribution of earnings of 2009 and 2008 was 0.35% and 9.10%, respectively. The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made. 19 18. LABOR COST, DEPRECIATION AND AMORTIZATION Capital surplus consisted of the following: Labor cost Salary and bonus Labor and health insurance Pension Meal Welfare Others Depreciation Amortization Labor cost Salary and bonus Labor and health insurance Pension Meal Welfare Others Depreciation Amortization Year Ended December 31, 2009 Classified as Cost of Sales Classified as Operating Expenses Total $ 15,874,268 630,735 557,206 414,749 155,795 97,229 $ 12,218,675 385,013 340,181 180,542 97,282 19,108 $ 28,092,943 1,015,748 897,387 595,291 253,077 116,337 $ 17,729,982 $ 13,240,801 $ 30,970,783 $ 68,606,242 $ 1,199,386 $ 3,842,623 $ 657,618 $ 72,448,865 $ 1,857,004 Additional paid-in capital From merger From convertible bonds From long-term investments Donations December 31 2009 $ 23,457,805 22,805,390 8,893,190 329,570 55 2008 $ 17,962,468 22,805,390 8,893,190 214,152 55 $ 55,486,010 $ 49,875,255 The Company’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly: Year Ended December 31, 2008 Company’s paid-in capital; a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Classified as Cost of Sales Classified as Operating Expenses Total $ 17,088,512 677,817 587,281 437,910 174,641 190,323 $ 11,989,661 379,196 328,669 174,906 100,989 15,979 $ 29,078,173 1,057,013 915,950 612,816 275,630 206,302 $ 19,156,484 $ 12,989,400 $ 32,145,884 $ 68,373,886 $ 1,771,919 $ 3,701,241 $ 663,434 $ 72,075,127 $ 2,435,353 19. SHAREHOLDERS’ EQUITY As of December 31, 2009, 1,097,513 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs is 5,487,565 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. 20 b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; c. Bonus to directors and profit sharing to employees of the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; d. Any balance left over shall be allocated according to the resolution of the shareholders’ meeting. The Company’s Articles of Incorporation also provide that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution. Any appropriations of the profits are subject to shareholder’s approval in the following year. The Company has recorded profit sharing to employees as a charge to earnings of approximately 7.5% and 15% of net income for the years ended December 2009 and 2008, respectively; bonuses to directors were accrued with an estimate based on historical experience. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting. The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee. The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company’s paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2008 and 2007 had been approved in the shareholders’ meetings held on June 10, 2009 and June 13, 2008, respectively. The appropriations and dividends per share were as follows: Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998. 20. STOCK-BASED COMPENSATION PLANS The Company’s Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 2002 Plan were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercisable. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the grant date. Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2008 For Fiscal Year 2007 For Fiscal Year 2008 For Fiscal Year 2007 Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2009. Information about outstanding options for the years ended December 31, 2009 and 2008 was as follows: $ 3.00 0.02 $ 3.00 0.02 Number of Options (In Thousands) Weighted-average Exercise Price (NT$) Legal capital reserve Special capital reserve Profit sharing to employees - in cash Profit sharing to employees - in stock Cash dividends to shareholders Stock dividends to shareholders Bonus to directors $ 9,993,317 (391,857) - - 76,876,312 512,509 - $ 10,917,709 (237,693) 3,939,883 3,939,883 76,881,311 512,542 176,890 $ 86,990,281 $ 96,130,525 Profit sharing to employees that have been paid in cash and in stock as well as bonus to directors in the amounts of NT$7,494,988 thousand, NT$7,494,988 thousand and NT$158,080 thousand for 2008, respectively, had been approved in the shareholders’ meeting held on June 10, 2009. The profit sharing to employee in stock of 141,870 thousand shares was determined by the closing price of the Company’s common shares (after considering the effect of dividends) of the day immediately preceding the shareholders’ meeting, which was NT$52.83. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 10, 2009 and same amount had been charged against earnings of 2008. The shareholders’ meeting held on June 10, 2009 also resolved to distribute stock dividends out of capital surplus, and stock dividends to shareholders as well as profit sharing to employees to be paid in stock in the amount of NT$768,763 thousand, NT$512,509 thousand and NT$7,494,988 thousand, respectively. The aforementioned capital increase had taken effect on July 21, 2009. As of January 22, 2010, the Board of Directors has not resolved the appropriation for earnings of 2009. The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website. Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Year ended December 31, 2008 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year 36,234 175 (7,272) (327) 28,810 41,875 767 (6,027) (381) 36,234 $ 34.0 34.0 35.8 46.5 33.5 35.6 35.2 37.7 46.5 35.3 The numbers of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans. The options granted were the result of the aforementioned adjustment. 21 As of December 31, 2009, information about outstanding options was as follows: Range of Exercise Price (NT$) $22.8 - $32.0 38.0 - 50.1 Number of Options (In Thousands) 21,179 7,631 28,810 Options Outstanding Weighted-average Remaining Contractual Life (Years) 3.18 4.88 3.63 Weighted-average Exercise Price (NT$) $ 29.1 45.5 33.5 As of December 31, 2009, all of the above outstanding options were exercisable. The Company held a meeting of the Board of Directors on May 13, 2008 and approved a share buyback plan to repurchase the Company’s common shares up to 500,000 thousand shares listed on the TSE during the period from May 14, 2008 to July 13, 2008 for the buyback price in the range from NT$48.25 to NT$100.50. The Company had repurchased 216,674 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in August 2008. The Company held a meeting of the Board of Directors on August 12, 2008 and approved a share buyback plan to repurchase the Company’s common shares up to 283,000 thousand shares listed on the TSE during the period from August 13, 2008 to October 12, 2008 for the buyback price in the range from NT$42.85 to NT$86.20. The Company had repurchased 278,875 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in November 2008. No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2009 and 2008. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions and pro forma results of the Company for the years ended December 31, 2009 and 2008 would have been as follows: As discussed in Note 10, the Company merged Chi Cherng and Hsin Ruey in the third quarter of 2008. The Company’s common shares held by Chi Cherng and Hsin Ruey in the number of 34,267 thousand shares were retired in August 2008. Years Ended December 31 2009 2008 22. EARNINGS PER SHARE EPS is computed as follows: Assumptions: Expected dividend yield Expected volatility Risk free interest rate Expected life Net income: Net income as reported Pro forma net income Earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS 21. TREASURY STOCK Year ended December 31, 2008 Parent company stock held by subsidiaries Repurchase under share buyback plan 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years $ 89,217,836 88,838,182 $ 99,933,168 100,037,622 $ 3.45 3.44 3.44 3.43 $ 3.84 3.84 3.81 3.81 Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax Year ended December 31, 2009 Basic EPS Earnings available to common shareholders Effect of dilutive potential common shares $ 94,981,022 - $ 89,217,836 - 25,835,802 77,801 $ 3.68 $ 3.45 Diluted EPS Earnings available to common shareholders (including effect of dilutive potential common shares) $ 94,981,022 $ 89,217,836 25,913,603 $ 3.67 $ 3.44 (Shares in Thousands) Year ended December 31, 2008 Beginning Shares Addition Stock Dividends Retirement Ending Shares Basic EPS Earnings available to common shareholders Effect of dilutive potential common shares $ 110,758,818 - $ 99,933,168 - 26,039,186 196,493 $ 4.25 $ 3.84 34,096 800,000 - 495,549 834,096 495,549 171 - 171 34,267 1,295,549 1,329,816 - - - Diluted EPS Earnings available to common shareholders (including effect of dilutive potential common shares) $ 110,758,818 $ 99,933,168 26,235,679 $ 4.22 $ 3.81 The Company held a meeting of the Board of Directors on November 13, 2007 and approved a share buyback plan to repurchase the Company’s common shares up to 800,000 thousand shares listed on the TSE during the period from November 14, 2007 to January 13, 2008 for the buyback price in the range from NT$43.2 to NT$94.2. The Company had repurchased 800,000 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in February 2008. As discussed in Note 3, effective January 1, 2008, the Company adopted Interpretation 2007-052 that requires companies to record profit sharing to employees as an expense rather than as an appropriation of earnings. If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. 22 Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year. c. The changes in fair value of derivatives contracts which were outstanding as of December 31, 2009 and 2008 estimated using valuation techniques were recognized as net gains of NT$181,743 thousand and net losses of NT$41,158 thousand, respectively. The average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of stock dividends. This adjustment caused both of the basic and diluted after income tax EPS for the year ended December 31, 2008 to decrease from NT$3.86 to NT$3.84 and NT$3.83 to NT$3.81, respectively. d. As of December 31, 2009 and 2008, financial assets exposed to fair value interest rate risk were NT$23,392,313 thousand and NT$19,718,442 thousand, respectively and financial liabilities exposed to fair value interest rate risk were NT$4,500,000 thousand and NT$12,583,618 thousand, respectively. 23. DISCLOSURES FOR FINANCIAL INSTRUMENTS e. Movements of the unrealized gains or losses on financial instruments for the years ended December 31, a. Fair values of financial instruments were as follows: 2009 and 2008 were as follows: December 31 2009 2008 Carrying Amount Fair Value Carrying Amount Fair Value Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets $ 181,743 1,046,672 22,163,898 $ 181,743 1,046,672 22,251,517 $ 42,460 2,032,658 17,643,324 $ 42,460 2,032,658 17,674,733 Liabilities Financial liabilities at fair value through profit or loss Bonds payable (including current portion) Other long-term payables (including current portion) - 4,500,000 1,185,534 - 4,574,979 1,185,534 83,618 12,500,000 1,957,673 83,618 12,612,423 1,957,673 b. Methods and assumptions used in the estimation of fair values of financial instruments 1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities. 2) Except for derivatives and structured time deposits, fair values of financial assets at fair value through profit or loss, available-for-sale and held-to-maturity financial assets were based on their quoted market prices. 3) The fair values of those derivatives and structured time deposits are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. 4) Fair value of the bonds payable was based on their quoted market price. 5) Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount. Year Ended December 31, 2009 From Available- for-sale Financial Assets From Available- for-sale Financial Assets Held by Investees Total Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings $ 32,658 51,384 (37,370) $ (320,000) 726,949 - $ (287,342) 778,333 (37,370) Balance, end of year $ 46,672 $ 406,949 $ 453,621 Year Ended December 31, 2008 From Available- for-sale Financial Assets From Available- for-sale Financial Assets Held by Investees Total Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings $ 266,573 209,489 (443,404) $ 414,424 (734,424) - $ 680,997 (524,935) (443,404) Balance, end of year $ 32,658 $ (320,000) $ (287,342) f. Information about financial risks 1) Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities; therefore, the fluctuations in market interest rates will result in changes in fair values of these debt securities. Subject to turmoil in the global financial market, the Company had evaluated its financial instruments and the Company believed the exposure to market risk as of December 31, 2009 was not significant. 2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. Subject to turmoil in the global financial market, the Company evaluated whether the financial instruments for any possible counter-party or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk as of December 31, 2009 was not significant. 23 3) Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low. Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows: 4) Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. 24. RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parties: a. Subsidiaries TSMC North America TSMC China TSMC Europe TSMC Japan TSMC Korea b. Investees GUC (with a controlling financial interest) Xintec (with a controlling financial interest) VIS (accounted for using equity method) SSMC (accounted for using equity method) c. Indirect subsidiaries WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology) TSMC Design Technology Canada, Inc. (TSMC Canada) d. Indirect investee VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method. e. Others Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions. 24 For the year Sales TSMC North America Others Purchases WaferTech TSMC China SSMC VIS Manufacturing expenses Xintec (rent and outsourcing) VisEra (outsourcing) Marketing expenses - commission TSMC Europe TSMC Japan Others Research and development expenses TSMC Technology (primarily consulting fee) TSMC Canada (primarily consulting fee) Others Sales of property, plant and equipment Xintec TSMC China Other Non-operating income and gains VIS (primarily technical service income, see Note 27e) TSMC China SSMC (primarily technical service income, see Note 27d) VisEra Others 2009 2008 Amount % Amount % $ 161,251,368 2,231,343 $ 163,482,711 $ 5,560,707 3,787,113 3,537,659 3,312,656 $ 16,198,135 $ 36,101 35,737 $ 71,838 $ 325,463 233,855 24,726 $ 584,044 $ 409,686 157,527 49,251 $ 616,464 $ 58,450 595 263 $ 59,308 $ 224,740 184,626 141,488 - 263 54 1 55 18 12 11 10 51 - - - 16 12 1 29 2 1 - 3 91 1 - 92 5 4 3 - - $ 192,986,719 1,814,440 $ 194,801,159 $ 8,207,876 4,717,676 4,441,795 3,209,028 $ 20,576,375 $ - 72,174 $ 72,174 $ 367,846 251,367 16,408 $ 635,621 $ 352,900 172,291 19,934 $ 545,125 $ - 1,849,317 10,843 $ 1,860,160 $ 296,250 297,418 244,865 100,821 178 58 1 59 22 12 12 8 54 - - - 16 11 1 28 2 1 - 3 - 91 - 91 4 5 4 1 - $ 551,117 12 $ 939,532 14 (Continued) As of December 31 Receivables TSMC North America Others Other receivables TSMC China VIS SSMC TSMC North America Others Payables WaferTech VIS TSMC China SSMC TSMC Technology TSMC North America Others Deferred credits TSMC China 2009 2008 Amount % Amount % Compensation of directors and management personnel: $ 22,203,242 338,531 98 2 $ 11,512,777 215,427 98 2 $ 22,541,773 100 $ 11,728,204 100 $ 111,103 81,663 39,629 8,676 4,932 45 33 16 4 2 $ 112,933 42,969 56,949 256,624 20,267 23 9 12 52 4 $ 246,003 100 $ 489,742 100 $ 561,165 529,060 481,500 238,741 109,220 4,222 115,434 27 26 24 12 5 - 6 $ 171,089 317,491 117,417 162,807 41,904 327,250 64,392 14 26 10 14 3 28 5 Salaries, incentives and special compensation Bonus Years Ended December 31 2009 2008 $ 588,508 411,358 $ 272,325 705,376 $ 999,866 $ 977,701 The information about the compensation of directors and management personnel is available in the annual report for the shareholders’ meeting. Total compensation expense for the year ended December 31, 2009 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2009 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2010. The total compensation for the year ended December 31, 2008 included the bonuses appropriated from earnings of 2008 which was approved by the shareholders’ meeting held in 2009. 25. PLEDGED OR MORTGAGED ASSETS As of December 31, 2009, the Company had pledged time deposits of NT$824,797 thousand (classified as other financial assets) as collateral for land lease agreements and customs duty guarantee. $ 2,039,342 100 $ 1,202,350 100 26. SIGNIFICANT LONG-TERM LEASES $ 7,970 17 $ 183,896 40 (Concluded) The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from March 2010 to December 2029 and can be renewed upon expiration. The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements. The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was classified under manufacturing expenses. The Company deferred the net gains (classified under the deferred credits) derived from sales of property, plant and equipment to TSMC China and VisEra, and then recognized such gains (classified under non-operating income and gains) over the depreciable lives of the disposed assets. The Company leased certain buildings and facilities to VisEra. The rental income was classified under non-operating income and gains. The lease terms and prices were determined in accordance with mutual agreements. The lease agreement between the Company and VisEra expired in April 2008. As of December 31, 2009, future lease payments were as follows: Year 2010 2011 2012 2013 2014 2015 and thereafter Amount $ 355,842 353,566 353,566 331,921 318,935 2,754,388 $ 4,468,218 27. SIGNIFICANT COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2009, excluding those disclosed in other notes, were as follows: a. Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Company’s capacity if the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. 25 b. Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of December 31, 2009 the Company had a total of US$29,582 thousand of guarantee deposits. c. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. d. The Company provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) effective March 30, 1999. The Company receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall remain in force for ten years and will be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. e. The Company provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. The Company receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for the Company certain products at prices as agreed by the parties. of the (2005) Settlement Agreement” with SMIC. The Court also found “TSMC has demonstrated a significant probability of establishing that SMIC retains and is using TSMC Information in SMIC’s 0.13um and smaller technologies, and there is significant threat of serious irreparable harm to TSMC if SMIC were to disclose or transfer that information before final resolution of the case”. Therefore, the Court ordered that, effective immediately, SMIC must provide advance notice and an opportunity for TSMC, TSMC North America and WaferTech to object before disclosing items enumerated in the Court Order to SMIC’s third party partners. The Court, however, did not grant a preliminary injunction as requested by TSMC, TSMC North America and WaferTech. In January 2009, the court in the California action held a four-day bench trial to determine whether a Settlement Agreement existed between the parties, and if there were an agreement, the interpretation of certain terms. SMIC contended that there was no binding Settlement Agreement, and TSMC, TSMC North America and WaferTech contended that the Settlement Agreement signed on January 30, 2005 and finalized shortly thereafter and repeatedly ratified bound the parties. On March 10, 2009, the Court issued its Statement of Decision. The Court rejected SMIC’s contention, and found that the parties were bound by the Settlement Agreement identified by TSMC, TSMC North America and WaferTech. The Court also interpreted the meaning of certain provisions within the Settlement Agreement. Regarding the claims raised by SMIC in the Beijing lawsuit, the Beijing People’s High Court has on June 10, 2009 rejected those claims and dismissed the lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC, TSMC North America and WaferTech’s trade secrets. TSMC, TSMC North America and WaferTech have subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC, TSMC North America and WaferTech in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC, TSMC North America and WaferTech. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and to provide TSMC with other valuable consideration. 28. ADDITIONAL DISCLOSURES f. TSMC, TSMC North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Following are the additional disclosures required by the SFB for the Company and its investees: Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referring to as “SMIC”). The lawsuits alleged that SMIC infringed multiple TSMC, TSMC North America and WaferTech patents and misappropriated TSMC, TSMC North America and WaferTech’s trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, Semiconductor Manufacturing International Corporation shall pay US$175 million over six years to resolve TSMC, TSMC North America and WaferTech’s claims. As of December 31, 2009, SMIC had paid US$135 million in accordance with the terms of this settlement agreement. In August 2006, TSMC, TSMC North America and WaferTech filed a lawsuit against SMIC in Alameda County Superior Court in California for breach of aforementioned settlement agreement, breach of promissory notes and trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC, TSMC North America and WaferTech in the same court, alleging TSMC, TSMC North America and WaferTech of breach of the settlement agreement and implied covenant of good faith and fair dealing, in response to TSMC, TSMC North America and WaferTech’s August complaint. In November 2006, SMIC filed a complaint with Beijing People’s High Court against TSMC, TSMC North America and WaferTech alleging defamation and breach of good faith. The California State Superior Court of Alameda County issued an Order on TSMC, TSMC North America and WaferTech’s pre-trial motion for a preliminary injunction against SMIC on September 7, 2007. In the Order, the Court found “TSMC has demonstrated a significant likelihood that it will ultimately prevail on the merits of its claim for breach of certain paragraphs 26 a. Financing provided: None; b. Endorsement/guarantee provided: None; c. Marketable securities held: Please see Table 1 attached; d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 2 attached; e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached; f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None; g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: 29. SEGMENT FINANCIAL INFORMATION Please see Table 4 attached; a. Industry financial information h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached; The Company operates in one industry. Therefore, the disclosure of industry financial information is not applicable to the Company. i. Names, locations, and related information of investees on which the Company exercises significant influence: Please see Table 6 attached; b. Geographic information j. Information about derivatives of investees over which the Company has a controlling interest: The Company has no significant foreign operations. Therefore, the disclosure of geographic information is not applicable to the Company. TSMC China entered into forward exchange contracts during the year ended December 31, 2009 to manage exposures due to foreign exchange rate fluctuations. As of December 31, 2009, no forward exchange contracts of TSMC China was outstanding. For the year ended December 31, 2009, net losses arising from forward exchange contracts of TSMC China were NT$866 thousand. Xintec entered into forward exchange contracts during the year ended December 31, 2009 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2009: Sell US$/Buy NT$ Maturity Date February 2010 Contract Amount (In Thousands) US$21,300/NT$686,788 c. Export sales Area Americas Asia Europe and others Years Ended December 31 2009 2008 $ 166,813,136 59,496,755 31,350,249 $ 199,512,258 49,386,819 37,622,148 $ 257,660,140 $ 286,521,225 The export sales information is based on the amounts billed to customers within the areas. d. Major customers representing at least 10% of gross sales For the year ended December 31, 2009, net gains arising from forward exchange contracts of Xintec were NT$4,448 thousand. Customer A k. Information on investment in Mainland China 1) The name of the investee in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 7 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Note 24. Years Ended December 31 2009 Amount $ 161,251,368 2008 Amount $ 192,986,719 % 54 % 58 27 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES HELD DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note TSMC TSMC Partners 28 Corporate bond Taiwan Mobile Co., Ltd. Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation China Steel Corporation CPC Corporation, Taiwan Taipei Fubon Commercial Bank Co., Ltd. First Commercial Bank Co., Ltd. Government bond European Investment Bank Bonds 2003 Asian Development Bank Govt. Bond Stock TSMC Global TSMC Partners VIS SSMC TSMC North America Xintec GUC TSMC Europe TSMC Japan TSMC Korea United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Fund Horizon Ventures Fund Crimson Asia Capital Capital TSMC China VTAF III VTAF II Emerging Alliance Corporate bond General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn - - - - - - - - - - - Subsidiary Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Investee with a controlling financial interest Investee with a controlling financial interest Subsidiary Subsidiary Subsidiary - - - - - Subsidiary Subsidiary Subsidiary Subsidiary - - Available-for-sale financial assets Held-to-maturity financial assets 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 In vestments accounted for using equity method 〃 〃 〃 〃 〃 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 Financial assets carried at cost 〃 In vestments accounted for using equity method 〃 〃 〃 Held-to-maturity financial assets 〃 - - - - - - - - - - - 1 988,268 628,223 314 11,000 93,081 46,688 - 6 80 16,783 10,500 4,000 - - - - - - - - $ 1,046,672 3,178,551 3,004,941 2,000,145 1,671,815 1,512,130 500,031 298,884 99,814 2,003,877 893,710 45,397,256 32,545,619 9,365,232 6,157,141 2,723,727 1,475,014 983,126 159,467 135,663 18,519 193,584 105,000 40,000 103,992 59,412 2,961,043 1,309,615 1,122,810 305,866 US$ 20,543 US$ 20,219 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 100 100 37 39 100 41 35 100 100 100 10 7 2 12 1 100 98 98 99 N/A N/A $ 1,046,672 3,200,302 3,011,743 2,029,935 1,685,345 1,528,117 499,913 298,751 99,815 2,025,500 875,103 45,397,256 32,545,619 10,114,398 5,581,994 2,723,727 1,437,395 7,913,592 159,467 135,663 18,519 297,655 332,943 43,975 103,992 59,412 2,958,707 1,292,412 1,117,773 305,866 US$ 21,312 US$ 21,182 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Common stock TSMC Development, Inc. (TSMC Development) VisEra Holding Company InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II) TSMC Technology InveStar Semiconductor Development Fund, Inc. (ISDF) TSMC Canada Mcube Inc. TSMC Development Emerging Alliance Preferred stock Mcube Inc. Corporate bond GE Capital Corp. JP Morgan Chase & Co. Stock WaferTech Common stock RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Audience, Inc. Axiom Microdevices, Inc. Mosaic Systems, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. QST Holdings, LLC Teknovus, Inc. Subsidiary In vestments accounted for using 1 US$ 340,387 100 US$ 340,387 equity method In estee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary In vestee accounted for using equity method 〃 〃 〃 〃 〃 〃 43,000 US$ 70,967 49 US$ 70,967 21,415 1 7,680 2,300 5,333 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 97 100 97 100 70 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 In vestee accounted for using In vestments accounted for using 1,000 US$ 1,000 10 US$ 1,000 equity method equity method - - Held-to-maturity financial assets 〃 - - US$ 20,334 US$ 15,000 N/A N/A US$ 21,182 US$ 15,000 Subsidiary In vestments accounted for using 293,637 US$ 154,432 100 US$ 154,432 equity method - - - - - - - - - - Financial assets carried at cost 〃 4,247 10,000 US$ 1,648 US$ 3,065 10 6 US$ 1,648 US$ 3,065 Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 1,654 1,000 2,481 800 1,281 4,641 - 6,977 - US$ 250 US$ 24 US$ 12 US$ 500 US$ 1,072 US$ 1,137 US$ 131 US$ 1,327 - 1 1 6 1 2 2 4 2 7 US$ 250 US$ 24 US$ 12 US$ 500 US$ 1,072 US$ 1,137 US$ 131 US$ 1,327 - Capital VentureTech Alliance Holdings, LLC (VTA Holdings) Subsidiary In vestments accounted for using equity method VTAF II Common stock Leadtrend RichWave Technology Corp. Sentelic Preferred stock 5V Technologies, Inc. - - - - Av ailable-for-sale financial assets Financial assets carried at cost 〃 1,515 1,043 1,200 US$ 9,721 US$ 730 US$ 2,040 4 1 15 US$ 9,721 US$ 730 US$ 2,040 Financial assets carried at cost 2,890 US$ 2,168 4 US$ 2,168 (Continued) 29 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Aquantia Audience, Inc. Axiom Microdevices, Inc. Beceem Communications Impinj, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. Power Analog Microelectronics QST Holdings, LLC Teknovus, Inc. Xceive Capital VTA Holdings Common stock Mutual-Pak Technology Co., Ltd. Acionn Technology Corporation Preferred stock Auramicro, Inc. BridgeLux, Inc. Exclara, Inc. GTBF, Inc. InvenSense, Inc. LiquidLeds Lighting Corp. M2000, Inc. Neoconix, Inc. Powervation, Ltd. Quellan, Inc. Silicon Technical Services, LLC Tilera, Inc. Validity Sensors, Inc. Capital Growth Fund Limited (Growth Fund) VTA Holdings Common stock Staccato SiliconBlue Technologies, Inc. Common stock Memsic, Inc. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic, Inc. IP Unity, Inc. Sonics, Inc. Common stock Memsic, Inc. Sonics, Inc. VTAF III Growth Fund ISDF ISDF II 30 - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 3,974 7,956 759 834 475 3,795 2,784 33,347 7,027 - 1,599 3,936 US$ 3,816 US$ 1,838 US$ 650 US$ 1,701 US$ 1,000 US$ 953 US$ 2,664 US$ 1,878 US$ 3,383 US$ 593 US$ 454 US$ 1,516 Subsidiary In vestments accounted for using - - equity method Subsidiary In vestments accounted for using 9,180 US$ 2,112 In vestee accounted for using 〃 equity method equity method 4,500 US$ 566 - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Subsidiary Subsidiary In vestments accounted for using equity method 〃 4,694 4,955 21,708 1,154 816 1,600 3,000 3,283 310 3,106 1,055 3,222 8,070 - - US$ 1,408 US$ 6,391 US$ 4,568 US$ 1,500 US$ 1,000 US$ 800 US$ 3,000 US$ 4,608 US$ 4,678 US$ 457 US$ 1,208 US$ 2,781 US$ 3,089 5 2 13 1 - 2 4 2 19 13 - 2 31 59 42 20 4 18 N/A 1 11 5 6 16 6 1 3 3 US$ 3,816 US$ 1,838 US$ 650 US$ 1,701 US$ 1,000 US$ 953 US$ 2,664 US$ 1,878 US$ 3,383 US$ 593 US$ 454 US$ 1,516 - US$ 2,112 US$ 566 US$ 1,408 US$ 6,391 US$ 4,568 US$ 1,500 US$ 1,000 US$ 800 US$ 3,000 US$ 4,608 US$ 4,678 US$ 457 US$ 1,208 US$ 2,781 US$ 3,089 US$ 823 100 US$ 823 - 62 - - - - - - - - - - Financial assets carried at cost 〃 10 5,107 US$ 25 US$ 762 Available-for-sale financial assets Financial assets carried at cost 1,364 557 US$ 4,472 US$ 154 Financial assets carried at cost 〃 〃 2,872 1,008 230 US$ 1,221 US$ 290 US$ 497 Available-for-sale financial assets Financial assets carried at cost 1,145 278 US$ 3,754 US$ 10 - 2 6 2 9 1 2 5 3 US$ 25 US$ 762 US$ 4,472 US$ 154 US$ 1,221 US$ 290 US$ 497 US$ 3,754 US$ 10 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note GUC Xintec TSMC Global Epic Communication, Inc. EON Technology, Corp. Goyatek Technology, Corp. Capella Microsystems (Taiwan), Inc. Auden Technology MFG. Co., Ltd. Preferred stock Alchip Technologies Limited FangTek, Inc. Kilopass Technology, Inc. Sonics, Inc. Open-end mutual fund Jih Sun Bond Fund FSITC Taiwan Bond Fund Cathay Bond Fund Common stock GUC-NA GUC-Japan GUC-Europe GUC-BVI Capital Compositech Ltd. Corporate bond Ab Svensk Exportkredit Swedish African Development Bank Allstate Life Global Fdg Asian Development Bank Astrazeneca Plc Australia + New Zealand Bkg Banco Bilbao Vizcaya P R Bank New York Inc. Medium Bank of New York Mellon Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bhp Billiton Fin USA Ltd. Bnp Paribas SA Boeing Co. Bsch Issuances Ltd. Cello Part/Veri Wirelss Citibank NA Citigroup funding Inc. Credit Suisse New York European Investment Bank Federal Farm Cr Bks Finance for Danish Ind General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. Fdic Gtd Goldman Sachs Group Inc. Goldman Sachs Group Incser 2 Hewlett Packard Co. HSBC Fin Corp. HSBC USA Inc. Fdic Gtd Tlgp IBM Corp. - - - - - - - - - - - - Subsidiary Subsidiary Subsidiary Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 〃 Available-for-sale financial assets 〃 〃 In vestments accounted for using equity method 〃 〃 〃 Financial assets carried at cost Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 50 2,368 932 561 1,049 6,979 1,032 3,887 264 5,668 352 2,509 800 1 - 550 587 5,000 2,600 220 2,500 2,150 2,000 3,250 2,100 2,200 5,000 3,500 2,000 2,310 450 2,250 2,000 5,000 2,000 2,000 2,250 2,250 1,900 1,000 7,000 2,500 2,000 3,000 3,000 2,315 2,200 1,800 US$ 23 US$ 656 US$ 545 US$ 210 US$ 223 US$ 3,664 US$ 686 US$ 500 US$ 456 $ 80,008 60,005 30,001 38,617 12,899 5,213 17,466 - US$ 5,144 US$ 2,622 US$ 221 US$ 2,497 US$ 2,349 US$ 2,054 US$ 3,248 US$ 2,262 US$ 2,208 US$ 4,974 US$ 3,391 US$ 2,129 US$ 2,339 US$ 445 US$ 2,359 US$ 2,068 US$ 4,996 US$ 2,016 US$ 2,057 US$ 2,243 US$ 2,254 US$ 1,900 US$ 978 US$ 7,001 US$ 2,547 US$ 1,939 US$ 3,012 US$ 3,000 US$ 2,233 US$ 2,277 US$ 1,796 - 3 6 2 3 18 6 5 3 - - - 100 100 100 100 3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 23 US$ 656 US$ 545 US$ 210 US$ 223 US$ 3,664 US$ 686 US$ 500 US$ 456 $ 80,008 60,005 30,001 38,617 12,899 5,213 17,466 - US$ 5,144 US$ 2,622 US$ 221 US$ 2,497 US$ 2,349 US$ 2,054 US$ 3,248 US$ 2,262 US$ 2,208 US$ 4,974 US$ 3,391 US$ 2,129 US$ 2,339 US$ 445 US$ 2,359 US$ 2,068 US$ 4,996 US$ 2,016 US$ 2,057 US$ 2,243 US$ 2,254 US$ 1,900 US$ 978 US$ 7,001 US$ 2,547 US$ 1,939 US$ 3,012 US$ 3,000 US$ 2,233 US$ 2,277 US$ 1,796 (Continued) 31 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note International Business Machs Intl Bk Recon + Develop JP Morgan Chase + Co. JP Morgan Chase + Co. Fdic Gtd Tlg Kfw Kfw Medium Term Nts Book Entry Kreditanstalt Fur Wiederaufbau Lloyds Tsb Bank Plc Ser 144A Mellon Fdg Corp. Met Life Glob Funding I Met Life Glob Funding I Metlife Inc. Metropolitan Life Global Fdg Metropolitan Life Global Fdg I Morgan Stanley Morgan Stanley Morgan Stanley Fdic Gtd Tlgp Morgan Stanley for Equity Nordea Bank Fld Plc Oesterreichische Kontrollbank Ontario (Province of) Paccar Finl Corp. Mtn Bk Ent Pricoa Global Fdg I Med Term Pricoa Global Funding 1 Pricoa Global Fdg I Medium Royal Bk of Scotland Plc Royal Bk Scotlnd Grp Plc 144A Southern Co. Sovereign Bancorp Fdic Gtd Tlg State Str Corp. Suncorp Metway Ltd. Suncorp Metway Ltd. Svenska Handelsbanken Ab Swedbank Ab Swedbank Foreningssparbanken A Ubs Ag Stamford US Central Federal Cred Verizon Communications Inc. Verizon Global Fdg Corp. Wachovia Corp. New Wells Fargo + Company Westfield Cap Corp. Ltd. Westpac Banking Corp. Westpac Banking Corp. Nationwide Building Society Westpac Banking Corp. 12/12 Frn Agency bond Fannif Mae Fed Hm Ln Pc Pool 1b2830 Fed Hm Ln Pc Pool 1g0115 Fed Hm Ln Pc Pool 1k1210 Fed Hm Ln Pc Pool 780741 Federal Farm Cr Bks Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 3,000 2,000 2,500 3,000 2,230 1,950 650 5,950 3,500 2,100 500 2,000 750 3,340 2,200 2,000 2,210 2,000 2,250 2,000 2,000 1,000 1,750 1,200 2,200 5,000 9,450 600 2,200 1,940 2,000 5,000 2,200 2,000 1,500 1,300 4,800 2,200 500 4,000 2,000 500 2,100 2,170 8,000 5,000 2,820 2,554 2,271 2,053 2,121 2,000 3,000 2,200 11,000 1,350 3,421 US$ 3,027 US$ 2,069 US$ 2,523 US$ 3,030 US$ 2,236 US$ 1,953 US$ 673 US$ 6,049 US$ 3,419 US$ 2,142 US$ 502 US$ 2,017 US$ 739 US$ 3,278 US$ 2,212 US$ 2,032 US$ 2,244 US$ 1,943 US$ 2,240 US$ 2,059 US$ 1,980 US$ 1,007 US$ 1,638 US$ 1,167 US$ 2,130 US$ 5,078 US$ 9,578 US$ 602 US$ 2,246 US$ 1,920 US$ 2,004 US$ 5,170 US$ 2,214 US$ 1,994 US$ 1,537 US$ 1,300 US$ 4,799 US$ 2,294 US$ 528 US$ 4,246 US$ 2,013 US$ 514 US$ 2,112 US$ 2,168 US$ 8,000 US$ 5,000 US$ 2,814 US$ 2,635 US$ 2,315 US$ 2,121 US$ 2,181 US$ 2,117 US$ 2,990 US$ 2,258 US$ 11,028 US$ 1,352 US$ 3,533 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 3,027 US$ 2,069 US$ 2,523 US$ 3,030 US$ 2,236 US$ 1,953 US$ 673 US$ 6,049 US$ 3,419 US$ 2,142 US$ 502 US$ 2,017 US$ 739 US$ 3,278 US$ 2,212 US$ 2,032 US$ 2,244 US$ 1,943 US$ 2,240 US$ 2,059 US$ 1,980 US$ 1,007 US$ 1,638 US$ 1,167 US$ 2,130 US$ 5,078 US$ 9,578 US$ 602 US$ 2,246 US$ 1,920 US$ 2,004 US$ 5,170 US$ 2,214 US$ 1,994 US$ 1,537 US$ 1,300 US$ 4,799 US$ 2,294 US$ 528 US$ 4,246 US$ 2,013 US$ 514 US$ 2,112 US$ 2,168 US$ 8,008 US$ 4,999 US$ 2,814 US$ 2,635 US$ 2,315 US$ 2,121 US$ 2,181 US$ 2,117 US$ 2,990 US$ 2,258 US$ 11,028 US$ 1,352 US$ 3,533 32 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Mtg Corp. Federal Home Loan Mtg Corp. Federal National Mort Assoc Federal National Mort Assoc Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Remic Federal Natl Mtg Assn Federal Natl Mtge Assn Fhr 3087 Jb Fnma Pool 745688 Fnma Pool 790772 Fnma Pool 819649 Fnma Pool 829989 Fnma Pool 846233 Fnma Pool 870884 Fnma Pool 879908 Fnr 2005 47 Ha Fnr 2006 60 Co Fnr 2009 70 Nt Freddie Mac Gnma II Pool 082431 Government bond US Treasury N/B US Treasury N/B US Treasury Nts United States Treas Nts Societe De Financement De Lec Corporate issued note Barclays U.S. Fdg LLC Royal Bk of Scotland Money market fund Ssga Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 Held-to-maturity financial assets 2,662 2,469 2,309 2,358 10,000 8,000 10,000 4,700 11,200 3,310 3,000 3,000 3,000 1,411 1,940 2,117 1,752 2,854 2,669 2,871 4,000 2,039 2,540 2,272 1,527 2,318 2,146 2,288 2,357 2,056 2,652 3,062 2,537 4,500 2,000 21,400 2,170 37,700 10,536 15,000 US$ 2,763 US$ 2,521 US$ 2,350 US$ 2,448 US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 US$ 2,989 US$ 2,983 US$ 2,984 US$ 1,441 US$ 2,012 US$ 2,176 US$ 1,782 US$ 2,926 US$ 2,765 US$ 2,953 US$ 4,228 US$ 2,126 US$ 2,656 US$ 2,336 US$ 1,568 US$ 2,383 US$ 2,221 US$ 2,332 US$ 2,442 US$ 2,128 US$ 2,753 US$ 3,153 US$ 2,609 US$ 4,491 US$ 2,030 US$ 21,394 US$ 2,158 US$ 39,012 US$ 10,548 US$ 15,000 Available-for-sale financial assets 〃 4,500 5,000 US$ 4,489 US$ 4,982 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 2,763 US$ 2,521 US$ 2,350 US$ 2,448 US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 US$ 2,989 US$ 2,983 US$ 2,984 US$ 1,441 US$ 2,012 US$ 2,176 US$ 1,782 US$ 2,926 US$ 2,765 US$ 2,953 US$ 4,228 US$ 2,126 US$ 2,656 US$ 2,336 US$ 1,568 US$ 2,383 US$ 2,221 US$ 2,332 US$ 2,442 US$ 2,128 US$ 2,753 US$ 3,153 US$ 2,609 US$ 4,491 US$ 2,030 US$ 21,394 US$ 2,158 US$ 39,012 US$ 10,548 US$ 15,091 US$ 4,489 US$ 4,982 Available-for-sale financial assets 8,858 US$ 8,858 N/A US$ 8,858 (Concluded) 33 TABLE 2 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Counter-party Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) Company Name Marketable Securities Type and Name TSMC Corporate bond Taiwan Mobile Co., Ltd. Formosa Petrochemical Corporation Financial Statement Account Available-for-sale financial assets Held-to-maturity financial assets Taiwan Power Company Formosa Plastic Corporation China Steel Corporation Taipei Fubon Commercial Bank Co., 〃 〃 〃 〃 Ltd. Grand Cathay Securities Corp. and several financial institutions 〃 〃 〃 〃 〃 Government bond European Investment Bank Bonds Held-to-maturity financial assets Grand Cathay Securities Corp. and several financial institutions Capital VTAF III Investments - accounted for using equity method TSMC Development Corporate bond JP Morgan Chase & Co. GUC Open-end mutual fund Jih Sun Bond Fund Held-to-maturity financial assets JP Morgan Securitied Inc. Av ailable-for-sale financial assets Jih Sun Investment Trust Co., Ltd. FSITC Taiwan Bond Fund Prudential Financial Bond Fund PCA Well Pool Fund Hua Nan Phoenix Bond Fund 〃 〃 〃 〃 First Securities Investment Trust Co., Ltd. Prudential Financial Securities Investment Trust Enterprise PCA Securities Investment Trust Co., Ltd. Hua Nan Investment Trust Co., Ltd. T SMC Global Corporate bond Ab Svensk Exportkredit Swedish Av ailable-for-sale financial assets Banco Bilbao Vizcaya P R Bear Stearns Cos Inc. Bear Stearns Cos Inc. Chase Manhattan Corp. New Citibank NA Citibank NA Deutsche Bank Ag London General Elec Cap Corp. General Elec Cap Corp. Goldman Sachs Group Incser 2 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - 34 - - - - - - - Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 2,032,658 3,554,908 4,209,629 2,385,285 1,000,000 - 383,387 1,305,605 - - - - - - - - - - 3,250 - - 2,995 - - - - - - US$ 3,353 - - US$ 3,013 - - - - - - - - - - - $ - 457,351 203,892 203,994 514,672 298,677 2,025,500 262,922 - US$ 15,000 - - - - - - - - - $ 1,037,370 $ 1,000,000 $ 37,370 - - - - - - - - - - - - - - - 400,000 383,909 16,091 - - - - 19,143 270,000 13,475 190,120 190,000 1,146 195,000 794 135,206 135,000 11,261 170,000 11,261 170,319 170,000 13,121 170,000 13,121 170,241 170,000 10,287 160,000 10,287 160,143 160,000 - - - - - - - - $ 1,046,672 3,178,551 3,004,941 1,671,815 1,512,130 298,884 2,003,876 1,309,615 - US$ 15,000 5,668 352 80,008 60,005 - - - - - - - - 120 206 319 241 143 5,000 US$ 5,185 3,250 5,000 3,500 - 3,000 5,000 - 5,000 7,000 3,000 US$ 3,250 US$ 4,965 US$ 3,360 - US$ 3,002 US$ 4,995 - US$ 4,834 US$ 7,002 US$ 3,016 - - - - 3,250 3,000 - 2,995 4,000 - - - - - 5,000 US$ 5,144 - - - US$ 3,380 US$ 3,002 - US$ 3,021 US$ 3,880 - - - - - US$ 3,480 US$ 3,002 - US$ 3,041 US$ 3,868 - - - - - US$ (100) - - US$ (20) US$ 12 - - 3,250 5,000 3,500 - - 5,000 - 1,000 7,000 3,000 US$ 3,248 US$ 4,974 US$ 3,391 - - US$ 4,996 - US$ 978 US$ 7,001 US$ 3,012 (Continued) Company Name Marketable Securities Type and Name International Business Machs Financial Statement Account Av ailable-for-sale financial assets JP Morgan Chase + Co. Fdic Gtd Tlg 〃 〃 Keycorp Fdic Gtd Tlgp 〃 Lloyds Tsb Bank Plc Ser 144A 〃 Mellon Fdg Corp. 〃 Metropolitan Life Global Fdg I 〃 Morgan Stanley 〃 Royal Bk of Scotland Plc 〃 Royal Bk Scotlnd Grp Plc 144A 〃 Suncorp Metway Ltd. 〃 US Central Federal Cred 〃 Wachovia Corp. New 〃 Wachovia Corp. New 〃 Wells Fargo + Co. New Med Trm He ld-to-maturity Nationwide Building Society financial assets Westpac Banking Corp. 12/12 Frn 〃 Agency bond Fed Hm Ln Pc Pool 1g1282 Fed Hm Ln Pc Pool b19205 Fed Home Ln Bank Federal Farm Cr Bks Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Av ailable-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Counter-party Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - 3,000 US$ 3,030 - US$ - US$ - US$ - 3,000 US$ 3,027 - - - - - 4,855 - - - - - 3,130 4,500 - - - - - - - US$ 4,552 - - - - - US$ 3,135 US$ 4,493 - 3,000 5,000 5,950 3,500 3,340 - 5,000 9,450 5,000 4,800 4,000 - - 8,000 US$ 3,030 US$ 5,061 US$ 6,077 US$ 3,404 US$ 3,245 - US$ 5,106 US$ 9,596 US$ 5,192 US$ 4,799 US$ 4,239 - - US$ 8,000 - 5,000 US$ 5,000 - 5,000 - - - 4,855 - - - - - 3,130 4,500 - - - US$ 5,061 - - - US$ 4,751 - - - - - US$ 3,195 US$ 4,524 - - US$ 5,061 - - - US$ 4,768 - - - - - US$ 3,100 US$ 4,282 - - - - - - US$ (17) - - - - - US$ 95 US$ 242 - 3,000 - 5,950 3,500 3,340 - 5,000 9,450 5,000 4,800 4,000 - - 8,000 US$ 3,030 - US$ 6,049 US$ 3,419 US$ 3,278 - US$ 5,078 US$ 9,578 US$ 5,170 US$ 4,799 US$ 4,246 - - US$ 8,000 - - - 5,000 US$ 5,000 3,215 US$ 3,285 - - 3,179 US$ 3,281 US$ 3,171 US$ 110 - - 5,449 5,000 3,400 3,375 - 3,725 5,000 4,000 5,000 3,340 3,500 3,500 - 3,060 - - - - - - - 4,500 - 3,700 4,000 3,500 - 3,750 US$ 5,501 US$ 5,305 US$ 3,610 US$ 3,433 - US$ 3,854 US$ 5,320 US$ 4,148 US$ 5,340 US$ 3,428 US$ 3,560 US$ 3,743 - US$ 3,108 - - - - - - - US$ 4,710 - US$ 3,713 US$ 4,169 US$ 3,809 - US$ 4,134 - - - - 11,000 - - - - - - - 3,679 - 10,000 10,000 10,000 4,700 11,200 3,310 3,000 - 9,246 - - - 4,000 - - - - - US$ 11,038 - - - - - - - US$ 3,824 - US$ 9,996 US$ 10,002 US$ 10,035 US$ 4,723 US$ 11,200 US$ 3,310 US$ 3,000 - US$ 9,474 - - - US$ 4,261 - 5,335 5,000 3,400 3,375 - 3,725 5,000 4,000 5,000 3,340 3,500 3,500 - 3,005 - 2,000 - - - - - 4,500 9,246 3,700 4,000 3,500 - 3,750 US$ 5,511 US$ 5,282 US$ 3,590 US$ 3,429 - US$ 3,851 US$ 5,312 US$ 4,151 US$ 5,334 US$ 3,431 US$ 3,561 US$ 3,749 - US$ 3,078 - US$ 2,000 - - - - - US$ 4,709 US$ 9,461 US$ 3,712 US$ 4,180 US$ 3,801 - US$ 4,127 US$ 5,225 US$ 5,035 US$ 3,411 US$ 3,370 - US$ 3,721 US$ 5,098 US$ 4,136 US$ 5,186 US$ 3,335 US$ 3,494 US$ 3,786 - US$ 3,003 - US$ 2,000 - - - - - US$ 4,518 US$ 9,474 US$ 3,700 US$ 4,117 US$ 3,645 - US$ 4,151 US$ 286 US$ 247 US$ 179 US$ 59 - US$ 130 US$ 214 US$ 15 US$ 148 US$ 96 US$ 67 US$ (37) - US$ 75 - - - - - - - US$ 191 US$ (13) US$ 12 US$ 63 US$ 156 - US$ (24) - - - - 11,000 - - - - - - - 3,421 - 10,000 8,000 10,000 4,700 11,200 3,310 3,000 - - - - - 4,000 - - - - - US$ 11,028 - - - - - - - US$ 3,533 - US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 US$ 2,984 - - - - - US$ 4,228 - (Continued) 35 Counter-party Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) - US$ - 3,062 US$ 3,153 - US$ - US$ - US$ - 2,854 US$ 2,926 Company Name Marketable Securities Type and Name Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Remic Fnma Pool 257245 Fnma Pool 691283 Fnma Pool 852300 Fnma Pool 852347 Fnma Pool 888738 Fnma Pool 888793 Fnma Pool 955778 Fnr 2006 60 Co Freddie Mac Government bond United States Treas Nts US Treasury N/B US Treasury N/B US Treasury Nts Societe De Financement De Lec Corporate issued note Barclays U.S. Fdg LLC Royal Bk of Scotland Money market fund Ssga Cash Mgmt Global Offshore Corporate issued asset-backed securities Banc Amer Coml Mtg Inc. Cit Equip Coll Tr Credit Suisse First Boston Mtg First Un Natl Bk Coml Mtg Tr Lb Ubs Coml Mtg Tr Tiaa Seasoned Coml Mtg Tr Wamu Mtg Financial Statement Account Av ailable-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Av ailable-for-sale financial assets 〃 〃 〃 He ld-to-maturity financial assets Av ailable-for-sale financial assets 〃 Av ailable-for-sale financial assets Av ailable-for-sale financial assets 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,036 - - 9,276 3,761 - - 7,680 3,239 4,500 - 41,900 3,520 50,000 15,000 US$ 3,127 - - US$ 9,843 US$ 3,991 - - US$ 8,138 US$ 3,352 US$ 4,490 - 3,415 2,932 9,206 3,721 3,659 4,071 7,395 - - - US$ 3,513 US$ 3,028 US$ 9,773 US$ 3,950 US$ 3,828 US$ 4,265 US$ 7,829 - - - US$ 3,437 US$ 2,920 US$ 9,770 US$ 3,949 US$ 3,801 US$ 4,207 US$ 7,836 - - - US$ 76 US$ 108 US$ 3 US$ 1 US$ 27 US$ 58 US$ (7) - - 2,871 - - - - - - - 3,062 4,500 US$ 2,953 - - - - - - - US$ 3,153 US$ 4,491 - 10,357 US$ 11,258 US$ 11,258 - 10,536 US$ 10,548 US$ 41,931 US$ 3,498 US$ 52,184 US$ 15,000 20,500 1,350 12,300 - US$ 20,564 US$ 1,358 US$ 12,826 - US$ 20,515 US$ 1,341 US$ 12,837 - US$ 49 US$ 17 US$ (11) - 21,400 2,170 37,700 15,000 US$ 21,394 US$ 2,158 US$ 39,012 US$ 15,000 - 3,456 2,963 - - 3,669 4,105 - - - - US$ 3,513 US$ 3,039 - - US$ 3,776 US$ 4,242 - - - 10,266 US$ 10,374 - - - - - - - - - - - - 4,500 US$ 4,489 5,000 US$ 4,982 - - - - - - - - - 4,500 US$ 4,489 5,000 US$ 4,982 8,858 US$ 8,858 30,435 US$ 30,435 495,908 US$ 495,908 517,485 US$ 517,485 US$ 517,485 4,597 US$ 4,584 4,000 4,353 4,788 3,737 3,397 3,214 US$ 3,884 US$ 4,349 US$ 4,715 US$ 3,495 US$ 3,163 US$ 2,925 - - - - - - - - - - - - - - 4,472 US$ 4,480 US$ 4,584 US$ (104) 4,000 4,090 4,774 3,725 3,375 3,172 US$ 3,925 US$ 4,085 US$ 4,780 US$ 3,537 US$ 3,283 US$ 3,106 US$ 3,996 US$ 4,188 US$ 4,954 US$ 3,697 US$ 3,392 US$ 3,114 US$ (71) US$ (103) US$ (174) US$ (160) US$ (109) US$ (8) - - - - - - - - - - - - - - (Concluded) Note 1: The shares/units and amount of marketable securities acquired do not include stock dividends from investees. Note 2: The data for marketable securities disposed exclude bonds maturities and capital return from subsidiaries. Note 3: The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments or equity in earnings/losses of equity method investees. 36 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships TSMC Fab Oc tober 25, 2009 $ 514,777 By the construction Fu Tsu Construction - to December 30, 2009 progress Co., Ltd. and China Steel Structure Co., Ltd. Prior Transaction of Related Counter-party Relationships Transfer Date Amount Price Reference N/A N/A N/A Public bidding Owner N/A Purpose of Acquisition Ma nufacturing purpose Other Terms None TABLE 4 Taiwan Semiconductor Manufacturing Company Limited and Investees TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Purchases/Sales Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total Note Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable TSMC TSMC North America GUC VIS WaferTech TSMC China SSMC VIS Subsidiary Investee with a controlling financial interest Investee accounted for using equity method Indirect subsidiary Subsidiary Investee accounted for using equity method Investee accounted for using equity method GUC TSMC North America Same parent company Sales Sales Sales Purchases Purchases Purchases Purchases Purchases $ 161,251,368 2,023,612 139,044 5,560,707 3,787,113 3,537,659 3,312,656 937,160 54 1 - 18 12 11 10 28 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Ne t 30 days after invoice date/net 45 days after monthly closing Xintec OmniVision Pa rent company of director (represented for Sales 1,801,655 77 Net 30 days after monthly closing Xintec) Note: The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements. - - - - - - - - - - - - - - - - - - $ 22,203,242 338,502 - (561,165) (481,500) (238,741) (529,060) (173,789) 397,695 52 1 - 5 4 2 5 25 73 37 TABLE 5 Taiwan Semiconductor Manufacturing Company Limited and Investees RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Ending Balance TSMC Xintec TSMC North America GUC TSMC China Subsidiary Investee with a controlling financial interest Subsidiary $ 22,211,918 338,502 111,103 OmniVision Parent company of director (represented for Xintec) 397,695 Note 1: The calculation of turnover days excludes other receivables from related parties. Note 2: The ending balance primarily consisted of other receivables, which is not applicable for the calculation of turnover days. Turnover Days (Note 1) Overdue Amounts Action Taken 38 50 (Note 2) 81 $ 6,438,761 - - 160 - - - - Amounts Received in Subsequent Period $ 8,899,170 - - Allowance for Bad Debts $ - - - 127,130 - 38 TABLE 6 Taiwan Semiconductor Manufacturing Company Limited and Investees NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investor Company Investee Company Location Main Businesses and Products TSMC TSMC Global TSMC Partners Tortola, British Virgin Islands Tortola, British Virgin Islands VIS SSMC Hsin-Chu, Taiwan 13,232,288 13,232,288 628,223 Singapore Fabrication and supply of integrated circuits 5,120,028 5,120,028 Investment activities Investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts TSMC China Shanghai, China TSMC North America San Jose, California, U.S.A. Xintec VTAF III VTAF II GUC Emerging Alliance TSMC Europe TSMC Japan TSMC Korea Taoyuan, Taiwan Cayman Islands Cayman Islands Hsin-Chu, Taiwan Cayman Islands Amsterdam, the Netherlands Yokohama, Japan Seoul, Korea TSMC Partners TSMC Development VisEra Holding Company Delaware, U.S.A. Cayman Islands ISDF II TSMC Technology ISDF TSMC Canada Mcube Inc. (Common Stock) Cayman Islands Delaware, U.S.A. Cayman Islands Ontario, Canada Delaware, U.S.A. Mcube Inc. (Preferred Stock) Delaware, U.S.A. TSMC Development WaferTech Washington, U.S.A. VisEra Holding Company VisEra Hsin-Chu, Taiwan Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Sales and marketing of integrated circuits and semiconductor devices Wafer level chip size packaging service Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits Investing in new start-up technology companies Marketing and engineering supporting activities Marketing activities Customer service and technical support activities Investment activities Investment in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry Investing in new start-up technology companies Engineering support activities Investing in new start-up technology companies Engineering support activities Research, development, and sale of micro- semiconductor device Research, development, and sale of micro- semiconductor device Manufacturing, selling, testing and computer- aided designing of integrated circuits and other semiconductor devices Manufacturing and selling of electronic parts and providing turn-key services in back-end color filter fabrication, package, test, and optical solutions Original Investment Amount Balance as of December 31, 2009 December 31, 2009 (Foreign Currencies in Thousands) December 31, 2008 (Foreign Currencies in Thousands) Shares (In Thousands) Percentage of Ownership Carrying Value (Foreign Currencies in Thousands) Net Income (Losses) of the Investee (Foreign Currencies in Thousands) Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands) Note $ 42,327,245 31,456,130 $ 42,327,245 31,456,130 1 988,268 100 100 $ 45,397,256 32,545,619 $ 505,232 (54,907) $ 505,232 (54,907) Subsidiary Subsidiary 12,180,367 12,180,367 333,718 333,718 1,357,890 1,357,890 1,703,163 1,093,943 386,568 959,044 15,749 83,760 13,656 1,440,241 1,036,422 386,568 986,797 15,749 83,760 13,656 US$ 0.001 US$ 43,000 US$ 0.001 US$ 43,000 US$ 21,415 US$ 0.001 US$ 7,680 US$ 2,300 US$ 800 US$ 32,289 US$ 0.001 US$ 7,680 US$ 2,300 - US$ 1,000 - 314 - 11,000 93,081 - - 46,688 - - 6 80 1 43,000 21,415 1 7,680 2,300 5,333 1,000 37 39 9,365,232 89,241 (368,710) 6,157,141 1,608,714 427,022 Investee accounted for using equity method Investee accounted for using equity method 100 2,961,043 (3,244,458) (3,242,122) Subsidiary 100 2,723,727 360,562 360,562 Subsidiary 1,475,014 10,597 (20,659) Investee with a controlling 41 98 98 35 99 100 100 100 100 49 97 100 97 100 70 1,309,615 1,122,810 983,126 305,866 159,467 135,663 18,519 (224,620) (178,442) 412,771 (92,606) 35,445 4,203 2,392 US$ 340,387 US$ 70,967 US$ 9,293 US$ 322 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 US$ 960 US$ 662 US$ (1,504) US$ 210 US$ (24) 10 US$ 1,000 US$ (24) (223,546) (174,873) 146,384 (92,143) 35,445 4,203 2,392 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 financial interest Subsidiary Subsidiary Investee with a controlling financial interest Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary Investee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary (Note 3) Investee accounted for using equity method Investee accounted for using equity method US$ 330,000 US$ 380,000 293,637 100 US$ 154,432 US$ (125) Note 2 Subsidiary US$ 91,041 US$ 91,041 253,120 89 US$ 125,983 US$ 313 Note 2 Subsidiary (Continued) 39 Original Investment Amount Balance as of December 31, 2009 Shares (In Thousands) Percentage of Ownership Carrying Value (Foreign Currencies in Thousands) Net Income (Losses) of the Investee (Foreign Currencies in Thousands) Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands) Note 9,180 4,500 - - - 800 1 - 550 - 59 42 100 62 31 100 100 100 100 7 US$ 2,112 US$ (1,105) Note 2 Subsidiary US$ 566 US$ (1,239) Note 2 Investee accounted for using equity method US$ 823 - US$ (127) - Note 2 Note 2 Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) $ 38,617 12,899 5,213 17,466 $ 5,617 1,608 353 (133) Note 2 Note 2 Note 2 Note 2 Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) (Concluded) Investor Company Investee Company Location Main Businesses and Products VTAF III Mutual-Pak Technology Co., Ltd. Taipei, Taiwan Aiconn Technology Corp. Taipei, Taiwan Manufacturing and selling of electronic parts and researching, developing, and testing of RFID Wholesaling telecommunication equipments, and manufacturing wired and wireless communication equipments December 31, 2009 (Foreign Currencies in Thousands) December 31, 2008 (Foreign Currencies in Thousands) US$ 3,088 US$ 1,705 US$ 1,777 US$ 1,777 VTAF II GUC Growth Fund VTA Holdings VTA Holdings GUC-NA GUC-Japan GUC-Europe GUC-BVI Cayman Islands Delaware, U.S.A. Investing in new start-up technology companies Investing in new start-up technology companies US$ 1,550 - US$ 700 - Delaware, U.S.A. Investing in new start-up technology companies - - U.S.A. Japan The Netherlands British Virgin Islands Consulting services in main products Consulting services in main products Consulting services in main products Investment activities US$ 800 JPY 30,000 EUR 100 US$ 550 US$ 800 JPY 30,000 EUR 50 - Emerging Alliance VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - - Note 1: Equity in earnings/losses of investees include the effect of unrealized gross profit from affiliates. Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company. Note 3: Equity in earnings/losses was determined based on the unaudited financial statements. 40 TABLE 7 Taiwan Semiconductor Manufacturing Company Limited INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (RMB in Thousand) Method of Investment TSMC China Ma nufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers $ 12,180,367 (RMB 3,070,623) (Note 1) Accumulated Outflow of Investment from Taiwan as of January 1, 2009 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Investment Flows Outflow Inflow $ - $ - Accumulated Outflow of Investment from Taiwan as of December 31, 2009 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Percentage of Ownership 100% Equity in the Earnings (Losses) (Note 2) Carrying Value as of December 31, 2009 Accumulated Inward Remittance of Earnings as of December 31, 2009 $ (3,242,122) $ 2,961,043 $ - Accumulated Investment in Mainland China as of December 31, 2009 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) Note 1: Direct investments US$371,000 thousand in TSMC China. Note 2: Amount was recognized based on the audited financial statements. 41 8. Consolidated Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report REPRESENTATION LETTER The entities that are required to be included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2009, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the revised Statement of Financial Accounting Standards No. 7, “Consolidated Financial Statements”. In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements. Very truly yours, TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED By MORRIS CHANG Chairman January 22, 2010 42 IINDEPENDENT AUDITORS’ REPORT Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated 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 any other jurisdiction. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and consolidated financial statements shall prevail. The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Limited We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2009 and 2008, and the results of their consolidated operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China. As discussed in Note 3 to the consolidated financial statements, effective January 1, 2009, Taiwan Semiconductor Manufacturing Company Limited and subsidiaries adopted the newly revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories”. In addition, effective January 1, 2008, Taiwan Semiconductor Manufacturing Company Limited and subsidiaries adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, issued by the Accounting Research and Development Foundation of the Republic of China and relevant requirements promulgated by the Financial Supervisory Commission of the Executive Yuan. January 22, 2010 43 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss (Notes 2, 5 and 24) Available-for-sale financial assets (Notes 2, 6 and 24) Held-to-maturity financial assets (Notes 2, 7 and 24) Receivables from related parties Notes and accounts receivable Allowance for doubtful receivables (Notes 2 and 8) Allowance for sales returns and others (Notes 2 and 8) Other receivables from related parties Other financial assets (Note 26) Inventories (Notes 2, 3 and 9) Deferred income tax assets (Notes 2 and 18) Prepaid expenses and other current assets Total current assets LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 24) Investments accounted for using equity method Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Total long-term investments PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 26) Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased assets Accumulated depreciation Advance payments and construction in progress 2009 Amount $ 171,276,341 186,081 14,389,946 9,944,843 12,524 44,637,642 (543,325) (8,724,481) 121,292 1,849,987 20,913,751 4,370,309 1,368,838 259,803,748 17,871,208 1,358,049 15,553,242 3,063,004 37,845,503 2008 Amount $ 194,613,752 55,730 10,898,715 5,881,999 407 25,023,321 (455,751) (6,071,026) 99,918 1,911,699 14,876,645 3,969,330 1,813,692 252,618,431 18,907,158 2,032,658 15,426,252 3,615,447 39,981,515 % 29 - 2 2 - 7 - (1) - - 4 1 - 44 3 - 3 1 7 % 35 - 2 1 - 4 - (1) - - 3 1 - 45 3 - 3 1 7 934,090 142,294,558 775,653,489 13,667,747 714,424 933,264,308 (693,743,886) 34,154,365 - 24 130 2 - 156 (117) 6 953,857 132,249,996 697,498,743 12,430,800 722,339 843,855,735 (618,816,267) 18,605,882 - 24 125 2 - 151 (110) 3 Net property, plant and equipment 273,674,787 45 243,645,350 44 INTANGIBLE ASSETS Goodwill (Note 2) Deferred charges, net (Notes 2 and 13) Total intangible assets OTHER ASSETS Deferred income tax assets (Notes 2 and 18) Refundable deposits Others (Notes 2 and 26) Total other assets 5,931,318 6,458,554 12,389,872 7,988,303 2,733,143 260,864 10,982,310 1 1 2 1 1 - 2 6,044,392 7,125,828 13,170,220 6,636,873 2,767,199 97,001 9,501,073 1 1 2 1 1 - 2 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES 2009 2008 Amount % Amount % Financial liabilities at fair value through profit or loss (Notes 2, 5 and 24) Accounts payable Payables to related parties (Note 25) Income tax payable (Notes 2 and 18) Salary and bonus payable Accrued profit sharing to employees and bonus to directors and supervisors (Notes 2, 3 and 20) Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 16, 24 and 28) Current portion of bonds payable and bank loans (Notes 14, 15, 24 and 26) $ 25 10,905,884 783,007 8,800,249 9,317,035 6,818,343 28,924,265 12,635,182 949,298 - 2 - 1 2 1 5 2 - $ 85,187 5,553,151 489,857 9,331,825 2,215,780 15,369,730 7,998,773 7,540,055 8,222,398 - 1 - 2 - 3 1 1 2 Total current liabilities 79,133,288 13 56,806,756 10 LONG-TERM LIABILITIES Bonds payable (Notes 14 and 24) Long-term bank loans (Notes 15, 24 and 26) Other long-term payables (Notes 16, 24 and 28) Obligations under capital leases (Notes 2 and 24) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 17) Guarantee deposits (Note 28) Deferred credits (Note 2) Others Total other liabilities Total liabilities EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT Capital stock - NT$10 par value (Notes 20 and 22) Authorized: 28,050,000 thousand shares Issued: 25,902,706 thousand shares in 2009 25,625,437 thousand shares in 2008 Capital surplus (Notes 2 and 20) Retained earnings (Note 20) Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings Others (Notes 2, 22 and 24) Cumulative translation adjustments Unrealized gain/loss on financial instruments Equity attributable to shareholders of the parent MINORITY INTERESTS (Note 2) Total shareholders’ equity 4,500,000 578,560 5,602,420 707,499 11,388,479 3,797,032 1,006,023 185,689 137,161 5,125,905 1 - 1 - 2 1 - - - 1 4,500,000 1,420,476 9,548,226 722,339 16,191,041 3,701,584 1,484,495 316,537 43,709 5,546,325 1 - 2 - 3 1 - - - 1 95,647,672 16 78,544,122 14 259,027,066 55,486,010 77,317,710 - 104,564,972 181,882,682 (1,766,667) 453,621 (1,313,046) 495,082,712 3,965,836 499,048,548 43 9 13 - 18 31 - - - 83 1 84 256,254,373 49,875,255 67,324,393 391,857 102,337,417 170,053,667 481,158 (287,342) 193,816 476,377,111 3,995,356 480,372,467 46 9 12 - 18 30 - - - 85 1 86 TOTAL $ 594,696,220 100 $ 558,916,589 100 TOTAL $ 594,696,220 100 $ 558,916,589 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 44 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2009 Amount % 2008 Amount % GROSS SALES (Notes 2 and 25) $ 309,655,614 $ 341,983,355 NON-OPERATING EXPENSES AND LOSSES SALES RETURNS AND ALLOWANCES (Notes 2 and 8) 13,913,375 8,825,695 NET SALES 295,742,239 100 333,157,660 100 COST OF SALES (Notes 3, 9, 19 and 25) GROSS PROFIT OPERATING EXPENSES (Note 19) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Interest income (Note 2) Settlement income (Note 28) Valuation gain on financial instruments, net (Notes 2, 5 and 24) Technical service income (Notes 25 and 28) Equity in earnings of equity method investees, net (Notes 2 and 10) Ga in on settlement and disposal of financial assets, net (Notes 2 and 24) Foreign exchange gain, net (Note 2) Others (Note 2) Total non-operating income and gains 166,413,628 129,328,611 21,593,398 11,285,478 4,487,849 37,366,725 91,961,886 2,600,925 1,464,915 594,660 367,013 45,994 15,999 - 564,042 5,653,548 56 44 7 4 2 13 31 1 1 - - - - - - 2 191,408,099 141,749,561 21,480,937 11,096,599 4,736,657 37,314,193 104,435,368 5,373,823 951,180 - 1,181,966 701,533 721,050 1,227,653 664,244 10,821,449 58 42 7 3 1 11 31 2 - - - - - 1 - 3 Impairment of financial assets (Notes 2, 6, 11 and 24) Foreign exchange loss, net (Note 2) Interest expense Valuation loss on financial instruments, net (Notes 2, 5 and 24) Loss on idle assets (Note 2) Others (Note 2) Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 2 and 18) NET INCOME ATTRIBUTABLE TO: Shareholders of the parent Minority interests EARNINGS PER SHARE (NT$, Note 23) Basic earnings per share Diluted earnings per share (Continued) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 2009 Amount $ 913,230 626,971 391,479 - - 221,107 2,152,787 95,462,647 5,996,424 2008 Amount $ 1,560,055 - 614,988 1,081,019 210,477 318,032 3,784,571 111,472,246 10,949,009 % 1 - - - - - 1 32 2 $ 89,466,223 30 $ 100,523,237 $ 89,217,836 248,387 $ 89,466,223 30 - 30 $ 99,933,168 590,069 $ 100,523,237 2009 2008 % 1 - - - - - 1 33 3 30 30 - 30 Income Attributable to Shareholders of the Parent Income Attributable to Shareholders of the Parent Before Income Tax After Income Tax Before Income Tax After Income Tax $ 3.68 $ 3.67 $ 3.45 $ 3.44 $ 4.26 $ 4.23 $ 3.84 $ 3.81 (Concluded) 45 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock - Common Stock Retained Earnings Shares (In Thousands) Amount Capital Surplus Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Others Treasury Stock Unrealized Gain (Loss) on Financial Instruments Others Total Total Minority Interests Total Shareholders’ Equity Equity Attributable to Shareholders of the Parent BALANCE, JANUARY 1, 2008 26,427,104 $ 264,271,037 $ 53,732,682 $ 56,406,684 $ 629,550 $ 161,828,337 $ 218,864,571 $ (1,072,853) $ 680,997 $ (49,385,032) $ (49,776,888) $ 487,091,402 $ 3,594,169 $ 490,685,571 Appropriations of prior year’s earnings Legal capital reserve Reversal of special capital reserve Profit sharing to employees - in cash Profit sharing to employees - in stock Cash dividends to shareholders - NT$3.00 per share Stock dividends to shareholders - NT$0.02 per share Bonus to directors Capital surplus transferred to capital stock Net income in 2008 Ad justment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising employee stock options Cash dividends received by subsidiaries from parent company Valuation loss on available-for-sale financial assets Net change in unrealized gain (loss) on financial instruments from equity method investees Treasury stock repurchased Treasury stock retired Decrease in minority interests - - - 393,988 - 51,254 - 76,881 - - - - - - 3,939,883 - 512,542 - 768,813 - - - - - - - - - - (768,813) - (137,063) - 6,027 60,266 166,884 - - - - 102,279 - - - (1,329,817) - - - (13,298,168) - - - (3,220,714) - 10,917,709 - - - - - - - - - (237,693) - - - - - - - (10,917,709) 237,693 (3,939,883) (3,939,883) (76,881,311) (512,542) (176,890) - 99,933,168 - - (3,939,883) (3,939,883) (76,881,311) (512,542) (176,890) - 99,933,168 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (63,293,563) - - - (63,293,563) - - - - - - - - - - - 1,554,011 - - - - - - - - - - - - - - - - - - - - (826,251) (142,088) - - - BALANCE, DECEMBER 31, 2008 25,625,437 256,254,373 49,875,255 67,324,393 391,857 102,337,417 170,053,667 481,158 (287,342) Appropriations of prior year’s earnings Legal capital reserve Reversal of special capital reserve Cash dividends to shareholders - NT$3.00per share Stock dividends to shareholders - NT$0.02per share Profit sharing to employees - in stock Capital surplus transferred to capital stock Net income in 2009 Adjustment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising employee stock options Valuation gain on available-for-sale financial assets Net change in unrealized gain (loss) on financial instruments from equity method investees Decrease in minority interests - - - 51,251 141,870 76,876 - - - 7,272 - - - - - - 512,509 1,418,699 768,763 - - - 72,722 - - - - - - - 6,076,289 (768,763) - 115,418 - 187,811 - - - 9,993,317 - - - - - - - (391,857) - - - - - (9,993,317) 391,857 (76,876,312) (512,509) - - 89,217,836 - - (76,876,312) (512,509) - - 89,217,836 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (2,247,825) - - - - - - - - - - - - - - 622,541 118,422 - - - - - - - - - - - - (3,939,883) - (76,881,311) - (176,890) - 99,933,168 - 1,554,011 (137,063) 1,554,011 - - - - - - - - 590,069 11,700 (68,792) - - (3,939,883) - (76,881,311) - (176,890) - 100,523,237 (125,363) 1,485,219 - 227,150 - 227,150 - - - - - - - - - - - - - - - (826,251) 102,279 (826,251) - (30,427,413) 79,812,445 - (142,088) (30,427,413) 79,812,445 - (142,088) (30,427,413) - - - (17,048) - - - (114,742) 102,279 (843,299) (142,088) (30,427,413) - (114,742) - - - - - - - - - - - - - - 193,816 476,377,111 3,995,356 480,372,467 - - - - - - - - - (76,876,312) - 7,494,988 - 89,217,836 - (2,247,825) 115,418 (2,247,825) - 622,541 118,422 - 260,533 622,541 118,422 - - - - - - - 248,387 (38,966) 39,786 - 6,047 - (284,774) - - (76,876,312) - 7,494,988 - 89,466,223 76,452 (2,208,039) 260,533 628,588 118,422 (284,774) BALANCE, DECEMBER 31, 2009 25,902,706 $ 259,027,066 $ 55,486,010 $ 77,317,710 $ - $ 104,564,972 $ 181,882,682 $ (1,766,667) $ 453,621 $ - $ (1,313,046) $ 495,082,712 $ 3,965,836 $ 499,048,548 Note: TSMC’s profit sharing to employees and bonus to directors in the amount of NT$6,771,338 thousand and NT$15,148,057 thousand, respectively, had been charged against earnings of 2009 and 2008. The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 22, 2010) 46 2009 2008 $ 89,217,836 248,387 $ 99,933,168 590,069 Decrease in refundable deposits Decrease (increase) in other assets 2009 2008 $ 34,056 1,176 $ 10,570 (8,163) Net cash used in investing activities (96,468,483) (8,041,884) Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to shareholders of the parent Net income attributable to minority interests Ad justments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of premium/discount of financial assets Impairment of financial assets Loss (gain) on disposal of available-for-sale financial assets, net Gain on held-to-maturity financial assets redeemed by the issuer Gain on disposal of financial assets carried at cost, net Equity in earnings of equity method investees, net Dividends received from equity method investees Gain on disposal of property, plant and equipment and other assets, net Loss on idle assets Deferred income tax Changes in operating assets and liabilities: Decrease (increase) in: Financial assets and liabilities at fair value through profit or loss Receivables from related parties Notes and accounts receivable Allowance for doubtful receivables Allowance for sales returns and others Other receivables from related parties Other financial assets Inventories Prepaid expenses and other current assets Increase (decrease) in: Accounts payable Payables to related parties Income tax payable Salary and bonus payable Accrued profit sharing to employees and bonus to directors and supervisors Accrued expenses and other current liabilities Accrued pension cost Deferred credits 80,814,748 21,483 913,230 20,337 (16,091) (20,245) (45,994) 1,239,490 (45,475) - (1,752,409) (215,513) (12,117) (19,614,321) 87,574 2,653,455 (21,374) 7,834 (6,037,106) 585,430 4,916,885 293,150 (531,576) 7,101,255 (1,056,399) 1,356,269 95,448 (237,726) 81,512,191 (93,393) 1,560,055 (637,219) - (83,831) (701,533) 1,661,134 (100,285) 210,477 2,279,414 1,412,531 10,478 22,180,805 (246,056) 1,981,991 143,702 (425,937) 8,985,615 (443,462) (6,021,731) (1,013,519) (1,794,303) (17,670) 15,369,730 (3,936,757) 36,062 (858,161) Net cash provided by operating activities 159,966,465 221,493,565 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property, plant and equipment Available-for-sale financial assets Held-to-maturity financial assets Investments accounted for using equity method Financial assets carried at cost Proceeds from disposal or redemption of: Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Property, plant and equipment and other assets Proceeds from return of capital by investees Increase in deferred charges (87,784,906) (38,800,577) (12,224,353) (42,947) (321,195) 36,039,978 7,944,800 131,075 24,241 - (1,469,831) (59,222,654) (85,273,867) (16,523,275) (55,871) (463,211) 138,515,023 15,634,620 199,424 194,940 2,345,867 (3,395,287) (Continued) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term bank loans Repayments of: Long-term bank loans Bonds payable Decrease in guarantee deposits Proceeds from exercise of employee stock options Cash dividends Profit sharing to employees in cash Bonus to directors Repurchase of treasury stock Decrease in minority interests Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 286,574 (378,673) (8,000,000) (478,472) 260,533 (76,876,312) - - - (284,774) (85,471,124) (21,973,142) (1,364,269) 194,613,752 98,400 (468,313) - (758,514) 227,150 (76,779,032) (3,939,883) (176,890) (33,480,997) (114,742) (115,392,821) 98,058,860 1,568,404 94,986,488 CASH AND CASH EQUIVALENTS, END OF YEAR $ 171,276,341 $ 194,613,752 SUPPLEMENTAL INFORMATION Interest paid Income tax paid INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of property, plant and equipment Increase in payables to contractors and equipment suppliers Nonmonetary exchange trade-out price Increase in obligations under capital leases Cash paid Disposal of property, plant and equipment and other assets Nonmonetary exchange trade-out price Cash received Repurchase of treasury stock Decrease in accrued expenses and other current liabilities Cash paid NONCASH FINANCING ACTIVITIES Current portion of bonds payable Current portion of long-term bank loans Cu rrent portion of other long-term payables (under accrued expenses $ 580,376 $ 8,088,124 $ 676,318 $ 10,477,018 $ 109,151,226 (21,361,340) (809) (4,171) $ 87,784,906 $ 25,050 (809) $ 24,241 $ - - $ - $ 60,978,527 (1,742,041) - (13,832) $ 59,222,654 $ 194,940 - $ 194,940 $ 30,427,413 3,053,584 $ 33,480,997 $ - $ 949,298 $ 8,000,000 $ 222,398 and other current liabilities) $ 4,005,307 $ 1,126,546 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 22, 2010) (Concluded) 47 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries The consolidated entities were as follows: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. GENERAL Taiwan Semiconductor Manufacturing Company, Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs). As of December 31, 2009 and 2008, TSMC and its subsidiaries had 26,390 and 24,834 employees, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language consolidated financial statements shall prevail. Name of Investor Name of Investee TSMC TSMC North America TSMC Japan Limited (TSMC Japan) TSMC Partners, Ltd. (TSMC Partners) TSMC Korea Limited (TSMC Korea) Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC Europe) Percentage of Ownership December 31 Remark 2009 100% 100% 100% 100% 100% 2008 100% 100% 100% 100% 100% - - - - - TSMC International Investment Ltd. - 100% In June 2009, TSMC International was merged (TSMC International) TSMC Global Ltd. (TSMC Global) TSMC China Company Limited (TSMC China) VentureTech Alliance Fund III, L.P. (VTAF III) VentureTech Alliance Fund II, L.P. (VTAF II) Emerging Alliance Fund, L.P. (Emerging Alliance) Global Unichip Corporation (GUC) Xintec Inc. (Xintec) TSMC Partners TSMC Design Technology Canada Inc. (TSMC Canada) TSMC Technology, Inc. (TSMC Technology) TSMC Development, Inc. (TSMC Development) InveStar Semiconductor Development Fund, Inc. (ISDF) InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II) into TSMC Partners. 100% 100% 98% 98% 100% 100% 98% 98% 99.5% 99.5% - - - - - 35% 41% 100% 100% 100% 97% 97% 36% 42% TS MC has a controlling interest over the financial, operating and personnel hiring decisions of GUC. TS MC obtained three out of five director positions and has a controlling interest in Xintec. 100% - - - - - Its previous shareholder, TSMC International, was merged into TSMC Partners in June 2009. Its previous shareholder, TSMC International, was merged into TSMC Partners in June 2009. Its previous shareholder, TSMC International, was merged into TSMC Partners in June 2009. Its previous shareholder, TSMC International, was merged into TSMC Partners in June 2009. Significant accounting policies are summarized as follows: TSMC WaferTech, LLC (WaferTech) 99.9% 99.9% Development Principles of Consolidation The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation. VTAF III Mutual-Pak Technology Co., Ltd. (Mutual-Pak) Growth Fund Limited (Growth Fund) VentureTech Alliance Holdings, LLC (VTA Holdings) VTAF III, VTAF II and Emerging Alliance GUC Global Unichip Corporation-NA (GUC-NA) Global Unichip Japan Co., Ltd. (GUC-Japan) Global Unichip Europe B.V. (GUC-Europe) Global Unichip (BVI) Corp. (GUC- BVI) 59% 100% 100% 100% 100% 100% 100% 48 - - - - - - - 51% 100% 100% 100% 100% 100% - Newly established in February 2009. The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of December 31, 2009: TSMC 100% 100% 100% 100% 100% 100% 100% 98% 98% 99.5% 35% 41% TSMC North America TSMC Japan TSMC Partners TSMC Korea TSMC Europe TSMC Global TSMC China VTAF III VTAF II Emerging Alliance GUC Xintec 100% 100% 100% 97% 97% 59% 100% 100% 100% 100% 100% TSMC Canada TSMC Technology TSMC Development ISDF ISDF II Mutual-Pak Growth Fund VTA Holdings GUC-NA GUC-Japan GUC-Europe GUC-BVI 62% 31% 7% 99.9% WaferTech TSMC North America is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC Japan, TSMC Korea and TSMC Europe are engaged mainly in marketing or customer service, engineering and technical supporting activities. TSMC Partners is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global and TSMC Development are engaged in investing activities. TSMC China is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, VTA Holdings, ISDF, ISDF II, and Growth Fund are engaged in investing in new start-up technology companies. TSMC Canada and TSMC Technology are engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. GUC is engaged in researching, developing, manufacturing, testing and marketing of integrated circuits. GUC-NA, GUC-Japan, and GUC-Europe are engaged in providing products consulting in North America, Japan, and Europe, respectively. GUC-BVI is engaged in investing activities. Xintec is engaged in the provision of wafer packaging service. Mutual-Pak is engaged in the manufacturing and selling of electronic parts, and researching, developing and testing of RFID. TSMC Partners and TSMC International were both 100% owned subsidiaries of TSMC. To simplify the organization structure of investment, TSMC Partners merged TSMC International in June 2009. Chi Cherng and Hsin Ruey, both 100% owned subsidiaries of TSMC, were engaged in investing activities. To simplify the organization structure of investment, TSMC merged Chi Cherng and Hsin Ruey in the third quarter of 2008. TSMC together with its subsidiaries are hereinafter referred to collectively as the “Company”. Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity. Use of Estimates The preparation of consolidated financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. Cash Equivalents Repurchase agreements collateralized by government bonds, agency bonds, corporate issued notes and corporate bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value. Financial Assets/Liabilities at Fair Value Through Profit or Loss Derivatives that do not meet the criteria for hedge accounting and financial assets acquired principally for the purpose of selling them in the near term are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives and financial assets are remeasured at fair value subsequently with 49 changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. the amortized cost that would have been determined as if no impairment loss had been recognized. Fair value is determined as follows: Publicly traded stocks - closing prices at the end of the year; derivatives - using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The amount of the allowance for doubtful receivables is determined based on the account aging analysis and current trends in the credit quality of the customers. TSMC’s provision is set at 1% of the amount of outstanding receivables. Available-for-sale Financial Assets Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. Fair value is determined as follows: open-end mutual funds and money market funds - net asset values at the end of the year; publicly traded stocks - closing prices at the end of the year; and other debt securities - average of bid and asked prices at the end of the year. Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares. Revenue Recognition and Allowance for Sales Returns and Others The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and others are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance. Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received. Inventories Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings. Prior to January 1, 2009, inventories were stated at the lower of cost or market value. Any write-down was made on a total-inventory basis. Market value represented replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized. As stated in Note 3, effective January 1, 2009, inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs. Held-to-maturity Financial Assets Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds 50 Investments Accounted for Using Equity Method Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Gains or losses on sales from the Company to equity method investees or from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity. Financial Assets Carried at Cost Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed. The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets. Property, Plant and Equipment, Assets Leased to Others and Idle Assets Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred. continuously, and the idle assets are tested for impairment on a periodical basis. Intangible Assets Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed. Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees - the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges - 2 to 5 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expenses when incurred. Pension Costs For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations. Income Tax The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, net operating loss carryforwards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Depreciation is computed using the straight-line method over the following estimated service lives: land improvements - 20 years; buildings - 10 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 15 years; and leased assets - 20 years. Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures, and investments in important technology-based enterprises are recognized using the flow-through method. Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal. When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. 51 Stock-based Compensation Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment”. The Company did not grant or modify any employee stock options since January 1, 2008. Profit Sharing to Employees and Bonus to Directors and Supervisors Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, which requires companies to record profit sharing to employees and bonus to directors and supervisors as an expense rather than as an appropriation of earnings. Treasury Stock Treasury stock is stated at cost and shown as a deduction in shareholders’ equity. When TSMC retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. TSMC’s stock held by its subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by subsidiaries and cash dividends received by subsidiaries from TSMC are recorded under capital surplus - treasury stock transactions. Foreign-currency Transactions Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings. Translation of Foreign-currency Financial Statements The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - spot rates at year-end; shareholders’ equity - historical rates; income and expenses - average rates during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity. 3. ACCOUNTING CHANGES Effective January 1, 2009, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 10, “Accounting for Inventories”. The main revisions are (1) inventories are stated at the lower of cost or net realizable value, and inventories are written down to net realizable value on an item-by-item basis except when the grouping of similar or related items is appropriate; (2) unallocated 52 overheads are recognized as expenses in the year in which they are incurred; and (3) abnormal cost, write-downs of inventories and any reversal of write-downs are recorded as cost of sales for the year. Such a change in accounting principle did not have significant effect on the Company’s consolidated financial statements as of and for the year ended December 31, 2009. Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors”, issued in March 2007 by the ARDF, which requires companies to record profit sharing to employees and bonus to directors and supervisors as an expense rather than as an appropriation of earnings. The adoption of this interpretation resulted in a decrease in net income and earnings per share (after income tax and retroactively adjusted for the issuance of stock dividend) of NT$12,827,595 thousand and NT$0.49, respectively, for the year ended December 31, 2008. Effective January 1, 2008, the Company adopted SFAS No. 39, “Accounting for Share-based Payment”, which requires companies to record share-based payment transactions in the financial statements at fair value. Such a change in accounting principle did not have any effect on the Company’s consolidated financial statements as of and for the year ended December 31, 2008. 4. CASH AND CASH EQUIVALENTS Cash and deposits in banks Repurchase agreements collateralized by government bonds Agency bonds Corporate issued notes Corporate bonds December 31 2009 $ 167,448,973 3,359,754 253,013 160,150 54,451 2008 $ 185,943,439 8,670,313 - - - $ 171,276,341 $ 194,613,752 5. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Trading financial assets Forward exchange contracts Cross currency swap contracts Publicly traded stocks Trading financial liabilities Forward exchange contracts Cross currency swap contracts December 31 2009 2008 $ 4,338 181,743 - $ 28,423 14,049 13,258 $ 186,081 $ 55,730 $ 25 - $ 35,812 49,375 $ 25 $ 85,187 December 31, 2009 Sell US$/buy NT$ December 31, 2008 Sell US$/buy NT$ Sell EUR/buy NT$ Sell RMB/buy US$ Sell US$/buy JPY The Company entered into derivative contracts during the years ended December 31, 2009 and 2008 to manage exposures due to the fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts. For the years ended December 31, 2009 and 2008, the Company recognized impairment on available- for-sale financial assets of NT$201,346 thousand and NT$934,584 thousand, respectively. 7. HELD-TO-MATURITY FINANCIAL ASSETS Outstanding forward exchange contracts consisted of the following: Maturity Date Contract Amount (In Thousands) February 2010 US$21,300/NT$686,788 Corporate bonds Structured time deposits Government bonds Current portion December 31 2009 $ 15,120,048 7,000,000 3,378,037 25,498,085 (9,944,843) 2008 $ 18,158,679 1,643,000 1,506,572 21,308,251 (5,881,999) $ 15,553,242 $ 15,426,252 January 2009 to February 2009 January 2009 January 2009 to April 2009 January 2009 to February 2009 US$138,900/NT$4,558,672 EUR1,500/NT$63,150 RMB55,010/US$8,000 US$131/JPY11,800 Structured time deposits categorized as held-to-maturity financial assets consisted of the following: Principal Amount Interest Receivable Range of Interest Rates Maturity Date Outstanding cross currency swap contracts consisted of the following: December 31, 2009 Maturity Date December 31, 2009 Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received Callable domestic deposits $ 7,000,000 $ 4,308 0.36% - 0.95% July 2010 to August 2011 December 31, 2008 January 2010 to February 2010 US$750,000/NT$24,201,706 0.24% - 0.70% 0.00% - 0.38% Callable foreign deposits $ 1,643,000 $ 660 4.82% December 2011 December 31, 2008 January 2009 US$307,000/NT$10,061,232 0.54% - 5.00% 0.00% - 3.83% As of December 31, 2008, the principal of the structured time deposits that resided in banks located in Hong Kong amounted to US$50,000 thousand, which was called back in March 2009. For the years ended December 31, 2009 and 2008, changes in fair value related to derivative financial instruments recognized in earnings was a net gain of NT$594,660 thousand and a net loss of NT$1,081,019 thousand, respectively. 8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS Movements of the allowance for doubtful receivables were as follows: 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Corporate bonds Agency bonds Government bonds Publicly traded stocks Corporate issued notes Money market funds Open-end mutual funds Corporate issued asset-backed securities Current portion December 31 2009 $ 7,042,219 5,032,037 2,341,780 574,865 303,367 283,713 170,014 - 15,747,995 (14,389,946) 2008 $ 3,279,073 5,696,511 340,893 279,937 - 1,000,086 - 2,334,873 12,931,373 (10,898,715) $ 1,358,049 $ 2,032,658 Balance, beginning of year Provision Write-off Balance, end of year Years Ended December 31 2009 2008 $ 455,751 331,485 (243,911) $ 701,807 14,880 (260,936) $ 543,325 $ 455,751 Movements of the allowance for sales returns and others were as follows: Balance, beginning of year Provision Write-off Balance, end of year Years Ended December 31 2009 2008 $ 6,071,026 13,913,375 (11,259,920) $ 4,089,035 8,825,695 (6,843,704) $ 8,724,481 $ 6,071,026 53 9. INVENTORIES Finished goods Work in process Raw materials Supplies and spare parts December 31 2009 $ 2,743,450 15,302,010 1,541,599 1,326,692 2008 $ 5,782,704 7,606,608 334,363 1,152,970 $ 20,913,751 $ 14,876,645 Reversal of inventories within the original write-down amount to net realizable value in the amount of NT$428,162 thousand, and write-down of inventories to net realizable value in the amount of NT$1,660,854 thousand were included in the cost of sales for the years ended December 31, 2009 and 2008, respectively. 10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD For the years ended December 31, 2009 and 2008, equity in earnings/losses of equity method investees was net gain of NT$45,994 thousand and NT$701,533 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the audited financial statements, except for Mcube for the year ended December 31, 2009. The Company believes that, had Mcube’s financial statements been audited, any adjustments arising would have had no material effect on the Company’s consolidated financial statements. As of December 31, 2009 and 2008, fair values of publicly traded stocks in investments accounted for using equity method (VIS) were NT$10,114,398 thousand and NT$4,680,264 thousand, respectively. Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows: Balance, beginning of year Amortization Balance, end of year Years Ended December 31 2009 2008 $ 1,990,621 (599,121) $ 2,589,742 (599,121) $ 1,391,500 $ 1,990,621 December 31 2009 2008 Carrying Amount % of Ownership Carrying Amount % of Ownership As of December 31, 2009 and 2008, the ending balances of the aforementioned difference allocated to goodwill were both NT$1,061,885 thousand. Common stock Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) VisEra Holding Company (VisEra Holding) Mcube Inc. (Mcube) Aiconn Technology Corporation (Aiconn) Preferred stock Mcube $ 9,365,232 6,157,141 2,273,065 25,624 18,116 32,030 37 39 49 70 42 10 $ 9,787,275 6,808,192 2,277,126 - 34,565 - 37 39 49 - 44 - $ 17,871,208 $ 18,907,158 11. FINANCIAL ASSETS CARRIED AT COST Non-publicly traded stocks Mutual funds December 31 2009 2008 $ 2,899,600 163,404 $ 3,453,454 161,993 $ 3,063,004 $ 3,615,447 The Company will subscribe through a private placement for new shares of Motech Industries Inc. (“Motech”) under a Share Subscription Agreement entered into on December 9, 2009. The total consideration is approximately NT$6.2 billion (US$193 million). After the subscription of shares, the Company will own 20% of the Motech shares. The transaction is still subject to Motech’s shareholders’ approval and regulatory approval. In August 2009, the common stock of Leadtrend Technology Corporation (“Leadtrend”) was listed on the Taiwan Stock Exchange. Thus, the Company reclassified its investment in Leadtrend from financial assets carried at cost to available-for-sale financial assets-noncurrent. In September 2009, the Company acquired common stock and preferred stock of Mcube for NT$57,960 thousand. The Company took both ownership of stock and controlling power into consideration and concluded that the Company did not have controlling interest over Mcube. Accordingly, the Company applied equity method to account for this investment and the related equity in earnings/losses. For the years ended December 31, 2009 and 2008, the Company recognized impairment on financial assets carried at cost of NT$711,884 thousand and NT$625,471 thousand, respectively. 54 12. PROPERTY, PLANT AND EQUIPMENT Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased asset Accumulated depreciation Land and land improvements Buildings Machinery and equipment Office equipment Leased asset Advance payments and construction in progress Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased asset Accumulated depreciation Land and land improvements Buildings Machinery and equipment Office equipment Leased asset Advance payments and construction in progress Balance, Beginning of Year Additions Disposals Reclassification Effect of Exchange Rate Changes Balance, End of Year Year Ended December 31, 2009 $ 953,857 132,249,996 697,498,743 12,430,800 722,339 843,855,735 $ - 10,530,802 81,548,279 1,491,370 4,171 $ 93,574,622 $ - (12,978) (1,872,721) (226,779) - $ (2,112,478) $ 1,817 (19,910) 9,964 22,821 7,143 $ 21,835 $ (21,584) (453,352) (1,530,776) (50,465) (19,229) $ (2,075,406) $ 934,090 142,294,558 775,653,489 13,667,747 714,424 933,264,308 295,898 72,681,699 535,962,291 9,693,809 182,570 618,816,267 18,605,882 $ 30,072 9,379,371 68,064,750 1,168,317 36,126 $ 78,678,636 $ 15,576,604 $ - (12,971) (1,791,122) (224,769) - $ (2,028,862) $ - $ - (5,779) (6,271) (158) 7,143 $ (5,065) $ (26,426) $ (8,390) (220,602) (1,434,174) (47,850) (6,074) $ (1,717,090) $ (1,695) 317,580 81,821,718 600,795,474 10,589,349 219,765 693,743,886 34,154,365 $ 243,645,350 $ 273,674,787 Balance, Beginning of Year Addition (Deductions) Disposals Reclassification Effect of Exchange Rate Changes Balance, End of Year Year Ended December 31, 2008 $ 942,197 118,640,027 646,419,427 11,829,640 652,296 778,483,587 $ - 12,750,078 50,423,075 997,253 13,832 $ 64,184,238 $ - (8,524) (1,320,975) (294,526) - $ (1,624,025) $ 821 (706) 131,067 (167,598) - $ (36,416) $ 10,839 869,121 1,846,149 66,031 56,211 $ 2,848,351 $ 953,857 132,249,996 697,498,743 12,430,800 722,339 843,855,735 262,703 63,239,922 467,665,072 8,796,752 135,118 540,099,567 21,868,167 $ 28,613 9,117,602 68,349,425 1,223,475 33,901 $ 78,753,016 $ (3,205,711) $ - (8,524) (1,179,517) (293,433) - $ (1,481,474) $ - $ - 393 (35,055) (84,663) - $ (119,325) $ (98,013) $ 4,582 332,306 1,162,366 51,678 13,551 $ 1,564,483 $ 41,439 295,898 72,681,699 535,962,291 9,693,809 182,570 618,816,267 18,605,882 $ 260,252,187 $ 243,645,350 The Company entered into agreements to lease buildings that qualify as capital leases. The terms of the leases ranged from December 2003 to December 2013. The future minimum lease payments as of December 31, 2009 is NT$787,093 thousand. 55 13. DEFERRED CHARGES, NET Technology license fee Software and system design costs Patent and others Technology license fee Software and system design costs Patent and others Year Ended December 31, 2009 Balance, Beginning of Year Additions Amortization Disposals Reclassification Effect of Exchange Rate Changes Balance, Ending of Year $ 4,125,212 1,801,831 1,198,785 $ 2,000 965,676 502,601 $ (902,061) (928,583) (299,731) $ - - - $ 378 (4,310) (5,502) $ 5,095 (86) (2,751) $ 3,230,624 1,834,528 1,393,402 $ 7,125,828 $ 1,470,277 $ (2,130,375) $ - $ (9,434) $ 2,258 $ 6,458,554 Year Ended December 31, 2008 Balance, Beginning of Year Additions Amortization Disposals Reclassification Effect of Exchange Rate Changes Balance, Ending of Year $ 5,819,148 1,449,603 654,850 $ 9,256 1,171,163 754,402 $ (1,691,242) (806,096) (218,957) $ - (14,279) - $ - 59 - $ (11,950) 1,381 8,490 $ 4,125,212 1,801,831 1,198,785 $ 7,923,601 $ 1,934,821 $ (2,716,295) $ (14,279) $ 59 $ (2,079) $ 7,125,828 14. BONDS PAYABLE 15. LONG-TERM BANK LOANS December 31 2009 2008 Domestic unsecured bonds: Iss ued in January 2002 and repayable in 2009 and 2012 in two installments, 2.75% and 3.00% interest payable annually, respectively $ 4,500,000 $ 12,500,000 Current portion - (8,000,000) Secured loans: Re payable from August 2009 in 17 quarterly installments, annual interest at 0.67% - 2.70% in 2009 and 2.56% - 3.67% in 2008 US $20,000 thousand, repayable in full in one lump sum payment in November 2010, annual interest at 0.68% - 0.97% in 2009 and 3.62% in 2008 $ 4,500,000 $ 4,500,000 Re payable from December 2007 in 8 semi-annual installments, annual interest at 1.10% - 2.42% in 2009 and 2.42% - 3.23% in 2008 Re payable from May 2007 in 16 quarterly installments, fully repaid in June 2009, annual interest at 2.42% - 3.00% Re payable from March 2007 in 12 quarterly installments, fully repaid in June 2009, annual interest at 2.53% - 3.21% Re payable from April 2005 in 16 quarterly installments, annual interest at 2.42% - 3.00% Re payable from February 2005 in 17 quarterly installments, annual interest at 2.56% - 3.15% Current portion December 31 2009 2008 $ 788,263 $ 728,400 640,895 98,700 - - - - 1,527,858 (949,298) 658,719 168,750 37,828 32,472 8,995 7,710 1,642,874 (222,398) $ 578,560 $ 1,420,476 56 Pursuant to the loan agreements, financial ratios calculated based on annual audited financial statements of TSMC China have to meet certain financial covenants. As of December 31, 2009, TSMC China was not in compliance with part of the aforementioned financial covenants. However, this did not have a significant effect on the Company’s financial position. According to the terms of Xintec’s loan agreements, semi-annual and annual financial statements of Xintec must comply with predetermined financial covenants. As of December 31, 2009, Xintec was in compliance with all such financial covenants. As of December 31, 2009, future principal repayments for the long-term bank loans were as follows: Year of Repayment 2010 2011 2012 2013 Amount $ 949,298 275,503 242,603 60,454 $ 1,527,858 17. PENSION PLANS The pension mechanism under the Labor Pension Act is deemed a defined contribution plan. Pursuant to the Act, TSMC, GUC, Xintec and Mutual-Pak have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe and TSMC Canada are required by local regulations to make monthly contributions at certain percentages of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Company recognized pension costs of NT$748,071 thousand and NT$779,612 thousand for the years ended December 31, 2009 and 2008, respectively. TSMC, GUC and Xintec have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s service years and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the name of the committees in the Bank of Taiwan. 16. OTHER LONG-TERM PAYABLES Pension information on the defined benefit plans is summarized as follows: Payables for acquisition of property, plant and equipment (Note 28g) Payables for royalties Cu rrent portion (classified under accrued expenses and other current liabilities) December 31 2009 $ 8,355,395 1,252,332 9,607,727 2008 $ 8,579,726 2,095,046 10,674,772 (4,005,307) (1,126,546) $ 5,602,420 $ 9,548,226 a. Components of net periodic pension cost for the year Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2009 2008 $ 166,480 150,647 (57,382) 29,924 $ 151,656 171,345 (68,373) 4,461 $ 289,669 $ 259,089 The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents. As of December 31, 2009, future payments for other long-term payables were as follows: Year of Payment 2010 2011 2012 Amount $ 4,005,307 3,075,094 2,527,326 $ 9,607,727 b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2009 and 2008 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 net transition obligation Prior service cost Unrecognized net loss Accrued pension cost Vested benefit 2009 2008 $ 123,524 3,790,560 3,914,084 2,643,695 6,557,779 (2,661,566) 3,896,213 (92,777) 161,977 (168,381) $ 114,930 4,182,434 4,297,364 3,263,413 7,560,777 (2,487,577) 5,073,200 (101,326) 169,216 (1,439,506) $ 3,797,032 $ 3,701,584 $ 135,501 $ 126,259 57 c. Actuarial assumptions at December 31, 2009 and 2008 c. Net deferred income tax assets consisted of the following: Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Funds for the year e. Payments from the Funds for the year 2009 2.25% 3.00% 1.50% - 2.00% 2008 2.00% - 2.50% 2.00% - 3.00% 2.25% - 2.50% 2009 2008 $ 194,221 $ 206,873 2009 2008 $ 37,801 $ 28,990 Current deferred income tax assets Investment tax credits Temporary differences Allowance for sales returns and others Others Valuation allowance Noncurrent deferred income tax assets Investment tax credits Net operating loss carryforwards Temporary differences Depreciation Others Valuation allowance December 31 2009 2008 $ 3,304,092 $ 2,885,762 814,557 665,586 (413,926) 710,098 846,376 (472,906) $ 4,370,309 $ 3,969,330 $ 12,184,624 3,440,825 $ 11,311,852 3,588,968 (1,573,025) 1,106,746 (7,170,867) (2,134,460) 506,181 (6,635,668) $ 7,988,303 $ 6,636,873 18. INCOME TAX a. A reconciliation of income tax expense based on “income before income tax” at statutory rates and income tax currently payable was as follows: Inc ome tax expense based on “income before income tax” at statutory rates The effect of the following: Tax-exempt income Temporary and permanent differences Others Additional tax at 10% on unappropriated earnings Net operating loss carryforwards used Income tax credits used Years Ended December 31 2009 2008 $ 24,182,953 $ 27,970,388 (8,652,030) 3,136,013 247,050 30,707 (66,135) (9,984,616) (9,670,500) 2,122,899 44,073 13,926 (205,234) (11,109,313) Income tax currently payable $ 8,893,942 $ 9,166,239 b. Income tax expense consisted of the following: Income tax currently payable Income tax adjustments on prior years Other income tax adjustments Net change in deferred income tax assets Investment tax credits Net operating loss carryforwards Temporary differences Valuation allowance Years Ended December 31 2009 2008 $ 8,893,942 (1,159,353) 23,023 $ 9,166,239 (707,255) 204,587 (1,291,102) 59,940 (1,042,295) 512,269 1,060,599 411,368 (2,129,121) 2,942,592 Income tax expense $ 5,996,424 $ 10,949,009 58 In May 2009, the amendment of Article 5 of the Income Tax Law of the Republic of China announced that the income tax rate of profit-seeking enterprises will be reduced from 25% to 20%, and will be effective starting in 2010. TSMC and its domestic subsidiaries which are subject to the Income Tax Law of the Republic of China had recalculated their deferred tax assets in accordance with the amended Article and adjusted the resulting difference as an income tax expense. As of December 31, 2009, the net operating loss carryforwards generated by WaferTech, TSMC Development, Xintec and Mutual-Pak would expire on various dates through 2026. d. Integrated income tax information: The balance of the imputation credit account (ICA) of TSMC as of December 31, 2009 and 2008 was NT$369,265 thousand and NT$521,634 thousand, respectively. The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2009 and 2008 were 0.35% and 9.10%, respectively. The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made. e. All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2009, investment tax credits of TSMC, GUC, Xintec and Mutual-Pak consisted of the 19. LABOR COST, DEPRECIATION AND AMORTIZATION following: Law/Statute Item Statute for Upgrading Industries Purchase of machinery and equipment Statute for Upgrading Industries Research and development expenditures Statute for Upgrading Industries Personnel training expenditures Total Creditable Amount Remaining Creditable Amount Expiry Year $ 587,048 1,331,228 4,711,020 3,464,868 3,315,509 $ - 110,488 66,368 3,464,868 3,315,509 $ 13,409,673 $ 6,957,233 $ 2,711,736 2,809,829 2,968,208 3,409,744 $ 9,353 2,090,320 2,968,208 3,409,744 $ 11,899,517 $ 8,477,625 $ 37 23,905 20,081 32,534 484 $ - 759 20,081 32,534 484 $ 77,041 $ 53,858 2009 2010 2011 2012 2013 2010 2011 2012 2013 2009 2010 2011 2012 2013 Statute for Upgrading Industries Investments in important technology-based enterprises $ 7,297 79,804 $ - - 2009 2010 $ 87,101 $ - g. The profits generated from the following projects of TSMC, GUC and Xintec are exempt from income tax for a five-year period: Construction of Fab 14 - Module A Construction of Fab 12 - Module B and expansion of Fab 14 - Module A Construction of Fab 14 - Module B and expansion of Fab 12 and others 2003 plant expansion of GUC 2005 and 2006 plant expansion of GUC 2003 plant expansion of Xintec Tax-Exemption Period 2006 to 2010 2007 to 2011 2008 to 2012 2007 to 2011 To be determined 2007 to 2011 h. The tax authorities have examined income tax returns of TSMC through 2007. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly. Labor cost Salary and bonus Labor and health insurance Pension Meal Welfare Others Depreciation Amortization Labor cost Salary and bonus Labor and health insurance Pension Meal Welfare Others Depreciation Amortization Year Ended December 31, 2009 Classified as Cost of Sales Classified as Operating Expenses Total $ 18,122,593 698,566 603,765 442,328 527,662 134,334 $ 15,798,756 579,231 433,910 195,758 201,487 233,258 $ 33,921,349 1,277,797 1,037,675 638,086 729,149 367,592 $ 20,529,248 $ 17,442,400 $ 37,971,648 $ 74,482,133 $ 1,259,949 $ 4,180,237 $ 870,426 $ 78,662,370 $ 2,130,375 Year Ended December 31, 2008 Classified as Cost of Sales Classified as Operating Expenses Total $ 19,574,249 766,952 634,730 474,048 640,817 262,144 $ 15,654,567 489,601 403,962 188,407 273,055 171,631 $ 35,228,816 1,256,553 1,038,692 662,455 913,872 433,775 $ 22,352,940 $ 17,181,223 $ 39,534,163 $ 74,703,223 $ 1,837,540 $ 4,033,588 $ 878,755 $ 78,736,811 $ 2,716,295 20. SHAREHOLDERS’ EQUITY As of December 31, 2009, 1,097,513 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,487,565 thousand (one ADS represents five common shares). Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of TSMC’s paid-in capital. Also, the capital surplus from long-term investment may not be used for any purpose. 59 Capital surplus consisted of the following: Additional paid-in capital From merger From convertible bonds From long-term investments Donations December 31 2009 $ 23,457,805 22,805,390 8,893,190 329,570 55 2008 $ 17,962,468 22,805,390 8,893,190 214,152 55 $ 55,486,010 $ 49,875,255 TSMC’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, TSMC shall first offset its losses in previous years and then set aside the following items accordingly: a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals TSMC’s paid-in capital; b. Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; c. Bonus to directors and profit sharing to employees of TSMC of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of TSMC are not entitled to receive the bonus to directors. TSMC may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; d. Any balance left over shall be allocated according to the resolution of the shareholders’ meeting. TSMC’s Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution. Any appropriations of the profits are subject to shareholders’ approval in the following year. TSMC has recorded profit sharing to employees as a charge to earnings of approximately 7.5% and 15% of net income for the years ended December 2009 and 2008, respectively; bonuses to directors were accrued with an estimate based on historical experience. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting. The appropriation for legal capital reserve shall be made until the reserve equals TSMC’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if TSMC has no unappropriated earnings and the reserve balance has exceeded 50% of TSMC’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of TSMC’s paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2008 and 2007 had been approved in the TSMC’s shareholders meetings held on June 10, 2009 and June 13, 2008, respectively. The appropriations and dividends per share were as follows: Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2008 For Fiscal Year 2007 For Fiscal Year 2008 For Fiscal Year 2007 Legal capital reserve Special capital reserve Profit sharing to employees - in cash Profit sharing to employees - in stock Cash dividends to shareholders Stock dividends to shareholders Bonus to directors $ 9,993,317 (391,857) - - 76,876,312 512,509 - $ 10,917,709 (237,693) 3,939,883 3,939,883 76,881,311 512,542 176,890 $ 86,990,281 $ 96,130,525 $ 3.00 0.02 $ 3.00 0.02 TSMC’s profit sharing to employees that have been paid in cash and in stock as well as bonus to directors in the amounts of NT$7,494,988 thousand, NT$7,494,988 thousand and NT$158,080 thousand for 2008, respectively, had been approved in the shareholders’ meeting held on June 10, 2009. The profit sharing to employee in stock of 141,870 thousand shares was determined by the closing price of TSMC’s common shares (after considering the effect of dividends) of the day immediately preceding the shareholders’ meeting, which was NT$52.83. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 10, 2009 and same amount had been charged against earnings of 2008. TSMC’s shareholders meeting held on June 10, 2009 also resolved to distribute stock dividends out of capital surplus, and stock dividends to shareholders as well as profit sharing to employees to be paid in stock in the amount of NT$768,763 thousand, NT$512,509 thousand and NT$7,494,988 thousand, respectively. The aforementioned capital increase had taken effect on July 21, 2009. As of January 22, 2010, the Board of Directors of TSMC has not resolved the appropriation for earnings of 2009. TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee. The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website. 60 Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. 21. STOCK-BASED COMPENSATION PLANS TSMC’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan, and TSMC 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share of TSMC when exercisable. The options may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TSE on the grant date. Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2009. Information about TSMC’s outstanding options for the years ended December 31, 2009 and 2008 was as follows: Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Year ended December 31, 2008 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Number of Options (In Thousands) Weighted-average Exercise Price (NT$) 36,234 175 (7,272) (327) 28,810 41,875 767 (6,027) (381) 36,234 $ 34.0 34.0 35.8 46.5 33.5 35.6 35.2 37.7 46.5 35.3 The numbers of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings by TSMC in accordance with the plans. The options granted were the result of the aforementioned adjustment. As of December 31, 2009, information about TSMC’s outstanding options was as follows: Range of Exercise Price (NT$) $22.8 - $32.0 38.0 - 50.1 Number of Options (In Thousands) 21,179 7,631 28,810 Options Outstanding Weighted-average Remaining Contractual Life (Years) 3.18 4.88 3.63 Weighted-average Exercise Price (NT$) $ 29.1 45.5 33.5 As of December 31, 2009, all of the above outstanding options were exercisable. GUC’s Employee Stock Option Plans, consisting of the GUC 2003 Plan and GUC 2002 Plan, were approved by its Board of Directors on January 23, 2003 and July 1, 2002, respectively. The maximum number of options authorized to be granted under the GUC 2003 Plan and GUC 2002 Plan was 7,535 and 5,000, respectively, with each option eligible to subscribe for one thousand common shares of GUC when exercisable. The options may be granted to qualified employees of GUC. The options of all the plans are valid for six years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Moreover, the GUC 2007 Plan, GUC 2006 Plan, and GUC 2004 Plan were approved by the SFB on November 28, 2007, July 3, 2006, and August 16, 2004 to grant a maximum of 1,999 options, 3,665 options and 2,500 options, respectively, with each option eligible to subscribe for one thousand common shares of GUC when exercisable. The options may be granted to qualified employees of GUC or any of its subsidiaries. Except for the options of the GUC 2006 Plan which are valid until August 15, 2011, the options of the other two GUC option Plans are valid for six years. Options of all three Plans are exercisable at certain percentages subsequent to the second anniversary of the grant date. Information about GUC’s outstanding options for the years ended December 31, 2009 and 2008 was as follows: Number of Options Weighted-average Exercise Prices (NT$) Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Year ended December 31, 2008 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year 5,557 87 (1,475) (359) 3,810 7,598 284 (2,115) (210) 5,557 $ 63.9 13.8 11.0 63.4 83.5 60.3 14.8 14.0 168.4 66.6 61 The numbers of outstanding options and exercise prices have been adjusted to reflect the appropriation of earnings by GUC in accordance with the plans. The options granted were the result of the aforementioned adjustment. As of December 31, 2009, information about GUC’s outstanding and exercisable options was as follows: Range of Exercise Price (NT$) Number of Options Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options Weighted-average Exercise Price (NT$) $ 8.4 15.5 175.0 374 1,796 1,640 3,810 1.00 1.67 4.00 2.61 $ 8.4 15.5 175.0 83.5 374 154 - 528 $ 8.4 15.5 - 10.5 As of December 31, 2009, information about Xintec’s outstanding and exercisable options was as follows: Options Outstanding Options Exercisable Range of Exercise Price (NT$) Number of Options (In Thousands) Weighted-average Remaining Contractual Life (Years) Weighted-average Exercise Price (NT$) Number of Options (In Thousands) Weighted-average Exercise Price (NT$) $12.2 - $14.1 15.2 - 19.2 2,092 1,868 3,960 6.79 7.68 7.21 $ 12.5 17.2 14.7 904 550 1,454 $ 12.5 17.2 14.4 No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2009 and 2008. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions and pro forma results of the Company for the years ended December 31, 2009 and 2008 would have been as follows: Xintec’s Employee Stock Option Plans, consisting of the Xintec 2007 Plan and Xintec 2006 Plan, were approved by the SFB on June 26, 2007 and July 3, 2006, respectively. The maximum number of options authorized to be granted under the Xintec 2007 Plan and Xintec 2006 Plan was 6,000 thousand each, with each option eligible to subscribe for one common share of Xintec when exercisable. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Information about Xintec’s outstanding options for the years ended December 31, 2009 and 2008 was as follows: Number of Options (In Thousands) Weighted-average Exercise Price (NT$) Assumptions: TSMC GUC Xintec Year ended December 31, 2009 Balance, beginning of year Options exercised Options canceled Balance, end of year Year ended December 31, 2008 Balance, beginning of year Options exercised Options canceled Balance, end of year 7,442 (2,552) (930) 3,960 9,642 (728) (1,472) 7,442 $ 14.8 13.5 17.1 14.7 15.1 12.4 15.5 14.8 Net income attributable to shareholders of the parent: As reported Pro forma Earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS Expected dividend yield Expected volatility Risk free interest rate Expected life Expected dividend yield Expected volatility Risk free interest rate Expected life Expected dividend yield Expected volatility Risk free interest rate Expected life 2009 2008 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years 0.00% - 0.60% 22.65% - 45.47% 2.12% - 2.56% 3 - 6 years 0.80% 31.79% - 47.42% 1.88% - 2.45% 3 years 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years 0.00% - 0.60% 22.65% - 45.47% 2.12% - 2.56% 3 - 6 years 0.80% 31.79% - 47.42% 1.88% - 2.45% 3 years $ 89,217,836 88,838,182 $ 99,933,168 100,037,622 $ 3.45 3.44 3.44 3.43 $ 3.84 3.84 3.81 3.81 The exercise prices have been adjusted to reflect the appropriation of earnings by Xintec in accordance with the plans. 62 22. TREASURY STOCK Year ended December 31, 2008 Parent company stock held by subsidiaries Repurchase under share buyback plan Beginning Shares Addition Stock Dividends Retirement Ending Shares (Shares in Thousands) 34,096 800,000 - 495,549 834,096 495,549 171 - 171 34,267 1,295,549 1,329,816 - - - 23. EARNINGS PER SHARE EPS is computed as follows: Year ended December 31, 2009 Basic EPS Ear nings available to common shareholders of the Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax TSMC held a meeting of the Board of Directors on November 13, 2007 and approved a share buyback plan to repurchase the TSMC’s common shares up to 800,000 thousand shares listed on the TSE during the period from November 14, 2007 to January 13, 2008 for the buyback price in the range from NT$43.2 to NT$94.2. TSMC had repurchased 800,000 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in February 2008. TSMC held a meeting of the Board of Directors on May 13, 2008 and approved a share buyback plan to repurchase the TSMC’s common shares up to 500,000 thousand shares listed on the TSE during the period from May 14, 2008 to July 13, 2008 for the buyback price in the range from NT$48.25 to NT$100.50. TSMC had repurchased 216,674 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in August 2008. TSMC held a meeting of the Board of Directors on August 12, 2008 and approved a share buyback plan to repurchase the TSMC’s common shares up to 283,000 thousand shares listed on the TSE during the period from August 13, 2008 to October 12, 2008 for the buyback price in the range from NT$42.85 to NT$86.20. TSMC had repurchased 278,875 thousand common shares. All the treasury stock repurchased under this share buyback plan was retired in November 2008. TSMC merged Chi Cherng and Hsin Ruey in the third quarter of 2008. TSMC’s common shares held by Chi Cherng and Hsin Ruey in the number of 34,267 thousand shares were retired on August 2008. parent Effect of dilutive potential common shares $ 95,189,766 - $ 89,217,836 - 25,835,802 77,801 $ 3.68 $ 3.45 Diluted EPS Ea rnings available to common shareholders of the parent (including effect of dilutive potential common shares) Year ended December 31, 2008 Basic EPS Ea rnings available to common shareholders of the $ 95,189,766 $ 89,217,836 25,913,603 $ 3.67 $ 3.44 parent Effect of dilutive potential common shares $110,847,835 - $ 99,933,168 - 26,039,186 196,493 $ 4.26 $ 3.84 Diluted EPS Ea rnings available to common shareholders of the parent (including effect of dilutive potential common shares) $110,847,835 $ 99,933,168 26,235,679 $ 4.23 $ 3.81 As discussed in Note 3, effective January 1, 2008, the Company adopted Interpretation 2007-052 that requires companies to record profit sharing to employees as an expense rather than as an appropriation of earnings. If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year. The average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of stock dividends. This adjustment caused each the basic and diluted after income tax EPS for the year ended December 31, 2008 to decrease from NT$3.86 to NT$3.84 and NT$3.83 to NT$3.81, respectively. 63 24. DISCLOSURES FOR FINANCIAL INSTRUMENTS e. Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2009 and 2008 were as follows: a. Fair values of financial instruments were as follows: December 31 2009 2008 Carrying Amount Fair Value Carrying Amount Fair Value Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets $ 186,081 15,747,995 25,498,085 $ 186,081 15,747,995 25,671,664 $ 55,730 12,931,373 21,308,251 $ 55,730 12,931,373 21,457,008 Liabilities Financial liabilities at fair value through profit or loss Bonds payable (including current portion) Long-term bank loans (including current portion) Other long-term payables (including current portion) Obligations under capital leases 25 4,500,000 1,527,858 9,607,727 707,499 25 4,574,979 1,527,858 9,607,727 707,499 85,187 12,500,000 1,642,874 10,674,772 722,339 85,187 12,612,423 1,642,874 10,674,772 722,339 Year Ended December 31, 2009 From Available- for-sale Financial Assets From Available- for-sale Financial Assets Held by Investees Total Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings $ (198,413) 391,801 230,740 $ (88,929) 118,422 - $ (287,342) 510,223 230,740 Balance, end of year $ 424,128 $ 29,493 $ 453,621 Year Ended December 31, 2008 From Available- for-sale Financial Assets From Available- for-sale Financial Assets Held by Investees Total Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings $ 627,838 (1,130,599) 304,348 $ 53,159 (142,088) - $ 680,997 (1,272,687) 304,348 b. Methods and assumptions used in estimating fair values of financial instruments Balance, end of year $ (198,413) $ (88,929) $ (287,342) 1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities. f. Information about financial risk 2) Except for derivatives and structured time deposits, fair values of financial assets at fair value through profit or loss, available-for-sale and held-to-maturity financial assets were based on their quoted market prices. 3) The fair values of those derivatives and structured time deposits are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. 4) Fair value of the bonds payable was based on their quoted market price. 5) Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amounts. c. The changes in fair value of derivatives contracts which were outstanding as of December 31, 2009 and 2008 estimated using valuation techniques were recognized as net gains of NT$186,056 thousand and net losses of NT$42,715 thousand, respectively. d. As of December 31, 2009 and 2008, financial assets exposed to fair value interest rate risk were NT$40,857,296 thousand and NT$34,002,159 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$4,500,025 thousand and NT$12,585,187 thousand, respectively, and financial liabilities exposed to cash flow interest rate risk were NT$1,527,858 thousand and NT$1,642,874 thousand, respectively. 64 1) Market risk. The publicly traded stocks categorized as financial assets at fair value through profit or loss are exposed to market price fluctuations. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities; therefore, the fluctuations in market interest rates would result in changes in fair value of these debt securities. Subject to turmoil in the global financial market, the Company evaluated its financial assets and determined that certain impairment for its asset-backed securities is other-than-temporary. The Company had appropriately recognized related impairment losses. 2) Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. Subject to turmoil in the global financial market, the Company evaluated the financial instruments for any possible counter-party or third-party default. As a result of the evaluation, the Company determined that certain financial instruments are exposed to credit risk and had appropriately recognized related impairment losses. 3) Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments, bonds payable and bank loans. Therefore, the liquidity risk is low. 4) Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. The Company’s long-term bank loans were floating-rate loans. Therefore, changes in the market interest rates will result in changes in the effective rate of the long-term bank loans, which will affect future cash flows. 25. RELATED PARTY TRANSACTIONS Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions: As of December 31 Payables VIS SSMC VisEra 2009 2008 Amount % Amount % $ 531,459 238,741 12,807 68 31 1 $ 317,890 162,807 9,160 65 33 2 $ 783,007 100 $ 489,857 100 (Concluded) a. Investees of TSMC VIS (accounted for using equity method) SSMC (accounted for using equity method) b. VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method. c. Others Related parties over which the Company exercises significant influence but with which the Company had no material transactions. The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements. TSMC deferred the net gains (classified under deferred credits) derived from sales of property, plant and equipment to VisEra, and then recognized such gains (classified under non-operating income and gains) over the depreciable lives of the disposed assets. TSMC leased certain buildings and facilities to VisEra. The related rental income was classified under non-operating income and gains. The lease terms and prices were determined in accordance with mutual agreements. The lease agreement between TSMC and VisEra expired in April 2008. 2009 2008 Amount % Amount % Compensation of directors and management personnel: For the year Sales VIS VisEra SSMC Others Purchases SSMC VIS VisEra Non-operating income and gains VIS (primarily technical service income; see Note 28e) SSMC (primarily technical service income; see Note 28d) VisEra $ 139,496 15,569 171 69 $ 155,305 $ 3,537,659 3,330,288 - $ 6,867,947 $ 224,740 141,488 129 $ 366,357 - - - - - 2 2 - 4 4 2 - 6 $ 80,067 30,821 1,869 - $ 112,757 $ 4,441,795 3,260,160 594 $ 7,702,549 $ 296,250 244,865 101,605 $ 642,720 - - - - - 2 2 - 4 3 2 1 6 (Continued) Salaries, incentives and special compensation Bonus Years Ended December 31 2009 2008 $ 673,278 411,358 $ 352,227 705,376 $ 1,084,636 $ 1,057,603 The information about the compensation of directors and management personnel is available in the annual report for the shareholders’ meeting. Total compensation expense for the year ended December 31, 2009 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2009 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2010. The total compensation for the year ended December 31, 2008 included the bonuses appropriated from earnings of 2008 which was approved by the shareholders’ meeting held in 2009. 65 26. PLEDGED OR MORTGAGED ASSETS 28. SIGNIFICANT COMMITMENTS AND CONTINGENCIES The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows: Significant commitments and contingencies of the Company as of December 31, 2009, excluding those disclosed in other notes, were as follows: Other financial assets Property, plant and equipment, net Others assets December 31 2009 $ 949,368 2,808,057 20,000 2008 $ 33,377 4,032,571 - $ 3,777,425 $ 4,065,948 27. SIGNIFICANT LONG-TERM LEASES The Company leases several parcels of land and office premises from the SPA and Jhongli Industrial Park Service Center. These operating leases expire on various dates from March 2010 to December 2029 and can be renewed upon expiration. The Company entered into lease agreements for its office premises and certain equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between 2010 and 2018 and can be renewed upon expiration. As of December 31, 2009, future lease payments were as follows: Amount $ 557,588 504,263 487,131 462,439 444,201 3,293,532 $ 5,749,154 Year 2010 2011 2012 2013 2014 2015 and thereafter 66 a. Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. b. Under several foundry agreements, TSMC shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with TSMC. As of December 31, 2009 TSMC had a total of US$29,582 thousand of guarantee deposits. c. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. d. TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) effective March 30, 1999. TSMC receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall remain in force for ten years and will be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. e. TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. TSMC receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for TSMC certain products at prices as agreed by the parties. f. TSMC, TSMC North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referring to as “SMIC”). The lawsuits alleged that SMIC infringed multiple TSMC, TSMC North America and WaferTech patents and misappropriated TSMC, TSMC North America and WaferTech’s trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, Semiconductor Manufacturing International Corporation shall pay US$175 million over six years to resolve TSMC, TSMC North America and WaferTech’s claims. As of December 31, 2009, SMIC had paid US$135 million in accordance with the terms of this settlement agreement. In August 2006, TSMC, TSMC North America and WaferTech filed a lawsuit against SMIC in Alameda County Superior Court in California for breach of aforementioned settlement agreement, breach of promissory notes and trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC, TSMC North America and WaferTech in the same court, alleging TSMC, TSMC North America and WaferTech of breach of the settlement agreement and implied covenant of good faith and fair dealing, in response to TSMC, TSMC North America and WaferTech’s August complaint. In November 2006, SMIC filed a complaint with Beijing People’s High Court against TSMC, TSMC North America and WaferTech alleging defamation and breach of good faith. The California State Superior Court of Alameda County issued an Order on TSMC, TSMC North America and WaferTech’s pre-trial motion for a preliminary injunction against SMIC on September 7, 2007. In the Order, the Court found “TSMC has demonstrated a significant likelihood that it will ultimately prevail on the merits of its claim for breach of certain paragraphs of the (2005) Settlement Agreement” with SMIC. The Court also found “TSMC has demonstrated a significant probability of establishing that SMIC retains and is using TSMC Information in SMIC’s 0.13um and smaller technologies, and there is significant threat of serious irreparable harm to TSMC if SMIC were to disclose or transfer that information before final resolution of the case”. Therefore, the Court ordered that, effective immediately, SMIC must provide advance notice and an opportunity for TSMC, TSMC North America and WaferTech to object before disclosing items enumerated in the Court Order to SMIC’s third party partners. The Court, however, did not grant a preliminary injunction as requested by TSMC, TSMC North America and WaferTech. In January 2009, the court in the California action held a four-day bench trial to determine whether a Settlement Agreement existed between the parties, and if there were an agreement, the interpretation of certain terms. SMIC contended that there was no binding Settlement Agreement, and TSMC, TSMC North America and WaferTech contended that the Settlement Agreement signed on January 30, 2005 and finalized shortly thereafter and repeatedly ratified bound the parties. On March 10, 2009, the Court issued its Statement of Decision. The Court rejected SMIC’s contention, and found that the parties were bound by the Settlement Agreement identified by TSMC, TSMC North America and WaferTech. The Court also interpreted the meaning of certain provisions within the Settlement Agreement. Regarding the claims raised by SMIC in the Beijing lawsuit, the Beijing People’s High Court has on June 10, 2009 rejected those claims and dismissed the lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC, TSMC North America and WaferTech’s trade secrets. TSMC, TSMC North America and WaferTech have subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC, TSMC North America and WaferTech in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC, TSMC North America and WaferTech. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and to provide TSMC with other valuable consideration. g. The Company entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled NT$8,355,395 thousand and NT$8,579,726 thousand as of December 31, 2009 and 2008, respectively, which is included in other long-term payables. h. Amounts available under unused letters of credit as of December 31, 2009 were NT$16,155 thousand. 29. ADDITIONAL DISCLOSURES Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation: a. Financing provided: None; b. Endorsement/guarantee provided: None; c. Marketable securities held: Please see Table 1 attached; d. Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 2 attached; e. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached; f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None; g. Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached; i. Names, locations, and related information of investees over which TSMC exercises significant influence: Please see Table 6 attached; j. Information on investment in Mainland China 1) The name of the investee in mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 7 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in mainland China on financial reports: Please see Table 8 attached. k. Intercompany relationships and significant intercompany transactions: Please see Table 8 attached. 67 30. SEGMENT FINANCIAL INFORMATION a. Industry financial information The Company operates in one industry. Therefore, the disclosure of industry financial information is not applicable to the Company. c. Export sales Area Asia Europe and others Years Ended December 31 2009 2008 $ 65,491,264 44,602,706 $ 55,383,901 41,890,123 $ 110,093,970 $ 97,274,024 b. Geographic information: 2009 North America and Others Taiwan Adjustments and Elimination Consolidated The export sales information is based on the amounts billed to customers within the areas. d. Major customers representing at least 10% of gross sales Years Ended December 31 2009 Amount $ 33,025,488 31,994,983 2008 Amount $ 46,523,059 30,271,064 % 11 10 % 14 9 Sales to other than consolidated entities Sales among consolidated entities $ 162,783,488 11,891,274 $ 132,958,751 163,407,355 $ - (175,298,629) $ 295,742,239 - Total sales $ 174,674,762 $ 296,366,106 $ (175,298,629) $ 295,742,239 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax Identifiable assets Long-term investments Total assets 2008 $ 2,004,734 $ 128,456,453 $ (1,132,576) $ 113,023,501 $ 468,112,330 $ (24,285,114) Customer A Customer B $ 129,328,611 (37,366,725) 5,653,548 (2,152,787) $ 95,462,647 $ 556,850,717 37,845,503 $ 594,696,220 Sales to other than consolidated entities Sales among consolidated entities $ 193,727,539 16,280,818 $ 139,430,121 194,731,514 $ - (211,012,332) $ 333,157,660 - Total sales $ 210,008,357 $ 334,161,635 $ (211,012,332) $ 333,157,660 Gross profit Operating expenses Non-operating income and gains Non-operating expenses and losses Income before income tax Identifiable assets Long-term investments Total assets $ 2,114,127 $ 140,540,236 $ (904,802) $ 122,781,555 $ 425,545,212 $ (29,391,693) $ 141,749,561 (37,314,193) 10,821,449 (3,784,571) $ 111,472,246 $ 518,935,074 39,981,515 $ 558,916,589 68 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries MARKETABLE SECURITIES HELD DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note TSMC TSMC Partners Corporate bond Taiwan Mobile Co., Ltd. Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation China Steel Corporation CPC Corporation, Taiwan Taipei Fubon Commercial Bank Co., Ltd. First Commercial Bank Co., Ltd. Government bond European Investment Bank Bonds 2003 Asian Development Bank Govt. Bond Stock TSMC Global TSMC Partners VIS SSMC TSMC North America Xintec GUC TSMC Europe TSMC Japan TSMC Korea United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Fund Horizon Ventures Fund Crimson Asia Capital Capital TSMC China VTAF III VTAF II Emerging Alliance Corporate bond General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn - - - - - - - - - - - Subsidiary Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Investee with a controlling financial interest Investee with a controlling financial interest Subsidiary Subsidiary Subsidiary - - - - - Subsidiary Subsidiary Subsidiary Subsidiary - - Available-for-sale financial assets Held-to-maturity financial assets 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 Investments accounted for using equity method 〃 〃 〃 〃 〃 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 Financial assets carried at cost 〃 Investments accounted for using equity method 〃 〃 〃 Held-to-maturity financial assets 〃 - - - - - - - - - - - 1 988,268 628,223 314 11,000 93,081 46,688 - 6 80 16,783 10,500 4,000 - - - - - - - - $ 1,046,672 3,178,551 3,004,941 2,000,145 1,671,815 1,512,130 500,031 298,884 99,814 2,003,877 893,710 45,397,256 32,545,619 9,365,232 6,157,141 2,723,727 1,475,014 983,126 159,467 135,663 18,519 193,584 105,000 40,000 103,992 59,412 2,961,043 1,309,615 1,122,810 305,866 US$ 20,543 US$ 20,219 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 100 100 37 39 100 41 35 100 100 100 10 7 2 12 1 100 98 98 99 N/A N/A $ 1,046,672 3,200,302 3,011,743 2,029,935 1,685,345 1,528,117 499,913 298,751 99,815 2,025,500 875,103 45,397,256 32,545,619 10,114,398 5,581,994 2,723,727 1,437,395 7,913,592 159,467 135,663 18,519 297,655 332,943 43,975 103,992 59,412 2,958,707 1,292,412 1,117,773 305,866 US$ 21,312 US$ 21,182 (Continued) 69 Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Common stock TSMC Development, Inc. (TSMC Development) VisEra Holding Company InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II) TSMC Technology InveStar Semiconductor Development Fund, Inc. (ISDF) TSMC Canada Mcube Inc. TSMC Development Emerging Alliance Preferred stock Mcube Inc. Corporate bond GE Capital Corp. JP Morgan Chase & Co. Stock WaferTech Common stock RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Audience, Inc. Axiom Microdevices, Inc. Mosaic Systems, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. QST Holdings, LLC Teknovus, Inc. - - - - - - - - - - Subsidiary Investments accounted for using 1 US$ 340,387 100 US$ 340,387 equity method Investee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary Investee accounted for using equity method 〃 〃 〃 〃 〃 〃 43,000 US$ 70,967 49 US$ 70,967 21,415 1 7,680 2,300 5,333 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 97 100 97 100 70 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 Investee accounted for using Investments accounted for using 1,000 US$ 1,000 10 US$ 1,000 equity method equity method - - Held-to-maturity financial assets 〃 - - US$ 20,334 US$ 15,000 N/A N/A US$ 21,182 US$ 15,000 Subsidiary Investments accounted for using 293,637 US$ 154,432 100 US$ 154,432 equity method Financial assets carried at cost 〃 4,247 10,000 US$ 1,648 US$ 3,065 10 6 US$ 1,648 US$ 3,065 Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 1,654 1,000 2,481 800 1,281 4,641 - 6,977 - US$ 250 US$ 24 US$ 12 US$ 500 US$ 1,072 US$ 1,137 US$ 131 US$ 1,327 - Capital VentureTech Alliance Holdings, LLC (VTA Holdings) Subsidiary Investments accounted for using equity method VTAF II 70 Common stock Leadtrend RichWave Technology Corp. Sentelic Preferred stock 5V Technologies, Inc. Aquantia Audience, Inc. Axiom Microdevices, Inc. Beceem Communications Impinj, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. Power Analog Microelectronics QST Holdings, LLC - - - - - - - - - - - - - - Available-for-sale financial assets Financial assets carried at cost 〃 1,515 1,043 1,200 US$ 9,721 US$ 730 US$ 2,040 Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 2,890 3,974 7,956 759 834 475 3,795 2,784 33,347 7,027 - US$ 2,168 US$ 3,816 US$ 1,838 US$ 650 US$ 1,701 US$ 1,000 US$ 953 US$ 2,664 US$ 1,878 US$ 3,383 US$ 593 1 1 6 1 2 2 4 2 7 4 1 15 4 5 2 13 1 - 2 4 2 19 13 US$ 250 US$ 24 US$ 12 US$ 500 US$ 1,072 US$ 1,137 US$ 131 US$ 1,327 - US$ 9,721 US$ 730 US$ 2,040 US$ 2,168 US$ 3,816 US$ 1,838 US$ 650 US$ 1,701 US$ 1,000 US$ 953 US$ 2,664 US$ 1,878 US$ 3,383 US$ 593 (Continued) Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) VTAF III Growth Fund ISDF ISDF II Teknovus, Inc. Xceive Capital VTA Holdings Common stock Mutual-Pak Technology Co., Ltd. Acionn Technology Corporation Preferred stock Auramicro, Inc. BridgeLux, Inc. Exclara, Inc. GTBF, Inc. InvenSense, Inc. LiquidLeds Lighting Corp. M2000, Inc. Neoconix, Inc. Powervation, Ltd. Quellan, Inc. Silicon Technical Services, LLC Tilera, Inc. Validity Sensors, Inc. Capital Growth Fund Limited (Growth Fund) VTA Holdings Common stock Staccato SiliconBlue Technologies, Inc. Common stock Memsic, Inc. Capella Microsystems (Taiwan), Inc. Preferred stock Integrated Memory Logic, Inc. IP Unity, Inc. Sonics, Inc. Common stock Memsic, Inc. Sonics, Inc. Epic Communication, Inc. EON Technology, Corp. Goyatek Technology, Corp. Capella Microsystems (Taiwan), Inc. Auden Technology MFG. Co., Ltd. Preferred stock Alchip Technologies Limited FangTek, Inc. Kilopass Technology, Inc. - - Financial assets carried at cost 〃 1,599 3,936 US$ 454 US$ 1,516 Subsidiary Investments accounted for using - - equity method Subsidiary Investments accounted for using 9,180 US$ 2,112 Investee accounted for using 〃 equity method equity method 4,500 US$ 566 - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Subsidiary Subsidiary Investments accounted for using equity method 〃 4,694 4,955 21,708 1,154 816 1,600 3,000 3,283 310 3,106 1,055 3,222 8,070 - - US$ 1,408 US$ 6,391 US$ 4,568 US$ 1,500 US$ 1,000 US$ 800 US$ 3,000 US$ 4,608 US$ 4,678 US$ 457 US$ 1,208 US$ 2,781 US$ 3,089 Note Market Value or Net Asset Value (US$ in Thousands) US$ 454 US$ 1,516 - US$ 2,112 US$ 566 US$ 1,408 US$ 6,391 US$ 4,568 US$ 1,500 US$ 1,000 US$ 800 US$ 3,000 US$ 4,608 US$ 4,678 US$ 457 US$ 1,208 US$ 2,781 US$ 3,089 - 2 31 59 42 20 4 18 N/A 1 11 5 6 16 6 1 3 3 US$ 823 100 US$ 823 - 62 - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃 10 5,107 US$ 25 US$ 762 Available-for-sale financial assets Financial assets carried at cost 1,364 557 US$ 4,472 US$ 154 Financial assets carried at cost 〃 〃 Available-for-sale financial assets Financial assets carried at cost 〃 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 2,872 1,008 230 1,145 278 50 2,368 932 561 1,049 6,979 1,032 3,887 US$ 1,221 US$ 290 US$ 497 US$ 3,754 US$ 10 US$ 23 US$ 656 US$ 545 US$ 210 US$ 223 US$ 3,664 US$ 686 US$ 500 - 2 6 2 9 1 2 5 3 - 3 6 2 3 US$ 25 US$ 762 US$ 4,472 US$ 154 US$ 1,221 US$ 290 US$ 497 US$ 3,754 US$ 10 US$ 23 US$ 656 US$ 545 US$ 210 US$ 223 18 6 5 US$ 3,664 US$ 686 US$ 500 (Continued) 71 Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note GUC Xintec TSMC Global Sonics, Inc. Open-end mutual fund Jih Sun Bond Fund FSITC Taiwan Bond Fund Cathay Bond Fund Common stock GUC-NA GUC-Japan GUC-Europe GUC-BVI Capital Compositech Ltd. Corporate bond Ab Svensk Exportkredit Swedish African Development Bank Allstate Life Global Fdg Asian Development Bank Astrazeneca Plc Australia + New Zealand Bkg Banco Bilbao Vizcaya P R Bank New York Inc. Medium Bank of New York Mellon Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bhp Billiton Fin USA Ltd. Bnp Paribas SA Boeing Co. Bsch Issuances Ltd. Cello Part/Veri Wirelss Citibank NA Citigroup funding Inc. Credit Suisse New York European Investment Bank Federal Farm Cr Bks Finance for Danish Ind General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. Fdic Gtd Goldman Sachs Group Inc. Goldman Sachs Group Incser 2 Hewlett Packard Co. HSBC Fin Corp. HSBC USA Inc. Fdic Gtd Tlgp IBM Corp. International Business Machs Intl Bk Recon + Develop JP Morgan Chase + Co. JP Morgan Chase + Co. Fdic Gtd Tlg Kfw Kfw Medium Term Nts Book Entry Kreditanstalt Fur Wiederaufbau Lloyds Tsb Bank Plc Ser 144A Mellon Fdg Corp. Met Life Glob Funding I - - - - Subsidiary Subsidiary Subsidiary Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 264 US$ 456 3 US$ 456 Available-for-sale financial assets 〃 〃 5,668 352 2,509 $ 80,008 60,005 30,001 - - - $ 80,008 60,005 30,001 Investments accounted for using equity method 〃 〃 〃 Financial assets carried at cost Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 800 1 - 550 587 5,000 2,600 220 2,500 2,150 2,000 3,250 2,100 2,200 5,000 3,500 2,000 2,310 450 2,250 2,000 5,000 2,000 2,000 2,250 2,250 1,900 1,000 7,000 2,500 2,000 3,000 3,000 2,315 2,200 1,800 3,000 2,000 2,500 3,000 2,230 1,950 650 5,950 3,500 2,100 38,617 12,899 5,213 17,466 - US$ 5,144 US$ 2,622 US$ 221 US$ 2,497 US$ 2,349 US$ 2,054 US$ 3,248 US$ 2,262 US$ 2,208 US$ 4,974 US$ 3,391 US$ 2,129 US$ 2,339 US$ 445 US$ 2,359 US$ 2,068 US$ 4,996 US$ 2,016 US$ 2,057 US$ 2,243 US$ 2,254 US$ 1,900 US$ 978 US$ 7,001 US$ 2,547 US$ 1,939 US$ 3,012 US$ 3,000 US$ 2,233 US$ 2,277 US$ 1,796 US$ 3,027 US$ 2,069 US$ 2,523 US$ 3,030 US$ 2,236 US$ 1,953 US$ 673 US$ 6,049 US$ 3,419 US$ 2,142 100 100 100 100 3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 38,617 12,899 5,213 17,466 - US$ 5,144 US$ 2,622 US$ 221 US$ 2,497 US$ 2,349 US$ 2,054 US$ 3,248 US$ 2,262 US$ 2,208 US$ 4,974 US$ 3,391 US$ 2,129 US$ 2,339 US$ 445 US$ 2,359 US$ 2,068 US$ 4,996 US$ 2,016 US$ 2,057 US$ 2,243 US$ 2,254 US$ 1,900 US$ 978 US$ 7,001 US$ 2,547 US$ 1,939 US$ 3,012 US$ 3,000 US$ 2,233 US$ 2,277 US$ 1,796 US$ 3,027 US$ 2,069 US$ 2,523 US$ 3,030 US$ 2,236 US$ 1,953 US$ 673 US$ 6,049 US$ 3,419 US$ 2,142 72 (Continued) Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Met Life Glob Funding I Metlife Inc. Metropolitan Life Global Fdg Metropolitan Life Global Fdg I Morgan Stanley Morgan Stanley Morgan Stanley Fdic Gtd Tlgp Morgan Stanley for Equity Nordea Bank Fld Plc Oesterreichische Kontrollbank Ontario (Province of) Paccar Finl Corp. Mtn Bk Ent Pricoa Global Fdg I Med Term Pricoa Global Funding 1 Pricoa Global Fdg I Medium Royal Bk of Scotland Plc Royal Bk Scotlnd Grp Plc 144A Southern Co. Sovereign Bancorp Fdic Gtd Tlg State Str Corp. Suncorp Metway Ltd. Suncorp Metway Ltd. Svenska Handelsbanken Ab Swedbank Ab Swedbank Foreningssparbanken A Ubs Ag Stamford US Central Federal Cred Verizon Communications Inc. Verizon Global Fdg Corp. Wachovia Corp. New Wells Fargo + Company Westfield Cap Corp. Ltd. Westpac Banking Corp. Westpac Banking Corp. Nationwide Building Society Westpac Banking Corp. 12/12 Frn Agency bond Fannif Mae Fed Hm Ln Pc Pool 1b2830 Fed Hm Ln Pc Pool 1g0115 Fed Hm Ln Pc Pool 1k1210 Fed Hm Ln Pc Pool 780741 Federal Farm Cr Bks Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 500 2,000 750 3,340 2,200 2,000 2,210 2,000 2,250 2,000 2,000 1,000 1,750 1,200 2,200 5,000 9,450 600 2,200 1,940 2,000 5,000 2,200 2,000 1,500 1,300 4,800 2,200 500 4,000 2,000 500 2,100 2,170 8,000 5,000 2,820 2,554 2,271 2,053 2,121 2,000 3,000 2,200 11,000 1,350 3,421 2,662 2,469 2,309 2,358 10,000 8,000 10,000 4,700 11,200 3,310 US$ 502 US$ 2,017 US$ 739 US$ 3,278 US$ 2,212 US$ 2,032 US$ 2,244 US$ 1,943 US$ 2,240 US$ 2,059 US$ 1,980 US$ 1,007 US$ 1,638 US$ 1,167 US$ 2,130 US$ 5,078 US$ 9,578 US$ 602 US$ 2,246 US$ 1,920 US$ 2,004 US$ 5,170 US$ 2,214 US$ 1,994 US$ 1,537 US$ 1,300 US$ 4,799 US$ 2,294 US$ 528 US$ 4,246 US$ 2,013 US$ 514 US$ 2,112 US$ 2,168 US$ 8,000 US$ 5,000 US$ 2,814 US$ 2,635 US$ 2,315 US$ 2,121 US$ 2,181 US$ 2,117 US$ 2,990 US$ 2,258 US$ 11,028 US$ 1,352 US$ 3,533 US$ 2,763 US$ 2,521 US$ 2,350 US$ 2,448 US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 502 US$ 2,017 US$ 739 US$ 3,278 US$ 2,212 US$ 2,032 US$ 2,244 US$ 1,943 US$ 2,240 US$ 2,059 US$ 1,980 US$ 1,007 US$ 1,638 US$ 1,167 US$ 2,130 US$ 5,078 US$ 9,578 US$ 602 US$ 2,246 US$ 1,920 US$ 2,004 US$ 5,170 US$ 2,214 US$ 1,994 US$ 1,537 US$ 1,300 US$ 4,799 US$ 2,294 US$ 528 US$ 4,246 US$ 2,013 US$ 514 US$ 2,112 US$ 2,168 US$ 8,008 US$ 4,999 US$ 2,814 US$ 2,635 US$ 2,315 US$ 2,121 US$ 2,181 US$ 2,117 US$ 2,990 US$ 2,258 US$ 11,028 US$ 1,352 US$ 3,533 US$ 2,763 US$ 2,521 US$ 2,350 US$ 2,448 US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 (Continued) 73 Held Company Name Marketable Securities Type and Name Relationship with TSMC Financial Statement Account December 31, 2009 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Mtg Corp. Federal Home Loan Mtg Corp. Federal National Mort Assoc Federal National Mort Assoc Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Remic Federal Natl Mtg Assn Federal Natl Mtge Assn Fhr 3087 Jb Fnma Pool 745688 Fnma Pool 790772 Fnma Pool 819649 Fnma Pool 829989 Fnma Pool 846233 Fnma Pool 870884 Fnma Pool 879908 Fnr 2005 47 Ha Fnr 2006 60 Co Fnr 2009 70 Nt Freddie Mac Gnma II Pool 082431 Government bond US Treasury N/B US Treasury N/B US Treasury Nts United States Treas Nts Societe De Financement De Lec Corporate issued note Barclays U.S. Fdg LLC Royal Bk of Scotland Money market fund Ssga Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 Held-to-maturity financial assets 3,000 3,000 3,000 1,411 1,940 2,117 1,752 2,854 2,669 2,871 4,000 2,039 2,540 2,272 1,527 2,318 2,146 2,288 2,357 2,056 2,652 3,062 2,537 4,500 2,000 US$ 2,989 US$ 2,983 US$ 2,984 US$ 1,441 US$ 2,012 US$ 2,176 US$ 1,782 US$ 2,926 US$ 2,765 US$ 2,953 US$ 4,228 US$ 2,126 US$ 2,656 US$ 2,336 US$ 1,568 US$ 2,383 US$ 2,221 US$ 2,332 US$ 2,442 US$ 2,128 US$ 2,753 US$ 3,153 US$ 2,609 US$ 4,491 US$ 2,030 21,400 2,170 37,700 10,536 15,000 US$ 21,394 US$ 2,158 US$ 39,012 US$ 10,548 US$ 15,000 Available-for-sale financial assets 〃 4,500 5,000 US$ 4,489 US$ 4,982 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 2,989 US$ 2,983 US$ 2,984 US$ 1,441 US$ 2,012 US$ 2,176 US$ 1,782 US$ 2,926 US$ 2,765 US$ 2,953 US$ 4,228 US$ 2,126 US$ 2,656 US$ 2,336 US$ 1,568 US$ 2,383 US$ 2,221 US$ 2,332 US$ 2,442 US$ 2,128 US$ 2,753 US$ 3,153 US$ 2,609 US$ 4,491 US$ 2,030 US$ 21,394 US$ 2,158 US$ 39,012 US$ 10,548 US$ 15,091 US$ 4,489 US$ 4,982 Available-for-sale financial assets 8,858 US$ 8,858 N/A US$ 8,858 (Concluded) 74 TABLE 2 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) TSMC Corporate bond Taiwan Mobile Co., Ltd. Formosa Petrochemical Corporation Taiwan Power Company Formosa Plastic Corporation China Steel Corporation Taipei Fubon Commercial Bank Co., Ltd. Government bond European Investment Bank Bonds Capital VTAF III TSMC Development Corporate bond JP Morgan Chase & Co. GUC Open-end mutual fund Jih Sun Bond Fund FSITC Taiwan Bond Fund Prudential Financial Bond Fund PCA Well Pool Fund Hua Nan Phoenix Bond Fund TSMC Global Corporate bond Ab Svensk Exportkredit Swedish Banco Bilbao Vizcaya P R Bear Stearns Cos Inc. Bear Stearns Cos Inc. Chase Manhattan Corp. New Citibank NA Citibank NA Deutsche Bank Ag London General Elec Cap Corp. General Elec Cap Corp. Available-for-sale financial assets Held-to-maturity financial assets 〃 〃 〃 〃 Grand Cathay Securities Corp. and several financial institutions 〃 〃 〃 〃 〃 Held-to-maturity financial assets Grand Cathay Securities Corp. and several financial institutions - Investments accounted for using equity method Held-to-maturity financial assets JP Morgan Securitied Inc. Available-for-sale financial assets 〃 〃 〃 〃 Jih Sun Investment Trust Co., Ltd. First Securities Investment Trust Co., Ltd. Prudential Financial Securities Investment Trust Enterprise PCA Securities Investment Trust Co., Ltd. Hua Nan Investment Trust Co., Ltd. Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ 2,032,658 3,554,908 4,209,629 2,385,285 1,000,000 - 383,387 1,305,605 - - - - - - - - - - 3,250 - - 2,995 - - - - - US$ 3,353 - - US$ 3,013 - - - - - - - - - - $ - 457,351 203,892 203,994 514,672 298,677 2,025,500 262,922 - US$ 15,000 - - - - - - - - - $ 1,037,370 $ 1,000,000 $ 37,370 - - - - - - - - - - - - - - - 400,000 383,909 16,091 - - - - 19,143 270,000 13,475 190,120 190,000 1,146 195,000 794 135,206 135,000 11,261 170,000 11,261 170,319 170,000 13,121 170,000 13,121 170,241 170,000 10,287 160,000 10,287 160,143 160,000 - - - - - - - - $ 1,046,672 3,178,551 3,004,941 1,671,815 1,512,130 298,884 2,003,876 1,309,615 - US$ 15,000 5,668 352 80,008 60,005 - - - - - - - - 120 206 319 241 143 5,000 US$ 5,185 3,250 5,000 3,500 - 3,000 5,000 - 5,000 7,000 US$ 3,250 US$ 4,965 US$ 3,360 - US$ 3,002 US$ 4,995 - US$ 4,834 US$ 7,002 - - - - 3,250 3,000 - 2,995 4,000 - - - - 5,000 US$ 5,144 - - - US$ 3,380 US$ 3,002 - US$ 3,021 US$ 3,880 - - - - US$ 3,480 US$ 3,002 - US$ 3,041 US$ 3,868 - - - - US$ (100) - - US$ (20) US$ 12 - 3,250 5,000 3,500 - - 5,000 - 1,000 7,000 US$ 3,248 US$ 4,974 US$ 3,391 - - US$ 4,996 - US$ 978 US$ 7,001 (Continued) 75 Company Name Marketable Securities Type and Name Goldman Sachs Group Incser 2 International Business Machs JP Morgan Chase + Co. Fdic Gtd Tlg Keycorp Fdic Gtd Tlgp Lloyds Tsb Bank Plc Ser 144A Mellon Fdg Corp. Metropolitan Life Global Fdg I Morgan Stanley Royal Bk of Scotland Plc Royal Bk Scotlnd Grp Plc 144A Suncorp Metway Ltd. US Central Federal Cred Wachovia Corp. New Wachovia Corp. New Wells Fargo + Co. New Med Trm Nationwide Building Society Westpac Banking Corp. 12/12 Frn Agency bond Fed Hm Ln Pc Pool 1g1282 Fed Hm Ln Pc Pool b19205 Fed Home Ln Bank Federal Farm Cr Bks Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Bks Federal Home Ln Mtg Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Remic Fnma Pool 257245 Fnma Pool 691283 Fnma Pool 852300 Fnma Pool 852347 Financial Statement Account Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 76 Counter-party Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,855 - - - - - 3,130 4,500 - - US$ - 3,000 US$ 3,016 - - - - - - US$ 4,552 - - - - - US$ 3,135 US$ 4,493 - 3,000 3,000 5,000 5,950 3,500 3,340 - 5,000 9,450 5,000 4,800 4,000 - - 8,000 US$ 3,030 US$ 3,030 US$ 5,061 US$ 6,077 US$ 3,404 US$ 3,245 - US$ 5,106 US$ 9,596 US$ 5,192 US$ 4,799 US$ 4,239 - - US$ 8,000 - 5,000 US$ 5,000 - - - 5,000 - - - 4,855 - - - - - 3,130 4,500 - - US$ - US$ - US$ - 3,000 US$ 3,012 - - - - - - US$ 5,061 - - - US$ 4,751 - - - - - US$ 3,195 US$ 4,524 - US$ 5,061 - - - US$ 4,768 - - - - - US$ 3,100 US$ 4,282 - - - - - US$ (17) - - - - - US$ 95 US$ 242 - 3,000 3,000 - 5,950 3,500 3,340 - 5,000 9,450 5,000 4,800 4,000 - - 8,000 US$ 3,027 US$ 3,030 - US$ 6,049 US$ 3,419 US$ 3,278 - US$ 5,078 US$ 9,578 US$ 5,170 US$ 4,799 US$ 4,246 - - US$ 8,000 - - - 5,000 US$ 5,000 3,215 US$ 3,285 - - 3,179 US$ 3,281 US$ 3,171 US$ 110 - - 5,449 5,000 3,400 3,375 - 3,725 5,000 4,000 5,000 3,340 3,500 3,500 - 3,060 - - - - - - - 4,500 - 3,700 4,000 3,500 - 3,750 - - 3,456 2,963 - - US$ 5,501 US$ 5,305 US$ 3,610 US$ 3,433 - US$ 3,854 US$ 5,320 US$ 4,148 US$ 5,340 US$ 3,428 US$ 3,560 US$ 3,743 - US$ 3,108 - - - - - - - US$ 4,710 - US$ 3,713 US$ 4,169 US$ 3,809 - US$ 4,134 - - US$ 3,513 US$ 3,039 - - - - - - 11,000 - - - - - - - 3,679 - 10,000 10,000 10,000 4,700 11,200 3,310 3,000 - 9,246 - - - 4,000 - 3,062 3,036 - - 9,276 3,761 - - - - US$ 11,038 - - - - - - - US$ 3,824 - US$ 9,996 US$ 10,002 US$ 10,035 US$ 4,723 US$ 11,200 US$ 3,310 US$ 3,000 - US$ 9,474 - - - US$ 4,261 - US$ 3,153 US$ 3,127 - - US$ 9,843 US$ 3,991 5,335 5,000 3,400 3,375 - 3,725 5,000 4,000 5,000 3,340 3,500 3,500 - 3,005 - 2,000 - - - - - 4,500 9,246 3,700 4,000 3,500 - 3,750 - - 3,415 2,932 9,206 3,721 US$ 5,511 US$ 5,282 US$ 3,590 US$ 3,429 - US$ 3,851 US$ 5,312 US$ 4,151 US$ 5,334 US$ 3,431 US$ 3,561 US$ 3,749 - US$ 3,078 - US$ 2,000 - - - - - US$ 4,709 US$ 9,461 US$ 3,712 US$ 4,180 US$ 3,801 - US$ 4,127 - - US$ 3,513 US$ 3,028 US$ 9,773 US$ 3,950 US$ 5,225 US$ 5,035 US$ 3,411 US$ 3,370 - US$ 3,721 US$ 5,098 US$ 4,136 US$ 5,186 US$ 3,335 US$ 3,494 US$ 3,786 - US$ 3,003 - US$ 2,000 - - - - - US$ 4,518 US$ 9,474 US$ 3,700 US$ 4,117 US$ 3,645 - US$ 4,151 - - US$ 3,437 US$ 2,920 US$ 9,770 US$ 3,949 US$ 286 US$ 247 US$ 179 US$ 59 - US$ 130 US$ 214 US$ 15 US$ 148 US$ 96 US$ 67 US$ (37) - US$ 75 - - - - - - - US$ 191 US$ (13) US$ 12 US$ 63 US$ 156 - US$ (24) - - US$ 76 US$ 108 US$ 3 US$ 1 - - - - 11,000 - - - - - - - 3,421 - 10,000 8,000 10,000 4,700 11,200 3,310 3,000 - - - - - 4,000 - 2,854 2,871 - - - - - - - - US$ 11,028 - - - - - - - US$ 3,533 - US$ 9,987 US$ 7,992 US$ 10,012 US$ 4,715 US$ 11,186 US$ 3,319 US$ 2,984 - - - - - US$ 4,228 - US$ 2,926 US$ 2,953 - - - - (Continued) Company Name Marketable Securities Type and Name Fnma Pool 888738 Fnma Pool 888793 Fnma Pool 955778 Fnr 2006 60 Co Freddie Mac Government bond United States Treas Nts US Treasury N/B US Treasury N/B US Treasury Nts Societe De Financement De Lec Corporate issued note Barclays U.S. Fdg LLC Royal Bk of Scotland Money market fund Ssga Cash Mgmt Global Offshore Corporate issued asset-backed securities Banc Amer Coml Mtg Inc. Cit Equip Coll Tr Credit Suisse First Boston Mtg First Un Natl Bk Coml Mtg Tr Lb Ubs Coml Mtg Tr Tiaa Seasoned Coml Mtg Tr Wamu Mtg Financial Statement Account Available-for-sale financial assets 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 Held-to-maturity financial assets Available-for-sale financial assets 〃 Available-for-sale financial assets Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Counter-party Nature of Relationship Shares/Units (In Thousands) Amount (US$ in Thousands) Shares/Units (In Thousands) (Note 1) Amount (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Carrying Value (US$ in Thousands) Gain (Loss) or Disposal (US$ in Thousands) Shares/Units (In Thousands) Amount (US$ in Thousands) Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) 3,669 US$ 3,776 - US$ - 3,659 US$ 3,828 US$ 3,801 US$ 27 - US$ - 4,105 - - - US$ 4,242 - - - - 7,680 3,239 4,500 - US$ 8,138 US$ 3,352 US$ 4,490 4,071 7,395 - - US$ 4,265 US$ 7,829 - - US$ 4,207 US$ 7,836 - - US$ 58 US$ (7) - - - - 3,062 4,500 - - US$ 3,153 US$ 4,491 10,266 US$ 10,374 - - - - - - - - - - - - - 41,900 3,520 50,000 15,000 - 10,357 US$ 11,258 US$ 11,258 - 10,536 US$ 10,548 US$ 41,931 US$ 3,498 US$ 52,184 US$ 15,000 20,500 1,350 12,300 - US$ 20,564 US$ 1,358 US$ 12,826 - US$ 20,515 US$ 1,341 US$ 12,837 - US$ 49 US$ 17 US$ (11) - 21,400 2,170 37,700 15,000 US$ 21,394 US$ 2,158 US$ 39,012 US$ 15,000 4,500 US$ 4,489 5,000 US$ 4,982 - - - - - - - - - 4,500 US$ 4,489 5,000 US$ 4,982 8,858 US$ 8,858 30,435 US$ 30,435 495,908 US$ 495,908 517,485 US$ 517,485 US$ 517,485 4,597 US$ 4,584 4,000 4,353 4,788 3,737 3,397 3,214 US$ 3,884 US$ 4,349 US$ 4,715 US$ 3,495 US$ 3,163 US$ 2,925 - - - - - - - - - - - - - - 4,472 US$ 4,480 US$ 4,584 US$ (104) 4,000 4,090 4,774 3,725 3,375 3,172 US$ 3,925 US$ 4,085 US$ 4,780 US$ 3,537 US$ 3,283 US$ 3,106 US$ 3,996 US$ 4,188 US$ 4,954 US$ 3,697 US$ 3,392 US$ 3,114 US$ (71) US$ (103) US$ (174) US$ (160) US$ (109) US$ (8) Note 1: The shares/units and amount of marketable securities acquired do not include stock dividends from investees. Note 2: The data for marketable securities disposed exclude bonds maturities and capital return from subsidiaries. Note 3: The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments or equity in earnings/losses of equity method investees. - - - - - - - - - - - - - - (Concluded) 77 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships TSMC Fab Oc tober 25, 2009 $ 514,777 By the construction Fu Tsu Construction - to December 30, 2009 progress Co., Ltd. and China Steel Structure Co., Ltd. Prior Transaction of Related Counter-party Relationships Transfer Date Amount Price Reference N/A N/A N/A Public bidding Owner N/A Purpose of Acquisition Ma nufacturing purpose Other Terms None TABLE 4 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Purchases/Sales Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total Note Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable TSMC TSMC North America GUC VIS WaferTech TSMC China SSMC VIS Subsidiary Investee with a controlling financial interest Investee accounted for using equity method Indirect subsidiary Subsidiary Investee accounted for using equity method Investee accounted for using equity method GUC TSMC North America Same parent company Sales Sales Sales Purchases Purchases Purchases Purchases Purchases $ 161,251,368 2,023,612 139,044 5,560,707 3,787,113 3,537,659 3,312,656 937,160 54 1 - 18 12 11 10 28 Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after invoice date Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Net 30 days after monthly closing Ne t 30 days after invoice date/net 45 days after monthly closing Xintec OmniVision Pa rent company of director (represented for Sales 1,801,655 77 Net 30 days after monthly closing Xintec) Note: The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements. - - - - - - - - - - - - - - - - - - $ 22,203,242 338,502 - (561,165) (481,500) (238,741) (529,060) (173,789) 397,695 52 1 - 5 4 2 5 25 73 78 TABLE 5 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Ending Balance TSMC Xintec TSMC North America GUC TSMC China Subsidiary Investee with a controlling financial interest Subsidiary $ 22,211,918 338,502 111,103 OmniVision Parent company of director (represented for Xintec) 397,695 Note 1: The calculation of turnover days excludes other receivables from related parties. Note 2: The ending balance primarily consisted of other receivables, which is not applicable for the calculation of turnover days. Turnover Days (Note 1) Overdue Amounts Action Taken 38 50 (Note 2) 81 $ 6,438,761 - - 160 - - - - Amounts Received in Subsequent Period $ 8,899,170 - - Allowance for Bad Debts $ - - - 127,130 - 79 TABLE 6 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH TSMC EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investor Company Investee Company Location Main Businesses and Products TSMC TSMC Global TSMC Partners Tortola, British Virgin Islands Tortola, British Virgin Islands VIS SSMC Hsin-Chu, Taiwan 13,232,288 13,232,288 628,223 Singapore Fabrication and supply of integrated circuits 5,120,028 5,120,028 Investment activities Investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts Original Investment Amount Balance as of December 31, 2009 December 31, 2009 (Foreign Currencies in Thousands) December 31, 2008 (Foreign Currencies in Thousands) Shares (In Thousands) Percentage of Ownership Carrying Value (Foreign Currencies in Thousands) Net Income (Losses) of the Investee (Foreign Currencies in Thousands) Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands) Note $ 42,327,245 31,456,130 $ 42,327,245 31,456,130 1 988,268 100 100 $ 45,397,256 32,545,619 $ 505,232 (54,907) $ 505,232 (54,907) Subsidiary Subsidiary 12,180,367 12,180,367 333,718 333,718 1,357,890 1,357,890 1,703,163 1,093,943 386,568 959,044 15,749 83,760 13,656 1,440,241 1,036,422 386,568 986,797 15,749 83,760 13,656 US$ 0.001 US$ 43,000 US$ 0.001 US$ 43,000 US$ 21,415 US$ 0.001 US$ 7,680 US$ 2,300 US$ 800 US$ 32,289 US$ 0.001 US$ 7,680 US$ 2,300 - US$ 1,000 - 314 - 11,000 93,081 - - 46,688 - - 6 80 1 43,000 21,415 1 7,680 2,300 5,333 1,000 37 39 9,365,232 89,241 (368,710) 6,157,141 1,608,714 427,022 100 2,961,043 (3,244,458) (3,242,122) Investee accounted for using equity method Investee accounted for using equity method Subsidiary 100 2,723,727 360,562 360,562 Subsidiary 1,475,014 10,597 (20,659) 41 98 98 35 99 100 100 100 100 49 97 100 97 100 70 1,309,615 1,122,810 983,126 305,866 159,467 135,663 18,519 (224,620) (178,442) 412,771 (92,606) 35,445 4,203 2,392 US$ 340,387 US$ 70,967 US$ 9,293 US$ 322 US$ 13,741 US$ 9,071 US$ 7,336 US$ 3,193 US$ 800 US$ 960 US$ 662 US$ (1,504) US$ 210 US$ (24) 10 US$ 1,000 US$ (24) (223,546) (174,873) 146,384 (92,143) 35,445 4,203 2,392 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Investee with a controlling financial interest Subsidiary Subsidiary Investee with a controlling financial interest Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary Investee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary (Note 3) Investee accounted for using equity method Investee accounted for using equity method US$ 330,000 US$ 380,000 293,637 100 US$ 154,432 US$ (125) Note 2 Subsidiary US$ 91,041 US$ 91,041 253,120 89 US$ 125,983 US$ 313 Note 2 Subsidiary (Continued) TSMC China Shanghai, China TSMC North America San Jose, California, U.S.A. Xintec VTAF III VTAF II GUC Emerging Alliance TSMC Europe TSMC Japan TSMC Korea Taoyuan, Taiwan Cayman Islands Cayman Islands Hsin-Chu, Taiwan Cayman Islands Amsterdam, the Netherlands Yokohama, Japan Seoul, Korea TSMC Partners TSMC Development VisEra Holding Company Delaware, U.S.A. Cayman Islands ISDF II TSMC Technology ISDF TSMC Canada Mcube Inc. (Common Stock) Cayman Islands Delaware, U.S.A. Cayman Islands Ontario, Canada Delaware, U.S.A. Mcube Inc. (Preferred Stock) Delaware, U.S.A. TSMC Development WaferTech Washington, U.S.A. VisEra Holding Company VisEra Hsin-Chu, Taiwan Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Sales and marketing of integrated circuits and semiconductor devices Wafer level chip size packaging service Investing in new start-up technology companies Investing in new start-up technology companies Researching, developing, manufacturing, testing and marketing of integrated circuits Investing in new start-up technology companies Marketing and engineering supporting activities Marketing activities Customer service and technical support activities Investment activities Investment in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry Investing in new start-up technology companies Engineering support activities Investing in new start-up technology companies Engineering support activities Research, development, and sale of micro- semiconductor device Research, development, and sale of micro- semiconductor device Manufacturing, selling, testing and computer- aided designing of integrated circuits and other semiconductor devices Manufacturing and selling of electronic parts and providing turn-key services in back-end color filter fabrication, package, test, and optical solutions 80 Original Investment Amount Balance as of December 31, 2009 Shares (In Thousands) Percentage of Ownership Carrying Value (Foreign Currencies in Thousands) Net Income (Losses) of the Investee (Foreign Currencies in Thousands) Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands) Note Investor Company Investee Company Location Main Businesses and Products VTAF III Mutual-Pak Technology Co., Ltd. Taipei, Taiwan Aiconn Technology Corp. Taipei, Taiwan Manufacturing and selling of electronic parts and researching, developing, and testing of RFID Wholesaling telecommunication equipments, and manufacturing wired and wireless communication equipments December 31, 2009 (Foreign Currencies in Thousands) December 31, 2008 (Foreign Currencies in Thousands) US$ 3,088 US$ 1,705 US$ 1,777 US$ 1,777 VTAF II GUC Growth Fund VTA Holdings VTA Holdings GUC-NA GUC-Japan GUC-Europe GUC-BVI Cayman Islands Delaware, U.S.A. Investing in new start-up technology companies Investing in new start-up technology companies US$ 1,550 - US$ 700 - Delaware, U.S.A. Investing in new start-up technology companies - - U.S.A. Japan The Netherlands British Virgin Islands Consulting services in main products Consulting services in main products Consulting services in main products Investment activities US$ 800 JPY 30,000 EUR 100 US$ 550 US$ 800 JPY 30,000 EUR 50 - Emerging Alliance VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - - Note 1: Equity in earnings/losses of investees include the effect of unrealized gross profit from affiliates. Note 2: The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company. Note 3: Equity in earnings/losses was determined based on the unaudited financial statements. 9,180 4,500 - - - 800 1 - 550 - 59 42 100 62 31 100 100 100 100 7 US$ 2,112 US$ (1,105) Note 2 Subsidiary US$ 566 US$ (1,239) Note 2 Investee accounted for using equity method US$ 823 - US$ (127) - Note 2 Note 2 Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) $ 38,617 12,899 5,213 17,466 $ 5,617 1,608 353 (133) Note 2 Note 2 Note 2 Note 2 Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) (Concluded) 81 TABLE 7 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (RMB in Thousand) Method of Investment TSMC China Ma nufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers $ 12,180,367 (RMB 3,070,623) (Note 1) Accumulated Outflow of Investment from Taiwan as of January 1, 2009 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Investment Flows Outflow Inflow $ - $ - Accumulated Outflow of Investment from Taiwan as of December 31, 2009 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Percentage of Ownership 100% Equity in the Earnings (Losses) (Note 2) Carrying Value as of December 31, 2009 Accumulated Inward Remittance of Earnings as of December 31, 2009 $ (3,242,122) $ 2,961,043 $ - Accumulated Investment in Mainland China as of December 31, 2009 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) Note 1: Direct investments US$371,000 thousand in TSMC China. Note 2: Amount was recognized based on the audited financial statements. 82 TABLE 8 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) A. FOR THE YEAR ENDED DECEMBER 31, 2009 No. 0 Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Item Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions TSMC TSMC North America 1 Sales $ 161,251,368 TSMC China TSMC Japan TSMC Europe TSMC Korea GUC TSMC Technology WaferTech TSMC Canada Xintec Receivables from related parties Other receivables from related parties Payables to related parties 1 Sales Purchases Gain on disposal of property, plant and equipment Technical service income Marketing expenses - commission Other receivables from related parties Payables to related parties Deferred credits Marketing expenses - commission Payables to related parties Marketing expenses - commission Research and development expenses Payables to related parties Marketing expenses - commission Payables to related parties Sales Research and development expenses Receivables from related parties Research and development expenses Payables to related parties Sales Purchases Other receivables from related parties Payables to related parties Research and development expenses Payables to related parties Manufacturing overhead Payables to related parties 1 1 1 1 1 1 1 1 Sales of property, plant and equipment and other assets 22,203,242 8,676 4,222 63,278 3,787,113 176,521 8,105 10,302 111,103 481,500 7,970 233,855 23,288 325,463 21,463 31,342 14,424 1,418 2,023,612 26,488 338,502 409,686 109,220 4,482 5,560,707 4,932 561,165 157,527 13,653 35,466 37,363 58,450 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 52% 4% - - - 1% - - - - - - - - - - - - - 1% - - - - - 2% - - - - - - - (Continued) 83 Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Item Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions No. 3 GUC TSMC North America 3 Purchases $ 937,160 GUC-NA GUC-Japan GUC-Europe Manufacturing overhead Payables to related parties 3 3 3 Operating expenses Accrued Expense Operating expenses Accrued Expense Operating expenses 303,687 173,789 157,345 14,618 39,755 3,462 7,305 - - - - - - - - - - - - - - - - (Concluded) Note 1: No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries. Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements. 84 B. FOR THE YEAR ENDED DECEMBER 31, 2008 No. 0 Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Item Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions TSMC TSMC North America 1 Sales $ 192,986,719 TSMC China TSMC Japan TSMC Europe TSMC Korea GUC TSMC Technology WaferTech TSMC Canada Emerging Alliance TSMC International Receivables from related parties Other receivables from related parties Payables to related parties 1 Sales Purchases Gain on disposal of property, plant and equipment Technical service income Other receivables from related parties Payables to related parties Deferred credits Marketing expenses - commission Payables to related parties Marketing expenses - commission Payables to related parties Marketing expenses - commission Payables to related parties Sales General and administrative expenses - rental expense Research and development expenses Receivables from related parties Payables to related parties Research and development expenses Payables to related parties Sales Purchases Other receivables from related parties Payables to related parties Research and development expenses Payables to related parties Other receivables from related parties Other receivables Deferred revenue 1 1 1 1 1 1 1 1 3 11,512,777 256,624 327,250 101,245 4,717,676 197,681 99,737 112,933 117,417 183,896 251,367 20,528 367,846 29,679 16,408 1,313 1,611,058 1,050 18,940 215,190 7,003 352,900 41,904 12,216 8,207,876 13,813 171,089 172,291 3,297 5,149 8,149,280 8,149,280 2 TSMC Partners - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 55% 2% - - - 1% - - - - - - - - - - - - - - - - - - - 2% - - - - - 1% 1% (Continued) 85 Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Item Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions No. 3 GUC TSMC North America 3 Purchases $ 1,747,488 GUC-NA GUC-Japan GUC-Europe Manufacturing overhead Operating Expense Payables to related parties Operating expenses Payables to related parties Operating expenses Payables to related parties Operating expenses 3 3 3 298,926 1,458 148,680 105,044 11,074 28,480 2,260 5,140 - - - - - - - - - 1% - - - - - - - - (Concluded) Note 1: No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries. Note 2: The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements. 86 9. U.S. GAAP Financial Information TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND SUBSIDIARIES TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND SUBSIDIARIES U.S. GAAP RECONCILIATIONS OF SHAREHOLDERS’ EQUITY December 31, 2008 and 2009 (In Thousand New Taiwan Dollars) U.S. GAAP RECONCILIATIONS OF NET INCOME For the Years Ended December 31, 2008 and 2009 (In Thousand New Taiwan Dollars) 2009 2008 2009 2008 Total shareholders’ equity based on R.O.C. GAAP $ 499,048,548 $ 480,372,467 Adjustments - U.S. GAAP adjustments on equity-method investees - Impairment of long-lived assets - Loss on impairment of assets - Reversal of depreciation on assets impaired under U.S. GAAP - 10%tax on undistributed earnings - Goodwill - Carrying amount difference for 68% equity interest in TASMC’s share acquisition - Reversal of amortization of goodwill recognized under R.O.C. GAAP - Accrued pension cost - Accrual for deferred pension loss under U.S. SFAS No. 158 - Income tax effect of U.S. GAAP adjustments - Net adjustment (449,910) (10,439,143) 10,439,143 (3,588,008) 52,212,732 (11,318,915) (31,734) (10,712) 134,367 36,947,820 (484,992) (10,709,654) 10,709,654 (4,554,897) 52,212,732 (11,228,894) (35,622) (1,288,895) 68,398 34, 687,830 Net income Consolidated net income based on R.O.C. GAAP Adjustments - Realization of unrealized loss on marketable securities recognized under R.O.C. GAAP prior to January 1, 2006 - U.S. GAAP adjustments on equity-method investees - Reversal of depreciation on assets impaired under U.S. GAAP - 10% tax on undistributed earnings - Profit sharing to employees, directors and supervisors - Current year accrual - Fair market value adjustment of prior year accrual - Pension expense - Stock-based compensation - Income tax effect of U.S. GAAP adjustments - Net adjustment $ 89,466,223 $ 100,523,237 - (6,300) - 966,889 - (648,092) 3,888 (559,078) 69,929 (172,764) (98,024) (16,405) 675,651 983,382 - (20,369,334) 4,289 215,766 (96,366) (18,701,041) Consolidated net income based on U.S. GAAP $ 89,293,459 $ 81,822,196 Total equity based on U.S. GAAP $ 535,996,368 $ 515,060,297 Attributable to Shareholders of the parent Noncontrolling interests 532,042,816 3,953,552 $ 535,996,368 511,089,189 3,971,108 $ 515,060,297 Attributable to Shareholders of the parent Noncontrolling interests 89,102,226 191,233 $ 89,293,459 81,473,243 348,953 $ 81,822,196 87 C O N T A C T I N F O R M A T I O N TSMC Spokesperson Name: Lora Ho Title: Vice President & CFO Tel: 886-3-5664602 Fax: 886-3-5670121 Email: cyhsu@tsmc.com Deputy Spokesperson Name: J.H. Tzeng Title: Deputy Director, Public Relations Tel: 886-3-5055028 Fax: 886-3-5670121 Email: jhtzeng@tsmc.com TSMC Investor Relations Name: Elizabeth Sun Title: Director, Investor Relations Tel: 886-3-5682085 Fax: 886-3-5797337 Email: invest@tsmc.com Auditors Company: Deloitte & Touche Auditors: Hung-Peng Lin, Shu-Chieh Huang Address: 12F, 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan 105-96, R.O.C. Tel: 886-2-25459988 Fax: 886-2-25459966 Website: http://www.deloitte.com.tw Common Share Transfer Agent and Registrar Company: The Transfer Agency Department of Chinatrust Commercial Bank Address: 5F, 83, Sec. 1, Chung-Ching S. Rd., Taipei, Taiwan 100-08, R.O.C. Tel: 886-2-21811911 Fax: 886-2-23116723 Website: http://www.chinatrust.com.tw ADR Depositary Bank Company: Citibank, N.A. Depositary Receipts Services Address: 388 Greenwich Street, New York, NY 10013, U.S.A. Website: http://www.citigroup.com/adr Tel: 1-877-2484237 (toll free) Tel: 1-781-5754555 (out of US) Fax: 1-201-3243284 E-mail: citibank@shareholders-online.com TSMC’s depositary receipts of the common shares are listed on New York Stock Exchange (NYSE) under the symbol TSM. The information relating to TSM is available at http://www.nyse.com and http:// newmops.tse.com.tw Corporate Headquarters & Fab 12 8, Li-Hsin Rd. 6, Hsinchu Science Park, Hsinchu, Taiwan 300-78, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5637000 Fab 2, Fab 5 121, Park Ave. 3, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781546 Fab 3 9, Creation Rd. 1, Hsinchu Science Park, Hsinchu, Taiwan 300-77, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781548 Fab 6 1, Nan-Ke North Rd., Tainan Science Park, Tainan, Taiwan 741-44, R.O.C. Tel: 886-6-5056688 Fax: 886-6-5052057 Fab 8 25, Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 300-78, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5662051 Fab 14 1-1, Nan-Ke North Rd., Tainan Science Park, Tainan, Taiwan 741-44, R.O.C. Tel: 886-6-5056688 Fax: 886-6-5051262 TSMC North America 2585 Junction Avenue, San Jose, CA 95134, U.S.A. Tel: 408-3828000 Fax: 408-3828008 TSMC Europe B.V. World Trade Center, Zuidplein 60, 1077 XV Amsterdam, The Netherlands Tel: 31-20-3059900 Fax: 31-20-3059911 TSMC Japan Limited 21F, Queen’s Tower C, 2-3-5, Minatomirai, Nishi-ku, Yokohama Kanagawa, 220-6221, Japan Tel: 81-45-6820670 Fax: 81-45-6820673 TSMC China Company Limited 4000, Wen Xiang Road, Songjiang, Shanghai, China Postcode: 201616 Tel: 86-21-57768000 Fax: 86-21-57762525 TSMC Korea Limited 15F, AnnJay Tower, 718-2, Yeoksam-dong, Gangnam-gu Seoul 135-080, Korea Tel: 82-2-20511688 Fax: 82-2-20511669 TSMC Liaison Office in India 1st Floor, Pine Valley, Embassy Golf-Links Business Park Bangalore-560071, India Tel: 91-80-41768615 Fax: 91-80-41764568 TSMC Design Technology Canada Inc. 349 Terry Fox Drive, Kanata, ON K2K 2V6, Canada Tel: 1-613-5667067 Fax: 1-613-2713643 Copyright © 2010 by Taiwan Semiconductor Manufacturing Company, Ltd. All rights reserved. 

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