TSMC
Annual Report 2010

Plain-text annual report

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 2.1 An Introduction to TSMC 2.2 Market/Business Summary 2.3 Organization 2.4 Board Members 2.5 Management Team 3. CORPORATE GOVERNANCE 3.1 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 4. CAPITAL AND SHARES 4.1 Capital and Shares 4.2 Issuance of Corporate Bonds 4.3 Preferred Shares 4.4 Issuance of American Depositary Shares 4.5 Status of Employee Stock Option Plan 4.6 Status of New Share Issuance in Connection with Mergers and Acquisitions 4.7 Financing Plans and Implementation 5. OPERATIONAL HIGHLIGHTS 5.1 Business Activities 5.2 Technology Leadership 5.3 Manufacturing Excellence 5.4 Customer Partnership 5.5 Employees 5.6 Material Contracts 6. FINANCIAL HIGHLIGHTS 6.1 Financial Status and Operating Results 6.2 Risk Management 7. CORPORATE SOCIAL RESPONSIBILITY 7.1 Environmental, Safety and Health (ESH) Management 7.2 TSMC Education and Culture Foundation 7.3 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission 8. AFFILIATE INFORMATION AND OTHER SPECIAL NOTES 8.1 Affiliates 8.2 Status of TSMC Common Shares and ADRs Acquired, Disposed of, and Held by Subsidiaries 8.3 Special Notes 2 6 7 8 10 12 18 24 25 27 29 30 31 31 31 32 33 39 39 40 42 42 42 44 45 46 51 54 55 58 60 61 65 72 74 77 79 80 81 85 85 1 1. Letter to Shareholders Financial Performance Consolidated revenue for 2010 totaled NT$419.54 billion, an increase of 41.9 percent over NT$295.74 billion in 2009. Net income was NT$161.61 billion or 81.1 percent above NT$89.22 billion the previous year. Diluted earnings per share were NT$6.23, up 81.1 percent compared with NT$3.44 in 2009. In US dollars, TSMC generated net income of US$5.13 billion on consolidated revenue of US$13.32 billion, compared with net income of US$2.71 billion on consolidated revenue of US$9 billion for 2009. Gross profit margin was 49.4 percent compared with 43.7 percent in 2009, with Operating Profit Margin of 37.9 percent compared with 31.1 percent a year earlier. Net profit margin reached 38.5 percent, an increase of 8.3 percentage points from the 2009’s level. TSMC shipped 11.86 million eight-inch equivalent wafers compared with 7.74 million wafers a year ago. Dear Shareholders, 2010 was a year of record high revenue and profit for TSMC. Amid gradual recovery of the global economy, semiconductor industry revenue grew 31% in 2010. Meanwhile, TSMC’s revenue grew 48% in US dollars compared with 43% for the overall foundry segment. Our growth momentum was fueled by both timely addition and fast ramp-up of capacity, wide customer adoption of our advanced technologies, and a strong growth in specialty technology revenue. TSMC’s strong performance delivered in 2010 reflected our trinity of strengths: technology leadership, manufacturing excellence, and customer partnership. Significant achievements included: ● We operated at full production utilization rate averaged across all fabs throughout the year, and have installed 14 percent more capacity overall, with an increase of 37 percent in capacities at 12” wafer fabs. ● We deployed over 157 technologies, and manufactured more than 8,300 products for more than 450 customers over the course of 2010. ● In 2010, we fast ramped-up to full production of our 40/45-nanometer technology, which generated 17 percent of total wafer revenue, with considerable market share, and margins that approached the corporate average by year’s end. ● Following on the success of our 65- and 40-nanometer process technology productions, development of our 28-nanometer products – three high-k metal gate processes and one conventional silicon oxynitride (SiON) process – proceeded as planned with record customer engagements. 3 Expanding Growth Technological Developments In 2010, TSMC took important steps to further our development of At this time, TSMC’s 28-nanometer technology is industry leading advanced technologies and to accelerate capacity expansion. and production ready. We have achieved, in the R&D phase, superior In expanding our technology leadership we have spent considerable 40-nanometer, using our gate-last high-k metal-gate process. A few resources for R&D. 2010 R&D capital expenditure was US$355 customer products have already taped out and are in prototyping. million, 85% higher than 2009, while regular R&D budget also Meanwhile, our 28-nanometer lead-free bumping is eco-friendly and increased by about 40% to US$940 million. The major focus of these compatible with superior low-resistance ELK interconnect. investments is further development of 28-, 20-, and 14-nanometer technologies and exploratory work on 10- and 7-nanometer In addition to our efforts in pushing Moore’s Law with advanced performance, reliability and density, which is 2 times over that of technologies. geometries, we have also spent considerable resources in developing specialty technologies to capture both the market trend of In 2010, TSMC spent a record of US$5.94 billion on capital integrating more specialty features with CMOS logic, and the trend expenditures to meet the capacity needs of our customers. Although of continuing scaling down the geometries for cost and form factor we exerted our utmost efforts to accelerate capacity expansion, we advantages. still had sizeable unfilled requests for capacity from customers by the end of 2010. TSMC’s technology leadership in these specialty technologies includes both feature improvement and the ability to further shrink Having already invested additional capital to expand capacity at our the geometries. We have already achieved some industry leading two existing 12-inch GIGAFABTM facilities, Fab 12 in Hsinchu and Fab 14 in Tainan, we began construction last July on our third results. For example: we plan to use 65- and 90-nanometer processes to deliver engine control processes for automotive ICs, and we use GIGAFABTM, Fab 15, in Taichung’s Central Taiwan Science Park. Meanwhile, we also obtained a new site in the Hsinchu Science Park for sub-14- nanometer R&D. 65-nanometer and back-side illumination (BSI) technology to achieve the best quantum efficiency for CMOS image sensors. For embedded DRAM, we use 40-nanometer to deliver the fastest network TSMC also is actively pursuing new revenue opportunities that ultra low leakage micro controller unit (MCU) of one pico amp per leverage our technological strengths, engineering capabilities, and micron (1pA/μm). For MEMS, we use 0.18-micron to complete experiences in large-scale manufacturing. During the year, three-dimensional CMOS-MEMS integration; and for power IC, we construction was begun on TSMC’s first solid-state lighting facility in use 0.18-micron to achieve the lowest turn-on resistance (Ron) in the processors; and for embedded Flash, we use 0.11-micron to enable Hsinchu to pursue opportunities in the lighting industry. We also industry. began construction on our first Thin Film Solar R&D Center and Fab in Taichung, laying the foundation for TSMC’s entry into the thin-film Our efforts in both Moore’s Law progression and specialty solar photovoltaic market serving the solar energy market. Each of technologies have encouraged many customers to expand their these initiatives represents an opportunity for TSMC to establish a engagements with TSMC. significant foothold in the emerging green energy industries. 4 Capacity Plan Sales Breakdown by Technology 6% 2009 2010 2011 14% 20% Annual Growth Rate Capacity: 8-inch equivalent wafers 9.96 million 11.33 million 13.56 million 2009 2010 2011 33% 28% 24% 67% 72% 76% ≥ 0.15 μm ≤ 0.13 μm 2011 wafer shipment is expected to be approximately 14 million 8-inch equivalent wafers. Honors and Awards Outlook In 2010, TSMC continued to garner recognition and awards from Recovery of the global economic condition is likely to continue into around the world as a corporate role model. Our commitment to 2011. Global semiconductor revenue growth is forecast to be about creating shareholder value and to corporate social responsibilities 5 percent, while the foundry segment is forecast to outpace the have won top honors from AsiaMoney, FinanceAsia, IR Magazine, overall semiconductor industry at a growth rate of about 15 percent Corporate Governance Asia, CommonWealth Magazine, and in 2011. Because TSMC possesses the right technologies, effective GlobalView Magazine in the areas of corporate governance, capacity, and we continue to earn the trust of our customers, we are management, investor relations and corporate social responsibilities. well positioned to capture greater share within the dedicated We received again the Corporate Social Responsibility (CSR) “Gold foundry segment and to continually deliver growth and profitability Award,” the highest honor bestowed by the Taiwan Institute for for our shareholders. Sustainable Energy, and were chosen the Semiconductor Sector Leader in Dow Jones Sustainability Index (DJSI) 2010 Survey. TSMC has been a DJSI component for 10 consecutive years. Citing “outstanding leadership in the semiconductor industry”, Institute of Electrical and Electronics Engineers (IEEE) has named me the recipient of the 2011 IEEE Medal of Honor. I believe the honor belongs to the entire TSMC. Morris Chang Morris Chang Chairman and CEO February 15, 2011 5 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, TSMC continued to lead the foundry segment of the semiconductor industry in both advanced and “More-than-Moore“ process Taiwan, TSMC pioneered the business model of focusing solely on technologies. Already the first foundry to provide 65nm and 40nm manufacturing customers’ semiconductor designs. As a pure-play production capacity, TSMC also announced it will deliver 28nm as a semiconductor foundry, the Company does not design, manufacture, full node technology, with the portfolio of 28HP & 28HPM for high or market semiconductor products under its own brand name, performance and 28LP & 28HPL for low power to enrich its 28nm ensuring that TSMC does not compete directly with its customers. offering. In addition to general-purpose logic process technology, With a diverse global customer base, TSMC-manufactured embedded non-volatile memory, embedded DRAM, Mixed Signal/RF, microchips are used in a broad variety of applications that cover high voltage, CMOS image sensor, color filter, MEMS, silicon various segments of the computer, communications and consumer germanium technologies and automotive service packages. TSMC supports the wide-ranging needs of its customers with electronics markets. Total capacity of the manufacturing facilities managed by TSMC, related to solid state lighting and solar business activities. Both of including subsidiaries and joint ventures, totaled 11.33 million 8-inch these business are still developing their technology base and are not equivalent wafers in 2010. In Taiwan, TSMC operates two advanced expected to contribute significantly to revenue until after 2011. During 2010 TSMC made investments in two new lines of business 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 The Company is listed on the Taiwan Stock Exchange (TWSE) under subsidiaries: WaferTech in the United States and TSMC China ticker number 2330, and its American Depositary Shares trade on the Company Limited. In addition, TSMC obtains 8-inch wafer capacity New York Stock Exchange (NYSE) under the symbol “TSM”. 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 33,000 people worldwide as of the end of 2010. 7 2.2 Market/Business Summary 2.2.1 TSMC Achievements In 2010, TSMC maintained its leading position in the total foundry segment of the global semiconductor industry, with an estimated market segment share of 45.5%. 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 2010, 72% of TSMC’s wafer revenue came from manufacturing processes with geometries of 0.13μm and below. A critical milestone was reached in November 2010, when TSMC shipped its half-millionth 45/40nm 12-inch wafer. TSMC also piloted the leading-edge 28nm process with its foundry customers. As of the fourth quarter of 2010, 52% 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 2010 was the foundry segment’s first Analog/Mixed Signal Reference flow. TSMC also launched the Soft IP Alliance, bringing TSMC power, performance, and area metrics to the soft IP providers in TSMC’s IP Alliance. The second revision of the radio frequency (RF) reference design kit was delivered, which enriched the Open Innovation PlatformTM to facilitate timely innovation among the semiconductor design community. Lastly, after the debut of a series of interoperable data formats in iRCX, iDRC, iLVS and iPDK in 2009, TSMC demonstrated its strong commitment to industry users in 2010 with its industry-first iDRC & iLVS runsets, and iPDKs in many TSMC advanced process nodes from 0.13μm to 28nm. TSMC continued to advance the semiconductor roadmap in 2010. Examples of technologies the Company developed or rolled out include: ● 28nm High Performance (28HP) technology to support performance driven markets like CPU, GPU (Graphics Processing Unit), APU (Accelerated Processing Unit), FPGA & high-speed Networking applications. ● 28nm High Performance Mobile computing (28HPM) technology for tablet, smart phone, and high end System-on-Chip (SoC) applications. ● 28nm Low Power (28LP & 28HPL) technology for mainstream smart phone, tablet and digital consumer products. ● 40nm general purpose technology to support performance-driven markets like CPU, FPGA, 3D image, Gaming & Gigabit Ethernet applications. ● 40nm low power and RF technology for cellular phone, application processor, home entertainment, game and wireless connectivity solutions. ● 55nm low power RF technology for WLAN, Cellular BB, DTV, STB, Bluetooth, PMP, MID and handheld high-end applications. ● 65nm eFlash multi-time programmable non-volatile memory technology under joint development for high-end automotive application. ● 80nm high voltage process for smart phone display driver. ● 85nm low power technology for flash controller application. ● 90nm eFlash technology qualified for microcontroller application. ● 0.18μm and 0.25μm qualified OTP solution for automotive application. ● 0.18μm and 0.25μm high precision analog process. ● 0.18μm BCD for digital power management IC. In addition, TSMC further strengthened its comprehensive development of specialty technologies in 2010, including Back-side Illumination CMOS image sensor (BSI CIS), 90/65nm embedded flash and 0.13μm analog technologies. In 2010, TSMC began to offer 3D MEMS platform to selected fabless customers. These specialty technologies are key differentiators from our competitors and provide customers more value. 2.2.2 Market Overview We estimate that the semiconductor market in 2010 reached US$298 billion in revenue, a 32% increase compared to 2009. Total foundry, a manufacturing sub-segment of the semiconductor industry, generated total revenues of US$28 billion in 2010, or 10% of total semiconductor industry revenue and 43% YoY growth. In 2010, the largest geographic market (based on the location of customers’ corporation headquarters) for foundry services was North America, accounting for 59% of overall foundry revenue. The second largest geographic market was Asia Pacific (excluding Japan), which accounted for 27% of foundry revenue. European-based customers accounted for 9%, and orders from companies based in Japan contributed 5%. 2.2.3 Industry Outlook, Opportunities and Threats Industry Demand and Supply Outlook After a challenging year in 2009, foundry sales recovered and grew strongly in 2010, increasing 43% compared to 2009, mainly driven by improved end-market demand and supply chain inventory replenishment. We forecast total foundry sales to grow at 15% YoY in 2011. In the longer term, increasing semiconductor content in electronics devices and increasing IDM outsourcing, foundry sales are expected to display a 10% compound annual growth rate (CAGR) from 2010 through 2015, higher than the 4% CAGR for the total semiconductor industry. As an upstream supplier in the semiconductor supply chain, the foundry segment is tightly correlated with the market health of the 3Cs: communications, computer and consumer. ● Communications The communications sector, particularly the handset segment, increased 14% in unit shipment for 2010 from 2009. The growing number of new subscribers in emerging countries such as China and India and stabilizing sales in developed countries has boosted the sales of handsets. Smartphones, which have much higher semiconductor content and significant growth, have been a bright spot in the overall handset market. The growing popularity of 3G and emerging 4G/LTE cellular phones will bring positive momentum to the market. Smartphones with 8 increasing performance, lower power and more intelligent applications will continue to propel the buying momentum of new handsets in the coming 2011. Low power IC design is a must-have feature among handset customers. The System-on-Chip (SoC) design and the appetite for higher performance to run complicated software will also speed up the migration to advanced process technologies in which TSMC is already the leader. ● Computer The computer sector posted a solid unit shipment growth of 14% YoY after a single-digit growth year in 2009, driven by strong corporate replacement partially offset by relatively weak consumer demand as a result of perceived economic uncertainty and minor cannibalization of media tablet in low-end consumer notebooks. China and other emerging countries led the growth while the developed regions showed softness. Moving into 2011, PC growth remains healthy. Corporate replacement will continue to fuel the growth of PC sales while consumer PC will be impacted by the growing variety of alternative devices that enable better on-the-go content consumption, such as tablets and next-generation smartphones. Emerging countries will continue to be the growth engine. New applications and features such as “virtualization” and “green” notebook will also help spur PC sales. In terms of IC product design, the requirements of lower power, higher performance, and integration for key components in computers, such as CPU, GPU, Chipset, etc., will drive near-term demand for advanced process technologies, particularly in 40nm and 28nm. ● Consumer After the stagnant sales in the last two years, the aggregate unit shipment of digital consumer electronics devices regained momentum in 2010, with 8% YoY growth. Government subsidy programs (e.g., China and Japan), CRT replacement in emerging countries, and deferred Digital-Still-Camera (DSC) sales support the growing demand after the economic recession. Average selling price (ASP) declined for consumer products, such as DTV, Blu-ray DVD, and DSC, have also spurred the buying sentiment. In 2011, new products with attractive features may stimulate sales of consumer products. The continual trend toward HD video, connectivity, and 3D will still be the catalyst to drive sales of products like DTV, STB and Blu-ray DVD. Increasing innovations in the digital consumer sector have also encouraged new usage models, such as motion recognition for TV game consoles and 3D display for handheld game consoles. 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. ● Emerging Applications Emerging new applications, such as media tablet, are increasing contributions to foundry’s revenue. Media tablet, led by Apple’s iPad, shipped a total of 17 million units in 2010. The strong sales momentum will continue in 2011 with more models introduced by traditional PC and Handset OEMs. We forecast the tablet market will grow with ~40% CAGR from 2011 to 2015, and will emerge as a strong growth driver for foundry. 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 foundry segment of the semiconductor manufacturing industry, TSMC commanded a 45.5% share of this segment in 2010, with total consolidated revenue of US$13.3 billion. In terms of geographic distribution of net sales, 67% came from companies headquartered in North America, 15% from the Asia Pacific region, excluding China and Japan, 11% from Europe, 3% from China and 4% from Japan. In terms of end product application, 27% of TSMC’s wafer revenue came from the computer sector, 43% from communications, 13% from consumer products, and 17% from other categories, such as industrial products. 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, as it does every year, TSMC conducted throughout 2010 customer reviews and surveys to better 9 Audit Committee Compensation Committee Shareholders’ Meeting Board of Directors Chairman Vice Chairman CEO understand customer needs and wants, and accordingly may adjust its offerings in response, thereby strengthening its partnership with customers. 2.3 Organization 2.3.1 Organization Chart To address the challenges of falling wafer prices and fiercer competition from other semiconductor manufacturing companies, TSMC continually strengthens its core competitiveness, and properly deploys its short-term and long-term technology and business development plans in order to enhance Return on Investment and growth. ● Short-term semiconductor business development plan 1) Substantially ramp up the business and sustain market segment share of advanced technologies with further investment on capacity. 2) Maintain market segment share of mainstream technology by expanding business into new customers and market segments with off-the-shelf technologies. 3) Grow business with IDMs by deepening the partnership on technology development and business model arrangement. ● Long-term semiconductor business development plan 1) Continue developing the leading edge technologies consistent with Moore’s law. 2) Broaden “More-than-Moore” business contribution by further developing derivative technologies. 3) Further expand TSMC’s business and service infrastructure into emerging and developing markets. 2.2.5 New Businesses In May 6, 2009, TSMC established the New Businesses organization to explore non-foundry related business opportunities. During 2010 and early 2011, the New Businesses organization consists of two business divisions responsible for: (1) solid state lighting business activities, such as developing efficient Light Emitting Diode (LED) technologies that can be used in various lighting applications; and (2) solar business activities, such as producing and marketing photovoltaic modules. In March 2010, construction began on phase one of our new LED production facility in the Hsinchu Science Park, which was made ready for tool move-in by September 2010. A pilot line had been installed at the end of 2010, to be initially used for development activities and subsequently extended to full production set-up in the future. In June 2010, TSMC through its investment fund invested US$50 million to acquire a 21% stake in Stion Corporation, a manufacturer of thin-film photovoltaic modules in the U.S. In addition, TSMC entered into several agreements with Stion Corporation on CIGSS technology licensing, supply and joint development. In the second half of 2010, a team of our engineers worked with Stion Corporation to prepare the transfer of CIGSS technology to us in 2011. In September 2010, construction began on phase one of our solar business production site in the Taichung’s Central Taiwan Science Park, with tool move-in expected to start in the second quarter of 2011. In February 2010, we also acquired a 20% equity interest in Motech, a Taiwan solar cell manufacturer. 10 New Businesses Operations Business Development Corporate Planning Organization Quality and Reliability Worldwide Sales and Marketing Research and Development Information Technology Materials Management and Risk Management Human Resources Finance and Spokesperson Legal Internal Audit 2.3.2 Major Corporate Functions New Businesses ● Business development of solid state lighting and solar related businesses Operations ● Product development, manufacturing technology, mainstream fabs, 300mm fabs, affiliate fabs, and backend technology and service Business Development ● Solidify customer partnership, identify new applications and markets, and build new partnership in computer, consumer, communication, and industrial business Corporate Planning Organization ● Operation resources planning, production and demand planning, and business process integration 2.3 Organization 2.3.1 Organization Chart New Businesses Audit Committee Compensation Committee Shareholders’ Meeting Board of Directors Chairman Vice Chairman CEO Operations Business Development Corporate Planning Organization Quality and Reliability Worldwide Sales and Marketing Research and Development Information Technology Materials Management and Risk Management Human Resources Finance and Spokesperson Legal Internal Audit Quality and Reliability ● Quality and reliability management Worldwide Sales and Marketing ● Brand management, market research, customer service, regional sales operations and field technical support Human Resources ● Human resources management and organizational development ● Proprietary information protection (PIP) Finance and Spokesperson ● Corporate finance, accounting, investor relations, public relations, tax, financial planning, investment management, and strategic Research and Development ● Advanced and mainstream technology research and development, program ● Corporate spokesperson exploratory research and development, design services and technology platform development Information Technology ● Technology system integration, business system integration, IT infrastructure, communication service, IT security, IT productivity and quality management Materials Management and Risk Management ● Purchasing, warehousing, import and export, logistics support, industrial safety, and environmental protection Legal ● Corporate legal affairs, litigation, commercial transactions, patents and other intellectual property management, compliance and regulatory work Internal Audit ● Internal audit and process compliance audit 11 2.4 Board Members 2.4.1 Information Regarding Board Members Title/Name Chairman Morris Chang Vice Chairman F.C. Tseng 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 121,137,914 % 0.47% Shares 135,217 % 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% 34,662,675 0.13% 132,855 0.00% Ph.D. in Electrical Engineering, National Chengkung University, Taiwan Director National Development Fund, Executive Yuan Representatives: (Notes 1, 2, 3) Johnsee Lee (Note 1) 06/10/2009 06/09/2012 12/10/1986 1,645,482,861 6.42% 1,653,709,980 6.38% - - - - Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous 06/10/2009 06/09/2012 06/03/2003 33,768,636 0.13% 34,481,046 0.13% 06/10/2009 06/09/2012 05/07/2002 - - - - Non-Executive Director and Chairman, NXP Semiconductors N.V. Former CEO and Chairman of the Executive Committee, British Telecommunications Plc Vice President, the British Quality Foundation - Mentor Graphics Corporation Inc., Oregon, USA 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 06/10/2009 06/09/2012 06/10/2009 - - - - - - Bachelor Degree in Electrical Engineering, Purdue University Lead Director, J. C. Penney Company Inc. 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 Chemical Engineering, Illinois Institute of Technology MBA, University of Chicago Graduate of Harvard Business School’s Advanced Management Program Former Principal Investigator, Argonne National Laboratory Former Senior Manager, Johnson Matthey Inc. Former President, Industrial Technology Research Institute (ITRI) Chairman of the Development Center for Biotechnology President of Taiwan Bio Industry Organization 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 - - - - 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 Former Executive Vice President and President of the Semiconductor Group, Texas Instruments Inc. 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 Chairman of: - TSMC China Company Limited - Global Unichip Corp. Director of: - digimax, Inc. President, New Businesses, TSMC Director, TSMC subsidiary President, TSMC subsidiaries Director, Motech Industries, Inc. 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 Group Chairman, iD SoftCapital Director of: - Acer Incorporated - Qisda Corporation - Wistron Corporation 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: The former representative of National Development Fund, Mr. Tian-Jy Chen, resigned on May 11, 2010. Mr. Johnsee Lee was appointed as the representative on August 6, 2010. Note 2: 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 3: Major institutional shareholders of National Development Fund: Not applicable. Top 10 Shareholders Not Applicable 12 Title/Name Chairman Morris Chang Vice Chairman F.C. Tseng Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous Date Elected Term Expires Date First Elected 06/10/2009 06/09/2012 12/10/1986 Shares 118,047,697 % 0.46% Shares 121,137,914 % 0.47% Shareholding When Elected Current Shareholding Spouse & Minor Shareholding Shares 135,217 % 0.00% 06/10/2009 06/09/2012 05/13/1997 36,144,509 0.14% 34,662,675 0.13% 132,855 0.00% Selected Education, Past Positions & Current Positions at Non-profit Organizations Selected Current Positions at TSMC and Other Companies As of 02/28/2011 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. Director 06/10/2009 06/09/2012 12/10/1986 1,645,482,861 6.42% 1,653,709,980 6.38% National Development Fund, Executive Yuan Representatives: (Notes 1, 2, 3) Johnsee Lee (Note 1) 06/10/2009 06/09/2012 06/03/2003 33,768,636 0.13% 34,481,046 0.13% 06/10/2009 06/09/2012 05/07/2002 - - - - - - - - - - - - - - - - Ph.D. in Chemical Engineering, Illinois Institute of Technology MBA, University of Chicago Graduate of Harvard Business School’s Advanced Management Program Former Principal Investigator, Argonne National Laboratory Former Senior Manager, Johnson Matthey Inc. Former President, Industrial Technology Research Institute (ITRI) Chairman of the Development Center for Biotechnology President of Taiwan Bio Industry Organization 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 subsidiary President, TSMC subsidiaries Director, Motech Industries, Inc. Non-Executive Director and Chairman, NXP Semiconductors N.V. 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 06/10/2009 06/09/2012 04/14/2000 1,472,922 0.01% 1,480,286 0.01% 16,116 0.00% 06/10/2009 06/09/2012 06/10/2009 - - - - - - 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 Group Chairman, iD SoftCapital Director of: - Acer Incorporated - Qisda Corporation - Wistron Corporation Management, USA Former Chairman, CEO and Co-Founder, Acer Group 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 Lead Director, J. C. Penney Company Inc. 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. 13 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. E L I F O R P Y N A P M O C Name/Criteria Chairman Morris Chang Vice Chairman F.C. Tseng Director Johnsee Lee Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Criteria (Note) 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 0 0 0 0 0 0 0 Note: 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. 14 Name/Criteria Chairman Morris Chang Vice Chairman F.C. Tseng Director Johnsee Lee Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous ˇ Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Criteria (Note) 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 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 Stan Shih Independent Director Thomas J. Engibous Director National Development Fund, Executive Yuan Representatives: Johnsee Lee Base Compensation (A) Severance Pay and Pensions (B) (Note 2) Bonus to Directors (C) (Note 3) Allowances (D) (Note 4) Remuneration Total Remuneration (A+B+C+D) as a % of 2010 Net Income Base Compensation, Bonuses, Severance Pay and Pensions and Allowances (E) (Note 5) (F) (Note 2) Employee Profit Sharing (G) (Note 6) Compensation Earned as Employees of TSMC or of TSMC’s Consolidated Entities Exercisable Employee Stock Options (H) (Note 7) Total Compensation (A+B+C+D+E+F+G) as a % of 2010 Net Income (Note 8) 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 28,210 28,210 660 660 43,131 43,131 792 792 0.05% 0.05% 181,261 181,261 239 239 170,954 0 170,954 0 0 0.27% 0.27% None 0 0 0 0 8,000 8,000 0 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: Pensions funded according to applicable law. Note 3: The Board adopted a proposal for 2010 bonus to TSMC’s directors in the amount of NT$51,131 thousand at its meeting on February 15, 2011. The proposed bonus will be effected upon the approval of shareholders at the Annual Shareholders’ Meeting on June 9, 2011. Note 4: Includes the expense for company cars and gasoline reimbursement. Excludes compensation paid to company drivers totaled NT$4,961 thousand. Note 5: Includes the employees’ cash bonuses distributed in May, August, November 2010 and February 2011. Note 6: The Board adopted a proposal for 2010 employee profit sharing distribution in 2011 with respect to 2010 earnings at its meeting on February 15, 2011. 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 9, 2011. Note 7: Represents the number of cumulative employee stock options exercisable as of the date of this Annual Report. Note 8: Total remuneration and compensation earned as employees paid to TSMC’s directors in 2009 was NT$386,907 thousand, accounting for 0.43% of 2009 net income. Remuneration Paid to Directors Under NT$2,000,000 NT$2,000,000 ~ NT$4,999,999 NT$5,000,000 ~ NT$9,999,999 NT$10,000,000 ~ NT$14,999,999 NT$15,000,000 ~ NT$29,999,999 NT$30,000,000 ~ NT$49,999,999 NT$50,000,000 ~ NT$99,999,999 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 2010 From TSMC Rick Tsai (Note) National Development Fund, Executive Yuan National Development Fund, Executive Yuan Sir Peter Leahy Bonfield, Stan Shih, Thomas J. Engibous Sir Peter Leahy Bonfield, Stan Shih, Thomas J. Engibous Morris Chang (Note), F.C. Tseng F.C. Tseng 7 Morris Chang (Note), Rick Tsai (Note) 7 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. Morris Chang and Dr. Rick Tsai. 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 Stan Shih Independent Director Thomas J. Engibous Director Representatives: Johnsee Lee National Development Fund, Executive Yuan Base Compensation (A) Bonus to Directors (C) (Note 3) Allowances (D) (Note 4) Remuneration Severance Pay and Pensions (B) (Note 2) Total Remuneration (A+B+C+D) as a % of 2010 Net Income Base Compensation, Bonuses, and Allowances (E) (Note 5) Severance Pay and Pensions (F) (Note 2) Employee Profit Sharing (G) (Note 6) Compensation Earned as Employees of TSMC or of TSMC’s Consolidated Entities Exercisable Employee Stock Options (H) (Note 7) Total Compensation (A+B+C+D+E+F+G) as a % of 2010 Net Income (Note 8) 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 28,210 28,210 660 660 43,131 43,131 792 792 0.05% 0.05% 181,261 181,261 239 239 170,954 0 170,954 0 0 0 0 0 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0.27% 0.27% None 0 17 2.5 Management Team 2.5.1 Information Regarding Management Team On-board Date (Note 1) 01/01/1987 Shareholding Spouse & Minor Shareholding 121,137,914 % 0.47% Shareholding 135,217 % 0.00% 12/18/1989 34,481,046 0.13% Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Stephen T. Tso 12/16/1996 15,475,064 0.06% 07/07/1997 11/15/1993 2,412,481 0.01% 12,840,573 0.05% Title Name Chairman & CEO Morris Chang President New Businesses Rick Tsai Senior Vice President Research and Development Shang-yi Chiang Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Senior Vice President & General Counsel Legal Richard Thurston (Note 2) Senior Vice President, Chief Financial Officer & Spokesperson Finance Lora Ho (Note 2) Senior Vice President Worldwide Sales and Marketing Jason C.S. Chen (Note 2) Vice President Operations/Affiliate Fabs M.C. Tzeng Vice President Operations/Manufacturing Technology Wei-Jen Lo Vice President & Chief Technology Officer Research and Development Jack Sun Vice President Operations/Product Development 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 Vice President Operations/Mainstream Fabs J.K. Lin (Note 3) Vice President Operations/300mm Fabs J.K. Wang (Note 3) Vice President Corporate Planning Organization Irene Sun (Note 3) Vice President Research and Development Burn J. Lin (Note 4) - - - - - - - - - - - - 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 - - - - - - - - - - - - - - - - - - - - Ph.D., Materials Science & Engineering, University of California, Berkeley, USA Director, TSMC subsidiary 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 Ph.D., Electrical Engineering, Stanford University, USA Senior Vice President, Research and Development, 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. J.D., Rutgers School of Law, State University of New Jersey, USA Ph.D., History, University of Virginia, USA Partner, Haynes Boone, LLP. Director, Accounting, TSMC Vice President& CFO, TI-Acer Semiconductor Manufacturing Corp. Master, Business Administration, University of Missouri-Columbia, USA Vice President & Co-Director of Worldwide Sales & Marketing Group, Intel Master, Applied Chemistry, Chungyuan University, Taiwan Vice President, Mainstream Technology Business, TSMC Senior Director, Fab 2 Operation, TSMC Vice President, Advanced Technology Business, TSMC Vice President, Research & Development, TSMC Vice President, Operation II, TSMC Director, Advanced Technology Development & CTM Plant Manager, Intel Vice President, Research and Development, TSMC Senior Director, Logic Technology Division, TSMC R&D, International Business Machines 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. Master, Business Administration, Tulane University, USA Senior Director, Corporate Planning Organization, TSMC Senior Director, Fab 5 Operation, TSMC Bachelor, Science, National Changhua University of Education, Taiwan Senior Director, Mainstream Fabs, TSMC Master, Chemical Engineering, National Cheng Kung University, Taiwan Senior Director, 300mm fab operations, TSMC Ph.D., Materials Science and Engineering, Cornell University, USA Senior Director, Corporate Planning Organization, TSMC Ph.D., Electrical Engineering, Ohio State University Senior Director, Nanopatterning Technology Division, TSMC Director, TSMC subsidiary President, TSMC subsidiaries Director, Motech Industries, Inc. Director, TSMC subsidiary Director, TSMC affiliates Director, TSMC subsidiaries Director, TSMC affiliates Director, TSMC affiliates President, TSMC subsidiaries Director, TSMC subsidiaries None None None None None None None None None Bachelor, Engineering Technology, United States Military Academy at West Point, USA Director, TSMC North America Vice President of TSMC North America Account Management - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Manager J.J. Wang Siblings Manager Thomas T. Sun Siblings Vice President Corporate Staff, Assistant General Counsel, Texas Instruments Incorporated Master, Business Administration, National Taiwan University, Taiwan Director and/or Supervisor, TSMC subsidiaries Director, TSMC subsidiaries M.J. Tzeng Siblings Department Manager Ph.D., Solid State Physics & Surface Chemistry, University of California, Berkeley, USA None Ph.D., Electrical Engineering, University of Illinois at Urbana-Champaign, USA None 02/01/1998 8,390,325 0.03% 261 0.00% 01/02/2002 1,839,892 0.01% - - 06/01/1999 6,221,080 0.02% 110,268 0.00% 03/31/2005 01/01/1987 07/01/2004 2,453,320 0.01% 122 0.00% 7,663,595 0.03% 102,722 0.00% 2,485,127 0.01% 06/02/1997 4,904,831 0.02% 01/01/1987 03/01/2000 11/14/1997 01/01/1987 01/01/1987 02/11/1987 10/01/2003 04/26/2000 5,959,823 0.02% 102,808 0.00% 2,051,180 0.01% 1,103,253 0.00% - - - - 9,310,067 0.04% 1,252,481 0.00% 12,182,118 0.05% 1,644,874 0.01% 2,553,947 0.01% 211,141 0.00% 1,399,709 0.01% - - 3,023,502 0.01% 1,024,933 0.00% Note 1: On-board date means the offical date joining TSMC. Note 2: Effective August 10, 2010, Mr. Richard Thurston, Ms. Lora Ho and Mr. Jason C.S. Chen were promoted to Senior Vice President. Note 3: Effective August 10, 2010, Mr. J.K. Lin, Mr. J.K. Wang and Ms. Irene Sun were appointed as Vice President of TSMC. Note 4: Effective February 15, 2011, Mr. Burn J. Lin was appointed as Vice President of TSMC. 18 On-board Date (Note 1) 01/01/1987 Shareholding Spouse & Minor Shareholding 121,137,914 % 0.47% Shareholding 135,217 % 0.00% TSMC Shareholding by Nominee Arrangement (Shares) 12/18/1989 34,481,046 0.13% Senior Vice President & Chief Information Officer 12/16/1996 Information Technology & Materials Management 15,475,064 0.06% 07/07/1997 11/15/1993 2,412,481 0.01% 12,840,573 0.05% 02/01/1998 8,390,325 0.03% 261 0.00% Senior Vice President & General Counsel 01/02/2002 1,839,892 0.01% Senior Vice President, Chief Financial Officer & 06/01/1999 6,221,080 0.02% 110,268 0.00% - - - - - - - - - - - - - - - - - - 2,453,320 0.01% 122 0.00% 7,663,595 0.03% 102,722 0.00% 2,485,127 0.01% 5,959,823 0.02% 102,808 0.00% 2,051,180 0.01% 1,103,253 0.00% - - 9,310,067 0.04% 1,252,481 0.00% 12,182,118 0.05% 1,644,874 0.01% 2,553,947 0.01% 211,141 0.00% 1,399,709 0.01% 3,023,502 0.01% 1,024,933 0.00% - - - - - - - - - - - - - - - - - - - - Title Name Chairman & CEO Morris Chang President New Businesses Rick Tsai and Risk Management Stephen T. Tso Senior Vice President Research and Development Shang-yi Chiang Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Legal Richard Thurston (Note 2) Spokesperson Finance Lora Ho (Note 2) Senior Vice President Worldwide Sales and Marketing Jason C.S. Chen (Note 2) Vice President Operations/Affiliate Fabs M.C. Tzeng Vice President Wei-Jen Lo Operations/Manufacturing Technology Research and Development Jack Sun Vice President Operations/Product Development Y.P. Chin Vice President Quality and Reliability N.S. Tsai Vice President Rick Cassidy Vice President Human Resources L.C. Tu Vice President President of TSMC North America Operations/Mainstream Fabs J.K. Lin (Note 3) Vice President Operations/300mm Fabs J.K. Wang (Note 3) Vice President Corporate Planning Organization Irene Sun (Note 3) Vice President Research and Development Burn J. Lin (Note 4) 03/31/2005 01/01/1987 07/01/2004 01/01/1987 03/01/2000 11/14/1997 01/01/1987 01/01/1987 02/11/1987 10/01/2003 04/26/2000 Vice President & Chief Technology Officer 06/02/1997 4,904,831 0.02% 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. Ph.D., Materials Science & Engineering, University of California, Berkeley, USA President, WaferTech, L.L.C. Senior Vice President, Operations, TSMC Ph.D., Electrical Engineering, Stanford University, USA Senior Vice President, Research and Development, TSMC 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. 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. 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 None Director, TSMC subsidiary President, TSMC subsidiaries Director, Motech Industries, Inc. Director, TSMC subsidiary None None Director, TSMC subsidiary Director, TSMC affiliates Director, TSMC subsidiaries Director, TSMC affiliates 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 President, TSMC subsidiaries Master, Business Administration, University of Missouri-Columbia, USA Vice President & Co-Director of Worldwide Sales & Marketing Group, Intel Master, Applied Chemistry, Chungyuan University, Taiwan Vice President, Mainstream Technology Business, TSMC Senior Director, Fab 2 Operation, TSMC 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 Ph.D., Electrical Engineering, University of Illinois at Urbana-Champaign, USA Vice President, Research and Development, TSMC Senior Director, Logic Technology Division, TSMC R&D, International Business Machines 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. Director, TSMC subsidiaries Director, TSMC subsidiaries None None 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 Bachelor, Science, National Changhua University of Education, Taiwan Senior Director, Mainstream Fabs, TSMC Master, Chemical Engineering, National Cheng Kung University, Taiwan Senior Director, 300mm fab operations, TSMC Ph.D., Materials Science and Engineering, Cornell University, USA Senior Director, Corporate Planning Organization, TSMC Ph.D., Electrical Engineering, Ohio State University Senior Director, Nanopatterning Technology Division, TSMC None None None None None As of 02/28/2011 Managers Who are Spouses or within Second-degree Relative of Consanguinity to Each Other Title Name Relation - - - - - - - - - - - - - - - - - - - - - - - - - - - Department Manager M.J. Tzeng Siblings - - - - - - - - - - - - - - - - - - - - - Manager J.J. Wang Siblings Manager Thomas T. Sun 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 6) Bonuses and Allowances (Note 7) Employee Profit Sharing (Note 8) Total Compensation as a % of 2010 Net Exercisable Employee Stock Options Income (Note 9) (Note 10) Compensation Received from Non-consoildated Affiliates From All Consoildated Entities Chairman & CEO President New Businesses Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Senior Vice President Research and Development Senior Vice President Operations Senior Vice President Business Development Senior Vice President & General Counsel Legal Senior Vice President, Chief Financial Officer & Spokesperson Finance Senior Vice President Worldwide Sales and Marketing Vice President Operations/Affiliate Fabs Vice President Materials Management and Risk Management Vice President Operations/Manufacturing Technology Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations/Product Development Vice President Quality and Reliability Vice President & President of TSMC North America Vice President Human Resources Vice President Operations/Mainstream Fabs Vice President Operations/300mm Fabs Vice President Corporate Planning Organization Morris Chang Rick Tsai Stephen T. Tso Shang-yi Chiang Mark Liu C.C. Wei Richard Thurston (Note 2) Lora Ho (Note 2) Jason C.S. Chen (Note 2) M.C. Tzeng P.H. Chang (Note 3) Wei-Jen Lo Jack Sun Fu-Chieh Hsu (Note 4) Y.P. Chin N.S. Tsai Rick Cassidy L.C. Tu J.K. Lin (Note 5) J.K. Wang (Note 5) Irene Sun (Note 5) 76,642 87,527 2,115 10,627 614,631 705,218 579,391 0 579,391 0 0.79% 0.86% 1,471 2,442 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, 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: Mr. Richard Thurston, Ms. Lora Ho and Mr. Jason C.S. Chen were promoted to Senior Vice President on August 10, 2010. Note 3: Mr. P.H. Chang retired on March 31, 2010. Note 4: Mr. Fu-Chieh Hsu resigned on August 28, 2010. Note 5: Mr. J.K. Lin, Mr. J.K. Wang and Ms. Irene Sun were promoted to Vice President on August 10, 2010. Note 6: Pensions funded according to applicable law. Note 7: Includes the expense for the employees’ cash bonuses distributed in May, August, November 2010 and February 2011, company cars; and gasoline reimbursement. Excludes compensation paid to company drivers totaled NT$4,158 thousand. Note 8: The Board adopted a proposal for 2010 employee profit sharing distribution in 2011 with respect to 2010 earnings at its meeting on February 15, 2011. 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 9, 2011. Note 9: Total compensation paid to TSMC’s CEO, President and vice presidents in 2009 was NT$957,831 thousand, accounting for 1.08% of 2009 net income. Note 10: 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 NT$2,000,000 ~ NT$4,999,999 NT$5,000,000 ~ NT$9,999,999 NT$10,000,000 ~ NT$14,999,999 NT$15,000,000 ~ NT$29,999,999 NT$30,000,000 ~ NT$49,999,999 NT$50,000,000 ~ NT$99,999,999 Over NT$100,000,000 Total 20 2010 From TSMC P.H. Chang, Rick Cassidy - - - Fu-Chieh Hsu, Irene Sun Y.P. Chin, N.S. Tsai, L.C. Tu, J.K. Lin, J.K. Wang Stephen T. Tso, Shang-yi Chiang, Mark Liu, C.C. Wei, Richard Thurston, Lora Ho, Jason C.S. Chen, M.C. Tzeng, Wei-Jen Lo, Jack Sun Morris Chang, Rick Tsai 21 From All Consolidated Entities P.H. Chang - - - Fu-Chieh Hsu, Irene Sun Y.P. Chin, N.S. Tsai, L.C. Tu, J.K. Lin, J.K. Wang Stephen T. Tso, Shang-yi Chiang, Mark Liu, C.C. Wei, Richard Thurston, Lora Ho, Jason C.S. Chen, M.C. Tzeng, Wei-Jen Lo, Jack Sun Morris Chang, Rick Tsai, Rick Cassidy 21 Salary Severance Pay and Pensions (Note 6) Bonuses and Allowances (Note 7) Employee Profit Sharing (Note 8) Total Compensation as a % of 2010 Net Income (Note 9) Exercisable Employee Stock Options (Note 10) 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 76,642 87,527 2,115 10,627 614,631 705,218 579,391 0 579,391 0 0.79% 0.86% 1,471 2,442 None Senior Vice President & Chief Information Officer Stephen T. Tso Information Technology & Materials Management and Senior Vice President & General Counsel Richard Thurston (Note 2) Senior Vice President, Chief Financial Officer & Lora Ho (Note 2) Title Chairman & CEO President New Businesses Risk Management Senior Vice President Research and Development Senior Vice President Operations Senior Vice President Business Development Legal Spokesperson Finance Senior Vice President Worldwide Sales and Marketing Vice President Operations/Affiliate Fabs Materials Management and Risk Management Vice President Vice President Operations/Manufacturing Technology Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations/Product Development President of TSMC North America Vice President Quality and Reliability Vice President & Vice President Human Resources Vice President Operations/Mainstream Fabs Vice President Operations/300mm Fabs Vice President Corporate Planning Organization Name Morris Chang Rick Tsai Shang-yi Chiang Mark Liu C.C. Wei Jason C.S. Chen (Note 2) M.C. Tzeng P.H. Chang (Note 3) Fu-Chieh Hsu (Note 4) Wei-Jen Lo Jack Sun Y.P. Chin N.S. Tsai Rick Cassidy L.C. Tu J.K. Lin (Note 5) J.K. Wang (Note 5) Irene Sun (Note 5) 21 Stock (Fair Market Value) Cash Total Employee Profit Sharing Total Employee Profit Sharing Paid to Management Team as a % of 2010 Net Income 0 604,271 604,271 0.37% 2.5.3 Employee Profit Sharing Granted to Management Team (Note 1) Unit: NT$ thousands Title Chairman & CEO President New Businesses Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Senior Vice President Research and Development Senior Vice President Operations Senior Vice President Business Development Senior Vice President & General Counsel Legal Senior Vice President, Chief Financial Officer & Spokesperson Finance Senior Vice President Worldwide Sales and Marketing Vice President Operations/Affiliate Fabs Vice President Materials Management and Risk Management Vice President Operations/Manufacturing Technology Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations/Product Development Vice President Quality and Reliability Vice President Human Resources Vice President Operations/Mainstream Fabs Vice President Operations/300mm Fabs Vice President Corporate Planning Organization Senior Director New Businesses Senior Director New Businesses Name Morris Chang Rick Tsai Stephen T. Tso Shang-yi Chiang Mark Liu C.C. Wei Richard Thurston (Note 2) Lora Ho (Note 2) Jason C.S. Chen (Note 2) M.C. Tzeng P.H. Chang (Note 3) Wei-Jen Lo Jack Sun Fu-Chieh Hsu (Note 4) Y.P. Chin N.S. Tsai L.C. Tu J.K. Lin (Note 5) J.K. Wang (Note 5) Irene Sun (Note 5) Jan Kees van Vliet Y.C. Chao Note 1: The Board adopted a proposal for 2010 employee profit sharing distribution in 2011 with respect to 2010 earnings at its meeting on February 15, 2011. 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 9, 2011. Note 2: Mr. Richard Thurston, Ms. Lora Ho and Mr. Jason C.S. Chen were promoted to Senior Vice President on August 10, 2010. Note 3: Mr. P.H. Chang retired on March 31, 2010. Note 4: Mr. Fu-Chieh Hsu resigned on August 28, 2010. Note 5: Mr. J.K. Lin, Mr. J.K. Wang and Ms. Irene Sun were promoted to Vice President on August 10, 2010. 22 Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Senior Vice President & General Counsel Senior Vice President, Chief Financial Officer & Spokesperson Title Chairman & CEO President New Businesses Senior Vice President Research and Development Senior Vice President Operations Senior Vice President Business Development Legal Finance Senior Vice President Worldwide Sales and Marketing Vice President Operations/Affiliate Fabs Materials Management and Risk Management Vice President Vice President Operations/Manufacturing Technology Vice President & Chief Technical Officer Research and Development Vice President Deputy Head of Research and Development Design and Technology Platform Vice President Operations/Product Development Vice President Quality and Reliability Vice President Human Resources Vice President Operations/Mainstream Fabs Vice President Operations/300mm Fabs Vice President Corporate Planning Organization Senior Director New Businesses Senior Director New Businesses Name Morris Chang Rick Tsai Stephen T. Tso Shang-yi Chiang Mark Liu C.C. Wei Richard Thurston (Note 2) Lora Ho (Note 2) Jason C.S. Chen (Note 2) M.C. Tzeng P.H. Chang (Note 3) Fu-Chieh Hsu (Note 4) Wei-Jen Lo Jack Sun Y.P. Chin N.S. Tsai L.C. Tu J.K. Lin (Note 5) J.K. Wang (Note 5) Irene Sun (Note 5) Jan Kees van Vliet Y.C. Chao Stock (Fair Market Value) Cash Total Employee Profit Sharing Total Employee Profit Sharing Paid to Management Team as a % of 2010 Net Income 0 604,271 604,271 0.37% 23 3. Corporate Governance TSMC advocates and acts upon the principles of operational In the spirit of Chairman Chang’s approach to corporate governance, transparency and respect for shareholder rights. We believe that the a board of directors’ primary duty is to supervise. The Board should basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle, TSMC’s Board of supervise the Company’s: compliance with relevant laws and regulations; financial transparency; timely disclosure of material Directors established an Audit Committee in 2002 and a information, and maintaining of the highest integrity within the Compensation Committee in 2003. Company. TSMC’s Board of Directors strives to perform through the Audit Committee and the Compensation Committee, the hiring of a TSMC’s corporate governance won international recognition in 2010: Corporate Governance Asia honored TSMC with its “Corporate financial expert for the Audit Committee, coordination with the Internal Audit department, and through the ombudsman reporting Governance Asia Annual Recognition Awards 2010”. FinanceAsia system. Magazine ranked TSMC’s corporate governance as the best among all companies with its “Best Corporate Governance” for the Taiwan The second duty of the Board of Directors is to provide guidance to region. 3.1 Board of Directors 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 TSMC’s Board of Directors consists of seven distinguished members updates TSMC’s Board on the progress of the strategies, obtaining with a great breadth of experience as world-class business leaders or Board guidance as appropriate. scholars. Three of the seven members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter The third duty of the Board of Directors is to evaluate the Bonfield; former Acer Group Chairman, Mr. Stan Shih; and former management’s performance and to dismiss officers of the Company Texas Instrument Inc. Chairman of the Board, Mr. Thomas J. when necessary. TSMC’s management has maintained a healthy and Engibous. Under the leadership of Chairman Morris Chang, TSMC’s functional communication with TSMC Board of Directors, has been Board of Directors takes a serious and forthright approach to its devoted in executing guidance of TSMC Board of Directors, and is duties and is a serious, competent and independent Board. dedicated in running the business operations, all to achieve the best interests for TSMC shareholders. 25 Board of Directors Meeting Status Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings and one special meeting in 2010. The directors’ attendance status is as follows: Title Name Chairman Morris Chang Vice Chairman F.C. Tseng Director National Development Fund, Executive Yuan Representative: Johnsee Lee Director Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous Attendance in Person By Proxy Attendance Rate in Person (%) Notes 5 5 3 5 4 4 4 0 0 2 0 1 1 1 100% None 100% None 60% The former representative of National Development Fund, Mr. Tian-Jy Chen, resigned on May 11, 2010. Mr. Johnsee Lee was appointed as the representative on August 6, 2010. Mr. Tian-Jy Chen participated in the discussion through telephone at one Special Meeting, represented by proxy. 100% None 80% 80% 80% Sir Peter Bonfield participated in the discussion through telephone at one Special Meeting, represented by proxy. None Mr. Engibous participated in the discussion through telephone at one Special Meeting, represented by proxy. Annotations: 1. In 2010, 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 2010. 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 2011, 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 five special meetings in 2010. The Committee members’ attendance status is as follows: Title Chair Member Member Name Sir Peter Leahy Bonfield Stan Shih Thomas J. Engibous Financial Expert J.C. Lobbezoo Attendance in Person By Proxy Attendance Rate in Person (%) 9 8 9 9 0 1 0 0 100% 89% 100% 100% Notes None None None None Annotations: 1. There was no Securities and Exchange Act §14-5 resolution which was not approved by the Audit Committee but was approved by two thirds or more of all directors in 2010. 2. There were no recusals of independent directors due to conflicts of interests in 2010. 3. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2010 (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 2010, 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 review or audits on the Company’s financial results. Under applicable laws and regulations, the independent auditors are also required to immediately communicate to the Audit Committee any material matters that they have discovered. During 2010, the Company’s independent auditors did not report any irregularity. The communication channel between the Audit Committee and the independent auditors functioned well. 26 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 2011, 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 2010. The Committee members’ attendance status is as follows: Title Chair Member Member Member Name Stan Shih Morris Chang Sir Peter Leahy Bonfield Thomas J. Engibous Attendance in Person 3 4 4 4 Attendance Rate in Person (%) Notes 75% None 100% A non-voting member 100% 100% None None 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 Corporate Communication Division, 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, Mr. Stan Shih, and Mr. Thomas J. Engibous 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 Corporate Communication Division, 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. Corporate Communication Division, the SEC Compliance Department, etc.) to handle the collection and disclosure of information as required by the relevant laws and regulations of Taiwan and other jurisdictions. TSMC has designated spokespersons as required by relevant regulations. TSMC webcasts live investor conferences. 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 page 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 page 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 page 55-58 of this Annual Report. (2) Status of investor relations, supplier relations and rights of stakeholders: Please refer to the “Corporate Social Responsibility” on page 73-79 of this Annual Report. (3) Status of Risk Management Policies and Risk Evaluation: Please refer to the “Risk Management” section on page 65-71 of this Annual Report. (4) Status of Customer Relations Policies: Please refer to the “Customer Partnership” section on page 54-55 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 2010: Corporate Governance Asia honored TSMC with its “Corporate Governance Asia Annual Recognition Awards 2010”. FinanceAsia Magazine ranked TSMC’s corporate governance as the best among all companies with its “Best Corporate Governance” for the Taiwan region. Continuing Education/Training of Directors in 2010 Date 03/17 11/03 08/12 05/11 Host by GSA (Global Semiconductor Alliance) Global Leadership Summit ACGA (Asian Corporate Governance Association) Training/Speech Title Collaborate to succeed Opportunities & Challenges facing Taiwan’s High tech. sector Securities and Futures Institute Recent Cross-Strait M&A opportunities TSMC Speech: “IFRS Presentation: Conversion Status and Other Key Considerations” by auditors from Deloitte & Touche - Ricky Lin, Audit Engagement Partner; - Sean Bronson, Global IFRS & Offerings Services (GlOS) Managing Director Duration 1 hour 1.5 hours 3 hours 1 hour 08/09 TSMC Legal Training for Directors by Dr. Richard Thurston, Senior Vice President & General Counsel, TSMC 0.5 hour Name Morris Chang (Note) F.C. Tseng Morris Chang F.C. Tseng Sir Peter Leahy Bonfield Stan Shih Thomas J. Engibous Rick Tsai Morris Chang F.C. Tseng Sir Peter Leahy Bonfield Thomas J. Engibous Johnsee Lee Rick Tsai 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 2010 Title/Name Director, Accounting Division Jessica Chou Date 05/11 Host by TSMC Training Speech: “IFRS Presentation: Conversion Status and Other Key Considerations” by auditors from Deloitte & Touche - Ricky Lin, Audit Engagement Partner; - Sean Bronson, Global IFRS & Offerings Services (GlOS) Managing Director Duration 1 hour 12/09 – 12/10 Accounting Research and Development Foundation Continuing Education Course for Principal Accounting Officers of Issuers, Securities Firms, and Securities Exchanges 12 hours 10/27 12/27 05/11 The Institute of Internal Auditors Diagnose internal control issues and weakness The Institute of Internal Auditors Internal audit work planning practice and case studies TSMC Speech: “IFRS Presentation: Conversion Status and Other Key Considerations” by auditors from Deloitte & Touche - Ricky Lin, Audit Engagement Partner; - Sean Bronson, Global IFRS & Offerings Services (GlOS) Managing Director 6 hours 6 hours 1 hour 08/09 TSMC Legal Training for Directors by Dr. Richard Thurston, Senior Vice President & General Counsel, TSMC 0.5 hour Director, Internal Audit John Liang Senior Vice Presidents & Vice Presidents: Mark Liu C.C. Wei Richard Thurston Lora Ho Jason Chen Senior Vice Presidents & Vice Presidents: Mark Liu C.C. Wei Shang-yi Chiang Lora Ho Jason Chen Irene Sun 28 3.3 Major Resolutions of Shareholders’ Meeting and Board Meetings 3.3.1 Major Resolutions of Shareholders’ Meeting and Implementation Status (3) Regular Board Meeting of August 10, 2010: ● approving capital appropriations of US$3,165.4 million; ● approving the increase of 2010 R&D and sustaining capital appropriation to US$678.73 million from US$534.63 million; ● approving a capital injection of no more than US$225 million into TSMC China Company Limited; TSMC’s 2010 regular Shareholders’ Meeting was held in Hsinchu, ● approving 2010 semi-annual financial statements; and Taiwan on June 15, 2010. At the meeting, shareholders present in person or by proxy approved the following resolutions: ● approving the promotion of Lora Ho, Richard Thurston and Jason Chen as Senior Vice Presidents, and the promotion of (1) The 2009 Business Report and Financial Statements; Irene Sun, J.K. Lin and J.K. Wang as Vice Presidents. (2) The distribution of 2009 profits; (4) Regular Board Meeting of November 8 & 9, 2010: (3) The revisions to the Articles of Incorporation; and ● approving capital appropriations of US$1,880.9 million; (4) The revisions to the Policies and Procedures for Financial ● approving 2011 R&D and sustaining capital appropriation of Derivatives Transactions. US$803.76 million; and Implementation Status: All the resolutions of the Shareholders’ Europe B.V. Meeting have been fully implemented in accordance with the (5) Regular Board Meeting of February 14 & 15, 2011: ● approving capital injection of 9.4 million euros into TSMC Solar resolutions. 3.3.2 Major Resolutions of Board Meetings ● approving 2010 business report and financial statements; ● approving distribution of 2010 profits, and cash dividends, employee cash bonus and employee profit sharing; ● approving capital appropriations of US$2.9 billion; During the 2010 calendar year, and through the period of January 1 ● approving capital injection of US$5 million into TSMC Solar to February 28, 2011, five regular board meetings and two special North America; board meetings were convened. Major resolutions approved at these ● convening the 2011 Annual Shareholders’ Meeting; meetings are summarized below: ● determining the number of Directors to be nine, and approving (1) Regular Board Meeting of February 8 & 9, 2010: the election of two additional independent directors at the ● approving 2009 business report and financial statements; 2011 Annual Shareholders’ Meeting; and ● approving distribution of 2009 profits, and cash dividends, ● approving the promotion of Dr. Burn Lin as Vice President. employee cash bonus and employee profit sharing; ● approving 2010 R&D and sustaining capital appropriations of US$534.6 million; ● approving capital appropriations of US$2,272.4 million; ● approving amendments to TSMC’s Articles of Incorporation expanding the Company’s business scope to encompass LED lighting and solar energy; and ● convening the 2010 Annual Shareholders’ Meeting (2) Regular Board Meeting of May 10 & 11, 2010: ● approving capital appropriations of US$1,582.6 million; and ● approving the full conversion of TSMC’s common shares into paperless form, and setting July 13, 2010 as the conversion date. 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, 2010 to February 28, 2011: None. 29 3.4 Internal Control System Execution Status Taiwan Semiconductor Manufacturing Company Limited Statement of Internal Control System Date: February 15, 2011 Based on the findings of a self-assessment, Taiwan Semiconductor Manufacturing Company Limited (TSMC) states the following with regard to its internal control system during the year 2010: 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: effectiveness and efficiency of operations (including profitability, performance, and safeguarding of assets), reliability of financial reporting, and 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, on December 31, 2010, 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 2010 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 15, 2011, 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. 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: None. 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 3 2 5 0 0 0 0 3 2 1 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 System Design Company Registration Human Resource Others Subtotal No Audit Period Yes ˇ Deloitte & Touche Hung-Peng Lin, Shu-Chieh Huang, and others 68,089 - 771 - 6,095 6,866 Note: Article 10-4 of Regulation Governing Information to be published in Annual Report of Public Companies was not applicable to TSMC. Finance 20 9 6 2 2 1 1 0 0 0 Note 3.6.2 TSMC did not replace its independent auditor during 2009, 2010, and as of February 28, 2011. 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 2010. 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 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 03/2010 06/2010 09/2010 12/2010 10 10 10 10 28,050,000,000 280,500,000,000 25,902,706,622 259,027,066,220 28,050,000,000 280,500,000,000 25,903,769,184 259,037,691,840 28,050,000,000 280,500,000,000 25,905,017,151 259,050,171,510 28,050,000,000 280,500,000,000 25,907,343,943 259,073,439,430 Exercise of Employee Stock Options: NT$20,442,830 Exercise of Employee Stock Options: NT$10,625,620 Exercise of Employee Stock Options: NT$12,479,670 Exercise of Employee Stock Options: NT$23,267,920 None None None None As of 02/28/2011 Date of Approval & Approval Document No. 03/11/2010 Yuan Shang Tzu No. 0990005852 06/01/2010 Yuan Shang Tzu No. 0990015685 09/02/2010 Yuan Shang Tzu No. 0990025771 12/02/2010 Yuan Shang Tzu No. 0990035818 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 02/28/2011 Total 25,912,723,077 0 25,912,723,077 2,137,276,923 28,050,000,000 Common Share Type of Shareholders Number of Shareholders Shareholding Holding Percentage (%) Government Agencies 15 Financial Institutions 221 Other Juridical Persons Foreign Institutions & Natural Persons Domestic Natural Persons 1,021 2,937 485,248 Total 489,442 1,726,974,007 945,780,842 822,827,641 18,744,932,517 3,664,502,144 25,905,017,151 6.67% 3.65% 3.18% 72.35% 14.15% 100.00% As of 07/12/2010 (last record date) 33 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 175,527 204,738 50,666 20,758 8,977 9,938 4,492 2,844 5,259 2,493 1,385 530 246 187 1,402 489,442 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 Cathay Life Insurance Co.,Ltd. Government of Singapore 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 JPMorgan Chase Bank N.A. Taipei Branch in custody for ABU DHABI Investment Authority iShares, Inc. Lazard Emerging Markets Equity Portfolio Ownership 40,110,178 454,900,977 355,057,896 247,055,888 156,242,591 238,509,904 153,842,731 127,326,964 362,185,248 342,677,354 388,134,797 258,637,133 169,874,050 167,929,955 22,442,531,485 25,905,017,151 Total Shares Owned 5,485,679,458 1,653,709,980 763,124,250 338,425,235 325,381,129 296,968,311 286,860,170 256,386,838 202,100,882 189,986,284 As of 07/12/2010 (last record date) Ownership (%) 0.15% 1.76% 1.37% 0.95% 0.60% 0.92% 0.59% 0.49% 1.40% 1.32% 1.50% 1.00% 0.66% 0.65% 86.64% 100.00% As of 07/12/2010 (last record date) Ownership (%) 21.18% 6.38% 2.95% 1.31% 1.26% 1.15% 1.11% 0.99% 0.78% 0.73% 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 & CEO Morris Chang Vice Chairman F.C. Tseng Director National Development Fund, Executive Yuan Representative: Johnsee Lee Director & New Businesses President Rick Tsai Independent Director Sir Peter Leahy Bonfield Independent Director Stan Shih Independent Director Thomas J. Engibous 34 2010 01/01/2011 ~ 02/28/2011 Net Change in Shareholding Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) 2,550,000 (440,000) - - - (1,323,554,208) 766,541 (1,700,000) - - - - - - - - - - - - - - - - - - - - (Continued) 2010 01/01/2011 ~ 02/28/2011 Net Change in Shareholding Net Change in Shares Pledged (Note 1) Net Change in Shareholding Net Change in Shares Pledged (Note 1) Title Name Senior Vice President & Chief Information Officer Information Technology & Materials Management and Risk Management Stephen T. Tso Senior Vice President Research and Development Shang-yi Chiang Senior Vice President Operations Mark Liu Senior Vice President Business Development C.C. Wei Senior Vice President & General Counsel Richard Thurston Senior Vice President, Chief Financial Officer & Spokesperson Lora Ho Senior Vice President Worldwide Sales and Marketing Jason C.S. Chen Vice President Operations/Affiliate Fabs M.C. Tzeng Vice President Operations/Manufacturing Technology Wei-Jen Lo Vice President & Chief Technology Officer Research and Development Jack Sun Vice President Operations/Product Development 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 Vice President Operations/Mainstream Fabs J.K. Lin (Note 2) Vice President Operations/300mm Fabs J.K. Wang (Note 2) Vice President Corporate Planning Organization Irene Sun Vice President Research and Development Burn J. Lin (Note 3) Senior Director New Businesses Jan Kees van Vliet Senior Director New Businesses Y.C. Chao 389,371 - (180,000) - (400,000) - (35,000) (9,000) (350,000) 87,736 (200,000) - - - - 200,000 (65,000) - (700,000) - - - - - - - - - - - - - - - - - - - - - - - - (54,000) - - - (27,000) (70,000) - (30,000) - - - - - - - - - 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: Mr. J.K. Lin and Mr. J.K. Wang were promoted on August 10, 2010. Net change in their shareholding or shares pledged were from August 10, 2010 to February 28, 2011. Note 3: Mr. Burn J. Lin was promoted on February 15, 2011. Net change in his shareholding or shares pledged was from February 15, 2011 to February 28, 2011. - - - - - - - - - - - - - - - - - - - - 35 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 Common Name Current Shareholding Spouse & Minor Shareholding TSMC Shareholding by Nominee Arrangement Shares % Shares ADR-Taiwan Semiconductor Manufacturing Company, Ltd. 5,485,679,458 National Development Fund, Executive Yuan 1,653,709,980 Representatives: Johnsee Lee JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency - 763,124,250 21.18% 6.38% - 2.95% Cathay Life Insurance Co.,Ltd. Chairman: Hong-Tu Tsai Government of Singapore 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 338,425,235 1.31% 325,381,129 296,968,311 1.26% 1.15% 286,860,170 1.11% JPMorgan Chase Bank N.A. Taipei Branch in custody for ABU DHABI Investment Authority 256,386,838 0.99% iShares, Inc. Lazard Emerging Markets Equity Portfolio 202,100,882 189,986,284 0.78% 0.73% 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 Shares N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 4.1.9 Long-term Investment Ownership As of 07/12/2010 (last record date) Name and Relationship between TSMC’s Shareholders as Defined in the Statement of Financial Accounting Standards No.6 Name Relationship % N/A N/A N/A N/A None None None None N/A None N/A N/A None None N/A None N/A None N/A N/A None None None None None None None None None None None None None Ownership by TSMC (1) Direct/Indirect Ownership by Directors and Management (2) Total Ownership (1) + (2) As of 12/31/2010 Shares % Shares Shares % % 0% 0% 0% 0% 0% 0% 0% 0% 0% 988,268,244 1,284 11,000,000 200 6,000 80,000 1,000 200 1,000 0 0 0 0 0 0 0 0 0 0 0 0% Not Applicable (Note 1) 0% 313,603 274,029,592 16.7% (Note 2) 902,253,085 0 0 0 0 0 0 0% 0% 0% 76,069,382 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% 100.0% 100.0% 100.0% 38.8% 38.2% 20.0% 40.8% 35.0% 99.5% 98.0% 98.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 38.8% 54.9% 20.0% 40.8% 35.0% 99.5% 98.0% 98.9% (Continued) Long-term Investment Equity Method: TSMC Partners, Ltd. TSMC Global, Ltd. TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC Solar North America, Inc. TSMC Solar Europe B.V. TSMC Lighting North America, Inc. 988,268,244 1,284 11,000,000 200 6,000 80,000 1,000 200 1,000 TSMC China Company Limited Not Applicable (Note 1) Systems on Silicon Manufacturing Co. Pte Ltd. Vanguard International Semiconductor Corp. Motech Industries Inc. Xintec Inc. Global UniChip Corporation Emerging Alliance Fund, L.P. VentureTech Alliance Fund II, L.P. VentureTech Alliance Fund III, L.P. 313,603 628,223,493 76,069,382 93,081,225 46,687,859 Not Applicable (Note 1) Not Applicable (Note 1) Not Applicable (Note 1) 36 Long-term Investment 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) Shares % Shares % Shares % 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: 16.7% 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. 4.1.10 Share Information TSMC’s earnings per share increased 81.1% in 2010 to NT$6.23 per share. The following table details TSMC’s net worth, earnings, dividends and market price per common share in 2010, as well as other data regarding return on investment. Net Worth, Earnings, Dividends, and Market Price Per Common Share Unit: NT$, 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 Adjusted Diluted Earnings Per Share (Note 1) Dividends Per Share Cash Dividends Accumulated Undistributed Dividend Return on Investment Price/Earnings Ratio (Note 2) Price/Dividend Ratio (Note 3) Cash Dividend Yield (Note 4) Note 1: Retroactively adjusted for appropriation of earnings Note 2: Price/Earnings Ratio = Average Market Price/Adjusted Diluted Earnings Per Share Note 3: Price/Dividend Ratio = Average Market Price/Cash Dividends Per Share Note 4: Cash Dividend Yield = Cash Dividends Per Share/Average Market Price Note 5: Pending for shareholders’ approval 2009 2010 01/01/2011 ~ 02/28/2011 61.82 (Note 1) 35.46 (Note 1) 51.31 (Note 1) 19.11 16.11 25,913,603 3.44 3.44 3.00 - 14.92 17.10 6% 72.90 (Note 1) 54.41 (Note 1) 60.55 (Note 1) 22.16 (Note 5) 25,920,094 6.23 (Note 5) (Note 5) 3.00 (Note 5) - (Note 5) (Note 5) (Note 5) 78.00 69.80 73.52 - - - - - - - - - - 37 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. 4.1.12 Distribution of Profit The Board adopted a proposal for 2010 profit distribution at its Meeting on February 15, 2011. The proposal will be effected according to the relevant regulations, upon the approval of shareholders at the Annual Shareholders’ Meeting on June 9, 2011. 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 2011 Annual Shareholders’ Meeting was recorded as a charge to earnings of approximately 6.75% of net income in year 2010; 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 9, 2011. 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 2010 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 2010 which have been expensed under the Company’s income statements are listed below: －NT$10,908,338,094 distributed employees’ cash bonus －NT$10,908,338,094 employees’ cash profit sharing to be distributed after 2011 Annual Shareholders’ Meeting －NT$51,131,000 directors’ bonus to be paid after 2011 Annual Shareholders’ Meeting 2009 Directors’ Bonus and Employee Profit Sharing 77,730,235,992 Directors’ Bonus (Cash) Employee’s Cash Profit Sharing Total Board Resolution (02/09/2010) Actual Result (Note) Amount (NT$) 67,692,222 6,691,337,704 6,759,029,926 Amount (NT$) 67,692,222 6,691,337,704 6,759,029,926 Note: Each of the above two items, being approved by the Board, has been expensed at the same amount under the company’s 2009 income statements. 4.1.13 Impact to 2011 Business Performance and EPS Resulting from Stock Dividend Distribution: Not applicable. 4.1.14 Buyback of Common Stock: Not applicable. 38 4.2 Issuance of Corporate Bonds 4.2.1 Corporate Bonds As of 02/28/2011 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$4,500,000,000 None Customary Covenants twAAA (Taiwan Ratings Corporation, 10/20/2010) None Not Applicable None None Issuance Issuing Date Denomination Offering Price Total Amount Coupon Rate Tenure Guarantor Trustee Underwriter Legal Counsel Auditor Repayment Outstanding Redemption or Early Repayment Clause Covenants Credit Rating Other Rights of Bondholders Conversion Right Amount of Converted or Exchanged Common Shares, ADRs or Other Securities Dilution Effect and Other Adverse Effects on Existing Shareholders Custodian 4.2.2 Convertible Bond: None. 4.2.3 Exchangeable Bond: None. 4.2.4 Shelf Registration: None. 4.2.5 Bond with Warrants: None. 4.3 Preferred Shares 4.3.1 Preferred Share: None. 4.3.2 Preferred Share with Warrants: None. 39 4.4 Issuance of American Depositary Shares Issuing Date 10/08/1997 11/20/1998 01/12/1999 - 01/14/1999 07/15/1999 08/23/1999 - 09/09/1999 02/22/2000 - 03/08/2000 04/17/2000 06/07/2000 - 06/15/2000 06/12/2001 11/27/2001 02/07/2002 - 02/08/2002 11/21/2002 - 12/19/2002 07/14/2003 - 07/21/2003 11/14/2003 05/23/2007 08/10/2005 - 09/08/2005 Issuance & Listing NYSE NYSE NYSE NYSE NYSE NYSE NYSE NYSE Total Amount (US$) 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 8.6 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 Shares from Selling Shares from Selling Shares from Selling Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders (Pursuant to ADR Conversion Sale Program) from Selling Shareholders 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. – Taipei Branch 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. – 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$) 2010 01/01/2011 - 02/28/2011 High Low Average High Low Average 12.69 9.07 10.21 13.68 12.12 13.05 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 1,147,835,205 ADSs. As of February 28, 2011, total number of outstanding ADSs was 1,096,448,377 after 51,386,828 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. 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$) 594,720,000 184,554,440 35,500,000 296,499,641 158,897,089 379,134,599 224,640,000 1,167,873,850 240,999,660 297,649,640 320,600,000 1,001,650,000 160,097,914 908,514,880 1,077,000,000 1,402,036,500 2,563,200,000 24.516 28.964 57.79 20.63 20.63 16.03 16.75 8.73 10.40 10.77 8.6 10.68 01/12/1999 - 01/14/1999 NYSE 17.75 NYSE 15.26 Offering Price Per ADS 24.78 (US$) 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 2010 (US$) High Low High Low Average Average 12.69 9.07 10.21 13.68 12.12 13.05 01/01/2011 - 02/28/2011 41 4.5 Status of Employee Stock Option Plan 4.5.1 Issuance of Employee Stock Options ESOP Granted Approval Date by The Securities & Futures Bureau Issue (Grant) Date Number of Options Granted Percentage of Shares Exercisable to Outstanding Common Shares Option Duration Source of Option Shares Vesting Schedule Shares Exercised Value of Shares Exercised (NT$) 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% 17,144,420 604,197,297 3,474,835 NT$53.0 NT$27.6 0.01341% 1,145,758 39,083,833 270,445 NT$51.0 NT$26.6 0.00104% 4,525,733 111,392,267 3,058,821 NT$41.6 NT$21.7 0.01181% 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 15,250,526 571,713,878 9,634,518 NT$58.5 NT$30.5 0.03718% Fifth Grant 10/29/2003 12/03/2003 842,900 0.00416% 10 years 422,956 21,783,581 160,155 NT$66.5 NT$50.1 0.00062% Sixth Grant 10/29/2003 02/19/2004 15,720 0.00008% 10 years 8,585 417,657 6,831 NT$63.5 NT$47.8 0.00003% Seventh Grant Eighth Grant 10/29/2003 05/11/2004 11,167,817 0.05510% 10 years 8,315,128 370,037,908 2,056,273 NT$57.5 NT$43.2 0.00794% 10/29/2003 08/11/2004 135,300 0.00058% 10 years 120,159 4,684,478 7,855 NT$43.8 NT$38.0 0.00003% Ninth Grant 01/06/2005 05/17/2005 10,742,350 0.04620% 10 years 6,198,483 295,773,115 2,767,698 NT$54.3 NT$47.2 0.01068% 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$) % of Shares Exercised to Outstanding Common Shares % of Shares Unexercised to Outstanding Common Shares Chairman & Chief Executive Officer President Senior Vice President Senior Vice President Senior Vice President Morris Chang (Note 1) Rick Tsai (Note 1) Stephen T. Tso (Note 1) Mark Liu (Note 1) C.C. Wei (Note 1) Senior Vice President & General Counsel Richard Thurston (Note 1) Vice President Vice President Vice President Vice President Jack Sun (Note 1) Rick Cassidy L.C. Tu (Note 1) J.K. Lin (Note 1) 5,480,052 0.02115% 3,037,739 25.1 76,384,138 0.01172% 2,442,313 25.1 61,420,328 0.00943% Note 1: TSMC granted options to certain of its officers (as listed above) as a result of their voluntary selection to exchange part of their profit sharing for stock options in 2003. This includes a voluntary exchange by Chairman Morris Chang in his capacity as Chief Executive Officer. Note 2: Number of options granted includes the additional shares due to stock dividend distributed in 2004, 2005, 2006, 2007, 2008 and 2009. 4.6 Status of New Share Issuance in Connection with Mergers and Acquisitions TSMC did not issue new shares in connection with mergers or acquisitions in 2010, and as of the date of this Annual Report. 4.7 Financing Plans and Implementation: Not applicable. 42 Percentage of Shares Exercisable to Outstanding Common Shares ESOP Granted Approval Date by The Securities & Futures Bureau Issue (Grant) Date Number of Options Granted Option Duration Source of Option Shares Vesting Schedule Shares Exercised Value of Shares Exercised (NT$) 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 17,144,420 604,197,297 3,474,835 NT$53.0 NT$27.6 0.01341% Second Grant 06/25/2002 11/08/2002 1,085,000 0.00583% 10 years 1,145,758 39,083,833 270,445 NT$51.0 NT$26.6 0.00104% Third Grant 06/25/2002 03/07/2003 6,489,514 0.03485% 10 years 4,525,733 111,392,267 3,058,821 NT$41.6 NT$21.7 0.01181% 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 12/31/2010 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% 15,250,526 571,713,878 9,634,518 NT$58.5 NT$30.5 0.03718% 422,956 21,783,581 160,155 NT$66.5 NT$50.1 0.00062% 8,585 417,657 6,831 NT$63.5 NT$47.8 0.00003% 8,315,128 370,037,908 2,056,273 NT$57.5 NT$43.2 0.00794% 120,159 4,684,478 7,855 NT$43.8 NT$38.0 0.00003% 6,198,483 295,773,115 2,767,698 NT$54.3 NT$47.2 0.01068% Dilution to Shareholders’ Dilution to Shareholders’ Dilution to Shareholders’ Equity is limited Equity is limited Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Dilution to Shareholders’ Equity is limited Title Name Number of Options Granted % of Shares Exercisable to (Note 2) Outstanding Common Shares Exercised Unexercised Shares Exercised Exercise Price Per Share Value of Shares Exercised (NT$) % of Shares Exercised to Outstanding Common Shares Shares Unexercised Adjusted Grant Price Per Share Value of Shares Unexercised (NT$) As of 12/31/2010 % of Shares Unexercised to Outstanding Common Shares Senior Vice President & General Counsel Richard Thurston (Note 1) 5,480,052 0.02115% 3,037,739 25.1 76,384,138 0.01172% 2,442,313 25.1 61,420,328 0.00943% Chairman & Chief Executive Officer President Senior Vice President Senior Vice President Senior Vice President 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) J.K. Lin (Note 1) 43 5. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope 5.1.2 Customer Applications As the founder and a leader of the dedicated IC foundry segment, Over the past 23 years, more than 600 customers worldwide have TSMC has built its reputation by offering advanced and relied on TSMC to manufacture chips that are used across the entire “More-than-Moore” wafer production processes and unparalleled spectrum of electronic applications, including computers and manufacturing efficiency. TSMC strives to provide the best overall peripherals, information appliances, wired and wireless value to customers, and the success of TSMC’s business is manifested communications systems, automotive and industrial equipment, in the success of its customers. consumer electronics such as DVDs, digital TVs, game consoles, digital still cameras (DSCs), and many other applications. TSMC provides a full range of integrated IC foundry services that fulfill the increasing variety of customer needs. In the process, it has The rapid evolution of end products drives our customers to utilize experienced strong growth by building partnerships with customers. TSMC’s innovative technologies and services, while at the same time IC suppliers from around the world trust TSMC with their spurring TSMC’s own development of technology. As always, success manufacturing needs, thanks to its unique integration of depends on leading rather than following industry trends. cutting-edge process technologies, pioneering design services, manufacturing productivity and product quality. In May 2009, TSMC established the New Businesses organization to explore non-foundry related business opportunities. During 2010 and early 2011, the New Businesses organization consists of two business divisions responsible for solid state lighting and solar business activities. 45 5.1.3 Unconsolidated Shipments and Gross Sales in 2010 and 2009 Unit: Shipments (8-inch equivalent wafers) / Gross Sales (NT$ thousands) 2010 2009 Wafer Package Other Total Domestic Export Domestic Export Domestic Export Domestic Export 5.1.4 Production in 2010 and 2009 Unit:Capacity / Output (8-inch equivalent wafers) / Amount (NT$ thousands) Year 2010 2009 Shipments 2,132,697 9,688,352 0 23,550 20,278 53,137 2,152,975 9,765,039 Wafers Capacity 11,328,601 9,954,558 Gross Sales 51,312,831 340,474,577 0 963,427 3,974,831 21,940,782 55,287,662 363,378,786 Shipments 1,495,305 6,194,167 3 35,467 17,597 42,979 1,512,905 6,272,613 Output 11,806,566 7,582,664 Gross Sales 38,538,370 238,090,692 487 1,384,580 3,272,217 18,184,868 41,811,074 257,660,140 Amount 199,376,792 150,572,709 5.2 Technology Leadership 5.2.1 R&D Organization and Investment TSMC expanded Research and Development in 2010 to further enhance one of its three strategic pillars: Technology Leadership. In 2010 the total R&D budget was 7% of total revenue. This level of R&D investment is equal to or more than that of many leading edge technology companies. Along with the budget increase, the R&D organization increased staffing by over 17%. TSMC recognizes that the technology challenge required to extend Moore’s Law, the business law behind CMOS scaling, is getting R&D Expenditures (Amount: NT$ thousands) 2009 2010 21,593,398 29,706,662 01/01/2011~ 02/28/2011 4,904,939 increasingly difficult. Dr. Shang-yi Chiang, TSMC Senior Vice President of R&D brings his rich industry experience to lead the strengthening of the R&D team and to navigate through the technological and competitive challenges ahead. In 2010, TSMC offered the foundry segment’s first 28nm technology. After intense work on ramping this technology, customers started to experience its benefits of stable and improved yield. TSMC accelerated the development of advanced transistors, embedded memories, and copper (Cu)/low-K interconnect technologies. During 2010, the R&D organization once again proved its capabilities by offering a first-to-market 28nm high-K/metal gate (HKMG) foundry technology portfolio as well as establishing 20nm path-finding 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 strategic agreement with IP provider to enable the development of physical IP through the advanced technology nodes. 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. 46 5.2.2 R&D Accomplishments in 2010 R&D Highlights ● 28nm Technology TSMC continued to lead the foundry segment with the development ● Lithography To overcome unprecedented low k1 for imaging, state-of-the-art optical lithography resolution enhancement techniques, such as source-mask optimization and multiple patterning, have been implemented to achieve 2X the gate density of previous generation. of the most advanced logic technologies both with conventional as Combined with an optimized etching technique and film stack, a well as HKMG stacks. The high performance (28HP) platform is nonlinear photoresist was introduced to achieve a 2.2nm line-width- aimed at high-speed GPU and CPU applications. It also serves as the roughness (LWR) on the switching gates to gain device performance. technology backbone for high-end FPGA and SoC application domains through additional device customization for leakage The reticle for Test Vehicle 1 of the 20nm node was taped out in mid management. The low-leakage (28LP and 28HPL) technologies are 2010 with an advanced super binary intensity mask (BIM) blank. The designed to support low-cost mobile applications as well as low-end overlay control for inter- and intra-layers reached 6nm, a 25% gain FPGA requirements. from the previous generation. Moreover, with design rule optimization, the patterning technique of the active layer can be With the improvement and development momentum, TSMC has simplified from 3P2E to 2P2E, resulting in significant cost reduction. continuously demonstrated breakthroughs in both 64Mb SRAM yield and technology reliability for all the 28nm technology family, Low-single-digit immersion defects for the 28nm node were achieved including 28LP, 28HP and 28HPL. In addition, 28LP has completed with track/material co-optimization that evolved from and is better the technology qualification in September 2010 and proved to be the first 28nm technology within the semiconductor and foundry than the previous generation. To deal with various product requirements, customized OPC was used. Low-cost solutions were industries ready for risk production. HKMG technology qualification developed for 0.11μm logics, multi-generation technologies, and is also under way. special technologies such as eDRAM and CMOS Image Sensor (CIS). In parallel, TSMC provided 28nm shuttle service program and For next generation lithography (NGL) technology development, a successfully delivered proven and functional test-chips for both multiple e-beam maskless pre-Alpha tool installed in TSMC’s fab has conventional SiON/poly and HKMG technologies. More than 10 been demonstrating imaging with 110 beams and patterns of the shuttle services were offered in 2010, and more than 25 customers 20nm node using e-beam proximity correction. validated their test-chips and critical IPs with TSMC’s 28nm technologies for various market segments, including GPU/CPU, FPGA In early 2010, the Company announced the acquisition of a full-field and mobile applications. extreme-ultraviolet (EUV) scanner from ASML Netherlands B.V. for the development of lithographic processes for devices of the 20nm ● 20nm Technology In 2010, TSMC continued to focus on 20nm technology path finding node and below at TSMC’s Fab 12 GIGAFABTM. TSMC has also made progress on demonstrating 20nm device processing with EUV and development. To offer a leading-edge technology for both lithography using the alpha demo tool located at our IMEC partner analog and digital application, the Company adopted the most site. advanced 193nm immersion and enhanced lithography process for smaller feature size. With the second generation of HKMG, more Si strain, and new device structure, the intrinsic transistor performance ● Mask Technology Mask technology is an integral part of advanced lithography continues to ramp following Moore’s Law. Meanwhile, external technology. TSMC has developed proprietary resolution- resistance can be effectively reduced and controlled by a specially enhancement techniques (RET) that are co-optimized with our designed process technique. The back end-of-line (BEOL) interconnect process features extreme low-K intermetal dielectric in-house mask-making technology. The Company integrates optical proximity correction (OPC) and scanner parameter optimization, and materials and copper metallization with the novel low-resistance masks them together to provide a total solution in 193nm immersion scheme. The logic transistor and SRAM bit-cell offering, using the lithography. TSMC’s mask-making facilities feature state-of-the-art 20nm process, will cover high performance and System-on-Chip electron-beam mask writers, etchers, inspection, repair, verification, (SoC) application. and metrology tools for production at 28nm and R&D at 20nm and beyond. TSMC continues to develop mask technologies for double Development of 20nm technology will create superior gate density patterning with 193nm immersion lithography and EUV lithography and chip performance. The cost and complexity of advanced for applications to the 20nm generation and beyond and participates technology will continue to escalate for customers. In 2010, TSMC actively in developing the infrastructure for EUV mask-making. provided process flow, design kits and intellectual property (IP) to TSMC’s strength in mask technology gives significant and unique help reduce foundry costs. TSMC’s high-performance 20nm process benefits to its customers in terms of technical excellence, top quality, will enter risk production in the third quarter of 2012, with volume fast cycle time, and one-stop service. production scheduled for the first quarter of 2013. 47 Integrated Interconnect and Packaging The Integrated Interconnect and Package Development Division (IIPD) Advanced Transistor Research Historically, transistor performance requirement follows different was formed in late 2008 to develop and deliver an integrated market segments: high performance applications, such as desk top technology solution combining advanced interconnect with computing; low-operating power applications, such as laptop packaging technology. The introduction of extreme low-K dielectric computers and mobile internet devices; and low standby power (ELK) in 45/40nm adds more challenges among many others to the applications, such as cell phones for long standby time. TSMC has given tasks. In 2010, the major focus was to resolve interconnect/ been the technology leader in the low-operating power applications package related bottlenecks and ensure smooth ramp of 45/40nm with G-family transistors and low standby power applications with LP first-wave customers’ products. Enhancement in Si backend/bump family transistors. As low-operating power applications spread into structure designs, and process optimization in bumping/assembly the high performance domain, TSMC is embracing the challenge to processes have paved the way for customers’ products delivery with retune our transistor offering to assure customers that they have the reliable quality. Customers including GPU and FPGA products are in most competitive transistor offering from TSMC. volume production (with die size >20×20mm2). ● Advanced Interconnect In 2010, TSMC continued to lead the foundry segment in Spectrum of Technology Beyond the highlights above, TSMC continued to develop a broad mix of new technologies. The Company accelerated its SoC roadmap, demonstrating the lowest resistance/capacitance (RC) -delay including embedded DRAM (eDRAM) and RF with earlier availability, interconnect technology in the segment, which is also compatible higher integration and more variants. with advanced package technology. Copper interconnect resistivity is trending up by generation node ● Embedded DRAM Continued with TSMC leadership in eDRAM, in 2010 we started to because of the size effect. To keep the RC performance for the ramp up early production of 40nm LP eDRAM for more efficient advanced interconnect, TSMC has developed an extreme low memory density and throughput required for bandwidth and graphic resistance Cu interconnect solution for 28nm and beyond technology applications such as games and DTV. This will be followed by nodes. On the 28nm, we also improve effective resistivity of Cu lines baseband and network applications, using the N40G base logic with to be significantly lower than that projected by the International 412MHz and 500MHz clock rate. Development also began on N28 Technology Roadmap for Semiconductors and demonstrate eDRAM using HKMG logic as a base technology. promising reliability performance. ● Advanced Package Development To achieve “Green package” requirements and to follow the EU code ● Silicon Germanium BiCMOS Radio Frequency (RF) Technology SeGi018: Upgraded TSMC SiGe-BiCMOS technology performance to tier-1 SiGe process specifications. For the moment, we are ahead of for RoHS, the traditional tin-lead (Sn-Pb) based solder interconnect the ITRS roadmap targets. 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.) ● Mixed Signal/Radio Frequency (MS/RF) Technology TSMC delivered a 28nm EM simulation base LC tank design package and Fan-in Wafer Level Packaging (Fan-in WLP) for handheld/mobile to facilitate high speed Serdes design. This approach successfully devices/applications in 2011 to further enhance customers’ product fulfilled requirements for different customized metal schemes in a performance and competitiveness ● 3D IC TSMC has committed to work with customers closely to develop cost-effective 3D IC system integration solutions using in-house significantly shorter time. In the category of More-than-Moore product enhancement, we developed IPD technology on high R substrate, and provided excellent inductor (Q>50) and precise MiM (C corner<5%) for the RF-FEM (front-end module) segment. proprietary through silicon via (TSV) and foundry compatible Thin film Resistor: Demonstrated a close to zero TCR TFR which is key wafer-level-packaging (WLP) technologies. Our 3D System-in-Package for high-precision ADC. (SiP) solution is a viable alternative for many customers to realize their end product with the best cost and cycle time. TSMC delivers innovations to enable SiP design for the first time. It includes SiP ● Power IC/BCD Technology In 2010, TSMC released a multiple-time re-programmable (MTP) package design, electrical analysis of package extraction, timing, non-volatile memory into the existing C025BCD power management signal integrity, IR drop, and thermal to physical verification of design IC technology. A one-time programmable (e-fuse) solution was rule check (DRC) and Layout Verification of Schematic (LVS). Such qualified in 0.25u/5V and 0.18u/5V mixed signal technologies and integrated solution for product realization will be made available to their derivatives (BCD, HV). These features enable customers to trim customers in 2012/13. critical analog characteristics at wafer, package or board level in a cost efficient manner (e-Fuse) or enhance the product functionality (MTP). 48 Besides continuing various BCD technology developments for DC-DC 5.2.3 Technology Platform conversion, TSMC successfully delivered UHV (800V) technology that supports designs for energy-efficient lighting (CFL, LED, E-balaster) Modern IC designers need sophisticated design infrastructure to and mobile adaptors. achieve acceptable productivity and cycle time. This includes design flow for electronic design automation (EDA), silicon proven building ● Panel Driver Technology In mobile device display drivers, TSMC released two new technologies 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 in 2010: C011HV and N80HV. These technologies are targeted for top of the technology foundation, and each technology needs its high resolution displays in smart phones. own design infrastructure to be usable for designers. This is the concept of a technology platform. To meet more stringent standards in large panel displays (color depth and speed) for new TVs, such as 3D LCD TV, TSMC released two Today’s TSMC technology platforms reflect the culmination of years technologies in 2010. ● Microelecrtromechancial Systems (MEMS) Technology There are several MEMS technologies for different applications in of work by TSMC and its alliance partners. In 2008, TSMC’s Open Innovation PlatformTM was launched to further enhance the Company’s technology platforms, with additional deliverables added on in 2010. The Company unveiled an extension to its IP Alliance development at TSMC. In 2010, we worked with a customer to program in October to include Soft IP partners. release a gyroscope device in production. We also demonstrated preliminary success in a DNA sequencing device, and made significant progress in our motion sensor platform technology In April, TSMC announced the foundry segment’s first Analog/Mixed Signal (AMS) Reference Flow, and the second revision of the Radio development. ● CMOS Image Sensor Technology In 2010, TSMC extended our leadership in back-side illumination Frequency Reference Design Kit (RF RDK). The new AMS Reference Flow is TSMC’s first custom design flow that targets leading edge 28nm design challenges, such as Layout Dependent Effects (LDE), Design For Manufacturing (DFM) and Sub-1V, to minimize design (BSI) to enable our key customer to win more visible business with barriers and reduce iterations. AMS Reference Flow is a fully popular handheld products. At the same time, BSI wafer processing integrated multi-vendor program and part of an innovative design in 12” bulk-silicon also started risk production with the 65nm package. 8-megapixel product to be ramped up in early 2011, followed by many others. The updated RDK provides a solution to common bottlenecks that designers encounter on a daily basis. RDK 2.0 includes step-by-step TSMC also won the business for another leading CIS provider for 12” tutorials and setup scripts to facilitate users going through Circuit technology development, with wafer loading scheduled for 2012. Sizing/Design Centering, a comprehensive EM design flow with ● Flash/Embedded Flash Technology In 2010, TSMC delivered a refined low power, extremely low leakage TSMC PDK, and to analyze substrate noise coupling in RF circuits with TSMC qualified SNA tools. 0.18μm Flash for microprocessor control unit (MCU) applications. After the debut of a series of interoperable data formats in iRCX, The 90nm split gate technology has passed technology qualification. iDRC, iLVS and iPDK in 2009, TSMC demonstrated its strong Three macros were qualified. One key customer has delivered commitment to industry users in 2010 with its industry-first iDRC & Bluetooth engineering samples to their customers. Smart card IP is iLVS runsets in 40nm, and iPDKs in many TSMC advanced process being qualified with several customers joining shuttle service for nodes from 0.13μm to 28nm. Working with EDA partners, TSMC product prototyping. publishes quarterly reports for their qualified interoperable tools and versions. TSMC has engaged with several IDM companies to co-develop embedded flash solutions for automotive, industrial and consumer The Soft IP Alliance program aims to improve soft IP readiness for applications. The technology foundation used includes 90nm, 65nm advanced technology nodes and to drive earlier time-to-market. Soft and 55nm, with the flash cells varying from floating gate and IP has historically been process technology independent and, split-gate to hybrid. therefore, not optimized for power, performance and area considerations. Given the ever-increasing need of first-time silicon success and early time-to-market for highly integrated circuits, such as Systems-on-Chip (SoC), close technical collaboration between the foundry and the IP provider is imperative to emphasize this critical trade-off. 49 iRCX, an interoperable EDA data format, integrates all key process interconnect modeling data, which is increasingly important as chip Entering its 10th year, the TSMC Reference Flow continues to anticipate customer needs in advanced design methodologies, and designs in advanced technologies require detailed views of parasitic to serve the purpose of pipe-cleaning EDA tool capabilities. effects for the accurate evaluation of chip performance and power Traditionally the Reference Flow addresses design challenges in consumption. iRCX offers foundry interconnect model data for power, timing, and design for manufacturing. Reference Flow 11.0 various applications across the board, covering not only parasitic RC incorporated new requirements associated with leading edge tools at transistor & gate levels, but also the commonly-used tools technologies, such as 28nm, and expanded into two new areas: 3D for Electrical Magnetic (EM) Solver, Field Solver and ElectroMigration IC with TSV (through silicon via) and ESL system level design. The (EM)/Current (IR) Drop Analysis. EDA tools that support the iRCX former supports heterogeneous integration of multiple dice and to format will be able to receive accurate interconnect modeling data achieve superior timing/power/form factor optimization, while the from the iRCX files developed and supported by TSMC. latter supports the trend of designers moving up to system level, enabling earlier and more accurate tradeoff with accurate TSMC PPA Executable physical verification runsets for interoperable design rule (power, performance and area). check (iDRC), interoperable density fill (iFill) and interoperable layout- versus-schematic (iLVS) in TSMC 40nm process technology were 5.2.4 Intellectual Property delivered to TSMC beta customers in 2010. Design rules for advanced process technologies are more complex and require A strong portfolio of intellectual property rights strengthens TSMC’s detailed and accurate descriptions for correct chip layout creation technology leadership and protects our advanced and leading edge and post-layout analyses. TSMC iDRC and iLVS formats, based on TSMC process requirements, unify process design rules specification technologies. In 2010, TSMC received 434 U.S. patents, 173 Taiwanese patents, 180 PRC patents, and other patents issued in and technology file generation, simplify data delivery, and ensure various other countries. TSMC’s patent portfolio now exceeds 13,000 data integrity and interpretation. These are also the deliverables that patents worldwide. We continue to implement a unified model for represent TSMC’s tight collaboration with its EDA partners and TSMC’s intellectual capital management. Strategic considerations mutual customers. and close alignment with the business objectives drive the timely creation, management and use of our intellectual property. TSMC iPDK unified data model on industry-standard OpenAccess database enables design reuse that is not possible with multiple At TSMC, we have built a process to extract value from our proprietary PDKs and design databases among various EDA design intellectual property by aligning our intellectual property strategy platforms. It eliminates duplicate PDK development efforts, with our R&D, business objectives, marketing, and corporate significantly reduces PDK development, validation and support costs development strategies. Intellectual property rights protect our across the design ecosystem, and promotes innovation in analog and freedom to operate, enhance our competitive position, and give us full custom design. With a wide range of available iPDKs in TSMC leverage to participate in many profit-generating activities. process nodes and industry available EDA design platforms, users are now offered a higher degree of design flexibility in choosing the best We have worked continuously to improve the quality of our tool features to fit their design needs. intellectual property portfolio and to reduce the costs of maintaining it. We plan to continue investing in our intellectual property portfolio To ensure OIP Ecosystem partners’ compliance with TSMC new and intellectual property management system to ensure that we process requirements, TSMC works with partners to publish the “EDA protect our technology leadership and receive maximum business Tool Qualification Report” on TSMC-Online, providing customers value from our intellectual property rights. with an actively maintained status of individual EDA tools including DRC, LVS, RC extraction, Placement and Routing. The physical verification tool qualification report of DRC/LVS/RCX is updated on 5.2.5 Future R&D Plans quarterly basis, and started to cover iDRC/iLVS/iRCX/iFill from 2010. Following the significant accomplishments of TSMC’s advanced Also new for Year 2010, routing qualification of 28nm was technologies in 2010, the Company plans to continue to grow its introduced as the design rule becomes Version 1.0. R&D investments. TSMC will further expand its 300mm R&D pilot line to speed up 28nm production ramp and 20nm development. The In order to lower the barrier of technology adoption for customers, Company plans to reinforce its exploratory development work on TSMC first introduced the Integrated Sign-Off Flow (ISF) in new transistors and technologies, such as 3D structures, 65nm/55nm in 2009. ISF is a production proven design flow based strained-layer CMOS, high mobility materials, novel 3D-IC devices on TSMC’s internal design expertise accumulated over the years. ISF with TSV, and interposer. These studies of the fundamental physics started to bear fruits in 2010, and enabled a large number of first of nanometer CMOS transistors are core aspects of our efforts to time 65nm/55nm customers. ISF significantly reduced technology improve the understanding and guide the design of transistors at adoption gap in emerging markets such as China. advanced nodes. The findings of these studies are being applied to 50 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 5.3 Manufacturing Excellence 5.3.1 GIGAFABTM Fabrications technologies and manufacturing solutions. TSMC’s 12-inch fabs are a key part of its manufacturing strategy. TSMC will continue working closely with international consortia and TSMC currently operates two 12-inch GIGAFABTM fabrication facilities – Fab 12 and Fab 14 – whose combined capacity reached 2,520,000 photolithography equipment suppliers to ensure the timely 12-inch wafers in 2010. Production within these two facilities development of 193nm high-NA scanner technology, EUV supports 0.13μm, 90nm, 65nm, 40nm, and 28nm process lithography, and massively parallel E-Beam direct-write technologies. technologies, and their sub-nodes. Part of the capacity is reserved for These technologies are now fundamental to TSMC’s process research and development work and currently supports 20nm, 14nm development efforts at the 20nm and 14nm nodes and beyond. and beyond technology development. A third GIGAFABTM fabrication, Fab 15, located in Taichung’s Central Taiwan Science Park, is on track TSMC continues to work with mask inspection equipment suppliers for equipment move-in during the second quarter of 2011. to develop viable inspection techniques, a collaborative partnership to help ensure the Company maintains its leadership position in mask TSMC has developed a centralized fab manufacturing management quality and cycle time and continue to meet aggressive R&D, for the customers’ benefit of same quality and reliability prototyping and production requirements. performance, greater flexibility of demand fluctuations, faster yield With a highly competent and dedicated R&D team, and unwavering commitment to innovation, TSMC is confident of its ability to deliver learning and time-to-volume, and minimized costly product re-qualification. the best and most cost-effective SoC technologies for customers, and 5.3.2 Engineering Performance Optimization to support the Company’s business growth and profitability. TSMC R&D future major project summary: advanced equipment control and fault detection, are implemented to Highly sophisticated information technology (IT) solutions, such as Project Name Description Risk Production (Estimated Target Schedule) 28nm logic platform technology and applications 28nm technology for both digital and analog products 2010 - 2011 20nm logic platform technology and applications Next-generation technology for both digital and analog products 14nm 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 14nm transistors 2012 2014 2012 - 2013 2011 - 2012 2012 - 2014 The above plans account for roughly 70% of the total corporate R&D budget in 2011, which is currently estimated to be around 7-8% of 2011 revenue. optimize TSMC equipment performance and improve production efficiency. Advanced analytical methods identify critical equipment and process parameters that are linked to device performance. Methodologies such as virtual metrology and yield management integrate Advanced Process Control (APC), Fault Detection Classification (FDC), Statistical Process Control (SPC), and Circuit Probe data in order to optimize equipment performance to match device performance. Accurate modeling and control at each process stage drives intelligent module loop control. The process control hierarchy dispatched via sophisticated computer-integrated manufacturing system enable optimization from equipment to end product, which achieves precision and lean operation in a high product-mix semiconductor manufacturing environment. 51 5.3.3 Precision and Lean Operations TSMC’s unique manufacturing infrastructure is tailored for a high product mix foundry environment. Following its commitment to manufacturing excellence, TSMC has equipped a sophisticated scheduling and dispatching system, implemented industry-leading automated materials handling systems, and employed Lean Manufacturing approaches to provide customers with on-time-delivery and best-in-class cycle time. Real-time equipment productivity monitoring, analysis, diagnosis and control minimize production interruption and maximize cost effectiveness. 5.3.4 450mm Wafer Manufacturing Transition The Company contributes to infrastructure development of 450mm wafer transition, which will enable industry continue path of cost reduction . TSMC will continue to work with International SEMATECH, ISMI, material and equipment suppliers on the next wafer size transition, lithography strategy, efficient tool design, new material development and eco-friendly process development. Recently, we made plans to set up 450mm pilot line in 2013 to 2014, and production line in 2015 to 2016. 5.3.5 Raw Materials and Supply Chain Risk Management In 2010, 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. Each supplier has multiple manufacturing sites in order to meet customer demand, including plants in North America, Asia, and Europe. ● TSMC’s suppliers of silicon wafers are required to pass stringent quality certification procedures. ● 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 Litho Materials 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 Cabot Microelectronics DA Nano Dow Chemical Hitachi Chemical Kinik Planar Solutions 3M 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 worldwide litho materials ● TSMC works closely with its suppliers to develop materials able to meet application and cost requirements. ● TSMC and suppliers periodically conduct improvement programs of their quality, delivery, sustainability and green policy, to ensure continuous progress of TSMC’s supply chain. 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. The products of these four suppliers are interchangeable. ● TSMC conducts periodic audits of the suppliers’ quality assurance systems to ensure that they meet TSMC’s standards. These seven companies are the major suppliers for CMP materials. ● 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. 52 Suppliers Accounted for at Least 10% of Annual Consolidated Net Procurement Unit: NT$ thousands Supplier Procurement Amount 2010 As % of 2010 Total Net Procurement Relation to TSMC Supplier Procurement Amount 2009 As % of 2009 Total Net Procurement Relation to TSMC Company A VIS SSMC Company B Others 2010 Total Net Procurement 7,001,961 4,959,050 4,521,046 3,443,962 14,281,849 34,207,868 20% 14% 13% 10% 43% 100% None Company A Investee accounted for using equity method Investee accounted for using equity method None VIS SSMC Company B Others 2009 Total Net Procurement 3,597,802 3,330,288 3,537,659 2,916,069 13,151,568 26,533,386 None Investee accounted for using equity method Investee accounted for using equity method None 14% 13% 13% 11% 49% 100% 5.3.6 Quality and Reliability TSMC is committed to providing customers with the best quality wafers for their products. Our Quality and Reliability (Q&R) services aim to achieve “quality on demand” 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. Since 2008, Q&R has worked with R&D to successfully establish and implement new qualification methodology for high-k/metal gate (HKMG). 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 2010, Q&R worked with R&D and the design service team to develop an integrated R&D and design quality platform that included items such as SPICE, DRM, DFM, IP/lib. 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 and in design services including third-party IP management as the Company meets the business requirements of customers. In 2010, Q&R implemented innovative statistical matching methodologies for manufacturing quality enhancement, including matching of facility, metrology and process tools, wafer acceptance test (WAT) data and reliability performance. To sustain production quality and minimize risk 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 2010, analytical techniques traditionally used in a laboratory environment were adapted to aid in the release and monitoring of advanced Fab tools and processes for the 40nm and 28nm technology nodes. In compliance with the electronic industry’s lead-free and green IC package policy, Q&R qualified and released lead-free bumping to satisfy customer demands and made lead free bump package possible for 0.13μm, 45nm and 40nm technology products by collaborating with the major outsource assembly & testing subcontractors (OSAT) in 2010. This has enabled TSMC customers to introduce and ramp lead-free products with excellent assembly quality. 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. For mainstream technologies, Q&R has been building reliability testing and monitoring to ensure excellent manufacturing quality of automotive, high-voltage products, CMOS image sensors and MEMS products. In addition to the silicon wafer business, TSMC has expanded into new areas related to solid state lighting and solar businesses, for which Q&R is engaged in establishing new, rigorous standards of quality and reliability leveraging our years of experience in the semiconductor industry. 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 2010, the effectiveness of the TSMC quality management system was verified by a third-party audit to comply with ISO/TS 16949:2009 and IECQ QC080000 certificates requirements. 53 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 strives to provide world-class, high-quality, efficient and professional integrated services to achieve optimum service experience for our customers and, in return, to gain customer’s trust and sustain Company profitability To facilitate customer interaction and information access on a real-time basis, TSMC has offered a suite of web-based applications that provide a more active role in design, engineering, and logistics, collectively branded as EFOUNDRY® service. The design collaboration focuses on content availability and accessibility, with attention to accurate and updated information at each level of the design lifecycle. 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 2010 Total Net Sales 2010 Net Sales As % of 2010 Total Net Sales Relation to TSMC Customer 38,619,756 37,202,785 343,715,370 419,537,911 None None 9% 9% 82% 100% Customer A Customer B Others 2009 Total Net Sales 2009 Net Sales As % of 2009 Total Net Sales Relation to TSMC 30,276,650 30,162,597 235,302,992 295,742,239 None None 10% 10% 80% 100% 54 5.4.2 Design Enablement In order to lower the design barriers for customers to design on incorporate soft IP. The goal is to improve soft IP readiness for TSMC technologies, the Company offers extensive design support to advanced technology nodes and to drive earlier time-to-market. Due its customers through a direct design support team as well as via to its history of independence from process technology, soft IP was alliance partners. TSMC’s technology platform provides a solid not optimized for power, performance and area considerations. With The Company expanded its IP Alliance program in 2010 to foundation for design enablement. Tech File and PDK Customers heavily leverage tech files and process design kits (PDK) provided by TSMC, as evidenced by more than 20,000 downloads in 2010. TSMC also experiences high demand on PDK for mainstream technologies and is increasing resources to support that demand. the increasing need of first- time silicon success and early time-to-market for highly integrated circuits, such as Systems-on-Chip (SoC), close technical collaboration between the foundry and IP provider is imperative. 5.5 Employees 5.5.1 Human Capital Library and IP TSMC and its alliance partners offer TSMC’s customers a rich Human capital is one of the most important assets of TSMC. TSMC portfolio of libraries and IPs. These reusable building blocks are strives to provide employees with a challenging, enjoyable and essential for many design projects. In 2010, over half of new rewarding work environment. In 2010, TSMC was named the “Most tape-outs to TSMC adopted one or more libraries or IPs from TSMC and/or its IP partners. To support the high demand, TSMC also invested resources to expand the library and IP portfolio. The total Admired Company in Taiwan” by Commonwealth Magazine for the 14th consecutive year. number of library or IP in the portfolio increased to 3,005 in 2010 At the end of 2010, TSMC had more than 33,000 employees from about 2,221 in 2009. worldwide, including 3,142 managers and 12,729 professionals. Female managers comprised 11.2% of all managers, and Design Methodology and Flow TSMC released the first foundry-specific Integrated Sign-Off Flow in non-Taiwanese nationals comprised 9.6% of all TSMC managers and professionals. The following tables summarize TSMC’s workforce April 2009. Initially targeting 65nm process node with planned structure at the end of February, 2011: extensions into other process technology nodes, the Integrated Sign-Off Flow supports advanced design techniques for low power TSMC Workforce Structure and design-for-manufacturability. With validated libraries and IP, qualified EDA tools, a full set of proper technology files, and automated installation scripts, Integrated Sign-Off Flow significantly Job 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. Gender Two New Programs In another first for the foundry segment, TSMC announced in April 2010 the first Analog/Mixed Signal (AMS) Reference Flow, and the second revision of the Radio Frequency Reference Design Kit (RF RDK). TSMC’s AMS Reference Flow is our first custom design flow that targets a host of design challenges associated with leading edge Education Ph.D. Master’s Bachelor’s Other Higher Education High school 28nm – Layout Dependent Effects (LDE), Design for Manufacturing Average Age (years) (DFM) and Sub-1V – to minimize design barriers and reduce Average Years of Service (years) Manager Professional Assistant Engineer/ Clerical Technician Male (%) Female (%) 12/31/2009 12/31/2010 02/28/2011 2,792 9,861 761 3,142 12,729 2,650 3,189 12,904 2,672 11,052 14,711 14,904 50.7% 49.3% 3.5% 32.8% 20.7% 16.5% 26.5% 37.8 6.0 53.4% 46.6% 3.3% 31.7% 25.9% 14.3% 24.8% 32.3 5.5 53.5% 46.5% 3.3% 31.9% 25.9% 14.1% 24.8% 32.4 5.5 iterations. AMS Reference Flow is a fully integrated multi-vendor program and part of an innovative design package. Total 24,466 33,232 33,669 55 5.5.2 Recruitment ● Professional/Functional Training: provides technical and professional training required by various functions within the Attracting new employees, and retaining and motivating existing Company, offering training courses on equipment engineering, employees are key to the success of TSMC’s human resources process engineering, accounting, and information technology, strategy. TSMC believes in equal opportunity employment. among others. Recruitment is conducted via an open selection process and is based ● Direct Labor (DL) Training: DL training enables production line on the candidate’s ability to fulfill the needs of each position, employees to acquire the knowledge, skills and attitudes they need regardless of race, gender, age, religion, nationality, or political to perform their job well. It also helps employees to pass required affiliation. In order to seek out the best talents around the world, tests in order to be certified for operating equipment. Training TSMC employs a number of recruiting programs, including academic/ includes DL Skill Training, Technician “Train-the-Trainer” Training, corporate collaboration programs, Joint Development Program in and Manufacturing Leader Training. Campus, summer internships, job fairs, and Technology Talents ● New Employee Training: includes new employee basic training and Career Symposium. During 2010, TSMC recruited 185 managers, job orientation. 4,012 professionals, 1,919 assistant engineer/clerical and 4,599 technicians. TSMC has established the Procedure of Employee Training and Education, which not only enables the on-site training courses but The past successes of TSMC have relied on contributions from all also best suits Company and individual development objectives employees, and our future development will need a keen sense of through external training courses. Under the guideline, employees commitment to continue to succeed in competition to come. Therefore, in 2010, we recruited around 2,100 qualified existing are encouraged to participate in various training programs, and subsidies are provided when taking short-term courses, credit courses outsourced staff to be regular workforce. We deeply believe that and degrees. employees are our greatest asset, and doing so will not only allow us to take care of more colleagues, it will also bolster morale and inspire 5.5.4 Employee Satisfaction us to do our best together. 5.5.3 People Development To enhance employee satisfaction, TSMC continuously promotes programs devoted to employee benefits, employee care, employee rewards, and employee communication. TSMC works hard to enrich A key to TSMC’s long-term success has been our employee its employees’ working experience by providing an environment that development strategy, which emphasizes continuous learning is challenging yet enjoyable. especially important for success in this challenging economic environment. A tailor-made individual development plan is established for each employee appropriate to the employee’s Employee Benefits Programs ● TSMC’s Employee Welfare Committee plans and implements development needs. Employees are provided with a comprehensive various welfare programs, including hobby clubs, art and cultural network of resources, including on-the-job training, coaching, seminars, employee outings, TSMC Sports Day, and TSMC Family mentoring, job rotation, on-site courses, e-learning, and external Day. In addition, TSMC provides holiday bonuses, marriage learning opportunities. bonuses, condolence allowances and emergency subsidies. ● To ensure that employees have all the comforts and conveniences TSMC provides employees with a wide range of on-site general, they need while at work, TSMC provides on-site cafeterias, professional and management training programs. In addition to dry-cleaning, travel, banking, haircut services, housing, and external experts engaged as trainers, hundreds of TSMC employees commuting assistances. are trained as qualified instructors for training courses. During 2010, TSMC conducted 1,465 internal training sessions, the total training ● Health improvement programs and psychological consultation services are available to employees to ensure their physical and hours achieved 968,457 and a total of 569,941 attendees psychological well-being. participated in those trainings; employees on average attended 29.14 hours of training. The total training expenses were NT$70 ● In order to promote a healthy lifestyle, TSMC Sports Center offers a variety of workout facilities and is open to all employees and their million. TSMC’s training programs include: family members. In addition, daycare centers are available at Hsinchu and Tainan sites to meet employees’ need for childcare. ● 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 Employee Recognition In order to recognize employees’ outstanding achievement, TSMC Manager Program, as well as other elective courses. runs various award programs including the Outstanding Engineer ● General Training: refers to training required by government regulations and Company policies. Such training includes Award for each fab and the Total Quality Excellence Conference Award. During 2010, TSMC employees were recognized nationally, industry-specific safety, workplace health and safety, quality, fab including the National Model Worker Award, the Top 10 National emergency response team, languages, and personal effectiveness Outstanding Managers Award, the Outstanding Engineer Award, training. and the Outstanding Young Engineer Award. 56 Employee Communication TSMC values two-way communication and is committed to keeping 5.5.6 Compensation the communication channels between the management level and TSMC’s compensation program includes a monthly salary, an their subordinates, as well as between the peers, open and employees’ cash bonus based on quarterly business results, and an transparent. Our unceasing efforts lie in the reinforcement of mutual employee profit sharing when the Company distributes its profit each and timely employee communication, based on existing platforms, year. which in turn fosters harmonious labor relations and creates a win-win situation for the company and the employees. To raise TSMC’s competitiveness in recruiting, TSMC made a Regular communication meetings are held for the various levels of employees’ cash bonus quarterly based on the Company’s financial managers and employees. Periodic employee satisfaction surveys are performance to share the rewards of employees’ hard work in a structural salary increase in 2010, and started the distribution of the conducted. eSilicon Garden, an electronic internal publication, is timely fashion. issued on a bi-weekly basis with topics ranging from work to fun. These all help maintain the unobstructed flow of information The purpose of the employee cash bonus and profit sharing program between TSMC and its employees. is to reward employees’ contributions appropriately, to encourage employees to work consistently to ensure the success of TSMC, and In order to ensure that employees’ opinions and voices are heard, to link employees’ interests with those of TSMC’s shareholders. The and their issues are addressed and solved, impartial and smooth Company determines the amount of the cash bonus and profit voice submission mechanisms are in place to provide timely support: sharing based on operating results and industry practice in the Republic of China. The amount and form of the employee cash ● Complaints regarding major management, financial and auditing issues are directed to the following channels, which handle the bonus and profit sharing are determined by the Board of Directors based on the Compensation Committee’s recommendation and the complaints with high level of confidentiality: 1) The Independent employee profit sharing is subject to shareholders’ approval at the Audit Committee and 2) The Ombudsman system led by a selected Annual Shareholders’ Meeting. Individual awards are based on each Vice President. employee’s job responsibility, contribution and performance. ● The Suggestion Box for employees to express their opinions regarding their work and the work environment in general. In addition to providing employees of TSMC’s overseas subsidiaries ● HR Call Center and employee care teams in each fab take care of with a locally competitive base salary, the Company grants the issues related to employees’ work and personal life. The short-term and long-term bonuses as a part of total compensation. Company also sets and promotes policies and measures for The performance bonus is a short-term incentive and is granted in ensuring gender equality in accordance with employment laws and line with local regulations, market practices, and the overall sexual harassment prevention policies to create a fair work operating performance of each subsidiary. The long-term incentive environment for employees of both genders. bonus is awarded based on TSMC’s financial performance and is 5.5.5 Retention vested over the course of several years in order to encourage long-term employee commitment and development within the Company. From the employee’s initial adaptation to professional and career development, TSMC works hard to retain outstanding employees 5.5.7 Retirement Policy through creating an innovative, challenging, and fun environment. We are committed to: TSMC’s retirement policy is in accordance with the provisions in the Labor Standards Law and Labor Pension Act of the Republic of China. ● 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 the assistance provided by senior employees. ● Enabling employees to enhance professional knowledge and to pursue further career development through numerous employee development programs. ● Establishing a synergized welfare platform and providing an environment for employees’ work-life balance; enhancing employees’ loyalty and commitment through employee engagement programs. 57 5.5.8 Ethics and Business Conduct 5.6 Material Contracts Ethics Values Integrity is the most important core value of TSMC’s culture. TSMC is Shareholders Agreement Term of Agreement: committed to act ethically in all aspects of our business; constantly Effective as of 03/30/1999 and may be terminated as provided in the and vigilantly promoting integrity, honesty, fairness, accuracy, and agreement transparency in all that we say and do. Contracting Parties: TSMC’s Code of Ethics and Business Conduct (“Code”) requires that Ltd. (EDBI) each of TSMC’s employees bears a heavy personal responsibility to (In September 2006, Philips assigned its rights and obligations under preserve and to protect TSMC’s ethical values and reputation. In so this agreement to Philips Semiconductors International B.V. which doing, each of us: must not advance our personal interests at the has now been renamed NXP B.V. In November 2006, NXP B.V. and expense of, or in conflict with the Company; must refrain from TSMC purchased all SSMC shares owned by EDBI; EDBI is no longer a Koninklijke Philips Electronics N.V. (Philips) and EDB Investments Pte corruption, unfair competition, fraud, waste and abuse; must not contracting party to this agreement.) undertake any practices detrimental to TSMC, the environment and Summary: to society; must abide by both the spirit and letter of all applicable TSMC, Philips and EDBI had formed a Singapore joint venture laws, rules and regulations; and must avoid any efforts improperly to “Systems on Silicon Manufacturing Company Pte Ltd.” (SSMC) for influence the decisions of anyone, including government officials, providing IC foundry services. Philips Semiconductor (now NXP B.V.) agencies, and courts, as well as our customers, suppliers, and vendors. and TSMC are committed to purchasing a certain percentage of SSMC’s capacity. In order to continue to build an environment of innovation, technology leadership, and sustainable profitable growth, this Code Technology Cooperation Agreement Term of Agreement: requires that we must promote business relationships founded upon 03/30/1999 - 03/29/2004, automatically renewable for successive an unwavering respect for the intellectual property rights, proprietary five-year terms until and unless either party gives written notice to information and trade secrets of TSMC, our customers, and others; terminate one year before the end of then existing term and the proper use of the Company’s assets, not for personal use, Contracting Party: but for achieving TSMC’s vision for many years to come. Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Summary: All employees, officers and Board members must whole-heartedly TSMC agreed to transfer certain process technologies to SSMC, and embrace and practice this Code. TSMC’s management must set the SSMC agreed to pay TSMC a certain percentage of the net selling best example of integrity and ethical conduct. TSMC’s officers, price of SSMC products. especially our CEO, CFO, and General Counsel, with oversight from our Board, are responsible for the full, fair, accurate, timely, and understandable financial accounting and financial disclosure in Patent License Agreement Term of Agreement: reports/documents filed by the Company with securities authorities 12/20/2007 - 12/31/2017 and in all TSMC public communications/disclosures. Code Administration and Disciplinary Action All employees, officers and managers must comply with this Code Contracting Party: A multinational company Summary: The parties entered into a cross licensing arrangement for certain and its related procedures. TSMC expects our customers, suppliers, vendors, advisors and others with which we come into contact to semiconductor patents. TSMC pays license fees to the contracting company. understand and respect the Company’s ethics standards and culture. When an employee finds or suspects a breach of this Code, he/she should report it immediately to any of the following persons: their Manufacturing, License, and Technology Transfer Agreement Term of Agreement: supervisor; the Function Head of Human Resources; the Company’s 04/01/2004 - 03/31/2006, automatically renewable for successive Ombudsmen; or to the Chairman of the Company’s Audit one-year terms until and unless both parties decide otherwise by Committee, depending on the nature of the suspected breach. mutual consent in writing Contracting Party: The Company will discipline employees who violate this Code in Vanguard International Semiconductor Corporation (VIS) accordance with the Company’s “Employee Recognition and Summary: Discipline Policy” (including the possibility of the termination of VIS reserves certain capacity to manufacture TSMC products on employment). mutually agreed terms. TSMC may also transfer certain technologies to VIS, for which it will in return receive royalties from VIS. 58 Patent License Agreement Term of Agreement: 11/01/2002 - 10/31/2012 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. Patent License Agreement Term of Agreement: 01/01/2001 - 12/31/2011 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. Amended Research and Development Collaboration Agreement Term of Agreement: 01/01/2009 - 12/31/2009, renewable on annual basis upon mutual agreement Contracting Party: NXP B.V. Summary: The parties entered into research and development collaboration to develop advanced semiconductor technologies. Purchase Agreement Effective Date of Agreement: 12/30/2010 Contracting Party: Powerchip Technology Corporation Summary: TSMC spent NT$2.9 billion to acquire from Powerchip Technology Corporation the substructure of the building under construction located in Hsinchu Science Park. Note: TSMC is not currently party to any other material contract, other than contracts entered into in the ordinary course of our business. The Company’s “Significant Commitments and Contingencies” are disclosed in the “Financial Information” of Annual Report (II), page 69-70. 59 6. Financial Highlights 6.1 Financial Status and Operating Results 6.1.1 Financial Status Unconsolidated Unit: NT$ 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 2010 192,234,282 366,854,299 24,237,329 701,239,666 118,022,260 9,072,488 127,094,748 259,100,787 55,698,434 265,779,571 574,144,918 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 Difference 6,402,745 112,102,773 5,821,583 123,813,044 45,451,165 (700,327) 44,750,838 73,721 212,424 83,896,889 79,062,206 % 3% 44% 32% 21% 63% -7% 54% 0% 0% 46% 16% ● Analysis of Deviation over 20% The increase in fixed assets was mainly due to higher capital expenditures for advanced technology equipment during 2010. The increase in other assets was mainly due to an increase in refundable deposits. The increase in total assets was mainly due to an increase in fixed assets. The increase in current liabilities and total liabilities was mainly due to increases in short-term loans and payables to contractors and equipment suppliers. The increase in retained earnings was mainly due to higher net income during 2010. ● 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. 61 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 2010 261,519,317 388,444,023 29,190,036 718,928,904 123,191,113 17,033,386 140,224,499 259,100,787 55,698,434 265,779,571 574,144,918 578,704,405 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 Difference 1,715,569 114,769,236 5,817,854 124,232,684 44,057,825 519,002 44,576,827 73,721 212,424 83,896,889 79,062,206 79,655,857 % 1% 42% 25% 21% 56% 3% 47% 0% 0% 46% 16% 16% ● Analysis of Deviation over 20% The increase in fixed assets was mainly due to higher capital expenditures for advanced technology equipment during 2010. The increase in other assets was mainly due to an increase in refundable deposits. The increase in total assets was mainly due to an increase in fixed assets. The increase in current liabilities and total liabilities was mainly due to an increase in short-term loans and payables to contractors and equipment suppliers. The increase in retained earnings was mainly due to higher net income during 2010. ● 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 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 2010 418,666,448 (11,703,136) 406,963,312 209,921,268 197,042,044 (52,742) 196,989,302 42,142,794 154,846,508 15,907,968 1,464,272 169,290,204 (7,685,195) 161,605,009 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 Difference 119,195,234 2,025,210 121,220,444 50,814,649 70,405,795 107,537 70,513,332 10,189,177 60,324,155 11,786,459 (2,198,568) 74,309,182 (1,922,009) 72,387,173 % 40% -15% 42% 32% 56% -67% 56% 32% 64% 286% -60% 78% 33% 81% ● Analysis of Deviation over 20% Increase in gross sales and net sales: The increase was the result of higher wafer shipment during 2010, partially offset by the unfavorable impact of change in foreign exchange rate. Increase in cost of sales: The increase was the result of higher wafer shipment during 2010, partially offset by the higher capacity utilization. Increase in gross profit and realized gross profit: The increase was mainly due to higher wafer shipment during 2010. Decrease in unrealized gross profit from affiliates: The decrease was primarily due to lower sales to the affiliates in 4Q’10. Increase in operating expenses: The increase was mainly due to higher research and development expenditures for advanced technology. 62 Increase in income from operations: The increase was mainly due to realized gross profit increased at a higher degree than operating expenses. Increase in non-operating income and gains: The increase was primarily due to higher settlement income and equity in earnings of equity method investees turning positive in 2010. Decrease in non-operating expenses and losses: The decrease was primarily due to equity in earnings of equity method investees turning positive in 2010. Increase in income before income tax: The increase was mainly due to both higher income from operations and non-operating income and gains. Increase in income tax expenses: The increase was mainly due to higher taxable income, partially offset by a decrease in corporate income tax rate. Increase in income after income tax: The increase was mainly due to higher income before income tax. ● Sales Volume Forecast and Related Information For additional details, please refer to “Letter to Shareholders” on page 3-5 of this Annual Report. 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 2010 431,630,858 (12,092,947) 419,537,911 212,484,320 207,053,591 47,878,256 159,175,335 13,136,072 2,041,012 170,270,395 (7,988,465) 162,281,930 161,605,009 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 Difference 121,975,244 1,820,428 123,795,672 46,070,692 77,724,980 10,511,531 67,213,449 7,482,524 (111,775) 74,807,748 (1,992,041) 72,815,707 72,387,173 % 39% -13% 42% 28% 60% 28% 73% 132% -5% 78% 33% 81% 81% ● Analysis of Deviation over 20% Increase in gross sales and net sales: The increase was the result of higher wafer shipment during 2010, partially offset by the unfavorable impact of change in foreign exchange rate. Increase in cost of sales: The increase was the result of higher wafer shipment during 2010, partially offset by the higher capacity utilization. Increase in gross profit: The increase was mainly due to higher wafer shipment during 2010. Increase in operating expenses: The increase was mainly due to higher research and development expenditures for advanced technology. Increase in income from operations: The increase was mainly due to gross profit increased at a higher degree than operating expenses. Increase in non-operating income and gains: The increase was primarily due to higher settlement income and equity in earnings of equity method investees. Increase in income before income tax: The increase was mainly due to both higher income from operations and non-operating income and gains. Increase in income tax expenses: The increase was mainly due to higher taxable income, partially offset by a decrease in corporate income tax rate. Increase in income after income tax: The increase was mainly due to higher income before income tax. ● Sales Volume Forecast and Related Information For additional details, please refer to “Letter to Shareholders” on page 3-5 of this Annual Report. 63 6.1.3 Cash Flow Unconsolidated Unit: NT$ thousands Cash Balance 12/31/2009 Net Cash Provided by Operating Activities in 2010 Net Cash Outflows from Investing and Financing Activities in 2010 Cash Balance 12/31/2010 Remedy for Cash Shortfall Investment Plan Financing Plan 117,043,543 222,023,176 (229,555,589) 109,511,130 - - ● Analysis of Cash Flow NT$222.0 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. NT$182.8 billion net cash used in investing activities: Primarily for capital expenditures. NT$46.8 billion net cash used in financing activities: Mainly for the payment of cash dividends, partially offset by an increase in short-term loans. ● Remedial Actions for Cash Shortfall: In view of positive operating cash flow and ample cash on-hand, remedial actions are not required. ● Cash Flow Projection for Next Year: Not applicable. Consolidated Unit: NT$ thousands Cash Balance 12/31/2009 Net Cash Provided by Operating Activities in 2010 Net Cash Outflows from Investing and Financing Activities in 2010 Cash Balance 12/31/2010 Remedy for Cash Shortfall Investment Plan Financing Plan 171,276,341 229,475,766 (252,865,152) 147,886,955 - - ● Analysis of Cash Flow NT$229.5 billion net cash provided by operating activities: Mainly from net income and depreciation/amortization. NT$202.1 billion net cash used in investing activities: Primarily for capital expenditures. NT$48.6 billion net cash used in financing activities: Mainly for the payment of cash dividends, partially offset by an increase in short-term loans. ● Remedial Actions for Cash Shortfall: As a result of positive operating cash flows and ample cash on-hand, remedial actions are not required. ● Cash Flow Projection for Next Year: Not applicable. 6.1.4 Major Capital Expenditures Major Capital Expenditures and Sources of Funding Unit: NT$ thousands Plan Actual or Planned Source of Capital Total Amount as of 12/31/2010 Status of Actual or Projected Use of Capital 2007 2008 2009 2010 Production Facilities and Equipment Cash flow generated from operations 390,242,212 77,925,776 56,902,459 80,923,392 174,490,585 R&D Equipment Cash flow generated from operations 24,644,885 5,401,157 1,637,643 6,371,056 11,235,029 Expected Future Benefits With the capital expenditures mentioned above and projected for 2011, it is estimated that TSMC’s annual production capacity will increase by approximately 2.23 million 8-inch equivalent wafers in 2011. 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 2010, the investment gain from these investments amounted to NT$7,111,443 thousands (NT$2,298,159 thousands on consolidated basis), improving significantly compared to 2009 mainly due to the global economy recovery and the strategic synergy effects. For future investments, TMSC will continue to focus on strategic purposes through prudent assessments. 64 6.2 Risk Management 6.2.2 Strategic Risks TSMC and its subsidiaries are committed to proactively and cost- effectively integrating and managing strategic, operational, financial Industry Developments The semiconductor market and microelectronics industries have and hazardous risks together with potential consequences to historically been cyclical and subject to significant, and often rapid, operations and revenue. TSMC established its Enterprise Risk increases and decreases in product demand. TSMC’s semiconductor Management (ERM) program based on both its corporate vision and foundry business is affected by market conditions in such highly its long-term sustainability and responsibility to both industry and cyclical semiconductor and microelectronics industries. Most of the society. ERM seeks to provide for the appropriate management of Company’s customers operate in these industries. Variations in order risks by TSMC on behalf of all stakeholders. levels from customers result in volatility in the Company’s revenues As TSMC expanded capacity in 2010, risk treatment practices and green factory projects also initiated and implemented, begining in From time to time, the semiconductor and microelectronics the design phase for all new fabs. industries have experienced significant, and sometimes prolonged, periods of downturns and overcapacity. Because TSMC is, and will 6.2.1 Risk Management (RM) Organization Chart continue to be, dependent on the requirements of semiconductor and earnings. Audit Committee CEO RM Steering Committee Materials Management and Risk Management and microelectronics companies for its services, periods of downturn 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, margins and earnings will suffer during periods of downturn 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 RM Working Committee RM Division rapidly develop new and innovative technologies, or if the 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. ● RM Division: Coordinates the RM Working Committee activities; Facilitates functional risk management activities; and Consolidates ERM reports for submission to the RM Steering Committee. 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 some or all of these products may decrease the demand for overall global semiconductor foundry services, including TSMC’s services, and may adversely affect the Company’s revenues. Further, a significant portion of our operating costs is fixed because we own most of our manufacturing capacities. In general, these costs do not decline when customer demand or our capacity utilization rates drop, and thus declines in customer demand, among other factors, may significantly decrease our margins. Conversely, as product demand 65 rises and factory utilization increases, the fixed costs are spread over The Taiwan Financial Supervisory Commission (FSC) requires listed increased output, which can improve our margins. In addition, the companies to prepare financial statements in accordance with historical and current trend of declining average selling prices of International Financial Reporting Standards (IFRS) starting from end-use applications places downward pressure on the prices of the January 1, 2013. TSMC has setup an IFRS project team and has components that go into such applications. If the average selling launched the project plan for its IFRS adoption. In addition, the prices of end-use applications continue to decrease, the pricing progress of such adoption is regularly reported to the Board. The pressure on components produced by us may lead to a reduction of impact of the IFRS adoption may include changes of accounting TSMC’s revenues, margin and earnings. Competition TSMC competes internationally and domestically with other pure-play 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 foundry service providers, as well as with integrated device addition, according to FSC’s requirement, TSMC will disclose the IFRS manufacturers that devote a significant portion of their project plan, status and significant difference between IFRS and manufacturing capacity to foundry operations. Some of these current accounting policy in the financial statements for the year companies may have access to more advanced technologies and ended December 31, 2011. greater financial and other resources than us, (such as the possibility of receiving direct or indirect government bailout/economic stimulus The Taiwan “National Health Insurance Act” was amended in January funds or other incentives that are unavailable to us). The Company’s 26, 2011, to create an obligation to fund the health insurance competition may, from time to time, also decide to undertake aggressive pricing initiatives in one or more technology nodes. scheme by paying an extra 2% “supplementary premium” (based on 2% of the total profit sharing and variable bonus) plus the “basic Competitive activities may cause us to lose customers or to decrease premium” charge. Such extra 2% “supplementary premium” will be TSMC’s customer base, or TSMC’s average selling prices, or both. incurred in connection with future payouts of profit sharing and The Company competes primarily on the basis of process technology, official implementation of this law. TSMC has studied the quality and service. The level of competition differs according to the implications of this new amendment and has taken the necessary process technology involved. For example, in more mature managerial precautionary steps with respect to such amendment. variable bonus. The Executive Yuan has not yet promulgated the technologies, the competition tends to be more intense. Some companies compete with TSMC in selected geographic regions or In addition, the Taiwan legislative authority has been studying the application end markets. In recent years, substantial investments relevant laws relating to environmental protection, e.g. “Greenhouse have been made by others to establish new pure-play foundry Gas Reduction Act” and Energy Tax. Since there has been no companies in mainland China and elsewhere, or to spin off concrete guidance or laws issuing from the Taiwan government as of integrated device manufacturers’ manufacturing operations and yet, the impacts of such laws are indeterminable at the moment. transform them into a pure-play foundry company. However, it is very likely that such laws may increase the operating Risks Associated with Changes in the Government Policies and Regulatory Environment TSMC’s management team closely monitors domestic and foreign governmental policies and regulations that might impact TSMC’s costs 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. business and financial operations. 2010 saw the following changes 6.2.3 Operational Risks or developments in governmental policies and regulations that may influence the Company’s business operations. Risks Associated with Capacity Expansion In response to customer demand, since 2004, TSMC has steadily ROC government promulgated the legislation of “Statute for ramped up the production of 12-inch wafer fabs in the Hsinchu Industries Innovation” in May 2010. The scope of the tax incentive Science Park and Tainan Science Park. Total monthly capacity of the for “Statute for Industries Innovation” is narrower than the prior Company’s 12-inch wafer fabs increased from 171,400 wafers in “Statute for Upgrading Industries” and therefore the Company’s tax December 31, 2009 to 244,600 wafers in December 31, 2010. burden will increase. But, Article 5 of “Income Tax Acts” was Overall, TSMC increased its annual production capacity by amended in June 2010, thereby reducing the corporate income tax approximately 1.5 million 8-inch equivalent wafers in 2010. The total rate from 20% to 17% effective retroactively from 2010, which will average billing utilization rate for 2010 was 101%. Expansion and reduce the Company’s tax burden. TSMC has taken into account the modification of the Company’s production facilities will, among various factors which may impact its financial management. 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. 66 As of the date of this Annual Report, the benefits brought about by reasonable cost, TSMC may be unable to fulfill customers’ orders, such capacity expansion were in line with TSMC’s expectations. TSMC which could negatively impact its financial condition and results of has established systems to evaluate and forecast market demand and operations. 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, 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 TSMC’s ten largest customers accounted for approximately 53% and intellectual property rights, we cannot guarantee that our efforts will 54% of net sales in 2009 and 2010, and the Company’s largest be adequate to entirely prevent the misappropriation or improper customer accounted for approximately 10% and 9% of net sales in use of our proprietary technology, trade secrets, software or 2009 and 2010, respectively. TSMC’s results of operations and know-how. Also, we cannot guarantee that, as our businesses or financial condition could be adversely affected by the loss of, or business models expand into new areas, we will be able to significant curtailment of purchases by, one or more of the independently develop the technology, trade secrets, software or Company’s top customers, including curtailments due to increased know-how necessary to conduct our business or that we can do so competitive pressures, a change in the design or manufacturing without the intellectual property rights of others. As a result, we may sourcing policies or practices of these customers, or the timing of have to rely on obtaining licenses to certain technologies from third customer or distributor inventory adjustments. parties. To the extent that we rely on licenses from others, we cannot Risks Associated with Purchase Concentration ● Raw Materials TSMC’s production operations require that it obtain adequate guarantee that we will be able to obtain any or all of the necessary licenses on terms we consider reasonable. 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 supplies of raw materials, such as silicon wafers, gases, chemicals, customers in instances where we have contractually agreed to and lithographic materials, on a timely basis. Shortages in the supply indemnify our customers against damages resulting from of some materials experienced by specific vendors or by the infringement claims. semiconductor industry generally have in the past resulted in occasional industry-wide price adjustments and delivery delays. Also, We have received, from time-to-time, communications from third since TSMC procures some raw materials from sole-source suppliers, parties asserting that our technologies, manufacturing processes, the there is a risk that our need for such raw materials may not be met design of the integrated circuits made by us or the use by our when needed or that back-up supplies may not be readily customers of semiconductors made by us may infringe their patents obtainable. Many of our raw materials are sourced from Japan. The or other intellectual property rights. And, because of the nature of effects of the earthquake that hit Japan may undercut our ability to the semiconductor industry, we may continue to receive such procure on a timely basis sufficient raw materials to produce our communications in the future. In some instances, these disputes may products and render our services. The Company’s revenue and result in litigation. If we fail to obtain or maintain certain earnings could decline if it is unable to obtain adequate supplies of government, technology or intellectual property licenses and, if the necessary raw materials in a timely manner or if there are litigation relating to an intellectual property claim occurs, it could significant increases in the costs of raw materials that it cannot pass prevent us from manufacturing or selling certain products or using on to its customers. certain manufacturing processes or technologies, which could reduce our opportunities to compete or generate revenues. ● Equipment The Company’s operations and ongoing expansion plans depend on its ability to obtain an appropriate amount of equipment and related Risks Associated with Litigation As is the case with many companies in the semiconductor industry, services from a limited number of suppliers in a market that is we have received from time-to-time communications from third characterized by limited supply and long delivery cycles. During such parties asserting that our technologies, manufacturing processes, the times, supplier-specific or industry-wide lead times for delivery can be design of the integrated circuits made by us or the use by our as long as nine months. To better manage its supply chain, the customers of semiconductors made by us may infringe upon patents Company has implemented various business models and risk or other intellectual property rights of others. In some instances, management contingencies with suppliers to shorten the these disputes have resulted in litigation by or against us and certain procurement lead time. TSMC also provides its projected demand for settlement payments by us in some cases. Irrespective of the validity various items to many of the Company’s equipment suppliers to help of these claims, we could incur significant costs in the defense them plan their production in advance. We have purchased used thereof or could suffer adverse effects on our operations. tools and continue to seek opportunities in acquiring relevant used tools. If it is unable to obtain equipment in a timely manner and at a 67 In June 2010, STC.UNM, the technology transfer arm of the University of New Mexico, filed a complaint in the U.S. International Future R&D Plans and Expected R&D Spending For additional details, please refer to “Future R&D Plans” on page Trade Commission (USITC) accusing TSMC and one other company of 50-51 of this Annual Report. allegedly infringing a single U.S. patent. Based on this complaint, the USITC has initiated an investigation in July 2010. TSMC and STC. UNM have subsequently reached a settlement agreement and, on November 15, 2010, filed a joint motion to terminate the Changes in Corporate Image and Impact on Company’s Crisis Management TSMC has established an excellent corporate image based on its firm investigation based on that settlement agreement. As a result, the belief in its core values, its rigorous corporate governance, its Administrative Law Judge (ALJ) assigned to the investigation has outstanding operations, and its vision of a society that works made an initial determination (ID) to terminate the investigation. The together towards sustainable development, equality, justice, and a USITC has decided not to review the ALJ’s ID and, therefore, officially harmonious environment to live and work. For its efforts the terminating the investigation. Company has won wide recognition over the years, including: In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court ● Membership in the Dow Jones Sustainability Index since 2001, and for the Eastern District of Texas alleging that TSMC, TSMC NA, and awarded semiconductor sector leader in 2010 several other leading technology companies infringe three expired ● The Executive Yuan’s Enterprise Sustainable Development Award U.S. patents. The outcome of this litigation cannot be determined at ● The Ministry of Economic Affairs’ Outstanding Innovation this time. Achievement Award In December 2010, Ziptronix, Inc. filed a complaint in the U.S. ● The Environmental Protection Administration’s National Enterprise District Court for the Northern District of California accusing TSMC, Environmental Protection Award TSMC NA and one other company of allegedly infringing six U.S. ● Commonwealth Magazine’s benchmark for Most Admired patents. This litigation is in its very early stages and therefore the Company in Taiwan outcome of the case cannot be determined at this time. ● Commonwealth Magazine’s Best Corporate Citizenship for a large ● The Council of Labor Affairs’ National Workplace Safety Award company Other than the matters described above, we were not involved in any ● GlobalViews Magazine’s Corporate Social Responsibility award other material litigation in 2010 and are not currently involved in any ● Ranked Number one in the Asian Wall Street Journal’s survey of the material litigation. Risks Associated with Mergers and Acquisitions In 2010, and as of the date of this Annual Report, there were no such risks for TSMC. top 10 companies in Taiwan for 9th consecutive year in 2010 ● 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. Risks Associated with Recruiting and Retaining Qualified Personnel The Company depends on the continued services and contributions Management believes such recognition is the strongest evidence of TSMC’s corporate image. of its executive officers and skilled technical and other personnel. In addition, the Company has established departments such as Brand TSMC’s business could suffer if it lost, for whatever reasons, and Management, Customer Service, Public Relations, Employee could not adequately replace the services and contributions of some Relations, Investor Relations, Risk Management, Internal Audit, and of these personnel. The Company may be required to increase the the TSMC Education and Culture Foundation to further improve number of employees in connection with any business expansion, and since there is intense competition for the recruitment of these TSMC’s corporate image, coordinate crisis management, and to make preparations for prevention and control of potential risks. personnel, it cannot ensure it will be able to fulfill its personnel requirements in a timely manner. Risks Associated with Change in Management In 2010, and as of the date of this Annual Report, there were no Therefore, in order to attract and retain talent, the Compensation such risks for TSMC. Committee of the Board of Directors decided to enhance the compensation system, including a structural increase on base salary in 2010 and a timely distribution of employees’ cash bonus from the Company’s profits. 68 6.2.4 Financial Risks Internal Management of Economic Risks ● Interest Rate Fluctuation TSMC’s exposure to interest rate risks derives primarily from Risks Associated with High-risk/High-leveraged Investment; Lending, Endorsements, and Guarantees for Other Parties; and Financial Derivative Transactions TSMC neither made high-risk or high-leveraged financial investments nor provided endorsements or guarantees for other parties during short-term borrowing and long-term debt obligations incurred in the 2010 and up to the date of this report. As of February 28, 2011, normal course of business. In order to limit its exposure to interest TSMC had an intercompany loan of US$200 million arranged rate risks, TSMC finances its funding needs primarily through internal between two wholly-owned subsidiaries, which was in compliance generation of cash and the occasional issuance of long-term, with relevant rules and regulations. fixed-rate debt. On the asset side, the primary objective of TSMC’s investments in fixed income securities is to preserve principal in The financial transactions of a “derivative” nature that TSMC entered highly liquid markets. In order to maintain the Company’s liquidity into were strictly for hedging purposes and not for any trading or profile, the majority of fixed income securities are at the short end of speculative purpose. For more information, please refer to the the yield curve. “Financial Information” on page 56 and 58 of Annual Report (II). ● Foreign Exchange Volatility Over half of TSMC’s capital expenditures and manufacturing costs The fair market value of our trading and available for sale financial securities are subject to prevailing market conditions and may are denominated in currencies other than NT dollars, primarily in US fluctuate from TSMC’s carrying value from time to time, which may dollars, Japanese yen and Euros. More than 90% of the Company’s sales are denominated in US dollars and currencies other than NT impact the returns of those securities. dollars. Therefore, any significant fluctuation to the Company’s To control various types of financial transactions, the Company has disadvantage in such exchange rates would have an adverse effect established internal policies and procedures based on sound financial on TSMC’s financial condition. For example, during the period from and business practices, all in compliance with the relevant rules and September 1, 2010 to December 30, 2010, the US dollar depreciated regulations issued by the Taiwan Securities and Futures Bureau. 8.97% against the NT dollar, which had a negative impact on our TSMC policies and procedures include “Policies and Procedures for results of operations. Specifically, every 1% depreciation of the US Financial Derivative Transactions”, “Procedures for Lending Funds to dollar against the NT dollar exchange rate results in approximately Other Parties”, “Procedures for Acquisition or Disposal of Assets”, 0.4 percentage point decrease in TSMC’s operating margin. TSMC and “Procedures for Endorsement and Guarantee”. hedged its foreign exchange exposure mainly through cross currency swaps and currency forward contracts. In addition, TSMC increased its short-term loan denominated in foreign currencies to deal with Risks Associated with Impairment Charges Under Generally Accepted Accounting Principles (GAAP) of both the increasing hedging needs resulting from strong growth in sales Republic of China and the United States, TSMC is required to revenue. evaluate its long-lived assets and intangible assets for impairment whenever there is an indication of impairment. If certain criteria are Fluctuations in the exchange rate between the US dollar and the NT met, TSMC is required to record an impairment charge. TSMC is also dollar may affect the US dollar value of the Company’s common required under ROC GAAP and US GAAP to evaluate goodwill for shares and the market price of the Company’s American Depositary impairment at least on an annual basis or whenever a so-called Shares (ADSs) and of any cash dividends paid in NT dollars on “triggering event” or an indication of impairment occurs. TSMC’s common shares represented by ADSs. ● Inflation & Deflation TSMC’s most significant export market is North America, and 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 management does not believe that inflation or deflation in the ROC income. or North America had a material impact on the Company’s results of operations in 2010. However, TSMC cannot provide assurance that The determination of an impairment charge at any given time is there will be no significant variations in the nature, extent or scope substantially based on the expected results of the Company’s of inflation or deflation within any of the Company’s key markets in operations over a number of years subsequent to that time. As a the future, which may have a material impact on TSMC’s results of result, an impairment charge is more likely to occur during a period operations. when the Company’s operating results are otherwise already depressed. TSMC has established the process and system to closely monitor and access the outlook for capacity utilization and economic cycle. 69 6.2.5 Hazardous Risks activation of such contingency plans. The Company has also conducted a continuous improvement project, including evaluating TSMC maintains a comprehensive risk management system dedicated building anti-seismic capability, holding earthquake response drills to the conservation of natural resources, safety of people, and and enhancing tool anchorage, and has improved TSMC business protection of property. In order to effectively handle emergencies continuity procedures with reference to BS 25999 business continuity and natural disasters at each facility, management has developed management. comprehensive plans and procedures that focus on risk prevention, emergency response, crisis management, and business continuity. A wide variety of combustible materials are used in TSMC’s TSMC has adopted local and international standards for manufacturing processes and, consequently, are subject to the risk of Environmental, Safety & Health (ESH) management. All TSMC explosion and fire. The Company maintains many overlapping risk manufacturing fabs have been ISO 14001 certified (Environmental prevention and protection systems, as well as comprehensive fire and Management System), OHSAS 18001 certified (Occupational Health casualty insurance, including insurance for loss of property and loss and Safety Management System) and QC080000 certified of profit resulting from business interruption. Nonetheless, TSMC’s (Hazardous Substance Process Management System); all risk management and insurance coverage may, in certain manufacturing fabs in Taiwan have also been TOSHMS (Taiwan circumstances, be insufficient to cover all of the Company’s potential Occupational Safety and Health Management System) certified. losses. If any of TSMC’s fabs were to be damaged or cease The Company pays special attention to preparedness for emergencies it could reduce the Company’s manufacturing capacity and might or disasters, such as typhoons, floods, droughts caused by climate change, earthquakes, environmental contamination, large-scale cause us to lose important customers, thereby potentially having a materially adverse impact on TSMC’s financial performance. In product returns, disruption of IT systems, strikes, pandemics (such as addition to periodic fire protection system inspection and firefighting H1N1 influenza), and sudden and unexpected disruptions to the drills, the Company has also carried out a corporate-wide fire risk supply of raw materials or water, electricity, and other public utilities. mitigation project focused on management and hardware operations as a result of an explosion, fire or environmental mishap, TSMC has established a company-wide task force dedicated to improvements. managing the risk of water shortage that might arise due to climate change. This task force keeps watch on the external supply and Changes may cause unpredictable interruption to production. In internal demand for water, large volumes of which are essential to order to reduce such uncertainty, TSMC has adopted a number of the daily needs of both the public and industry. Cross-company standards to maintain operational continuity, ranging from design, consolidations and external collaborations with public agencies are procurement and construction of facilities, to operation and also ongoing in the industrial parks to ensure and sustain a stable decommission. We have also designed our new LED and solar water supply. factories to address specific ESH concerns, such as wastewater treatment, air abatement, and process equipment hazards. TSMC has further strengthened its business continuity plans, which include risk assessment, control, implementation, through the establishment of emergency task forces when necessary, combined with the preparation of a thorough analysis of the emergency, its impact, alternative actions, and solutions for each possible scenario together with appropriate precautionary and/or recovery measures. Each task force is given the responsibility of ensuring TSMC’s ability to conduct business while minimizing personal injury, business disruption, and financial impact under the circumstances. TSMC’s business continuity plan is periodically reviewed according to results of test scenariosor practical implementation for ensuring effective and successful business continuity. Customers are informed of TSMC’s strong business continuity plan in order to establish resilience and flexibility in both their supply chain and insurance placement. For the year 2010, and up to the date of this Annual Report, there have been no reportable material events that have necessitated the 70 6.2.6 Climate Change Risks 6.2.7 Other Risks If applicable laws, regulations or international accords directly or indirectly require usto: (a) use certain alternative chemicals or raw materials; and/or (b) exclude prohibited chemicals or raw materials from our products, processes and designs, TSMC cannot offer any assurances that the resulting product, processes or designs would be 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 as reliable or efficient. Also, our failure to manage the import, possible future sales of TSMC shares owned by the major export, use, transportation, emissions, discharge, storage, recycling, shareholders. or disposal of such chemicals and materials could subject us to increased costs or future liabilities. One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For Any of the above contingencies resulting from the actual and example, the National Development Fund, who owned 6.4% of potential impact of local or international laws and regulations as well TSMC’s outstanding shares as of February 28, 2011, sold our shares as international accords on environmental or climate change, could in the form of ADSs in several transactions during the period harm our business and operational results by increasing our expenses between 1997 and 2005. or requiring us to alter our manufacturing, assembly and test processes. Currently no shareholder owns 10% or more of TSMC’s total outstanding shares. Increasing climate change and environmental concerns also presents other commercial challenges. For example, a request by some of our customers and/or suppliers ask that we exceed the legal standard set Other Material Risks During 2010 and as of the date of this Annual Report, TSMC’s for environmentally compliant products and services could result in management is not aware of any other risk event that could impart a lost market share to possibly more accommodating competitors. potentially material impact on the financial status of the Company. Further, energy costs in general could increase significantly as a result of future climate change regulations. 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. To mitigate risks resulting from climate change, TSMC continues to carry out energy conservation measures, implementing voluntary PFC emission reduction projects and conducting GHG inventory and verification each year. TSMC has publicly disclosed climate change information every year since 2005 through participation in an annual survey conducted by the nonprofit Carbon Disclosure Project (CDP), which includes greenhouse gas emission and reduction information for all TSMC fabs. 71 7. Corporate Social Responsibility TSMC is an important part of the technology industry, and as we look to the future, we not only aim to maintain our leadership in worldwide competition and promote Taiwan’s globalization and economic growth, we also will continue to carry out our corporate social responsibility and do our utmost to be good corporate citizens. Our 10 principles for practicing corporate social responsibility are important standards for continuing to support positive change in society: 1. We insist on honesty and integrity. We are honest to our shareholders, customers, employees, and to the public alike. 2. We respect the rule of law and always obey the law. 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, and balance the interests of shareholders, employees, and all stakeholders in the company. 5. We do not engage in politics. 6. We provide good job opportunities with a safe, comfortable, and intellectually challenging environment to give our employees both physical comfort and mental stimulation. 7. We contribute our part in controlling climate change and place great importance on the protection of the environment. 8. We emphasize and reward innovation, and actively manage the risks that innovation may bring. 9. We invest in green businesses such as LED lighting and solar power to contribute to a greener world. 10. We support educational and cultural activities, and provide long-term care to communities. TSMC fulfills its social responsibilities to all stakeholders. As we carry out the principles listed above, it is our firm belief that customers will trust us more because of our honesty and integrity, respect for the law, and good corporate governance. Investors will be more willing to invest over the long term because of our clear core values, and employees will feel closer to the Company as they identify with those values. Carrying out TSMC’s social responsibilities brings us greater competitive advantage, creates greater value for shareholders, and benefits all of our stakeholders. 73 7.1 Environmental, Safety and Health (ESH) Management TSMC believes its environmental, safety and health practices should not only comply with legal requirements, but also measure up to recognized international practices. In 2010, our ESH policy was renewed and endorsed by Chairman and Chief Executive Officer Dr. Morris Chang. The policy aims to reach the goals of “zero incident” and “sustainable development”, and to make TSMC a world-class company in environmental, safety and health management. Our strategies for reaching these goals are to comply with regulations, promote safety and health, strengthen recycling and pollution prevention, manage ESH risks, instill an ESH culture, establish a green supply chain, and fulfill our related corporate social responsibilities. TSMC was honored to be included in the Dow Jones Sustainability Index for the tenth consecutive year, and recognized as DJSI’s worldwide leader in the semiconductor sector in 2010. We received the best score in the Environmental dimension and a full score for the “Environmental Policy/Management system” section. All TSMC manufacturing facilities have received ISO 14001:2004 certification for environmental management systems and OHSAS 18001:2007 certification for occupational safety and health management systems. All fabs in Taiwan have also been TOSHMS (Taiwan Occupational Safety and Health Management System) certified since 2009. TSMC strives for continuous improvement and actively seeks to enhance pollution prevention, power and resource conservation, waste reduction, safety and health management, fire and explosion prevention and minimize the impact of other risks, such as earthquakes, in order to reduce the overall environmental, safety and health risk. In 2006, TSMC began to adopt the IECQ QC080000 Hazardous Substance Process Management (HSPM) System in order to meet customer needs for the management of hazardous materials and to meet the European Union’s Restriction of Hazardous Substances (RoHS) Directive. All TSMC manufacturing facilities have been QC080000 certified since 2007. TSMC communicates with suppliers and contractors regarding environmental, safety and health issues and encourages them to improve their ESH performance. In line with this policy, TSMC uses priority work management and self-management to govern work performed by contractors. TSMC requires contractors performing high-risk operations to complete certification for technicians, and to establish their own OHSAS 18001 safety and health management system before bidding on contracts. This self-management is aimed at increasing the sense of responsibility of our contractors, with the goal of promoting safety awareness and technical improvement for all contractors in the industry. TSMC collaborates with suppliers to improve the sustainability of our supply chain regarding ESH-related issues such as carbon and water footprinting, and conflict metal management. We not only perform on-site ESH audits at our suppliers manufacturing sites, but also proactively assist them with improving ESH performance. Reducing the carbon and water footprints of our supply chain is essential to our green supply chain ideals. Since 2009, TSMC has required our suppliers to set up carbon inventory procedures. In 2010, TSMC took the initiative by inviting selected suppliers to participate in the Taiwanese government’s carbon footprint development project and collaborated with them in activities designed to reduce their carbon footprints. TSMC also began monitoring potential water shortages in the supply chain and investigating the supply chain’s water inventory. TSMC is also preparing to work with suppliers on water footprinting and conservation plans. The ESH management programs of TSMC suppliers are tied to a sustainability index that includes three components: the Green Index, the Social Index and the Risk Index. The “Green Index” includes environmental management systems, regulatory compliance, hazardous substance management, conflict mineral investigation, greenhouse gas inventory, carbon footprinting, water footprinting and other green activities. The “Social Index” includes labor and ethical conducts and participation in social activities. The “Risk Index” includes safety and health management, fire prevention, natural disaster mitigation, IT interruption recovery, transportation reliability, supply chain management, pandemic response planning and a business continuity plan. This sustainability index is applied to TSMC’s critical suppliers. TSMC launched an e-ESH management system called Total Safety Management (TSM). This web-based platform integrates over 20 ESH IT sub-systems covering the four sectors of “Plan”, “Do”, “Check”, and “Act”, and information, such as risk assessment, safety management of change, contractor management, training/testing, accident/incident corrective action requests (CAR), ESH indicators and others. The TSM system serves as the backbone of ESH KPI management and facilitates the comparison between fabs and the ability to take business decisions and improve operational efficiency. TSMC aims to reduce both costs and risks while improving ESH management efficiency and effectiveness through the cross-fab implementation of this platform. 7.1.1 Environmental Protection Greenhouse Gas (GHG) Emission Reduction TSMC is an active participant in international environmental protection programs. In 2010 we achieved our voluntary PFC emissions reduction goal as per our commitment to the World Semiconductor Council (WSC) and the Taiwan Environmental Protection Administration (EPA). In 2005, TSMC was Taiwan’s first semiconductor company to make a complete inventory of its GHG emissions and to gain ISO 14064 certification for its processes and outputs. The purpose of the inventory was to serve as a baseline reference for TSMC’s strategy to reduce GHG emissions, to meet future domestic regulatory requirements, and to prepare for carbon trading and corporate carbon asset management. All TSMC facilities continue to conduct a GHG inventory on an annual basis. The inventory result shows that the major direct GHG emissions are perfluorinated compounds (PFCs), which are used in the semiconductor manufacturing process. The primary indirect GHG emission is electricity consumption. TSMC is also taking measures to reduce its emission of GHGs. TSMC has endorsed a memorandum of understanding between the Taiwan Semiconductor Industry Association, the Taiwan EPA, and the WSC, whereby TSMC is committed to reducing PFC emissions to 10% 74 below the average of 1997 and 1999 by 2010, a commitment that we are proud to successfully achieve. This emissions target remains fixed as TSMC continues to grow and expand its manufacturing facilities. certification documents, site operations and transportation routes to ensure the legal and proper disposal of waste. TSMC achieved a 92% waste recycling rate in 2010, surpassing its goal of 90%. The Company’s landfill rate has been reduced to less than 1%. Coal-fired power generators are the major source of electricity in Taiwan and emit large amounts of carbon dioxide (CO2). TSMC makes continuous efforts to conserve energy, which reduces both carbon dioxide gas emissions and costs. TSMC has not only adopted energy-conservative designs for both its manufacturing fabs and offices, but has also improved the energy efficiency of facilities during operation. In 2010, TSMC Fab 3 won the Ministry of Economic Affairs’ “Energy Conservation Award” for the second time. The improvements at this 15-year-old Fab served as a good model of continuous energy efficiency improvement for the industry. Air and Water Pollution Control TSMC has installed effective air and water pollution control equipment in each wafer fab to meet regulatory emissions standards. In addition, TSMC maintains backup pollution control systems, including emergency power supplies, to lower the risk of pollutant emission in the event of equipment breakdown. TSMC centrally monitors the operations of air and water pollution control equipment around the clock and tracks system effectiveness to ensure the quality of emitted air and discharged water. We have also designed our new LED and solar factories to address specific ESH concerns, such as wastewater treatment, air abatement, and process equipment hazards. Water Conservation To make the most effective use of Taiwan’s limited water resources, all TSMC fabs make an effort to increase water reclamation rates by adjusting the water usage of manufacturing equipment and improving wastewater reclamation systems. New fabs are able to reclaim more than 85% of process water, meeting or exceeding the standards of the each Science Park Administration and outperforming most semiconductor fabs around the world. TSMC also strives to reduce non-manufacturing-related water consumption, including water used in air conditioning systems, sanitary facilities, cleaning, landscaping and kitchens. We use an intranet website to collect and measure water recycling and/or reuse volumes (e.g. process water recycling) company-wide. Since water resources are inherently local, TSMC shares its water saving experiences with other semiconductor companies through the Association of Science-Based Industrial Park to promote water conservation. At the same time, TSMC collaborates with the Science Park Administrations to assist small facilities in each Science Park with water resource management in order to achieve the Science Park’s goals and ensure a long-term balance of supply and demand. A total of six out of TSMC’s seven fabs in Taiwan have won the Ministry of Economic Affairs’ “Water Saving Award”. Waste Management and Recycling TSMC has established a designated unit responsible for waste recycling and disposal. To meet the goal of sustainable resource utilization, TSMC’s first priority is to reduce process waste before considering recycling or disposal. TSMC carefully selects waste disposal and recycling contractors and performs annual audits of Other Environmental Protection Programs TSMC has implemented an environmental accounting system, allowing each fab to calculate cost savings or profits created by their individual environmental programs. In addition, TSMC conducts “Product Life Cycle Assessments” (Product LCA), collecting and analyzing data from the entire semiconductor manufacturing chain from raw materials suppliers to finished products, including statistics for such items as energy, raw material 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 documentation. TSMC also maintains “green procurement” procedures, requiring raw materials suppliers to declare that the materials they supply to TSMC do not contain any prohibited substances. This ensures that products manufactured by TSMC comply with customer requirements and the regulatory requirements of the European Union’s RoHS Directive. TSMC also encourages employees to use “Green Mark” products in offices, such as recycled paper, desktop PCs, LCD monitors, and batteries. TSMC has adopted both the Taiwan “Green Building” and the US Leadership in Energy and Environmental Design (LEED) standards for new fab and office building designs since 2006 to achieve better energy and resource efficiency than conventional designs. At the same time, TSMC plans to upgrade existing office buildings to comply with the LEED standard each year. In 2008 and 2009, respectively, TSMC’s newly-constructed Fab 14 Phase 3 and Fab 12 Phase 4 achieved EEWH Diamond and LEED Gold certification. For these projects, TSMC invited Dr. Kath Williams, former vice president of the United States Green Building Council (USGBC) to serve as a consultant, and also consulted experts from leading Taiwan universities. TSMC believes that manufacturing companies should convert their facilities into green factories to effectively improve the environment and lower construction costs. Therefore, we freely share our practical experience with industry, government, and academia. Forty groups (more than 1,800 visitors) from industry, government, academia and the general community contacted TSMC to gain an understanding and discuss our green factory practices. TSMC believes if something is worth doing, it’s worth doing well in order to protect the Earth. TSMC initiated the “Taiwan Corporate Sustainability Forum (TCSF)”, which united 20 leading Taiwan companies as founders. The forum also welcomes new members. TSMC’s 2008 Green Forum was the first of a series of TCSF events. At this meeting, TSMC shared its hands-on experience in obtaining the US Green Building Council’s LEED certification, and applying for Taiwan’s Ecology, Energy Saving, Waste Reduction, and Health (EEWH) certification for its Fab 14 Phase 3 facility. TSMC also proposed working with green building 75 experts to draft guidelines for green industrial buildings in Taiwan, helping other domestic companies construct their own green factories and promote green manufacturing. The TCSF continues to invite leading Taiwan companies to join the TCSF. Environmental Compliance Record In 2010, TSMC commissioned the construction of multiple new factories. However, construction projects of this type are complex and, unfortunately, certain minor administrative oversights on the part of TSMC and its contractors resulted in TSMC being fined a total of NT$210,000 by the relevant authority. To prevent similar situations occurring in the future, TSMC took immediate corrective and preventive actions to improve contractor management and personnel training. 7.1.2 Safety and Health Safety and Health Management TSMC’s safety and health management is built on the framework of the OHSAS 18001 system, and adheres to the management principle of “Plan, Do, Check, Act” to prevent accidents and protect employee safety and health as well as Company assets. TSMC fabs in Taiwan have also received TOSHMS (Taiwan Occupational Safety and Health Management System) certification. Besides accident prevention, TSMC has established emergency response procedures to protect the lives of employees and contractors if disasters should occur, as well as to minimize the negative impact on society and the environment. TSMC continually communicates with its suppliers to ensure that potential risk in the operation of production equipment is minimized and rigorously follows safety control procedures when installing production equipment. The Company places stringent controls on high-risk operations and also evaluates the seismic tolerance of its facilities and equipment to reduce the risk of earthquake damage. In health management, TSMC sponsors regular wellness activities and specific health examinations as well as ensuring the health of employees beyond regulatory requirements, such as the improvement of office ergonomics, the promotion of Good Health Practice (GHP) in food production areas, and the continual appraisal and control of the impact on the health of employees of heavy metals . TSMC also establishes Company-level prevention committees when infectious diseases such as H1N1 influenza, Severe Acute Respiratory Syndrome (SARS) or Avian Influenza pose a potential risk to the Company. Working Environment and Employee Safety Protection TSMC’s ESH policy is committed to establishing a safe working environment, preventing occupational injury and illness, keeping employees healthy, enhancing every employee’s awareness and sense of accountability to ESH, and building an ESH culture. TSMC safety and health management operations apply to: ● Hardware Safety of Equipment Used by Process, Facilities, IT, and General Services Departments In addition to meeting regulatory requirements and internal standards as well as mitigating ESH-related risks when building or rebuilding facilities, TSMC also maintains procedures governing new equipment and raw materials, safety approvals for bringing new tools online, updating safety rules, seismic protection measures, and other safety measures. ● Environmental, Safety and Health Evaluation of Hazardous Chemical Substances Any new chemical substance introduced to TSMC -- from the R&D phase to mass production -- is carefully reviewed before use by the ”New Chemical Review Committee” to ensure that environmental and safety and health concerns are well controlled, including engineering control, the installation of personal protection equipment, and operational safety training during storage, transportation, usage, and disposal. ● General Safety Management, Training and Audit All TSMC manufacturing facilities hold environmental, safety and health committee meetings on a monthly basis. TSMC takes preventive measures such as controls on high-risk work, contractor management, chemical safety management, personal protective equipment requirements, and safety audit management. In addition, TSMC also maintains detailed disaster response procedures and performs regular drills designed to minimize harm to employees and property, as well as the impact on society and the environment in the event of a disaster. ● Working Environment Measurement TSMC conducts physical and chemical measurements of the working environment every six months to safeguard employee health, including measurement of factors such as noise, air quality, chemical exposure, and illumination. If the measurement results for each item are not compliant with regulatory requirements corrective action is undertaken. In addition, materials and equipments that have ionizing radiation concerns are regularly monitored. Workers operating these equipments have received annual training and worn dosimeters any time they work with or are in the vicinity of a radiation source to ensure any potential exposure is monitored and controlled. In 2010, TSMC received an Excellence Award from the Atomic Energy Council for the successful implementation of protection measures for non-medical radioactive materials and ionizing radiation equipments. ● Emerging Infectious Disease Response In the TSMC ESH management system, we have a dedicated corporate ESH organization which monitors emerging infectious diseases around the world, assesses any potential impact on the workplace and provides a strategic response plan. In previous outbreaks (such as SARS in 2003 and the H1N1 influenza outbreak in 2009), we convened the Corporate Influenza Response Committee to develop our strategies. These strategies include educating our employees in prevention and response, publishing guidelines for managers, establishing guidelines for employee sick leave due to flu, and installing alcohol-based hand sanitizers at appropriate locations. The Committee also monitors the status of employee leave due to illness and, at the same time, develops a continuous plan to address manpower shortages and protect employee health as well as minimize business impact. In 2010, we provided health information for foreign employees and travel guidelines about NDM-1 Enterobacteriaceae, which was identified in India, Pakistan, Japan, the United States, and Europe. 76 ● Emergency Response The planning and execution of an effective emergency response requires big-picture thinking, continuous improvement and practice drills. TSMC’s emergency response plans include procedures for rapid response to accidents and disaster recovery as well as establishing response procedures for potential disasters. All TSMC fabs conduct major annual emergency response exercises 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 any damage caused by disasters. In addition to the regular emergency response drills held by engineering and facilities departments each quarter, the Company’s laboratory, canteen, dormitory, and shuttle bus personnel also hold emergency response drills to prepare for events such as earthquakes, chemical leakage, ammonia release, fires and automobile accidents. ● Employee Health Enhancement TSMC provides healthcare and employee assistance programs in each fab. TSMC employees can utilize these health services to reduce physical and mental stress while strengthening their health. These services include 24-hour nursing care, annual physical examinations, psychological consultations, stress management programs, self healthcare workshops, and staff assistance projects. In addition, the Company also provides clinical and dental care services, women’s healthcare, acupuncture and massage services and programs. Health promotion and disease prevention activities include nutritional consultation, weight-loss classes, an acupuncture weight-loss program, carotid and thyroid ultrasound examinations, an endocrinology clinic, a dermatology clinic, bone mineral densitometry examinations and cancer screenings. Canteens also provide healthy high fiber and low fat meals, as well as all-fruit meals. All TSMC fabs have fitness 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. Environmental, Safety and Health-related Awards in 2010 ● Chosen for membership in the Dow Jones Sustainability World Index for a 10th consecutive year; leader in the semiconductor sector in 2010 ● Recognized by the Taiwan Institute of Sustainable Energy with the “Gold Award for Taiwan Corporate Sustainability Reports” for two consecutive years ● Recognized by the Atomic Energy Council for “Excellence in Radiation Protection” ● Fab 12 was recognized by the Environmental Protection Administration with the “The Annual Enterprise Environmental Protection Award” ● Fab 12 Phase 4 was recognized by the Ministry of Economic Affairs with the “Water Saving Award” ● Fab 12 Phase 4 was recognized by the Hsinchu Science Park Administration with the “Low Carbon Enterprise Award” ● Fab 12 Phase 4 was recognized by the Hsinchu Science Park Administration with the “Water Saving Award” ● Fab 14 was recognized by the Southern Taiwan Science Park Administration with the “Water Saving Award” ● Fab 3 was recognized by the Ministry of Economic Affairs with the “Energy Conservation Award” ● Fab 12 and Fab 3 were recognized by the Hsinchu Science Park Administration with the “Excellence in Labor Safety and Hygiene Award” 7.2 TSMC Education and Culture Foundation Established in 1988, the TSMC Education and Culture Foundation continues to devote its resources towards education, community building, promotion of arts and culture events, and the employee volunteer program, as part of TSMC’s efforts in corporate social responsibility. In 2010, to promote the knowledge of science and strengthen the foundation of science education, the TSMC Foundation continued to infuse resources the program ”Raising the Level of High School Physics Experiments” renovation of the exhibition “The World of the Integrated Circuits,” and the launching of “TSMC Science Tour,”. Aside from financial sponsorships, TSMC Foundation supports TSMC Volunteer Society, organizing the employees to devote themselves to the caring of the underprivileged of the communities. Commitment to Education Talents are essential to the development of our economy. As a leader of Taiwan’s knowledge-based industry, we regard cultivating talented people for society as a core responsibility of TSMC. The Foundation tailors various programs to target a whole range of education at different age levels. At the college level, in 2010, the TSMC Foundation created “TSMC Mentor Scholarship” to encourage underprivileged students of National Tsing Hua University and National Central University. In addition to providing financial supports, the Foundation recruited senior TSMC employees to mentor the students regularly. We hope that TSMC employees’ rich experiences can provide productive consultations for the students both in schools and future career paths. In the meantime, the Foundation continued to endow chair professorships to enhance academic research of Taiwan universities. At the high school level, TSMC emphasizes the need for a balanced education in both science and the humanities. In science, collaborating with the Education Prime Minister and the Wu Chien-Shiung Foundation, TSMC Foundation in 2010 initiated the program ”Raising the Level of High School Physics Experiments,” which establishes a full series of high school physics experimental kits and holds regular workshops for high school science teachers. In the meantime, the Foundation continued to sponsor science camps for talented science students to meet with world-class scholars. In the humanities, we organized the third “TSMC Youth Calligraphy Contest.” This year we held the workshops on campus to inspire the students to appreciate the beauty and cultural richness of calligraphy. We also continued the TSMC Youth Literature Award. During past seven years, numerous competition winners created more sophisticated works and brought new energy to national literature. 77 At the primary-school level, in order to arouse children’s interest in science, the Foundation launched “TSMC Science Tour,” taking children from remote townships to National Taiwan Science Education Center, National Museum of Natural Science, and National Science and Technology Museum. To cultivate children’s art appreciation, every year the Foundation organizes the TSMC Aesthetic Tour to take underprivileged children to visit the National Palace Museum and art sites in Taiwan. This year over 4,000 children were invited to join the tour. Renovations of “The World of the Integrated Circuits,” a permanent exhibition sponsored by TSMC Foundation, is underway at the National Museum of Natural Science. The new exhibition, will be renamed “The World of the Semiconductor”, with widened space will be strengthened with the fully updated content to reflect the most advanced technology. Through more interactive presentations, the renovated exhibition will facilitate the promotion of science education and help visitors understand the development and importance of the semiconductor Integrated Circuit technology. Community Building The Foundation continues to promote arts and cultural activities in our site communities of Hsinchu and Tainan. Every year we organize the TSMC Hsin-Chu Art Festival to bring cultural activities to these high-tech cities and encourage a greater art appreciation in the communities. Promoting Chinese Theatre is an important feature of the festival. After inviting the masterpieces of Kungu opera, Peking opera and Nanguan in the past years, this year the Festival brought Taiwan Bang-zi Opera Company to share the beauty of Bang-zi opera. Celebrating the ceremony of the bicentennial of Chopin’s birth, the Festival invited three prestigious pianists – Garrick Ohlsson, Alexander Kobrin, and Yu-ja Wang – to perform three beautiful concerts. We arranged Puppet Beings Theatre Company to perform marvelous puppet shows at the piazza and hosted a charity show for the underprivileged. More than 70 performances of the Hsin-Chu Festival nurtured the inhabitants from every corner of the communities. Besides holding the Hsin-chu Art Festival, TSMC shows a keen concern for wildlife and the natural environment. The Foundation supported the Taiwan Wild Bird Society in order to improve Tainan Pheasant-tailed Jacana Park so that Jacanas can have a better shelter during the winters. Promotion of Arts and Culture The TSMC Education and Culture Foundation has devoted its efforts to the promotion of arts and culture for years. In 2010, the Foundation sponsored “The Body Beautiful in Ancient Greece,” the exhibition of Greek Sculptures from the British Museum, to give Taiwan visitors opportunities to appreciate the highlights of the British Museum’s rich collections. The Foundation also sponsored 1,000 students from rural areas to visit the Exhibit to increase their appreciation for fine art. To promote the Chinese classics and culture, TSMC Foundation continued to support the broadcasting program “Analects in Hsin’s View.” Through Professor Hsin Yih-yun’s rich knowledge and vivid examples, the program received enthusiastic response from the society and overseas. This year Professor Hsin was awarded Taipei Culture Award for his long-term devotions to promoting Chinese culture. TSMC Volunteer Program TSMC’s most valuable asset is the knowledge and professional skills of its employees. With an employee volunteer program launched in 2004, the TSMC Foundation encourages TSMC employees to do volunteer work for the society to promote education and culture. The TSMC volunteers’ services include serving as tour guides at the National Science Museums during weekends to introduce the semiconductor industry, reading to elementary students in remote townships on weekdays, and providing the local community with energy-saving measures. In 2009, a new team of Community Volunteers was formed to help the local community with emergency assistance. They also provide service to the elderly men in the Veterans Home and the children in the St. Teresa Children Center in Hsinchu. In 2010, Ms. Sophie Chang (Su-feng Chang) was elected as the director of TSMC Volunteer Program, and has been leading volunteers to devote themselves to various and more educational and philanthropic activities to serve the society. ● TSMC Tour Guide Volunteer Program To promote science education, the Foundation donated to renovate an exhibition hall in the National Museum of Natural Science (Taichung) and set up an exhibition titled “The World of the Integrated Circuits.” Many of TSMC’s employees serve as volunteer guides at the exhibition on weekends. The volunteer team continues to grow with the enthusiastic participation of our employees’ family members and employees of TSMC affiliates. In 2010, 600 volunteers were organized by the TSMC Volunteers Society, and devoted their time and effort to promoting science education. ● TSMC Books Reading Volunteer Program Since 2004, the Foundation has sponsored the Hope Reading Program organized by the renowned CommonWealth Magazine, donating 20,000 books to children in 200 schools in remote rural areas of Taiwan. In addition, TSMC employees traveled to read stories to students in remote townships for stimulating their interest in learning. Volunteers also prepared games or plays during holidays to further encourage children’s interest in reading. The volunteers have developed profound friendships with the school children by working with them over the long term. In 2010 alone, TSMC Books Reading Volunteers contributed 147 volunteers and about 1,634 hours to five rural schools in Hsinchu and Tainan. They have served for six consecutive years and will continue to help pave the road for these underprivileged children’s future. ● TSMC Energy Conservation Volunteer Program Pollution becomes an increasingly serious issue with the advance of industrialization and technology, causing rapid global warming and triggering natural disasters. Global attention has turned to urgent actions in energy saving and carbon emission reduction. Due to the threats of global warming and energy consumption, environmental protection and energy conservation have become everyone’s concern. To show our support for environmental protection, the TSMC Foundation helps schools in Hsinchu and Tainan reduce power consumption by recruiting employees who have related technical knowledge and experience as team members for this program. 78 Through inspections and communications, the volunteer team offers plans for energy conservation to schools for improving their power efficiency. The Energy-saving Volunteer was formed in 2008 by 25 TSMC employees. For over 1,200 working hours of service, the volunteer team has suggested 168 environmental and safety strategies with potential to reduce 360 tons of carbon emissions. The professional service of the team has been much appreciated by these schools. In 2010, the service was extended to five high schools in Hsinchu and Tainan. ● TSMC Community Volunteer Program Volunteer Activity at the “Hsinchu Veterans Home”: In 2010, TSMC Community Volunteer Program held three kinds of activities at the Hsinchu Veterans. Volunteers play croquet with the veterans there every two weeks in the morning, sing songs to or with veterans whose mobility is limited, and art classes in which volunteers and the veterans work together on interesting creative projects, and hence have the opportunity to know each other better. We hope the veterans share their wishes with us so that we may be able to make their dreams come true one day. 7.3 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission Item Implemention Status 1. Implementation of Corporate Governance (1) Corporate social responsibility policy and performance evaluation (1) TSMC follows the ten principles of corporate social responsibility set by the Chairman, Dr. Morris Chang, Please refer to “7. Corporate Social Responsibility” in this report page 73-79. (2) Dedicated organization for the promotion and execution of corporate social (2) Each unit in TSMC incorporates corporate social responsibility principals into daily Non-implentation and Its Reason(s) None responsibility (3) Regular training and promotion of corporate ethics among employees and the Board of Directors, and integration with the employee performance appraisal system operations. All issues of stakeholders’ concerns are collected regularly or through ad hoc communication channels. Each unit will assess and identify material issues, and incorporate them into execution plans and daily operations. (3) Please refer to “5.5.8 Ethics and Business Conduct” in this report page 58. 2. Sustainable Environment Development Please see “7.1.1 Environmental Protection” in this report page 74-76. None (1) Commitment to improving resources utilization and the use of renewable materials (2) Environmental management system designed to industry characteristics. (3) Dedicated environmental management unit or personnel (4) Company strategy for climate change, energy conservation and greenhouse gas reduction 3. Promotion of social welfare (1) Compliance with labor regulations, protection of employee rights, and (1) Please refer to “5.5 Employees” in this report page 55-58. appropriate management measures and procedures (2) Safety and health in working environment (2) Please refer to “7.1.2 Safety and Health” in this report page 76-77. (3) Disclosure of consumer rights policy, and official channel for consumer (3) Please refer to “5.4 Customer Partnership” page 54-55. None complaints (4) Collaboration with suppliers (4) TSMC brought together fab operations, materials management, risk management, and quality system management in an internal committee dedicated to managing our supply chain. The focuses of the committee are risk mitigation and supply chain improvement. The steering team, including a senior vice president and managers, sets goals annually and reviews progress each quarter. The committee’s working team assists suppliers in lowering production and transportation risks by sharing risk management practices and helping suppliers improve quality systems, green procurement, protection of the environment, and safety. At the same time, we monitor the financial situation of key suppliers through regular communication or public information, and the inventory of supply chain, with corresponding backup plans. The working team holds monthly meetings to monitor progress and actively handle suppliers’ issues. Please refer to TSMC’s website for additional information: http://www.tsmc.com/english/csr/supply_chain_management.htm (5) Participation in community development and charities through commercial (5) Please refer “7. Corporate Social Responsibility” in this report page 73-79. activities, donations or volunteers 4. Enhancement of Information Disclosure (1) Disclosure of corporate social responsibility related information with significance and reliability. (2) Published corporate social responsibility report and disclosure of implementation of corporate social responsibility TSMC has published “Corpoarte Social Responsibility Report” since 2008, which has been verified by third party in compliance with the requirements of Global Reporting Initiative (GRI) G3 level A+ and AA1000AS: 2008 standard. None 5. If the company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice”, please describe the operational status and differences. TSMC does not establish the code for corporate social responsibility. For our corporate social responsibility operational status, please refer to “7. Corporate Social Responsibility” in this report page 73-79 and our corporate social responsibility related information in our website: http://www.tsmc.com/english/csr/index.htm 6. Other important information to facilitate better understanding of the Company’s implementation of corporate social responsibility (e.g., environmental protection, community participation, social contribution, social services, social welfare, consumers’ rights, human rights and safety and health): Please refer to TSMC’s website for our corporate social responsibility implementation status: http://www.tsmc.com/english/csr/index.htm 7. Other information regarding products or “Corporate Social Responsibility Report” which are verified by certification bodies: (1) TSMC obtained Integrated Circuit carbon footprint and Type 3 Environmental Product Label verification, which comply with PAS2050 and ISO14025 standards. (2) TSMC Corporate Social Responsibility Report is compliant with the requirements of Global Reporting Initiative (GRI) G3 level A+ and AA1000AS:2008 standard. 79 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 the most complete set of solutions for their needs. Beginning in 2010, TSMC’s affiliates support two new lines of business related to solid state lighting and solar business activities. 8.1 Affiliates 8.1.1 TSMC Affiliated Companies Chart 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 Corp. Shareholding: 34.95% Xintec Inc. Shareholding: 40.76% Emerging Alliance Fund, L.P. Shareholding: 99.5% 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% Global Unichip (BVI) Corp. Shareholding: 100% As of 12/31/2010 WaferTech, LLC Shareholding: 100% Global Unichip Corporation-Shanghai Shareholding: 100% VentureTech Alliance Fund II, L.P. Shareholding: 98% VentureTech Alliance Holdings, LLC Shareholding: 100% VentureTech Alliance Fund III, L.P. Shareholding: 99% TSMC Lighting North America, Inc. Shareholding: 100% TSMC Solar North America, Inc. Shareholding: 100% Mutual-Pak Technology Co., Ltd. Shareholding: 57.25% Growth Fund Limited Shareholding: 100% TSMC Solar Europe B.V. Shareholding: 100% TSMC Solar Europe GmbH Shareholding: 100% 81 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 to customers around the world. Several 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. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of LED lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. 8.1.3 TSMC Affiliated Companies Unit: NT(US, EUR, JPY, KRW, RMB, CAD)$ thousands As of 12/31/2010 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 support 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 support activities InveStar Semiconductor Development Fund, Inc. Sep. 10, 1996 InveStar Semiconductor Development Fund, Inc. (II) LDC Aug. 25, 2000 Cayman Islands Cayman Islands US$ 4,211 Investing in new start-up technology companies US$ 17,028 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$ 280,000 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. Global Unichip Corporation-Shanghai 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 TSMC Solar North America, Inc. TSMC Lighting North America, Inc. TSMC Solar Europe B.V. TSMC Solar Europe GmbH May 28, 2007 Jul. 13, 2006 Jan. 22, 1998 Jun. 16, 2005 Feb. 02, 2004 May 08, 2008 Feb. 20, 2009 Nov. 04, 2009 Sep. 11, 1998 Mar. 22, 2006 Jan. 10, 2001 Feb. 27, 2004 Mar. 25, 2006 May 30, 2007 Apr. 25, 2007 Sep. 03, 2010 Sep. 03, 2010 Sep. 29, 2010 Dec. 17, 2010 Ontario, Canada CAD 2,434 Engineering support activities Tortola, British Virgin Islands US$ 1,284,000 Investment activities Hsin-Chu, Taiwan NT$ 1,335,669 Researching, developing, manufacturing, testing and marketing of integrated circuits Japan U.S.A. JPY 30,000 Consulting services in main products US$ 1,249 Consulting services in main products The Netherlands EUR 100 Consulting services in main products Tortola, British Virgin Islands US$ 550 Investment activities Shanghai, China Taoyuan, Taiwan Taipei, Taiwan Cayman Islands Cayman Islands Cayman Islands Cayman Islands Delaware, U.S.A. Delaware, U.S.A. Delaware, U.S.A. US$ 500 Consulting services in main products NT$ 2,283,849 Wafer level chip size packaging service NT$ 207,312 Manufacturing and selling of electronic parts and researching, developing and testing of RFID US$ 28,495 Investing in new start-up technology companies US$ 35,355 Investing in new start-up technology companies US$ 110,850 Investing in new start-up technology companies US$ 1,700 Investing in new start-up technology companies N/A Investing in new start-up technology companies US$ 1 Selling and marketing of solar related products US$ 1 Selling and marketing of solid state lighting related products Amsterdam, The Netherlands EUR 100 Investing in solar related business Hamburg, Germany EUR 100 Selling of solar related products and providing customer service 8.1.4 Common Shareholders of TSMC and Its Subsidiaries or Its Affiliates with Actual of Deemed Control: None. 82 8.1.5 Rosters of Directors, Supervisors, and Presidents of TSMC’s Affiliated Companies Unit: NT(US/EUR)$ , except shareholding Company TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited TSMC China Company Limited TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc. (II) LDC TSMC Development, Inc. WaferTech, LLC TSMC Partners, Ltd. TSMC Design Technology Canada Inc. TSMC Global, Ltd. Global Unichip Corporation (GUC) Title Director Director President Director Director Director President Director Director Supervisor President Director Director Chairman Director Director Supervisor President Chairman Director President Director Director Chairman Director President Director Director President Director Director President Director Director Director President Director Director Chairman Director Director Director Director Director Independent Director Independent Director Independent Director President Name Jason Chen Rick Cassidy Rick Cassidy Jason Chen Wendell Huang Maria Marced Maria Marced Jason Chen Makoto Onodera Lora Ho Makoto Onodera C.C. Pan Chih-Chun Tsai F.C. Tseng M.C. Tzeng Jason Chen Lora Ho C.H. Chen Lora Ho Richard Thurston Lora Ho Wendell Huang Wendell Huang Lora Ho Richard Thurston Lora Ho M.C. Tzeng Steve Tso Kuo-Chin Hsu Lora Ho Richard Thurston Lora Ho Cliff Hou Sreedhar Natarajan Richard Thurston Cliff Hou Lora Ho Richard Thurston Representative of TSMC: F.C. Tseng Representative of TSMC: Lora Ho Representative of TSMC: Jim Lai Representative of TSMC: Cliff Hou Representative of Chin Yu Investment Ltd.: W.S. Hu Representative of Chuang Yi Investment Ltd.: K.C. Shih C.W. Jen W.C. Liu W.Y. Wang Jim Lai As of 12/31/2010 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 Partners, Ltd. holds 1,000 shares - TSMC Partners, Ltd. holds 4,087,876 share - TSMC Partners, Ltd. holds 16,531,637 shares - - - TSMC Partners, Ltd. holds 1,000 shares - - - TSMC Development, Inc.holds 293,636,833 shares - - - TSMC holds 988,268,244 shares - - - - TSMC Partners, Ltd. holds 2,300,000 shares - - TSMC holds 1,284 shares 46,687,859 shares 46,687,859 shares 47,174,644 shares 46,687,859 shares 1,391,531 shares 5,218,765 shares - - - 486,785 shares - - - 100% - - - - 100% - - - - 100% - - 100% - - - - - (100%) - - - 100% - 97.09% - 97.09% - - - 100% - - - 100% - - - 100% - - - - 100% - - 100% 34.95% 34.95% 35.32% 34.95% 1.04% 3.91% - - - 0.36% (Continued) 83 Company Global Unichip Japan Co., Ltd. Global Unichip Corporation-NA Global Unichip Europe B.V. Global Unichip (BVI) Corp. Global Unichip Corporation-Shanghai 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 TSMC Lighting North America, Inc. TSMC Solar North America, Inc. TSMC Solar Europe B.V. TSMC Solar Europe GmbH Title Director Director Director Supervisor President Director Director President Director Director Director Director Director Director President Chairman Director Director Director Director Supervisor Supervisor President Chairman Director Director Supervisor President None None None None None Director Director President Director Director President Director Director Director Director Director Director 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 James Cheng Jim Lai C.C. Hsieh Chu Lung Representative of TSMC: J.B. Chen Representative of TSMC: C.C.Wei Representative of TSMC: Lora Ho Re presentative of OmniVision Investment Holding Inc.: Shaw Hong Tzun Eing Chen Re presentative of VisEra Holding Company: Cheng Ho 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-Kai Tsang Wei-Pong Lin Lewis Hwan None None None None None Lora Ho Richard Thurston Rick Tsai Lora Ho Richard Thurston Rick Tsai Lora Ho Richard Thurston Rick Tsai Lora Ho Richard Thurston Goetz Bendele 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 - - - - (GUC’s investment US$500,000) 93,081,225 shares 93,081,225 shares 93,081,225 shares 9,616,150 shares 1,614,985 shares 36,502,320 shares 36,502,320 shares 368,813 shares 810,600 shares 1,963,000 shares 11,867,600 shares 30,000 shares 1,963,000 shares (TSMC’s investment US$27,954,767) (TSMC’s investment US$32,394,351) (TSMC’s investment US$109,638,001) (VentureTech Alliance Fund III, L.P.’s investment US$1,700,000) None - - - TSMC holds 1,000 shares - - - TSMC holds 1,000 shares - - TSMC holds 200 shares - - - - TSMC holds 200 shares - - - - - 100% - - - 100% - (100%) - - 100% - - - - (100%) 40.76% 40.76% 40.76% 4.21% 0.71% 15.98% 15.98% 0.24% 3.91% 9.47% 57.25% 0.14% 9.47% (99.5%) (98%) (99%) (100%) (100%) - - - 100% - - - 100% - - 100% - - - - 100% 84 660,935 514,747.01 16,593 660,935 584,922 2,181 10,490 (705) (50) (7,761) 573,390 (56,837) 2,564 122,449 10,978 604,501 1,407 10,601 (706) (8,022) (7,991) 505,260 (59,222) 2,345 120,613 6.53 2.34 4.77 4.56 2,345.00 13.25 N/A (14.59) N/A 2.21 (2.86) N/A N/A N/A N/A N/A 8.1.6 Operational Highlights of TSMC Affiliated Companies (Note) Unit: NT$ 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 12/31/2010 TSMC North America TSMC Europe B.V. TSMC Japan Limited TSMC Korea Limited 334,048 30,090,852 27,073,597 3,017,255 222,966,697 287,068 206,178 18.74 4,065 112,050 10,840 290,747 210,259 22,864 112,963 59,947 1,935 177,784 150,312 20,929 454,544 266,447 19,390 49,959 12,064 1,770 38,890 194,450.68 4,704 2,709 783.99 33.87 N/A TSMC China Company Limited 14,150,966 19,041,086 14,764,464 4,276,622 8,935,261 1,443,914 1,385,770 TSMC Technology, Inc. InveStar Semiconductor Development Fund, Inc. InveStar Semiconductor Development Fund, Inc. (II) LDC TSMC Development, Inc. WaferTech, LLC TSMC Partners, Ltd. 0.03 127,880 517,106 352,950 768,364 427,418 52,984 95,151 156 299,966 673,213 427,262 551,645 355,896 235,315 26,269 282,280 156,896 25,446 25,445.91 281,659 156,265 68.90 9.45 0.03 7,837,921 (586) 7,838,507 1,949,300 1,947,540 1,946,954 1,946,953.64 8,503,040 6,083,306 781,952 5,301,354 7,825,894 1,906,096 1,916,070 30,011,730 33,565,775 - 33,565,775 2,747,026 2,313,672 2,313,672 TSMC Design Technology Canada Inc. 74,014 132,982 TSMC Global, Ltd. 38,992,512 43,785,942 20,196 75,399 112,786 43,710,543 182,522 693,597 Global Unichip Corporation Global Unichip Japan Co., Ltd. Global Unichip Corporation-NA Global Unichip Europe B.V. Global Unichip (BVI) Corp. Global Unichip Corporation-Shanghai 1,335,669 4,670,382 1,487,095 3,183,287 10,271,392 11,205 37,930 4,065 16,702 15,184 18,510 61,698 4,061 9,134 11,929 3,176 1,186 147 - 4,105 15,334 60,512 3,914 9,134 7,824 45,792 224,510 1,764 - 22,312 Xintec Inc. 2,283,849 5,464,912 1,459,161 4,005,751 3,962,254 Mutual-Pak Technology Co., Ltd. Emerging Alliance Fund, L.P. 207,312 865,336 97,316 311,854 VentureTech Alliance Fund II, L.P. 1,073,661 1,080,671 VentureTech Alliance Fund III, L.P. 3,366,293 2,774,876 Growth Fund Limited 51,626 25,681 VentureTech Alliance Holdings, LLC TSMC Solar North America, Inc. TSMC Lighting North America, Inc. TSMC Solar Europe B.V. TSMC Solar Europe GmbH - 30 30 4,065 4,065 - 45,209 3,037 23,971 4,065 14,412 6,015 1,806 - - - 18,682 - - 407 82,904 305,839 1,078,865 - 73,324 189,076 2,774,876 (195,331) (247,276) (247,276) 25,681 - 26,527 3,037 23,971 3,658 - - - - - - (4,008) (4,008) - - (35,503) (35,513) (35,512.58) - - - - (433) (421) - (2,166.23) (2,105.46) *Except TSMC Japan Limited, TSMC Europe B.V., TSMC Korea Limited, TSMC Design Technology Canada Inc., Global Unichip Japan Co., Ltd., Global Unichip (BVI) Corp., TSMC Technology, Inc., Global Unichip Europe B.V., Global Unichip Corporation-Shanghai, Mutual-Pak Technology Co., Ltd., Emerging Alliance Fund, L.P., Growth Fund Limited, VentureTech Alliance Holdings, LLC, and TSMC Solar Europe GmbH, 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 = $30.3680 NT, $1 EUR = $46.6500 NT, $1 JPY = $0.3735 NT, $1 RMB = $4.6085 NT, $1 KRW = $0.0271 NT, $1 CAD= $30.4100 NT Foreign exchange rates for income statement amounts are as follows: $1 USD = $31.5252 NT, $1 EUR = $42.0165 NT, $1 JPY = $0.3604 NT, $1 RMB = $4.6573 NT, $1 KRW = $0.0274 NT, $1 CAD = $30.6565 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 2010 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 2010 and as of the Date of this Annual Report The competent authorities determined that TSMC’s personnel management procedures were incomplete and therefore issued fines totalling of NT$138,000. After communicating with the authorities, TSMC has been completing relevant remedial measures. 8.3.3 Any Events in 2010 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan After the Board Meeting of February 15, 2011, TSMC publicly announced that, as part of TSMC’s strategic planning, the Board of Directors is also considering the formation of two wholly-owned subsidiaries for solid state lighting and solar businesses. 8.3.4 Other Necessary Supplement: None. 85 TABLE OF CONTENTS 1. Condensed Balance Sheet 2. Condensed Statement of Income 3. Financial Analysis 4. Auditors’ Opinions from 2006 to 2010 5. Audit Committee’s Report 6. Financial Difficulties 2 3 4 6 6 6 7. Financial Statements for the Years Ended 7 December 31, 2010 and 2009 and Independent Auditors’ Report 8. Consolidated Financial Statements for the 46 Years Ended December 31, 2010 and 2009 and Independent Auditors’ Report 9. U.S. GAAP Financial Information 94 1. Condensed Balance Sheet 1.1 Condensed Balance Sheet from 2006 to 2010 (Unconsolidated) 1.2 Condensed Balance Sheet from 2006 to 2010 (Consolidated) Unit: NT$ thousands Unit: NT$ thousands Item Current Assets 2006 2007 2008 2009 2010 Item 2006 2007 2008 2009 2010 193,676,010 174,299,286 179,849,479 185,831,537 192,234,282 Current Assets 260,317,168 249,822,329 252,618,431 259,803,748 261,519,317 Long-term Investments 137,378,205 123,891,153 124,184,663 118,427,813 117,913,756 Long-term Investments 53,895,151 36,461,325 39,981,515 37,845,503 39,775,528 Fixed Assets Other Assets Current Liabilities Before Distribution After Distribution 228,235,359 234,564,558 219,282,502 254,751,526 366,854,299 14,295,330 19,017,626 17,242,603 18,415,746 24,237,329 42,905,154 43,800,810 53,099,467 72,571,095 118,022,260 125,252,816 124,798,894 129,975,779 150,279,215 * Fixed Assets Other Assets Current Liabilities Before Distribution After Distribution 254,094,190 260,252,187 243,645,350 273,674,787 388,444,023 19,178,650 24,329,385 22,671,293 23,372,182 29,190,036 46,860,531 48,706,007 56,806,756 79,133,288 123,191,113 129,208,193 129,704,091 133,683,068 156,841,408 * Long-term Liabilities 14,175,271 14,001,462 5,431,252 4,916,390 4,500,000 Long-term Liabilities 22,873,542 24,284,470 16,191,041 11,388,479 12,050,755 Other Liabilities Capital Stock Capital Surplus Retained Earnings Before Distribution After Distribution 8,523,195 6,878,949 5,651,417 4,856,425 4,572,488 258,296,879 264,271,037 256,254,373 259,027,066 259,100,787 54,107,498 53,732,682 49,875,255 55,486,010 55,698,434 197,124,532 218,864,571 170,053,667 181,882,682 265,779,571 109,687,478 133,414,062 92,664,846 104,174,562 * Other Liabilities Capital Stock Capital Surplus Retained Earnings Before Distribution After Distribution 8,612,970 7,189,178 5,546,325 5,125,905 4,982,631 258,296,879 264,271,037 256,254,373 259,027,066 259,100,787 54,107,498 53,732,682 49,875,255 55,486,010 55,698,434 197,124,532 218,864,571 170,053,667 181,882,682 265,779,571 109,687,478 133,414,062 92,664,846 104,174,562 * Cumulative Transaction Adjustments (1,191,165) (1,072,853) 481,158 (1,766,667) (6,543,163) Cumulative Transaction Adjustments (1,191,165) (1,072,853) 481,158 (1,766,667) (6,543,163) Unrealized Gain/Loss on Financial Instruments 561,615 680,997 (287,342) 453,621 109,289 Total Assets Total Liabilities Before Distribution After Distribution Total Equity Before Distribution After Distribution *Pending for shareholders’ meeting resolution 573,584,904 551,772,623 540,559,247 577,426,622 701,239,666 65,603,620 64,681,221 64,182,136 82,343,910 127,094,748 147,951,282 145,679,305 141,058,448 160,052,030 * 507,981,284 487,091,402 476,377,111 495,082,712 574,144,918 425,633,622 406,093,318 399,500,799 417,374,592 * 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 for shareholders’ meeting resolution 561,615 680,997 (287,342) 453,621 109,289 587,485,159 570,865,226 558,916,589 594,696,220 718,928,904 78,347,043 80,179,655 78,544,122 95,647,672 140,224,499 160,694,705 161,177,739 155,420,434 173,355,792 * 507,981,284 487,091,402 476,377,111 495,082,712 574,144,918 425,633,622 406,093,318 399,500,799 417,374,592 * 1,156,832 3,594,169 3,995,356 3,965,836 4,559,487 509,138,116 490,685,571 480,372,467 499,048,548 578,704,405 426,790,454 409,687,487 403,496,155 421,340,428 * 2 2. Condensed Statement of Income 2.1 Condensed Statement of Income from 2006 to 2010 (Unconsolidated) Unit: NT$ thousands (Except EPS: NT$) 2.2 Condensed Statement of Income from 2006 to 2010 (Consolidated) Unit: NT$ thousands (Except EPS: NT$) Item Net Sales Gross Profit 2006 2007 2008 2009 2010 313,881,635 313,647,644 321,767,083 285,742,868 406,963,312 Item Net Sales 2006 2007 2008 2009 2010 317,407,171 322,630,596 333,157,660 295,742,239 419,537,911 149,718,400 137,159,314 138,177,615 126,475,970 196,989,302 Gross Profit 155,810,090 142,350,211 141,749,561 129,328,611 207,053,591 Income from Operations 126,299,859 112,252,047 106,290,232 94,522,353 154,846,508 Income from Operations 127,264,694 111,721,907 104,435,368 91,961,886 159,175,335 Non-operating Income and Gains 11,562,877*** 11,105,792*** 6,725,625 4,121,509 15,907,968 Non-operating Income and Gains 9,839,081*** 11,933,803 10,821,449 5,653,548 13,136,072 Non-operating Expenses and Losses 3,056,237*** 2,606,433*** 2,257,039 3,662,840 1,464,272 Non-operating Expenses and Losses 3,741,567*** 2,013,684 3,784,571 2,152,787 2,041,012 3,382,868 2,634,636 2,728,892 1,117,374 661,200 584,736 355,056 142,026 764,027 214,641 Interest Revenue Interest Expense 134,806,499 120,751,406 110,758,818 94,981,022 169,290,204 127,255,917 109,177,093 99,933,168 89,217,836 161,605,009 Income from Operations of Continued Segments - before Tax Income from Operations of Continued Segments - after Tax 4,542,149 5,651,700 5,373,823 2,600,925 1,665,193 890,602 842,242 614,988 391,479 425,356 133,362,208 121,642,026 111,472,246 95,462,647 170,270,395 125,588,497 109,932,400 100,523,237 89,466,223 162,281,930 127,009,731 109,177,093 99,933,168 89,217,836 161,605,009 Net Income 127,195,246 109,932,400 100,523,237 89,466,223 162,281,930 Interest Revenue Interest Expense 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 4.93* 4.70** - 4.14* 4.04** - 3.86* 3.84** - 3.45* 3.45 - 6.24* - - * Based on weighted average shares outstanding in each year ** Retroactively adjusted for stock dividends for earning year 2006 to earning year 2008 and profit sharing to employees in stock for earning year 2006 to earning year 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 127,009,731 109,177,093 99,933,168 89,217,836 161,605,009 4.93* 4.70** - 4.14* 4.04** - 3.86* 3.84** - 3.45* 3.45 - 6.24* - - * Based on weighted average shares outstanding in each year ** Retroactively adjusted for stock dividends for earning year 2006 to earning year 2008 and profit sharing to employees in stock for earning year 2006 to earning year 2007. *** Certain accounts have been reclassified to conform to year 2008 classifications. 3 3. Financial Analysis 3.1 Financial Analysis from 2006 to 2010 (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) Diluted Earnings Per Share (NT$) (Note) Cash Flow Cash Flow Ratio (%) Leverage Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage 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 2010 18.12 157.73 162.88 140.07 789.71 10.93 33.40 9.44 38.67 16.89 1.11 0.58 25.31 30.23 59.76 65.34 39.71 6.24 6.23 188.12 109.98 11.20 2.17 1.00 Analysis of Deviation over 20% for 2010 vs. 2009: 1. The debt ratio increased by 27% as a result of an increase of current liabilities, mainly due to increases in both short-term loans and payables to contractors and equipment suppliers. 2. The current ratio decreased by 36% and quick ratio decreased by 39%, primarily due to an increase in current liabilities. 3. The return on total assets increased by 58% and return on equity increased by 65%, primarily due to an increase in net income. 4. The operating income to paid-in capital ratio increased by 64%, mainly due to an increase in operating income, which was driven by the growth of gross profit. 5. The pre-tax income to paid-in capital ratio increased by 78%, primarily due to an increase in pre-tax income. 6. The net margin increased by 27%, as a result of an increase in net income. 7. The basic and diluted earnings per share both increased by 81%, mainly due to an increase in net income. 8. The cash flow reinvestment ratio increased by 60%, as a result of an increase in cash provided by operating activities. Note: Retroactively adjusted for stock dividends for earning year 2006 to earning year 2008 and profit sharing to employees in stock for earning year 2006 to earning year 2007. *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 Outstanding (3) Average Inventory Turnover 4 3.2 Financial Analysis from 2006 to 2010 (Consolidated) Capital Structure Analysis Debt Ratio (%) Liquidity Analysis Long-term Fund to Fixed Assets (%) Current Ratio (%) Quick Ratio (%) Times Interest Earned (Times) Operating Performance Analysis Average Collection Turnover (Times) 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 Ratio (%) Cash Flow Adequacy Ratio (%) Cash Flow Reinvestment Ratio (%) Operating Leverage Financial Leverage Profitability Analysis Cash Flow Leverage Industry Specific Key Performance Indicator Billing Utilization Rate (%) Advanced Technologies (0.13-micron and below) Percentage of Wafer Sales (%) Sales Growth (%) Net Income Growth (%) 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 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 2010 19.50 152.08 212.29 187.57 401.30 10.57 34.54 8.62 42.36 17.23 1.08 0.58 24.77 30.23 61.43 65.72 38.68 6.24 6.23 186.28 113.91 11.13 2.12 1.00 93 (Note2) 88 (Note2) 76 (Note2) 101 (Note2) 55 1.6 -14.0 64 3.3 -8.5 67 -11.2 -10.7 72 41.9 81.1 Analysis of Deviation over 20% for 2010 vs. 2009: 1. The debt ratio increased by 21%, as a result of an increase of current liabilities, mainly due to increases in both short-term loans and payables to contractors and equipment suppliers. 2. The current ratio decreased by 35% and quick ratio decreased by 38%, primarily due to an increase in current liabilities. 3. The times interest earned increased by 64%, primarily due to an increase in income before tax. 4. The return on total assets increased by 59% and return on equity increased by 65%, primarily due to an increase in net income. 5. The operating income to paid-in capital ratio increased by 73%, mainly due to an increase in operating income, which was driven by the growth of gross profit. 6. The pre-tax income to paid-in capital ratio increased by 78%, primarily due to an increase in pre-tax income. 7. The net margin increased by 28%, as a result of an increase in net income. 8. The basic earnings per share and diluted earnings per share both increased by 81%, mainly due to an increase in net income. 9. The cash flow reinvestment increased by 61%, as a result of an increase in cash provided by operating activities. 10. The billing utilization rate increased by 33% and sales growth and net income growth increased, as a result of the overall growth in industry and customer demand. Note 1: Retroactively adjusted for stock dividends for earning year 2006 to earning year 2008 and profit sharing to employees in stock for earning year 2006 to earning year 2007. Note 2: Capacity includes wafers committed by Vanguard. *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 2. Liquidity Analysis (1) Current Ratio (2) Quick Ratio = 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 (5) Net Margin (6) Earnings Per Share 5. Cash Flow (1) Cash Flow Ratio = Net Income / Net Sales = (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 Sum of Capital Expenditures, Inventory Additions, and Cash Dividend (3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash (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 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) 5 4. Auditors’ Opinions from 2006 to 2010 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 2010 and as of the date of this Annual Report: None. Year 2006 2007 2008 2009 2010 CPA Hung-Wen Huang, Ming-Cheng Chang Hung-Wen Huang, Ming-Cheng Chang Hung-Peng Lin, Shu-Chieh Huang Hung-Peng Lin, Shu-Chieh Huang Audit 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 Hung-Peng Lin, Shu-Chieh Huang An Unqualified Opinion 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 The Board of Directors has prepared the Company’s 2010 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 15, 2011 6 7. Financial Statements for the Years Ended December 31, 2010 and 2009 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, 2010 and 2009, 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, 2010 and 2009, 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 Statement of Financial Accounting Standards No. 10, “Accounting for Inventories.” 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 year ended December 31, 2010 on which we have issued an unqualified opinion and as of and for the year ended December 31, 2009 on which we have issued an unqualified opinion with an explanatory paragraph relating to the adoption of the newly revised Statement of Financial Accounting Standards No. 10, “Accounting for Inventories.” January 24, 2011 7 Taiwan Semiconductor Manufacturing Company Limited BALANCE SHEETS DECEMBER 31, 2010 AND 2009 (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) Available-for-sale financial assets (Notes 2, 6 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 18) 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 2010 Amount $ 109,511,130 - 3,918,274 4,796,589 25,733,974 22,250,905 (488,000) (7,341,444) 1,302,281 418,206 25,646,348 5,133,775 1,352,244 192,234,282 114,977,174 1,033,049 1,405,698 497,835 117,913,756 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 % 15 - - 1 4 3 - (1) - - 4 1 - 27 17 - - - 17 % 20 - - 2 4 3 - (1) - - 3 1 - 32 18 1 2 - 21 128,646,942 852,733,592 11,730,537 993,111,071 (706,605,445) 80,348,673 18 122 2 142 (101) 11 124,522,047 713,426,126 10,781,099 848,729,272 (627,764,323) 33,786,577 22 123 2 147 (109) 6 Net property, plant and equipment 366,854,299 52 254,751,526 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 24) Total other assets 1,567,756 5,456,427 7,024,183 7,154,266 8,638,749 1,420,131 17,213,146 - 1 1 1 2 - 3 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 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES 2010 2009 Amount % Amount % Short-term loans (Note 14) 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 18) Salary and bonus payable Accrued profit sharing to employees and bonus to directors (Notes 2 and 20) Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 16 and 23) $ 30,908,637 7,834 10,559,283 2,574,450 7,108,869 5,287,751 10,959,469 41,992,198 8,623,769 4 - 2 - 1 1 2 6 1 $ - - 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 Total current liabilities 118,022,260 17 72,571,095 12 LONG-TERM LIABILITIES Bonds payable (Notes 15 and 23) Other long-term payables (Notes 16 and 23) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 17) Guarantee deposits (Note 27) Deferred credits (Notes 2 and 24) Total other liabilities Total liabilities CAPITAL STOCK - NT$10 PAR VALUE (Note 20) Authorized: 28,050,000 thousand shares Issued: 25,910,078 thousand shares in 2010 25,902,706 thousand shares in 2009 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 and 23) Cumulative translation adjustments Unrealized gain on financial instruments Total shareholders’ equity 4,500,000 - 4,500,000 3,824,601 747,887 - 4,572,488 127,094,748 259,100,787 55,698,434 86,239,494 1,313,047 178,227,030 265,779,571 (6,543,163) 109,289 (6,433,874) 574,144,918 - - - 1 - - 1 18 37 8 12 - 26 38 (1) - (1) 82 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) 495,082,712 1 - 1 1 - - 1 14 45 10 13 - 18 31 - - - 86 100 TOTAL $ 701,239,666 100 $ 577,426,622 100 TOTAL $ 701,239,666 100 $ 577,426,622 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 24, 2011) 8 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) GROSS SALES (Notes 2 and 24) $ 418,666,448 $ 299,471,214 NON-OPERATING EXPENSES AND LOSSES 2010 2009 Amount % Amount % 2010 2009 Amount % Amount % SALES RETURNS AND ALLOWANCES (Notes 2 and 8) 11,703,136 13,728,346 NET SALES 406,963,312 100 285,742,868 100 COST OF SALES (Notes 3, 9, 19 and 24) GROSS PROFIT UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2) REALIZED GROSS PROFIT OPERATING EXPENSES (Notes 19 and 24) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Equity in earnings of equity method investees, net (Notes 2 and 10) Settlement income (Note 27) Interest income Technical service income (Notes 24 and 27) Valuation gain on financial instruments, net (Notes 2, 5 and 23) Others (Notes 2 and 24) Total non-operating income and gains 209,921,268 197,042,044 52,742 196,989,302 27,623,299 11,681,756 2,837,739 42,142,794 154,846,508 7,111,443 6,939,764 764,027 446,746 312,862 333,126 15,907,968 52 48 - 48 7 3 - 10 38 2 2 - - - - 4 159,106,619 126,636,249 160,279 126,475,970 19,688,032 10,238,131 2,027,454 31,953,617 94,522,353 - 1,464,915 1,117,374 375,118 587,151 576,951 4,121,509 56 44 - 44 7 3 1 11 33 - 1 - - - - 1 (Continued) Loss on disposal of property, plant and equipment (Note 2) Interest expense Casualty loss (Note 9) Foreign exchange loss, net (Note 2) Equity in losses of equity method investees, net (Notes 2 and 10) Others (Note 2) $ 838,750 214,641 190,992 58,737 - 161,152 Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 2 and 18) 1,464,272 169,290,204 7,685,195 - - - - - - - 42 2 $ 58,242 142,026 - 630,455 2,695,720 136,397 3,662,840 94,981,022 5,763,186 NET INCOME $ 161,605,009 40 $ 89,217,836 - - - - 1 - 1 33 2 31 EARNINGS PER SHARE (NT$, Note 22) 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 24, 2011) 2010 2009 Before Income Tax After Income Tax Before Income Tax After Income Tax $ 6.53 $ 6.53 $ 6.24 $ 6.23 $ 3.68 $ 3.67 $ 3.45 $ 3.44 (Concluded) 9 Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock - Common Stock Retained Earnings Others Shares (In Thousands) Amount Capital Surplus Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Unrealized Gain (Loss) on Financial Instruments Total Shareholders’ Equity BALANCE, JANUARY 1, 2009 25,625,437 $ 256,254,373 $ 49,875,255 $ 67,324,393 $ 391,857 $ 102,337,417 $ 170,053,667 $ 481,158 $ (287,342) $ 476,377,111 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 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 shareholders’ equity 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 - - - - - - - - - - - BALANCE, DECEMBER 31, 2009 25,902,706 259,027,066 55,486,010 77,317,710 - (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 - - (76,876,312) - 7,494,988 - 89,217,836 115,418 (2,247,825) 260,533 14,014 726,949 104,564,972 181,882,682 (1,766,667) 453,621 495,082,712 Appropriations of prior year’s earnings Legal capital reserve Special capital reserve Cash dividends to shareholders - NT$3.00 per share Net income in 2010 Adjustment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising employee stock options Valuation loss on available-for-sale financial assets Net change in shareholders’ equity from equity method investees - - - - - - 7,372 - - - - - - - - 73,721 - - - - - - (17,885) - 171,103 - 59,206 8,921,784 - - - - 1,313,047 - - (8,921,784) (1,313,047) (77,708,120) 161,605,009 - - (77,708,120) 161,605,009 - - - - - - - - - - - - - - - - - - - - - - - - - (4,776,496) - - - - - - - - - - (441,978) 97,646 - - (77,708,120) 161,605,009 (17,885) (4,776,496) 244,824 (441,978) 156,852 BALANCE, DECEMBER 31, 2010 25,910,078 $ 259,100,787 $ 55,698,434 $ 86,239,494 $ 1,313,047 $ 178,227,030 $ 265,779,571 $ (6,543,163) $ 109,289 $ 574,144,918 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 24, 2011) 10 2010 2009 $ 161,605,009 $ 89,217,836 Proceeds from return of capital by investees Increase in deferred charges Decrease (increase) in refundable deposits Increase in other assets 2010 2009 $ - (1,538,301) (5,940,633) (1,004,581) $ 27,753 (1,347,228) 21,621 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Unrealized gross profit from affiliates Amortization of premium/discount 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 on disposal of financial assets carried at cost Equity in losses (earnings) of equity method investees, net Cash dividends received from equity method investees Loss (gain) on disposal of property, plant and equipment and other assets, net Settlement income from receiving equity securities 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 Accrued expenses and other current liabilities Accrued pension cost Deferred credits 83,366,121 52,742 18,611 - - 1,263 (7,111,443) 422,490 761,298 (4,434,364) (373,253) 189,577 (3,192,201) (2,366,385) 57,000 (1,242,188) 85,830 904,157 (6,816,132) (445,797) 624,608 535,108 (1,652,251) (3,389,548) 4,188,131 265,241 17,425 (47,873) 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) Net cash provided by operating activities 222,023,176 155,902,046 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property, plant and equipment 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 (182,335,032) - (8,262,519) (480) - 15,943,000 3,370 387,735 (86,970,843) (10,803,805) (320,443) (1,411) 1,037,370 6,293,000 18,828 71,850 (Continued) Net cash used in investing activities (182,747,441) (91,973,308) CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans Repayment of bonds payable Decrease in guarantee deposits Proceeds from exercise of employee stock options Cash dividends 30,908,637 - (253,489) 244,824 (77,708,120) - (8,000,000) (477,776) 260,533 (76,876,312) Net cash used in financing activities (46,808,148) (85,093,555) NET DECREASE IN CASH AND CASH EQUIVALENTS (7,532,413) (21,164,817) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 117,043,543 138,208,360 CASH AND CASH EQUIVALENTS, END OF YEAR $ 109,511,130 $ 117,043,543 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Income tax paid INVESTING 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 Increase in other financial assets Nonmonetary exchange trade-out price Cash received $ 200,892 $ 9,640,396 $ 351,803 $ 7,791,196 $ 195,950,918 (13,491,140) (124,746) $ 182,335,032 $ 1,872,880 (1,142,108) (218,291) (124,746) $ 387,735 $ 108,592,471 (21,620,819) (809) $ 86,970,843 $ 64,390 8,269 - (809) $ 71,850 NON-CASH FINANCING ACTIVITIES Current portion of other long-term payables (under accrued expenses and other current liabilities) $ 718,637 $ 769,144 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated January 24, 2011) (Concluded) 11 Taiwan Semiconductor Manufacturing Company Limited NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. GENERAL Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of LED lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. 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, 2010 and 2009, the Company had 33,232 and 22,292 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. 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 due to their short term nature. 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 overseas publicly traded stock is determined using the closing prices at the end of the year. 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. 12 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. 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 other allowances 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. 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 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 and Assets Leased to Others 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. 13 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. 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 patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. 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 expense 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 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. which is the year subsequent to the year the earnings are generated. 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. 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. 4. CASH AND CASH EQUIVALENTS Cash and deposits in banks Repurchase agreements collateralized by government bonds $ 108,735,942 775,188 $ 114,023,307 3,020,236 December 31 2010 2009 Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. $ 109,511,130 $ 117,043,543 Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval 14 5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 7. HELD-TO-MATURITY FINANCIAL ASSETS Trading financial assets Cross currency swap contracts Trading financial liabilities Forward exchange contracts December 31 2010 2009 $ - $ 181,743 Corporate bonds Structured time deposits Government bonds Current portion December 31 2010 $ 6,202,287 - - 6,202,287 (4,796,589) 2009 $ 12,266,311 7,000,000 2,897,587 22,163,898 (9,944,843) $ 7,834 $ - $ 1,405,698 $ 12,219,055 The Company entered into derivative contracts during the years ended December 31, 2010 and 2009 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. Structured time deposits categorized as held-to-maturity financial assets consisted of the following: Principal Amount Interest Receivable Range of Interest Rates Maturity Date December 31, 2009 Outstanding forward exchange contracts consisted of the following: Maturity Date Contract Amount (In Thousands) Callable domestic deposits $ 7,000,000 $ 4,308 0.36% - 0.95% July 2010 to August 2011 (redeemed by the issuer from February 2010 to July 2010) December 31, 2010 Sell NT$/Buy JPY January 2011 to February 2011 NT$814,882/JPY2,278,420 8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS Movements of the allowance for doubtful receivables were as follows: 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 January 2010 to February 2010 US$750,000/NT$24,201,706 0.24% - 0.70% 0.00% - 0.38% For the years ended December 31, 2010 and 2009, changes in fair value related to derivative financial instruments recognized in earnings was a net gain of NT$312,862 thousand and NT$587,151 thousand, respectively. 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Overseas publicly traded stock Corporate bonds Current portion December 31 2010 $ 3,918,274 1,033,049 4,951,323 (3,918,274) 2009 $ - 1,046,672 1,046,672 - $ 1,033,049 $ 1,046,672 Balance, beginning of year Provision Write-off Balance, end of year Years Ended December 31 2010 2009 $ 431,000 59,268 (2,268) $ 436,746 238,061 (243,807) $ 488,000 $ 431,000 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 2010 2009 $ 8,583,632 11,703,136 (12,945,324) $ 5,868,582 13,728,346 (11,013,296) $ 7,341,444 $ 8,583,632 15 9. INVENTORIES Finished goods Work in process Raw materials Supplies and spare parts December 31 2010 $ 4,623,812 18,128,677 1,681,525 1,212,334 2009 $ 2,355,232 14,230,318 1,420,466 824,200 $ 25,646,348 $ 18,830,216 Write-down of inventories to net realizable value in the amount of NT$792,951 thousand and NT$199,732 thousand, respectively, were included in the cost of sales for the years ended December 31, 2010 and 2009. Inventory losses related to earthquake damage in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the year ended December 31, 2010. 10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD TSMC Global Ltd. (TSMC Global) TSMC Partners, Ltd. (TSMC Partners) Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Motech Industries Inc. (Motech) TSMC China Company Limited (TSMC China) TSMC North America VentureTech Alliance Fund III, L.P. (VTAF III) Xintec Inc. (Xintec) Global UniChip Corporation (GUC) VentureTech Alliance Fund II, L.P. (VTAF II) Emerging Alliance Fund, L.P. (Emerging Alliance) TSMC Europe B.V. (TSMC Europe) TSMC Japan Limited (TSMC Japan) TSMC Solar North America, Inc. (TSMC Solar NA) TSMC Solar Europe B.V. (TSMC Solar Europe) TSMC Korea Limited (TSMC Korea) TSMC Lighting North America, Inc. (TSMC Lighting NA) December 31 2010 2009 Carrying Amount % of Ownership Carrying Amount % of Ownership $ 43,710,543 33,565,775 9,422,452 7,120,714 6,733,369 4,252,270 2,873,888 2,769,423 1,645,201 1,113,516 1,063,057 304,310 177,784 150,312 26,527 23,971 20,929 3,133 100 100 38 39 20 100 100 99 41 35 98 99 100 100 100 100 100 100 $ 45,397,256 32,545,619 9,365,232 6,157,141 - 2,961,043 2,723,727 1,309,615 1,475,014 983,126 1,122,810 305,866 159,467 135,663 - - 18,519 - 100 100 37 39 - 100 100 98 41 35 98 99 100 100 - - 100 - In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited according to the related regulations. For the years ended December 31, 2010 and 2009, equity in earnings/losses of equity method investees was a net gain of NT$7,111,443 thousand and a net loss of NT$2,695,720 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the audited financial statements, except those of Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea for the year ended December 31, 2010 and those of TSMC Europe, TSMC Japan and TSMC Korea for the year ended December 31, 2009. The Company believes that, had Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea’s financial statements been audited, any adjustments arising would have no material effect on the Company’s financial statements. As of December 31, 2010 and 2009, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$14,993,626 thousand and NT$18,027,990 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 Additions Amortization Balance, end of year Years Ended December 31 2010 2009 $ 1,429,118 2,055,660 (980,282) $ 2,053,253 - (624,135) $ 2,504,496 $ 1,429,118 Movements of the difference allocated to goodwill were as follows: Balance, beginning of year Additions Balance, end of year $ 114,977,174 $ 104,660,098 11. FINANCIAL ASSETS CARRIED AT COST For the renewable energy and efficiency related businesses development, the Company established wholly-owned subsidiaries, TSMC Solar NA, TSMC Solar Europe and TSMC Lighting NA, in the third quarter of 2010. For the year ended December 31, 2010, the Company increased its investment in VTAF III for the amount of NT$1,862,278 thousand, and the Company’s percentage of ownership in VTAF III increased from 98% to 99%. Non-publicly traded stocks Mutual funds 16 Years Ended December 31 2010 2009 $ 1,061,885 353,680 $ 1,061,885 - $ 1,415,565 $ 1,061,885 December 31 2010 2009 $ 338,584 159,251 $ 338,584 163,404 $ 497,835 $ 501,988 12. PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 2010 Balance, Beginning of Year Year Ended December 31, 2009 Additions Amortization Balance, End of Year Balance, Beginning of Year Additions Disposals Reclassification Balance, End of Year Technology license fees Software and system design costs Patent and others $ 3,786,251 1,559,857 1,055,353 $ - 861,783 485,445 $ (806,450) (774,667) (275,887) $ 2,979,801 1,646,973 1,264,911 $ 124,522,047 713,426,126 10,781,099 848,729,272 $ 4,262,592 141,033,304 1,639,082 $ 146,934,978 $ (135,497) (1,867,880) (689,202) $ (2,692,579) $ (2,200) 142,042 (442) $ 139,400 $ 128,646,942 852,733,592 11,730,537 993,111,071 14. SHORT-TERM LOANS $ 6,401,461 $ 1,347,228 $ (1,857,004) $ 5,891,685 Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Advance payments and construction in progress 73,525,160 545,693,910 8,545,253 627,764,323 33,786,577 $ 7,951,678 72,528,436 906,714 $ 81,386,828 $ 49,015,940 $ (128,466) (1,867,476) (689,164) $ (2,685,106) $ (2,453,844) $ (495) 140,337 (442) $ 139,400 $ - 81,347,877 616,495,207 8,762,361 706,605,445 80,348,673 $ 366,854,299 Year Ended December 31, 2009 Additions Disposals Reclassification Balance, End of Year $ 254,751,526 Balance, Beginning of Year Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Advance payments and construction in progress $ 114,014,588 635,008,261 9,748,869 758,771,718 $ 10,520,371 80,824,102 1,219,459 $ 92,563,932 $ (12,978) (2,408,802) (187,163) $ (2,608,943) $ 66 2,565 (66) $ 2,565 $ 124,522,047 713,426,126 10,781,099 848,729,272 65,351,514 484,046,160 7,849,580 557,247,254 17,758,038 $ 8,186,551 63,395,862 882,718 $ 72,465,131 $ 16,028,539 $ (12,971) (1,750,677) (186,979) $ (1,950,627) $ - $ 66 2,565 (66) $ 2,565 $ - $ 219,282,502 73,525,160 545,693,910 8,545,253 627,764,323 33,786,577 $ 254,751,526 No interest was capitalized during the years ended December 31, 2010 and 2009. 13. DEFERRED CHARGES, NET Balance, Beginning of Year Year Ended December 31, 2010 Additions Amortization Balance, End of Year Technology license fees Software and system design costs Patent and others $ 2,979,801 1,646,973 1,264,911 $ - 1,327,183 211,118 $ (701,969) (898,221) (373,369) $ 2,277,832 2,075,935 1,102,660 $ 5,891,685 $ 1,538,301 $ (1,973,559) $ 5,456,427 Unsecured loans: US $864,000 thousand and EUR114,900 thousand, due in January 2011, and annual interest at 0.38% - 0.65% $ 30,908,637 December 31, 2010 15. BONDS PAYABLE Domestic unsecured bonds: Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually $ 4,500,000 $ 4,500,000 December 31 2010 2009 16. OTHER LONG-TERM PAYABLES The Company’s long-term payables mainly resulted from license agreements for certain semiconductor- related patents. As of December 31, 2010, the future payment of other long-term payable (classified under accrued expenses and other current liabilities) due in 2011 amounted to NT$718,637 thousand. 17. 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$964,063 thousand and NT$608,731 thousand for the years ended December 31, 2010 and 2009, 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. 17 Pension information on the defined benefit plan is summarized as follows: 18. INCOME TAX a. Components of net periodic pension cost for the year a. A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows: Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2010 2009 $ 129,552 145,151 (39,939) 1,061 $ 166,460 149,297 (56,170) 29,134 $ 235,825 $ 288,721 b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2010 and 2009 Income tax expense based on “income before income tax” at statutory rate (17% and 25% for 2010 and 2009, respectively) $ 28,779,335 $ 23,745,246 Years Ended December 31 2010 2009 Tax effect of the following: Tax-exempt income Temporary and permanent differences Others Additional tax at 10% on unappropriated earnings Income tax credits used (16,669,784) (704,252) - 127,489 (4,823,988) (8,621,941) 3,124,974 247,050 - (9,914,570) 2010 2009 Income tax currently payable $ 6,708,800 $ 8,580,759 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, 2010 and 2009 Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets d. Contributions to the Fund for the year e. Payments from the Fund for the year $ 189,047 5,390,113 5,579,160 3,634,495 9,213,655 (2,853,535) 6,360,120 (82,991) 154,738 (2,607,266) $ 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) $ 3,824,601 $ 3,807,176 $ 208,176 $ 135,501 2010 1.75% 3.00% 2.50% 2009 2.25% 3.00% 1.50% 2010 2009 $ 209,459 $ 191,554 2010 2009 $ 19,991 $ 37,801 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 Temporary differences Valuation allowance Income tax expense c. Net deferred income tax assets consisted of the following: Current deferred income tax assets Investment tax credits Temporary differences Allowance for sales returns and others Unrealized gain/loss on financial instruments Others Noncurrent deferred income tax assets Investment tax credits Temporary differences Depreciation Others Valuation allowance Years Ended December 31 2010 2009 $ 6,708,800 980,428 369,220 $ 8,580,759 (1,155,113) 15,921 (7,243,473) 16,790 6,853,430 (1,119,523) 41,456 (600,314) $ 7,685,195 $ 5,763,186 December 31 2010 2009 $ 4,182,893 $ 3,210,254 624,023 87,735 239,124 794,507 - 58,649 $ 5,133,775 $ 4,063,410 $ 17,792,321 $ 11,521,487 1,981,915 32,792 (12,652,762) 1,909,152 132,336 (5,799,332) $ 7,154,266 $ 7,763,643 18 Effective in May 2009 and June 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 25% to 20% and from 20% to 17%, respectively. The last amended income tax rate of 17% is retroactively applied on January 1, 2010. The Company recalculated its deferred tax assets in accordance with the new amended Article and adjusted the resulting difference as an income tax expense in 2010 and 2009, respectively. Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019. g. The profits generated from the following projects are exempt from income tax for a five-year period: Construction and expansion of 2001 Construction and expansion of 2003 Construction and expansion of 2004 Construction and expansion of 2005 Tax-exemption Period 2006 to 2010 2007 to 2011 2008 to 2012 2010 to 2014 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. 19. LABOR COST, DEPRECIATION AND AMORTIZATION d. Integrated income tax information: The balance of the imputation credit account as of December 31, 2010 and 2009 was NT$1,669,533 thousand and NT$369,265 thousand, respectively. The estimated and actual creditable ratios for distribution of earnings of 2010 and 2009 were 4.70% and 9.85%, 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. e. All earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2010, investment tax credits consisted of the following: Law/Statute Item Statute for Upgrading Industries Purchase of machinery and equipment Total Creditable Amount Remaining Creditable Amount Expiry Year $ 3,212,913 6,033,745 6,361,790 $ 2,512,408 6,033,745 6,361,790 2012 2013 2014 Statute for Upgrading Industries Research and development expenditures Statute for Upgrading Industries Personnel training expenditures $ 15,608,448 $ 14,907,943 $ 1,000,000 1,054,194 2,691,517 4,328,009 $ - - 2,691,517 4,328,009 2010 2011 2012 2013 $ 9,073,720 $ 7,019,526 $ 19,293 30,624 17,121 $ - 30,624 17,121 2011 2012 2013 $ 67,038 $ 47,745 Statute for Industrial Innovation Research and development $ 2,049,996 $ - 2010 expenditures 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, 2010 Classified as Cost of Sales Classified as Operating Expenses Total $ 24,222,823 973,364 765,872 566,425 228,218 63,384 $ 17,849,735 550,731 433,932 229,247 133,376 26,614 $ 42,072,558 1,524,095 1,199,804 795,672 361,594 89,998 $ 26,820,086 $ 19,223,635 $ 46,043,721 $ 76,219,816 $ 1,242,824 $ 5,150,747 $ 730,735 $ 81,370,563 $ 1,973,559 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 20. SHAREHOLDERS’ EQUITY As of December 31, 2010, 1,096,448 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,482,242 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) 19 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. The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee. Capital surplus consisted of the following: Additional paid-in capital From merger From convertible bonds From long-term investments Donations December 31 2010 $ 23,628,908 22,805,390 8,893,190 370,891 55 2009 $ 23,457,805 22,805,390 8,893,190 329,570 55 $ 55,698,434 $ 55,486,010 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: a. Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Company’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 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 accrued profit sharing to employees as a charge to earnings of certain percentage of net income during the year amounted to NT$10,908,338 thousand and NT$6,691,338 thousand for the years ended December 2010 and 2009, respectively; bonuses to directors were accrued with an estimate based on historical experience. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting. 20 The appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Company has no unappropriated earnings and the reserve balance has exceeded 50% of the Company’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Company’s paid-in capital, up to 50% of the reserve may be transferred to capital. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2009 and 2008 had been approved in the shareholders’ meetings held on June 15, 2010 and June 10, 2009, respectively. The appropriations and dividends per share were as follows: Appropriation of Earnings Dividends Per Share (NT$) For Fiscal Year 2009 For Fiscal Year 2008 For Fiscal Year 2009 For Fiscal Year 2008 Legal capital reserve Special capital reserve Cash dividends to shareholders Stock dividends to shareholders $ 8,921,784 1,313,047 77,708,120 - $ 9,993,317 (391,857) 76,876,312 512,509 $ 87,942,951 $ 86,990,281 $ 3.00 - $ 3.00 0.02 TSMC’s profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, and profit sharing to employees to be 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 15, 2010 and June 10, 2009, respectively. The profit sharing to employees in stock of 141,870 thousand shares for 2008 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 9, 2010 and February 10, 2009 and same amount had been charged against earnings of 2009 and 2008, respectively. 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. As of January 24, 2011, the Board of Directors has not resolved the appropriation for earnings of 2010. The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website. Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998. 21. 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 exercised. 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. Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2010. Information about outstanding options for the years ended December 31, 2010 and 2009 was as follows: Year ended December 31, 2010 Balance, beginning of year Options exercised Options canceled Balance, end of year Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Number of Options (In Thousands) Weighted-average Exercise Price (NT$) 28,810 (7,372) (1) 21,437 36,234 175 (7,272) (327) 28,810 $ 32.4 33.2 50.1 32.3 34.0 34.0 35.8 46.5 33.5 The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans. As of December 31, 2010, information about outstanding options was as follows: Range of Exercise Price (NT$) $21.7 - $30.5 38.0 - 50.1 Options Outstanding Number of Options (In Thousands) Weighted-average Remaining Contractual Life (Years) 16,438 4,999 21,437 2.20 3.91 2.60 Weighted-average Exercise Price (NT$) $ 28.2 45.6 32.3 As of December 31, 2010, all of the above outstanding options were exercisable. No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2010 and 2009. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions at the various grant dates and pro forma results of the Company for the years ended December 31, 2010 and 2009 would have been 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 22. EARNINGS PER SHARE EPS is computed as follows: Year ended December 31, 2010 Basic EPS 1.00% - 3.44% 43.77% - 46.15% 3.07% - 3.85% 5 years Years Ended December 31 2010 2009 $ 161,605,009 161,470,030 $ 89,217,836 88,838,182 $ 6.24 6.23 6.23 6.23 $ 3.45 3.44 3.44 3.43 Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax Earnings available to common shareholders Effect of dilutive potential common shares $ 169,290,204 - $ 161,605,009 - 25,905,832 14,262 $ 6.53 $ 6.24 Diluted EPS Ea rnings available to common shareholders (including effect of dilutive potential common shares) $ 169,290,204 $ 161,605,009 25,920,094 $ 6.53 $ 6.23 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 77,319 $ 3.68 $ 3.45 Diluted EPS Ea rnings available to common shareholders (including effect of dilutive potential common shares) $ 94,981,022 $ 89,217,836 25,913,121 $ 3.67 $ 3.44 21 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 considered for the effect of retroactive adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the year ended December 31, 2009 to remain at NT$3.45 and NT$3.44, respectively. 23. DISCLOSURES FOR FINANCIAL INSTRUMENTS a. Fair values of financial instruments were as follows: 4) Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented. 5) Fair value of the bonds payable was based on their quoted market price. 6) Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount. c. The changes in fair value of derivatives contracts which were outstanding as of December 31, 2010 and 2009 estimated using valuation techniques were recognized as a net loss of NT$7,834 thousand and a net gain of NT$181,743 thousand, respectively. d. As of December 31, 2010 and 2009, financial assets exposed to fair value interest rate risk were NT$7,235,336 thousand and NT$23,392,313 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$35,416,471 thousand and NT$4,500,000 thousand, respectively. December 31 2010 and 2009 were as follows: e. Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2010 Carrying Amount Fair Value 2009 Carrying Amount Fair Value Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost $ - 4,951,323 6,202,287 497,835 $ - 4,951,323 6,278,054 - $ 181,743 1,046,672 22,163,898 501,988 $ 181,743 1,046,672 22,251,517 - Liabilities Financial liabilities at fair value through profit or loss Bonds payable Other long-term payables (including current portion) 7,834 4,500,000 718,637 7,834 4,538,660 718,637 - 4,500,000 1,185,534 - 4,574,979 1,185,534 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, short-term loans, 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, 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. Balance, beginning of year Recognized directly in shareholders’ equity Year Ended December 31, 2010 From Available-for-sale Financial Assets Equity-method Investments Total $ 46,672 (441,978) $ 406,949 97,646 $ 453,621 (344,332) Balance, end of year $ (395,306) $ 504,595 $ 109,289 Year Ended December 31, 2009 From Available-for-sale Financial Assets Equity-method Investments 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 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 market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate 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 and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market price will result in changes in fair values of these debt securities. 22 Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows : 2010 2009 Amount % Amount % 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. 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 was not significant. 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. 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 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 For the year Sales TSMC North America Others Purchases TSMC China WaferTech VIS SSMC Others Manufacturing expenses Xintec (rent and outsourcing) VisEra (outsourcing) VIS (rent) Marketing expenses - commission TSMC Europe TSMC Japan TSMC China Others Research and development expenses TSMC Technology (primarily consulting fee) TSMC Canada (primarily consulting fee) VIS (primarily rent) Others Sales of property, plant and equipment and other assets TSMC China Xintec Others VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method. Purchases of property, plant and equipment and intangible assets e. Others Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions. VIS TSMC China WaferTech $ 220,529,792 3,071,549 $ 223,601,341 $ 8,748,101 7,878,260 4,937,617 4,521,046 39,099 $ 26,124,123 $ 313,397 44,488 9,845 $ 367,730 $ 415,765 266,194 59,180 19,318 $ 760,457 $ 547,838 181,943 12,017 66,074 $ 807,872 $ 1,409,862 3,841 80,495 $ 1,494,198 $ 109,855 66,337 9,624 $ 185,816 53 1 54 18 16 10 10 - 54 - - - - 15 9 2 1 27 2 1 - - 3 75 - 5 80 - - - - $ 161,251,368 2,231,343 $ 163,482,711 $ 3,787,113 5,560,707 3,312,656 3,537,659 - $ 16,198,135 $ 36,101 35,737 - $ 71,838 $ 325,463 233,855 10,302 14,424 $ 584,044 $ 409,686 157,527 1,264 47,987 $ 616,464 $ 595 58,450 263 $ 59,308 $ - - - $ - 54 1 55 12 18 10 11 - 51 - - - - 16 12 - 1 29 2 1 - - 3 1 91 - 92 - - - - 23 2010 Amount % 2009 Amount Non-operating income and gains VIS (primarily technical service income, see Note 27e) SSMC (primarily technical service income, see Note 27d) TSMC China Others $ 267,370 198,218 49,738 9,655 $ 524,981 2 1 - - 3 $ 224,740 141,488 184,626 263 $ 551,117 12 Compensation of directors and management personnel: % 5 3 4 - Salaries, incentives and special compensation Bonus Years Ended December 31 2010 2009 $ 773,134 578,343 $ 572,464 395,313 $ 1,351,477 $ 967,777 As of December 31 Receivables TSMC North America Others Other receivables TSMC China VIS SSMC Others Payables TSMC China WaferTech SSMC VIS TSMC Technology Others Deferred debits (credits) TSMC China $ 25,579,259 154,715 99 1 $ 22,203,242 338,531 98 2 $ 25,733,974 100 $ 22,541,773 100 $ 1,170,407 70,798 53,788 7,288 90 5 4 1 $ 111,103 81,663 39,629 13,608 45 33 16 6 $ 1,302,281 100 $ 246,003 100 $ 895,193 568,685 430,235 428,797 88,292 163,248 35 22 17 17 3 6 $ 481,500 561,165 238,741 529,060 109,220 119,656 24 27 12 26 5 6 $ 2,574,450 100 $ 2,039,342 100 $ 27,327 2 $ (7,970) (17) 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 paid monthly and the related expenses were classified under manufacturing expenses. The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The office rental was prepaid by the Company and the facilities rental was paid quarterly. The related rental expenses were classified under research and development expenses and manufacturing expenses. The Company deferred the gains and losses (classified under deferred debits and deferred credits) derived from sales of property, plant and equipment to TSMC China, and then recognized such gains and losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets. 24 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, 2010 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2010 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2011. The total compensation for the year ended December 31, 2009 included the bonuses appropriated from earnings of 2009 which was approved by the shareholders’ meeting held in 2010. 25. PLEDGED OR MORTGAGED ASSETS As of December 31, 2010 and 2009, the Company had pledged time deposits of NT$25,864 thousand and NT$824,797 thousand (classified as other financial assets) as collateral for land lease agreements and customs duty guarantee, respectively. 26. SIGNIFICANT LONG-TERM LEASES The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from April 2011 to July 2030 and can be renewed upon expiration. As of December 31, 2010, future lease payments were as follows: Year 2011 2012 2013 2014 2015 2016 and thereafter Amount $ 414,444 412,977 388,729 375,171 365,007 3,078,295 $ 5,034,623 27. SIGNIFICANT COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2010, 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. 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, 2010, the Company had a total of US$22,653 thousand of guarantee deposits. Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares on July 5, 2010, representing approximately 7.37% of Semiconductor Manufacturing International Corporation’s total shares outstanding, and recognized settlement income amounting to NT$4,434,364 thousand. 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. f. In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “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 TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court 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. TSMC has 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 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, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the g. In June 2010, STC.UNM, the technology transfer arm of the University of New Mexico, filed a complaint in the U.S. International Trade Commission (“USITC”) accusing the Company and one other company of allegedly infringing a single U.S. patent. Based on this complaint, the USITC has initiated an investigation in July 2010. The Company and STC.UNM have subsequently reached a settlement agreement and, on November 15, 2010, filed a joint motion to terminate the investigation based on the settlement agreement. As a result, the Administrative Law Judge (“ALJ”) assigned to the investigation has made an initial determination to terminate the investigation based on the settlement agreement. The USITC, on December 21, 2010, decided not to review the ALJ’s initial determination, which officially terminates this investigation. h. In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. The outcome of this litigation cannot be determined at this time. i. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time. 28. OTHERS The significant financial assets and liabilities denominated in foreign currencies were as follows: December 31 2010 2009 Foreign Currency (In Thousands) Exchange Rate (Note) Foreign Currency (In Thousands) Exchange Rate (Note) Financial assets Monetary assets USD EUR JPY Non-monetary assets HKD Investments accounted for using equity method USD EUR JPY RMB Financial liabilities Monetary liabilities USD EUR JPY $ 1,732,529 224,363 28,580,962 1,002,116 2,997,686 4,963 402,441 927,986 1,776,756 261,956 30,604,986 30.368 40.65 0.3735 3.91 30.368 40.65 0.3735 4.61 30.368 40.65 0.3735 $ 1,467,092 58,214 31,840,267 - 2,777,541 3,448 389,389 630,438 690,011 72,647 34,454,091 Note:Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged. 32.03 46.25 0.3484 - 32.03 46.25 0.3484 4.693 32.03 46.25 0.3484 25 29. ADDITIONAL DISCLOSURES Following are the additional disclosures required by the SFB for the Company and its investees: a. Financing provided: Please see Table 1 attached; b. Endorsement/guarantee provided: None; c. Marketable securities held: Please see Table 2 attached; Xintec entered into forward exchange contracts during the year ended December 31, 2010 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2010 consisted of the following: Sell US$/Buy NT$ January 2011 to March 2011 US$11,800/NT$353,076 Maturity Date Contract Amount (In Thousands) For the year ended December 31, 2010, net gains arising from forward exchange contracts of Xintec amounted to NT$11,005 thousand. d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the Meet the criteria for hedge accounting paid-in capital: Please see Table 3 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 4 attached; Xintec monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, Xintec seeks to reduce the effects of future cash flow related interest rate exposures by primarily using derivative financial instruments. 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: Please see Table 5 attached; Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate sw ap contract to hedge such a cash flow interest rate risk. As of December 31, 2010, the outstanding interest rate swap contract of Xintec consisted of the following: Hedged Item Hedging Financial Instrument Fair Value December 31, 2010 Expected Cash Flow Generated Period Expected Timing for the Recognition of Gains or Losses from Hedge h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please Long-term bank loans Interest rate swap contract $ (814) 2010 to 2012 2010 to 2012 see Table 6 attached; i. Names, locations, and related information of investees over which the Company exercises significant influence: Please see Table 7 attached; The adjustment to shareholders’ equity and the amount removed from shareholders’ equity and recognized a loss of Xintec as a result of the above interest rate swap contract amounted to NT$814 thousand and NT$352 thousand for the year ended December 31, 2010, respectively. j. Information about derivatives of investees over which the Company has a controlling interest: k. Information on investment in Mainland China Not meet the criteria for hedge accounting TSMC China entered into forward exchange contracts during the year ended December 31, 2010 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2010 consisted of the following: Sell EUR/ Buy US$ Sell RMB/ Buy US$ Maturity Date February 2011 May 2011 to June 2011 Contract Amount (In Thousands) EUR3,067/US$4,093 RMB529,190/US$80,000 For the year ended December 31, 2010, net losses arising from forward exchange contracts of TSMC China amounted to NT$3,137 thousand. 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 8 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. 26 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. b. Geographic information The Company has no significant foreign operations. Therefore, the disclosure of geographic information is not applicable to the Company. c. Export sales Area Americas Asia Europe and others Years Ended December 31 2010 2009 $ 228,283,198 86,188,861 48,906,727 $ 166,813,136 59,496,755 31,350,249 $ 363,378,786 $ 257,660,140 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 Customer A Years Ended December 31 2010 Amount $ 220,529,792 2009 Amount $ 161,251,368 % 53 % 54 27 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Investees FINANCINGS PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) No. Financing Name Financial statement Account Counter-party Financing Limit for Each Borrowing Company Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) Interest Rate Reason for Financing Allowance for Bad Debt Collateral Item Value Transaction Amounts Financing Company’s Financing Amount Limits (US$ in Thousands) (Note 2) 1 TSMC Partners Long-term receivables from related parties TSMC China (Note 1) $ 3,644,160 (US$ 120,000) $ 3,644,160 (US$ 120,000) 0.25% - 0.26% Purchase equipment $ - - $ - $ - $ 33,565,775 Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC will not subjected to this restriction. Note 2: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners. 28 TABLE 2 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES HELD DECEMBER 31, 2010 (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 TSMC Corporate bond Taiwan Mobile Co., Ltd. China Steel Corporation Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation - - - - - - Stock Semiconductor Manufacturing International Corporation TSMC Global - Subsidiary Available-for-sale financial assets Held-to-maturity financial assets 〃 〃 〃 〃 Available-for-sale financial assets In vestments accounted for using equity method TSMC Partners VIS SSMC Motech TSMC North America Xintec GUC TSMC Europe TSMC Japan TSMC Solar NA TSMC Solar Europe TSMC Korea TSMC Lighting NA 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 In vestee accounted for using equity method In vestee accounted for using equity method In vestee accounted for using equity method Subsidiary In vestee with a controlling financial interest In vestee with a controlling financial 〃 〃 〃 〃 〃 〃 〃 interest Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary - - - - - Subsidiary Subsidiary Subsidiary Subsidiary - - 〃 〃 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 Financial assets carried at cost 〃 In vestments accounted for using equity method 〃 〃 〃 Held-to-maturity financial assets 〃 TSMC Partners December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note - - - - - - $ 1,033,049 1,507,400 1,463,791 1,352,022 1,303,298 575,776 1,789,493 1 988,268 628,223 314 76,069 11,000 93,081 46,688 - 6 1 - 80 1 16,783 10,500 4,000 - - - - - - - - 3,918,274 43,710,543 33,565,775 9,422,452 7,120,714 6,733,369 2,873,888 1,645,201 1,113,516 177,784 150,312 26,527 23,971 20,929 3,133 193,584 105,000 40,000 103,992 55,259 4,252,270 2,769,423 1,063,057 304,310 US$ 20,283 US$ 20,141 N/A N/A N/A N/A N/A N/A 7 100 100 38 39 20 100 41 35 100 100 100 100 100 100 10 7 2 12 1 100 99 98 99 N/A N/A $ 1,033,049 1,516,479 1,472,381 1,360,403 1,347,296 581,495 3,918,274 43,710,543 33,565,775 9,297,707 6,742,565 4,685,200 2,873,888 1,632,596 5,695,919 177,784 150,312 26,527 23,971 20,929 3,133 321,548 356,893 43,977 103,992 55,259 4,278,014 2,749,807 1,057,288 304,310 US$ 21,065 US$ 21,391 (Continued) 29 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Common stock TSMC Development, Inc. (TSMC Development) Subsidiary In vestments accounted for using equity method VisEra Holding Company InveStar Semiconductor Development Fund, Inc. (ISDF) InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II) TSMC Technology TSMC Canada Mcube Inc. In vestee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary In vestee accounted for using equity method 〃 〃 〃 〃 〃 〃 December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note 1 US$ 403,257 100 US$ 403,257 43,000 US$ 83,057 49 US$ 83,057 4,088 16,532 1 2,300 5,333 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 - 97 97 100 100 70 10 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 - - In vestee accounted for using equity In vestments accounted for using 1,000 - method equity method - - Held-to-maturity financial assets 〃 - - US$ 20,215 US$ 15,000 N/A N/A US$ 21,391 US$ 15,075 Subsidiary In vestments accounted for using 293,637 US$ 165,211 100 US$ 165,211 Preferred stock Mcube Inc. Corporate bond GE Capital Corp. JP Morgan Chase & Co. Stock WaferTech Corporate bond Beal Bk Beal Bk Ssb Cd Ally Bank Cd Banco Popular De P R H&R Block Bank Common stock RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Audience, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. QST Holdings, LLC - - - - - - - - - - - - Capital VentureTech Alliance Holdings, LLC (VTA Holdings) Subsidiary Corporate bond Beal Bk Beal Bk Ssb Cd Ally Bank Cd Banco Popular De P R H&R Block Bank Common stock Leadtrend Aether Systems, Inc. RichWave Technology Corp. Sentelic - - - - - - - - - TSMC Development Emerging Alliance VTAF II 30 equity method Available-for-sale financial assets 〃 〃 〃 〃 249 249 249 249 249 US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 N/A N/A N/A N/A N/A US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 Financial assets carried at cost 〃 4,074 11,124 US$ 1,545 US$ 3,065 10 6 US$ 1,545 US$ 3,065 Financial assets carried at cost 〃 〃 〃 〃 In vestments accounted for using equity method Available-for-sale financial assets 〃 〃 〃 〃 Available-for-sale financial assets Financial assets carried at cost 〃 〃 1,654 800 1,276 4,641 - US$ 250 US$ 500 US$ 1,145 US$ 1,137 US$ 142 - 249 249 249 249 249 - US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 738 1,600 1,267 1,806 US$ 3,159 US$ 1,503 US$ 1,036 US$ 2,607 - 1 2 2 4 7 N/A N/A N/A N/A N/A 2 25 3 9 US$ 250 US$ 500 US$ 1,145 US$ 1,137 US$ 142 - US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 US$ 3,159 US$ 1,503 US$ 1,036 US$ 2,607 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Preferred stock 5V Technologies, Inc. Aquantia Audience, Inc. Beceem Communications Impinj, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. Power Analog Microelectronics QST Holdings, LLC Xceive Capital VTA Holdings - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Subsidiary In vestments accounted for using equity method 2,890 3,974 12,378 797 475 3,795 2,847 33,347 7,027 - 4,210 US$ 2,168 US$ 3,816 US$ 2,378 US$ 1,701 US$ 1,000 US$ 953 US$ 2,825 US$ 1,878 US$ 3,383 US$ 593 US$ 1,554 - - VTAF III Common stock Mutual-Pak Technology Co., Ltd. Subsidiary In vestments accounted for using 11,868 US$ 2,058 equity method Aiconn Technology Corporation In vestee accounted for using equity 〃 5,623 US$ 546 Preferred stock Auramicro, Inc. BridgeLux, Inc. Exclara, Inc. GTBF, Inc. InvenSense, Inc. LiquidLeds Lighting Corp. Neoconix, Inc. Powervation, Ltd. Quellan, Inc. Silicon Technical Services, LLC Stion Corp. Tilera, Inc. Validity Sensors, Inc. Capital Growth Fund Limited (Growth Fund) VTA Holdings Common stock SiliconBlue Technologies, Inc. Veebeam Common stock Integrated Memory Logic, Inc. Memsic, Inc. Preferred stock IP Unity, Inc. Sonics, Inc. Common stock Memsic, Inc. Alchip Technologies Limited Growth Fund ISDF ISDF II method - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Subsidiary Subsidiary In vestments accounted for using equity method 〃 4,694 6,113 59,695 1,154 816 1,600 3,686 380 3,106 1,055 7,347 3,890 9,340 - - US$ 1,408 US$ 7,781 US$ 5,897 US$ 1,500 US$ 1,000 US$ 800 US$ 4,717 US$ 5,797 US$ 369 US$ 1,208 US$ 50,000 US$ 3,025 US$ 3,456 - Financial assets carried at cost 〃 5,107 10 US$ 762 US$ 25 Available-for-sale financial assets 〃 3,541 1,286 US$ 12,400 US$ 4,371 Financial assets carried at cost 〃 1,008 230 US$ 290 US$ 497 - - - - - - - - 4 3 3 1 - 2 4 2 19 13 3 31 57 43 20 4 15 N/A 1 11 4 16 N/A - 23 2 4 US$ 2,168 US$ 3,816 US$ 2,378 US$ 1,701 US$ 1,000 US$ 953 US$ 2,825 US$ 1,878 US$ 3,383 US$ 593 US$ 1,554 - US$ 2,058 US$ 546 US$ 1,408 US$ 7,781 US$ 5,897 US$ 1,500 US$ 1,000 US$ 800 US$ 4,717 US$ 5,797 US$ 369 US$ 1,208 US$ 50,000 US$ 3,025 US$ 3,456 62 1 - 5 5 1 2 - US$ 762 US$ 25 US$ 12,400 US$ 4,371 US$ 290 US$ 497 US$ 846 100 US$ 846 Available-for-sale financial assets Financial assets carried at cost 1,072 7,520 US$ 3,645 US$ 3,664 5 14 US$ 3,645 US$ 3,664 (Continued) 31 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) GUC GUC-BVI Xintec TSMC Solar Europe TSMC Global Sonics, Inc. Goyatek Technology, Corp. Auden Technology MFG. Co., Ltd. Preferred stock FangTek, Inc. Sonics, Inc. Common stock GUC-NA GUC-Japan GUC-BVI GUC-Europe Capital Global Unichip (Shanghai) Company, Limited (GUC-Shanghai) Capital Compositech Ltd. Stock TSMC Solar Europe GmbH Corporate bond African Development Bank Allstate Life Gbl Fdg Secd Alltel Corp. American Honda Fin Corp. Mtn Anz National Intl Ltd. Asian Development Bank Astrazeneca Plc AT+T Wireless Australia + New Zealand Bkg Banco Bilbao Vizcaya P R Bank New York Inc. Bank New York Inc. Medium Bank of America Corp. Bank of New York Mellon Bank of Nova Scotia Barclays Bank Plc Barclays Bank Plc NY Bbva US Senior SA Uniper Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Med Term Berkshire Hathaway Inc. Del Bhp Billiton Fin USA Ltd. Bk Tokyo Mitsubishi Ufj Bmw US Capital LLC Bnp Paribas SA Boeing Cap Corp. Boeing Co. Bp Captial Markets Plc Caterpillar Financial Se Cellco Part/Veri Wireless Cello Part/Veri Wirelss - - - - - Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary - Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 278 932 1,049 US$ 10 US$ 545 US$ 223 Financial assets carried at cost 〃 1,032 264 US$ 686 US$ 456 3 6 3 6 3 Note Market Value or Net Asset Value (US$ in Thousands) US$ 10 US$ 545 US$ 223 US$ 686 US$ 456 In vestments accounted for using 800 $ 58,045 100 $ 58,045 equity method 〃 〃 〃 In vestments accounted for using equity method Financial assets carried at cost In vestments accounted for using equity method Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 1 550 - - 587 1 2,600 4,430 100 4,000 3,500 2,500 3,150 3,500 2,000 3,250 1,615 2,100 2,100 2,200 5,000 12,000 400 2,645 2,200 3,500 2,400 3,500 2,000 2,000 1,600 3,810 2,925 450 3,900 900 1,000 2,000 14,706 8,761 3,747 7,468 - 3,658 US$ 2,622 US$ 4,824 US$ 108 US$ 3,995 US$ 3,554 US$ 2,501 US$ 3,397 US$ 3,823 US$ 2,047 US$ 3,249 US$ 1,613 US$ 2,253 US$ 2,154 US$ 2,206 US$ 5,000 US$ 11,997 US$ 400 US$ 2,638 US$ 2,199 US$ 3,494 US$ 2,618 US$ 3,517 US$ 2,104 US$ 2,042 US$ 1,602 US$ 3,844 US$ 3,192 US$ 458 US$ 3,988 US$ 901 US$ 1,159 US$ 2,020 100 100 100 100 3 100 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 14,706 8,761 3,747 7,468 - 3,658 US$ 2,622 US$ 4,824 US$ 108 US$ 3,995 US$ 3,554 US$ 2,501 US$ 3,397 US$ 3,823 US$ 2,047 US$ 3,249 US$ 1,613 US$ 2,253 US$ 2,154 US$ 2,206 US$ 5,000 US$ 11,997 US$ 400 US$ 2,638 US$ 2,199 US$ 3,494 US$ 2,618 US$ 3,517 US$ 2,104 US$ 2,042 US$ 1,602 US$ 3,844 US$ 3,192 US$ 458 US$ 3,988 US$ 901 US$ 1,159 US$ 2,020 32 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Cie Financement Foncier Cie Financement Foncier Citigroup Funding Inc. Citigroup Funding Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Coca Cola Co. Commonwealth Bank Aust Countrywide Finl Corp. Credit Suisse First Boston USA Credit Suisse New York Deutsche Bank AG NY Dexia Credit Local Dexia Credit Local Dexia Credit Local S.A Dexia Credit Local SA NY Du Pont E I De Nemours + Co. Ebay Inc. Eog Resources Inc. Finance for Danish Ind General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. General Electric Capital Corp. Georgia Pwr Co. Georgia Pwr Co. Gmac LLC Goldman Sachs Group Inc. Groupe Bpce Hewlett Packard Co. Hewlett Packard Co. Household Fin Corp. HSBC Bank Plc HSBC Fin Corp. HSBC Fin Corp. IBM Corp. IBM Corp. IBM Corp. Intl Bk Recon + Develop Intl Bk Recon + Develop John Deer Capital Corp. Fdic GT JP Morgan Chase + Co. JP Morgan Chase + Co. Kfw Medium Term Nts Book Entry Kreditanstalt Fur Wiederaufbau Lilly Eli + Co. Lloyds Tsb Bank Plc Ser 144A Lloyds Tsb Bank Plc Ser 144A Macquarie Bk Ltd. Sr Massmutual Global Fdg II Mediu Mellon Fdg Corp. Merck + Co. Inc. Merck + Co. Inc. Merrill Lynch + Co. Inc. Met Life Glob Funding I Metlife Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 200 4,000 16,000 7,300 1,400 800 400 5,000 4,000 2,800 4,000 2,150 3,945 2,500 6,000 4,000 4,000 5,000 825 1,375 1,500 3,800 1,000 7,000 1,000 4,000 2,000 1,000 4,000 4,600 2,000 1,150 3,000 2,030 4,330 3,400 2,315 2,900 2,300 6,800 1,500 5,000 2,000 3,500 2,500 5,000 1,950 650 1,500 4,850 5,950 3,900 4,000 3,500 4,000 2,000 4,691 500 6,500 US$ 200 US$ 4,019 US$ 16,323 US$ 7,446 US$ 1,390 US$ 814 US$ 426 US$ 5,490 US$ 4,002 US$ 2,806 US$ 4,208 US$ 2,253 US$ 4,090 US$ 2,487 US$ 5,976 US$ 3,984 US$ 3,992 US$ 4,983 US$ 886 US$ 1,361 US$ 1,501 US$ 3,799 US$ 999 US$ 7,002 US$ 1,001 US$ 4,110 US$ 1,967 US$ 1,005 US$ 4,006 US$ 4,731 US$ 1,956 US$ 1,140 US$ 3,003 US$ 2,032 US$ 4,694 US$ 3,405 US$ 2,304 US$ 3,074 US$ 2,301 US$ 6,775 US$ 1,500 US$ 5,002 US$ 2,046 US$ 3,616 US$ 2,513 US$ 5,021 US$ 1,950 US$ 664 US$ 1,548 US$ 4,857 US$ 6,009 US$ 3,975 US$ 3,955 US$ 3,475 US$ 4,032 US$ 2,077 US$ 4,647 US$ 508 US$ 6,600 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 N/A N/A US$ 200 US$ 4,019 US$ 16,323 US$ 7,446 US$ 1,390 US$ 814 US$ 426 US$ 5,490 US$ 4,002 US$ 2,806 US$ 4,208 US$ 2,253 US$ 4,090 US$ 2,487 US$ 5,976 US$ 3,984 US$ 3,992 US$ 4,983 US$ 886 US$ 1,361 US$ 1,501 US$ 3,799 US$ 999 US$ 7,002 US$ 1,001 US$ 4,110 US$ 1,967 US$ 1,005 US$ 4,006 US$ 4,731 US$ 1,956 US$ 1,140 US$ 3,003 US$ 2,032 US$ 4,694 US$ 3,405 US$ 2,304 US$ 3,074 US$ 2,301 US$ 6,775 US$ 1,500 US$ 5,002 US$ 2,046 US$ 3,616 US$ 2,513 US$ 5,021 US$ 1,950 US$ 664 US$ 1,548 US$ 4,857 US$ 6,009 US$ 3,975 US$ 3,955 US$ 3,475 US$ 4,032 US$ 2,077 US$ 4,647 US$ 508 US$ 6,600 (Continued) 33 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Metlife Inc. Microsoft Corp. Monumental Global Fdg II Monumental Global Fdg III Morgan Stanley Morgan Stanley Dean Witter Morgan Stanley for Equity National Australia Bank New York Life Global Fdg Nordea Bank Fld Plc Occidental Pete Corp. Occidental Petroleum Cor Ontario (Province of) Pacific Gas + Electric Pnc Funding Corp. Pricoa Global Fdg I Med Term Principal Life Income Fundings Princoa Global Fdg I Medium Rabobank Nederland Royal Bk of Scotland Plc Royal Bk of Scotland Plc Royal Bk Scotland Plc Royal Bk Scotlnd Grp Plc 144A Sbc Communications Inc. Shell International Fin Shell International Fin Sovereign Bancorp Fdic Gtd Tlg State Str Corp. Sun Life Finl Global Sun Life Finl Global Fdg II Lp Suncorp Metway Ltd. Svenska Handelsbanken AB Swedbank AB Swedbank Foreningssparbanken A Swedbank Hypotek AB Teva Pharma Fin III LLC Tiaa Global Mkts Inc. Tiaa Global Mkts Inc. Mtn Ubs Ag Stamford CT Ubs Ag Stamford CT US Central Federal Cred Verizon Communications Inc. Wachovia Corp. Wachovia Corp. Global Medium Wachovia Corp. New Wal Mart Stores Inc. Wal Mart Stores Inc. Wells Fargo + Company Westpac Banking Corp. Westpac Banking Corp. Westpac Banking Corp. Wyeth Aust + Nz Banking Group Commonwealth Bank of Australia Commonwealth Bank of Australia JP Morgan Chase + Co. Nationwide Building Society-UK Government Guarantee Westpac Banking Corp. Westpac Banking Corp. 12/12 Frn - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 〃 〃 〃 〃 〃 2,000 3,250 1,500 750 1,000 8,000 2,000 1,000 2,000 2,250 3,200 1,000 2,000 2,000 2,000 1,750 1,500 5,050 5,000 4,000 5,000 2,550 9,450 2,000 4,515 3,200 2,200 6,420 4,400 1,500 8,800 2,200 2,000 1,500 4,000 4,000 2,000 1,500 2,200 800 4,000 1,500 550 5,000 1,400 4,000 3,770 2,000 3,500 2,100 4,000 3,345 20,000 25,000 25,000 35,000 8,000 25,000 5,000 US$ 2,013 US$ 3,232 US$ 1,446 US$ 729 US$ 1,036 US$ 8,524 US$ 1,996 US$ 1,019 US$ 2,049 US$ 2,241 US$ 3,700 US$ 1,004 US$ 2,038 US$ 1,999 US$ 2,000 US$ 1,724 US$ 1,483 US$ 5,011 US$ 5,000 US$ 4,002 US$ 5,052 US$ 2,589 US$ 9,516 US$ 2,106 US$ 4,536 US$ 3,248 US$ 2,260 US$ 6,417 US$ 4,332 US$ 1,496 US$ 8,982 US$ 2,253 US$ 1,998 US$ 1,536 US$ 3,993 US$ 4,016 US$ 2,141 US$ 1,631 US$ 2,199 US$ 807 US$ 4,084 US$ 1,631 US$ 545 US$ 5,141 US$ 1,398 US$ 3,964 US$ 4,325 US$ 2,007 US$ 3,514 US$ 2,110 US$ 4,005 US$ 3,657 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,067 US$ 8,000 US$ 25,000 US$ 5,000 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 N/A N/A US$ 2,013 US$ 3,232 US$ 1,446 US$ 729 US$ 1,036 US$ 8,524 US$ 1,996 US$ 1,019 US$ 2,049 US$ 2,241 US$ 3,700 US$ 1,004 US$ 2,038 US$ 1,999 US$ 2,000 US$ 1,724 US$ 1,483 US$ 5,011 US$ 5,000 US$ 4,002 US$ 5,052 US$ 2,589 US$ 9,516 US$ 2,106 US$ 4,536 US$ 3,248 US$ 2,260 US$ 6,417 US$ 4,332 US$ 1,496 US$ 8,982 US$ 2,253 US$ 1,998 US$ 1,536 US$ 3,993 US$ 4,016 US$ 2,141 US$ 1,631 US$ 2,199 US$ 807 US$ 4,084 US$ 1,631 US$ 545 US$ 5,141 US$ 1,398 US$ 3,964 US$ 4,325 US$ 2,007 US$ 3,514 US$ 2,110 US$ 4,005 US$ 3,657 US$ 20,146 US$ 24,888 US$ 24,730 US$ 35,148 US$ 7,996 US$ 24,555 US$ 5,009 34 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Agency bond Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fed Hm Ln Pc Pool 1b2830 Fed Hm Ln Pc Pool 1g0115 Fed Hm Ln Pc Pool 1g1114 Fed Hm Ln Pc Pool 1k1210 Fed Hm Ln Pc Pool 780741 Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bks Federal Home Ln Mtg Assn 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 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 Mtg Corp. Federal Home Loan Mtg Corp. Federal National Mort Assoc Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Remic Federal Natl Mtge Assn Fhr 2647 Pb Fhr 2953 Da Fhr 3087 Jb Fhr 3184 Fa Fnma Pool 745131 Fnma Pool 745688 Fnma Pool 775852 Fnma Pool 790772 Fnma Pool 819649 Fnma Pool 829989 Fnma Pool 841068 Fnma Pool 846233 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 11,100 3,900 16,104 8,765 4,600 3,000 4,000 1,836 2,023 799 1,550 1,800 4,000 4,000 5,000 5,000 5,000 2,768 3,732 1,443 2,664 1,915 1,778 422 246 1,298 3,324 2,450 5,000 6,800 8,000 1,400 1,400 10,000 8,400 5,000 5,183 710 535 471 2,346 1,917 436 1,276 1,080 1,428 2,561 3,284 1,520 4,096 1,743 1,384 340 1,162 1,876 1,626 482 1,729 US$ 11,096 US$ 3,861 US$ 16,102 US$ 8,763 US$ 4,589 US$ 2,994 US$ 4,003 US$ 1,922 US$ 2,086 US$ 837 US$ 1,613 US$ 1,879 US$ 3,984 US$ 3,994 US$ 5,004 US$ 5,008 US$ 5,046 US$ 2,810 US$ 3,727 US$ 1,505 US$ 2,793 US$ 1,969 US$ 1,849 US$ 423 US$ 247 US$ 1,341 US$ 3,453 US$ 2,491 US$ 5,007 US$ 6,817 US$ 8,040 US$ 1,399 US$ 1,399 US$ 9,998 US$ 8,397 US$ 4,998 US$ 5,168 US$ 718 US$ 539 US$ 471 US$ 2,425 US$ 1,988 US$ 437 US$ 1,304 US$ 1,094 US$ 1,506 US$ 2,595 US$ 3,466 US$ 1,602 US$ 4,084 US$ 1,803 US$ 1,440 US$ 343 US$ 1,215 US$ 1,950 US$ 1,695 US$ 505 US$ 1,800 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 N/A US$ 11,096 US$ 3,861 US$ 16,102 US$ 8,763 US$ 4,589 US$ 2,994 US$ 4,003 US$ 1,922 US$ 2,086 US$ 837 US$ 1,613 US$ 1,879 US$ 3,984 US$ 3,994 US$ 5,004 US$ 5,008 US$ 5,046 US$ 2,810 US$ 3,727 US$ 1,505 US$ 2,793 US$ 1,969 US$ 1,849 US$ 423 US$ 247 US$ 1,341 US$ 3,453 US$ 2,491 US$ 5,007 US$ 6,817 US$ 8,040 US$ 1,399 US$ 1,399 US$ 9,998 US$ 8,397 US$ 4,998 US$ 5,168 US$ 718 US$ 539 US$ 471 US$ 2,425 US$ 1,988 US$ 437 US$ 1,304 US$ 1,094 US$ 1,506 US$ 2,595 US$ 3,466 US$ 1,602 US$ 4,084 US$ 1,803 US$ 1,440 US$ 343 US$ 1,215 US$ 1,950 US$ 1,695 US$ 505 US$ 1,800 (Continued) 35 December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note 1,609 1,349 2,000 100 1,785 3,485 1,009 4,271 1,890 10,420 4,500 5,750 7,855 4,300 4,010 1,897 2,259 4,417 3,050 1,692 1,968 3,732 41,700 7,000 1,000 5,250 11,100 15,000 US$ 1,684 US$ 1,417 US$ 2,055 US$ 103 US$ 1,875 US$ 3,483 US$ 1,016 US$ 4,640 US$ 1,965 US$ 10,411 US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 1,943 US$ 2,274 US$ 4,496 US$ 3,285 US$ 1,780 US$ 1,928 US$ 3,731 US$ 42,042 US$ 7,079 US$ 1,015 US$ 5,212 US$ 10,976 US$ 15,000 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$ 1,684 US$ 1,417 US$ 2,055 US$ 103 US$ 1,875 US$ 3,483 US$ 1,016 US$ 4,640 US$ 1,965 US$ 10,411 US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 1,943 US$ 2,274 US$ 4,496 US$ 3,285 US$ 1,780 US$ 1,928 US$ 3,731 US$ 42,042 US$ 7,079 US$ 1,015 US$ 5,212 US$ 10,976 US$ 15,030 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 〃 Held-to-maturity financial assets Available-for-sale financial assets 12,387 US$ 12,387 N/A US$ 12,387 (Concluded) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Fnma Pool 870884 Fnma Pool 879908 Fnma Pool AB0035 Fnma Pool AC9580 Fnr 2005 47 HA Fnr 2006 60 CO Fnr 2006 60 CO Fnr 2009 116 A Fnr 2009 70 NT Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Gnma II Pool 082431 Gnr 2008 9 SA Gnr 2009 45 AB Government Natl Mtg Assn Government Natl Mtg Assn Gtd Ngn 2010 C1 A1 Ngn 2010 R2 1A Government bond US Treasury N/B US Treasury N/B US Treasury N/B Wi Treasury N/B Wi Treasury Sec Societe De Financement De Lec Money market fund Ssga Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 36 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) Shares/Units (In Thousands) Amount (US$ 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 Stock Motech Capital VTAF III VTAF III Preferred stock Stion Corp. GUC Open-end mutual fund Jih Sun Bond Fund PCA Well Pool Fund TSMC Global Corporate bond Allstate Life Gbl Fdg Secd Investments accounted for using equity method Investments accounted for using equity method Financial assets carried at cost Av ailable-for-sale financial assets 〃 Av ailable-for-sale financial assets American Honda Fin Corp. Mtn Anz National Intl Ltd. AT+T Wireless Bank of America Bank of America Corp. Fdic Gtd Bank of Nova Scotia Bank of Scotland Plc Barclays Bank Plc Barclays Bank Plc NY Bbva US Senior SA Uniper Berkshire Hathaway Inc. Del Boeing Cap Corp. Bp Capital Markets Plc Cie Financement Foncier Citibank NA Citibank NA Citibank NA Citigroup Funding Inc. Citigroup Funding Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Coca Cola Co. Countrywide Finl Corp. Dexia Credit Local Dexia Credit Local 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - Jih Sun Investment Trust Co., Ltd. PCA Securities Investment Trust Co., Ltd. - - - - - - - - - - - - - - - - - - - - - - - - - - - In vestee accounted for using equity method In vestee accounted for using equity method - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,668 80,008 - - - - - - - - - - - - - - - - - 5,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,996 - - - - - - - - - - $ - $ - $ - 76,069 $ 6,733,369 - - - $ - 75,316 $ 6,228,661 1,309,615 - 1,862,278 - 7,347 US$ 50,000 - - - - - - - - - 192 75 - 2,769,423 7,347 US$ 50,000 - - - - 7,072 7,692 100,000 12,740 180,192 180,000 100,000 7,692 100,075 100,000 4,430 US$ 4,834 4,000 3,500 3,500 2,900 3,400 5,000 4,000 12,000 5,000 4,745 3,500 2,925 3,900 4,000 4,020 - 10,000 16,000 7,300 4,165 4,800 5,000 4,000 4,000 6,000 4,000 US$ 3,985 US$ 3,515 US$ 3,979 US$ 3,121 US$ 3,548 US$ 5,000 US$ 3,984 US$ 12,035 US$ 5,000 US$ 4,744 US$ 3,500 US$ 3,235 US$ 3,969 US$ 4,029 US$ 4,021 - US$ 10,094 US$ 16,262 US$ 7,448 US$ 4,167 US$ 4,768 US$ 5,360 US$ 4,000 US$ 4,291 US$ 6,000 US$ 4,000 - - - - 2,900 3,400 - - - 5,000 2,100 - - - - 4,020 5,000 10,000 - - 4,165 4,800 - - - - - - - - 4,430 US$ 4,824 - - - US$ 3,086 US$ 3,539 - - - US$ 5,036 US$ 2,084 - - - - US$ 4,016 US$ 5,023 US$ 10,104 - - US$ 4,167 US$ 4,761 - - - - - - - - US$ 3,121 US$ 3,548 - - - US$ 5,000 US$ 2,100 - - - - US$ 4,021 US$ 4,995 US$ 10,094 - - US$ 4,167 US$ 4,768 - - - - - - - - US$ (35) US$ (9) - - - US$ 36 US$ (16) - - - - US$ (5) US$ 28 US$ 10 - - - US$ (7) - - - - - 4,000 3,500 3,500 - - 5,000 - 12,000 - 2,645 3,500 2,925 3,900 4,000 - - - 16,000 7,300 - - 5,000 4,000 4,000 6,000 4,000 US$ 3,995 US$ 3,554 US$ 3,823 - - US$ 5,000 - US$ 11,997 - US$ 2,638 US$ 3,517 US$ 3,192 US$ 3,988 US$ 4,019 - - - US$ 16,323 US$ 7,446 - - US$ 5,490 US$ 4,002 US$ 4,208 US$ 5,976 US$ 3,984 (Continued) 37 Company Name Marketable Securities Type and Name Dexia Credit Local S.A Financial Statement Account Av ailable-for-sale financial assets 〃 Dexia Credit Local SA NY 〃 General Elec Cap Corp. 〃 Georgia Pwr Co. 〃 Georgia Pwr Co. 〃 Gmac LLC 〃 Goldman Sachs Group Incser 2 〃 Household Fin Corp. 〃 HSBC Bank Plc 〃 HSBC Fin Corp. 〃 IBM Corp. 〃 IBM Corp. 〃 IBM Corp. 〃 Intl Bk Recon + Develop 〃 John Deer Capital Corp. Fdic GT 〃 JP Morgan Chase + Co. JP Morgan Chase + Co. Fdic Gtd Tlg 〃 〃 Landwirtsch Rentenbank 〃 Lloyds Tsb Bank Plc Ser 144A 〃 Macquarie Bk Ltd. Sr 〃 Massmutual Global Fdg II Mediu 〃 Merck + Co. Inc. 〃 Merrill Lynch + Co. Inc. 〃 Met Life Glob Funding I 〃 Met Life Glob Funding I 〃 Metlife Inc. 〃 Metropolitan Life Global Fdg I 〃 Microsoft Corp. 〃 Morgan Stanley Dean Witter 〃 Occidental Pete Corp. 〃 Pepsico Inc. 〃 Rabobank Nederland 〃 Regions Bank Fdic Gtd Tlgp 〃 Royal Bk of Scotland Plc 〃 Shell International Fin 〃 Shell International Fin 〃 State Str Corp. 〃 State Street Corp. 〃 Sun Life Finl Global 〃 Suncorp Metway Ltd. 〃 Swedbank Hypotek AB 〃 Teva Pharma Fin III LLC 〃 US Central Federal Cred 〃 US Central Federal Cred 〃 Wachovia Corp. Global Medium 〃 Wachovia Corp. New 〃 Wal Mart Stores Inc. 〃 Wal Mart Stores Inc. 〃 Westpac Banking Corp. 〃 Westpac Banking Corp. 〃 Wyeth He ld-to-maturity Aust + Nz Banking Group financial assets Commonwealth Bank of Australia Commonwealth Bank of Australia JP Morgan Chase + Co. Westpac Banking Corp. 〃 〃 〃 〃 38 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$ - 4,000 US$ 4,000 - US$ - US$ - US$ - 4,000 US$ 3,992 - - - - - 3,000 - - - 1,800 3,000 - - - - 3,000 - - - - - - - 2,100 - 3,340 - - - - - - - - - 1,940 - - 5,000 - - 4,800 - - 4,000 - - - - - - - - - - - - - - - US$ 3,012 - - - US$ 1,796 US$ 3,027 - - - - US$ 3,030 - - - - - - - US$ 2,142 - US$ 3,278 - - - - - - - - - US$ 1,920 - - US$ 5,170 - - US$ 4,799 - - US$ 4,246 - - - - - - - - - - 5,000 4,000 6,000 4,000 4,600 - 4,330 3,400 2,900 4,300 - 6,800 5,000 3,500 5,000 - 3,800 4,850 3,900 4,000 4,000 4,691 5,000 2,575 6,500 - 3,250 8,000 3,200 3,000 5,000 10,000 4,000 4,515 3,200 5,080 5,500 4,400 3,800 4,000 4,000 8,000 4,000 5,000 - 4,000 3,770 3,500 4,000 3,345 20,000 25,000 25,000 35,000 25,000 US$ 5,000 US$ 4,117 US$ 6,000 US$ 4,024 US$ 4,727 - US$ 4,781 US$ 3,407 US$ 3,142 US$ 4,302 - US$ 6,772 US$ 5,014 US$ 3,634 US$ 5,000 - US$ 3,800 US$ 4,895 US$ 3,984 US$ 3,926 US$ 4,066 US$ 4,603 US$ 5,004 US$ 2,623 US$ 6,527 - US$ 3,249 US$ 8,796 US$ 3,752 US$ 3,000 US$ 4,997 US$ 10,372 US$ 4,015 US$ 4,528 US$ 3,227 US$ 5,065 US$ 5,585 US$ 4,304 US$ 3,933 US$ 4,002 US$ 4,000 US$ 8,074 US$ 4,093 US$ 5,138 - US$ 3,986 US$ 4,383 US$ 3,500 US$ 4,044 US$ 3,699 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,103 US$ 25,000 - - 5,000 - - 3,000 - - - 3,800 3,000 - - - - 3,000 3,800 - - - - - 5,000 4,675 - 3,340 - - - 3,000 - 10,000 - - - 600 5,500 - - - - 12,800 - - 4,000 - - - - - - - - - - - - US$ 5,015 - - US$ 3,012 - - - US$ 3,804 US$ 3,020 - - - - US$ 3,028 US$ 3,801 - - - - - US$ 5,003 US$ 4,757 - US$ 3,327 - - - US$ 3,001 - US$ 10,347 - - - US$ 597 US$ 5,559 - - - - US$ 12,899 - - US$ 4,205 - - - - - - - - - - - - US$ 5,000 - - US$ 3,016 - - - US$ 3,801 US$ 3,029 - - - - US$ 3,030 US$ 3,800 - - - - - US$ 5,004 US$ 4,755 - US$ 3,245 - - - US$ 3,000 - US$ 10,372 - - - US$ 596 US$ 5,585 - - - - US$ 12,873 - - US$ 4,239 - - - - - - - - - - - US$ 15 - - US$ (4) - - - US$ 3 US$ (9) - - - - US$ (2) US$ 1 - - - - - US$ (1) US$ 2 - US$ 82 - - - US$ 1 - US$ (25) - - - US$ 1 US$ (26) - - - - US$ 26 - - US$ (34) - - - - - - - - - - 5,000 4,000 1,000 4,000 4,600 - 4,330 3,400 2,900 2,300 - 6,800 5,000 3,500 5,000 - - 4,850 3,900 4,000 4,000 4,691 - - 6,500 - 3,250 8,000 3,200 - 5,000 - 4,000 4,515 3,200 6,420 - 4,400 8,800 4,000 4,000 - 4,000 5,000 - 4,000 3,770 3,500 4,000 3,345 20,000 25,000 25,000 35,000 25,000 US$ 4,983 US$ 4,110 US$ 1,005 US$ 4,006 US$ 4,731 - US$ 4,694 US$ 3,405 US$ 3,074 US$ 2,301 - US$ 6,775 US$ 5,002 US$ 3,616 US$ 5,021 - - US$ 4,857 US$ 3,975 US$ 3,955 US$ 4,032 US$ 4,647 - - US$ 6,600 - US$ 3,232 US$ 8,524 US$ 3,700 - US$ 5,000 - US$ 4,002 US$ 4,536 US$ 3,248 US$ 6,417 - US$ 4,332 US$ 8,982 US$ 3,993 US$ 4,016 - US$ 4,084 US$ 5,141 - US$ 3,964 US$ 4,325 US$ 3,514 US$ 4,005 US$ 3,657 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,067 US$ 25,000 (Continued) Company Name Marketable Securities Type and Name Agency bond Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Ln Mtg Assn 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 Ln Mtg Corp. Multi 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 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 Mortg Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Fhr 2647 Pb Fhr 2953 Da Fhr 3184 Fa Fnma Pool 745131 Fnma Pool 995672 Financial Statement Account 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$ - 8,000 US$ 7,995 8,000 US$ 7,999 US$ 7,995 US$ 4 - US$ - - - - - - - - - - - - - - - - - - 11,000 - - 1,350 - - - - - - - - - - 10,000 - 8,000 - - - - 10,000 4,700 - 11,200 - - 3,000 - - 4,000 - - - - - - - - - - - - - - - - - - - - - - - - US$ 11,028 - - US$ 1,352 - - - - - - - - - - US$ 9,987 - US$ 7,992 - - - - US$ 10,012 US$ 4,715 - US$ 11,186 - - US$ 2,989 - - US$ 4,228 - - - - - - - 8,765 11,100 3,900 16,104 4,600 3,000 3,770 4,000 4,000 4,000 5,900 4,020 4,000 4,000 5,000 3,100 5,000 - 5,000 4,634 2,300 4,289 4,717 3,840 3,720 4,121 4,197 10,000 8,000 5,000 4,000 - 10,000 - 6,050 5,000 6,800 8,000 - - 4,500 1,500 4,000 8,000 - 8,000 6,397 - 3,426 3,343 4,000 3,638 4,686 3,123 3,000 US$ 8,760 US$ 11,096 US$ 3,899 US$ 16,097 US$ 4,598 US$ 3,009 US$ 3,770 US$ 4,014 US$ 4,007 US$ 4,011 US$ 5,975 US$ 4,017 US$ 3,997 US$ 3,995 US$ 4,997 US$ 3,100 US$ 5,049 - US$ 5,098 US$ 4,726 US$ 2,304 US$ 4,282 US$ 4,719 US$ 4,027 US$ 3,953 US$ 4,261 US$ 4,261 US$ 9,985 US$ 7,996 US$ 4,996 US$ 3,999 - US$ 9,998 - US$ 6,050 US$ 5,009 US$ 6,811 US$ 7,990 - - US$ 4,497 US$ 1,498 US$ 4,012 US$ 8,082 - US$ 8,193 US$ 6,394 - US$ 3,494 US$ 3,466 US$ 4,149 US$ 3,827 US$ 4,681 US$ 3,261 US$ 3,141 - - - - - - - - - - - 4,020 - - - 3,100 - 11,000 - - 3,650 4,289 - - - - - - 8,000 5,000 4,000 10,000 10,000 8,000 6,050 - - - 10,000 4,700 3,100 4,300 4,000 8,000 3,000 8,000 - 4,000 - - - - - - 3,000 - - - - - - - - - - - US$ 4,023 - - - US$ 3,100 - US$ 11,049 - - US$ 3,653 US$ 4,292 - - - - - - US$ 7,996 US$ 5,001 US$ 3,999 US$ 10,007 US$ 10,010 US$ 8,009 US$ 6,060 - - - US$ 10,047 US$ 4,716 US$ 3,098 US$ 4,294 US$ 4,002 US$ 8,057 US$ 3,001 US$ 8,123 US$ 4,205 - - - - - - US$ 3,134 - - - - - - - - - - - US$ 4,017 - - - US$ 3,100 - US$ 11,038 - - US$ 3,656 US$ 4,282 - - - - - - US$ 7,996 US$ 4,996 US$ 3,999 US$ 9,996 US$ 9,998 US$ 8,002 US$ 6,050 - - - US$ 10,035 US$ 4,723 US$ 3,098 US$ 4,299 US$ 4,012 US$ 8,082 US$ 2,992 US$ 8,192 - US$ 4,261 - - - - - - US$ 3,141 - - - - - - - - - - - US$ 6 - - - - - US$ 11 - - US$ (3) US$ 10 - - - - - - - US$ 5 - US$ 11 US$ 12 US$ 7 US$ 10 - - - US$ 12 US$ (7) - US$ (5) US$ (10) US$ (25) US$ 9 US$ (69) - US$ (56) - - - - - - US$ (7) 8,765 11,100 3,900 16,104 4,600 3,000 - - - 4,000 - - 4,000 4,000 5,000 - 5,000 - 5,000 2,768 - - 3,732 2,664 3,324 2,450 - 10,000 - - - - - - - 5,000 6,800 8,000 - - 1,400 8,400 - - - - 5,183 - 471 2,346 2,561 3,284 4,096 1,743 - US$ 8,763 US$ 11,096 US$ 3,861 US$ 16,102 US$ 4,589 US$ 2,994 - - - US$ 4,003 - - US$ 3,984 US$ 3,994 US$ 5,004 - US$ 5,008 - US$ 5,046 US$ 2,810 - - US$ 3,727 US$ 2,793 US$ 3,453 US$ 2,491 - US$ 9,998 - - - - - - - US$ 5,007 US$ 6,817 US$ 8,040 - - US$ 1,399 US$ 8,397 - - - - US$ 5,168 - US$ 471 US$ 2,425 US$ 2,595 US$ 3,466 US$ 4,084 US$ 1,803 - (Continued) 39 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 Fnma Pool AD9843 Fnma Tba Dec 30 Single Fam Fnma Tba Nov 30 Single Fam Fnma Tba Oct 30 Single Fam Fnr 2006 60 CO Fnr 2009 116 A Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Gnr 2009 45 AB Government Natl Mtg Assn Ngn 2010 R2 1A Government bond United States Treas Nts United States Treas Nts US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury Nts US Treasury Sec US Treasury Sec. Wi Treasury N/B Wi Treasury Sec Wi Treasury Sec Wi Treasury Sec Financial Statement Account Av ailable-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Av ailable-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Money market fund Ssga Cash Mgmt Global Offshore Corporate issued note Barclays U.S. Fdg LLC Av ailable-for-sale financial assets Av ailable-for-sale financial assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - 3,252 US$ 3,405 3,252 US$ 3,397 US$ 3,405 US$ (8) - US$ - - - - - - - 4,500 - - - - - - - - - - - - - - - - 21,400 - 37,700 - - - - - - - - - - - - US$ 4,491 - - - - - - - - - - 24,000 14,200 14,200 4,092 4,390 10,420 - 8,000 7,000 4,500 5,750 7,855 4,300 4,010 7,004 3,050 3,800 US$ 25,241 US$ 14,863 US$ 14,790 US$ 4,090 US$ 4,712 US$ 10,412 - US$ 8,002 US$ 6,994 US$ 4,507 US$ 5,771 US$ 7,869 US$ 4,308 US$ 4,024 US$ 7,305 US$ 3,278 US$ 3,800 24,000 14,200 14,200 - - - 4,500 8,000 7,000 - - - - - - - - US$ 25,233 US$ 14,981 US$ 14,901 - - - US$ 4,496 US$ 7,997 US$ 6,995 - - - - - - - - US$ 25,241 US$ 14,863 US$ 14,790 - - - US$ 4,490 US$ 8,001 US$ 6,994 - - - - - - - - US$ (8) US$ 118 US$ 111 - - - US$ 6 US$ (4) US$ 1 - - - - - - - - - 24,000 US$ 24,116 24,000 US$ 24,105 US$ 24,116 US$ (11) - - - - - US$ 21,394 - US$ 39,012 - - - - - - 45,070 43,900 53,000 16,800 49,700 - 7,000 - 8,000 10,000 5,250 11,100 4,400 5,000 US$ 45,309 US$ 43,832 US$ 53,069 US$ 16,889 US$ 49,742 - US$ 7,078 - US$ 8,040 US$ 10,040 US$ 5,195 US$ 11,084 US$ 4,380 US$ 5,009 45,070 43,900 53,000 16,800 8,000 21,400 - 37,700 8,000 10,000 - - 4,400 5,000 US$ 45,258 US$ 44,134 US$ 53,316 US$ 16,897 US$ 8,066 US$ 21,487 - US$ 38,784 US$ 8,028 US$ 10,045 - - US$ 4,464 US$ 4,977 US$ 45,309 US$ 43,831 US$ 53,069 US$ 16,889 US$ 8,013 US$ 21,416 - US$ 39,346 US$ 8,040 US$ 10,040 - - US$ 4,380 US$ 5,009 US$ (51) US$ 303 US$ 247 US$ 8 US$ 53 US$ 71 - US$ (562) US$ (12) US$ 5 - - US$ 84 US$ (32) - - - 3,485 4,271 10,420 - - - 4,500 5,750 7,855 4,300 4,010 4,417 3,050 3,732 - - - - - 41,700 - 7,000 - - - 5,250 11,100 - - - - - US$ 3,483 US$ 4,640 US$ 10,411 - - - US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 4,496 US$ 3,285 US$ 3,731 - - - - - US$ 42,042 - US$ 7,079 - - - US$ 5,212 US$ 10,976 - - 8,858 US$ 8,858 337,008 US$ 337,008 333,479 US$ 333,479 US$ 333,479 4,500 US$ 4,489 - - 4,500 US$ 4,489 US$ 4,489 - - 12,387 US$ 12,387 - - (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 redemption by the issuer. Note 3: The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investment using equity method. 40 TABLE 4 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships Prior Transaction of Related Counter-party Owner Relationships Transfer Date Price Reference Amount Purpose of Acquisition Other Terms TSMC Fab Fab Fab Fab Fab Fab Fab Ja nuary 28, 2010 to December 27, 2010 Ja nuary 28, 2010 to December 29, 2010 Fe bruary 19, 2010 to December 29, 2010 Fe bruary 25, 2010 to December 30, 2010 Ap ril 1, 2010 to December 30, 2010 De cember 26, 2010 to December 28, 2010 December 30, 2010 $ 1,169,132 By the construction Ch ina Steel Structure progress Co., Ltd. 1,959,787 By the construction Fu Tsu Construction progress Co., Ltd. 2,800,940 By the construction Da Cin Constructure progress 493,403 By the construction progress 125,277 By the construction progress 195,831 By the construction progress 2,900,000 Based on the agreement Co., Ltd. Ta sa Construction Corporation I-Domain Industrial Co., Ltd. Mirle Automation Corporation Powerchip Technology Corporation - - - - - - - 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 Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Pricing report Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose None None None None None None None 41 TABLE 5 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships TSMC TSMC North America GUC VIS TSMC China WaferTech VIS SSMC Subsidiary Investee with a controlling financial interest Investee accounted for using equity method Subsidiary Indirect subsidiary Investee accounted for using equity method Investee accounted for using equity method GUC TSMC North America Same parent company Purchases/ Sales Sales Sales Sales Purchases Purchases Purchases Purchases Purchases Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total Note $ 220,529,792 2,818,499 223,433 8,748,101 7,878,260 4,937,617 4,521,046 780,070 53 1 - 18 16 10 10 18 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 Net 30 days after monthly closing Net 30 days after monthly closing Ne t 30 days after invoice date/net 30 days after monthly closing - - - - - - - - - - - - - - - - - - $ 25,579,259 154,589 - (895,193) (568,685) (428,797) (430,235) (102,302) 118,933 53 - - 7 4 3 3 14 62 Xintec OmniVision Pa rent company of director (represented for Sales 2,252,522 57 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. TABLE 6 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Ending Balance TSMC TSMC North America TSMC China GUC Subsidiary Subsidiary Investee with a controlling financial interest $ 25,582,932 1,170,407 154,589 Xintec OmniVision Pa rent company of director (represented for 118,933 Xintec) 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) 40 (Note 2) 32 42 Overdue Amounts Action Taken $ 8,255,062 - 7,415 - - - - - Amounts Received in Subsequent Period $ 11,282,114 - - Allowance for Bad Debts $ - - - - - 42 TABLE 7 Taiwan Semiconductor Manufacturing Company Limited and Investees NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2010 December 31, 2010 (Foreign Currencies in Thousands) December 31, 2009 (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 TSMC TSMC Global TSMC Partners VIS SSMC Motech Tortola, British Virgin Islands Investment activities Tortola, British Virgin Islands Hsin-Chu, Taiwan Investing 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 $ 42,327,245 $ 42,327,245 1 31,456,130 31,456,130 988,268 13,232,288 13,232,288 628,223 Singapore Fabrication and supply of integrated circuits 5,120,028 5,120,028 314 Taipei, Taiwan 6,228,661 - 76,069 100 100 38 39 20 $ 43,710,543 $ 660,931 $ 660,931 Subsidiary 33,565,775 2,313,657 2,313,657 Subsidiary 9,422,452 1,952,385 343,252 7,120,714 3,881,067 1,308,468 6,733,369 4,584,720 542,218 Investee accounted for using equity method Investee accounted for using equity method Investee accounted for using equity method 12,180,367 12,180,367 - 100 4,252,270 1,386,574 1,358,492 Subsidiary TSMC China Shanghai, China TSMC North America San Jose, California, U.S.A. VTAF III Xintec GUC VTAF II Emerging Alliance TSMC Europe TSMC Japan TSMC Solar NA Cayman Islands Taoyuan, Taiwan Hsin-Chu, Taiwan Cayman Islands Cayman Islands Amsterdam, the Netherlands Yokohama, Japan Delaware, U.S.A. TSMC Solar Europe Amsterdam, the Netherlands TSMC Korea TSMC Lighting NA Seoul, Korea Delaware, U.S.A. Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Selling and marketing of integrated circuits and semiconductor devices Investing in new start-up technology companies Wafer level chip size packaging service Researching, developing, manufacturing, testing and marketing of integrated circuits Investing in new start-up technology companies Investing in new start-up technology companies Marketing and engineering supporting activities Marketing activities Engaged in selling and marketing of solar related products Engaged in investing activities of solar related business Customer service and technical supporting activities Engaged in selling and marketing of LED related products 333,718 333,718 3,565,441 1,357,890 1,703,163 1,357,890 386,568 386,568 1,166,470 971,785 15,749 83,760 60,962 25,350 13,656 3,133 1,093,943 959,044 15,749 83,760 - - 13,656 - TSMC Partners TSMC Development VisEra Holding Company Delaware, U.S.A. Cayman Islands ISDF ISDF II TSMC Technology TSMC Canada Cayman Islands Cayman Islands Delaware, U.S.A. Ontario, Canada Investment activities Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry Investing in new start-up technology companies Investing in new start-up technology companies Engineering support activities Engineering support activities US$ 0.001 US$ 43,000 US$ 0.001 US$ 43,000 US$ 4,088 US$ 16,532 US$ 0.001 US$ 2,300 US$ 7,680 US$ 21,415 US$ 0.001 US$ 2,300 100 2,873,888 302,598 302,598 Subsidiary 2,769,423 1,645,201 (247,274) 505,260 (241,178) 180,912 1,113,516 604,501 211,199 11,000 - 93,081 46,688 - - - 6 1 - 80 1 1 43,000 4,088 16,532 1 2,300 99 41 35 98 99 100 100 100 100 100 100 100 49 97 97 100 100 1,063,057 304,310 177,784 150,312 26,527 23,971 20,929 3,133 120,612 2,345 38,893 4,704 (35,512) (433) 2,709 - US$ 403,257 US$ 83,057 US$ 62,870 US$ 11,321 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 US$ 8,934 US$ 4,957 US$ 807 US$ 348 Subsidiary Investee with a controlling financial interest Investee with a controlling financial interest Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary 118,200 2,333 38,893 4,704 (35,512) (433) Subsidiary 2,709 - Subsidiary (Note 3) Subsidiary Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Subsidiary Investee accounted for using equity method Subsidiary Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) (Continued) 43 Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2010 December 31, 2010 (Foreign Currencies in Thousands) December 31, 2009 (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 Mcube Inc. (Common Stock) Delaware, U.S.A. Mcube Inc. (Preferred Stock) Delaware, U.S.A. Research, development, and sale of micro- semiconductor device Research, development, and sale of micro- semiconductor device US$ 800 US$ 800 5,333 70 US$ - US$ (6,915) Note 2 US$ 1,000 US$ 1,000 1,000 10 - (6,915) Note 2 Investee accounted for using equity method (Note 3) Investee accounted for using equity method (Note 3) TSMC Development WaferTech Washington, U.S.A. US$ 280,000 US$ 330,000 293,637 100 US$ 165,211 US$ 60,779 Note 2 Subsidiary 57 43 100 62 31 100 100 100 100 100 7 100 US$ 2,058 US$ (1,879) Note 2 Subsidiary (Note 3) US$ 546 US$ (1,030) Note 2 Investee accounted for using equity method (Note 3) US$ 846 - US$ (127) - Note 2 Note 2 Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) $ 58,045 14,706 8,761 3,747 $ 10,599 1,404 (8,021) (703) Note 2 Note 2 Note 2 Note 2 Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) 7,468 (7,971) Note 2 Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) 3,658 (421) Note 2 Subsidiary (Note 3) (Concluded) - - - 800 1 550 - - - 1 Mutual-Pak Technology Co., Ltd. Aiconn Technology Corp. Taipei, Taiwan Taipei, Taiwan US$ 3,937 US$ 3,088 11,868 US$ 2,206 US$ 1,777 5,623 Manufacturing, selling, testing and computer- aided designing of integrated circuits and other semiconductor devices Manufacturing and selling of electronic parts and researching, developing, and testing of RFID Wholesaling telecommunication equipments, and manufacturing wired and wireless communication equipments VTAF III VTAF II GUC Growth Fund VTA Holdings Cayman Islands Delaware, U.S.A. Investing in new start-up technology companies Investing in new start-up technology companies US$ 1,700 - US$ 1,550 - VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - - GUC-NA GUC-Japan GUC-BVI GUC-Europe U.S.A. Japan British Virgin Islands The Netherlands Consulting services in main products Consulting services in main products Investment activities Consulting services in main products US$ 1,249 JPY 30,000 US$ 550 EUR 100 US$ 800 JPY 30,000 US$ 550 EUR 100 GUC-BVI GUC-Shanghai Shanghai, China Consulting services in main products US$ 500 Emerging Alliance VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - TSMC Solar Europe TSMC Solar Europe GmbH Hamburg, Germany Engaged in the selling and customer service of solar cell modules and related products EUR 100 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. - - - 44 TABLE 8 Taiwan Semiconductor Manufacturing Company Limited and Investees INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investor Company Investee Company Main Businesses and Products Total Amount of Paid-in Capital (Thousand) Method of Investment TSMC GUC TSMC China GUC-Shanghai Ma nufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Co nsulting services in main products $ 12,180,367 (RMB 3,070,623) (Note 1) Accumulated Outflow of Investment from Taiwan as of January 1, 2010 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Investment Flows Outflow (US$ in Thousand) Inflow (US$ in Thousand) $ - $ - Accumulated Outflow of Investment from Taiwan as of December 31, 2010 (US$ in Thousand) $ 12,180,367 (US$ 371,000) 16,160 (US$ 500) (Note 2) - 16,160 (US$ 500) - 16,160 (US$ 500) Investor Company Percentage of Ownership Equity in the Earnings (Losses) Carrying Value as of December 31, 2010 Accumulated Inward Remittance of Earnings as of December 31, 2010 Accumulated Investment in Mainland China as of December 31, 2010 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) TSMC GUC 100% 100% $ 1,358,492 (Note 3) $ 4,252,270 $ - $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) (7,971) (Note 4) 7,468 - 16,160 (US$ 500) 16,160 (US$ 500) 1,909,972 (Note 5) Note 1: TSMC directly invested US$371,000 thousand in TSMC China. Note 2: GUC, TSMC’s investee with a controlling financial interest, indirectly invested in GUC-Shanghai through GUC-BVI. Note 3: Amount was recognized based on the audited financial statements. Note 4: Amount was determined based on the unaudited financial statements. Note 5: Subject to 60% of net asset value of GUC according to the revised “Guidelines Governing the Approval of Investment or Technical Cooperation in Mainland China” issued by the Investment Commission. 45 8. Consolidated Financial Statements for the Years Ended December 31, 2010 and 2009 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, 2010, 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 24, 2011 46 INDEPENDENT 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, 2010 and 2009, 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, 2010 and 2009, 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 Statement of Financial Accounting Standards No. 10, “Accounting for Inventories.” January 24, 2011 47 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2010 AND 2009 (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 25) Available-for-sale financial assets (Notes 2, 6 and 25) Held-to-maturity financial assets (Notes 2, 7 and 25) 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 (Note 26) Other financial assets (Note 27) Inventories (Notes 2, 3 and 9) Deferred income tax assets (Notes 2 and 20) Prepaid expenses and other current assets Total current assets LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 12 and 25) 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, 13, 26 and 27) Cost Land and land improvements Buildings Machinery and equipment Office equipment Leased assets Accumulated depreciation Advance payments and construction in progress Net property, plant and equipment INTANGIBLE ASSETS Goodwill (Note 2) Deferred charges, net (Notes 2 and 14) Total intangible assets OTHER ASSETS Deferred income tax assets (Notes 2 and 20) Refundable deposits Others (Notes 2 and 27) Total other assets 2010 Amount $ 147,886,955 6,886 28,883,728 4,796,589 2,722 51,029,885 (504,029) (7,546,264) 124,586 1,021,552 28,405,984 5,373,076 2,037,647 261,519,317 25,815,385 1,033,049 8,502,887 4,424,207 39,775,528 891,197 145,966,024 913,155,252 14,856,582 701,552 1,075,570,607 (773,278,157) 86,151,573 388,444,023 5,704,897 6,027,085 11,731,982 7,362,784 8,677,970 1,417,300 17,458,054 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 37,845,503 934,090 142,294,558 775,653,489 13,667,747 714,424 933,264,308 (693,743,886) 34,154,365 273,674,787 5,931,318 6,458,554 12,389,872 7,988,303 2,733,143 260,864 10,982,310 % 20 - 4 1 - 7 - (1) - - 4 1 - 36 4 - 1 1 6 - 20 127 2 - 149 (107) 12 54 1 1 2 1 1 - 2 % 29 - 2 2 - 7 - (1) - - 4 1 - 44 3 - 3 1 7 - 24 130 2 - 156 (117) 6 45 1 1 2 1 1 - 2 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term loans (Note 15) Financial liabilities at fair value through profit or loss (Notes 2, 5 and 25) Hedging derivative financial liabilities (Notes 2, 11 and 25) Accounts payable Payables to related parties (Note 26) Income tax payable (Notes 2 and 20) Salary and bonus payable Accrued profit sharing to employees and bonus to directors and supervisors (Notes 2 and 22) Payables to contractors and equipment suppliers Accrued expenses and other current liabilities (Notes 18, 25 and 29) Current portion of long-term bank loans (Notes 17, 25 and 27) 2010 Amount $ 31,213,944 19,002 814 12,104,173 867,085 7,184,697 6,424,064 11,096,147 43,259,857 10,779,923 241,407 2009 Amount $ - 25 - 10,905,884 783,007 8,800,249 9,317,035 6,818,343 28,924,265 12,635,182 949,298 % 4 - - 2 - 1 1 2 6 1 - % - - - 2 - 1 2 1 5 2 - Total current liabilities 123,191,113 17 79,133,288 13 LONG-TERM LIABILITIES Bonds payable (Notes 16 and 25) Long-term bank loans (Notes 17, 25 and 27) Other long-term payables (Notes 18, 25 and 29) Obligations under capital leases (Notes 2, 13 and 25) Total long-term liabilities OTHER LIABILITIES Accrued pension cost (Notes 2 and 19) Guarantee deposits (Note 29) Deferred credits Others Total other liabilities Total liabilities EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT Capital stock - NT$10 par value (Note 22) Authorized: 28,050,000 thousand shares Issued: 25,910,078 thousand shares in 2010 25,902,706 thousand shares in 2009 Capital surplus (Notes 2 and 22) Retained earnings (Note 22) Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings Others (Notes 2, 11 and 25) Cumulative translation adjustments Unrealized gain on financial instruments Equity attributable to shareholders of the parent MINORITY INTERESTS (Note 2) Total shareholders’ equity 4,500,000 301,561 6,554,208 694,986 12,050,755 3,812,351 789,098 126,539 254,643 4,982,631 1 - 1 - 2 1 - - - 1 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 - - - 1 140,224,499 20 95,647,672 16 259,100,787 55,698,434 86,239,494 1,313,047 178,227,030 265,779,571 (6,543,163) 109,289 (6,433,874) 574,144,918 4,559,487 578,704,405 36 8 12 - 24 36 (1) - (1) 79 1 80 259,027,066 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 TOTAL $ 718,928,904 100 $ 594,696,220 100 TOTAL $ 718,928,904 100 $ 594,696,220 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 24, 2011) 48 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2010 2009 Amount % Amount % GROSS SALES (Notes 2 and 26) $ 431,630,858 $ 309,655,614 NON-OPERATING EXPENSES AND LOSSES SALES RETURNS AND ALLOWANCES (Notes 2 and 8) 12,092,947 13,913,375 NET SALES 419,537,911 100 295,742,239 100 COST OF SALES (Notes 3, 9, 21 and 26) GROSS PROFIT OPERATING EXPENSES (Notes 21 and 26) Research and development General and administrative Marketing Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND GAINS Settlement income (Note 29) Equity in earnings of equity method investees, net (Notes 2 and 10) Interest income Ga in on settlement and disposal of financial assets, net (Notes 2 and 25) Technical service income (Notes 26 and 29) Valuation gain on financial instruments, net (Notes 2, 5 and 25) Others (Notes 2 and 26) Total non-operating income and gains 212,484,320 207,053,591 29,706,662 12,803,997 5,367,597 47,878,256 159,175,335 6,939,764 2,298,159 1,665,193 736,843 450,503 320,730 724,880 13,136,072 51 49 7 3 1 11 38 2 1 - - - - - 3 166,413,628 129,328,611 21,593,398 11,285,478 4,487,849 37,366,725 91,961,886 1,464,915 45,994 2,600,925 15,999 367,013 594,660 564,042 5,653,548 56 44 7 4 2 13 31 1 - 1 - - - - 2 (Continued) Loss on disposal of property, plant and equipment (Note 2) Interest expense Casualty loss (Note 9) Impairment of financial assets (Notes 2, 6, 12 and 25) Foreign exchange loss, net (Note 2) Others (Note 2) Total non-operating expenses and losses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 2 and 20) NET INCOME ATTRIBUTABLE TO: Shareholders of the parent Minority interests EARNINGS PER SHARE (NT$, Note 24) Basic earnings per share Diluted earnings per share The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 24, 2011) 2010 2009 Amount % Amount % $ 849,254 425,356 190,992 159,798 99,130 316,482 2,041,012 170,270,395 7,988,465 - - - - - - - 41 2 $ - 391,479 - 913,230 626,971 221,107 2,152,787 95,462,647 5,996,424 $ 162,281,930 39 $ 89,466,223 $ 161,605,009 676,921 $ 162,281,930 39 - 39 $ 89,217,836 248,387 $ 89,466,223 2010 2009 - - - 1 - - 1 32 2 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 $ 6.54 $ 6.54 $ 6.24 $ 6.23 $ 3.68 $ 3.67 $ 3.45 $ 3.44 (Concluded) 49 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock - Common Stock Retained Earnings Others Equity Attributable to Shareholders of the Parent Shares (In Thousands) Capital Surplus Amount Legal Capital Reserve Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Unrealized Gain (Loss) on Financial Instruments Total Minority Interests Total Shareholders’ Equity BALANCE, JANUARY 1, 2009 25,625,437 $ 256,254,373 $ 49,875,255 $ 67,324,393 $ 391,857 $ 102,337,417 $ 170,053,667 $ 481,158 $ (287,342) $ 476,377,111 $ 3,995,356 $ 480,372,467 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 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 Ne t change in shareholders’ equity 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 - - - - - - - - - - - - BALANCE, DECEMBER 31, 2009 25,902,706 259,027,066 55,486,010 77,317,710 - (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 - - - (76,876,312) - 7,494,988 - 89,217,836 115,418 (2,247,825) 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) 104,564,972 181,882,682 (1,766,667) 453,621 495,082,712 3,965,836 499,048,548 Appropriations of prior year’s earnings Legal capital reserve Special capital reserve Cash dividends to shareholders - NT$3.00 per share Net income in 2010 Ad justment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising employee stock options Valuation gain (loss) on available-for-sale financial assets Ne t change in shareholders’ equity from equity method investees Ne t change in unrealized loss on hedging derivative financial instruments Decrease in minority interests - - - - - - 7,372 - - - - - - - - - - 73,721 - - - - - - - - (17,885) - 171,103 - 59,206 - - 8,921,784 - - - - 1,313,047 - - (8,921,784) (1,313,047) (77,708,120) 161,605,009 - - (77,708,120) 161,605,009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (77,708,120) 161,605,009 (17,885) (4,776,496) 244,824 (337,970) - - - 676,921 4,387 7,258 - 3,949 - - (77,708,120) 162,281,930 (13,498) (4,769,238) 244,824 (334,021) - (4,776,496) - - - - - (337,970) - - - (6,031) 53,175 31,702 84,877 (331) - (331) - (483) (130,083) (814) (130,083) BALANCE, DECEMBER 31, 2010 25,910,078 $ 259,100,787 $ 55,698,434 $ 86,239,494 $ 1,313,047 $ 178,227,030 $ 265,779,571 $ (6,543,163) $ 109,289 $ 574,144,918 $ 4,559,487 $ 578,704,405 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 24, 2011) 50 2010 2009 $ 161,605,009 676,921 $ 89,217,836 248,387 Increase in deferred charges Decrease (increase) in refundable deposits Decrease (increase) in other assets 2010 2009 $ (1,801,728) (5,944,827) (1,015,458) $ (1,469,831) 34,056 1,176 Net cash used in investing activities (202,086,182) (96,468,483) Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (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 Adjustments 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 Cash dividends received from equity method investees Loss (gain) on disposal of property, plant and equipment and other assets, net Settlement income from receiving equity securities 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 87,810,103 34,142 159,798 (603,368) - (133,475) (2,298,159) 320,002 633,230 (4,434,364) 319 (377,248) 198,172 9,802 (6,392,243) (39,296) (1,178,217) (3,294) 740,959 (7,492,233) (752,408) 933,894 84,078 (1,615,552) (2,892,971) 4,277,804 248,192 15,319 (59,150) 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) Net cash provided by operating activities 229,475,766 159,966,465 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 (186,944,203) (48,340,334) (4,101,501) (6,242,350) (1,812,928) 37,816,288 15,943,000 242,335 115,524 (87,784,906) (38,800,577) (12,224,353) (42,947) (321,195) 36,039,978 7,944,800 131,075 24,241 CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans Proceeds from long-term bank loans Repayments of: Long-term bank loans Bonds payable Decrease in other long-term payables Decrease in guarantee deposits Proceeds from donation Proceeds from exercise of employee stock options Cash dividends Decrease in minority interests Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 31,213,944 - (967,034) - (1,107,333) (232,925) 49,021 244,824 (77,708,120) (130,083) (48,637,706) (21,248,122) (2,141,264) 171,276,341 - 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 CASH AND CASH EQUIVALENTS, END OF YEAR $ 147,886,955 $ 171,276,341 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Income tax paid INVESTING 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 other liabilities Increase in obligations under capital leases Cash paid Acquisition of available-for-sale financial assets Increase in accrued expenses and other current liabilities Cash paid Disposal of property, plant and equipment and other assets Increase in other financial assets Nonmonetary exchange trade-out price Cash received $ 392,805 $ 9,818,418 $ 580,376 $ 8,088,124 $ 201,696,476 (14,599,987) (124,746) (27,540) - $ 186,944,203 $ 48,405,875 (65,541) $ 48,340,334 $ 458,561 (218,291) (124,746) $ 115,524 $ 109,151,226 (21,361,340) (809) - (4,171) $ 87,784,906 $ 38,800,577 - $ 38,800,577 $ 25,050 - (809) $ 24,241 NON-CASH FINANCING ACTIVITIES Current portion of long-term bank loans Current portion of other long-term payables (under accrued expenses and other current liabilities) $ 241,407 $ 949,298 $ 1,406,601 $ 4,005,307 (Continued) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated January 24, 2011) (Concluded) 51 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries The consolidated entities were as follows: Name of Investor Name of Investee Percentage of Ownership December 31 Remark NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. GENERAL Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of LED lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. 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, 2010 and 2009, TSMC and its subsidiaries had 38,393 and 26,390 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. Significant accounting policies are summarized as follows: 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, VTAF II and Emerging Alliance GUC TSMC TSMC North America TSMC Japan Limited (TSMC Japan) TSMC Partners, Ltd. (TSMC Partners) TSMC Korea Limited (TSMC Korea) TSMC Europe B.V. (TSMC Europe) 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 Solar North America, Inc. (TSMC Solar NA) TSMC Lighting North America, Inc. (TSMC Lighting NA) TSMC Solar Europe B.V. (TSMC Solar Europe) 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) (Mutual-Pak) Growth Fund Limited (Growth Fund) VentureTech Alliance Holdings, LLC (VTA Holdings) Global Unichip Corp.-NA (GUC-NA) Global Unichip Japan Co., Ltd. (GUC- Japan) Global Unichip Europe B.V. (GUC- Europe) Global Unichip (BVI) Corp. (GUC-BVI) 2010 100% 100% 100% 100% 100% 100% 100% 99% 98% 2009 100% 100% 100% 100% 100% 100% 100% 98% 98% 99.5% 99.5% - - - - - - - - - - 35% 41% 100% 100% 100% 100% 100% 100% 97% 97% 57% 100% 100% 100% 100% 100% 100% 35 % TSMC has a controlling interest over the financial, operating and personnel hiring decisions of GUC. TSMC obtained three out of five director positions 41% - - - 100% 100% 100% 97% 97% 59% 100% 100% 100% 100% 100% 100% - - and has a controlling interest in Xintec. Established in September 2010 Established in September 2010 Established in September 2010 - - - - - - - - - - - - - Established in January 2010 Established in December 2010 TSMC Development WaferTech, LLC (WaferTech) 100% 99.9% VTAF III Mutual-Pak Technology Co., Ltd. 52 GUC-BVI Global Unichip (Shanghai) Company, 100% Limited (GUC-Shanghai) TSMC Solar Europe TSMC Solar Europe GmbH 100% The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of December 31, 2010: TSMC 100% 100% 100% 100% 100% 100% 100% 99% 98% 99.5% 35% 41% 100% 100% 100% TSMC North America TSMC Japan TSMC Partners TSMC Korea TSMC Europe TSMC Global TSMC China VTAF III VTAF II Emerging Alliance GUC Xintec TSMC Solar NA TSMC Lighting NA TSMC Solar Europe 100% 100% 100% 97% 97% 57% 62% 100% 31% 7% 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 100% TSMC Solar Europe GmbH 100% WaferTech 100% GUC-Shanghai 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, GUC-Europe, and GUC-Shanghai are engaged in providing products consulting in North America, Japan, Europe, and China, respectively. GUC-BVI is engaged in investing activities. Xintec is engaged in the provision of wafer packaging service. TSMC Solar NA is engaged in selling and marketing of solar related products. TSMC Lighting NA is engaged in selling and marketing of LED related products. TSMC Solar Europe is engaged in investing activities of solar related business. TSMC Solar Europe GmbH is engaged in the selling and customer service of solar cell modules and related products. Mutual-Pak is engaged in the manufacturing and selling of electronic parts, and researching, developing and testing of RFID. 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, corporate bonds, agency bonds and corporate issued notes acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature. 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. 53 Hedging Derivative Financial Instruments Hedge derivatives are mainly derivatives instruments that are for cash flow hedge purposes and determined to be an effective hedge. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in shareholders’ equity. The amount recognized in shareholders’ equity is recognized in profit or loss in the same year or year during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in shareholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss. 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. 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 other allowances 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 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. 54 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. 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. 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 patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 2 to 5 years; patent and others - the economic life or contract period. 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 expense 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. 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. 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. 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. 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 continuously, and the idle assets are tested for impairment on a periodical basis. 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 55 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. 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. 5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Trading financial assets Forward exchange contracts Cross currency swap contracts Trading financial liabilities Forward exchange contracts December 31 2010 2009 $ 6,886 - $ 4,338 181,743 $6,886 $ 186,081 $ 19,002 $ 25 The Company entered into derivative contracts during the years ended December 31, 2010 and 2009 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts. 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. Outstanding forward exchange contracts consisted of the following: 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 Standard (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 consolidated financial statements as of and for the year ended December 31, 2009. 4. CASH AND CASH EQUIVALENTS Cash and deposits in banks Repurchase agreements collateralized by government bonds Corporate bonds Agency bonds Corporate issued notes 56 December 31 2010 $ 146,622,854 960,432 151,840 151,829 - 2009 $ 167,448,973 3,359,754 54,451 253,013 160,150 $ 147,886,955 $ 171,276,341 December 31, 2010 Sell NT$/Buy JPY Sell EUR/Buy US$ Sell RMB/Buy US$ Sell US$/Buy NT$ December 31, 2009 Sell US$/Buy NT$ Maturity Date Contract Amount (In Thousands) January 2011 to February 2011 February 2011 May 2011 to June 2011 January 2011 to March 2011 NT$814,882/JPY2,278,420 EUR3,067/US$4,093 RMB529,190/US$80,000 US$11,800/NT$353,076 February 2010 US$21,300/NT$686,788 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 January 2010 to February 2010 US$750,000/NT$24,201,706 0.24% - 0.70% 0.00% - 0.38% For the years ended December 31, 2010 and 2009, changes in fair value related to derivative financial instruments recognized in earnings was a net gain of NT$320,730 thousand and NT$594,660 thousand, respectively. 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Movements of the allowance for sales returns and others were as follows: Corporate bonds Agency bonds Publicly traded stocks Government bonds Money market funds Corporate issued notes Open-end mutual funds Current portion December 31 2010 $ 14,871,120 8,021,192 4,634,170 2,014,127 376,168 - - 29,916,777 (28,883,728) 2009 $ 7,042,219 5,032,037 574,865 2,341,780 283,713 303,367 170,014 15,747,995 (14,389,946) $ 1,033,049 $ 1,358,049 For the year ended December 31, 2009, the Company recognized impairment on available-for-sale financial assets of NT$201,346 thousand. 7. HELD-TO-MATURITY FINANCIAL ASSETS 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 2010 2009 $ 8,724,481 12,092,947 (13,271,164) $ 6,071,026 13,913,375 (11,259,920) $ 7,546,264 $ 8,724,481 December 31 2010 $ 5,118,060 19,376,372 1,947,396 1,964,156 2009 $ 2,743,450 15,302,010 1,541,599 1,326,692 $ 28,405,984 $ 20,913,751 Corporate bonds Government bonds Structured time deposits Current portion December 31 2010 $ 12,843,956 455,520 - 13,299,476 (4,796,589) 2009 $ 15,120,048 3,378,037 7,000,000 25,498,085 (9,944,843) $ 8,502,887 $ 15,553,242 Write-down of inventories to net realizable value in the amount of NT$900,221 thousand were included in the cost of sales for the year ended December 31, 2010. The reversal of previously recognized inventory write-downs amounting to NT$428,162 thousand was recorded for the year ended December 31, 2009. Inventory losses related to earthquake damage in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the year ended December 31, 2010. 10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD Structured time deposits categorized as held-to-maturity financial assets consisted of the following: Principal Amount Interest Receivable Range of Interest Rates Maturity Date December 31, 2009 Callable domestic deposits $ 7,000,000 $ 4,308 0.36% - 0.95% July 2010 to August 2011 (redeemed by the issuer from February 2010 to July 2010) 8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS Movements of the allowance for doubtful receivables were as follows: Balance, beginning of year Provision (reversal) Write-off Balance, end of year Years Ended December 31 2010 2009 $ 543,325 (37,028) (2,268) $ 455,751 331,485 (243,911) $ 504,029 $ 543,325 Common stock Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) Motech Industries Inc. (Motech) VisEra Holding Company (VisEra Holding) Aiconn Technology Corporation (Aiconn) Mcube Inc. (Mcube) Preferred stock Mcube December 31 2010 2009 Carrying Amount % of Ownership Carrying Amount % of Ownership $ 9,422,452 7,120,714 6,733,369 2,522,267 16,583 - - 38 39 20 49 43 70 10 $ 9,365,232 6,157,141 - 2,273,065 18,116 25,624 32,030 $ 25,815,385 $ 17,871,208 37 39 - 49 42 70 10 In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited according to the related regulations. 57 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. The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. As of December 31, 2010, the outstanding interest rate swap contract consisted of the following: For the years ended December 31, 2010 and 2009, equity in earnings/losses of equity method investees was a net gain of NT$2,298,159 thousand and NT$45,994 thousand, respectively. Related equity in earnings/ losses of equity method investees were determined based on the audited financial statements, except for Aiconn and Mcube. The Company believes that, had Aiconn and Mcube’s financial statements been audited, any adjustments arising would have had no material effect on the Company’s consolidated financial statements. Contract Amount (In Thousands) Maturity Date Range of Interest Rates Paid Range of Interest Rates Received NT$ 128,000 August 31, 2012 1.38% 0.56% - 0.63% The adjustment to shareholders’ equity and the amount removed from shareholders’ equity and recognized a loss as a result of the above interest rate swap contract amounted to NT$814 thousand and NT$352 thousand, respectively. As of December 31, 2010 and 2009, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS) was NT$9,297,707 thousand and NT$10,114,398 thousand, respectively. 12. FINANCIAL ASSETS CARRIED AT COST 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: Non-publicly traded stocks Mutual funds December 31 2010 2009 $ 4,264,956 159,251 $ 2,899,600 163,404 $ 4,424,207 $ 3,063,004 In June 2010, the Company invested in Stion Corporation (Stion, a United States corporation) for US$50,000 thousand and obtained Stion’s preferred stock of 7,347 thousand shares with 23.4% of ownership. Stion is engaged in the manufacturing of high-efficiency thin-film solar photovoltaic modules. Due to certain restrictions contained in the investment agreements, the Company does not have the ability to exert significant influence over Stion’s operating and financial policy. Therefore, the investment was classified under financial assets carried at cost. The common stocks of Capella Microsystems (Taiwan), Inc., Integrated Memory Logic Limited and Leadtrend Technology Corporation were listed on the Taiwan GreTai Securities Market or Taiwan Stock Exchange in June 2010, May 2010, and August 2009, respectively. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets. For the years ended December 31, 2010 and 2009, the Company recognized impairment on financial assets carried at cost of NT$159,798 thousand and NT$711,884 thousand, respectively. Balance, beginning of year Additions Amortization Balance, end of year Years Ended December 31 2010 2009 $ 1,391,500 2,055,660 (955,269) $ 1,990,621 - (599,121) $ 2,491,891 $ 1,391,500 Movements of the difference allocated to goodwill were as follows: Balance, beginning of year Additions Balance, end of year Years Ended December 31 2010 2009 $ 1,061,885 353,680 $ 1,061,885 - $ 1,415,565 $ 1,061,885 11. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS Hedging derivative financial liabilities Interest rate swap contract December 31, 2010 $ 814 58 13. 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, 2010 $ 934,090 142,294,558 775,653,489 13,667,747 714,424 933,264,308 317,580 81,821,718 600,795,474 10,589,349 219,765 693,743,886 34,154,365 $ 273,674,787 $ - 4,361,536 142,125,965 1,997,654 - $ 148,485,155 $ 28,746 9,100,935 75,237,057 1,165,827 35,084 $ 85,567,649 $ 53,211,321 $ - (135,497) (2,287,420) (731,094) - $ (3,154,011) $ - (128,466) (2,277,047) (726,539) - $ (3,132,052) $ (1,030,521) $ 320 2,162 228,370 3,704 - $ 234,556 $ - (495) 133,318 (442) - $ 132,381 $ (108,035) $ (43,213) (556,735) (2,565,152) (81,429) (12,872) $ (3,259,401) $ (17,534) (320,989) (2,620,166) (70,519) (4,499) $ (3,033,707) $ (75,557) $ 891,197 145,966,024 913,155,252 14,856,582 701,552 1,075,570,607 328,792 90,472,703 671,268,636 10,957,676 250,350 773,278,157 86,151,573 $ 388,444,023 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 12,430,800 722,339 843,855,735 295,898 72,681,699 535,962,291 9,693,809 182,570 618,816,267 18,605,882 $ 243,645,350 $ - 10,530,802 81,548,279 1,491,370 4,171 $ 93,574,622 $ 30,072 9,379,371 68,064,750 1,168,317 36,126 $ 78,678,636 $ 15,576,604 $ - (12,978) (1,872,721) (226,779) - $ (2,112,478) $ - (12,971) (1,791,122) (224,769) - $ (2,028,862) $ - $ 1,817 (19,910) 9,964 22,821 7,143 $ 21,835 $ - (5,779) (6,271) (158) 7,143 $ (5,065) $ (26,426) $ (21,584) (453,352) (1,530,776) (50,465) (19,229) $ (2,075,406) $ (8,390) (220,602) (1,434,174) (47,850) (6,074) $ (1,717,090) $ (1,695) $ 934,090 142,294,558 775,653,489 13,667,747 714,424 933,264,308 317,580 81,821,718 600,795,474 10,589,349 219,765 693,743,886 34,154,365 $ 273,674,787 The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to December 2013. The future minimum lease payments as of December 31, 2010 were NT$773,172 thousand. 59 14. DEFERRED CHARGES, NET Balance, Beginning of Year Additions Amortization Disposals Reclassification Year Ended December 31, 2010 Technology license fees Software and system design costs Patent and others $ 3,230,624 1,834,528 1,393,402 $ 8,300 1,547,605 245,823 $ (783,557) (1,054,194) (398,965) $ - (173) - $ - 5,542 - Effect of Exchange Rate Changes $ (19) (37) (1,794) Balance, End of Year $ 2,455,348 2,333,271 1,238,466 $ 6,458,554 $ 1,801,728 $ (2,236,716) $ (173) $ 5,542 $ (1,850) $ 6,027,085 Balance, Beginning of Year Additions Amortization Disposals Reclassification Year Ended December 31, 2009 Technology license fees Software and system design costs Patent and others $ 4,125,212 1,801,831 1,198,785 $ 2,000 965,230 502,601 $ (902,061) (928,583) (299,731) $ - - - $ 378 (3,864) (5,502) Effect of Exchange Rate Changes $ 5,095 (86) (2,751) Balance, End of Year $ 3,230,624 1,834,528 1,393,402 $ 7,125,828 $ 1,469,831 $ (2,130,375) $ - $ (8,988) $ 2,258 $ 6,458,554 15. SHORT-TERM LOANS 17. LONG-TERM BANK LOANS December 31, 2010 $ 31,213,944 Secured loans: Repayable from August 2009 in 17 quarterly installments, annual interest at 0.66% - 1.24% in 2010 and 0.67% - 2.70% in 2009 $ 542,968 $ 788,263 December 31 2010 2009 US$20,000 thousand, repayable in full in one lump sum payment in November 2010, annual interest at 0.68% - 0.97% in 2009 Repayable from December 2007 in 8 semi-annual installments, fully repaid in June 2010, annual interest at 1.10% - 2.42% 2009 Current portion December 31 2010 - - 542,968 (241,407) 640,895 98,700 1,527,858 (949,298) $ 301,561 $ 578,560 Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual audited financial statements of Xintec must comply with predetermined financial covenants. As of December 31, 2010, Xintec was in compliance with all such financial covenants. Unsecured loans: US$874,000 thousand and EUR114,900 thousand, due from January 2011 to February 2011, annual interest at 0.38% - 1.84% 16. BONDS PAYABLE Domestic unsecured bonds: Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually $ 4,500,000 $ 4,500,000 60 As of December 31, 2010, future principal repayments for the long-term bank loans were as follows: Pension information on the defined benefit plans is summarized as follows: Year of Repayment 2011 2012 2013 18. OTHER LONG-TERM PAYABLES Amount $ 241,407 241,407 60,154 $ 542,968 a. Components of net periodic pension cost for the year Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2010 2009 $ 129,722 146,625 (40,967) 2,196 $ 166,480 150,647 (57,382) 29,924 $ 237,576 $ 289,669 December 31 2010 2009 b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2010 and 2009 Payables for acquisition of property, plant and equipment (Note 29j) Payables for royalties Cu rrent portion (classified under accrued expenses and other current liabilities) $ 7,112,172 848,637 7,960,809 $ 8,355,395 1,252,332 9,607,727 (1,406,601) (4,005,307) $ 6,554,208 $ 5,602,420 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, 2010, future payments for other long-term payables were as follows: Year of Payment 2011 2012 2013 2014 19. PENSION PLANS Amount $ 1,406,601 675,672 569,659 5,308,877 $ 7,960,809 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, TSMC Canada and TSMC Solar NA 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$1,121,650 thousand and NT$748,071 thousand for the years ended December 31, 2010 and 2009, 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. 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, 2010 and 2009 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 2010 2009 $ 189,047 5,432,624 5,621,671 3,667,087 9,288,758 (2,907,156) 6,381,602 (84,230) 154,738 (2,639,759) $ 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) $ 3,812,351 $ 3,797,032 $ 208,176 $ 135,501 2010 1.75% - 2.25% 3.00% 2.00% - 2.50% 2009 2.25% 3.00% 1.50% - 2.00% 2010 2009 $ 212,248 $ 194,221 2010 2009 $ 19,991 $ 37,801 61 20. INCOME TAX a. A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows: Income tax expense based on “income before income tax” at statutory rates Tax 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 2010 2009 $ 30,456,361 $ 24,182,953 (17,410,223) (827,033) - 138,243 (529,347) (4,887,947) (8,652,030) 3,136,013 247,050 30,707 (66,135) (9,984,616) Effective in May 2009 and June 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 25% to 20% and from 20% to 17%, respectively. The last amended income tax rate of 17% is retroactively applied on January 1, 2010. TSMC and its domestic subsidiaries which are subject to the Income Tax Law of the Republic of China recalculated their deferred tax assets in accordance with the new amended Article and adjusted the resulting difference as an income tax expense in 2010 and 2009, respectively. Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019. Income tax currently payable $ 6,940,054 $ 8,893,942 As of December 31, 2010, the net operating loss carryforwards generated by WaferTech, TSMC Development and Mutual-Pak would expire on various dates through 2026. b. Income tax expense consisted of the following: d. Integrated income tax information: 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 2010 2009 $ 6,940,054 977,876 373,051 $ 8,893,942 (1,159,353) 23,023 (7,129,517) 546,234 (78,187) 6,358,954 (1,291,102) 59,940 (1,042,295) 512,269 Income tax expense $ 7,988,465 $ 5,996,424 The balance of the imputation credit account (ICA) of TSMC as of December 31, 2010 and 2009 was NT$1,669,533 thousand and NT$369,265 thousand, respectively. The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2010 and 2009 were 4.70% and 9.85%, 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. c. Net deferred income tax assets consisted of the following: e. All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated. December 31 2010 2009 f. As of December 31, 2010, investment tax credits of TSMC, GUC, Xintec and Mutual-Pak consisted of the Current deferred income tax assets Investment tax credits Temporary differences Allowance for sales returns and others Unrealized gain/loss on financial instruments Others Valuation allowance Noncurrent deferred income tax assets Investment tax credits Net operating loss carryforwards Temporary differences Depreciation Others Valuation allowance 62 $ 4,282,132 $ 3,304,092 following: 653,452 87,735 488,806 (139,049) 814,557 - 394,890 (143,230) Law/Statute Item Statute for Upgrading Purchase of machinery and Industries equipment $ 5,373,076 $ 4,370,309 $ 18,336,101 2,735,278 $ 12,184,624 3,440,825 2,160,248 414,830 (16,283,673) 1,986,421 481,866 (10,105,433) $ 7,362,784 $ 7,988,303 Statute for Upgrading Research and development Industries expenditures Total Creditable Amount Remaining Creditable Amount Expiry Year $ 114,677 66,368 3,220,393 6,052,758 6,369,512 $ - 66,368 2,519,887 6,052,758 6,369,512 $ 15,823,708 $ 15,008,525 $ 1,020,212 1,192,759 2,921,041 4,523,367 $ - 114,431 2,921,041 4,523,367 $ 9,657,379 $ 7,558,839 2010 2011 2012 2013 2014 2010 2011 2012 2013 (Continued) Law/Statute Item Statute for Upgrading Personnel training expenditures Industries Total Creditable Amount Remaining Creditable Amount Expiry Year $ 759 20,081 32,286 17,795 $ - 788 32,286 17,795 2010 2011 2012 2013 $ 70,921 $ 50,869 Statute for Industrial Innovation Research and development $ 2,049,996 $ - 2010 expenditures (Concluded) g. The profits generated from the following projects of TSMC, GUC and Xintec are exempt from income tax for a five-year period: 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 Construction and expansion of 2001 by TSMC Construction and expansion of 2003 by TSMC Construction and expansion of 2004 by TSMC Construction and expansion of 2005 by TSMC Construction and expansion of 2003 by GUC Construction and expansion of 2005 and 2006 by GUC Construction and expansion of 2003 by Xintec Construction and expansion of 2002, 2003 and 2006 by Xintec Tax-Exemption Period 2006 to 2010 2007 to 2011 2008 to 2012 2010 to 2014 2007 to 2011 To be determined 2007 to 2011 2010 to 2014 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. 21. LABOR COST, DEPRECIATION AND AMORTIZATION Labor cost Salary and bonus Labor and health insurance Pension Meal Welfare Others Depreciation Amortization Year Ended December 31, 2010 Classified as Cost of Sales Classified as Operating Expenses Total $ 27,246,876 1,054,566 819,775 613,870 704,494 115,109 $ 22,053,062 780,384 539,367 247,672 273,722 270,739 $ 49,299,938 1,834,950 1,359,142 861,542 978,216 385,848 $ 30,554,690 $ 24,164,946 $ 54,719,636 $ 80,123,895 $ 1,309,257 $ 5,427,488 $ 927,459 $ 85,551,383 $ 2,236,716 22. SHAREHOLDERS’ EQUITY As of December 31, 2010, 1,096,448 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,482,242 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. In addition, the capital surplus from long-term investment may not be used for any purpose. Capital surplus consisted of the following: Additional paid-in capital From merger From convertible bonds From long-term investments Donations December 31 2010 $ 23,628,908 22,805,390 8,893,190 370,891 55 2009 $ 23,457,805 22,805,390 8,893,190 329,570 55 $ 55,698,434 $ 55,486,010 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; 63 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 accrued profit sharing to employees as a charge to earnings of certain percentage of net income during the year amounted to NT$10,908,338 thousand and NT$6,691,338 thousand for the years ended December 2010 and 2009, 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. TSMC 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 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 2009 and 2008 had been approved in the TSMC’s shareholders meetings held on June 15, 2010 and June 10, 2009, respectively. The appropriations and dividends per share were as follows: 64 Appropriation of Earnings Dividends Per Share (NT$) For FiscalYear 2009 For Fiscal Year 2008 For Fiscal Year 2009 For Fiscal Year 2008 Legal capital reserve Special capital reserve Cash dividends to shareholders Stock dividends to shareholders $ 8,921,784 1,313,047 77,708,120 - $ 9,993,317 (391,857) 76,876,312 512,509 $ 87,942,951 $ 86,990,281 $ 3.00 - $ 3.00 0.02 TSMC’s profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, and profit sharing to employees to be 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 15, 2010 and June 10, 2009, respectively. The profit sharing to employees in stock of 141,870 thousand shares for 2008 was determined by the closing price of the 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 9, 2010 and February 10, 2009 and same amount had been charged against earnings of 2009 and 2008, respectively. 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. As of January 24 2011, the Board of Directors of TSMC has not resolved the appropriation for earnings of 2010. The information about the appropriations of TSMC’s profit sharing to employees and bonus to directors is available at the Market Observation Post System website. Under the Integrated Income Tax System that became effective on January 1, 1998, the R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. 23. 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 exercised. 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, 2010. Information about TSMC’s outstanding options for the years ended December 31, 2010 and 2009 was as follows: when exercised. 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. Number of Options (In Thousands) Weighted-average Exercise Price (NT$) Information about GUC’s outstanding options for the years ended December 31, 2010 and 2009 was as follows: Year ended December 31, 2010 Balance, beginning of year Options exercised Options canceled Balance, end of year Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year 28,810 (7,372) (1) 21,437 36,234 175 (7,272) (327) 28,810 $ 32.4 33.2 50.1 32.3 34.0 34.0 35.8 46.5 33.5 The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings by TSMC in accordance with the plans. As of December 31, 2010, information about TSMC’s outstanding options was as follows: Range of Exercise Price (NT$) $21.7 - $30.5 38.0 - 50.1 Options Outstanding Number of Options (In Thousands) Weighted-average Remaining Contractual Life (Years) 16,438 4,999 21,437 2.20 3.91 2.60 Weighted-average Exercise Price (NT$) $ 28.2 45.6 32.3 As of December 31, 2010, 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 exercised. 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 Year ended December 31, 2010 Balance, beginning of year Options exercised Options canceled Balance, end of year Year ended December 31, 2009 Balance, beginning of year Options granted Options exercised Options canceled Balance, end of year Number of Options Weighted-average Exercise Prices (NT$) 3,810 (1,592) (431) 1,787 5,557 87 (1,475) (359) 3,810 $ 83.4 13.7 143.3 130.9 $ 63.8 13.6 10.5 62.2 83.4 The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings by GUC in accordance with the plans. As of December 31, 2010, information about GUC’s outstanding and exercisable options was as follows: Range of Exercise Price (NT$) $ 15.3 175.0 Options Outstanding Weighted-average Remaining Contractual Life (Years) Options Exercisable Weighted-average Exercise Price (NT$) Number of Options Weighted-average Exercise Price (NT$) 0.67 3.00 2.36 $ 15.3 175.0 130.9 493 646 1,139 $ 15.3 175.0 105.9 Number of Options 493 1,294 1,787 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 exercised. 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. 65 Information about Xintec’s outstanding options for the years ended December 31, 2010 and 2009 was as follows: Number of Options (In Thousands) Weighted-average Exercise Price (NT$) Year ended December 31, 2010 Balance, beginning of year Options exercised Options canceled Balance, end of year Year ended December 31, 2009 Balance, beginning of year Options exercised Options canceled Balance, end of year 3,960 (1,856) (272) 1,832 7,442 (2,552) (930) 3,960 $14.7 13.9 17.3 15.1 14.8 13.9 16.6 14.7 The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the plans. Net income attributable to shareholders of the parent: As reported Pro forma Earnings per share (EPS) - after income tax (NT$): Basic EPS as reported Pro forma basic EPS Diluted EPS as reported Pro forma diluted EPS 24. EARNINGS PER SHARE EPS is computed as follows: Year ended December 31, 2010 Basic EPS Earnings available to common shareholders of the As of December 31, 2010, information about Xintec’s outstanding and exercisable options was as follows: parent Range of Exercise Price (NT$) Number of Options (In Thousands) $12.1 - $14.0 15.2 - $19.1 793 1,039 1,832 Options Outstanding Weighted-average Remaining Contractual Life (Years) 5.75 - 6.04 6.50 - 6.69 Options Exercisable Weighted-average Exercise Price (NT$) Number of Options (In Thousands) Weighted-average Exercise Price (NT$) $ 12.5 17.0 15.1 664 497 1,161 $ 12.5 17.0 14.4 Effect of dilutive potential common shares Diluted EPS Earnings available to common shareholders of the parent (including effect of dilutive potential common shares) Year ended December 31, 2009 Basic EPS Earnings available to common shareholders of the Years Ended December 31 2010 2009 $ 161,605,009 161,470,030 $ 89,217,836 88,838,182 $ 6.24 6.23 6.23 6.23 $ 3.45 3.44 3.44 3.43 Amounts (Numerator) Before Income Tax After Income Tax Number of Shares (Denominator) (In Thousands) EPS (NT$) Before Income Tax After Income Tax $ 169,520,145 - $ 161,605,009 - 25,905,832 14,262 $ 6.54 $ 6.24 $ 169,520,145 $ 161,605,009 25,920,094 $ 6.54 $ 6.23 No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2010 and 2009. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions at the various grant dates and pro forma results of the Company for the years ended December 31, 2010 and 2009 would have been as follows: Assumptions: TSMC GUC Xintec 66 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 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 parent Effect of dilutive potential common shares $ 95,189,766 - $ 89,217,836 - 25,835,802 77,319 $ 3.68 $ 3.45 Diluted EPS Earnings available to common shareholders of the parent (including effect of dilutive potential common shares) $ 95,189,766 $ 89,217,836 25,913,121 $ 3.67 $ 3.44 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 considered for the effect of retroactive adjustments. This adjustment caused each the basic and diluted after income tax EPS for the year ended December 31, 2009 to remain at NT$3.45 and NT$3.44, respectively. c. The changes in fair value of derivatives contracts which were outstanding as of December 31, 2010 and 2009 estimated using valuation techniques were recognized as a net loss of NT$12,116 thousand and a net gain of NT$186,056 thousand, respectively. 25. DISCLOSURES FOR FINANCIAL INSTRUMENTS a. Fair values of financial instruments were as follows: Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Liabilities Financial liabilities at fair value through profit or loss Hedging derivative financial liabilities Bonds payable Long-term bank loans (including current portion) Other long-term payables (including current portion) Obligations under capital leases December 31 2010 2009 Carrying Amount Fair Value Carrying Amount Fair Value $ 6,886 29,916,777 13,299,476 4,424,207 $ 6,886 29,916,777 13,457,742 - $ 186,081 15,747,995 25,498,085 3,063,004 $ 186,081 15,747,995 25,671,664 - 19,002 814 4,500,000 542,968 7,960,809 694,986 19,002 814 4,538,660 542,968 7,960,809 694,986 25 - 4,500,000 1,527,858 9,607,727 707,499 25 - 4,574,979 1,527,858 9,607,727 707,499 b. Methods and assumptions used in estimating fair values of financial instruments 1) The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities. d. As of December 31, 2010 and 2009, financial assets exposed to fair value interest rate risk were NT$38,588,969 thousand and NT$40,857,296 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$43,235,611 thousand and NT$13,542,919 thousand, respectively, and financial liabilities exposed to cash flow interest rate risk were NT$848,275 thousand and NT$1,527,858 thousand, respectively. e. Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2010 and 2009 were as follows: Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings Year Ended December 31, 2010 From Available- for-sale Financial Assets Equity Method Investments Gain (Loss) on Cash Flow Hedges Total $ 424,128 250,475 $ 29,493 (6,031) $ - (331) $ 453,621 244,113 (588,445) - - (588,445) Balance, end of year $ 86,158 $ 23,462 $ (331) $ 109,289 Balance, beginning of year Recognized directly in shareholders’ equity Removed from shareholders’ equity and recognized in earnings Year Ended December 31, 2009 From Available- for-sale Financial Assets Equity Method Investments Gain (Loss) on Cash Flow Hedges Total $ (198,413) 391,801 $ (88,929) 118,422 $ - - $ (287,342) 510,223 230,740 - - 230,740 Balance, end of year $ 424,128 $ 29,493 $ - $ 453,621 2) Except for derivatives and structured time deposits, available-for-sale and held-to-maturity financial f. Information about financial risk 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) Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented. 5) Fair value of the bonds payable was based on their quoted market price. 6) 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. 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 market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate 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 and publicly traded stock; therefore, the fluctuations in market interest rates and market price will result in changes in fair values of these debt securities. 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. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business 67 enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant. 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. A portion of the short-term loans and the long-term bank loans were floating-rate loans. Therefore, changes in the market interest rates will result in changes in the interest rate of the long-term bank loans, which will affect future cash flows. g. The Company seeks to reduce the effects of future cash flow related interest rate changes by primarily using derivative financial instruments. The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. Information about outstanding interest rate swap contract consisted of the following: Hedged Item Hedging Financial Instrument Fair Value December 31, 2010 Expected Cash Flow Generated Period Expected Timing for the Recognition of Gains or Losses from Hedge Long-term bank loans Interest rate swap $ (814) 2010 to 2012 2010 to 2012 contract 26. RELATED PARTY TRANSACTIONS Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions: a. Investees of TSMC VIS (accounted for using equity method) SSMC (accounted for using equity method) For the year Sales VIS VisEra Others Purchases VIS SSMC Others Manufacturing expenses VisEra (primarily outsourcing and rent) VIS (primarily rent) Research and development expenses VisEra VIS (primarily rent) Others Sales of property, plant and equipment VIS VisEra SSMC Purchase of property, plant and equipment and intangible assets VIS Non-operating income and gains VIS (primarily technical service income; see Note 29e) SSMC (primarily technical service income; see Note 29d) Others b. VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method by TSMC. c. Others Related parties over which the Company has significant influence but with which the Company had no material transactions. As of December 31 Other receivables VIS SSMC Payables SSMC VIS Others 2010 2009 Amount % Amount % $ 223,584 82,595 11,397 $ 317,576 $ 4,959,050 4,521,046 39,099 $ 9,519,195 $ 102,188 10,161 $ 112,349 $ 12,053 12,017 133 $ 24,203 $ 37,011 4,418 2,401 $ 43,830 $ 109,855 $ 267,370 198,218 - $ 465,588 - - - - 2 2 - 4 - - - - - - - 11 1 1 13 - 2 2 - 4 $ 139,496 15,569 240 $ 155,305 $ 3,330,288 3,537,659 - $ 6,867,947 $ 82,586 - $ 82,586 $ 388 1,264 - $ 1,652 $ - 1,050 - $ 1,050 $ - $ 224,740 141,488 129 $ 366,357 - - - - 2 2 - 4 - - - - - - - - 4 - 4 - 4 2 - 6 $ 70,798 53,788 57 43 $ 81,663 39,629 67 33 $ 124,586 100 $ 121,292 100 $ 430,235 428,797 8,053 50 49 1 $ 238,741 531,459 12,807 31 68 1 $ 867,085 100 $ 783,007 100 68 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 office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The office rental was prepaid by the Company and the facilities rental was paid quarterly. The related rental expenses were classified under research and development expenses and manufacturing expenses. 28. SIGNIFICANT LONG-TERM LEASES The Company leases several parcels of land, factory and office premises from the Science Park Administration and Jhongli Industrial Park Service Center. These operating leases expire on various dates from April 2011 to July 2030 and can be renewed upon expiration. The Company entered into lease agreements for its office premises and certain office equipment located in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between 2011 and 2018 and can be renewed upon expiration. The Company leased certain factory building from VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and classified under manufacturing expenses. Compensation of directors and management personnel: Salaries, incentives and special compensation Bonus Years Ended December 31 2010 2009 $ 883,119 578,343 $ 657,234 395,313 $ 1,461,462 $ 1,052,547 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, 2010 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2010 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2011. The total compensation for the year ended December 31, 2009 included the bonuses appropriated from earnings of 2009 which was approved by the shareholders’ meeting held in 2010. 27. PLEDGED OR MORTGAGED ASSETS The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows: Other financial assets Property, plant and equipment, net Others assets December 31 2010 $ 163,531 1,109,249 40,000 2009 $ 949,368 2,808,057 20,000 $ 1,312,780 $ 3,777,425 As of December 31, 2010, future lease payments were as follows: Year 2011 2012 2013 2014 2015 2016 and thereafter Amount $ 612,361 568,683 537,150 515,335 483,034 3,422,460 $ 6,139,023 29. SIGNIFICANT COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2010, 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 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, 2010 TSMC had a total of US$22,653 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. 69 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. i. In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time. 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. j. 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$7,112,172 thousand and NT$8,355,395 thousand as of December 31, 2010 and 2009, respectively, which is included in other long-term payables. f. In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, k. Amounts available under unused letters of credit as of December 31, 2010 were NT$94,764 thousand. SMIC (Shanghai) and SMIC Americas (aggregately referred to as “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 TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court 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. TSMC has 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 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, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares on July 5, 2010, representing approximately 7.37% of Semiconductor Manufacturing International Corporation’s total shares outstanding, and recognized settlement income amounting to NT$4,434,364 thousand. g. In June 2010, STC.UNM, the technology transfer arm of the University of New Mexico, filed a complaint in the U.S. International Trade Commission (“USITC”) accusing TSMC and one other company of allegedly infringing a single U.S. patent. Based on this complaint, the USITC initiated an investigation in July 2010. TSMC and STC.UNM have subsequently reached a settlement agreement and, on November 15, 2010, filed a joint motion to terminate the investigation based on the settlement agreement. As a result, the Administrative Law Judge (“ALJ”) assigned to the investigation has made an initial determination to terminate the investigation based on the settlement agreement. The USITC, on December 21, 2010, decided not to review the ALJ’s initial determination, which officially terminates this investigation. h. In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. The outcome of this litigation cannot be determined at this time. 30. OTHERS The significant financial assets and liabilities denominated in foreign currencies were as follows: December 31 2010 2009 Foreign Currency (In Thousands) Exchange Rate (Note) Foreign Currency (In Thousands) Exchange Rate (Note) $ 3,944,765 233,213 29,779,663 251,319 29.13-30.368 38.92-40.65 0.3582-0.3735 4.3985-4.61 $ 3,649,645 62,667 32,431,007 207,901 31.99-32.03 46.10-46.25 0.3472-0.3484 4.693 189,327 1,002,116 306,102 30.368 3.91 30.368 133,238 - 249,227 32.03 - 32.03 2,021,729 265,360 31,561,576 566,778 29.13-30.368 38.92-40.65 0.3582-0.3735 4.3985-4.61 886,730 74,595 34,661,538 772,935 31.99-32.03 46.10-46.25 0.3472-0.3484 4.693 Financial assets Monetary assets USD EUR JPY RMB Non-monetary assets USD HKD Investments accounted for using equity method USD Financial liabilities Monetary liabilities USD EUR JPY RMB Note:Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged. 31. 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: Please see Table 1 attached; b. Endorsement/guarantee provided: None; c. Marketable securities held: Please see Table 2 attached; 70 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 3 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 4 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 5 attached; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached; 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 2009 North America and Others Taiwan Adjustments and Elimination $ 8,776,155 $ 199,903,278 $ (1,625,842) $ 118,440,175 $ 593,558,520 $ (32,845,319) Consolidated $ 207,053,591 (47,878,256) 13,136,072 (2,041,012) $ 170,270,395 $ 679,153,376 39,775,528 $ 718,928,904 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 - i. Names, locations, and related information of investees over which TSMC exercises significant influence: Total sales $ 174,674,762 $ 296,366,106 $ (175,298,629) $ 295,742,239 Please see Table 7 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 8 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 9 attached. k. Intercompany relationships and significant intercompany transactions: Please see Table 9 attached. 32. 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. b. Geographic information: 2010 North America and Others Taiwan Adjustments and Elimination Consolidated 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 c. Export sales Area Asia Europe and others $ 2,004,734 $ 128,456,453 $ (1,132,576) $ 113,023,501 $ 468,112,330 $ (24,285,114) $ 129,328,611 (37,366,725) 5,653,548 (2,152,787) $ 95,462,647 $ 556,850,717 37,845,503 $ 594,696,220 (Concluded) Years Ended December 31 2010 2009 $ 164,650,948 65,879,672 $ 65,491,264 44,602,706 $ 230,530,620 $ 110,093,970 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 Sales to other than consolidated entities Sales among consolidated entities $ 222,048,091 19,158,150 $ 197,489,820 223,707,136 $ - (242,865,286) $ 419,537,911 - Total sales $ 241,206,241 $ 421,196,956 $ (242,865,286) $ 419,537,911 Customer A Customer B (Continued) Years Ended December 31 2010 Amount $ 41,022,200 37,962,026 2009 Amount $ 33,025,488 31,994,983 % 10 9 % 11 10 71 TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries FINANCINGS PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) No. Financing Name Financial statement Account Counter-party Financing Limit for Each Borrowing Company Maximum Balance for the Period (US$ in Thousands) Ending Balance (US$ in Thousands) Interest Rate Reason for Financing Allowance for Bad Debt Collateral Item Value Transaction Amounts Financing Company’s Financing Amount Limits (US$ in Thousands) (Note 2) 1 TSMC Partners Lo ng-term receivables from related parties TSMC China (Note 1) $ 3,644,160 (US$ 120,000) $ 3,644,160 (US$ 120,000) 0.25% - 0.26% Purchase equipment $ - - $ - $ - $ 33,565,775 Note 1: The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC will not subjected to this restriction. Note 2: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners. 72 TABLE 2 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries MARKETABLE SECURITIES HELD DECEMBER 31, 2010 (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 TSMC Corporate bond Taiwan Mobile Co., Ltd. China Steel Corporation Formosa Petrochemical Corporation Taiwan Power Company Nan Ya Plastics Corporation Formosa Plastics Corporation - - - - - - Stock Semiconductor Manufacturing International Corporation TSMC Global - Subsidiary Available-for-sale financial assets Held-to-maturity financial assets 〃 〃 〃 〃 Available-for-sale financial assets Investments accounted for using equity method TSMC Partners VIS SSMC Motech TSMC North America Xintec GUC TSMC Europe TSMC Japan TSMC Solar NA TSMC Solar Europe TSMC Korea TSMC Lighting NA 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 Investee accounted for using equity method 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 Subsidiary Subsidiary Subsidiary - - 〃 〃 〃 〃 〃 〃 Financial assets carried at cost 〃 〃 Financial assets carried at cost 〃 Investments accounted for using equity method 〃 〃 〃 Held-to-maturity financial assets 〃 TSMC Partners December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note - - - - - - $ 1,033,049 1,507,400 1,463,791 1,352,022 1,303,298 575,776 1,789,493 1 988,268 628,223 314 76,069 11,000 93,081 46,688 - 6 1 - 80 1 16,783 10,500 4,000 - - - - - - - - 3,918,274 43,710,543 33,565,775 9,422,452 7,120,714 6,733,369 2,873,888 1,645,201 1,113,516 177,784 150,312 26,527 23,971 20,929 3,133 193,584 105,000 40,000 103,992 55,259 4,252,270 2,769,423 1,063,057 304,310 US$ 20,283 US$ 20,141 N/A N/A N/A N/A N/A N/A 7 100 100 38 39 20 100 41 35 100 100 100 100 100 100 10 7 2 12 1 100 99 98 99 N/A N/A $ 1,033,049 1,516,479 1,472,381 1,360,403 1,347,296 581,495 3,918,274 43,710,543 33,565,775 9,297,707 6,742,565 4,685,200 2,873,888 1,632,596 5,695,919 177,784 150,312 26,527 23,971 20,929 3,133 321,548 356,893 43,977 103,992 55,259 4,278,014 2,749,807 1,057,288 304,310 US$ 21,065 US$ 21,391 (Continued) 73 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account Common stock TSMC Development, Inc. (TSMC Development) Subsidiary Investments accounted for using equity method VisEra Holding Company InveStar Semiconductor Development Fund, Inc. (ISDF) InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II) TSMC Technology TSMC Canada Mcube Inc. Investee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary Investee accounted for using equity method 〃 〃 〃 〃 〃 〃 December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note 1 US$ 403,257 100 US$ 403,257 43,000 US$ 83,057 49 US$ 83,057 4,088 16,532 1 2,300 5,333 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 - 97 97 100 100 70 10 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 - - Investee accounted for using equity Investments accounted for using 1,000 - method equity method - - Held-to-maturity financial assets 〃 - - US$ 20,215 US$ 15,000 N/A N/A US$ 21,391 US$ 15,075 Subsidiary Investments accounted for using 293,637 US$ 165,211 100 US$ 165,211 Preferred stock Mcube Inc. Corporate bond GE Capital Corp. JP Morgan Chase & Co. Stock WaferTech Corporate bond Beal Bk Beal Bk Ssb Cd Ally Bank Cd Banco Popular De P R H&R Block Bank Common stock RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Audience, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. QST Holdings, LLC - - - - - - - - - - - - Capital VentureTech Alliance Holdings, LLC (VTA Holdings) Subsidiary Corporate bond Beal Bk Beal Bk Ssb Cd Ally Bank Cd Banco Popular De P R H&R Block Bank Common stock Leadtrend Aether Systems, Inc. RichWave Technology Corp. Sentelic - - - - - - - - - TSMC Development Emerging Alliance VTAF II 74 equity method Available-for-sale financial assets 〃 〃 〃 〃 249 249 249 249 249 US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 N/A N/A N/A N/A N/A US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 Financial assets carried at cost 〃 4,074 11,124 US$ 1,545 US$ 3,065 10 6 US$ 1,545 US$ 3,065 Financial assets carried at cost 〃 〃 〃 〃 Investments accounted for using equity method Available-for-sale financial assets 〃 〃 〃 〃 Available-for-sale financial assets Financial assets carried at cost 〃 〃 1,654 800 1,276 4,641 - US$ 250 US$ 500 US$ 1,145 US$ 1,137 US$ 142 - 249 249 249 249 249 - US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 738 1,600 1,267 1,806 US$ 3,159 US$ 1,503 US$ 1,036 US$ 2,607 - 1 2 2 4 7 N/A N/A N/A N/A N/A 2 25 3 9 US$ 250 US$ 500 US$ 1,145 US$ 1,137 US$ 142 - US$ 249 US$ 249 US$ 249 US$ 249 US$ 249 US$ 3,159 US$ 1,503 US$ 1,036 US$ 2,607 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Preferred stock 5V Technologies, Inc. Aquantia Audience, Inc. Beceem Communications Impinj, Inc. Next IO, Inc. Optichron, Inc. Pixim, Inc. Power Analog Microelectronics QST Holdings, LLC Xceive Capital VTA Holdings Common stock Mutual-Pak Technology Co., Ltd. Aiconn Technology Corporation Preferred stock Auramicro, Inc. BridgeLux, Inc. Exclara, Inc. GTBF, Inc. InvenSense, Inc. LiquidLeds Lighting Corp. Neoconix, Inc. Powervation, Ltd. Quellan, Inc. Silicon Technical Services, LLC Stion Corp. Tilera, Inc. Validity Sensors, Inc. Capital Growth Fund Limited (Growth Fund) VTA Holdings Common stock SiliconBlue Technologies, Inc. Veebeam Common stock Integrated Memory Logic, Inc. Memsic, Inc. Preferred stock IP Unity, Inc. Sonics, Inc. Common stock Memsic, Inc. Alchip Technologies Limited VTAF III Growth Fund ISDF ISDF II - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 2,890 3,974 12,378 797 475 3,795 2,847 33,347 7,027 - 4,210 US$ 2,168 US$ 3,816 US$ 2,378 US$ 1,701 US$ 1,000 US$ 953 US$ 2,825 US$ 1,878 US$ 3,383 US$ 593 US$ 1,554 Subsidiary Investments accounted for using equity method - - Subsidiary Investments accounted for using 11,868 US$ 2,058 Investee accounted for using equity 〃 method equity method 5,623 US$ 546 - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Subsidiary Subsidiary Investments accounted for using equity method 〃 4,694 6,113 59,695 1,154 816 1,600 3,686 380 3,106 1,055 7,347 3,890 9,340 - - US$ 1,408 US$ 7,781 US$ 5,897 US$ 1,500 US$ 1,000 US$ 800 US$ 4,717 US$ 5,797 US$ 369 US$ 1,208 US$ 50,000 US$ 3,025 US$ 3,456 - Financial assets carried at cost 〃 5,107 10 US$ 762 US$ 25 Available-for-sale financial assets 〃 3,541 1,286 US$ 12,400 US$ 4,371 Financial assets carried at cost 〃 1,008 230 US$ 290 US$ 497 - - - - - - - - 4 3 3 1 - 2 4 2 19 13 3 31 57 43 20 4 15 N/A 1 11 4 16 N/A - 23 2 4 US$ 2,168 US$ 3,816 US$ 2,378 US$ 1,701 US$ 1,000 US$ 953 US$ 2,825 US$ 1,878 US$ 3,383 US$ 593 US$ 1,554 - US$ 2,058 US$ 546 US$ 1,408 US$ 7,781 US$ 5,897 US$ 1,500 US$ 1,000 US$ 800 US$ 4,717 US$ 5,797 US$ 369 US$ 1,208 US$ 50,000 US$ 3,025 US$ 3,456 62 1 - 5 5 1 2 - US$ 762 US$ 25 US$ 12,400 US$ 4,371 US$ 290 US$ 497 US$ 846 100 US$ 846 Available-for-sale financial assets Financial assets carried at cost 1,072 7,520 US$ 3,645 US$ 3,664 5 14 US$ 3,645 US$ 3,664 (Continued) 75 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Sonics, Inc. Goyatek Technology, Corp. Auden Technology MFG. Co., Ltd. Preferred stock FangTek, Inc. Sonics, Inc. Common stock GUC-NA GUC-Japan GUC-BVI GUC-Europe Capital Global Unichip (Shanghai) Company, Limited (GUC-Shanghai) Capital Compositech Ltd. Stock TSMC Solar Europe GmbH Corporate bond African Development Bank Allstate Life Gbl Fdg Secd Alltel Corp. American Honda Fin Corp. Mtn Anz National Intl Ltd. Asian Development Bank Astrazeneca Plc AT+T Wireless Australia + New Zealand Bkg Banco Bilbao Vizcaya P R Bank New York Inc. Bank New York Inc. Medium Bank of America Corp. Bank of New York Mellon Bank of Nova Scotia Barclays Bank Plc Barclays Bank Plc NY Bbva US Senior SA Uniper Bear Stearns Cos Inc. Bear Stearns Cos Inc. Bear Stearns Cos Inc. Med Term Berkshire Hathaway Inc. Del Bhp Billiton Fin USA Ltd. Bk Tokyo Mitsubishi Ufj Bmw US Capital LLC Bnp Paribas SA Boeing Cap Corp. Boeing Co. Bp Captial Markets Plc Caterpillar Financial Se Cellco Part/Veri Wireless - - - - - Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary - Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - GUC GUC-BVI Xintec TSMC Solar Europe TSMC Global 76 Financial assets carried at cost 〃 〃 278 932 1,049 US$ 10 US$ 545 US$ 223 Financial assets carried at cost 〃 1,032 264 US$ 686 US$ 456 3 6 3 6 3 Note Market Value or Net Asset Value (US$ in Thousands) US$ 10 US$ 545 US$ 223 US$ 686 US$ 456 Investments accounted for using equity method 〃 〃 〃 Investments accounted for using equity method Financial assets carried at cost Investments accounted for using equity method Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 800 $ 58,045 100 $ 58,045 1 550 - - 587 1 2,600 4,430 100 4,000 3,500 2,500 3,150 3,500 2,000 3,250 1,615 2,100 2,100 2,200 5,000 12,000 400 2,645 2,200 3,500 2,400 3,500 2,000 2,000 1,600 3,810 2,925 450 3,900 900 1,000 14,706 8,761 3,747 7,468 - 3,658 US$ 2,622 US$ 4,824 US$ 108 US$ 3,995 US$ 3,554 US$ 2,501 US$ 3,397 US$ 3,823 US$ 2,047 US$ 3,249 US$ 1,613 US$ 2,253 US$ 2,154 US$ 2,206 US$ 5,000 US$ 11,997 US$ 400 US$ 2,638 US$ 2,199 US$ 3,494 US$ 2,618 US$ 3,517 US$ 2,104 US$ 2,042 US$ 1,602 US$ 3,844 US$ 3,192 US$ 458 US$ 3,988 US$ 901 US$ 1,159 100 100 100 100 3 100 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 14,706 8,761 3,747 7,468 - 3,658 US$ 2,622 US$ 4,824 US$ 108 US$ 3,995 US$ 3,554 US$ 2,501 US$ 3,397 US$ 3,823 US$ 2,047 US$ 3,249 US$ 1,613 US$ 2,253 US$ 2,154 US$ 2,206 US$ 5,000 US$ 11,997 US$ 400 US$ 2,638 US$ 2,199 US$ 3,494 US$ 2,618 US$ 3,517 US$ 2,104 US$ 2,042 US$ 1,602 US$ 3,844 US$ 3,192 US$ 458 US$ 3,988 US$ 901 US$ 1,159 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Cello Part/Veri Wirelss Cie Financement Foncier Cie Financement Foncier Citigroup Funding Inc. Citigroup Funding Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Coca Cola Co. Commonwealth Bank Aust Countrywide Finl Corp. Credit Suisse First Boston USA Credit Suisse New York Deutsche Bank AG NY Dexia Credit Local Dexia Credit Local Dexia Credit Local S.A Dexia Credit Local SA NY Du Pont E I De Nemours + Co. Ebay Inc. Eog Resources Inc. Finance for Danish Ind General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. General Electric Capital Corp. Georgia Pwr Co. Georgia Pwr Co. Gmac LLC Goldman Sachs Group Inc. Groupe Bpce Hewlett Packard Co. Hewlett Packard Co. Household Fin Corp. HSBC Bank Plc HSBC Fin Corp. HSBC Fin Corp. IBM Corp. IBM Corp. IBM Corp. Intl Bk Recon + Develop Intl Bk Recon + Develop John Deer Capital Corp. Fdic GT JP Morgan Chase + Co. JP Morgan Chase + Co. Kfw Medium Term Nts Book Entry Kreditanstalt Fur Wiederaufbau Lilly Eli + Co. Lloyds Tsb Bank Plc Ser 144A Lloyds Tsb Bank Plc Ser 144A Macquarie Bk Ltd. Sr Massmutual Global Fdg II Mediu Mellon Fdg Corp. Merck + Co. Inc. Merck + Co. Inc. Merrill Lynch + Co. Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 2,000 200 4,000 16,000 7,300 1,400 800 400 5,000 4,000 2,800 4,000 2,150 3,945 2,500 6,000 4,000 4,000 5,000 825 1,375 1,500 3,800 1,000 7,000 1,000 4,000 2,000 1,000 4,000 4,600 2,000 1,150 3,000 2,030 4,330 3,400 2,315 2,900 2,300 6,800 1,500 5,000 2,000 3,500 2,500 5,000 1,950 650 1,500 4,850 5,950 3,900 4,000 3,500 4,000 2,000 4,691 US$ 2,020 US$ 200 US$ 4,019 US$ 16,323 US$ 7,446 US$ 1,390 US$ 814 US$ 426 US$ 5,490 US$ 4,002 US$ 2,806 US$ 4,208 US$ 2,253 US$ 4,090 US$ 2,487 US$ 5,976 US$ 3,984 US$ 3,992 US$ 4,983 US$ 886 US$ 1,361 US$ 1,501 US$ 3,799 US$ 999 US$ 7,002 US$ 1,001 US$ 4,110 US$ 1,967 US$ 1,005 US$ 4,006 US$ 4,731 US$ 1,956 US$ 1,140 US$ 3,003 US$ 2,032 US$ 4,694 US$ 3,405 US$ 2,304 US$ 3,074 US$ 2,301 US$ 6,775 US$ 1,500 US$ 5,002 US$ 2,046 US$ 3,616 US$ 2,513 US$ 5,021 US$ 1,950 US$ 664 US$ 1,548 US$ 4,857 US$ 6,009 US$ 3,975 US$ 3,955 US$ 3,475 US$ 4,032 US$ 2,077 US$ 4,647 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 N/A US$ 2,020 US$ 200 US$ 4,019 US$ 16,323 US$ 7,446 US$ 1,390 US$ 814 US$ 426 US$ 5,490 US$ 4,002 US$ 2,806 US$ 4,208 US$ 2,253 US$ 4,090 US$ 2,487 US$ 5,976 US$ 3,984 US$ 3,992 US$ 4,983 US$ 886 US$ 1,361 US$ 1,501 US$ 3,799 US$ 999 US$ 7,002 US$ 1,001 US$ 4,110 US$ 1,967 US$ 1,005 US$ 4,006 US$ 4,731 US$ 1,956 US$ 1,140 US$ 3,003 US$ 2,032 US$ 4,694 US$ 3,405 US$ 2,304 US$ 3,074 US$ 2,301 US$ 6,775 US$ 1,500 US$ 5,002 US$ 2,046 US$ 3,616 US$ 2,513 US$ 5,021 US$ 1,950 US$ 664 US$ 1,548 US$ 4,857 US$ 6,009 US$ 3,975 US$ 3,955 US$ 3,475 US$ 4,032 US$ 2,077 US$ 4,647 (Continued) 77 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 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. Metlife Inc. Microsoft Corp. Monumental Global Fdg II Monumental Global Fdg III Morgan Stanley Morgan Stanley Dean Witter Morgan Stanley for Equity National Australia Bank New York Life Global Fdg Nordea Bank Fld Plc Occidental Pete Corp. Occidental Petroleum Cor Ontario (Province of) Pacific Gas + Electric Pnc Funding Corp. Pricoa Global Fdg I Med Term Principal Life Income Fundings Princoa Global Fdg I Medium Rabobank Nederland Royal Bk of Scotland Plc Royal Bk of Scotland Plc Royal Bk Scotland Plc Royal Bk Scotlnd Grp Plc 144A Sbc Communications Inc. Shell International Fin Shell International Fin Sovereign Bancorp Fdic Gtd Tlg State Str Corp. Sun Life Finl Global Sun Life Finl Global Fdg II Lp Suncorp Metway Ltd. Svenska Handelsbanken AB Swedbank AB Swedbank Foreningssparbanken A Swedbank Hypotek AB Teva Pharma Fin III LLC Tiaa Global Mkts Inc. Tiaa Global Mkts Inc. Mtn Ubs Ag Stamford CT Ubs Ag Stamford CT US Central Federal Cred Verizon Communications Inc. Wachovia Corp. Wachovia Corp. Global Medium Wachovia Corp. New Wal Mart Stores Inc. Wal Mart Stores Inc. Wells Fargo + Company Westpac Banking Corp. Westpac Banking Corp. Westpac Banking Corp. Wyeth Aust + Nz Banking Group Commonwealth Bank of Australia Commonwealth Bank of Australia JP Morgan Chase + Co. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets 〃 〃 〃 500 6,500 2,000 3,250 1,500 750 1,000 8,000 2,000 1,000 2,000 2,250 3,200 1,000 2,000 2,000 2,000 1,750 1,500 5,050 5,000 4,000 5,000 2,550 9,450 2,000 4,515 3,200 2,200 6,420 4,400 1,500 8,800 2,200 2,000 1,500 4,000 4,000 2,000 1,500 2,200 800 4,000 1,500 550 5,000 1,400 4,000 3,770 2,000 3,500 2,100 4,000 3,345 20,000 25,000 25,000 35,000 US$ 508 US$ 6,600 US$ 2,013 US$ 3,232 US$ 1,446 US$ 729 US$ 1,036 US$ 8,524 US$ 1,996 US$ 1,019 US$ 2,049 US$ 2,241 US$ 3,700 US$ 1,004 US$ 2,038 US$ 1,999 US$ 2,000 US$ 1,724 US$ 1,483 US$ 5,011 US$ 5,000 US$ 4,002 US$ 5,052 US$ 2,589 US$ 9,516 US$ 2,106 US$ 4,536 US$ 3,248 US$ 2,260 US$ 6,417 US$ 4,332 US$ 1,496 US$ 8,982 US$ 2,253 US$ 1,998 US$ 1,536 US$ 3,993 US$ 4,016 US$ 2,141 US$ 1,631 US$ 2,199 US$ 807 US$ 4,084 US$ 1,631 US$ 545 US$ 5,141 US$ 1,398 US$ 3,964 US$ 4,325 US$ 2,007 US$ 3,514 US$ 2,110 US$ 4,005 US$ 3,657 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,067 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 N/A US$ 508 US$ 6,600 US$ 2,013 US$ 3,232 US$ 1,446 US$ 729 US$ 1,036 US$ 8,524 US$ 1,996 US$ 1,019 US$ 2,049 US$ 2,241 US$ 3,700 US$ 1,004 US$ 2,038 US$ 1,999 US$ 2,000 US$ 1,724 US$ 1,483 US$ 5,011 US$ 5,000 US$ 4,002 US$ 5,052 US$ 2,589 US$ 9,516 US$ 2,106 US$ 4,536 US$ 3,248 US$ 2,260 US$ 6,417 US$ 4,332 US$ 1,496 US$ 8,982 US$ 2,253 US$ 1,998 US$ 1,536 US$ 3,993 US$ 4,016 US$ 2,141 US$ 1,631 US$ 2,199 US$ 807 US$ 4,084 US$ 1,631 US$ 545 US$ 5,141 US$ 1,398 US$ 3,964 US$ 4,325 US$ 2,007 US$ 3,514 US$ 2,110 US$ 4,005 US$ 3,657 US$ 20,146 US$ 24,888 US$ 24,730 US$ 35,148 78 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Nationwide Building Society-UK Government Guarantee Westpac Banking Corp. Westpac Banking Corp. 12/12 Frn Agency bond Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fed Hm Ln Pc Pool 1b2830 Fed Hm Ln Pc Pool 1g0115 Fed Hm Ln Pc Pool 1g1114 Fed Hm Ln Pc Pool 1k1210 Fed Hm Ln Pc Pool 780741 Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bks Federal Home Ln Mtg Assn 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 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 Mtg Corp. Federal Home Loan Mtg Corp. Federal National Mort Assoc Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Gtd Remi Federal Natl Mtg Assn Mtn Federal Natl Mtg Assn Remic Federal Natl Mtge Assn Fhr 2647 Pb Fhr 2953 Da Fhr 3087 Jb Fhr 3184 Fa Fnma Pool 745131 Fnma Pool 745688 Fnma Pool 775852 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Held-to-maturity financial assets 〃 〃 8,000 25,000 5,000 US$ 8,000 US$ 25,000 US$ 5,000 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 11,100 3,900 16,104 8,765 4,600 3,000 4,000 1,836 2,023 799 1,550 1,800 4,000 4,000 5,000 5,000 5,000 2,768 3,732 1,443 2,664 1,915 1,778 422 246 1,298 3,324 2,450 5,000 6,800 8,000 1,400 1,400 10,000 8,400 5,000 5,183 710 535 471 2,346 1,917 436 1,276 1,080 1,428 2,561 3,284 1,520 4,096 1,743 1,384 340 US$ 11,096 US$ 3,861 US$ 16,102 US$ 8,763 US$ 4,589 US$ 2,994 US$ 4,003 US$ 1,922 US$ 2,086 US$ 837 US$ 1,613 US$ 1,879 US$ 3,984 US$ 3,994 US$ 5,004 US$ 5,008 US$ 5,046 US$ 2,810 US$ 3,727 US$ 1,505 US$ 2,793 US$ 1,969 US$ 1,849 US$ 423 US$ 247 US$ 1,341 US$ 3,453 US$ 2,491 US$ 5,007 US$ 6,817 US$ 8,040 US$ 1,399 US$ 1,399 US$ 9,998 US$ 8,397 US$ 4,998 US$ 5,168 US$ 718 US$ 539 US$ 471 US$ 2,425 US$ 1,988 US$ 437 US$ 1,304 US$ 1,094 US$ 1,506 US$ 2,595 US$ 3,466 US$ 1,602 US$ 4,084 US$ 1,803 US$ 1,440 US$ 343 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 Note Market Value or Net Asset Value (US$ in Thousands) US$ 7,996 US$ 24,555 US$ 5,009 US$ 11,096 US$ 3,861 US$ 16,102 US$ 8,763 US$ 4,589 US$ 2,994 US$ 4,003 US$ 1,922 US$ 2,086 US$ 837 US$ 1,613 US$ 1,879 US$ 3,984 US$ 3,994 US$ 5,004 US$ 5,008 US$ 5,046 US$ 2,810 US$ 3,727 US$ 1,505 US$ 2,793 US$ 1,969 US$ 1,849 US$ 423 US$ 247 US$ 1,341 US$ 3,453 US$ 2,491 US$ 5,007 US$ 6,817 US$ 8,040 US$ 1,399 US$ 1,399 US$ 9,998 US$ 8,397 US$ 4,998 US$ 5,168 US$ 718 US$ 539 US$ 471 US$ 2,425 US$ 1,988 US$ 437 US$ 1,304 US$ 1,094 US$ 1,506 US$ 2,595 US$ 3,466 US$ 1,602 US$ 4,084 US$ 1,803 US$ 1,440 US$ 343 (Continued) 79 Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2010 Shares/Units (In Thousands) Carrying Value (US$ in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (US$ in Thousands) Note Fnma Pool 790772 Fnma Pool 819649 Fnma Pool 829989 Fnma Pool 841068 Fnma Pool 846233 Fnma Pool 870884 Fnma Pool 879908 Fnma Pool AB0035 Fnma Pool AC9580 Fnr 2005 47 HA Fnr 2006 60 CO Fnr 2006 60 CO Fnr 2009 116 A Fnr 2009 70 NT Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Gnma II Pool 082431 Gnr 2008 9 SA Gnr 2009 45 AB Government Natl Mtg Assn Government Natl Mtg Assn Gtd Ngn 2010 C1 A1 Ngn 2010 R2 1A Government bond US Treasury N/B US Treasury N/B US Treasury N/B Wi Treasury N/B Wi Treasury Sec Societe De Financement De Lec Money market fund Ssga Cash Mgmt Global Offshore - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 〃 Held-to-maturity financial assets 1,162 1,876 1,626 482 1,729 1,609 1,349 2,000 100 1,785 3,485 1,009 4,271 1,890 10,420 4,500 5,750 7,855 4,300 4,010 1,897 2,259 4,417 3,050 1,692 1,968 3,732 41,700 7,000 1,000 5,250 11,100 15,000 US$ 1,215 US$ 1,950 US$ 1,695 US$ 505 US$ 1,800 US$ 1,684 US$ 1,417 US$ 2,055 US$ 103 US$ 1,875 US$ 3,483 US$ 1,016 US$ 4,640 US$ 1,965 US$ 10,411 US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 1,943 US$ 2,274 US$ 4,496 US$ 3,285 US$ 1,780 US$ 1,928 US$ 3,731 US$ 42,042 US$ 7,079 US$ 1,015 US$ 5,212 US$ 10,976 US$ 15,000 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$ 1,215 US$ 1,950 US$ 1,695 US$ 505 US$ 1,800 US$ 1,684 US$ 1,417 US$ 2,055 US$ 103 US$ 1,875 US$ 3,483 US$ 1,016 US$ 4,640 US$ 1,965 US$ 10,411 US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 1,943 US$ 2,274 US$ 4,496 US$ 3,285 US$ 1,780 US$ 1,928 US$ 3,731 US$ 42,042 US$ 7,079 US$ 1,015 US$ 5,212 US$ 10,976 US$ 15,030 Available-for-sale financial assets 12,387 US$ 12,387 N/A US$ 12,387 (Concluded) 80 TABLE 3 Taiwan Semiconductor Manufacturing Company Limited and Investees and Subsidiaries MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) Shares/Units (In Thousands) Amount (US$ 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 Stock Motech Capital VTAF III VTAF III Preferred stock Stion Corp. GUC Open-end mutual fund Jih Sun Bond Fund PCA Well Pool Fund TSMC Global Corporate bond Allstate Life Gbl Fdg Secd American Honda Fin Corp. Mtn Anz National Intl Ltd. AT+T Wireless Bank of America Bank of America Corp. Fdic Gtd Bank of Nova Scotia Bank of Scotland Plc Barclays Bank Plc Barclays Bank Plc NY Bbva US Senior SA Uniper Berkshire Hathaway Inc. Del Boeing Cap Corp. Bp Capital Markets Plc Cie Financement Foncier Citibank NA Citibank NA Citibank NA Citigroup Funding Inc. Citigroup Funding Inc. Citigroup Inc. Citigroup Inc. Citigroup Inc. Coca Cola Co. Countrywide Finl Corp. Dexia Credit Local Investments accounted for using equity method Investments accounted for using equity method Financial assets carried at cost - - - Available-for-sale financial assets 〃 Jih Sun Investment Trust Co., Ltd. PCA Securities Investment Trust Co., Ltd. Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - - - Investee accounted for using equity method Investee accounted for using equity method - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,668 80,008 - - - - - - - - - - - - - - - - - 5,000 - - - - - - - - - - - - - - - - - - - - - - - - - - US$ 4,996 - - - - - - - - - $ - $ - $ - 76,069 $ 6,733,369 - - - $ - 75,316 $ 6,228,661 1,309,615 - 1,862,278 - 7,347 US$ 50,000 - - - - - - - - - 192 75 - 2,769,423 7,347 US$ 50,000 - - - - 7,072 7,692 100,000 12,740 180,192 180,000 100,000 7,692 100,075 100,000 4,430 US$ 4,834 4,000 3,500 3,500 2,900 3,400 5,000 4,000 12,000 5,000 4,745 3,500 2,925 3,900 4,000 4,020 - 10,000 16,000 7,300 4,165 4,800 5,000 4,000 4,000 6,000 US$ 3,985 US$ 3,515 US$ 3,979 US$ 3,121 US$ 3,548 US$ 5,000 US$ 3,984 US$ 12,035 US$ 5,000 US$ 4,744 US$ 3,500 US$ 3,235 US$ 3,969 US$ 4,029 US$ 4,021 - US$ 10,094 US$ 16,262 US$ 7,448 US$ 4,167 US$ 4,768 US$ 5,360 US$ 4,000 US$ 4,291 US$ 6,000 - - - - 2,900 3,400 - - - 5,000 2,100 - - - - 4,020 5,000 10,000 - - 4,165 4,800 - - - - - - - 4,430 US$ 4,824 - - - US$ 3,086 US$ 3,539 - - - US$ 5,036 US$ 2,084 - - - - US$ 4,016 US$ 5,023 US$ 10,104 - - US$ 4,167 US$ 4,761 - - - - - - - US$ 3,121 US$ 3,548 - - - US$ 5,000 US$ 2,100 - - - - US$ 4,021 US$ 4,995 US$ 10,094 - - US$ 4,167 US$ 4,768 - - - - - - - US$ (35) US$ (9) - - - US$ 36 US$ (16) - - - - US$ (5) US$ 28 US$ 10 - - - US$ (7) - - - - 4,000 3,500 3,500 - - 5,000 - 12,000 - 2,645 3,500 2,925 3,900 4,000 - - - 16,000 7,300 - - 5,000 4,000 4,000 6,000 US$ 3,995 US$ 3,554 US$ 3,823 - - US$ 5,000 - US$ 11,997 - US$ 2,638 US$ 3,517 US$ 3,192 US$ 3,988 US$ 4,019 - - - US$ 16,323 US$ 7,446 - - US$ 5,490 US$ 4,002 US$ 4,208 US$ 5,976 (Continued) 81 Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Dexia Credit Local Available-for-sale financial assets 〃 Dexia Credit Local S.A 〃 Dexia Credit Local SA NY 〃 General Elec Cap Corp. 〃 Georgia Pwr Co. 〃 Georgia Pwr Co. 〃 Gmac LLC 〃 Goldman Sachs Group Incser 2 〃 Household Fin Corp. 〃 HSBC Bank Plc 〃 HSBC Fin Corp. 〃 IBM Corp. 〃 IBM Corp. 〃 IBM Corp. 〃 Intl Bk Recon + Develop 〃 John Deer Capital Corp. Fdic GT 〃 JP Morgan Chase + Co. JP Morgan Chase + Co. Fdic Gtd Tlg 〃 〃 Landwirtsch Rentenbank 〃 Lloyds Tsb Bank Plc Ser 144A 〃 Macquarie Bk Ltd. Sr 〃 Massmutual Global Fdg II Mediu 〃 Merck + Co. Inc. 〃 Merrill Lynch + Co. Inc. 〃 Met Life Glob Funding I 〃 Met Life Glob Funding I 〃 Metlife Inc. 〃 Metropolitan Life Global Fdg I 〃 Microsoft Corp. 〃 Morgan Stanley Dean Witter 〃 Occidental Pete Corp. 〃 Pepsico Inc. 〃 Rabobank Nederland 〃 Regions Bank Fdic Gtd Tlgp 〃 Royal Bk of Scotland Plc 〃 Shell International Fin 〃 Shell International Fin 〃 State Str Corp. 〃 State Street Corp. 〃 Sun Life Finl Global 〃 Suncorp Metway Ltd. 〃 Swedbank Hypotek AB 〃 Teva Pharma Fin III LLC 〃 US Central Federal Cred 〃 US Central Federal Cred 〃 Wachovia Corp. Global Medium 〃 Wachovia Corp. New 〃 Wal Mart Stores Inc. 〃 Wal Mart Stores Inc. 〃 Westpac Banking Corp. 〃 Westpac Banking Corp. 〃 Wyeth Held-to-maturity Aust + Nz Banking Group financial assets 〃 〃 〃 Commonwealth Bank of Australia Commonwealth Bank of Australia JP Morgan Chase + Co. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) 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) - US$ - 4,000 US$ 4,000 - US$ - US$ - US$ - 4,000 US$ 3,984 - - - - - - 3,000 - - - 1,800 3,000 - - - - 3,000 - - - - - - - 2,100 - 3,340 - - - - - - - - - 1,940 - - 5,000 - - 4,800 - - 4,000 - - - - - - - - - - - - - - - US$ 3,012 - - - US$ 1,796 US$ 3,027 - - - - US$ 3,030 - - - - - - - US$ 2,142 - US$ 3,278 - - - - - - - - - US$ 1,920 - - US$ 5,170 - - US$ 4,799 - - US$ 4,246 - - - - - - - - - 4,000 5,000 4,000 6,000 4,000 4,600 - 4,330 3,400 2,900 4,300 - 6,800 5,000 3,500 5,000 - 3,800 4,850 3,900 4,000 4,000 4,691 5,000 2,575 6,500 - 3,250 8,000 3,200 3,000 5,000 10,000 4,000 4,515 3,200 5,080 5,500 4,400 3,800 4,000 4,000 8,000 4,000 5,000 - 4,000 3,770 3,500 4,000 3,345 20,000 25,000 25,000 35,000 US$ 4,000 US$ 5,000 US$ 4,117 US$ 6,000 US$ 4,024 US$ 4,727 - US$ 4,781 US$ 3,407 US$ 3,142 US$ 4,302 - US$ 6,772 US$ 5,014 US$ 3,634 US$ 5,000 - US$ 3,800 US$ 4,895 US$ 3,984 US$ 3,926 US$ 4,066 US$ 4,603 US$ 5,004 US$ 2,623 US$ 6,527 - US$ 3,249 US$ 8,796 US$ 3,752 US$ 3,000 US$ 4,997 US$ 10,372 US$ 4,015 US$ 4,528 US$ 3,227 US$ 5,065 US$ 5,585 US$ 4,304 US$ 3,933 US$ 4,002 US$ 4,000 US$ 8,074 US$ 4,093 US$ 5,138 - US$ 3,986 US$ 4,383 US$ 3,500 US$ 4,044 US$ 3,699 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,103 - - - 5,000 - - 3,000 - - - 3,800 3,000 - - - - 3,000 3,800 - - - - - 5,000 4,675 - 3,340 - - - 3,000 - 10,000 - - - 600 5,500 - - - - 12,800 - - 4,000 - - - - - - - - - - - - US$ 5,015 - - US$ 3,012 - - - US$ 3,804 US$ 3,020 - - - - US$ 3,028 US$ 3,801 - - - - - US$ 5,003 US$ 4,757 - US$ 3,327 - - - US$ 3,001 - US$ 10,347 - - - US$ 597 US$ 5,559 - - - - US$ 12,899 - - US$ 4,205 - - - - - - - - - US$ 5,000 - - US$ 3,016 - - - US$ 3,801 US$ 3,029 - - - - US$ 3,030 US$ 3,800 - - - - - US$ 5,004 US$ 4,755 - US$ 3,245 - - - US$ 3,000 - US$ 10,372 - - - US$ 596 US$ 5,585 - - - - US$ 12,873 - - US$ 4,239 - - - - - - - - - US$ 15 - - US$ (4) - - - US$ 3 US$ (9) - - - - US$ (2) US$ 1 - - - - - US$ (1) US$ 2 - US$ 82 - - - US$ 1 - US$ (25) - - - US$ 1 US$ (26) - - - - US$ 26 - - US$ (34) - - - - - - - - - - - - - - - 4,000 5,000 4,000 1,000 4,000 4,600 - 4,330 3,400 2,900 2,300 - 6,800 5,000 3,500 5,000 - - 4,850 3,900 4,000 4,000 4,691 - - 6,500 - 3,250 8,000 3,200 - 5,000 - 4,000 4,515 3,200 6,420 - 4,400 8,800 4,000 4,000 - 4,000 5,000 - 4,000 3,770 3,500 4,000 3,345 20,000 25,000 25,000 35,000 US$ 3,992 US$ 4,983 US$ 4,110 US$ 1,005 US$ 4,006 US$ 4,731 - US$ 4,694 US$ 3,405 US$ 3,074 US$ 2,301 - US$ 6,775 US$ 5,002 US$ 3,616 US$ 5,021 - - US$ 4,857 US$ 3,975 US$ 3,955 US$ 4,032 US$ 4,647 - - US$ 6,600 - US$ 3,232 US$ 8,524 US$ 3,700 - US$ 5,000 - US$ 4,002 US$ 4,536 US$ 3,248 US$ 6,417 - US$ 4,332 US$ 8,982 US$ 3,993 US$ 4,016 - US$ 4,084 US$ 5,141 - US$ 3,964 US$ 4,325 US$ 3,514 US$ 4,005 US$ 3,657 US$ 20,000 US$ 25,000 US$ 25,000 US$ 35,067 (Continued) 82 Company Name Marketable Securities Type and Name Westpac Banking Corp. Agency bond Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Ln Bank Federal Home Ln Bks Federal Home Ln Mtg Assn 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 Ln Mtg Corp. Multi 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 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 Mortg Federal Home Loan Mtg Corp. Federal Natl Mtg Assn Federal Natl Mtg Assn Federal Natl Mtg Assn Gtd Fhr 2647 Pb Fhr 2953 Da Financial Statement Account Held-to-maturity 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) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,000 - - 1,350 - - - - - - - - - - 10,000 - 8,000 - - - - 10,000 4,700 - 11,200 - - 3,000 - - 4,000 - - - - US$ - 25,000 US$ 25,000 - US$ - US$ - US$ - 25,000 US$ 25,000 - 8,000 US$ 7,995 8,000 US$ 7,999 US$ 7,995 US$ 4 - - - - - - - - - - - - - - - - - US$ 11,028 - - US$ 1,352 - - - - - - - - - - US$ 9,987 - US$ 7,992 - - - - US$ 10,012 US$ 4,715 - US$ 11,186 - - US$ 2,989 - - US$ 4,228 - - - - 8,765 11,100 3,900 16,104 4,600 3,000 3,770 4,000 4,000 4,000 5,900 4,020 4,000 4,000 5,000 3,100 5,000 - 5,000 4,634 2,300 4,289 4,717 3,840 3,720 4,121 4,197 10,000 8,000 5,000 4,000 - 10,000 - 6,050 5,000 6,800 8,000 - - 4,500 1,500 4,000 8,000 - 8,000 6,397 - 3,426 3,343 4,000 3,638 US$ 8,760 US$ 11,096 US$ 3,899 US$ 16,097 US$ 4,598 US$ 3,009 US$ 3,770 US$ 4,014 US$ 4,007 US$ 4,011 US$ 5,975 US$ 4,017 US$ 3,997 US$ 3,995 US$ 4,997 US$ 3,100 US$ 5,049 - US$ 5,098 US$ 4,726 US$ 2,304 US$ 4,282 US$ 4,719 US$ 4,027 US$ 3,953 US$ 4,261 US$ 4,261 US$ 9,985 US$ 7,996 US$ 4,996 US$ 3,999 - US$ 9,998 - US$ 6,050 US$ 5,009 US$ 6,811 US$ 7,990 - - US$ 4,497 US$ 1,498 US$ 4,012 US$ 8,082 US$ - US$ 8,193 US$ 6,394 - US$ 3,494 US$ 3,466 US$ 4,149 US$ 3,827 - - - - - - - - - - - 4,020 - - - 3,100 - 11,000 - - 3,650 4,289 - - - - - - 8,000 5,000 4,000 10,000 10,000 8,000 6,050 - - - 10,000 4,700 3,100 4,300 4,000 8,000 3,000 8,000 - 4,000 - - - - - - - - - - - - - - - US$ 4,023 - - - US$ 3,100 - US$ 11,049 - - US$ 3,653 US$ 4,292 - - - - - - US$ 7,996 US$ 5,001 US$ 3,999 US$ 10,007 US$ 10,010 US$ 8,009 US$ 6,060 - - - US$ 10,047 US$ 4,716 US$ 3,098 US$ 4,294 US$ 4,002 US$ 8,057 US$ 3,001 US$ 8,123 - US$ 4,205 - - - - - - - - - - - - - - - US$ 4,017 - - - US$ 3,100 - US$ 11,038 - - US$ 3,656 US$ 4,282 - - - - - - US$ 7,996 US$ 4,996 US$ 3,999 US$ 9,996 US$ 9,998 US$ 8,002 US$ 6,050 - - - US$ 10,035 US$ 4,723 US$ 3,098 US$ 4,299 US$ 4,012 US$ 8,082 US$ 2,992 US$ 8,192 - US$ 4,261 - - - - - - - - - - - - - - - US$ 6 - - - - - US$ 11 - - US$ (3) US$ 10 - - - - - - - US$ 5 - US$ 11 US$ 12 US$ 7 US$ 10 - - - US$ 12 US$ (7) - US$ (5) US$ (10) US$ (25) US$ 9 US$ (69) - US$ (56) - - - - - 8,765 11,100 3,900 16,104 4,600 3,000 - - - 4,000 - - 4,000 4,000 5,000 - 5,000 - 5,000 2,768 - - 3,732 2,664 3,324 2,450 - 10,000 - - - - - - - 5,000 6,800 8,000 - - 1,400 8,400 - - - - 5,183 - 471 2,346 2,561 3,284 - US$ 8,763 US$ 11,096 US$ 3,861 US$ 16,102 US$ 4,589 US$ 2,994 - - - US$ 4,003 - - US$ 3,984 US$ 3,994 US$ 5,004 - US$ 5,008 - US$ 5,046 US$ 2,810 - - US$ 3,727 US$ 2,793 US$ 3,453 US$ 2,491 - US$ 9,998 - - - - - - - US$ 5,007 US$ 6,817 US$ 8,040 - - US$ 1,399 US$ 8,397 - - - - US$ 5,168 - US$ 471 US$ 2,425 US$ 2,595 US$ 3,466 (Continued) 83 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 Fhr 3184 Fa Fnma Pool 745131 Fnma Pool 995672 Fnma Pool AD9843 Fnma Tba Dec 30 Single Fam Fnma Tba Nov 30 Single Fam Fnma Tba Oct 30 Single Fam Fnr 2006 60 CO Fnr 2009 116 A Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Gnr 2009 45 AB Government Natl Mtg Assn Ngn 2010 R2 1A Government bond United States Treas Nts United States Treas Nts US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury N/B US Treasury Nts US Treasury Sec US Treasury Sec. Wi Treasury N/B Wi Treasury Sec Wi Treasury Sec Wi Treasury Sec Money market fund Ssga Cash Mgmt Global Offshore Corporate issued note Barclays U.S. Fdg LLC Financial Statement Account Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets Available-for-sale financial assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - 4,686 US$ 4,681 - US$ - US$ - US$ - 4,096 US$ 4,084 - - - - - - - - - 4,500 - - - - - - - - - - - - - - - - 21,400 - 37,700 - - - - - - - - - - - - - - - US$ 4,491 - - - - - - - - - - 3,123 3,000 3,252 24,000 14,200 14,200 4,092 4,390 10,420 - 8,000 7,000 4,500 5,750 7,855 4,300 4,010 7,004 3,050 3,800 US$ 3,261 US$ 3,141 US$ 3,405 US$ 25,241 US$ 14,863 US$ 14,790 US$ 4,090 US$ 4,712 US$ 10,412 - US$ 8,002 US$ 6,994 US$ 4,507 US$ 5,771 US$ 7,869 US$ 4,308 US$ 4,024 US$ 7,305 US$ 3,278 US$ 3,800 - 3,000 3,252 24,000 14,200 14,200 - - - 4,500 8,000 7,000 - - - - - - - - - US$ 3,134 US$ 3,397 US$ 25,233 US$ 14,981 US$ 14,901 - - - US$ 4,496 US$ 7,997 US$ 6,995 - - - - - - - - - US$ 3,141 US$ 3,405 US$ 25,241 US$ 14,863 US$ 14,790 - - - US$ 4,490 US$ 8,001 US$ 6,994 - - - - - - - - - US$ (7) US$ (8) US$ (8) US$ 118 US$ 111 - - - US$ 6 US$ (4) US$ 1 - - - - - - - - - 24,000 US$ 24,116 24,000 US$ 24,105 US$ 24,116 US$ (11) - - - - - US$ 21,394 - US$ 39,012 - - - - - - 45,070 43,900 53,000 16,800 49,700 - 7,000 - 8,000 10,000 5,250 11,100 4,400 5,000 US$ 45,309 US$ 43,832 US$ 53,069 US$ 16,889 US$ 49,742 - US$ 7,078 - US$ 8,040 US$ 10,040 US$ 5,195 US$ 11,084 US$ 4,380 US$ 5,009 45,070 43,900 53,000 16,800 8,000 21,400 - 37,700 8,000 10,000 - - 4,400 5,000 US$ 45,258 US$ 44,134 US$ 53,316 US$ 16,897 US$ 8,066 US$ 21,487 - US$ 38,784 US$ 8,028 US$ 10,045 - - US$ 4,464 US$ 4,977 US$ 45,309 US$ 43,831 US$ 53,069 US$ 16,889 US$ 8,013 US$ 21,416 - US$ 39,346 US$ 8,040 US$ 10,040 - - US$ 4,380 US$ 5,009 US$ (51) US$ 303 US$ 247 US$ 8 US$ 53 US$ 71 - US$ (562) US$ (12) US$ 5 - - US$ 84 US$ (32) 1,743 - - - - - 3,485 4,271 10,420 - - - 4,500 5,750 7,855 4,300 4,010 4,417 3,050 3,732 - - - - - 41,700 - 7,000 - - - 5,250 11,100 - - US$ 1,803 - - - - - US$ 3,483 US$ 4,640 US$ 10,411 - - - US$ 4,502 US$ 5,764 US$ 7,859 US$ 4,316 US$ 4,014 US$ 4,496 US$ 3,285 US$ 3,731 - - - - - US$ 42,042 - US$ 7,079 - - - US$ 5,212 US$ 10,976 - - 8,858 US$ 8,858 337,008 US$ 337,008 333,479 US$ 333,479 US$ 333,479 4,500 US$ 4,489 - - 4,500 US$ 4,489 US$ 4,489 - - 12,387 US$ 12,387 - - (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 redemption by the issuer. Note 3: The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments, equity in earnings/losses of equity method investees and other adjustments to long-term investment using equity method. 84 TABLE 4 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Types of Property Transaction Date Transaction Amount Payment Term Counter-party Nature of Relationships Prior Transaction of Related Counter-party Owner Relationships Transfer Date Price Reference Amount Purpose of Acquisition Other Terms TSMC Fab Fab Fab Fab Fab Fab Fab January 28, 2010 to December 27, 2010 January 28, 2010 to December 29, 2010 February 19, 2010 to December 29, 2010 February 25, 2010 to December 30, 2010 April 1, 2010 to December 30, 2010 December 26, 2010 to December 28, 2010 December 30, 2010 $ 1,169,132 By the construction progress 1,959,787 By the construction progress 2,800,940 By the construction progress 493,403 By the construction progress 125,277 By the construction progress 195,831 By the construction progress 2,900,000 Based on the agreement China Steel Structure Co., Ltd. Fu Tsu Construction Co., Ltd. Da Cin Constructure Co., Ltd. Tasa Construction Corporation I-Domain Industrial Co., Ltd. Mirle Automation Corporation Powerchip Technology Corporation - - - - - - - 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 Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Public bidding N/A Pricing report Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose Ma nufacturing purpose None None None None None None None 85 TABLE 5 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships TSMC TSMC North America GUC VIS TSMC China WaferTech VIS SSMC Subsidiary Investee with a controlling financial interest Investee accounted for using equity method Subsidiary Indirect subsidiary Investee accounted for using equity method Investee accounted for using equity method GUC TSMC North America Same parent company Purchases/ Sales Sales Sales Sales Purchases Purchases Purchases Purchases Purchases Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance % to Total Note $ 220,529,792 2,818,499 223,433 8,748,101 7,878,260 4,937,617 4,521,046 780,070 53 1 - 18 16 10 10 18 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 Net 30 days after monthly closing Net 30 days after monthly closing Ne t 30 days after invoice date/net 30 days after monthly closing - - - - - - - - - - - - - - - - - - $ 25,579,259 154,589 - (895,193) (568,685) (428,797) (430,235) (102,302) 118,933 53 - - 7 4 3 3 14 62 Xintec OmniVision Pa rent company of director (represented for Sales 2,252,522 57 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. TABLE 6 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, 2010 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Ending Balance TSMC TSMC North America TSMC China GUC Subsidiary Subsidiary Investee with a controlling financial interest $ 25,582,932 1,170,407 154,589 Xintec OmniVision Pa rent company of director (represented for 118,933 Xintec) 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) 40 (Note 2) 32 42 Overdue Amounts Action Taken $ 8,255,062 - 7,415 - - - - - Amounts Received in Subsequent Period $ 11,282,114 - - Allowance for Bad Debts $ - - - - - 86 TABLE 7 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2010 (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 Original Investment Amount Balance as of December 31, 2010 December 31, 2010 (Foreign Currencies in Thousands) December 31, 2009 (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 $ 43,710,543 33,565,775 $ 660,931 2,313,657 $ 660,931 2,313,657 Subsidiary Subsidiary VIS SSMC Motech Hsin-Chu, Taiwan 13,232,288 13,232,288 628,223 Singapore Fabrication and supply of integrated circuits 5,120,028 5,120,028 314 Taipei, Taiwan 6,228,661 - 76,069 38 39 20 9,422,452 1,952,385 343,252 7,120,714 3,881,067 1,308,468 6,733,369 4,584,720 542,218 Investee accounted for using equity method Investee accounted for using equity method Investee accounted for using equity method 12,180,367 12,180,367 - 100 4,252,270 1,386,574 1,358,492 Subsidiary Investment activities Investing 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 Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Selling and marketing of integrated circuits and semiconductor devices Investing in new start-up technology companies Wafer level chip size packaging service Researching, developing, manufacturing, testing and marketing of integrated circuits Investing in new start-up technology companies Investing in new start-up technology companies Marketing and engineering supporting activities Marketing activities Engaged in selling and marketing of solar related products Engaged in investing activities of solar related business Customer service and technical supporting activities Engaged in selling and marketing of LED related products 333,718 333,718 3,565,441 1,357,890 1,703,163 1,357,890 386,568 386,568 1,166,470 971,785 15,749 83,760 60,962 25,350 13,656 3,133 1,093,943 959,044 15,749 83,760 - - 13,656 - TSMC China Shanghai, China TSMC North America San Jose, California, U.S.A. VTAF III Xintec GUC VTAF II Emerging Alliance TSMC Europe TSMC Japan TSMC Solar NA Cayman Islands Taoyuan, Taiwan Hsin-Chu, Taiwan Cayman Islands Cayman Islands Amsterdam, the Netherlands Yokohama, Japan Delaware, U.S.A. TSMC Solar Europe Amsterdam, the Netherlands TSMC Korea TSMC Lighting NA Seoul, Korea Delaware, U.S.A. TSMC Partners TSMC Development VisEra Holding Company Delaware, U.S.A. Cayman Islands ISDF ISDF II TSMC Technology TSMC Canada Cayman Islands Cayman Islands Delaware, U.S.A. Ontario, Canada Investment activities Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry Investing in new start-up technology companies Investing in new start-up technology companies Engineering support activities Engineering support activities US$ 0.001 US$ 43,000 US$ 0.001 US$ 43,000 US$ 4,088 US$ 16,532 US$ 0.001 US$ 2,300 US$ 7,680 US$ 21,415 US$ 0.001 US$ 2,300 100 2,873,888 302,598 302,598 Subsidiary 2,769,423 1,645,201 (247,274) 505,260 (241,178) 180,912 1,113,516 604,501 211,199 11,000 - 93,081 46,688 - - - 6 1 - 80 1 1 43,000 4,088 16,532 1 2,300 99 41 35 98 99 100 100 100 100 100 100 100 49 97 97 100 100 1,063,057 304,310 177,784 150,312 26,527 23,971 20,929 3,133 120,612 2,345 38,893 4,704 (35,512) (433) 2,709 - US$ 403,257 US$ 83,057 US$ 62,870 US$ 11,321 US$ 21,523 US$ 13,660 US$ 9,878 US$ 3,714 US$ 8,934 US$ 4,957 US$ 807 US$ 348 Subsidiary Investee with a controlling financial interest Investee with a controlling financial interest Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary 118,200 2,333 38,893 4,704 (35,512) (433) Subsidiary 2,709 - Subsidiary (Note 3) Subsidiary Note 2 Note 2 Note 2 Note 2 Note 2 Note 2 Subsidiary Investee accounted for using equity method Subsidiary Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) (Continued) 87 Investor Company Investee Company Location Main Businesses and Products Mcube Inc. (Common Stock) Delaware, U.S.A. Mcube Inc. (Preferred Stock) Delaware, U.S.A. TSMC Development WaferTech Washington, U.S.A. VTAF III Mu tual-Pak Technology Co., Taipei, Taiwan Ltd. Aiconn Technology Corp. Taipei, Taiwan 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 researching, developing, and testing of RFID Wholesaling telecommunication equipments, and manufacturing wired and wireless communication equipments Original Investment Amount Balance as of December 31, 2010 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 December 31, 2010 (Foreign Currencies in Thousands) December 31, 2009 (Foreign Currencies in Thousands) US$ 800 US$ 800 US$ 1,000 US$ 1,000 5,333 1,000 70 10 US$ - US$ (6,915) - (6,915) Note 2 Note 2 Investee accounted for using equity method (Note 3) Investee accounted for using equity method (Note 3) US$ 280,000 US$ 330,000 293,637 100 US$ 165,211 US$ 60,779 Note 2 Subsidiary US$ 3,937 US$ 3,088 11,868 US$ 2,206 US$ 1,777 5,623 57 43 100 62 31 100 100 100 100 100 7 100 US$ 2,058 US$ (1,879) Note 2 Subsidiary (Note 3) US$ 546 US$ (1,030) Note 2 Investee accounted for using equity method (Note 3) US$ 846 - US$ (127) - Note 2 Note 2 Subsidiary (Note 3) Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) $ 58,045 14,706 8,761 3,747 $ 10,599 1,404 (8,021) (703) Note 2 Note 2 Note 2 Note 2 Subsidiary Subsidiary (Note 3) Subsidiary (Note 3) Subsidiary (Note 3) 7,468 (7,971) Note 2 Subsidiary (Note 3) - - Note 2 Subsidiary (Note 3) 3,658 (421) Note 2 Subsidiary (Note 3) (Concluded) VTAF II GUC Growth Fund VTA Holdings Cayman Islands Delaware, U.S.A. Investing in new start-up technology companies Investing in new start-up technology companies US$ 1,700 - US$ 1,550 - VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - - GUC-NA GUC-Japan GUC-BVI GUC-Europe U.S.A. Japan British Virgin Islands The Netherlands Consulting services in main products Consulting services in main products Investment activities Consulting services in main products US$ 1,249 JPY 30,000 US$ 550 EUR 100 US$ 800 JPY 30,000 US$ 550 EUR 100 GUC-BVI GUC-Shanghai Shanghai, China Consulting services in main products US$ 500 Emerging Alliance VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies - TSMC Solar Europe TSMC Solar Europe GmbH Hamburg, Germany Engaged in the selling and customer service of solar cell modules and related products EUR 100 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. - - - - - - 800 1 550 - - - 1 88 TABLE 8 Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investor Company Investee Company Main Businesses and Products Total Amount of Paid-in Capital (Thousand) Method of Investment TSMC GUC TSMC China GUC-Shanghai Ma nufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Co nsulting services in main products $ 12,180,367 (RMB 3,070,623) (Note 1) Accumulated Outflow of Investment from Taiwan as of January 1, 2010 (US$ in Thousand) $ 12,180,367 (US$ 371,000) Investment Flows Outflow (US$ in Thousand) Inflow (US$ in Thousand) $ - $ - Accumulated Outflow of Investment from Taiwan as of December 31, 2010 (US$ in Thousand) $ 12,180,367 (US$ 371,000) 16,160 (US$ 500) (Note 2) - 16,160 (US$ 500) - 16,160 (US$ 500) Investor Company Percentage of Ownership Equity in the Earnings (Losses) Carrying Value as of December 31, 2010 Accumulated Inward Remittance of Earnings as of December 31, 2010 Accumulated Investment in Mainland China as of December 31, 2010 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) TSMC GUC 100% 100% $ 1,358,492 (Note 3) $ 4,252,270 $ - $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) $ 12,180,367 (US$ 371,000) (7,971) (Note 4) 7,468 - 16,160 (US$ 500) 16,160 (US$ 500) 1,909,972 (Note 5) Note 1: TSMC directly invested US$371,000 thousand in TSMC China. Note 2: GUC, TSMC’s investee with a controlling financial interest, indirectly invested in GUC-Shanghai through GUC-BVI. Note 3: Amount was recognized based on the audited financial statements. Note 4: Amount was determined based on the unaudited financial statements. Note 5: Subject to 60% of net asset value of GUC according to the revised “Guidelines Governing the Approval of Investment or Technical Cooperation in Mainland China” issued by the Investment Commission. 89 TABLE 9 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, 2010 No. 0 Company Name Counter Party TSMC TSMC North America TSMC China TSMC Japan TSMC Europe TSMC Korea GUC TSMC Technology Nature of Relationship (Note 1) 1 1 1 1 1 1 1 Financial Statements Item Sales Receivables from related parties Other receivables from related parties Payables to related parties Sales Purchases Marketing expenses - commission Gain on disposal of property, plant and equipment Acquisition of property, plant and equipment Disposal of property, plant and equipment Technical service income Other receivables from related parties Payables to related parties Deferred debits 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 Payables to related parties Research and development expenses Payables to related parties 90 Intercompany Transactions Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets $ 220,529,792 25,579,259 3,673 11,475 17,631 8,748,101 59,180 45,251 66,337 1,409,862 4,487 1,170,407 895,193 27,327 266,194 26,115 415,765 33,907 35,530 19,318 2,466 2,818,499 8,390 154,589 2,271 547,838 88,292 - - - - - - - - - - - - - - - - - - - - - - - - - - - 51% 6% - - - 2% - - - - - - - - - - - - - - - 1% - - - - - (Continued) Nature of Relationship (Note 1) Financial Statements Item Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions No. 0 Company Name Counter Party TSMC WaferTech TSMC Canada Xintec 1 GUC TSMC North America TSMC Korea GUC-NA GUC-Japan GUC-Europe GUC-Shanghai TSMC China TSMC Partners WaferTech 2 3 TSMC Partners TSMC China 1 1 1 3 3 3 3 3 3 3 3 3 Sales Purchases Gain on disposal of other assets Acquisition of property, plant and equipment Disposal of property, plant and equipment Disposal of other assets Other receivables from related parties Payables to related parties Research and development expenses Payables to related parties Manufacturing overhead Research and development expenses Disposal of property, plant and equipment Payables to related parties Purchases Manufacturing overhead Payables to related parties Operating expenses Operating expenses Manufacturing overhead Accrued expenses Operating expenses Accrued expenses Operating expenses Operating expenses Accrued expenses Other long-term receivables Other long-term payables Acquisition of property, plant and equipment $ 9,918 7,878,260 9,655 9,624 27,010 9,655 3,543 568,685 181,943 13,495 313,397 12,652 3,841 69,083 780,070 196,572 102,302 1,156 155,643 54,029 14,353 45,927 9,706 1,778 22,146 1,945 3,644,160 3,663,678 27,104 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. - 2% - - - - - - - - - - - - - - - - - - - - - - - - 1% 1% - (Continued) 91 B. For the year ended December 31, 2009 No. 0 Company Name Counter Party TSMC TSMC North America TSMC China TSMC Japan TSMC Europe TSMC Korea GUC TSMC Technology WaferTech TSMC Canada Xintec Nature of Relationship (Note 1) 1 1 1 1 1 1 1 1 1 1 Financial Statements Item Sales Receivables from related parties Other receivables from related parties Payables to related parties 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 Sales of property, plant and equipment and other assets 92 Intercompany Transactions Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets $ 161,251,368 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 36,101 37,363 58,450 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 52% 4% - - - 1% - - - - - - - - - - - - - 1% - - - - - 2% - - - - - - - (Continued) No. 3 Company Name Counter Party GUC TSMC North America GUC-NA GUC-Japan GUC-Europe Nature of Relationship (Note 1) 3 3 3 3 Intercompany Transactions Financial Statements Item Purchases Manufacturing overhead Payables to related parties Operating expenses Accrued expenses Operating expenses Accrued expenses Operating expenses Amount Terms (Note 2) Percentage of Consolidated Total Gross Sales or Total Assets $ 937,160 303,687 173,789 157,345 14,618 39,755 3,462 7,305 - - - - - - - - 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. - - - - - - - - (Concluded) 93 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, 2009 and 2010 (In Thousand New Taiwan Dollars) U.S. GAAP RECONCILIATIONS OF NET INCOME For the Years Ended December 31, 2009 and 2010 (In Thousand New Taiwan Dollars) 2010 2009 2010 2009 Total shareholders’ equity based on R.O.C. GAAP $ 578,704,405 $ 499,048,548 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 (516,314) (9,897,467) 9,897,467 (1,379,606) 52,212,732 (11,499,173) (27,445) (2,477,721) 139,349 36,451,822 (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 Total equity based on U.S. GAAP $ 615,156,227 $ 535,996,368 Attributable to Shareholders of the parent Noncontrolling interests 610,596,740 4,559,487 $ 615,156,227 532,042,816 3,953,552 $ 535,996,368 Net income Consolidated net income based on R.O.C. GAAP Adjustments - U.S. GAAP adjustments on equity-method investees - 10% tax on undistributed earnings - Profit sharing to employees, directors and supervisors- Fair market value adjustment of prior year accrual - Pension expense - Stock-based compensation - Income tax effect of U.S. GAAP adjustments - Net adjustment $ 162,281,930 $ 89,466,223 (7,020) 2,208,402 - 4,289 (179,784) 12,625 2,038,512 (6,300) 966,889 (648,092) 3,888 (559,078) 69,929 (172,764) Consolidated net income based on U.S. GAAP $ 164,320,442 $ 89,293,459 Attributable to Shareholders of the parent Noncontrolling interests 163,638,659 681,783 $ 164,320,442 89,102,226 191,233 $ 89,293,459 94 CONTACT INFORMATION TSMC Design Technology Canada Inc. 535 Legget Dr, Suite 600, Kanata, ON K2K 3B8, Canada Tel: 1-613-576-1990 Fax: 1-613-576-1999 TSMC Spokesperson Name: Lora Ho Title: Senior Vice President & CFO Tel: 886-3-5054602 Fax: 886-3-5670121 Email: cyhsu@tsmc.com Deputy Spokesperson/ TSMC Investor Relations Name: Elizabeth Sun Title: Director, TSMC Corporate Communication Division Tel: 886-3-5682080 Fax: 886-3-5797337 Email: elizabeth_sun@tsmc.com Auditors Company: Deloitte & Touche Auditors: Hung-Peng Lin, Shu-Chieh Huang Address: 12F, 156, Sec. 3, Min-Sheng E. Rd., Taipei 105-96 Taiwan, R.O.C. Tel: 886-2-25459988 Fax: 886-2-25459966 Website: http://www.deloitte.com.tw Common Share Transfer Agent and Registrar Company: The Transfer Agency Department of Chinatrust Commercial Bank Address: 5F, 83, Sec. 1, Chung-Ching S. Rd., Taipei 100-08 Taiwan, 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 300-78, Taiwan, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5637000 Fab 2, Fab 5 121, Park Ave. 3, Hsinchu Science Park, Hsinchu 300-77, Taiwan, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781546 Fab 3 9, Creation Rd. 1, Hsinchu Science Park, Hsinchu 300-77, Taiwan, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5781548 Fab 6 1, Nan-Ke North Rd., Tainan Science Park, Tainan 741-44, Taiwan, R.O.C. Tel: 886-6-5056688 Fax: 886-6-5052057 Fab 8 25, Li-Hsin Rd., Hsinchu Science Park, Hsinchu 300-78, Taiwan, R.O.C. Tel: 886-3-5636688 Fax: 886-3-5662051 Fab 14 1-1, Nan-Ke North Rd., Tainan Science Park, Tainan 741-44, Taiwan, 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 Copyright © 2011 by Taiwan Semiconductor Manufacturing Company, Ltd. All rights reserved. 

Continue reading text version or see original annual report in PDF format above