TSMC
Annual Report 2011

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Taiwan Semiconductor Manufacturing Company Limited Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors’ Report D R A F T INDEPENDENT AUDITORS’ REPORT 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, 2011 and 2010, 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, 2011 and 2010, 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. 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, 2011 and 2010 on which we have issued an unqualified opinion. February 14, 2012 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 jurisdictions. 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. - 1 - Taiwan Semiconductor Manufacturing Company Limited BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss (Notes 2, 5 and 24) Available-for-sale financial assets (Notes 2, 6 and 24) Held-to-maturity financial assets (Notes 2, 7 and 24) Receivables from related parties (Notes 3 and 25) Notes and accounts receivable (Note 3) Allowance for doubtful receivables (Notes 2, 3 and 8) Allowance for sales returns and others (Notes 2 and 8) Other receivables from related parties (Notes 3 and 25) Other financial assets (Note 26) Inventories (Notes 2 and 9) Deferred income tax assets (Notes 2 and 18) Prepaid expenses and other current assets 2011 2010 2011 2010 Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount % $ 85,262,521 11 $ 109,511,130 15 14,925 2,617,134 701,136 24,777,534 19,894,386 (485,120) (4,887,879) 188,028 122,010 22,853,397 5,779,544 1,725,736 - - - 3 3 - - - - 3 1 - - 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 - - 1 4 3 - (1) - - 4 1 - CURRENT LIABILITIES Short-term loans (Note 14) Financial liabilities at fair value through profit or loss (Notes 2, 5 and 24) Accounts payable Payables to related parties (Note 25) Income tax payable (Notes 2 and 18) 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, 24 and 25) Current portion of bonds payable (Notes 15 and 24) $ 25,926,528 3 $ 30,908,637 - 9,522,688 2,992,582 10,647,797 9,055,704 33,811,970 13,057,161 4,500,000 - 1 - 1 1 5 2 1 7,834 10,559,283 2,574,450 7,108,869 10,959,469 41,992,198 13,911,520 - 4 - 2 - 1 2 6 2 - Total current liabilities 109,514,430 14 118,022,260 17 Total current assets 158,563,352 21 192,234,282 27 LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 24) Investments accounted for using equity method Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost 128,200,718 - 702,291 497,835 17 - - - 114,977,174 1,033,049 1,405,698 497,835 17 - - - LONG-TERM LIABILITIES Bonds payable (Notes 15 and 24) OTHER LIABILITIES Accrued pension cost (Notes 2 and 17) Guarantee deposits (Note 28) Total other liabilities 18,000,000 3,860,898 439,032 4,299,930 2 1 - 1 4,500,000 3,824,601 747,887 4,572,488 - 1 - 1 Total long-term investments 129,400,844 17 117,913,756 17 Total liabilities 131,814,360 17 127,094,748 18 PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 25) Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Advance payments and construction in progress 149,495,478 984,978,666 13,824,434 1,148,298,578 (804,740,797) 110,815,752 20 129 2 151 (106) 14 128,646,942 852,733,592 11,730,537 993,111,071 (706,605,445) 80,348,673 18 122 2 142 (101) 11 Net property, plant and equipment 454,373,533 59 366,854,299 52 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 25) Total other assets TOTAL The accompanying notes are an integral part of the financial statements. 1,567,756 4,719,244 6,287,000 7,221,824 4,491,735 1,069,586 12,783,145 - 1 1 1 1 - 2 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 CAPITAL STOCK - NT$10 PAR VALUE (Note 20) Authorized: 28,050,000 thousand shares Issued: 25,916,222 thousand shares in 2011 25,910,078 thousand shares in 2010 259,162,226 34 259,100,787 37 CAPITAL SURPLUS (Notes 2 and 20) 55,846,357 8 55,698,434 8 RETAINED EARNINGS (Note 20) Appropriated as legal capital reserve Appropriated as special capital reserve Unappropriated earnings OTHERS (Notes 2, 22 and 24) Cumulative translation adjustments Unrealized gain (loss) on financial instruments 102,399,995 6,433,874 213,357,286 13 1 28 86,239,494 1,313,047 178,227,030 12 - 26 322,191,155 42 265,779,571 38 (6,433,369) (1,172,855) (1) - (6,543,163) 109,289 (7,606,224) (1) (6,433,874) (1) - (1) Total shareholders’ equity 629,593,514 83 574,144,918 82 $ 761,407,874 100 $ 701,239,666 100 TOTAL $ 761,407,874 100 $ 701,239,666 100 - 2 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2011 2010 Amount % Amount % GROSS SALES (Notes 2 and 25) $ 421,472,087 $ 418,666,448 SALES RETURNS AND ALLOWANCES (Notes 2 and 8) NET SALES 3,226,594 11,703,136 418,245,493 100 406,963,312 100 COST OF SALES (Notes 9, 19 and 25) 233,083,068 56 209,921,268 52 GROSS PROFIT BEFORE AFFILIATES ELIMINATION 185,162,425 44 197,042,044 48 REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2) 398,440 - (52,742) - GROSS PROFIT 185,560,865 44 196,989,302 48 OPERATING EXPENSES (Notes 19 and 25) Research and development General and administrative Marketing 31,594,034 12,715,339 2,345,729 7 3 1 27,623,299 11,681,756 2,837,739 7 3 - Total operating expenses 46,655,102 11 42,142,794 10 INCOME FROM OPERATIONS 138,905,763 33 154,846,508 38 NON-OPERATING INCOME AND GAINS Equity in earnings of equity method investees, net (Notes 2 and 10) Settlement income (Note 28) Valuation gain on financial instruments, net (Notes 2, 5 and 24) Interest income Technical service income (Note 25) Others (Notes 2 and 25) 3,778,083 947,340 801,195 697,196 408,153 655,079 Total non-operating income and gains 7,287,046 1 1 - - - - 2 7,111,443 6,939,764 312,862 764,027 446,746 333,126 15,907,968 2 2 - - - - 4 (Continued) - 3 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2011 2010 Amount % Amount % NON-OPERATING EXPENSES AND LOSSES Foreign exchange loss, net (Note 2) Interest expense (Note 25) Loss on disposal of property, plant and equipment $ (Note 2) Casualty loss (Note 9) Others 673,085 445,887 202,901 - 163,092 Total non-operating expenses and losses 1,484,965 $ - - - - - - 58,737 214,641 838,750 190,992 161,152 1,464,272 - - - - - - INCOME BEFORE INCOME TAX 144,707,844 35 169,290,204 42 INCOME TAX EXPENSE (Notes 2 and 18) 10,506,565 3 7,685,195 2 NET INCOME $ 134,201,279 32 $ 161,605,009 40 2011 2010 Before Income Tax After Income Tax Before Income Tax After Income Tax EARNINGS PER SHARE (NT$, Note 23) Basic earnings per share Diluted earnings per share $ 5.58 $ 5.58 $ 5.18 $ 5.18 $ 6.53 $ 6.53 $ 6.24 $ 6.23 The accompanying notes are an integral part of the financial statements. (Concluded) - 4 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Stock - Common Stock Shares (In Thousands) Amount Capital Surplus Reserve Legal Capital Retained Earnings Special Capital Reserve Unappropriated Earnings Total Cumulative Translation Adjustments Others Unrealized Gain (Loss) on Financial Instruments Total Shareholders’ Treasury Stock Equity BALANCE, JANUARY 1, 2010 25,902,706 $ 259,027,066 $ 55,486,010 $ 77,317,710 $ - $ 104,564,972 $ 181,882,682 $ (1,766,667) $ 453,621 $ - $ 495,082,712 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 Net changes of valuation gain/loss on available-for-sale financial assets Net change in shareholders’ equity from equity method investees - - - - - - - - - - - - - - - - (17,885) - 7,372 73,721 171,103 - - - - - 59,206 8,921,784 - - 1,313,047 (8,921,784) (1,313,047) - - - - - - - - - - - - - - - - (77,708,120) (77,708,120) 161,605,009 161,605,009 - - - - - - - - - - - - - - - (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 Appropriations of prior year’s earnings Legal capital reserve Special capital reserve Cash dividends to shareholders - NT$3.00 per share Net income in 2011 Adjustment arising from changes in percentage of ownership in equity method investees Translation adjustments Issuance of stock from exercising employee stock options Net changes of valuation gain/loss on available-for-sale financial assets Net change in shareholders’ equity from equity method investees Acquisition of treasury stock - shareholders executed the appraisal right Retirement of treasury stock Effect of spin-off - - - - - - - - - - - - - - - - 59,898 - 7,144 71,439 146,258 - - - - - - - (1,000) - - (10,000) - - (2,139) (56,094) 16,160,501 - - 5,120,827 (16,160,501) (5,120,827) - - (77,730,236) (77,730,236) 134,201,279 134,201,279 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (112,326) - - - - - - - - - - (1,112,995) (165,851) - - - - - - - - - - - (77,730,236) 134,201,279 59,898 (112,326) 217,697 (1,112,995) (165,851) (71,598) - 162,728 - (59,459) - - (59,459) - - - 222,120 - - (3,298) (71,598) 71,598 - BALANCE, DECEMBER 31, 2011 25,916,222 $ 259,162,226 $ 55,846,357 $ 102,399,995 $ 6,433,874 $ 213,357,286 $ 322,191,155 $ (6,433,369) $ (1,172,855) $ - $ 629,593,514 The accompanying notes are an integral part of the financial statements. - 5 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Unrealized (realized) gross profit from affiliates Amortization of premium/discount of financial assets Gain on disposal of available-for-sale financial assets, net Loss on disposal of financial assets carried at cost Equity in earnings of equity method investees, net Cash dividends received from equity method investees Loss on disposal of property, plant and equipment and other assets, $ 134,201,279 $ 161,605,009 102,925,423 (398,440) 9,860 (35,151) - (3,778,083) 2,941,548 83,366,121 52,742 18,611 - 1,263 (7,111,443) 422,490 net Settlement income from receiving equity securities Deferred income tax Changes in operating assets and liabilities: 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 Accounts payable Payables to related parties Income tax payable Accrued profit sharing to employees and bonus to directors Accrued expenses and other current liabilities Accrued pension cost Deferred credits 99,884 - (493,026) 761,298 (4,434,364) (373,253) (22,759) 956,440 2,356,519 (2,880) (2,453,565) (38,049) 138,196 2,775,646 (382,852) (1,805,422) 418,132 3,538,928 (1,903,765) (410,047) 96,880 - 189,577 (3,192,201) (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) 4,188,131 (3,124,307) 17,425 (47,873) Net cash provided by operating activities 238,734,696 222,023,176 CASH FLOWS FROM INVESTING ACTIVITIES Cash contributed related to spin-off Acquisitions of: Property, plant and equipment Investments accounted for using equity method Financial assets carried at cost - 6 - (1,270,340) - (7,390,883) (202,757,541) (182,335,032) (8,262,519) (480) (Continued) (8,262,519) - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) Proceeds from disposal or redemption of: Available-for-sale financial assets Held-to-maturity financial assets Financial assets carried at cost Property, plant and equipment and other assets Proceeds from return of capital by investees Increase in deferred charges Decrease (increase) in refundable deposits Decrease (increase) in other assets 2011 2010 $ $ 1,035,151 4,789,000 - 4,650,078 320,013 (1,658,296) 4,147,014 27,600 - 15,943,000 3,370 387,735 - (1,538,301) (5,940,633) (1,004,581) Net cash used in investing activities (198,108,204) (182,747,441) (182,747,441) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans Proceeds from issuance of bonds Decrease in guarantee deposits Proceeds from exercise of employee stock options Acquisition of treasury stock Cash dividends (4,982,109) 18,000,000 (308,855) 217,697 (71,598) (77,730,236) 30,908,637 - (253,489) (253,489) 244,824 - (77,708,120) (77,708,120) Net cash used in financing activities (64,875,101) (46,808,148) (46,808,148) NET DECREASE IN CASH AND CASH EQUIVALENTS (24,248,609) (7,532,413) (7,532,413) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 109,511,130 117,043,543 CASH AND CASH EQUIVALENTS, END OF YEAR $ 85,262,521 $ 109,511,130 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid Income tax paid $ $ 369,085 7,454,386 $ $ 200,892 9,640,396 INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of property, plant and equipment Decrease (increase) in payables to contractors and equipment suppliers Nonmonetary exchange trade-out price Cash paid $ 195,932,728 6,827,106 (2,293) $ 202,757,541 $ 195,950,918 (13,491,140) (124,746) $ 182,335,032 Disposal of property, plant and equipment and other assets Decrease (increase) in other receivables from related parties Decrease (increase) in other financial assets Nonmonetary exchange trade-out price Cash received $ 3,370,165 $ 1,124,206 158,000 (2,293) $ 4,650,078 $ 1,872,880 (1,142,108) (218,291) (218,291) (124,746) 387,735 (Continued) - 7 - Taiwan Semiconductor Manufacturing Company Limited STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 NON-CASH FINANCING ACTIVITIES Current portion of bonds payable Current portion of other long-term payables (under accrued expenses $ 4,500,000 $ - and other current liabilities) $ - $ 718,637 SUPPLEMENTAL INFORMATION FOR SPIN-OFF BUSINESSES In August 2011, the Company transferred the solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively. The relevant information about spin-off was as follows: Acquired investments accounted for using equity method Non-cash items transferred Current assets Long-term investments Property, plant and equipment Other assets Current liabilities Other liabilities Capital surplus Unrealized gain (loss) on financial instruments Cumulative translation adjustments TSMC SSL TSMC Solar Total $ 2,270,000 $ 11,180,000 $ 13,450,000 36,050 2,872 1,929,563 234,696 (292,728) (36,272) - - 256 54,857 7,915,582 4,301,777 436,373 (630,167) (61,490) (56,094) (3,298) 222,120 221,864 (1,874,437) (10,305,223) (12,179,660) 18,807 7,912,710 2,372,214 201,677 (337,439) (25,218) (56,094) (3,298) Cash contributed related to spin-off $ 395,563 $ 874,777 $ 1,270,340 The accompanying notes are an integral part of the financial statements. (Concluded) - 8 - Taiwan Semiconductor Manufacturing Company Limited NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (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 solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, respectively. 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, 2011 and 2010, the Company had 30,113 and 29,929 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: 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. 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. - 9 - 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. - 10 - 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. 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. Allowance for Doubtful Receivables An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers. The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired. Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account. Inventories Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. 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. - 11 - 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. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. 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 deferred 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. 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. 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. - 12 - 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, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. 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 and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. 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 SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008. - 13 - Treasury Stock Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. When the Company resells the treasury stock, the treasury stock shall be reversed, and if the selling price is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock. 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 collectable 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. Spin-off In accordance with the Company’s organization realignment, the Company contributed net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries. The net assets transferred are reflected at their net book value without recognizing any gain or loss. 3. ACCOUNTING CHANGES On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the year ended December 31, 2011. On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting.” The Company conformed to the disclosure requirements as of and for the year ended December 31, 2011. The information for the year ended December 31, 2010 has been recast to reflect the new segment reporting requirement. - 14 - 4. CASH AND CASH EQUIVALENTS December 31 2011 2010 Cash and deposits in banks Repurchase agreements collateralized by government bonds $ 81,467,607 3,794,914 $ 108,735,942 775,188 $ 85,262,521 $ 109,511,130 5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Trading financial assets Forward exchange contracts Trading financial liabilities Forward exchange contracts December 31 2011 2010 $ 14,925 $ - $ - $ 7,834 The Company entered into derivative contracts during the years ended December 31, 2011 and 2010 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. Outstanding forward exchange contracts consisted of the following: December 31, 2011 Sell EUR/Buy NT$ December 31, 2010 Maturity Date Contract Amount (In Thousands) January 2012 EUR38,600/NT$1,528,206 Sell NT$/Buy JPY January 2011 to February 2011 NT$814,882/JPY2,278,420 Net gains on derivative financial instruments for the years ended December 31, 2011 and 2010 were NT$801,195 thousand and NT$312,862 thousand, respectively. 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Overseas publicly traded stock Corporate bonds Current portion December 31 2011 2010 $ 2,617,134 - 2,617,134 (2,617,134) $ 3,918,274 1,033,049 4,951,323 (3,918,274) $ - $ 1,033,049 - 15 - 7. HELD-TO-MATURITY FINANCIAL ASSETS Corporate bonds Current portion December 31 2011 2010 $ 1,403,427 (701,136) $ 6,202,287 (4,796,589) $ 702,291 $ 1,405,698 8. ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS Movements of the allowance for doubtful receivables were as follows: Balance, beginning of year Provision Write-off Balance, end of year Years Ended December 31 2011 2010 $ 488,000 - (2,880) $ 431,000 59,268 (2,268) (2,268) $ 485,120 $ 488,000 Movements of the allowance for sales returns and others were as follows: Balance, beginning of year Provision Write-off Balance, end of year 9. INVENTORIES Finished goods Work in process Raw materials Supplies and spare parts Years Ended December 31 2011 2010 $ 7,341,444 3,226,594 (5,680,159) $ 8,583,632 11,703,136 (12,945,324) $ 4,887,879 $ 7,341,444 December 31 2011 2010 $ 3,250,637 16,971,209 1,593,393 1,038,158 $ 4,623,812 18,128,677 1,681,525 1,212,334 $ 22,853,397 $ 25,646,348 The reserve for inventory write-downs in the amount of NT$74,861 thousand was reversed in the cost of sales for the year ended December 31, 2011 when the related inventory items were scrapped or sold. Write-down of inventories to net realizable value in the amount of NT$792,951 thousand was included in the cost of sales for the year ended December 31, 2010. Inventory losses related to earthquake in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the year ended December 31, 2010. - 16 - 10. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD December 31 2011 2010 Carrying Amount % of Owner- ship Carrying Amount % of Owner- ship $ 44,071,845 34,986,964 13,542,181 10,153,244 100 100 100 100 $ 43,710,543 33,565,775 4,252,270 - 100 100 100 - 8,988,007 39 9,422,452 38 6,289,429 2,981,639 1,746,893 1,606,694 1,311,044 1,157,188 762,135 213,235 205,171 161,601 23,448 - - - - 39 100 100 40 53 35 98 99 100 100 100 - - - - 7,120,714 2,873,888 - 1,645,201 2,769,423 1,113,516 1,063,057 304,310 177,784 150,312 20,929 6,733,369 39 100 - 41 99 35 98 99 100 100 100 20 26,527 100 23,971 100 3,133 100 TSMC Global Ltd. (TSMC Global) TSMC Partners, Ltd. (TSMC Partners) TSMC China Company Limited (TSMC China) TSMC Solar Vanguard International Semiconductor Corporation (VIS) Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) TSMC North America TSMC SSL Xintec Inc. (Xintec) VentureTech Alliance Fund III, L.P. (VTAF III) 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 Korea Limited (TSMC Korea) Motech Industries Inc. (Motech) TSMC Solar North America, Inc. (TSMC Solar NA) TSMC Solar Europe B.V. (TSMC Solar Europe) TSMC Lighting North America, Inc. (TSMC Lighting NA) $ 128,200,718 $ 114,977,174 In the second half year of 2011, the Company continually increased its investment in TSMC China for the amount of NT$6,759,300 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs. 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. In addition, to foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Company’s certain assets, liabilities and shareholders’ equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively. - 17 - 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%. Due to the aforementioned transfer and the effect of the subsequent cash injection of NT$135,297 thousand, the Company’s percentage of ownership further decreased to 53%. 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 unless permitted by other related regulations. For the years ended December 31, 2011 and 2010, equity in earnings/losses of equity method investees was a net gain of NT$3,778,083 thousand and NT$7,111,443 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 years ended December 31, 2011 and 2010. The Company believes that, had the aforementioned equity method investees’ financial statements been audited, any adjustments arising would have no material effect on the Company’s financial statements. As of December 31, 2011 and 2010, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$11,273,200 thousand and NT$14,993,626 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 Amortizations Effect of spin-off Balance, end of year Movements of the difference allocated to goodwill were as follows: Balance, beginning of year Additions Effect of spin-off Balance, end of year 11. FINANCIAL ASSETS CARRIED AT COST Non-publicly traded stocks Mutual funds - 18 - Years Ended December 31 2011 2010 $ 2,504,496 - (721,482) (1,507,430) $ 1,429,118 2,055,660 (980,282) (980,282) - $ 275,584 $ 2,504,496 Years Ended December 31 2011 2010 $ 1,415,565 - (353,680) $ 1,061,885 353,680 - $ 1,061,885 $ 1,415,565 December 31 2011 2010 $ 338,584 159,251 $ 338,584 159,251 $ 497,835 $ 497,835 12. PROPERTY, PLANT AND EQUIPMENT Balance, Beginning of Year Additions Disposals Reclassification Effect of Spin-off Balance, End of Year Year Ended December 31, 2011 Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Advance payments and construction in progress $ 128,646,942 852,733,592 11,730,537 993,111,071 $ 22,343,302 135,641,295 2,495,001 $ 160,479,598 81,347,877 616,495,207 8,762,361 706,605,445 $ 8,966,377 90,613,430 1,184,310 $ 100,764,117 $ $ $ $ (36,929 ) (2,079,115 ) (362,032 ) (2,478,076 ) (14,293 ) (2,025,728 ) (362,031 ) (2,402,052 ) $ $ $ $ $ (388 ) (17,225 ) - (17,613 ) $ (1,457,449 ) (1,299,881 ) (39,072 ) (2,796,402 ) $ 149,495,478 984,978,666 13,824,434 1,148,298,578 (55 ) (5,569 ) - (5,624 ) $ $ (25,639 ) (192,323 ) (3,127 ) (221,089 ) 90,274,267 704,885,017 9,581,513 804,740,797 80,348,673 $ 35,453,130 $ (3,259,587 ) $ - $ (1,726,464 ) 110,815,752 $ 366,854,299 Balance, Beginning of Year Year Ended December 31, 2010 Additions Disposals Reclassification $ 454,373,533 Balance, End of Year Cost Buildings Machinery and equipment Office equipment Accumulated depreciation Buildings Machinery and equipment Office equipment Advance payments and construction in progress $ 124,522,047 713,426,126 10,781,099 848,729,272 $ 4,262,592 141,033,304 1,639,082 $ 146,934,978 73,525,160 545,693,910 8,545,253 627,764,323 $ $ 7,951,678 72,528,436 906,714 81,386,828 $ $ $ $ (135,497) $ (1,867,880) (689,202) (2,692,579) $ (128,466) $ (1,867,476) (689,164) (2,685,106) $ 142,042 (2,200) $ 128,646,942 852,733,592 11,730,537 993,111,071 (442) 139,400 (495) 140,337 (442) 139,400 81,347,877 616,495,207 8,762,361 706,605,445 33,786,577 $ 49,015,940 $ (2,453,844) $ - 80,348,673 $ 254,751,526 $ 366,854,299 No interest was capitalized during the years ended December 31, 2011 and 2010. 13. DEFERRED CHARGES, NET Balance, Beginning of Year Additions Amortization Disposals Effect of Spin-off Balance, End of Year Year Ended December 31, 2011 Technology license fees Software and system design costs Patent and others $ 2,277,832 2,075,935 1,102,660 $ 10,308 1,324,958 323,030 $ (670,830 ) $ (1,064,884 ) (416,630 ) - $ (46 ) - - $ 1,617,310 (19,392 ) 2,316,571 785,363 (223,697 ) $ 5,456,427 $ 1,658,296 $ (2,152,344 ) $ (46 ) $ (243,089 ) $ 4,719,244 Balance, Beginning of Year Year Ended December 31, 2010 Additions Amortization 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) Balance, End of Year $ 2,277,832 2,075,935 1,102,660 () $ 5,891,685 $ 1,538,301 $(1,973,559) $ 5,456,427 - 19 - 14. SHORT-TERM LOANS Unsecured loans: US$856,000 thousand, due by February 2012, and annual interest at 0.45%-1.00% in 2011; US$864,000 thousand and EUR114,900 thousand, due in January 2011, and annual interest at 0.38%-0.65% in 2010 $ 25,926,528 $ 30,908,637 December 31 2011 2010 15. BONDS PAYABLE Domestic unsecured bonds: Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually $ 10,500,000 $ December 31 2011 2010 Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually Current portion - - 7,500,000 4,500,000 22,500,000 (4,500,000) 4,500,000 4,500,000 - $ 18,000,000 $ 4,500,000 With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$17,000,000 thousand in January 2012. 16. OTHER LONG-TERM PAYABLES The Company’s other long-term payables mainly resulted from license agreements for certain semiconductor-related patents. As of December 31, 2011, other long-term payables due within one year were already paid. 17. PENSION PLANS The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$1,119,717 thousand and NT$964,063 thousand for the years ended December 31, 2011 and 2010, 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. - 20 - Due to the spin-off, the Company transferred the pension fund and the accrued pension cost in the amount of NT$46,884 thousand and NT$60,583 thousand, respectively, to TSMC SSL and TSMC Solar in August 2011. Pension information on the defined benefit plan is summarized as follows: a. Components of net periodic pension cost for the year Service cost Interest cost Projected return on plan assets Amortization Net periodic pension cost 2011 2010 $ 131,975 164,372 (67,051) 73,306 $ 129,552 145,151 (39,939) (39,939) 1,061 $ 302,602 $ 235,825 b. Reconciliation of funded status of the plans and accrued pension cost at December 31, 2011 and 2010 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 2011 2010 $ 280,629 5,356,405 5,637,034 3,389,649 9,026,683 (3,039,871) 5,986,812 (73,599) 145,259 (2,197,574) $ 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) $ 3,860,898 $ 3,824,601 $ 312,213 $ 208,176 2011 2010 c. Actuarial assumptions at December 31, 2011 and 2010 Discount rate used in determining present values Future salary increase rate Expected rate of return on plan assets 1.75% 3.00% 2.00% 1.75% 3.00% 2.50% d. Contributions to the Fund for the year $ 209,260 $ 209,459 e. Payments from the Fund for the year $ 7,339 $ 19,991 - 21 - 18. INCOME TAX a. A reconciliation of income tax expense based on “income before income tax” at the statutory rate and income tax currently payable was as follows: Years Ended December 31 2011 2010 Income tax expense based on “income before income tax” at statutory rate (17%) Tax effect of the following: Tax-exempt income Temporary and permanent differences Additional income tax under Alternative Minimum Tax Act Additional tax at 10% on unappropriated earnings Income tax credits used $ 24,600,334 $ 28,779,335 (13,231,821) (16,669,784) (704,252) (12,295,454) - 127,489 (4,823,988) (1,429,188) 286,827 6,259,344 (6,259,344) Income tax currently payable $ 10,226,152 $ 6,708,800 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 Effect of spin-off Years Ended December 31 2011 2010 $ 10,226,152 $ 6,708,800 980,428 369,220 464,078 309,361 1,795,254 27,284 (2,314,671) (893) (7,243,473) 16,790 6,853,430 - Income tax expense $ 10,506,565 $ 7,685,195 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 - 22 - December 31 2011 2010 $ 4,892,158 $ 4,182,893 488,788 308,929 89,669 624,023 87,735 239,124 $ 5,779,544 $ 5,133,775 $ 15,287,802 $ 17,792,321 2,044,680 227,433 (12,652,762) 1,981,915 32,792 (10,338,091) (12,652,762) $ 7,221,824 $ 7,154,266 Effective in May 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 20% to 17%. 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. The Company evaluated the effect of Alternative Minimum Tax and applicable year of the profits generated from projects exempt from income tax for a five-year period. As the Company plans to apply the tax-exempt income in later years, income tax payable is anticipated to increase and the Company will utilize available investment tax credits as an offset against income taxes. Since more investment tax credits can be utilized, valuation allowance has been adjusted down accordingly. Under the Article 10 of the Statute for Industrial Innovation (SII) legislated, 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. d. Integrated income tax information: The balance of the imputation credit account as of December 31, 2011 and 2010 was NT$4,003,228 thousand and NT$1,669,533 thousand, respectively. The estimated and actual creditable ratios for distribution of earnings of 2011 and 2010 were 6.67% and 4.96%, 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 the imputation credit is made. e. All earnings generated prior to December 31, 1997 have been appropriated. f. As of December 31, 2011, 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 $ 3,202,253 $ 1,165,765 6,513,605 7,006,655 482,351 6,513,605 7,006,655 482,351 2012 2013 2014 2015 $ 17,204,864 $ 15,168,376 Statute for Upgrading Industries Research and development expenditures $ 1,772,824 $ 4,994,463 - 4,994,463 2012 2013 $ 6,767,287 $ 4,994,463 Statute for Upgrading Industries Personnel training expenditures $ 17,391 $ 17,121 - 17,121 2012 2013 Statute for Industrial Innovation Research and development expenditures $ 2,432,641 $ - 2011 $ 34,512 $ 17,121 - 23 - g. The profits generated from the following projects are exempt from income tax for a five-year period: Construction and expansion of 2003 Construction and expansion of 2004 Construction and expansion of 2005 Construction and expansion of 2006 Tax-exemption Period 2007 to 2011 2008 to 2012 2010 to 2014 2011 to 2015 h. The tax authorities have examined income tax returns of the Company through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly. 19. LABOR COST, DEPRECIATION AND AMORTIZATION 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, 2011 Classified as Cost of Sales Classified as Operating Expenses Total $ 23,511,116 1,225,757 899,039 640,257 230,762 294,010 $ 16,780,285 713,298 523,178 273,002 137,019 143,151 $ 40,291,401 1,939,055 1,422,217 913,259 367,781 437,161 $ 26,800,941 $ 18,569,933 $ 45,370,874 $ 93,898,048 $ 1,407,787 $ 6,858,236 744,557 $ $ 100,756,284 $ 2,152,344 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 - 24 - 20. SHAREHOLDERS’ EQUITY As of December 31, 2011, 1,092,313 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,461,567 thousand (one ADS represents five common shares). Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding. Capital surplus consisted of the following: Additional paid-in capital From merger From convertible bonds From long-term investments Donations December 31 2011 2010 $ 23,774,250 $ 23,628,908 22,805,390 22,804,510 8,893,190 8,892,847 370,891 374,695 55 55 $ 55,846,357 $ 55,698,434 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 shareholders’ approval in the following year. - 25 - The Company accrued profit sharing to employees based on certain percentage of net income during the year, which amounted to NT$8,990,026 thousand and NT$10,908,338 thousand for the years ended December 2011 and 2010, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting. The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee. According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss. A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. The appropriations of earnings for 2010 and 2009 had been approved in the shareholders’ meetings held on June 9, 2011 and June 15, 2010, respectively. The appropriations and dividends per share were as follows: Appropriation of Earnings For Fiscal For Fiscal Year 2009 Year 2010 Dividends Per Share (NT$) For Fiscal For Fiscal Year 2010 Year 2009 Legal capital reserve Special capital reserve Cash dividends to shareholders $ 16,160,501 5,120,827 77,730,236 $ 8,921,784 1,313,047 77,708,120 $3.00 $3.00 $ 99,011,564 $ 87,942,951 TSMC’s profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand for 2010, respectively, and profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, had been approved in the shareholders’ meeting held on June 9, 2011 and June 15, 2010, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and February 9, 2010 and same amount had been charged against earnings of 2010 and 2009, respectively. - 26 - The appropriations of earnings for 2011 had been resolved in the meeting of the Board of Directors held on February 14, 2012. The appropriations and dividends per share were as follows: Legal capital reserve Special capital reserve Cash dividends to shareholders Appropriation of Earnings For Fiscal Year 2011 Dividends Per Share (NT$) For Fiscal Year 2011 $ 13,420,128 1,172,350 77,748,668 $ 92,341,146 $3.00 The Board of Directors also resolved to appropriate profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand for 2011, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2011. The appropriations of earnings, profit sharing to employees and bonus to directors for 2011 are to be resolved in the shareholders’ meeting held on June 12, 2012 (expected). 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, 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, 2011. - 27 - Information about outstanding options for the years ended December 31, 2011 and 2010 was as follows: Year ended December 31, 2011 Balance, beginning of year Options exercised Balance, end of year Year ended December 31, 2010 Balance, beginning of year Options exercised Options canceled Balance, end of year Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 21,437 (7,144) 14,293 28,810 (7,372) (1) 21,437 $31.4 30.5 32.1 32.4 33.2 50.1 32.3 The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans. As of December 31, 2011, information about outstanding options was as follows: Range of Exercise Price (NT$) Number of Options (In Thousands) Options Outstanding Weighted-average Remaining Contractual Life (Years) Weighted-average Exercise Price (NT$) $20.9-$ 29.3 38.0- 50.1 10,584 3,709 14,293 1.2 2.9 1.7 $ 27.4 45.7 32.1 As of December 31, 2011, all of the above outstanding options were exercisable. No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2011 and 2010. 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, 2011 and 2010 would have been as follows: Assumptions: 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 - 28 - 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. TREASURY STOCK Years Ended December 31 2010 2011 $ 134,201,279 134,146,490 $ 161,605,009 161,470,030 $5.18 5.18 5.18 5.17 $6.24 6.23 6.23 6.23 (Shares in Thousands) Purpose of Treasury Stock Year ended December 31, 2011 Number of Shares, Beginning of Year Addition Retirement Number of Shares, End of Year Shareholders executed the appraisal right - 1,000 (1,000) - In August 2011, pursuant to the Company Law and at the option of the shareholders of the Company, certain shareholders requested the Company to buy back their shares at the current market price, which shares were subsequently retired in November 2011. 23. EARNINGS PER SHARE EPS is computed as follows: Year ended December 31, 2011 Basic EPS Number of EPS (NT$) Amounts (Numerator) After Before Income Tax Income Tax Shares (Denominator) (In Thousands) Before Income Tax After Income Tax Earnings available to common shareholders Effect of dilutive potential common shares $ 144,707,844 - $ 134,201,279 - 25,914,076 10,606 $ 5.58 $ 5.18 Diluted EPS Earnings available to common shareholders (including effect of dilutive potential common shares) Year ended December 31, 2010 Basic EPS $ 144,707,844 $ 134,201,279 25,924,682 $ 5.58 $ 5.18 Earnings available to common shareholders Effect of dilutive potential common shares $ 169,290,204 - $ 161,605,009 - 25,905,832 13,982 $ 6.53 $ 6.24 Diluted EPS Earnings available to common shareholders (including effect of dilutive potential common shares) $ 169,290,204 $ 161,605,009 25,919,814 $ 6.53 $ 6.23 - 29 - 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 retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the year ended December 31, 2010 to remain at NT$6.24 and NT$6.23, respectively. 24. 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 Bonds payable (including current portion) Other long-term payables (including current portion) December 31 2011 Carrying Amount Fair Value 2010 Carrying Amount Fair Value $ 14,925 2,617,134 1,403,427 497,835 $ 14,925 2,617,134 1,426,474 - $ - 4,951,323 6,202,287 497,835 $ - 4,951,323 6,278,054 - - 22,500,000 - 22,597,115 7,834 4,500,000 7,834 4,538,660 - - 718,637 718,637 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, available-for-sale and held-to-maturity financial assets were based on their quoted market prices. 3) The fair values of those derivatives 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 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. - 30 - c. Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as a net gain of NT$14,925 thousand and a net loss of NT$7,834 thousand for the years ended December 31, 2011 and 2010, respectively. d. As of December 31, 2011 and 2010, financial assets exposed to fair value interest rate risk were NT$1,418,352 thousand and NT$7,235,336 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$48,426,528 thousand and NT$35,416,471 thousand, respectively. e. Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2011 and 2010 were as follows: Year Ended December 31, 2011 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 Effect of spin-off $ (395,306) (1,077,844) $ 504,595 (165,851) $ 109,289 (1,243,695) (35,151) (3,298) - - (35,151) (3,298) Balance, end of year $ (1,511,599) $ 338,744 $ (1,172,855) Year Ended December 31, 2010 From Available- for-sale Financial Assets Equity- method Investments Total Balance, beginning of year Recognized directly in shareholders’ equity $ 46,672 (441,978) $ 406,949 97,646 $ 453,621 (344,332) Balance, end of year $ (395,306) $ 504,595 $ 109,289 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 prices 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 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 and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low. - 31 - 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. 25. RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parties: a. Subsidiaries TSMC North America TSMC China TSMC Europe TSMC Japan TSMC Global b. Investees Xintec (holding a controlling financial interest) GUC (accounted for using the equity method, as the Company had no controlling interest in GUC since July 2011) VIS (accounted for using the equity method) SSMC (accounted for using the equity method) c. Indirect subsidiaries WaferTech, LLC (WaferTech) TSMC Technology, Inc. (TSMC Technology) TSMC Design Technology Canada, Inc. (TSMC Canada) d. Indirect investee VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method. e. Others Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions. Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows: 2011 2010 Amount % Amount % For the year Sales TSMC North America Others $ 234,902,043 3,882,801 56 1 $ 220,529,792 3,071,549 53 1 $ 238,784,844 57 $ 223,601,341 54 - 32 - 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) TSMC Europe VIS (primarily rent) Others Sales of property, plant and equipment and other assets TSMC China Others Purchases of property, plant and equipment and other assets TSMC China VIS WaferTech Others 2011 2010 Amount % Amount % $ $ 10,392,189 7,305,879 5,577,762 3,949,176 124,673 21 15 12 8 - 7,878,261 7,878,261 8,748,101 7,878,260 4,937,617 4,521,046 39,099 18 16 10 10 - $ 27,349,679 56 $ 26,124,123 54 $ 260,250 14,588 5,902 $ - - - 313,397 44,488 9,845 $ 280,740 - $ 367,730 - - - - $ $ 357,582 284,644 64,907 22,049 15 12 3 1 415,765 266,194 59,180 19,318 15 9 2 1 $ 729,182 31 $ 760,457 27 $ 534,804 192,616 45,489 1,984 30,605 $ 2 1 - - - 547,838 181,943 33,907 12,017 32,167 $ 805,498 3 $ 807,872 2 1 - - - 3 $ 2,885,847 109,141 86 3 $ 1,409,862 84,336 75 5 $ 2,994,988 89 $ 1,494,198 80 $ 70,491 45,473 - 1,812 $ - - - - 66,337 109,855 9,624 - $ 117,776 - $ 185,816 - - - - - - 33 - 2011 2010 Amount % Amount % Non-operating income and gains VIS (primarily technical service income) SSMC (primarily technical service income) TSMC China (primary gains on disposal from property, plant and equipment) VisEra (primarily rent) Others $ 227,024 193,781 $ 3 3 267,370 198,218 96,050 4,054 7,157 1 - - 49,738 - 9,655 $ 528,066 7 $ 524,981 Non-operating expenses and losses Xintec (settlement loss) $ 19,686 1 $ - 2 1 - - - 3 - As of December 31 Receivables TSMC North America Others Other receivables VIS SSMC TSMC North America TSMC China WaferTech Others Payables VIS TSMC China WaferTech SSMC Others Other assets TSMC China $ 24,661,104 116,430 99 1 $ 25,579,259 154,715 99 1 $ 24,777,534 100 $ 25,733,974 100 $ $ 87,507 34,260 23,887 23,688 14,196 4,490 46 18 13 13 8 2 70,798 53,788 3,673 1,170,407 3,543 72 5 4 1 90 - - $ 188,028 100 $ 1,302,281 100 $ $ 987,937 946,826 420,459 336,037 301,323 33 32 14 11 10 428,797 895,193 568,685 430,235 251,540 17 35 22 17 9 $ 2,992,582 100 $ 2,574,450 100 $ 1,493 - $ 27,327 2 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. - 34 - The Company leased certain office space and facilities from VIS. 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 research and development expenses and manufacturing expenses. The Company leased certain machinery and equipment to VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental income was received monthly and the related income was classified under non-operating income and gains. The Company deferred the disposal losses (classified under other assets) derived from sales of property, plant and equipment to TSMC China, and then recognized such losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets. The Company borrowed funds from related parties in July 2011. Additional disclosures consisted of the following: Financing Company Maximum Balance Date Ending Balance Interest Rate Interest Expense Interest Payable Year Ended December 31, 2011 TSMC Global $ 24,684,000 July 2011 to December 2011 $ - 0.3544% $ 22,293 $ - Compensation of directors and management personnel: Salaries, incentives and special compensation Bonus Years Ended December 31 2011 2010 $ 654,972 445,681 $ 774,181 593,967 $ 1,100,653 $ 1,368,148 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, 2011 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2011 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2012. The total compensation for the year ended December 31, 2010 included the bonuses appropriated from earnings of 2010 which was approved by the shareholders’ meeting held in 2011. 26. PLEDGED OR MORTGAGED ASSETS As of December 31, 2011, the Company had no assets set aside as collateral. As of December 31, 2010, the Company had pledged time deposits of NT$25,864 thousand (classified as other financial assets) as collateral for land lease agreements and customs duty guarantee. 27. SIGNIFICANT LONG-TERM LEASES The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2012 to September 2030 and can be renewed upon expiration. - 35 - As of December 31, 2011, future lease payments were as follows: Year 2012 2013 2014 2015 2016 2017 and thereafter Amount $ 453,868 429,130 414,786 404,465 394,302 3,255,047 $ 5,351,598 28. SIGNIFICANT COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2011, excluding those disclosed in other notes, were as follows: a. Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Company’s capacity 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, 2011, the Company had a total of US$13,039 thousand of guarantee deposits. c. Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. d. 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 - 36 - 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 in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement. e. 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. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time. f. 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. 29. SPIN-OFF BUSINESS INFORMATION To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, on August 1, 2011. As of August 1, 2011, the net book values transferred to TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively. The book values of transferred assets and liabilities were as follows: TSMC SSL TSMC Solar Total Current assets Long-term investments Property, plant and equipment Other assets Current liabilities Other liabilities Capital surplus Unrealized gain (loss) on financial instruments Cumulative translation adjustments $ $ 431,613 2,872 1,929,563 234,696 (292,728) (36,272) - - 256 893,584 7,912,710 2,372,214 201,677 (337,439) (25,218) (56,094) (3,298) $ 1,325,197 7,915,582 4,301,777 436,373 (630,167) (61,490) (56,094) (3,298) 222,120 221,864 $ 2,270,000 $ 11,180,000 $ 13,450,000 - 37 - 30. OTHERS The significant financial assets and liabilities denominated in foreign currencies were as follows: December 31 2011 2010 Foreign Currency (In Thousands) Exchange Rate (Note) Foreign Currency (In Thousands) Exchange Rate (Note) Financial assets Monetary items USD EUR JPY Non-monetary items HKD Investments accounted for using equity method USD EUR JPY RMB Financial liabilities Monetary items USD EUR JPY $ 1,566,212 124,425 33,073,336 30.288 39.27 0.3897 $ 1,732,529 224,363 28,580,962 671,060 3.90 1,002,116 2,983,866 5,225 414,680 2,823,953 30.288 39.27 0.3897 4.81 2,997,686 4,963 402,441 927,986 1,626,129 106,931 34,942,421 30.288 39.27 0.3897 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 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 the Company and its investees: a. Financings provided: Please see Table 1 attached; b. Endorsement/guarantee provided: None; c. Marketable securities held: Please see Table 2 attached; d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 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; - 38 - 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; h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached; i. Names, locations, and related information of investees over which the Company exercises significant influence: Please see Table 7 attached; j. Information about derivatives of investees over which the Company has a controlling interest: Do not meet the criteria for hedge accounting 1) TSMC China TSMC China entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Sell US$/Buy EUR Sell US$/Buy JPY January 2012 January 2012 US$2,082/EUR1,591 US$3,335/JPY259,830 For the year ended December 31, 2011, net losses arising from forward exchange contracts of TSMC China amounted to NT$56,819 thousand. 2) Xintec Xintec entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Sell US$/Buy NT$ January 2012 to February 2012 US$16,900/NT$510,122 For the year ended December 31, 2011, net losses arising from forward exchange contracts of Xintec amounted to NT$21,784 thousand. 3) TSMC Partners TSMC Partners entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Sell RMB/Buy US$ January 2012 RMB1,118,705/US$177,000 For the year ended December 31, 2011, net losses arising from forward exchange contracts of TSMC Partners amounted to NT$224,638 thousand. - 39 - 4) TSMC Solar TSMC Solar entered into derivative contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Sell NT$/Buy US$ January 2012 to February 2012 NT$130,205/US$4,300 Outstanding cross currency swap contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received January 2012 NT$208,398/US$6,800 0.00% 0.48% For the year ended December 31, 2011, net gains arising from derivative financial instruments of TSMC Solar amounted to NT$3,112 thousand. 5) TSMC SSL TSMC SSL entered into derivative contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Sell NT$/Buy US$ January 2012 to February 2012 NT$33,286/US$1,100 Outstanding cross currency swap contracts as of December 31, 2011 consisted of the following: Maturity Date Contract Amount (In Thousands) Range of Interest Rates Paid Range of Interest Rates Received January 2012 NT$212,033/US$7,000 0.00% 0.48% For the year ended December 31, 2011, net gains arising from derivative financial instruments of TSMC SSL amounted to NT$6,365 thousand. Meet the criteria for hedge accounting 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. - 40 - Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate swap contract to hedge such a cash flow interest rate risk. As of December 31, 2011, the outstanding interest rate swap contract of Xintec consisted of the following: Hedged Item Instrument Hedging Financial Fair Value December 31, 2011 Expected Cash Flow Generated Period Expected Timing for the Recognition of Gains or Losses from Hedge Long-term bank Interest rate swap $(232) 2011 to 2012 2011 to 2012 loans contract For the year ended December 31, 2011, the adjustment for current period to shareholders’ equity amounted to a loss of NT$98 thousand for the above Xintec’s interest rate swap contract. The amount removed from shareholders’ equity and recognized as a loss amounted to NT$680 thousand. k. Information on investment in Mainland China 1) The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached. 2) Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Note 25. 32. OPERATING SEGMENTS INFORMATION The Company has provided the operating segments disclosure in the consolidated financial statements. 33. THE AUTHORIZATION OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors and authorized for issue on February 14, 2012. - 41 - TABLE 1 Taiwan Semiconductor Manufacturing Company Limited and Investees FINANCINGS PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2011 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) No. Financing Company Counter-party Financial Statement Account Maximum Balance for the Period (US$ in Thousands) (Note 4) Ending Balance (US$ in Thousands) (Note 4) Amount Actually Drawn (US$ in Thousands) Interest Rate Nature for Financing Transaction Amounts Reason for Financing Allowance for Bad Debt Item Value Collateral Financing Limits for Each Borrowing Company (Notes 1 and 2) Financing Company’s Total Financing Amount Limits (Note 3) 1 TSMC Partners TSMC China TSMC Solar Long-term receivables from related parties Other receivables from related parties TSMC SSL Other receivables from related parties $ (US$ (US$ (US$ 7,572,000 250,000) 1,211,520 40,000) 908,640 30,000) $ (US$ (US$ (US$ 7,572,000 250,000) 1,211,520 40,000) 908,640 30,000) $ (US$ (US$ (US$ 7,572,000 250,000) 454,320 15,000) 348,312 11,500) 0.25%-0.26% The need for $ - Purchase equipment $ short-term financing 0.4017%-0.4651% The need for - Operating capital short-term financing 0.4545% The need for - Operating capital short-term financing 2 TSMC Global TSMC Other receivables from related parties 25,744,800 850,000) (US$ - - 0.3544% The need for - Support the parent short-term financing company’s short-term operation requirement - - - - - $ - $ 34,986,964 $ 34,986,964 - - - - - - 3,498,696 3,498,696 44,071,845 44,071,845 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 are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC. Note 2: 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 Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. Note 3: The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and TSMC Global, respectively. Note 4: The maximum balance for the period and ending balance represents the amounts approved by Board of Directors. - 42 - Taiwan Semiconductor Manufacturing Company Limited and Investees MARKETABLE SECURITIES HELD DECEMBER 31, 2011 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2011 Shares/Units (In Thousands) Carrying Value (Foreign Currencies in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (Foreign Currencies in Thousands) Note TABLE 2 TSMC Corporate bond Nan Ya Plastics Corporation China Steel Corporation Stock Semiconductor Manufacturing International Corporation TSMC Global Subsidiary - - - Held-to-maturity financial assets 〃 - - $ 1,099,629 303,798 N/A N/A $ 1,120,808 305,666 TSMC Partners TSMC Solar VIS SSMC TSMC North America TSMC SSL Xintec GUC TSMC Europe TSMC Japan TSMC Korea United Industrial Gases Co., Ltd. Shin-Etsu Handotai Taiwan Co., Ltd. W.K. Technology Fund IV Fund Horizon Ventures Fund Crimson Asia Capital Capital TSMC China VTAF III VTAF II Emerging Alliance Stock Motech TSMC Solar Europe TSMC Solar NA Capital VTAF III Stock TSMC Lighting NA TSMC Solar TSMC SSL Available-for-sale financial assets Investments accounted for using equity method Subsidiary Subsidiary Investee accounted for using equity method Investee accounted for using equity method Subsidiary Subsidiary Investee with a controlling financial interest Investee accounted for using equity method Subsidiary Subsidiary Subsidiary 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - Subsidiary Subsidiary Subsidiary Subsidiary Financial assets carried at cost 〃 〃 Financial assets carried at cost 〃 Investments accounted for using equity method 〃 〃 〃 1,789,493 1 988,268 1,118,000 628,223 314 11,000 227,000 94,011 46,688 - 6 80 16,783 10,500 4,000 - - - - - - 2,617,134 44,071,845 34,986,964 10,153,244 8,988,007 6,289,429 2,981,639 1,746,893 1,606,694 1,157,188 205,171 161,601 23,448 193,584 105,000 40,000 103,992 55,259 13,542,181 1,311,044 762,135 213,235 204,163 52,187 1,681,719 7 100 100 100 39 39 100 100 40 35 100 100 100 10 7 2 12 1 100 53 98 99 20 100 100 46 2,617,134 44,071,845 34,986,964 10,153,244 6,627,758 6,075,445 2,981,639 1,746,893 1,606,694 4,645,442 205,171 161,601 23,448 350,060 351,996 41,372 103,992 55,259 13,583,214 1,290,093 756,125 213,235 3,849,382 204,163 52,187 1,681,719 Investee accounted for using equity method Investments accounted for using 87,480 5,612,344 Subsidiary Subsidiary equity method 〃 〃 Investee accounted for using equity method Investments accounted for using equity method Subsidiary Investments accounted for using equity method - 1 - 1 - 43 - 2,994 100 2,994 (Continued) December 31, 2011 Shares/Units (In Thousands) Carrying Value (Foreign Currencies in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (Foreign Currencies in Thousands) Note Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account TSMC Partners Corporate bond General Elec Cap Corp. Mtn General Elec Cap Corp. Mtn Common stock TSMC Development, Inc. (TSMC Development) Subsidiary - - Held-to-maturity financial assets 〃 Investments accounted for using equity method VisEra Holding Company InveStar Semiconductor Development Fund, Inc. (ISDF) TSMC Technology InveStar Semiconductor Development Fund, Inc. (II) LDC. Investee accounted for using equity method Subsidiary Subsidiary Subsidiary Subsidiary Investee accounted for using equity method 〃 〃 〃 〃 〃 〃 - - 1 43,000 787 1 14,153 2,300 5,333 US$ 20,012 US$ 20,059 US$ 460,034 US$ 94,208 US$ 11,112 US$ 10,615 9,994 US$ US$ 4,059 - Investee accounted for using equity method Investments accounted for using 1,000 - equity method (ISDF II) TSMC Canada Mcube Inc. Preferred stock Mcube Inc. Fund Shanghai Walden Venture Capital Enterprise TSMC North America Stock Spansion Inc. TSMC Development Corporate bond GE Capital Corp. JP Morgan Chase & Co. Stock WaferTech Emerging Alliance Common stock RichWave Technology Corp. Global Investment Holding Inc. Preferred stock Audience, Inc. Next IO, Inc. Pixim, Inc. QST Holdings, LLC Subsidiary Capital VentureTech Alliance Holdings, LLC (VTA Holdings) Subsidiary VTAF II Common stock Aether Systems, Inc. RichWave Technology Corp. Sentelic Preferred stock 5V Technologies, Inc. Aquantia Audience, Inc. - - - - - - - - - - - - - - - - Financial assets carried at cost - US$ 5,000 Available-for-sale financial assets 276 US$ 2,283 Held-to-maturity financial assets 〃 - - US$ 20,090 US$ 15,000 Investments accounted for using 293,640 US$ 220,119 equity method Financial assets carried at cost 〃 4,074 11,124 US$ US$ 1,545 3,065 Financial assets carried at cost 〃 〃 〃 Investments accounted for using equity method Financial assets carried at cost 〃 〃 1,654 8 4,641 - - 1,800 1,267 1,806 US$ US$ US$ US$ 250 500 1,137 142 - US$ US$ US$ 1,701 1,036 2,607 Financial assets carried at cost 〃 〃 2,890 4,556 12,378 US$ US$ US$ 2,168 4,316 2,378 - 44 - N/A N/A 100 49 97 100 97 100 80 5 8 - N/A N/A 100 10 6 - - 2 4 7 23 3 9 4 3 3 US$ 20,100 US$ 20,740 US$ 460,034 US$ 94,208 US$ 11,112 US$ 10,615 9,994 US$ US$ 4,059 - - US$ 5,000 US$ 2,283 US$ 20,770 US$ 15,087 US$ 220,119 US$ US$ 1,545 3,065 US$ US$ US$ US$ 250 500 1,137 142 - US$ US$ US$ 1,701 1,036 2,607 US$ US$ US$ 2,168 4,316 2,378 (Continued) Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2011 Shares/Units (In Thousands) Carrying Value (Foreign Currencies in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (Foreign Currencies in Thousands) Note Impinj, Inc. Next IO, Inc. Pixim, Inc. Power Analog Microelectronics QST Holdings, LLC Capital VTA Holdings Common stock Mutual-Pak Technology Co., Ltd. Accton Wireless Broadband Corp. Preferred stock InvenSense, Inc. BridgeLux, Inc. Exclara, Inc. GTBF, Inc. LiquidLeds Lighting Corp. Neoconix, Inc. Powervation, Ltd. Stion Corp. Tilera, Inc. Validity Sensors, Inc. Capital Growth Fund Limited (Growth Fund) VTA Holdings Common stock Veebeam Common stock Integrated Memory Logic, Inc. Memsic, Inc. Preferred stock Sonics, Inc. Common stock Memsic, Inc. Alchip Technologies Limited Sonics, Inc. Goyatek Technology, Corp. Auden Technology MFG. Co., Ltd. Preferred stock Sonics, Inc. Capital Compositech Ltd. VTAF III Growth Fund ISDF ISDF II Xintec Subsidiary Subsidiary Subsidiary Subsidiary - - - - - - - - - - - - - - - - - - - - - - - - - - - Financial assets carried at cost 〃 〃 〃 〃 475 132 33,347 7,330 - US$ US$ US$ US$ US$ 1,000 1,110 1,878 3,482 593 Investments accounted for using equity method - - Investments accounted for using 11,868 US$ 1,204 equity method Financial assets carried at cost 2,249 US$ 315 Available-for-sale financial assets Financial assets carried at cost 〃 〃 〃 〃 〃 〃 〃 〃 796 6,771 59,695 1,154 1,600 3,916 449 8,152 3,890 9,340 7,932 US$ 8,745 US$ 1,812 US$ 1,500 US$ 800 US$ 4,779 US$ US$ 7,030 US$ 55,473 3,025 US$ 3,456 US$ Investments accounted for using equity method 〃 - - US$ 510 - Financial assets carried at cost 10 US$ 25 Available-for-sale financial assets 〃 2,161 1,286 US$ US$ 6,289 3,407 Financial assets carried at cost 230 US$ 497 Available-for-sale financial assets Financial assets carried at cost 〃 〃 〃 1,072 7,520 278 745 1,049 US$ US$ US$ US$ US$ 2,841 3,664 10 163 223 Financial assets carried at cost 264 US$ 455 Financial assets carried at cost 587 - - 2 2 21 13 31 57 6 1 3 15 N/A 11 4 16 20 2 4 100 62 - 3 5 2 5 14 3 6 3 3 3 US$ US$ US$ US$ US$ 1,000 1,110 1,878 3,482 593 - US$ 1,204 US$ 315 7,932 US$ 8,745 US$ 1,812 US$ 1,500 US$ 800 US$ 4,779 US$ US$ 7,030 US$ 55,473 3,025 US$ 3,456 US$ US$ 510 - US$ 25 US$ US$ 6,289 3,407 US$ 497 US$ US$ US$ US$ US$ 2,841 3,664 10 163 223 US$ 455 - TSMC Solar Europe Stock TSMC Solar Europe GmbH Subsidiary Investments accounted for using equity method 1 EUR 5,103 100 EUR 5,103 (Continued) - 45 - Held Company Name Marketable Securities Type and Name Relationship with the Company Financial Statement Account December 31, 2011 Shares/Units (In Thousands) Carrying Value (Foreign Currencies in Thousands) Percentage of Ownership (%) Market Value or Net Asset Value (Foreign Currencies in Thousands) Note TSMC Global Corporate bond Aust + Nz Banking Group Commonwealth Bank of Australia Commonwealth Bank of Australia Deutsche Bank AG London JP Morgan Chase + Co. Nationwide Building Society-UK Government Guarantee Westpac Banking Corp. Westpac Banking Corp. 12/12 Frn Government bond Societe De Financement De Lec Money market fund Ssga Cash Mgmt Global Offshore - - - - - - - - - - Held-to-maturity financial assets 〃 〃 〃 〃 〃 〃 〃 20,000 25,000 25,000 20,000 35,000 8,000 25,000 5,000 US$ 20,000 US$ 25,000 US$ 25,000 US$ 19,884 US$ 35,039 US$ 8,000 US$ 25,000 5,000 US$ Held-to-maturity financial assets 15,000 US$ 15,000 Available-for-sale financial assets 83 US$ 83 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A US$ 19,751 US$ 24,905 US$ 24,991 US$ 20,033 US$ 35,070 US$ 8,008 US$ 24,825 5,007 US$ US$ 14,991 US$ 83 (Concluded) - 46 - 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, 2011 (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 (Foreign Currencies in Thousands) Shares/Units (In Thousands) (Note 1) Amount (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Carrying Value (Foreign Currencies in Thousands) Gain (Loss) on Disposal (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) TABLE 3 TSMC Stock TSMC Solar TSMC SSL Capital TSMC China VTAF III TSMC Solar Stock TSMC Solar Europe Capital VTAF III TSMC Solar Europe Stock TSMC Solar Europe GmbH TSMC Global Corporate bond Allstate Life Gbl Fdg Secd Investments accounted for using equity method 〃 Investments accounted for using equity method 〃 Investments accounted for using equity method Investments accounted for using equity method Investments accounted for using equity method Available-for-sale financial assets American Honda Fin Corp. Mtn Anz National Intl Ltd. Archer Daniels Midland Co. Astrazeneca Plc AT+T Wireless Banco Bilbao Vizcaya P R Bank of Nova Scotia Barclays Bank Plc Barclays Bk Plc UK Govt Cr Bb+T Corporation Bear Stearns Cos Inc. Berkshire Hathaway Inc. Del Bhp Billiton Fin USA Ltd. Bnp Paribas SA Boeing Cap Corp. Bp Capital Markets Plc 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - Subsidiary - $ Subsidiary Subsidiary Subsidiary Subsidiary Investee accounted for using equity method - - - - - - - 4,252,270 2,769,423 23,971 - 1,118,000 $ 11,180,000 - $ - $ - $ 227,000 2,270,000 - - - - 6,759,300 135,297 385,682 168,548 - - - - - - - - - - - - - - - Subsidiary 1 EUR 90 - EUR 9,800 - EUR - EUR - EUR - - - - - - - 1,118,000 $ 10,153,244 227,000 1,746,893 - 13,542,181 - - - 1,311,044 204,163 1,681,719 1 EUR 5,103 - - - - - - - - - - - - - - - - - 4,430 US$ 4,824 - US$ - 4,430 US$ 4,787 US$ 4,834 US$ (47) - US$ 4,000 3,500 - 3,150 3,500 3,250 5,000 12,000 - - 3,500 3,500 - 3,810 2,925 3,900 US$ US$ 3,995 3,554 - 3,397 US$ 3,823 US$ 3,249 US$ US$ 5,000 US$ 11,997 - - 3,494 3,517 - 3,844 3,192 3,988 US$ US$ US$ US$ US$ US$ US$ US$ US$ - - 7,000 - - - - - 5,000 3,840 - - 4,000 - - - - - 7,000 - - - - - 5,108 3,990 - - 4,443 - - - 4,000 3,500 7,000 3,150 3,500 3,250 5,000 12,000 5,000 3,840 3,500 3,500 4,000 3,810 2,925 3,900 4,005 US$ 3,555 US$ 7,010 US$ 3,356 US$ 3,762 US$ 3,251 US$ US$ 5,012 US$ 12,022 5,099 US$ 3,977 US$ 3,465 US$ 3,521 US$ 4,447 US$ 3,838 US$ 3,180 US$ 3,992 US$ 3,985 US$ 3,515 US$ 7,000 US$ 3,456 US$ 3,979 US$ 3,250 US$ US$ 5,000 US$ 12,035 5,108 US$ 3,990 US$ 3,360 US$ 3,500 US$ 4,443 US$ 3,844 US$ 3,235 US$ 3,969 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 20 40 10 (100) (217) 1 12 (13) (9) (13) 105 21 4 (6) (55) 23 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 47 - (Continued) 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 (Foreign Currencies in Thousands) Shares/Units (In Thousands) (Note 1) Amount (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Carrying Value (Foreign Currencies in Thousands) Gain (Loss) on Disposal (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Bp Capital Markets Plc Available-for-sale financial assets Chevron Corp. Cie Financement Foncier Cisco Systems Inc. Citigroup Funding Inc. Citigroup Funding Inc. Citigroup Inc. Coca Cola Co. Countrywide Finl Corp. Credit Suisse New York Credit Suisse New York Dexia Credit Local Dexia Credit Local Dexia Credit Local S.A Dexia Credit Local SA NY Finance for Danish Ind General Elec Cap Corp. General Elec Cap Corp. General Elec Cap Corp. Georgia Pwr Co. Gmac LLC Goldman Sachs Group Inc. Hewlett Packard Co. Household Fin Corp. HSBC Bank Plc HSBC Fin Corp. IBM Corp. Inc Bk Nv Neth St Cr Gtee John Deer Capital Corp. Fdic GT JP Morgan Chase + Co. Lloyds Tsb Bank Plc Ser 144A Macquarie Bk Ltd. Sr Massmutual Global Fdg II Mediu Mellon Fdg Corp. Merck + Co. Inc. Merrill Lynch + Co. Inc. Merrill Lynch + Co. Inc. Met Life Glob Funding I Metlife Inc. Microsoft Corp. Morgan Stanley Morgan Stanley Dean Witter National Australia Bank Pepsiamericas Inc. Philip Morris Intl Inc. Princoa Global Fdg I Medium Rabobank Nederland Royal Bk of Scotland Plc Royal Bk Scotlnd Grp Plc 144A 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US$ - 7,160 US$ 7,160 7,160 US$ 7,201 US$ 7,160 US$ 41 - US$ - 4,000 - 16,000 7,300 5,000 4,000 4,000 3,945 - 6,000 4,000 4,000 5,000 3,800 7,000 4,000 - 4,000 4,600 - 3,000 4,330 3,400 2,900 6,800 - 3,500 5,000 5,950 3,900 4,000 3,500 4,000 4,691 - - 6,500 3,250 - 8,000 - - - 5,050 5,000 5,000 9,450 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 4,019 - US$ 16,323 7,446 US$ 5,490 US$ 4,002 US$ 4,208 US$ 4,090 US$ - 5,976 3,984 3,992 4,983 3,799 7,002 4,110 - 4,006 4,731 - 3,003 4,694 3,405 3,074 6,775 - 3,616 5,021 6,009 3,975 3,955 3,475 4,032 4,647 - - 6,600 3,232 - 8,524 - - - 5,011 5,000 5,052 9,516 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 4,000 - 7,050 - - - - - - 3,200 - - - - - - - 5,000 - - 3,400 - - - - - 8,500 - - - 9,300 - - - - 4,000 3,000 - - 9,000 - 3,000 4,000 4,000 - - - - 4,305 - 7,050 - - - - - - 3,200 - - - - - - - 5,000 - - 3,400 - - - - - 8,668 - - - 9,472 - - - - 4,335 3,000 - - 9,000 - 3,035 4,329 4,640 - - - - 4,000 4,000 7,050 16,000 7,300 5,000 4,000 4,000 3,945 3,200 6,000 4,000 4,000 5,000 3,800 7,000 4,000 5,000 4,000 4,600 3,400 3,000 4,330 3,400 2,900 6,800 8,500 3,500 5,000 5,950 13,200 4,000 3,500 4,000 4,691 4,000 3,000 6,500 3,250 9,000 8,000 3,000 4,000 4,000 5,050 5,000 5,000 9,450 4,286 US$ 4,034 US$ US$ 7,073 US$ 16,337 7,440 US$ 5,478 US$ 4,003 US$ 4,221 US$ 4,069 US$ 3,238 US$ 5,983 US$ 3,927 US$ 3,976 US$ 4,952 US$ 3,808 US$ 7,005 US$ 4,095 US$ 5,037 US$ 4,002 US$ 4,715 US$ 3,425 US$ 3,004 US$ 4,662 US$ 3,407 US$ 3,074 US$ 6,781 US$ 8,655 US$ 3,601 US$ 5,032 US$ US$ 6,007 US$ 13,423 3,991 US$ 3,479 US$ 4,013 US$ 4,669 US$ 4,319 US$ 3,004 US$ 6,584 US$ 3,224 US$ 9,140 US$ 8,513 US$ 3,040 US$ 4,308 US$ 4,591 US$ 5,042 US$ 5,000 US$ 5,045 US$ 9,517 US$ 4,305 US$ 4,029 US$ US$ 7,050 US$ 16,262 7,448 US$ 5,360 US$ 4,000 US$ 4,291 US$ 4,073 US$ 3,200 US$ 6,000 US$ 4,000 US$ 4,000 US$ 5,000 US$ 3,801 US$ 7,002 US$ 4,117 US$ 5,000 US$ 4,024 US$ 4,726 US$ 3,400 US$ 2,995 US$ 4,781 US$ 3,407 US$ 3,142 US$ 6,772 US$ 8,668 US$ 3,634 US$ 5,000 US$ US$ 6,077 US$ 13,455 3,926 US$ 3,404 US$ 4,066 US$ 4,603 US$ 4,335 US$ 3,000 US$ 6,527 US$ 3,249 US$ 9,000 US$ 8,797 US$ 3,034 US$ 4,329 US$ 4,640 US$ 4,921 US$ 4,997 US$ 5,106 US$ 9,596 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ (19) 5 23 75 (8) 118 3 (70) (4) 38 (17) (73) (24) (48) 7 3 (22) 37 (22) (11) 25 9 (119) - (68) 9 (13) (33) 32 (70) (32) 65 75 (53) 66 (16) 4 57 (25) 140 (284) 6 (21) (49) 121 3 (61) (79) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 48 - (Continued) Company Name Marketable Securities Type and Name Financial Statement Account Counter-party Nature of Relationship Sanofi Aventis Available-for-sale financial assets Sanofi Aventis Shell International Fin Shell International Fin Standard Chartered BK NY State Str Corp. Sun Life Finl Global Suncorp Metway Ltd. Swedbank Hypotek AB Swedbank Hypotek AB Teva Pharm Fin III Teva Pharma Fin III LLC Total Capital Canada Ltd. United Technologies Corp. US Central Federal Cred Verizon Communications Virginia Elec + Pwr Co. Volkswagen Intl Fin NV Wachovia Corp. Global Medium Wal Mart Stores Inc. Wal Mart Stores Inc. Westpac Banking Corp. Westpac Banking Corp. Wyeth Deutsche Bank AG London Government bond 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 N/B US Treasury N/B US Treasury N/B US Treasury N/B Agency bond Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Fannie Mae Federal Farm Credit Bank 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Held-to-maturity financial assets Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Beginning Balance Acquisition Disposal (Note 2) Ending Balance (Note 3) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Shares/Units (In Thousands) (Note 1) Amount (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Carrying Value (Foreign Currencies in Thousands) Gain (Loss) on Disposal (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) - US$ - 4,000 US$ 4,000 4,000 US$ 4,003 US$ 4,000 US$ 3 - US$ - - 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 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 4,536 3,248 - 6,417 4,332 8,982 3,993 - - 4,016 - - 4,084 - - - 5,141 3,964 4,325 3,514 4,005 3,657 - 41,700 US$ 42,042 11,100 7,000 5,250 - - - - - - US$ 10,976 7,079 US$ 5,212 US$ - - - - - - 16,104 US$ 16,102 11,100 8,765 4,600 3,900 3,000 - - - - 4,000 US$ 11,096 8,763 US$ 4,589 US$ 3,861 US$ 2,994 US$ - - - - 3,994 US$ - 49 - 3,870 - - 3,000 - - - - 4,100 4,000 - 4,000 4,000 4,500 7,725 3,250 4,000 - - - - - 638 20,000 - - - 30,175 19,900 10,000 10,000 10,000 10,000 3,300 - - 11,500 - - - 20,300 11,045 7,500 3,000 - US$ US$ US$ US$ 3,870 - - 3,000 - - - - 4,100 4,000 - 4,000 4,265 4,599 7,725 3,489 4,000 - - - - - US$ 697 US$ 19,884 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,870 4,515 3,200 3,000 6,420 4,400 8,800 4,000 4,100 4,000 4,000 4,000 4,000 8,500 7,725 3,250 4,000 5,000 4,000 3,770 3,500 4,000 3,983 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,884 4,533 3,256 3,001 6,423 4,351 8,937 3,998 4,086 4,019 4,011 4,013 4,244 8,664 7,785 3,461 4,010 5,142 3,968 4,261 3,511 4,022 4,325 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 3,870 4,527 3,227 3,000 6,382 4,304 9,125 4,002 4,100 4,000 4,000 4,000 4,266 8,692 7,725 3,489 4,000 5,138 3,986 4,383 3,500 4,044 4,397 - 14 6 29 1 41 47 (188) (4) (14) 19 11 13 (22) (28) 60 (28) 10 4 (18) (122) 11 (22) (72) - - - - - - - - - - - - - - - - - - - - - - - - 20,000 - - - - - - - - - - - - - - - - - - - - - - - US$ 19,884 - 41,700 US$ 42,042 US$ 41,729 US$ 313 - - US$ 29,906 US$ 19,872 US$ 10,084 US$ 10,042 US$ 10,024 9,988 US$ 3,301 US$ 11,100 US$ 10,941 7,000 US$ 7,077 35,425 US$ 35,154 US$ 19,888 19,900 US$ 10,073 10,000 US$ 10,046 10,000 US$ 10,035 10,000 9,990 10,000 US$ 3,298 3,300 US$ US$ 11,084 US$ US$ 7,078 US$ US$ 35,101 US$ US$ US$ 19,872 US$ US$ 10,084 US$ US$ 10,042 US$ US$ 10,024 9,988 US$ US$ 3,301 US$ US$ (143) (1) 53 16 (11) 4 11 2 (3) - 16,104 US$ 16,116 US$ 16,098 US$ 18 - US$ 11,503 - - - US$ 20,269 US$ 12,104 7,500 US$ 3,000 US$ - 11,100 20,265 4,600 3,900 3,000 20,300 11,045 7,500 3,000 4,000 US$ 11,109 US$ 20,280 4,606 US$ 3,851 US$ US$ 3,000 US$ 20,301 US$ 12,044 7,508 US$ 3,008 US$ 4,002 US$ US$ 11,096 US$ 20,262 4,598 US$ 3,899 US$ US$ 3,009 US$ 20,269 US$ 12,104 7,500 US$ 3,000 US$ 3,995 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 13 18 8 (48) (9) 32 (60) 8 8 7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Continued) 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 (Foreign Currencies in Thousands) Shares/Units (In Thousands) (Note 1) Amount (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Carrying Value (Foreign Currencies in Thousands) Gain (Loss) on Disposal (Foreign Currencies in Thousands) Shares/Units (In Thousands) Amount (Foreign Currencies in Thousands) Federal Farm Credit Bank Federal Farm Credit Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Loan Bank Federal Home Ln Bks Federal Home Ln Mtg Corp. Federal Home Ln Mtg Corp. Federal Home Loan Mtg Corp. Fhr 2953 Da Fhr 3184 Fa Fnma Tba Jan 15 Single Fam Fnma Tba Feb 15 Single Fam Fnma Tba Mar 15 Single Fam Fnma Tba Apr 15 Single Fam Fnr 2006 60 CO Fnr 2009 116 A Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Freddie Mac Gnr 2009 45 AB Government Natl Mtg Assn Ngn 2010 R2 1A Ngn 2011 R4 1A Available-for-sale financial assets 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Money market fund Ssga Cash Mgmt Global Offshore Available-for-sale financial assets - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,000 US$ 3,984 - US$ - 4,000 US$ 3,986 US$ 3,998 US$ (12) - US$ - 5,000 6,800 8,000 10,000 8,400 5,000 3,732 3,324 5,183 3,284 4,096 - - - - 3,485 4,271 5,750 4,300 10,420 - - - 4,417 3,050 3,732 - US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - 5,007 6,817 8,040 9,998 8,397 5,046 3,727 3,453 5,168 3,466 4,084 - - - - 3,483 US$ 4,640 US$ 5,764 US$ US$ 4,316 US$ 10,411 - - - 4,496 3,285 3,731 - US$ US$ US$ 4,000 - - - - - - - - - - - 3,000 3,000 3,000 3,000 - - - - - 19,000 3,550 14,200 - - - 4,000 US$ US$ US$ US$ US$ 4,002 - - - - - - - - - - - 3,147 3,138 3,110 3,131 - - - - - US$ 18,981 US$ 3,549 US$ 14,196 - - - 4,000 US$ 4,000 5,000 6,800 8,000 10,000 8,400 5,000 3,340 3,161 4,634 2,846 3,810 3,000 3,000 3,000 3,000 3,274 3,841 5,750 4,300 10,420 19,000 3,550 14,200 3,082 3,050 3,490 3,914 4,003 US$ 5,007 US$ 6,817 US$ US$ 8,033 US$ 10,001 8,400 US$ 5,043 US$ 3,340 US$ 3,288 US$ 4,634 US$ 3,028 US$ 3,807 US$ 3,142 US$ 3,117 US$ 3,140 US$ 3,164 US$ 3,274 US$ 4,137 US$ 5,761 US$ US$ 4,312 US$ 10,414 US$ 18,986 US$ 3,553 US$ 14,204 3,129 US$ 3,202 US$ 3,492 US$ 3,914 US$ 4,002 US$ 5,009 US$ 6,811 US$ 7,990 US$ 9,985 US$ 8,399 US$ 5,098 US$ 3,341 US$ 3,360 US$ 4,632 US$ 2,993 US$ 3,806 US$ 3,147 US$ 3,138 US$ 3,110 US$ 3,131 US$ 3,272 US$ 4,122 US$ 5,771 US$ US$ 4,308 US$ 10,412 US$ 18,981 US$ 3,549 US$ 14,196 3,215 US$ 3,278 US$ 3,490 US$ 3,914 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ 1 (2) 6 43 16 1 (55) (1) (72) 2 35 1 (5) (21) 30 33 2 15 (10) 4 2 5 4 8 (86) (76) 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12,387 US$ 12,387 764,155 US$ 764,155 776,459 US$ 776,459 US$ 776,459 - 83 US$ 83 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, other adjustments to long-term investment using equity method and amounts transferred from spin-off. (Concluded) - 50 - TABLE 4 Taiwan Semiconductor Manufacturing Company Limited and Investees 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, 2011 (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 Amount Price Reference Purpose of Acquisition Other Terms TSMC Fab January 5, 2011 to $ 1,018,438 By the construction China Steel Structure Co., Ltd. Fab Fab Fab Fab Fab Fab Fab Fab November 10, 2011 January 7, 2011 to December 27, 2011 January 26, 2011 to December 27, 2011 January 26, 2011 to December 27, 2011 progress 152,099 By the construction Lead Fu Industrials Corp. progress 222,928 By the construction MandarTech Interiors Inc. progress 173,899 By the construction I Domain Industrial Co., Ltd. progress January 27, 2011 to 2,425,769 By the construction Da Cin Construction Co., Ltd. December 27, 2011 progress January 27, 2011 to 2,036,095 By the construction Fu Tsu Construction Co., Ltd. December 27, 2011 January 27, 2011 to July 24, 2011 January 27, 2011 to December 28, 2011 February 24, 2011 to December 27, 2011 progress 480,672 By the construction Tasa Construction Corporation progress 219,004 By the construction Edg Corporation Ltd. progress 229,992 By the construction progress Yankey Engineering Co., Ltd. Xintec Fab February 17, 2011 1,050,000 Based on the agreement Vertex Precision Electronics Inc. - - - - - - - - - N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 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 Manufacturing None purpose N/A Public bidding Manufacturing None purpose N/A Public bidding Manufacturing None N/A Public bidding Manufacturing None purpose purpose N/A Public bidding Manufacturing None purpose N/A Public bidding Manufacturing None purpose N/A Public bidding Manufacturing None purpose N/A Public bidding Manufacturing None N/A Public bidding Manufacturing None purpose purpose N/A N/A N/A N/A Pricing report Manufacturing None purpose - 51 - TABLE 5 Note % to Total 55 - - - 8 3 8 3 - 51 4 Taiwan Semiconductor Manufacturing Company Limited and Investees TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2011 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable Purchases/ Sales Amount % to Total Payment Terms Unit Price (Note) Payment Terms (Note) Ending Balance TSMC TSMC North America GUC Subsidiary Investee accounted for using Sales Sales $ 234,902,043 3,388,912 56 Net 30 days after invoice date 1 Net 30 days after monthly closing equity method VIS Investee accounted for using Sales 302,844 - Net 30 days after monthly closing equity method TSMC Solar Europe GmbH Indirect subsidiary TSMC China WaferTech VIS Subsidiary Indirect subsidiary Investee accounted for using Sales Purchases Purchases Purchases 148,898 10,392,189 7,305,879 5,577,762 - Net 60 days after invoice date 21 Net 30 days after monthly closing 15 Net 30 days after monthly closing 12 Net 30 days after monthly closing SSMC Motech equity method Investee accounted for using Purchases 3,949,176 8 Net 30 days after monthly closing equity method Indirect investee accounted for using the equity method Purchases 124,673 - Net 30 days after monthly closing Xintec OmniVision TSMC Parent company of director (represented for Xintec) Parent company Sales Sales 1,829,969 47 Net 30 days after monthly closing 267,841 7 Net 30 days after monthly closing - - - - - - - - - - - - - - - - - - - - - - $ 24,661,104 116,218 - - (946,826) (420,459) (987,937) (336,037) - 241,333 17,326 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. - 52 - 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, 2011 (Amounts in Thousands of New Taiwan Dollars) Company Name Related Party Nature of Relationships Ending Balance Turnover Days (Note 1) Overdue Amount Action Taken TSMC TSMC North America GUC Subsidiary Investee accounted for using $ 24,684,991 116,218 equity method Xintec OmniVision Parent company of director (represented for Xintec) 241,333 39 15 36 $ 9,115,109 - - - - - Amounts Received in Subsequent Period Allowance for Bad Debts $ 14,946,365 - $ - - - - Note 1: The calculation of turnover days excludes other receivables from related parties. TABLE 6 - 53 - Taiwan Semiconductor Manufacturing Company Limited and Investees NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2011 (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, 2011 December 31, 2011 (Foreign Currencies in Thousands) December 31, 2010 (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 Tortola, British Virgin Islands Investment activities $ 42,327,245 $ 42,327,245 1 Tortola, British Virgin Islands Investing in companies involved in the design, 31,456,130 31,456,130 988,268 100 100 $ 44,071,845 $ 431,368 $ 431,368 Subsidiary 34,986,964 1,745,799 1,745,799 Subsidiary TABLE 7 TSMC China Shanghai, China TSMC Solar Tai-Chung, Taiwan Hsin-Chu, Taiwan VIS SSMC TSMC SSL Hsin-Chu, Taiwan Xintec VTAF III GUC VTAF II Emerging Alliance TSMC Europe TSMC Japan TSMC Korea Taoyuan, Taiwan Hsin-Chu, Taiwan Cayman Islands Cayman Islands Amsterdam, the Netherlands Yokohama, Japan Seoul, Korea TSMC North America San Jose, California, U.S.A. Selling and marketing of integrated circuits and 333,718 333,718 11,000 Singapore Fabrication and supply of integrated circuits 5,120,028 5,120,028 314 Cayman Islands Investing in new start-up technology companies manufacture, and other related business in the semiconductor industry Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts 18,939,667 12,180,367 - 100 13,542,181 2,113,521 2,098,233 Subsidiary 11,180,000 - 1,118,000 100 10,153,244 (982,868) (982,868) Subsidiary 13,232,288 13,232,288 628,223 39 8,988,007 882,183 (10,337) Investee accounted for using equity method semiconductor devices Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems 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 Customer service and technical supporting activities Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems Investing in new start-up technology companies 2,270,000 - 227,000 1,357,890 1,357,890 94,011 2,074,155 (Note 4) 386,568 3,565,441 (Note 4) 386,568 - 46,688 949,267 892,855 15,749 83,760 13,656 1,166,470 971,785 15,749 83,760 13,656 - - - 6 80 39 100 100 40 53 35 98 99 100 100 100 6,289,429 3,370,241 1,143,147 Investee accounted for using equity method 2,981,639 197,493 197,493 Subsidiary 1,746,893 (523,002) (523,002) Subsidiary 1,606,694 166,603 54,449 Investee with a 1,311,044 (280,045) controlling financial interest (273,038) Subsidiary 1,157,188 527,406 183,843 Investee accounted for using equity method 762,135 213,235 205,171 161,601 23,448 32,275 (11,185) 34,937 4,523 3,263 31,629 Subsidiary (11,129) Subsidiary (Note 3) 34,937 Subsidiary (Note 3) 4,523 Subsidiary (Note 3) 3,263 Subsidiary (Note 3) 6,228,661 (Note 4) 6,228,661 (Note 4) 1,795,131 (Note 4) 411,032 (Note 4) 147,686 (Note 4) 3,565,441 (Note 4) 25,350 (Note 4) 60,962 (Note 4) 3,133 (Note 4) 3,133 (Note 4) 87,480 20 5,612,344 (2,193,504) Note 2 - - 1 1 46 100 100 100 Investee accounted for using equity method Investee accounted for using equity method 1,681,719 (280,045) Note 2 204,163 (196,659) Note 2 Subsidiary 52,187 (63,192) Note 2 Subsidiary 2,994 (34) Note 2 Subsidiary (Continued) TSMC Solar Motech Taipei, Taiwan VTAF III Cayman Islands TSMC Solar Europe Amsterdam, the Netherlands Investing in solar related business TSMC Solar NA Delaware, U.S.A. Selling and marketing of solar related products TSMC SSL TSMC Lighting NA Delaware, U.S.A. Selling and marketing of solid state lighting related products - 54 - Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Balance as of December 31, 2011 December 31, 2011 (Foreign Currencies in Thousands) December 31, 2010 (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 Partners TSMC Development VisEra Holding Company Delaware, U.S.A. Cayman Islands Investment activities Investing in companies involved in the design, US$ 0.001 US$ 43,000 US$ 0.001 US$ 43,000 ISDF TSMC Technology ISDF II TSMC Canada Mcube Inc. (common stock) Cayman Islands Delaware, U.S.A. Cayman Islands Ontario, Canada Delaware, U.S.A. Mcube Inc. (preferred stock) Delaware, U.S.A. manufacturing, and other related businesses in the semiconductor industry Investing in new start-up technology companies Engineering support activities Investing in new start-up technology companies Engineering support activities Research, development, and sale of micro-semiconductor device Research, development, and sale of micro-semiconductor device 787 US$ US$ 0.001 US$ 14,153 2,300 US$ 800 US$ 4,088 US$ US$ 0.001 US$ 16,532 2,300 US$ 800 US$ 1 43,000 787 1 14,153 2,300 5,333 100 49 97 100 97 100 80 US$ 460,034 US$ 94,208 US$ 56,777 US$ 29,054 Note 2 Note 2 US$ 11,112 US$ 10,615 9,994 US$ 4,059 US$ - 3,656 US$ 737 US$ (642) US$ US$ 435 US$ (13,586) Note 2 Note 2 Note 2 Note 2 Note 2 US$ 1,000 US$ 1,000 1,000 5 - US$ (13,586) Note 2 Subsidiary Investee accounted for using equity method Subsidiary Subsidiary (Note 3) Subsidiary Subsidiary (Note 3) Investee accounted for using equity method (Note 3) Investee accounted for using equity method (Note 3) TSMC Development WaferTech Washington, U.S.A. Manufacturing, selling, testing and US$ 280,000 US$ 280,000 293,640 100 US$ 220,119 US$ 54,908 Note 2 Subsidiary VTAF III Mutual-Pak Technology Co., Ltd. Taipei, Taiwan Growth Fund VTA Holdings Cayman Islands Delaware, U.S.A. computer-aided designing of integrated circuits and other semiconductor devices Manufacturing and selling of electronic parts and researching, developing, and testing of RFID Investing in new start-up technology companies Investing in new start-up technology companies VTAF II VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies Emerging Alliance VTA Holdings Delaware, U.S.A. Investing in new start-up technology companies TSMC Solar Europe TSMC Solar Europe GmbH Hamburg, Germany Selling of solar related products and providing EUR 9,900 EUR 100 customer service 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. US$ 3,937 US$ 3,937 11,868 US$ US$ 1,830 - 1,700 - - - - - 57 100 62 31 7 US$ 1,204 US$ (1,458) Note 2 Subsidiary (Note 3) US$ US$ 510 - (466) - Note 2 Note 2 Subsidiary (Note 3) Subsidiary (Note 3) - - - - Note 2 Subsidiary (Note 3) Note 2 Subsidiary (Note 3) 100 EUR 5,103 EUR (4,787) Note 2 Subsidiary - - - - 1 Note 4: In August 2011, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. (Concluded) - 55 - TABLE 8 Taiwan Semiconductor Manufacturing Company Limited and Investees INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2011 (Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise) Investee Company Main Businesses and Products Total Amount of Paid-in Capital (Foreign Currencies in Thousands) Method of Investment Accumulated Outflow of Investment from Taiwan as of January 1, 2011 (US$ in Thousand) Investment Flows Outflow (US$ in Thousands) Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2011 (US$ in Thousands) Percentage of Ownership Equity in the Earnings (Losses) Carrying Value as of December 31, 2011 (US$ in Thousands) Accumulated Inward Remittance of Earnings as of December 31, 2011 TSMC China Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers $ 18,939,667 (RMB 4,502,080) (Note 1) $ (US$ 12,180,367 371,000) $ (US$ 6,759,300 225,000) $ Shanghai Walden Venture Capital Enterprise Investing in new start-up technology companies (US$ 953,709 31,488) (Note 2) - (US$ 147,485 5,000) - - $ (US$ 18,939,667 596,000) 100% $ 2,098,233 (Note 3) $ 13,542,181 $ (US$ 147,485 5,000) 8% (Note 4) (US$ 151,440 5,000) - - Accumulated Investment in Mainland China as of December 31, 2011 (US$ in Thousand) Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand) Upper Limit on Investment (US$ in Thousand) $ 19,087,152 (US$ 601,000) $ 19,087,152 (US$ 601,000) $ 19,087,152 (US$ 601,000) Note 1: TSMC directly invested US$596,000 thousand in TSMC China. Note 2: TSMC indirectly invested in China company through third region, TSMC Partners. Note 3: Amount was recognized based on the audited financial statements. Note 4: TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized. - 56 -

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