1934 Act Registration No. 1-14700
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 2003
Taiwan Semiconductor Manufacturing Company Ltd.
(Translation of Registrant's Name into English)
No.121 Park Avenue III
Science-Based Industrial Park
Hsin-chu, Taiwan
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F ____
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes____ No __X__
(If "Yes" is marked, indicated below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82: ______.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Taiwan Semiconductor Manufacturing
Company Ltd.
Date: April 30, 2003 By /S/ Harvey Chang
----------------------------------
Harvey Chang
Senior Vice President & Chief
Financial Officer
Taiwan Semiconductor Manufacturing Company Ltd.
Financial Statements for the Three Months Ended
March 31, 2003 and 2002
Together with Independent Accountants' Report
Readers are advised that the original version of these financial statements is
in Chinese. This English translation is solely for the readers' convenience If
there is any conflict between these financial statements and the Chinese
version or any difference in the interpretation of the two versions, the
Chinese-language financial statements shall prevail.
English Translation of a Report Originally Issued in Chinese
Independent Accountants' Report
April 17, 2003
The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Ltd.
We have reviewed the accompanying balance sheets of Taiwan Semiconductor
Manufacturing Company Ltd. as of March 31, 2003 and 2002, and the related
statements of income and cash flows for the three months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to issue a report on these financial statements based on our
reviews.
We conducted our reviews in accordance with Statement on Auditing Standards No.
36 "Review of Financial Statements" issued by the Auditing Committee of the
Accounting Research and Development Foundation of the Republic of China. A
review consists principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the Republic of China,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with the Guidelines for Securities Issuers' Financial Reporting and
accounting principles generally accepted in the Republic of China.
- 1 -
As disclosed in Note 3 to the financial statements, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 30, "Accounting for
Treasury Stock" on January 1, 2002. SFAS No. 30 requires a parent company to
record stock held by its subsidiary as treasury stock.
T N Soong & Co
An Associate Member Firm of Deloitte Touche Tohmatsu
Effective April 22, 2002
(Formerly a Member Firm of Andersen Worldwide, SC)
Taipei, Taiwan
The Republic of China
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.
- 2 -
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
BALANCE SHEETS
(Unaudited)
March 31, 2003 and 2002
(In Thousand New Taiwan Dollars, Except Par Value)
2003 2002
------------------ ------------------
Amount % Amount %
A S S E T S ------------- --- ------------- ---
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4) $ 67,449,389 18 $ 58,349,042 16
Short-term investments (Note 2) - - 2,449,999 1
Receivables from related parties (Notes 6 and 17) 11,056,070 3 10,957,806 3
Notes receivable 4,120 - 137,039 -
Accounts receivable 9,358,733 3 9,880,577 3
Allowance for doubtful receivables (Note 2) (976,864) - (950,194) -
------------- --- ------------- ---
Allowance for sales returns and others (Note 2) (1,834,097) (1) (3,600,882) (1)
------------- --- ------------- ---
Other financial assets (Note 20) 749,584 - 894,030 -
Inventories - net (Notes 2 and 5) 10,178,043 3 9,718,279 3
Deferred income taxes assets (Notes 2 and 12) 5,371,000 2 2,785,951 1
Prepaid expenses and other current assets (Notes 2 and 17) 1,629,391 - 1,812,293 -
------------- --- ------------- ---
Total Current Assets 102,985,369 28 92,433,940 26
------------- --- ------------- ---
FUNDS AND LONG-TERM INVESTMENTS (Notes 2, 6, 15
and 19)
Equity method 33,119,011 9 30,456,698 9
Other 1,027,607 - 962,618 -
------------- --- ------------- ---
Total Funds and Long-term Investments 34,146,618 9 31,419,316 9
------------- --- ------------- ---
PROPERTY, PLANT, AND EQUIPMENT (Notes 2 and 7)
Cost
Buildings.............................................. 69,976,415 19 63,650,731 18
Machinery and equipment................................ 314,492,740 87 261,659,631 73
Office equipment....................................... 5,812,295 2 5,163,351 1
------------- --- ------------- ---
390,281,450 108 330,473,713 92
Accumulated depreciation (202,845,400) (56) (151,352,016) (42)
Advance payments and construction in progress 18,157,888 5 29,904,214 8
------------- --- ------------- ---
Net Property, Plant, and Equipment 205,593,938 57 209,025,911 58
------------- --- ------------- ---
GOODWILL (Note 2) 2,525,829 1 2,874,219 1
------------- --- ------------- ---
OTHER ASSETS
Deferred charges--net (Notes 2, 8 and 19) 9,198,057 3 5,289,354 2
Deferred income taxes assets (Notes 2 and 12) 7,968,768 2 15,309,154 4
Refundable deposits (Notes 17 and 19) 478,385 - 735,820 -
Idle assets (Note 2) 270,152 - - -
Assets leased to others (Note 2) 86,526 - 89,406 -
Miscellaneous 9,250 - 9,250 -
------------- --- ------------- ---
Total Other Assets 18,011,138 5 21,432,984 6
------------- --- ------------- ---
TOTAL ASSETS $ 363,262,892 100 $ 357,186,370 100
============= === ============= ===
2003 2002
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY Amount % Amount %
------------------------------------ ------------ --- ------------ ---
CURRENT LIABILITIES
Payables to related parties (Note 17) $ 2,632,038 1 $ 2,676,481 1
Accounts payable 4,497,685 1 1,755,303 -
Payables to contractors and equipment suppliers 7,738,073 2 11,392,482 3
Accrued expenses and other current liabilities (Notes 2, 6, 10
and 20) 5,479,353 1 5,044,385 1
Current portion of long-term bonds payable (Note 9) - - 9,000,000 3
------------ --- ------------ ---
Total Current Liabilities 20,347,149 5 29,868,651 8
------------ --- ------------ ---
LONG-TERM LIABILITIES
Bonds payable (Note 9) 35,000,000 10 35,000,000 10
Other long-term payable (Notes 10 and 19) 4,281,200 1 1,470,000 -
------------ --- ------------ ---
Total Long-term Liabilities 39,281,200 11 36,470,000 10
------------ --- ------------ ---
OTHER LIABILITIES
Guarantee deposits (Note 19) 1,375,672 - 6,969,569 2
Accrued pension cost (Notes 2 and 11) 2,297,786 1 1,939,619 1
Deferred gain on sale and leaseback (Note 2) 76,619 - 229,856 -
------------ --- ------------ ---
Total Other Liabilities 3,750,077 1 9,139,044 3
------------ --- ------------ ---
Total Liabilities 63,378,426 17 75,477,695 21
------------ --- ------------ ---
SHAREHOLDERS' EQUITY (Notes 2 and 14)
Capital stock - $10 par value
Authorized: 24,600,000 thousand shares 13,000,000 4 13,000,000 4
------------ --- ------------ ---
Issued: Preferred - 1,300,000 thousand shares;
Common - 18,622,887 thousand shares in 2003 and
16,832,554 thousand shares in 2002 186,228,867 51 168,325,531 47
------------ --- ------------ ---
Capital surplus:
Merger and others 56,796,854 16 57,128,433 16
Treasury stock (Note 3) 43,036 - 30,539 -
------------ --- ------------ ---
Retained earnings:
Appropriated as legal reserve 18,641,108 5 17,180,067 5
Appropriated as special reserve - - 349,941 -
Unappropriated earnings 26,508,956 7 26,565,234 7
Other:
Unrealized loss on long-term investments (Note 2) (293,612) - - -
Cumulative translation adjustments (Note 2) 882,749 - 1,232,851 -
Treasury stock (at cost) - 42,001 thousand shares in 2003 and
38,497 shares in 2002 (Notes 3 and 15) (1,923,492) - (2,103,921) -
------------ --- ------------ ---
Total Shareholders' Equity 299,884,466 83 281,708,675 79
------------ --- ------------ ---
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $363,262,892 100 $357,186,370 100
============ === ============ ===
The accompanying notes are an integral part of the financial statements
(With T N Soong & Co. report dated April 17, 2003)
6
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, 2003 and 2002
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
2003 2002
---------------- ----------------
Amount % Amount %
----------- --- ----------- ---
GROSS SALES (Notes 2 and 17) $39,633,381 $37,324,313
SALES RETURNS AND ALLOWANCES (Note 2) (308,068) (1,534,598)
----------- -----------
NET SALES 39,325,313 100 35,789,715 100
COST OF SALES (Notes 13 and 17) 28,939,421 73 23,763,009 66
----------- --- ----------- ---
GROSS PROFIT 10,385,892 27 12,026,706 34
----------- --- ----------- ---
OPERATING EXPENSES (Notes 13 and 17)
Research and development 2,511,843 6 2,539,567 7
General and administrative 1,395,451 4 1,007,328 3
Marketing 283,933 1 297,807 1
----------- --- ----------- ---
Total Operating Expenses 4,191,227 11 3,844,702 11
----------- --- ----------- ---
INCOME FROM OPERATIONS 6,194,665 16 8,182,004 23
----------- --- ----------- ---
NON-OPERATING INCOME AND GAIN
Interest (Note 2) 188,929 1 214,746 -
Insurance compensation - net 52,562 - - -
Technical service income (Notes 17 and 19) 21,153 - 13,806 -
Gain on sales of short-term investments (Note 2) 7,894 - 7,103 -
Gain on sales of property, plant, and equipment
(Note 2) 5,876 - 254,581 1
Premium income from option contracts - net
(Notes 2 and 20) - - 60,591 -
Other (Note 17) 17,393 - 81,203 -
----------- --- ----------- ---
Total Non-operating Income and Gain 293,807 1 632,030 1
----------- --- ----------- ---
NON-OPERATING EXPENSE AND LOSS
Investment loss recognized by equity method - net
(Notes 2 and 6) 1,515,850 4 946,289 3
Interest (Notes 7 and 20) 500,301 1 541,343 2
Foreign exchange loss - net (Notes 2 and 20) 159,298 1 60,847 -
Loss on idle assets (Note 2) 63,111 - - -
(Forward)
- 4 -
English Translation of Financial Statements Originally Issued in Chinese
2003 2002
------------- --------------
Amount % Amount %
---------- -- ---------- --
Loss on disposal of property, plant, and equipment
(Note 2) $ 37,083 - $ 91,224 -
Premium expense from option contracts - net
(Notes 2 and 20) 26,556 - - -
Amortization of bond issuance costs (Note 2) 3,580 - 5,548 -
Casualty loss - net (Note 2) - - 104,828 -
Loss on sales of long-term investments - net
(Note 2) - - 1,766 -
Other 2,423 - 44,342 -
---------- -- ---------- --
Total Non-operating Expense and Loss 2,308,202 6 1,796,187 5
---------- -- ---------- --
INCOME BEFORE INCOME TAX 4,180,270 11 7,017,847 19
INCOME TAX BENEFIT (EXPENSE) (Notes 2
and 12) 177,597 - (430,015) (1)
---------- -- ---------- --
NET INCOME $4,357,867 11 $6,587,832 18
========== == ========== ==
2003 2002
------------- -------------
Before After Before After
Income Income Income Income
Tax Tax Tax Tax
------ ------ ------ ------
EARNINGS PER SHARE (Note 16)
Basic and diluted earnings per share $0.22 $0.23 $0.37 $0.35
===== ===== ===== =====
The pro forma net income and earnings per share on the assumption that the
stock of parent company held by its subsidiary is treated as an investment
instead of the treasury stock, are shown as follows (Notes 3 and 15):
2003 2002
--------------------- ---------------------
Before
Income After Before After
Tax Income Tax Income Tax Income Tax
---------- ---------- ---------- ----------
NET INCOME $4,185,773 $4,363,370 $7,048,386 $6,618,371
========== ========== ========== ==========
EARNINGS PER SHARE
Basic and diluted earnings per share $ 0.22 $ 0.23 $ 0.37 $ 0.35
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
(With T N Soong & Co. report dated April 17, 2003)
- 5 -
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 2003 and 2002
(In Thousand New Taiwan Dollars)
2003 2002
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,357,867 $ 6,587,832
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15,360,867 12,842,345
Deferred income taxes (307,201) 426,965
Investment loss recognized by equity method - net 1,515,850 946,289
Loss on idle assets 63,111 -
Loss (gain) on sales of property, plant and equipment - net 31,207 (163,357)
Loss on sales of long-term investments - net - 1,766
Pension cost accrued 87,244 84,766
Allowance for doubtful receivables 47,000 (150,298)
Allowance for sales returns and others (528,970) 1,019,331
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables from related parties (872,582) (10,517,670)
Notes receivable 56,120 39,543
Accounts receivable 136,714 10,077,059
Inventories - net 162,293 (1,213,861)
Other financial assets 25,759 (40,424)
Prepaid expenses and other current assets 384,970 (99,605)
Forward exchange contract receivable 194,326 (144,728)
Increase (decrease) in:
Payables to related parties 165,040 593,875
Accounts payable (351,549) 631,409
Forward exchange contract payable 62,093 (367,166)
Accrued expenses and other current liabilities (461,226) 432,961
----------- ------------
Net Cash Provided by Operating Activities....................... 20,128,933 20,987,032
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in short-term investments - (2,449,999)
Acquisitions of:
Long-term investments (1,010,581) (1,422,609)
Property, plant, and equipment (9,052,961) (6,599,047)
Proceeds from sales of:
Long-term investments - 632
Property, plant, and equipment 41,841 438,829
(Forward)
- 6-
English Translation of Financial Statements Originally Issued in Chinese
2003 2002
------------- -------------
Increase in deferred charges ($ 360,328) ($ 805,191)
Decrease in refundable deposits 65,084 37,092
------------- -------------
Net Cash Used in Investing Activities (10,316,945) (10,800,293)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of (repayment on) long-term bonds (4,000,000) 15,000,000
Decrease in guarantee deposits (19,394) (241,403)
------------- -------------
Net Cash Provided by (Used in) Financing Activities (4,019,394) 14,758,597
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,792,594 24,945,336
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE PERIOD 61,656,795 33,403,706
------------- -------------
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD $ 67,449,389 $ 58,349,042
============= =============
SUPPLEMENTAL INFORMATION
Interest paid (excluding the amounts capitalized of
NT$2,315 thousand and NT$24,068 thousand in 2003 and
2002, respectively) $ 608,040 $ 161,784
============= =============
Income tax paid $ 2,500 $ 3,050
============= =============
Non-cash investing and financing activities:
Reclassification of a parent company stock held by
subsidiaries from long-term investments to treasury
stock $ 1,923,492 $ 2,103,291
============= =============
Effect of exchange rate changes on cash and cash
equivalents $ 36,697 $ 232
============= =============
Credit balances of long-term investments reclassified
as part of receivables from related parties $ - $ 83,725
============= =============
Credit balances of long-term investments reclassified
as part of other current liabilities $ - $ 61,510
============= =============
Partial cash investing and financing activities:
Total acquisition of property, plant and equipment $ 2,786,651 $ 5,624,210
Payables to contractors and equipment suppliers 6,266,310 974,837
------------- -------------
$ 9,052,961 $ 6,599,047
============= =============
The accompanying notes are an integral part of the financial statements.
(With T N Soong & Co. report dated April 17, 2003)
- 7 -
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Amounts in Thousand New Taiwan Dollars, Unless Specified Otherwise)
1. GENERAL
Taiwan Semiconductor Manufacturing Company Ltd. (the "Company" or "TSMC"), a
Republic of China corporation, was incorporated as a venture among the
Government of the Republic of China, acting through the Development Fund of
the Executive Yuan; Philips Electronics N.V. and certain of its affiliates
(Philips); and certain other private investors. In September 1994, its
shares were listed on the Taiwan Stock Exchange. On October 8, 1997, TSMC
listed its shares of stock on the New York Stock Exchange in the form of
American Depositary Shares.
TSMC is engaged mainly in the manufacturing, selling, packaging, testing and
designing of integrated circuits and other semiconductor devices, and the
manufacturing of masks.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are presented in conformity with the Guidelines for
Securities Issuers' Financial Reporting and accounting principles generally
accepted in the Republic of China. Significant accounting policies are
summarized as follows:
Classification of current and non-current assets and liabilities
Current assets are those expected to be converted to cash, sold or consumed
within one year. Current liabilities are obligations due on demand within
one year from the balance sheet date. Assets and liabilities that are not
classified as current are non-current assets and liabilities, respectively.
Cash equivalents
Government bonds acquired with maturities less than three months from the
date of purchase are classified as cash equivalents.
Short-term investments
Short-term investments are carried at the lower of cost or market value. The
costs of investments sold are determined by the specific identification
method.
Allowance for doubtful receivables
Allowance for doubtful receivables are provided based on a review of the
collectibility of accounts receivables.
- 8 -
Revenue recognition and allowance for sales returns and others
The four criteria that we use to recognize revenue are the existence of
evidence of a contractual arrangement, delivery or performance has occurred,
the selling price is fixed or determinable and collectibility is reasonably
assured. Allowance for sales returns and others is estimated based on
historical experience. Such provisions are deducted from sales in the year
the products are sold and the estimated related costs are deducted from cost
of sales.
Sales are determined using the fair value taking into account related sales
discounts agreed to by the Company and customer. Since the receivables from
sales are collectible within one year and such transactions are frequent,
the fair value of receivables is equivalent to the nominal amount of cash
received.
Inventories
Inventories are stated at the lower of cost or market value. Inventories are
recorded at standard cost and adjusted to approximate weighted-average cost
at the end of each period. Market value represents net realizable value for
finished goods and work in process, and replacement value for raw materials,
supplies and spare parts.
Long-term investments
Investments in shares of stock of companies wherein the Company exercises
significant influence on the operating and financial policy decisions are
accounted for using the equity method. The Company's proportionate share in
the net income or net loss of investee companies are recognized as
components of the "Investment income/loss recognized by equity method - net"
account. The Company adopted Statements of Financial Accounting Standards
("SFAS") No. 30, "Accounting for Treasury Stock" on January 1, 2002. SFAS
No. 30 requires a parent company to record stock held by its subsidiary as
treasury stock. When acquiring shares of stock, the difference between cost
of investment and its book value is amortized using straight-line method
over five years.
When the Company subscribes to additional investee shares at a percentage
different from its existing equity interest, the resulting carrying amount
of the investment in equity investee differs from the amount of Company's
proportionate share in the investee's net equity. The Company records such
difference as an adjustment to "capital surplus" as well as the "long-term
investments" accounts. In the event an investee has an accumulated deficit,
it will record an offset to its capital surplus, excluding the reserve for
asset revaluation, through retained earnings. The Company will also record a
corresponding entry equivalent to its proportionate share of the investee
capital surplus, excluding the reserve for asset revaluation, that was
generated subsequent to any acquisition of equity interest in the investee.
If an investee's functional currency is a foreign currency, "cumulative
translation adjustments" would result from the process of translating the
investees' financial statements into the functional currency of the Company.
- 9 -
Other stock investments are accounted for using the cost method. Cash
dividends are recognized as income in the year received but are accounted
for as reduction in the carrying values of the long-term investments if the
dividends are received in the same year that the related investments are
acquired. Stock dividends are recognized neither as investment income nor
increase of long-term investment but recorded only as an increase in the
number of shares held. An allowance is recognized for any decline in the
market value of investments using quoted market prices with the
corresponding amount charged to shareholders' equity. A reversal of the
allowance will result from a subsequent recovery of the market value. The
carrying values of investments with no quoted market price are reduced to
reflect an other than temporary decline in their values with the related
impairment loss charged to income.
Investments in foreign mutual funds are stated at the lower of aggregate
cost or net asset value (NAV). An allowance is recognized when the cost of
the funds are lower than their net asset values, with the corresponding
amount charged to shareholders' equity. A reversal of the allowance will
result from a subsequent recovery of the net asset value.
The costs of investments sold are determined using the weighted-average
method.
If an investee company has an unrealized loss on a long-term investment
evaluated using the lower-of-cost-or-market method, the Company recognizes a
corresponding unrealized loss in proportion to its equity interest and
records the amount as a component of its own shareholders' equity.
Gains or losses on transactions with investee companies wherein the Company
owns at least 20% of the outstanding common stock but less than a
controlling interest are deferred in proportion to the Company's ownership
percentage until such gains or losses are realized through a transaction
with a third party. The entire amount of gains or losses on sales to
majority-owned subsidiaries are deferred until such gains or losses are
realized through a subsequent transaction with a third party. Gains or
losses from sales by investee companies to the Company are deferred in
proportion to the ownership percentage until realized through transactions
with third parties.
Property, plant and equipment, assets leased to others and idle assets
Property, plant and equipment and assets leased to others are stated at cost
less accumulated depreciation. Idle assets are stated at the lower of book
value or net realizable value. Significant additions, renewals, betterments
and interest expense incurred during the construction period are
capitalized. Maintenance and repairs are expensed in the period incurred.
Property, plant and equipment covered by agreements qualifying as capital
leases are carried at the lower of the present value of future minimum rent
payments, or the market value of the property at the inception date of the
lease. The lessee's periodic rent payment includes the purchase price of the
leased property and the interest expense.
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, the related cost and
accumulated depreciation are removed with any gains or losses credited or
charged to income in the period of disposal.
- 10 -
Goodwill
Goodwill represents the excess of the consideration paid for acquisition
over the fair market value of net identifiable assets acquired. Goodwill is
amortized using the straight-line method over the estimated life of 10 years.
Deferred charges
Deferred charges consist of software and system design costs, technology
know-how, bond issuance costs, and technology license fees. The amounts are
amortized as follows: Software and system design costs - 3 years, technology
know-how - 5 years, bond issuance costs - the term of the bonds, technology
license fee - the shorter of the estimated life of the technology or the
term of the technology transfer contract.
Pension costs
Net periodic pension costs are recorded on the basis of actuarial
calculations. Unrecognized net transition obligation and unrecognized net
gain/loss are amortized over 25 years.
Deferred gain on sale and leaseback
The gain on the sale of property that is simultaneously leased back is
deferred by the Company. This deferred gain on sales and leaseback
transactions is amortized as follows: (a) operating leases - adjustment of
rental expenses over the term of the leases and (b) capital leases -
adjustment of depreciation expenses over the estimated useful life or term
of the lease; whichever is shorter.
Casualty loss
Casualty losses mainly caused from the March 31, 2002 earthquake are
recorded when incurred and any insurance recoveries are recorded when
probable up to the amount of the loss. Recoveries in excess of the amount of
the loss are recorded when realized.
Income tax
The Company uses an inter-period tax allocation method for income tax.
Deferred income tax assets and liabilities are recognized for the tax
effects of temporary differences, unused tax credits, and operating loss
carryforwards. Valuation allowances are provided to the extent, if any, that
it is more likely than not that the deferred income tax assets will not be
realized. A deferred tax asset or liability is classified as current or
non-current according to 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 non-current based on the expected length of time before it
is realized.
Any tax credit arising from the purchase of machinery, equipment and
technology, research and development expenditures, personnel training,
investments in important technology-based enterprise are recognized using
the current method.
Adjustments of prior years' tax liabilities are added to or deducted from
the current year's tax provision.
- 11 -
As of January 1, 1998, income taxes on unappropriated earnings of 10% are
expensed in the year of shareholder approval which is usually the year
subsequent to the year of earnings.
Derivative financial instruments
The Company enters into foreign currency forward contracts to manage
currency exposures in cash flow and in foreign currency-denominated assets
and liabilities. The differences in the New Taiwan dollar amounts translated
using the spot rate and the amounts translated using the contracted forward
rates on the contract date are amortized over the terms of the forward
contracts using the straight-line method. At the balance sheet dates, the
receivables or payables arising from forward contracts are restated using
the prevailing spot rate and the resulting differences are charged to
income. Also, the receivables and payables related to the forward contract
are netted with the resulting amount presented as either an asset or
liability. Any resulting gain or loss upon settlement is credited or charged
to income in the period of settlement.
The Company enters into interest rate swap transactions to manage exposures
from changes in interest rates on existing liabilities. These transactions
are accounted for on an accrual basis, in which the cash settlement
receivable or payable is recorded as an adjustment to interest income or
expense.
The notional amount of foreign currency option contracts entered into for
hedging purposes are not recognized as an asset or liability on the contract
dates. The premiums paid or received for the call or put options are
amortized and charged to income on a straight-line basis over the term of
the related contract. Any resulting gain or loss upon settlement is credited
or charged to income in the period of settlement.
Foreign-currency transactions
Foreign-currency transactions are recorded in New Taiwan dollars at the
current rate of exchange in effect when the transaction occurs. Gains or
losses derived from foreign currency transactions or monetary assets and
liabilities denominated in a foreign currency are recognized in current
operations. At the end of each period, foreign-currency assets and
liabilities are revalued at the prevailing exchange rate with the resulting
gains or losses recognized in current operation.
Reclassification
Certain accounts in the financial statement as of and for the three months
ended March 31, 2002 have been reclassified to conform to the financial
statements as of and for the three months ended March 31, 2003.
3. NEW ACCOUNTING PRONOUNCEMENTS
In accordance with the Statement of Financial Accounting Standards ("SFAS")
No. 30, "Accounting for Treasury Stock" and other relevant regulations from
Securities and Futures Commission (SFC), the Company is required to
reclassify its common stock held by subsidiaries from short/long-term
investments to treasury stock. The reclassification is based on the carrying
value recorded by the Company's subsidiaries as of January 1, 2002. The
adoption of SFAS No. 30 resulted in the decrease of long-term investments
and the increase of treasury stock by NT$2,103,921 thousand as of March 31,
2002, and a decrease in net income for the three months ended March 31, 2002
by and NT$30,539 thousand.
- 12 -
4. CASH AND CASH EQUIVALENTS
March 31
-----------------------
2003 2002
----------- -----------
Cash and bank deposits $63,593,271 $57,828,814
Government bonds acquired under repurchase agreements 3,856,118 520,228
----------- -----------
$67,449,389 $58,349,042
=========== ===========
5. INVENTORIES - NET
March 31
------------------------
2003 2002
----------- -----------
Finished goods $ 1,748,237 $ 1,357,142
Work in process 8,636,827 7,977,385
Raw materials 384,315 514,115
Supplies and spare parts 656,082 796,806
----------- -----------
11,425,461 10,645,448
Less - inventory reserve (1,247,418) (927,169)
----------- -----------
$10,178,043 $ 9,718,279
=========== ===========
6. LONG-TERM INVESTMENTS
March 31
-------------------------------------------
2003 2002
--------------------- ---------------------
Carrying % of Carrying % of
Value Ownership Value Ownership
----------- --------- ----------- ---------
Shares of stock
---------------
Equity method:
TSMC International Investment Ltd.
(TSMC International) $21,019,823 100 $18,966,458 100
TSMC Partners Ltd. 3,938,938 100 3,279,489 100
Vanguard International Semiconductor
Corporation (VIS) 3,588,892 28 3,267,236 25
Systems on Silicon Manufacturing Company
Pte Ltd. (SSMC) 2,859,712 32 3,963,031 32
Emerging Alliance Fund LLP (Emerging
Alliance) 933,010 99 741,617 99
Global UniChip Corp. (GUC) 388,177 47 - -
TSMC North America (TSMC - North
America) 201,573 100 - -
TSMC Japan K. K. (TSMC - Japan) 94,062 100 81,394 100
Chi Cherng Investment Ltd. (Chi Cherng) 42,636 36 62,148 25
Hsin Ruey Investment Ltd. (Hsin Ruey) 41,666 36 62,092 25
Taiwan Semiconductor Manufacturing
Company Europe B. V (TSMC - Europe) 10,522 100 10,038 100
Chi Hsin Investment Ltd. (Chi Hsin) - - 23,195 25
----------- -----------
33,119,011 30,456,698
----------- -----------
(Forward)
- 13 -
March 31
--------------------------------------
2003 2002
------------------- ------------------
% of % of
Carrying Owner- Carrying Owner-
Value ship Value ship
----------- ------ ----------- ------
Cost method - common stock:
Publicly traded stock
Amkor Technology $ 280,748 - $ 280,748 -
Monolithic System Tech. 104,289 2 - -
Taiwan Mask Corp. 32,129 2 32,129 2
Non-publicly traded stock
United Technology 193,584 11 193,584 11
Shin-Etsu Handotai Taiwan Company
Ltd. 105,000 7 105,000 7
Hon Tung Venture Capital 83,916 10 150,000 10
W.K. Technology Fund IV 50,000 2 50,000 2
----------- -----------
849,666 811,461
----------- -----------
Funds
Horizon Ventures 195,452 - 125,701 -
Crimson Asia Capital 43,055 - 25,456 -
----------- -----------
238,507 151,157
----------- -----------
Unrealized loss on long-term investments (60,566) -
----------- -----------
$34,146,618 $31,419,316
=========== ===========
Credit balances of long-term investments
Presented as part of receivables offset against
from related parties:
TSMC - North America $ - - $ 83,725 100
=========== ===========
Presented as part of other current liabilities:
Kung Cherng Investment Ltd. (Kung Cherng) $ - - $ 45,316 25
Cherng Huei Investment Ltd. (Cherng Huei) - - 13,278 25
Po Cherng Investment Ltd. (Po Cherng) - - 2,916 25
----------- -----------
$ - $ 61,510
=========== ===========
On January 8, 2003, the Company's investee company, VIS, issued 600,000
thousand shares of common stock at a price of NT$7 per share. In this round of
equity offering, the Company purchased a total of 230,882 thousand shares of
VIS. As a result, its ownership in VIS increased from 25% to 28%.
The Company's investees, Hsin Ruey, Chi Hsin and Kung Cherng were merged on
October 30, 2002, with Hsin Ruey as the surviving company. In addition, The
Company's investees, Chi Cherng, Cherng Huei and Po Cherng were merged on
October 30, 2002 with Chi Cherng as the surviving company. The mergers were
accounted for as a pooling of interest. The Company's ownership is
approximately 36% in Hsin Ruey and approximately 36% in Chi Cherng subsequent
to the merger.
- 14 -
The Company established Ya Xin Technology ("Ya Xin") in November 2002 and
subsequently signed a merger agreement with GUC in December 2002. The merger
was effective on January 4, 2003 and GUC is the surviving company.
The carrying value of the investments accounted for using the equity method and
the related investment gains or losses were determined based on the reviewed
financial statements of the investees in the sameperiods. The investment gains
or losses of the investee companies consisted of the following:
Three Months
Ended March 31
------------------------
2003 2002
----------- -----------
TSMC International ($1,229,388) ($1,026,669)
SSMC (275,997) (366,782)
VIS (207,875) (110,290)
TSMC Partners 185,361 504,982
Others 12,049 52,470
----------- -----------
($1,515,850) ($ 946,289)
=========== ===========
The market values and net asset values of the long-term investments are as
follows:
March 31
-----------------------
2003 2002
----------- -----------
Market value of publicly traded stocks $ 6,204,124 $10,919,296
Equity in the net assets of non-publicly traded stocks 31,980,354 29,666,876
Net asset value of funds 238,507 151,157
7. PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation consisted of the following:
March 31
-------------------------
2003 2002
------------ ------------
Buildings $ 23,790,274 $ 17,824,053
Machinery and equipment 175,906,546 130,976,282
Office equipment 3,148,580 2,551,681
------------ ------------
$202,845,400 $151,352,016
============ ============
- 15 -
Information on the status of the expansion or construction plans of the
Company's manufacturing facilities as of March 31, 2003, is as follows:
Estimated Actual Date
Complete Accumulated of Starting
Construction/Expansion Plan Cost Expenditures Operations
--------------------------- ----------- ------------ -----------
Fab 6 $93,932,000 $87,340,200 March 2000
Fab 12 - Phase 1 80,318,400 57,147,300 March 2002
Fab 14 - Phase 1 30,411,000 13,323,400 -
Interest expenses (before deducting capitalized amounts of NT$2,315 thousand in
2003 and NT$24,068 thousand in 2002) for the three months ended March 31, 2003
and 2002 were NT$502,616 thousand and NT$565,411 thousand, respectively. The
interest rate used for purposes of calculating the capitalized amount was
5.283% for the three months ended March 31, 2003 and 2002.
8. DEFERRED CHARGES - NET
March 31
---------------------
2003 2002
---------- ----------
Technology license fee $6,037,579 $2,525,775
Software and system design costs 3,076,319 2,587,869
Bond issuance costs 42,328 58,884
Technology know-how 36,000 90,000
Others 5,831 26,826
---------- ----------
$9,198,057 $5,289,354
========== ==========
9. BONDS
March 31
-----------------------
2003 2002
----------- -----------
Domestic unsecured bonds:
Issued on March 4, 1998 and paid in March 4, 2003 in one
lump sum payment. 7.71% annual interest was payable
semi-annually $ - $ 4,000,000
Issued on October 21, 1999 and payable on October 21, 2002
and 2004 in two equal payments, 5.67% and 5.95% interest
payable annually, respectively 5,000,000 10,000,000
Issued on December 4 to 15, 2000 and payable in December
2005 and 2007 in two equal payments. 5.25% and 5.36%
interest payable annually, respectively 15,000,000 15,000,000
Issued on January 10 to 24, 2002 and payable in January 2007,
2009 and 2012 in three equal payments, 2.6%, 2.75% and 3%
interest payable annually, respectively 15,000,000 15,000,000
----------- -----------
$35,000,000 $44,000,000
=========== ===========
- 16 -
As of March 31, 2003, future principal payments for the Company's bonds
arrangements are as follows:
Year of Repayment Amount
----------------- -----------
2004 $ 5,000,000
2005 10,500,000
2006 -
2007 7,000,000
2008 and thereafter 12,500,000
-----------
$35,000,000
===========
10. OTHER LONG-TERM PAYABLES
The Company entered into several license arrangements for certain semiconductor
patents. Future payments under the agreements as of March 31, 2003 are as
follows:
Year Amount
---- ----------
2003 $1,157,175
2004 1,226,675
2005 986,900
2006 469,125
2007 486,500
2008 and thereafter 1,112,000
----------
$5,438,375
==========
11. PENSION PLAN
The Company has a pension plan for all regular employees that provides benefits
based on 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 every month to a
Pension Fund (the "Fund"). The Fund is administered by a pension fund
monitoring committee (the "Committee") and deposited in the Committee's name in
the Central Trust of China.
- 17 -
The changes in the Fund and accrued pension cost are summarized as follows:
Three Months Ended
March 31
---------------------
2003 2002
---------- ----------
Pension fund
Balance, beginning of period $ 993,404 $ 804,437
Contribution 55,376 50,121
Interest 20,682 29,606
---------- ----------
Balance, end of period $1,069,462 $ 884,164
========== ==========
Accrued pension cost
Balance, beginning of period $2,210,542 $1,854,853
Accruals 87,244 84,766
---------- ----------
Balance, end of period $2,297,786 $1,939,619
========== ==========
12. INCOME TAX
a. A reconciliation of income tax expense on income before income tax at
the statutory rate and current income tax expense before tax credits is
shown below:
Three Months Ended
March 31
------------------------
2003 2002
----------- -----------
Income tax expense based on "income before income tax"
at statutory rate (25%) ($1,045,068) ($1,754,462)
Tax-exempt income 648,750 793,750
Temporary and permanent differences (298,137) 166,763
----------- -----------
Current income tax expense before tax credits ($ 694,455) ($ 793,949)
=========== ===========
b. Income tax benefit (expense) consist of the following:
Three Months Ended
March 31
-------------------------
2003 2002
----------- ------------
Current income tax expense before tax credits ($ 694,455) ($ 793,949)
Income tax credits 694,455 793,949
Other income tax (2,500) (3,050)
----------- ------------
Income tax paid in current period (2,500) (3,050)
Net change in deferred income tax assets (liabilities)
Investment tax credits 1,192,419 200,409
Temporary differences (457,260) 624,101
Valuation allowance (555,062) (1,251,475)
----------- ------------
Income tax benefit (expense) $ 177,597 ($ 430,015)
=========== ============
- 18 -
c. Deferred income tax assets (liabilities) consist of the following:
March 31
-------------------------
2003 2002
------------ -----------
Current
Investment tax credits $ 5,371,000 $ 2,785,951
============ ===========
Noncurrent:
Investment tax credits $ 22,389,072 $21,471,919
Temporary differences (4,023,101) (1,869,654)
Valuation allowance (10,397,203) (4,293,111)
------------ -----------
$ 7,968,768 $15,309,154
============ ===========
d. Integrated income tax information:
The balances of the imputation credit account (ICA) as of March 31, 2003 and
2002 were NT$98,238 thousand and NT$9,365 thousand, respectively.
The expected and actual creditable ratio for 2002 and 2001was 0.03% and
0.04%, respectively.
The imputation credit allocated to each shareholder shall be based on the
balance in the ICA on the date of the distribution of dividends; thus the
expected creditable ratio for 2002 may be adjusted according to the
difference between the expected and actual imputation credit allowed under
the regulation.
e. As of March 31, 2003 and 2002, the unappropriated retained earnings
generated before December 31, 1997,were NT$0 and NT$4,827 thousand,
respectively.
f. As of March 31, 2003, investment tax credits consisted of the following:
Total Remaining
Creditable Creditable Expiry
Regulation Items Amounts Amounts Year
---------- ------------------------- ----------- ----------- ------
Statute for Upgrading Purchase of machinery and $ 4,767,347 $ 4,072,892 2003
Industries and equipment 8,210,558 8,210,558 2004
3,814,363 3,814,363 2005
3,485,265 3,485,265 2006
25,204 25,204 2007
----------- -----------
$20,302,737 $19,608,282
=========== ===========
Statute for Upgrading Research and development $ 671,545 $ 671,545 2003
Industries expenditures 1,974,321 1,974,321 2004
3,111,472 3,111,472 2005
1,540,000 1,540,000 2006
418,277 418,277 2007
----------- -----------
$ 7,715,615 $ 7,715,615
=========== ===========
(Forward)
- 19 -
Total Remaining
Creditable Creditable Expiry
Regulation Items Amounts Amounts Year
---------- ----------------------------- ---------- ---------- ------
Statute for Upgrading Personnel training $ 16,104 $ 16,104 2003
Industries 43,264 43,264 2004
28,886 28,886 2005
-------- --------
$ 88,254 $ 88,254
======== ========
Statute for Upgrading Reputation setting
Industries $ 318 $ 318 2003
======== ========
Statute for Upgrading Investments in important $ 5,420 $ 5,420 2003
Industries technology based enterprise 201,372 201,372 2004
138,864 138,864 2005
1,947 1,947 2006
-------- --------
$347,603 $347,603
======== ========
g. The sales generated from the following expansion and construction of the
Company's manufacturing plants are exempt from income tax. During the period
specified:
Tax-Exemption
Period
-------------
Expansion of Fab 2 - modules A and B, Fab 3 and Fab 4, and
construction of Fab 5 and Fab 6 2003 to 2006
Construction of Fab 8 - module B 2002 to 2005
h. The tax authorities have examined income tax returns of the Company through
1999. The Company is contesting the assessment by the tax authority for
1992, 1993, 1996, 1997 and 1998.
13. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE
Three Months Ended March 31, 2003
---------------------------------------
Classified as
Classified as Operating
Cost of Sales Expense Total
------------- ------------- -----------
Labor cost
Salary $ 1,573,461 $ 674,624 $ 2,248,085
Health insurance 113,659 56,704 170,363
Pension 94,370 47,156 141,526
Other 34,413 19,524 53,937
Depreciation 13,744,774 573,515 14,318,289
Amortization 451,184 590,674 1,041,858
----------- ---------- -----------
$16,011,861 $1,962,197 $17,974,058
=========== ========== ===========
- 20 -
Three Months Ended March 31, 2002
---------------------------------------
Classified as
Classified as Operating
Cost of Sales Expense Total
------------- ------------- -----------
Labor cost
Salary $ 1,549,587 $ 728,445 $ 2,278,042
Health insurance 88,713 44,062 132,775
Pension 90,245 44,862 135,107
Other 35,190 27,515 62,705
Depreciation 11,515,138 772,138 12,287,276
Amortization 104,940 449,409 554,349
----------- ---------- -----------
$13,383,813 $2,066,441 $15,450,254
=========== ========== ===========
14. SHAREHOLDERS' EQUITY
The Company has 369,019 thousand American Depositary Shares (ADS) issued on
the New York Stock Exchange as of March 31, 2003. The number of common
shares represented by the ADSs is 1,845,097 thousand shares (one ADS
represents five common shares).
Capital surplus can only be used to offset a deficit under the ROC Company
Law. However, the components of capital surplus generated from donations
(donated capital) and the excess of the issue price over the par value of
capital stock (including the stock issued for new capital, mergers, and the
purchase of treasury stock) can be transferred to capital as stock dividends.
The Company's Articles of Incorporation provide that the following shall be
appropriated from annual net income (less any cumulative deficit):
a. 10% legal reserve;
b. Special reserve in accordance with relevant laws or regulations;
c. Remuneration to directors and supervisors and bonus to employees equal
to 0.3% and at least 1% of the remainder, respectively. Individuals
eligible for the employee bonus may include employees of affiliated
companies as approved by the board of directors or a representative of
the board of directors;
d. Dividends to holders of preferred shares equal to a 3.5% annual rate,
based on the period during which the preferred shares have been
outstanding;
e. The appropriation of the remaining balance after the above shall be
decided at the shareholder's meeting.
Dividends are distributed in cash, shares of common stock or a combination
of cash and common stock. Distribution of profits are preferably made in the
form of stock dividend. The total of cash dividends paid in any given year
may not exceed 50% of total dividends distributed.
Any appropriations of net income shall be approved at the shareholders'
meeting in the following year and are recorded in the financial statement in
the year of shareholder approval.
- 21 -
The aforementioned appropriation for legal reserve shall be made until the
reserve is equal to the aggregate par value of the Company's outstanding
capital stock. The reserve can only be used to offset a deficit. When the
reserve balance has reached 50% of the aggregate par value of the outstanding
capital stock of the Company, the reserve can also be distributed as stock
dividend up to half of the reserve balance.
The appropriations from the earnings of 2002 and 2001 were approved in the
board of directors and shareholders' meeting on March 4, 2003 and May 7, 2002,
respectively. The appropriations and dividend per share are as follows:
Dividend Per
Share
Appropriation of Earnings (NT$)
----------------------- -------------
For For
Fiscal Fiscal
For Fiscal For Fiscal Year Year
Year 2002 Year 2001 2002 2001
----------- ----------- ------ ------
Legal reserve $ 2,161,029 $ 1,448,317 $ - $ -
Special reserve 68,945 (349,941) - -
Bonus paid to employees - in stock 1,539,013 1,070,783 - -
Preferred stock dividend - in cash 455,000 455,000 0.35 0.35
Common stock dividend - in stock 14,898,309 16,832,553 0.80 1.00
Remuneration to directors and supervisors -
in cash 58,485 133,848 - -
----------- -----------
$19,180,781 $19,590,560
=========== ===========
The above appropriation of the earnings in fiscal year 2001 is consistent with
the resolution of the meeting of board of directors on March 26, 2002. If the
above employee bonus and remuneration to directors and supervisors were paid in
cash and charged against the income of 2002 and 2001, the basic EPS for the
years ended December 31, 2002 and 2001 would decrease from NT$1.14 to NT$1.05
and NT$0.83 to NT$0.76, respectively. The shares distributed as a bonus to
employees represented 0.83% and 0.64% of the Company's total outstanding common
shares as of December 31, 2002 and 2001, respectively.
The above information associated with the appropriations of bonus to employees
and remuneration to directors and supervisors is available at Market
Observation System website.
A special reserve equivalent to the debit balance of any account shown in the
shareholder's equity section of the balance sheet (except for the recorded cost
of treasury stock held by subsidiaries), shall be made from unappropriated
retained earnings pursuant to existing regulations promulgated by the
Securities and Futures Commission. The special reserve is allowed to be
appropriated to the extent that the debit balance of such accounts is reversed.
Under the Integrated Income Tax System that became effective on January 1,
1998, ROC resident shareholders are allowed a tax credit for the income tax
paid by the Company on earnings generated on or after January 1, 1998. An
Imputation Credit Account (ICA) is maintained by the Company for such income
tax and the tax credit allocated to each shareholder.
- 22 -
On June 25, 2002, the SFC approved the Company's Employee Stock Option Plan
("the Plan"). The Plan provides qualified employees with 100,000 thousand units
of option rights with each unit representing one common share of stock. The
option rights are valid for 10 years and are exercisable at certain percentages
subsequent to the second anniversary of issuance. Under the terms of the Plan,
the option rights are granted at an exercise price equal to the closing price
of the Company's common shares listed on Taiwan Stock Exchange at the date of
grant. Information with respect to stock option rights activities under the
Plan is as follows:
Option Outstanding Option
Rights Rights
Available -------------------
for Number
Grant of Option Exercise
(In Rights (In Price
Thousand) Thousand) (NT$)
--------- ---------- --------
Balance, January 1, 2003 80,631 19,369 51~53
Options granted (318) 318 41.6
Options cancelled 471 (471) 51~53
------ ------
Balance, March 31, 2003 80,784 19,216
====== ======
The Company issued 1,300,000 thousand shares of unlisted Series A - preferred
stock to certain investors on November 29, 2000. The following are the rights
of the preferred shareholders and the related terms and conditions:
Preferred Shareholders
a. Are entitled to receive cumulative cash dividends at an annual rate of 3.5%.
b. Are not entitled to receive any common stock dividends (whether declared out
of unappropriated earnings or capital surplus).
c. Have priority over the holders of common shares to the assets of the Company
available for distribution to shareholders upon liquidation or dissolution.
However, the pre-emptive rights to the assets shall not exceed the issue
value of the shares.
d. Have voting rights similar to that of the holders of common shares.
e. Have no right to convert their shares into common shares. The preferred
shares are to be redeemed within thirty months from the date of issuance.
The preferred shareholders have the aforementioned rights and the Company's
related obligations remain the same until the preferred shares are redeemed
by the Company.
- 23 -
15. TREASURY STOCK (COMMON STOCK)
(Shares in Thousand)
Beginning Ending
Purpose of Purchase Shares Increase Decrease Shares
------------------- --------- -------- -------- ------
Three months ended March 31, 2003
Reclassification of parent company stock held by
subsidiaries from short/long-term investment 42,001 - - 42,001
====== ===== === ======
Three months ended March 31, 2002
Reclassification of parent company stock held by
subsidiaries from short/long-term investment 39,270 - 773 38,497
====== ===== === ======
Proceeds from the sale of treasury stock for the three months ended March 31,
2003 and 2002 were NT$0 and NT$41,139 thousand. As of March 31, 2003 and 2002,
the book value of the treasury stock was NT$1,923,492 thousand and NT$2,103,921
thousand; the market value was NT$1,796,615 thousand and NT$3,727,125 thousand,
respectively. Capital stock held by a subsidiary as an investment is recorded
as treasury stock with the holder having the same right as other common
shareholders.
16. EARNINGS PER SHARE (EPS)
Earnings per share (EPS) is computed as follows:
Amounts (Numerator) EPS (NT$)
---------------------- -------------
Share Before After
Before After (Denominator) Income Income
Income Tax Income Tax (Thousand) Tax Tax
---------- ---------- ------------- ------ ------
Three months ended March 31, 2003
Net income $4,180,270 $4,357,867
Less - preferred stock dividends (113,750) (113,750)
---------- ----------
Basic and diluted earnings per share
Income available to common shareholders $4,066,520 $4,244,117 18,580,886 $0.22 $0.23
========== ========== ========== ===== =====
Three months ended March 31, 2002
Net income $7,017,847 $6,587,832
Less - preferred stock dividends (113,750) (113,750)
---------- ----------
Basic and diluted earnings per share
Income available to common shareholders $6,904,097 $6,474,082 18,580,336 $0.37 $0.35
========== ========== ========== ===== =====
The potential common shares from the employee stock option plan (see Note
14) are not included in the denominator of the diluted earning-per-share
computation because such shares result in a non-dilutive per share amount by
using the treasury stock method under the Statement of Financial Accounting
Standards No. 24, "Earning Per Share". The average number of shares
outstanding for EPS calculation has been adjusted retroactively for issuance
of stock dividends
- 24 -
and stock bonuses. The retroactive adjustment caused the basic EPS before
income tax and after income tax for the three months ended March 31, 2002 to
decrease from NT$0.41 to NT$0.37 and NT$0.39 to NT$0.35, respectively.
17. RELATED PARTY TRANSACTIONS
The Company engages in business transactions with the following related
parities:
a. Industrial Technology Research Institute (ITRI), the Chairman of the
Company is one of its directors
b. Philips Electronics N.V. (Philips), a major shareholder of the Company
c. Subsidiaries
TSMC - North America
TSMC - Europe
TSMC - Japan
d. Investees
VIS
SSMC
GUC
e. Indirect subsidiaries
WaferTech, LLC
TSMC Technology
The transactions with the aforementioned parties in addition to those
disclosed in other notes, are summarized as follows:
Three Months Ended March 31
-----------------------------
2003 2002
-------------- --------------
Amount % Amount %
----------- -- ----------- --
For the period
Sales
TSMC - North America $22,632,645 57 $22,416,684 60
Philips and its affiliates 690,945 2 484,098 1
GUC 137,430 - - -
ITRI 11,130 - 17,456 -
SSMC 873 - 10,108 -
VIS - - 85,422 -
----------- -- ----------- --
$23,473,023 59 $23,013,768 61
=========== == =========== ==
(Forward)
- 25 -
Three Months Ended March 31
--------------------------------
2003 2002
--------------- ----------------
Amount % Amount %
----------- --- ----------- ---
Purchases
WaferTech, LLC $ 1,685,740 7 $ 2,772,633 12
SSMC 1,335,511 6 236,421 1
VIS 919,470 4 513,406 2
----------- --- ----------- ---
$ 3,940,721 17 $ 3,522,460 15
=========== === =========== ===
Rental expense - ITRI $ - - $ 40,401 11
=========== === =========== ===
Manufacturing expenses
Technical assistance fee - Philips $ 758,824 100 $ 681,267 100
=========== === =========== ===
Marketing expenses - commission
TSMC - Japan $ 46,385 16 $ 46,164 29
TSMC - Europe 36,450 13 39,067 25
----------- --- ----------- ---
$ 82,835 29 $ 85,231 54
=========== === =========== ===
Non-operating income and gain
SSMC (mainly technical service income) $ 26,569 9 $ 9,056 2
WaferTech, LLC 409 - 522 -
----------- --- ----------- ---
$ 26,978 9 $ 9,578 2
=========== === =========== ===
At end of the period
Receivables
TSMC - North America $10,492,134 95 $10,712,510 98
Credit balances of long-term investments
(Note 6) - - (83,725) (1)
----------- --- ----------- ---
10,492,134 95 10,628,785 97
Philips and its affiliates 435,739 4 209,148 2
GUC 55,669 1 - -
VIS 47,489 - 48,274 1
SSMC 12,814 - 16,392 -
TSMC Technology 8,036 - 12,258 -
ITRI 4,189 - 17,401 -
WaferTech, LLC - - 25,548 -
----------- --- ----------- ---
$11,056,070 100 $10,957,806 100
=========== === =========== ===
Guarantee deposits - VIS $ 450,666 - $ 713,396 97
=========== === =========== ===
(Forward)
- 26 -
Three Months Ended March 31
-----------------------------
2003 2002
-------------- --------------
Amount % Amount %
---------- --- ---------- ---
Payables
Philips and its affiliates $1,137,937 43 $ 750,811 28
VIS 642,212 25 790,753 30
WaferTech, LLC 443,209 17 960,361 36
SSMC 345,825 13 73,458 3
TSMC - Europe 29,785 1 57,131 2
TSMC - Japan 17,103 1 15,698 -
TSMC Technology 9,647 - 12,345 -
TSMC - North America 6,320 - 15,924 1
---------- --- ---------- ---
$2,632,038 100 $2,676,481 100
========== === ========== ===
Receipts in advance - VIS $ - - $ 47,795 100
========== === ========== ===
Except for TSMC - North America and WaferTech LLC, sales to related parties
are based on normal selling prices and collection terms. The payables to
Wafertech, LLC represent the purchase of finished goods. The purchase prices
of finished goods were determined in accordance with the related contractual
agreements. The selling prices to TSMC - North America are approximately 99%
of the comparable selling prices to third parties and the payment terms are
thirty days from the date of invoice, which is not significantly different
from payment terms with third parties.
18. SIGNIFICANT LONG-TERM OPERATING LEASES
The Company leases land from the Science-Based Industrial Park
Administration where its Fab 2 through Fab 14 manufacturing facilities
reside. These agreements expire on various dates from March 2008 to December
2020 and have annual rent payments aggregating NT$225,576 thousand. The
agreements can be renewed upon their expiration.
Future remaining lease payments are as follows:
Year Amount
---- ----------
April to December 2003 $ 169,181
2004 225,576
2005 225,576
2006 225,576
2007 225,576
2008 201,533
2009 and thereafter 1,540,880
----------
$2,813,898
==========
- 27 -
19. SIGNIFICANT COMMITMENTS AND CONTINGENCIES
The significant commitments and contingencies of the Company as of March 31,
2003 are as follows:
a. Under a Technical Cooperation Agreement with Philips, as amended on May
12, 1997, the Company shall pay technical assistance fees at a
percentage of net sales (as defined in the agreement) of certain
products. The agreement shall remain in force through July 8, 2007 and
may be automatically renewed for successive periods of three years
thereafter. Under the amended agreement, starting from the fifth
anniversary date of the amended agreement, the fees are subject to
reduction by the amounts the Company pays to any third party for
settling any licensing/infringement disputes, provided that the reduced
fee will not be below a certain percentage of the net sales.
b. Subject to certain equity ownership and notification requirements,
Philips and its affiliates can avail themselves each year of up to 30%
of the Company's production capacity.
c. Under a technical cooperation agreement with ITRI, the Company shall
reserve and allocate up to 35% of certain of its production capacity for
use by the Ministry of Economic Affairs (MOEA) or any other party
designated by the MOEA.
d. Under several foundry agreements, the Company shall reserve a portion of
its production capacity for certain major customers who have made
guarantee deposits to the Company. As of March, 31, 2003, the Company
received a total of US$39,667 thousand of guarantee deposits.
e. 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" for the purpose of constructing an integrated
circuit foundry in Singapore, and allow the Company to invest 32% of
SSMC's capital. The Company and Philips committed to buy a specific
percentage of the production capacity of SSMC. If any party defaults on
the commitment and the capacity utilization of SSMC falls below a
specific percentage of its total capacity, the defaulting party is
required to compensate SSMC for all related unavoidable costs.
f. The Company provides technical services to SSMC under a Technical
Cooperation Agreement (the "Agreement") entered into on May 12, 1999.
The Company receives compensation for such services computed at a
specific percentage of net selling prices of certain products sold by
SSMC. The Agreement remains in force for ten years and is automatically
renewed for successive periods of five years unless pre-terminated by
either party under certain conditions.
g. The Company provided guarantees on loans amounting to US$200,000
thousand, US$40,000 thousand and US$440,000 thousand for TSMC
Development, Inc., TSMC - North America and WaferTech, LLC, respectively.
- 28 -
h. Under a Technology Transfer Agreement ("TTA") with National
Semiconductor Corporation ("National") entered into on June 27, 2000,
TSMC shall receive payments for license of certain technology to
National. The agreement will remain in force for ten years and will be
automatically renewed for successive periods of two years thereafter
unless either party gives notice for early termination under certain
conditions. In January 2003, the Company and National entered into a
Termination Agreement whereby the TTA was terminated for convenience.
Under the termination agreement, the Company will be relieved of any
further obligation to transfer any additional technology. In addition,
the Company granted National an option to request additional technology
transfers under the same terms and conditions as the terminated TTA
through January 2008.
i. The Company entered into a Manufacturing Agreement with VIS. VIS agrees
to reserve certain production capacity for the Company to manufacture
certain logic devices or other technologies required by the Company's
customers at selling prices agreed upon by the parties. The Company paid
NT$1,200,000 thousand to VIS as a guarantee deposit. VIS shall return
portions of the guarantee deposit without any interest to the Company
upon reaching certain levels of purchase commitment by the Company. The
contract will remain in force for five years. As of March 31, 2003, the
refundable deposit was NT$450,666 thousand.
j. Starting from 2001, the Company entered into several license
arrangements for certain semiconductor patents. The terms of the
contracts range from five to ten years with payments to be paid in the
form of royalties over the term of the related contracts. The Company
has recorded the related amounts as a liability and a deferred charge to
be amortized to cost of sales on a straight-line basis over the
estimated life of the technology or the term of the contract, whichever
is shorter.
k. Unused letter of credits as of March 31, 2003 were NT$6,480 thousand,
JP(Yen)5,100 thousand, Euro (Euro) 52 thousand and S$85 thousand.
l. As of March 31, 2003, unused credit lines for short-term loans were
NT$7,930,000 thousand and US$327,000 thousand.
20. ADDITIONAL DISCLOSURES
Following are the additional disclosures required by the SFC for TSMC and
investees:
a. Financing provided: Please see Table 1 attached;
b. Endorsement/guarantee provided: Please see Table 2 attached;
c. Marketable securities held: Please see Table 3 attached;
d. Marketable securities acquired and disposed of at costs or prices of at
least NT$100 million or 20% of the paid-in capital: Please see Table 4
attached;
e. Acquisition of individual real estates at costs of at least NT$100
million or 20% of the paid-in capital: Please see Table 5 attached;
f. Disposal of individual real estates at prices of at least NT$100 million
or 20% of the paid-in capital: None;
- 29 -
g. Total purchase from or sale to related parties amounting to at least
NT$100 million or 20% of the paid-in capital: Please see Table 6
attached;
h. Receivables from related parties amounting to at least NT$100 million or
20% of the paid-in capital: Please see Table 7 attached;
i. Names, locations, and related information of investees on which the
Company exercises significant influence: Please see Table 8 attached;
j. Financial instrument transactions:
1) Derivative financial instruments
The Company entered into derivative financial instrument transactions in
the first quarter of 2003 and 2002 to manage exposures related to
foreign-currency denominated receivables or payables, and interest rate
fluctuations. The strategy is to manage its market price risks. Certain
information on these contracts as of March 31, 2003 is as follows:
a) Forward exchange contracts
Contract
Amount
(Nominal
Amount)
Financial Instruments Period (In Thousand) Credit Risk
--------------------- ------------------------------ ------------- -----------
Sell April 3, 2003 to May 30, 2003 US$1,000,000 -
(US$/NT$)
Buy April 11, 2003 to May 12, 2003 EUR24,000 -
(EUR/US$)
April 11, 2003 to May 23, 2003 JPY6,823,385 -
(JPY/US$)
As of March 31, 2003, receivables from forward exchange contracts
(included in the "other financial assets" account) aggregate to
NT$5,283 thousand, and payables from forward exchange contracts
(included in the "other current liabilities" account) aggregate to
NT$79,631 thousand. Net exchange loss for the three months ended
March 31, 2003 was NT$122,925 thousand.
The above forward exchange contracts are entered into for the purpose
of managing currency exposures in the following foreign
currency-denominated net assets:
As of March 31,
Net Assets 2003
---------- ---------------
Accounts receivable US$520,275
Accounts payable JPY8,525,939
Accounts payable EUR36,383
- 30 -
b) Interest rate swaps
The Company entered into interest rate swap contracts to hedge
exposure from rising interest rates on its floating rate long-term
loans. Interest expense on these transactions for the three months
ended March 31, 2003 was NT$71,158 thousand. Outstanding contracts as
of March 31, 2003 were as follows:
Amount Credit
Contract Date Period (In Thousand) Risk
-------------- ------------------------------ ------------- ------
April 28, 1998 May 21, 1998 to May 21, 2003 NT$2,000,000 -
April 29, 1998 May 21, 1998 to May 21, 2003 NT$1,000,000 -
June 26, 1998 June 26, 1998 to June 26, 2003 NT$1,000,000 -
June 26, 1998 July 6, 1998 to July 6, 2003 NT$1,000,000 -
July 1, 1999 July 1, 1999 to June 28, 2004 US$ 8,571 -
c) Option contracts
The Company entered into foreign currency option contracts to hedge
risks of exchange rate fluctuations arising from its anticipated U.S.
dollar cash receipts from its export sales or its European currency
obligations for purchases of machinery and equipment.
Outstanding option contracts as of March 31, 2003 were as follows:
Contract
Amount Credit
Type Contract (In Thousand) Risk Strike Price Maturity
-------- ------------------- ------------- ------ ------------- -----------------------------
European Call option written US$170,000 $- 32.677-33.145 April 3, 2003 - June 25, 2003
(US$/NT$)
For the three months ended March 31, 2003, the Company recognized
premium income of NT$50,273 thousand and premium expense of NT$76,829
thousand.
d) Transaction risk
i) Credit risk. Credit risk represents the positive net settlement
amount of those contracts with positive fair value on the balance
sheet date. The positive net settlement amount represents the
loss incurred by the Company if the counter-parties breached the
contracts. The banks, which are the counter-parties to the
foregoing derivative financial instruments, are reputable
financial institutions. Management believes its exposures related
to the potential default by those counter-parties are low.
ii) Market price risk. All derivative financial instruments are
intended as hedges for fluctuations in currency exchange rates on
the Company's foreign currency denominated receivables or
payables and interest rate fluctuations on its floating rate
long-term loans. Gains or losses from forward exchange contracts
are likely to be offset by gains or losses from the hedged
receivables and payables. Interest rate risks are also controlled
as the expected cost of capital is fixed. Thus, market price
risks are believed to be minimal.
- 31 -
iii) Liquidity and cash flow risk and uncertainty of amount and term
of future cash demand
As of March 31, 2003, the Company's future cash demand for
outstanding forward exchange contracts, interest rate swaps and
option contracts are as follows:
Forward Exchange Contracts
--------------------------
Term Inflow Outflow
---- ------------- ------------
Within one year NT$34,684,658 US$1,084,200
EUR 24,000
JPY 6,823,385
The Company has sufficient operating capital to meet the above
cash demand. The interest rate of the interest rate swaps has
taken the Company's cost of capital into account. In addition,
the exchange rate of forward foreign exchange contracts and
option contracts have been fixed. Therefore, there is no material
fund raising risk and cash flow risk.
2) Fair value of financial instruments:
March 31, 2003 March 31, 2002
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
Non-derivative financial instruments
------------------------------------
Assets
Cash and cash equivalents $67,449,389 $67,449,389 $58,349,042 $58,349,042
Short-term investments - - 2,449,999 2,449,999
Receivables from related parties (excluding
credit balance of long-term investments) 11,056,070 11,056,070 11,041,531 11,041,531
Notes and accounts receivable 9,362,853 9,362,853 10,017,616 10,017,616
Other financial assets 749,584 749,584 894,030 894,030
Long-term investments (including credit
balance of long-term investments) 34,146,618 38,497,568 31,274,081 40,737,329
Refundable deposits 478,385 478,385 735,820 735,820
Liabilities
Payable to related parties 2,632,038 2,632,038 2,676,481 2,676,481
Accounts payable 4,497,685 4,497,685 1,755,303 1,755,303
Payables to contractors and equipment
suppliers 7,738,073 7,738,073 11,392,482 11,392,482
Bonds payable (including current portion) 35,000,000 35,568,192 44,000,000 44,904,845
Other long-term payable (including current
portion) 5,438,375 5,438,375 1,470,000 1,470,000
Guarantee deposits 1,375,672 1,375,672 6,969,569 6,969,569
Derivative financial instruments
--------------------------------
Forward exchange contracts (sell) (65,342) (52,840) 114,777 91,678
Forward exchange contracts (buy) (9,006) (26,791) -- --
Interest rate swaps (11,009) (101,640) (255) 304,620
Option -- (298,144) 3,489 142,004
- 32 -
Fair values of financial instruments were determined as follows:
a) The carrying amounts reported in the balance sheets for cash and cash
equivalents, notes and accounts receivable, other financial assets,
accounts payable, payables to contractors and equipment suppliers are
approximate to their fair values.
b) Fair value of short-term and long-term investments is based on quoted
market prices. If quoted market prices are unavailable, fair value is
based on net worth or book value.
c) Fair value of refundable deposits and guarantee deposits is based on
carrying values.
d) Bonds payable is discounted to present value. Fair value of other
long-term payable is equivalent to its carrying value.
e) Fair value of derivative financial instruments is the estimated net
receivable (positive) or payable (negative) if those contracts are
terminated on the relevant balance sheet date.
The fair values of non-financial instruments were not included in the fair
values disclosed above. Accordingly, the sum of the fair values of the
financial instruments listed above does not represent the fair value of the
Company as a whole.
3) Investment in Mainland China:
The Company filed an investment project with the Investment Commission of
MOEA to establish a foundry in Mainland China. On February 27, 2003, the
authority approved phase one of the foregoing project and permitted direct
investment in establishing TSMC - Shanghai. TSMC - Shanghai has not come
into existence as of April 17, 2003.
- 33 -
TABLE 1
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
FINANCING PROVIDED
For the Three Months Ended March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Maximum
Balance for Ending Reasons
the Period Balance Financing For Short-
Financial (US$ in (US$ in Interest Reasons Transaction term
No. Financing Name Counter-Party Statement Account Thousand) Thousand) Rate (Note 1) Amounts Financing
--- ------------------ --------------- ----------------- ----------- ----------- -------- --------- ----------- ----------
1. TSMC International TSMC Technology Other receivables $529,430 $529,430 4.25% 2 $ - Operating
(US$ 15,235) (US$ 15,235) capital
Financing Financing
Limit for Company's
Allowance Collateral Each Financing Amount
for Bad ---------- Borrowing Limits
No. Debt Item Value Company (US$ in Thousand)
--- --------- ---- ----- --------- -----------------
1. $ - - $ - N/A $34,331,896
(US$987,968)
(Note 2)
Note 1: The No.2 represents that the short-term financing is necessary for the
business.
Note 2: Not exceeding the issued capital of the Company.
- 34 -
TABLE 2
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
ENDORSEMENT/GUARANTEE PROVIDED
For the Three Months Ended March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Value of
Counter-Party Limits on Each Maximum Collateral
------------------------ Counter-party's Balance for the Property,
Nature of Endorsement/ Period Ending Balance Plant and
Endorsement/Guarantee Relationship Guarantee (US$ in (US$ in Equipment
No. Provider Name (Note 2) Amounts Thousand) Thousand) (Note 3)
--- --------------------- ----------- ------------ --------------- --------------- -------------- ----------
0 TSMC TSMC 3 Not exceeding $ 6,950,000 $ 6,950,000 $ -
Development 10% of the (US$ 200,000) (US$ 200,000)
issued capital
of TSMC, and
also limiting
to the issued
capital of the
transaction
entity, unless
otherwise
approved by
board of
directors.
TSMC - 2 1,390,000 1,390,000 -
North (US$ 40,000) (US$ 40,000)
America
WaferTech, 3 15,290,000 15,290,000 -
LLC (US$ 440,000) (US$ 440,000)
Ratio of
Accumulated
Amount of Maximum
Collateral to Net Collateral/Guarantee
Equity of the Latest Amounts Allowable
No. Financial Statement (Note 1)
--- -------------------- --------------------
0 2.32% $59,768,660
0.46%
5.10%
Note 1: 30% of the issued capital of TSMC.
Note 2: The No. 2 represents a subsidiary in which TSMC holds directly over 50%
of the equity interest.
The No. 3 represents an investee in which TSMC holds directly and
indirectly over 50% of the equity interest.
Note 3: Promissory notes for collateral.
- 35 -
TABLE 3
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
MARKETABLE SECURITIES HELD
March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
March 31, 2003
-----------------------------------------------
Market
Value or
Carrying Net Asset
Held Relationship Financial Value Value
Company Marketable Securities Type with the Statement Shares (US$ in Percentage (US$ in
Name and Name Company Account (Thousand) Thousand) of Ownership Thousand) Note
------- -------------------------- ------------ ---------- ---------- ----------- ------------ ----------- ----------------------
TSMC Stock
-----
TSMC - North America Subsidiary Long-term 11,000 $ 201,573 100 $ 949,855 The treasury stocks in
investment amounts of NT$748,282
thousand are deducted
from the carry value.
TSMC - Europe Subsidiary Long-term - 10,522 100 10,522
investment
TSMC - Japan Subsidiary Long-term 6 94,062 100 94,062
investment
VIS Investee Long-term 787,016 3,588,892 28 5,847,527
investment
TSMC International Subsidiary Long-term 987,968 21,019,823 100 21,019,823
investment
TSMC Partners Subsidiary Long-term 300 3,938,938 100 4,120,047 The treasury stocks in
investment amounts of NT$255,692
thousand are deducted
from the carry value.
SSMC Investee Long-term 382 2,859,712 32 2,859,712
investment
Emerging Alliance Subsidiary Long-term - 933,010 99 933,010
investment
GUC Investee Long-term 39,040 388,177 47 430,793
investment
Taiwan Mask Corp. - Long-term 8,794 32,129 2 147,648
investment
United Gas Co., Ltd. - Long-term 16,783 193,584 11 287,615
investment
Shin-Etsu Handotai - Long-term 10,500 105,000 7 139,165
Taiwan Co., Ltd. investment
W.K. Technology Fund - Long-term 5,000 50,000 2 55,895
IV investment
Hon Tung Ventures - Long-term 8,392 83,916 10 76,035
Capital investment
Amkor Technology - Long-term 505 280,748 - 88,070
investment
Monolithic System - Long-term 470 104,289 2 120,879
Tech. investment
Certificate
-----------
Chi Cherng Investment Investee Long-term - 42,636 36 501,921 The treasury stocks in
investment amounts of NT$459,285
thousand are deducted
from the carry value.
Hsin Ruey Investment Investee Long-term - 41,666 36 501,899 The treasury stocks in
investment amounts of NT$460,233
thousand are deducted
from the carry value.
(Forward)
- 36 -
March 31, 2003
----------------------------------------------------
Market Value
or Net Asset
Marketable Relationship Financial Carrying Value Percentage Value
Securities Type with the Statement Shares (US$ in of (US$ in
Held Company Name and Name Company Account (Thousand) Thousand) Ownership Thousand) Note
----------------- --------------- ------------ ---------- ---------- -------------- ---------- -------------- ------------
Equity
Crimson Asia - Long-term N/A $ 43,055 N/A $ 43,055
Capital investment
Horizon - Long-term N/A 195,452 N/A 195,452
Ventures investment
TSMC--North America Stock
TSMC Parent Long-term 12,692 748,282 - 536,883
company investment
Chi Cherng Investment Stock
TSMC Parent Short-term 12,738 459,285 36 538,819
company investment
Certificate
Hsin Ruey Major Long-term - 903,419 64 903,419
Investment shareholder investment
Hsin Ruey Investment Stock
TSMC Parent Short-term 12,762 460,233 36 539,827
company investment
Certificate
Chi Cherng Major Long-term - 903,459 64 903,459
Investment shareholder investment
TSMC International Stock
InveStar Subsidiary Long-term 45,000 US$ 45,618 97 US$ 45,516
investment
InveStar II Subsidiary Long-term 51,300 US$ 41,236 97 US$ 41,236
investment
TSMC Subsidiary Long-term 1 US$ 560,676 100 US$ 560,676
Development. investment
TSMC Subsidiary Long-term 1 ( US$ 7,629 ) 100 ( US$ 7,629 )
Technology investment
3DFX - Long-term 68 - - -
Interactive Inc. investment
Marvell - Short-term 2,555 US$ 2,508 2 US$ 49,088
investment
VIS Stock
VIS Subsidiary Long-term 41,070 1,205,673 100 1,205,673
Associates, Inc. investment
PowerChip Investee Long-term 191,671 1,845,793 7 1,845,793
Semiconductor, investment
Inc.
Etron Investee Long-term 4,859 79,732 2 79,732
Technology, investment
Inc.
Walsin Investee Long-term 34,551 302,559 8 280,604
Technology, investment
Inc.
MEGIC Investee Long-term 16,500 177,000 9 149,894
Corporation investment
FormFactor, Investee Long-term 267 64,360 1 64,360 The amount
Inc. investment is shown in
the carrying
value.
United Investee Long-term 3,357 38,716 2 57,543
Technology investment
Co., Ltd.
Bond fund
Yuan Da Duo - Short-term 65,271 900,000 - 904,040
Li #2 investment
Jihsun - Short-term 46,730 600,000 - 602,911
investment
Fu Hua Short-term 4,015 50,000 - 50,259
investment
Kai Chi Kai Short-term 64,113 650,000 - 653,077
Xuan investment
(Forward)
- 37 -
March 31, 2003
----------------------------------------------
Market Value
Carrying or Net Asset
Relationship Financial Value Percentage Value
Marketable Securities with the Statement Shares (US$ in of (US$ in
Held Company Name Type and Name Company Account (Thousand) Thousand) Ownership Thousand) Note
----------------- --------------------- ------------ ---------- ---------- ----------- ---------- ------------ ----
VIS Associates, Inc. Stock
-----
VIS Investment Subsidiary Long-term 63 US$ 404 10 US$ 404
Holding, Inc. investment
Equity
------
Silicon Valley - Long-term - US$ 7,317 34 US$ 7,569
Equity Fund investment
Silicon Valley - Long-term - US$ 5,355 14 US$ 5,362
Equity Fund II investment
Equity certificate
------------------
ABN AMRO Bank - Long-term 3,648 US$ 781 - US$ 781
investment
Fund
----
Grand Palace Trust - Long-term - US$ 3,040 100 US$ 3,040
investment
VIS Investment Holding, Inc. Stock
-----
VIS Micro, Inc. Subsidiary Long-term 200 US$ 287 100 US$ 287
investment
TSMC Development Stock
-----
WaferTech, LLC Subsidiary Long-term - US$ 308,793 99 US$ 308,793
investment
TSMC Partners ADR
---
TSMC Parent Short-term 762 US$ 5,211 - US$ 5,211
company investment
InveStar Stock
-----
WGRD - Short-term 94 US$ 537 - US$ 537
investment
Programmable - Long-term 1,580 US$ 496 4 US$ 496
Microelectronics, investment
(Taiwan) Inc.
Divio, Inc. - Long-term 30 US$ 3 - US$ 3
investment
Global Testing - Long-term 13,268 US$ 5,177 12 US$ 5,177
Corp. investment
Chipstrate - Long-term 6,660 US$ 301 1 US$ 301
Technologies, Inc. investment
Richtek - Long-term 1,023 US$ 346 1 US$ 346
Technology investment
Holding Corp.
Advanced Power - Long-term 2,750 US$ 1,346 3 US$ 1,346
Electronics, Corp. investment
Capella - Long-term 542 US$ 87 - US$ 87
Microsystems, Inc. investment
Preferred stock
---------------
Integrated - Long-term 1,831 US$ 1,809 - US$ 1,809
Memory Logic, investment
Inc.
Divio, Inc - Long-term 667 US$ 500 - US$ 500
investment
SiRF Technology - Long-term 306 US$ 1,333 - US$ 1,333
Inc. investment
Capella - Long-term 1,383 US$ 221 - US$ 221
Microsystems, Inc. investment
Sensory, Inc. - Long-term 1,404 US$ 625 - US$ 625
investment
LightSpeed - Long-term 2,252 US$ 1,339 - US$ 1,339
Semiconductor investment
Corporation
Tropian, Inc. - Long-term 1,758 US$ 2,334 - US$ 2,334
investment
Sonics, Inc. - Long-term 2,686 US$ 3,530 - US$ 3,530
investment
(Forward)
- 38 -
March 31, 2003
-----------------------------------------
Market
Value or
Carrying Net Asset
Marketable Relationship Financial Value Percentage Value
Securities Type and with the Statement Shares (US$ in of (US$ in
Name Company Account (Thousand) Thousand) Ownership Thousand) Note
Held Company Name ------------------- ------------ ----------- ---------- --------- ---------- --------- ----
Atheros, Inc. - Long-term 1,607 US$ 3,593 - US$ 3,593
investment
NanoAmp - Long-term 541 US$ 853 - US$ 853
Solutions, Inc. investment
Formfactor, Inc. - Long-term 267 US$ 2,000 - US$ 2,000
investment
Monolithic - Long-term 2,521 US$ 2,000 - US$ 2,000
Power Systems, investment
Inc.
Memsic, Inc. - Long-term 2,727 US$ 1,500 - US$ 1,500
investment
Reflectivity, Inc. - Long-term 1,064 US$ 1,192 - US$ 1,192
investment
Signia - Long-term 3,000 US$ 202 - US$ 202
Technologies, investment
Inc.
Match Lab, Inc. - Long-term 1,875 US$ 1,125 - US$ 1,125
investment
HINT - Long-term 1,000 US$ 1,000 - US$ 1,000
Corporation investment
Oridus, Inc. - Long-term 1,500 US$ 300 - US$ 300
(Creosys, Inc.) investment
Incentia Design - Long-term 286 US$ 343 - US$ 343
Systems, Inc. investment
IP Unity - Long-term 1,008 US$ 1,636 - US$ 1,636
investment
InveStar II Stock
-----
WGRD - Short- term 95 US$ 543 - US$ 543
investment
eChannel - Long-term 358 US$ 251 - US$ 251
Option Holding, investment
Inc.
Elcos - Long-term 270 US$ 27 - US$ 27
Microdisplay investment
Technology,
Ltd.
Signia - Long-term 351 US$ 101 - US$ 101
Technologies, investment
Inc.
Procoat - Long-term 3,500 US$ 1,942 4 US$ 1,942
Technology investment
Richtek - Long-term 845 US$ 1,006 2 US$ 1,006
Technology investment
Corporation
Programmable - Long-term 487 US$ 102 - US$ 102
Microelectronics investment
(Taiwan), Inc.
Auden - Long-term 953 US$ 1,117 2 US$ 1,117
Technology investment
MFG Co., Ltd.
GeoVision, Inc. - Long-term 180 US$ 130 - US$ 130
investment
EoNex - Long-term 55 US$ 2,839 - US$ 2,839
Technologies, investment
Inc.
Conwise - Long-term 2,800 US$ 1,929 - US$ 1,929
Technology Co., investment
Ltd.
Yi Yang - Long-term 2,800 US$ 967 - US$ 967
Technology investment
Goyatek - Long-term 1,740 US$ 1,787 - US$ 1,787
Technology, investment
Inc.
TrendChip - Long-term 2,000 US$ 863 - US$ 863
Technologies investment
Corp.
Preferred stock
---------------
- Long-term 2,289 US$ 1,560 - US$ 1,560
Memsic, Inc. investment
- Long-term 4,997 US$ 1,317 - US$ 1,317
Oepic, Inc. investment
NanoAmp - Long-term 250 US$ 1,000 - US$ 1,000
Solutions, Inc. investment
Advanced - Long-term 948 US$ 1,261 - US$ 1,261
Analogic investment
Technology,
Inc.
Monolithic - Long-term 804 US$ 1,946 - US$ 1,946
Power Systems, investment
Inc.
Ralink - Long-term 1,833 US$ 1,500 - US$ 1,500
Technology, investment
Inc.
- Long-term 3,082 US$ 3,082 - US$ 3,082
Sonics, Inc. investment
Newport - Long-term 1,157 US$ 602 - US$ 602
Opticom, Inc. investment
Silicon Data, - Long-term 2,000 US$ 750 - US$ 750
Inc. investment
- Long-term 1,596 US$ 1,500 - US$ 1,500
Reflectivity, Inc. investment
Capella - Long-term 800 US$ 128 - US$ 128
Microsystems, investment
Inc.
(Forward)
- 39 -
March 31, 2003
-------------------------------------------
Market
Value or
Carrying Net Asset
Marketable Relationship Financial Value Percentage Value
Securities Type and with the Statement Shares (US$ in of (US$ in
Name Company Account (Thousand) Thousand) Ownership Thousand) Note
Held Company Name ------------------- ------------ ---------- ---------- ---------- ---------- ---------- ----
Angstron - Long-term 1,567 US$ 750 - US$ 750
Systems, Inc. investment
Tropian, Inc. - Long-term 1,464 US$ 2,000 - US$ 2,000
investment
SiRF - Long-term 20 US$ 131 - US$ 131
Technology investment
Holdings, Inc.
LeadTONE - Long-term 680 US$ 238 - US$ 238
Wireless, Inc. investment
Match Lab, Inc. - Long-term 313 US$ 188 - US$ 188
investment
eBest!, Inc. - Long-term 185 US$ 97 - US$ 97
investment
Kilopass - Long-term 3,887 US$ 2,000 - US$ 2,000
Technologies, investment
Inc.
Elcos - Long-term 2,667 US$ 3,500 - US$ 3,500
Microdisplay investment
Technology,
Ltd.
Fang Tek, Inc. Long-term 5,556 US$ 2,000 - US$ 2,000
investment
Bond
----
eBest!, Inc. - Long-term - US$ 24 - US$ 24
investment
Emerging Alliance Stock
-----
Global Investee Long-term 10,000 100,000 6 100,000
Investment investment
Holding, Inc.
Preferred stock
---------------
Quake - Long-term 467 US$ 1,000 1 US$ 1,000
Technologies, investment
Inc.
Pixim, Inc. - Long-term 833 US$ 2,500 3 US$ 2,500
investment
Newport - Long-term 962 US$ 1,000 6 US$ 1,000
Opticom, Inc. investment
NetLogic - Long-term 602 US$ 1,850 1 US$ 2,932
Microsystems, investment
Inc.
Ikanos - Long-term 5,116 US$ 2,572 3 US$ 2,572
Communication, investment
Inc.
Quicksilver - Long-term 902 US$ 2,338 4 US$ 2,338
Technology, Inc. investment
Litchfield - Long-term 3,799 US$ 1,000 6 US$ 1,000
Communications investment
Mosaic Systems - Long-term 2,481 US$ 500 6 US$ 500
investment
Accelerant - Long-term 441 US$ 1,000 1 US$ 1,000
Networks investment
Zenesis - Long-term 861 US$ 500 4 US$ 500
Technologies investment
Reflectivity, Inc. - Long-term 1,596 US$ 1,500 5 US$ 1,500
investment
Iridigm Display - Long-term 254 US$ 502 2 US$ 502
investment
XHP - Long-term 2,280 US$ 750 6 US$ 750
Microsystem investment
Axiom - Long-term 1,000 US$ 1,000 5 US$ 1,000
Microdevices, investment
Inc.
- 40 -
TABLE 4
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
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 Three Months Ended March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Marketable Beginning Balance Acquisition
Securities Financial --------------------- -----------
Type and Statement Nature of Shares Shares
Company Name Name Account Counter-Party Relationship (Thousand) Amount (Thousand)
------------ ---------- ---------- ------------- ------------ ---------- ---------- -----------
TSMC Stock
-----
Emerging Long-term Emerging Subsidiary - $ 767,239 -
Alliance investment Alliance
VIS Long-term VIS Investee 677,471 3,264,657 109,545
investment
VIS Bond fund
---------
Kai Chi Short-term - - - - 64,113
Kai Xuan investment
NITC Short-term - - - - 3,225
investment
Ta-Hua Short-term - - - - 40,946
investment
Jihsun Short-term - - - - 46,730
investment
Yuan Da Short-term - - - - 65,271
Duo Li #2 investment
Disposal Ending Balance
------------------------------------- ---------------------
Gain
(Loss)
Shares Carrying on Shares Amount
Company Name (Thousand) Amount Value Disposal (Thousand) (Note 1)
------------ ---------- -------- -------- -------- ---------- ----------
TSMC
- $ - $ - $ - - $ 933,010
- - - - 787,016 3,588,892
VIS
- - - - - -
3,225 500,164 500,000 164 - -
40,946 500,586 500,000 586 - -
- - - - 46,730 600,000
- - - - 65,271 900,000
Note 1: The ending balance included the recognition of the investment income
(loss) by the equity method, the cumulative translation adjustments and
unrealized loss on long-term investments recognized in proportion of
ownership percentage in subsidiaries.
- 41 -
TABLE 5
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND SUBSIDIARIES
ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION OR
20% OF THE PAID-IN CAPITAL
For the Three Months Ended March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Prior Transaction of Related Counter-party
Company Types of Transaction Transaction Payment Nature of ------------------------------------------
Name Property Date Amount Term Counter-party Relationship Owner Relationship Transfer Date Amount
------- -------- ----------- ----------- ------------ ------------- ------------ ----- ------------ ------------- ------
TSMC Fab 14 January 20, $180,665 By the United - N/A N/A N/A N/A
2003 construction Integrated
progress Services
Company Purpose of
Name Price Reference Acquisition Other Terms
------- --------------- ------------- -----------
TSMC Public Manufacturing None
bidding purpose
- 42 -
TABLE 6
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100
MILLION OR 20% OF THE PAID-IN CAPITAL
For the Three Months Ended March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Abnormal Note/Accounts Payable or
Transaction Details Transaction Receivable
------------------------------------------------- -------------- ------------------------
Company Nature of % to Unit Payment % to
Name Related Party Relationship Purchase/Sale Amount Total Payment Terms Price Terms Ending Balance Total
------- -------------- ------------ ------------- ----------- ----- ----------------- ------ ------- -------------- -----
TSMC TSMC - Subsidiary Sales $22,632,645 57 Net 30 days Note 1 Note 1 $10,492,134 96
North from invoice date
America
Philips and Major Sales 690,945 2 Net 30 days from None None 435,739 4
its affiliates shareholder invoice date
GUC Investee Sales 137,430 - Net 30 days from None None 55,669 1
invoice date
WaferTech, Subsidiary Purchases 1,685,740 6 Net 30 days from Note 1 Note 1 (443,209) 17
LLC monthly closing
date
SSMC Investee Purchases 1,335,511 5 Net 30 days from None None (345,825) 13
invoice date
VIS Investee Purchases 919,470 3 Net 30 days from None None (642,212) 25
monthly closing
date
Company
Name Note
------- ----
TSMC
Note 1: Please refer to footnote 17 in the financial statements.
- 43 -
TABLE 7
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF
THE PAID-IN CAPITAL
March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Overdue Amounts
---------------------- Received in Allowance
Company Nature of Ending Turnover Action Subsequent for Bad
Name Related Party Relationship Balance Rate Amount Taken Period Debts
------- -------------------------- ------------ ----------- -------- ---------- ----------- ----------- ---------
TSMC TSMC - North America Subsidiary $10,492,134 41 days $2,618,690 Accelerate $1,688,033 $ -
demand on
account
receivables
Philips and its affiliates Major 435,739 52 days 113,368 Accelerate 9,035 -
shareholder demand on
account
receivables
- 44 -
TABLE 8
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY
EXERCISES SIGNIFICANT INFLUENCE
March 31, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Original Investment Amount Balance as of March 31, 2003
------------------------- ---------------------------------
Percentage Carrying
Investee Main Businesses March March Shares of Value
Investor Company Company Location and Products 31,2003 31,2002 (Thousand) Ownership (Note 1)
---------------- ------------- ----------- --------------- ----------- ----------- ---------- ---------- -----------
TSMC TSMC-North San Jose, Marketing and $ 333,178 $ 333,178 11,000 100 $ 201,573
America California, engineering
U.S.A. support
TSMC-Europe Amsterdam, Marketing and 2,960 2,960 - 100 10,522
The engineering
Netherlands support
TSMC-Japan Yokohama, Marketing and 83,760 83,760 6 100 94,062
Japan engineering
support
VIS Hsin-Chu, IC design and 8,119,816 6,503,640 787,016 28 3,588,892
Taiwan manufacturing
TSMC Tortola, Investment 31,445,780 31,445,780 987,968 100 21,019,823
International British
Virgin
Islands
Chi Cherng Taipei, Investment 300,000 300,000 - 36 42,636
Investment Taiwan
Hsin Ruey Taipei, Investment 300,000 300,000 - 36 41,666
Investment Taiwan
TSMC Tortola, Investment 10,350 10,350 300 100 3,938,938
Partners British
Virgin
Islands
SSMC Singapore Manufacturing 6,408,190 6,408,190 382 32 2,859,712
wafer
Emerging Cayman Investment 1,005,660 1,005,660 - 99 933,010
Alliance Islands
GUC Hsin-Chu, IC research, 409,920 341,250 39,040 47 388,177
Taiwan development, (Note 3)
manufacturing,
testing and
marketing
Net Income Investment
(Loss) of the Gain (Loss)
Investor Company Investee (Note 2) Note
---------------- ------------- ----------- ----------
TSMC $ 27,956 $ 27,956 Subsidiary
15 15 Subsidiary
2,229 2,229 Subsidiary
(739,565) (207,875) Investee
(1,229,388) (1,229,388) Subsidiary
290 742 Investee
277 1,851 Investee
179,804 185,361 Subsidiary
(862,491) (275,997) Investee
(7,948) (7,908) Subsidiary
(31,818) (12,836) Investee
Note 1: The treasury stock is deducted from the carrying value.
Note 2: The unrealized losses from the stocks held by subsidiaries are excluded.
Note 3: TSMC's investee, Ya Xin, merged with GUC in January 2002. GUC is the
surviving company.
- 45 -