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 March 2012

 

 

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

 

 

No. 8, Li-Hsin Rd. 6,

Hsinchu Science Park,

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:             .)

 

 

 

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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: March 8, 2012		By		/s/ Lora Ho
				Lora Ho
				Senior Vice President & Chief Financial Officer

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Taiwan Semiconductor Manufacturing

Company Limited

Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2011 and 2010, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the year ended December 31, 2011 and 2010 on which we have issued an unqualified opinion.

February 14, 2012

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

 

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Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS

DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Par Value)

 

		2011								2010
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	85,262,521				11			$	109,511,130				15
Financial assets at fair value through profit or loss (Notes 2, 5
and 24)			14,925				—				—				—
Available-for-sale financial assets (Notes 2, 6 and 24)			2,617,134				—				3,918,274				—
Held-to-maturity financial assets (Notes 2, 7 and 24)			701,136				—				4,796,589				1
Receivables from related parties (Notes 3 and 25)			24,777,534				3				25,733,974				4
Notes and accounts receivable (Note 3)			19,894,386				3				22,250,905				3
Allowance for doubtful receivables (Notes 2, 3 and 8)			(485,120	)			—				(488,000	)			—
Allowance for sales returns and others (Notes 2 and 8)			(4,887,879	)			—				(7,341,444	)			(1	)
Other receivables from related parties (Notes 3 and 25)			188,028				—				1,302,281				—
Other financial assets (Note 26)			122,010				—				418,206				—
Inventories (Notes 2 and 9)			22,853,397				3				25,646,348				4
Deferred income tax assets (Notes 2 and 18)			5,779,544				1				5,133,775				1
Prepaid expenses and other current assets			1,725,736				—				1,352,244				—
Total current assets			158,563,352				21				192,234,282				27
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 24)
Investments accounted for using equity method			128,200,718				17				114,977,174				17
Available-for-sale financial assets			—				—				1,033,049				—
Held-to-maturity financial assets			702,291				—				1,405,698				—
Financial assets carried at cost			497,835				—				497,835				—
Total long-term investments			129,400,844				17				117,913,756				17
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 25)
Cost
Buildings			149,495,478				20				128,646,942				18
Machinery and equipment			984,978,666				129				852,733,592				122
Office equipment			13,824,434				2				11,730,537				2
			1,148,298,578				151				993,111,071				142
Accumulated depreciation			(804,740,797	)			(106	)			(706,605,445	)			(101	)
Advance payments and construction in progress			110,815,752				14				80,348,673				11
Net property, plant and equipment			454,373,533				59				366,854,299				52
INTANGIBLE ASSETS
Goodwill (Note 2)			1,567,756				—				1,567,756				—
Deferred charges, net (Notes 2 and 13)			4,719,244				1				5,456,427				1
Total intangible assets			6,287,000				1				7,024,183				1
OTHER ASSETS
Deferred income tax assets (Notes 2 and 18)			7,221,824				1				7,154,266				1
Refundable deposits			4,491,735				1				8,638,749				2
Others (Notes 2 and 25)			1,069,586				—				1,420,131				—
Total other assets			12,783,145				2				17,213,146				3
TOTAL		$	761,407,874				100			$	701,239,666				100

 

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		2011								2010
		Amount				%				Amount				%
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note 14)		$	25,926,528				3			$	30,908,637				4
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 24)			—				—				7,834				—
Accounts payable			9,522,688				1				10,559,283				2
Payables to related parties (Note 25)			2,992,582				—				2,574,450				—
Income tax payable (Notes 2 and 18)			10,647,797				1				7,108,869				1
Accrued profit sharing to employees and bonus to directors (Notes 2 and 20)			9,055,704				1				10,959,469				2
Payables to contractors and equipment suppliers			33,811,970				5				41,992,198				6
Accrued expenses and other current liabilities (Notes 16, 24 and 25)			13,057,161				2				13,911,520				2
Current portion of bonds payable (Notes 15 and 24)			4,500,000				1				—				—
Total current liabilities			109,514,430				14				118,022,260				17
LONG-TERM LIABILITIES
Bonds payable (Notes 15 and 24)			18,000,000				2				4,500,000				—
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 17)			3,860,898				1				3,824,601				1
Guarantee deposits (Note 28)			439,032				—				747,887				—
Total other liabilities			4,299,930				1				4,572,488				1
Total liabilities			131,814,360				17				127,094,748				18
CAPITAL STOCK - NT$10 PAR VALUE (Note 20)
Authorized: 28,050,000 thousand shares
Issued: 25,916,222 thousand shares in 2011    25,910,078 thousand shares in 2010			259,162,226				34				259,100,787				37
CAPITAL SURPLUS (Notes 2 and 20)			55,846,357				8				55,698,434				8
RETAINED EARNINGS (Note 20)
Appropriated as legal capital reserve			102,399,995				13				86,239,494				12
Appropriated as special capital reserve			6,433,874				1				1,313,047				—
Unappropriated earnings			213,357,286				28				178,227,030				26
			322,191,155				42				265,779,571				38
OTHERS (Notes 2, 22 and 24)
Cumulative translation adjustments			(6,433,369	)			(1	)			(6,543,163	)			(1	)
Unrealized gain (loss) on financial instruments			(1,172,855	)			—				109,289				—
			(7,606,224	)			(1	)			(6,433,874	)			(1	)
Total shareholders’ equity			629,593,514				83				574,144,918				82
TOTAL		$	761,407,874				100			$	701,239,666				100

The accompanying notes are an integral part of the financial statements.

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

		2011								2010
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 25)		$	421,472,087							$	418,666,448
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			3,226,594								11,703,136
NET SALES			418,245,493				100				406,963,312				100
COST OF SALES (Notes 9, 19 and 25)			233,083,068				56				209,921,268				52
GROSS PROFIT BEFORE AFFILIATES ELIMINATION			185,162,425				44				197,042,044				48
REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2)			398,440				—				(52,742	)			—
GROSS PROFIT			185,560,865				44				196,989,302				48
OPERATING EXPENSES (Notes 19 and 25)
Research and development			31,594,034				7				27,623,299				7
General and administrative			12,715,339				3				11,681,756				3
Marketing			2,345,729				1				2,837,739				—
Total operating expenses			46,655,102				11				42,142,794				10
INCOME FROM OPERATIONS			138,905,763				33				154,846,508				38
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)			3,778,083				1				7,111,443				2
Settlement income (Note 28)			947,340				1				6,939,764				2
Valuation gain on financial instruments, net (Notes 2, 5 and 24)			801,195				—				312,862				—
Interest income			697,196				—				764,027				—
Technical service income (Note 25)			408,153				—				446,746				—
Others (Notes 2 and 25)			655,079				—				333,126				—
Total non-operating income and gains			7,287,046				2				15,907,968				4

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

		2011								2010
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Foreign exchange loss, net (Note 2)		$	673,085				—			$	58,737				—
Interest expense (Note 25)			445,887				—				214,641				—
Loss on disposal of property, plant and equipment (Note 2)			202,901				—				838,750				—
Casualty loss (Note 9)			—				—				190,992				—
Others			163,092				—				161,152				—
Total non-operating expenses and losses			1,484,965				—				1,464,272				—
INCOME BEFORE INCOME TAX			144,707,844				35				169,290,204				42
INCOME TAX EXPENSE (Notes 2 and 18)			10,506,565				3				7,685,195				2
NET INCOME		$	134,201,279				32			$	161,605,009				40

 

		2011								2010
		Before Income Tax				After Income Tax				Before Income Tax				After Income Tax
EARNINGS PER SHARE (NT$, Note 23)
Basic earnings per share		$	5.58			$	5.18			$	6.53			$	6.24
Diluted earnings per share		$	5.58			$	5.18			$	6.53			$	6.23
The accompanying notes are an integral part of the financial statements.											(Concluded)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

 

		Capital Stock - Common Stock								Capital Surplus				Retained Earnings																Others												Total Shareholders’ Equity
																														Cumulative Translation Adjustments				Unrealized Gain (Loss) on Financial Instruments				Treasury Stock
		Shares (In Thousands)				Amount								Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total
BALANCE, JANUARY 1, 2010			25,902,706			$	259,027,066			$	55,486,010			$	77,317,710			$	—			$	104,564,972			$	181,882,682			$	(1,766,667	)		$	453,621			$	—			$	495,082,712
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				8,921,784				—				(8,921,784	)			—				—				—				—				—
Special capital reserve			—				—				—				—				1,313,047				(1,313,047	)			—				—				—				—				—
Cash dividends to shareholders—NT$3.00 per share			—				—				—				—				—				(77,708,120	)			(77,708,120	)			—				—				—				(77,708,120	)
Net income in 2010			—				—				—				—				—				161,605,009				161,605,009				—				—				—				161,605,009
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				(17,885	)			—				—				—				—				—				—				—				(17,885	)
Translation adjustments			—				—				—				—				—				—				—				(4,776,496	)			—				—				(4,776,496	)
Issuance of stock from exercising employee stock options			7,372				73,721				171,103				—				—				—				—				—				—				—				244,824
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				(441,978	)			—				(441,978	)
Net change in shareholders’ equity from equity method investees			—				—				59,206				—				—				—				—				—				97,646				—				156,852
BALANCE, DECEMBER 31, 2010			25,910,078				259,100,787				55,698,434				86,239,494				1,313,047				178,227,030				265,779,571				(6,543,163	)			109,289				—				574,144,918
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				16,160,501				—				(16,160,501	)			—				—				—				—				—
Special capital reserve			—				—				—				—				5,120,827				(5,120,827	)			—				—				—				—				—
Cash dividends to shareholders-NT$3.00 per share			—				—				—				—				—				(77,730,236	)			(77,730,236	)			—				—				—				(77,730,236	)
Net income in 2011			—				—				—				—				—				134,201,279				134,201,279				—				—				—				134,201,279
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				59,898				—				—				—				—				—				—				—				59,898
Translation adjustments			—				—				—				—				—				—				—				(112,326	)			—				—				(112,326	)
Issuance of stock from exercising employee stock options			7,144				71,439				146,258				—				—				—				—				—				—				—				217,697
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				(1,112,995	)			—				(1,112,995	)
Net change in shareholders’ equity from equity method investees			—				—				—				—				—				—				—				—				(165,851	)			—				(165,851	)
Acquisition of treasury stock-shareholders executed the appraisal right			—				—				—				—				—				—				—				—				—				(71,598	)			(71,598	)
Retirement of treasury stock			(1,000	)			(10,000	)			(2,139	)			—				—				(59,459	)			(59,459	)			—				—				71,598				—
Effect of spin-off			—				—				(56,094	)			—				—				—				—				222,120				(3,298	)			—				162,728
BALANCE, DECEMBER 31, 2011			25,916,222			$	259,162,226			$	55,846,357			$	102,399,995			$	6,433,874			$	213,357,286			$	322,191,155			$	(6,433,369	)		$	(1,172,855	)		$	—			$	629,593,514

The accompanying notes are an integral part of the financial statements.

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	134,201,279			$	161,605,009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			102,925,423				83,366,121
Unrealized (realized) gross profit from affiliates			(398,440	)			52,742
Amortization of premium/discount of financial assets			9,860				18,611
Gain on disposal of available-for-sale financial assets, net			(35,151	)			—
Loss on disposal of financial assets carried at cost			—				1,263
Equity in earnings of equity method investees, net			(3,778,083	)			(7,111,443	)
Cash dividends received from equity method investees			2,941,548				422,490
Loss on disposal of property, plant and equipment and other assets, net			99,884				761,298
Settlement income from receiving equity securities			—				(4,434,364	)
Deferred income tax			(493,026	)			(373,253	)
Changes in operating assets and liabilities:
Financial assets and liabilities at fair value through profit or loss			(22,759	)			189,577
Receivables from related parties			956,440				(3,192,201	)
Notes and accounts receivable			2,356,519				(2,366,385	)
Allowance for doubtful receivables			(2,880	)			57,000
Allowance for sales returns and others			(2,453,565	)			(1,242,188	)
Other receivables from related parties			(38,049	)			85,830
Other financial assets			138,196				904,157
Inventories			2,775,646				(6,816,132	)
Prepaid expenses and other current assets			(382,852	)			(445,797	)
Accounts payable			(1,805,422	)			624,608
Payables to related parties			418,132				535,108
Income tax payable			3,538,928				(1,652,251	)
Accrued profit sharing to employees and bonus to directors			(1,903,765	)			4,188,131
Accrued expenses and other current liabilities			(410,047	)			(3,124,307	)
Accrued pension cost			96,880				17,425
Deferred credits			—				(47,873	)
Net cash provided by operating activities			238,734,696				222,023,176
CASH FLOWS FROM INVESTING ACTIVITIES
Cash contributed related to spin-off			(1,270,340	)			—
Acquisitions of:
Property, plant and equipment			(202,757,541	)			(182,335,032	)
Investments accounted for using equity method			(7,390,883	)			(8,262,519	)
Financial assets carried at cost			—				(480	)

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	1,035,151			$	—
Held-to-maturity financial assets			4,789,000				15,943,000
Financial assets carried at cost			—				3,370
Property, plant and equipment and other assets			4,650,078				387,735
Proceeds from return of capital by investees			320,013				—
Increase in deferred charges			(1,658,296	)			(1,538,301	)
Decrease (increase) in refundable deposits			4,147,014				(5,940,633	)
Decrease (increase) in other assets			27,600				(1,004,581	)
Net cash used in investing activities			(198,108,204	)			(182,747,441	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			(4,982,109	)			30,908,637
Proceeds from issuance of bonds			18,000,000				—
Decrease in guarantee deposits			(308,855	)			(253,489	)
Proceeds from exercise of employee stock options			217,697				244,824
Acquisition of treasury stock			(71,598	)			—
Cash dividends			(77,730,236	)			(77,708,120	)
Net cash used in financing activities			(64,875,101	)			(46,808,148	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(24,248,609	)			(7,532,413	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			109,511,130				117,043,543
CASH AND CASH EQUIVALENTS, END OF YEAR		$	85,262,521			$	109,511,130
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	369,085			$	200,892
Income tax paid		$	7,454,386			$	9,640,396
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	195,932,728			$	195,950,918
Decrease (increase) in payables to contractors and equipment suppliers			6,827,106				(13,491,140	)
Nonmonetary exchange trade-out price			(2,293	)			(124,746	)
Cash paid		$	202,757,541			$	182,335,032
Disposal of property, plant and equipment and other assets		$	3,370,165			$	1,872,880
Decrease (increase) in other receivables from related parties			1,124,206				(1,142,108	)
Decrease (increase) in other financial assets			158,000				(218,291	)
Nonmonetary exchange trade-out price			(2,293	)			(124,746	)
Cash received		$	4,650,078			$	387,735

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
NON-CASH FINANCING ACTIVITIES
Current portion of bonds payable		$	4,500,000			$	—
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	—			$	718,637

SUPPLEMENTAL INFORMATION FOR SPIN-OFF BUSINESSES

In August 2011, the Company transferred the solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively. The relevant information about spin-off was as follows:

 

		TSMC SSL				TSMC Solar				Total
Acquired investments accounted for using equity method		$	2,270,000			$	11,180,000			$	13,450,000
Non-cash items transferred
Current assets			36,050				18,807				54,857
Long-term investments			2,872				7,912,710				7,915,582
Property, plant and equipment			1,929,563				2,372,214				4,301,777
Other assets			234,696				201,677				436,373
Current liabilities			(292,728	)			(337,439	)			(630,167	)
Other liabilities			(36,272	)			(25,218	)			(61,490	)
Capital surplus			—				(56,094	)			(56,094	)
Unrealized gain (loss) on financial instruments			—				(3,298	)			(3,298	)
Cumulative translation adjustments			256				221,864				222,120
			(1,874,437	)			(10,305,223	)			(12,179,660	)
Cash contributed related to spin-off		$	395,563			$	874,777			$	1,270,340

The accompanying notes are an integral part of the financial statements.						(Concluded)

 

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Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, respectively.

On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).

As of December 31, 2011 and 2010, the Company had 30,113 and 29,929 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.

Significant accounting policies are summarized as follows:

Foreign-currency Transactions

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

Use of Estimates

The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

 

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Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Cash Equivalents

Repurchase agreements collateralized by government bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

The fair value of overseas publicly traded stock is determined using the closing prices at the end of the year. The fair value of debt securities is determined using the average of bid and asked prices at the end of the year.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

 

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If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses—general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

 

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Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are deferred until they are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment and Assets Leased to Others

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: buildings - 10 to 20 years; machinery and equipment - 5 years; and office equipment - 3 to 5 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal.

 

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Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees - the estimated life of the technology or the term of the technology transfer contract; software and system design costs - 3 years; patent and others - the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.

 

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Treasury Stock

Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus -treasury stock transactions and to retained earnings for any remaining amount. When the Company resells the treasury stock, the treasury stock shall be reversed, and if the selling price is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital - treasury stock.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectable within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

Spin-off

In accordance with the Company’s organization realignment, the Company contributed net assets, including cash, to the newly formed subsidiaries in exchange for all of the shares of those subsidiaries. The net assets transferred are reflected at their net book value without recognizing any gain or loss.

 

3.	ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the year ended December 31, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting.” The Company conformed to the disclosure requirements as of and for the year ended December 31, 2011. The information for the year ended December 31, 2010 has been recast to reflect the new segment reporting requirement.

 

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4.	CASH AND CASH EQUIVALENTS

 

		December 31
		2011				2010
Cash and deposits in banks		$	81,467,607			$	108,735,942
Repurchase agreements collateralized by government bonds			3,794,914				775,188
		$	85,262,521			$	109,511,130

 

5.	FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

		December 31
		2011				2010
Trading financial assets
Forward exchange contracts		$	14,925			$	—
Trading financial liabilities
Forward exchange contracts		$	—			$	7,834

The Company entered into derivative contracts during the years ended December 31, 2011 and 2010 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date		Contract Amount (In Thousands)
December 31, 2011
Sell EUR/Buy NT$		January 2012		EUR38,600 /NT$1,528,206
December 31, 2010
Sell NT$/Buy JPY		January 2011 to February 2011		NT$814,882/ JPY2,278,420

Net gains on derivative financial instruments for the years ended December 31, 2011 and 2010 were NT$801,195 thousand and NT$312,862 thousand, respectively.

 

6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		December 31
		2011				2010
Overseas publicly traded stock		$	2,617,134			$	3,918,274
Corporate bonds			—				1,033,049
			2,617,134				4,951,323
Current portion			(2,617,134	)			(3,918,274	)
		$	—			$	1,033,049

 

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7.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		December 31
		2011				2010
Corporate bonds		$	1,403,427			$	6,202,287
Current portion			(701,136	)			(4,796,589	)
		$	702,291			$	1,405,698

 

8.	ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	488,000			$	431,000
Provision			—				59,268
Write-off			(2,880	)			(2,268	)
Balance, end of year		$	485,120			$	488,000

Movements of the allowance for sales returns and others were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	7,341,444			$	8,583,632
Provision			3,226,594				11,703,136
Write-off			(5,680,159	)			(12,945,324	)
Balance, end of year		$	4,887,879			$	7,341,444

 

9.	INVENTORIES

 

		December 31
		2011				2010
Finished goods		$	3,250,637			$	4,623,812
Work in process			16,971,209				18,128,677
Raw materials			1,593,393				1,681,525
Supplies and spare parts			1,038,158				1,212,334
		$	22,853,397			$	25,646,348

The reserve for inventory write-downs in the amount of NT$74,861 thousand was reversed in the cost of sales for the year ended December 31, 2011 when the related inventory items were scrapped or sold. Write-down of inventories to net realizable value in the amount of NT$792,951 thousand was included in the cost of sales for the year ended December 31, 2010. Inventory losses related to earthquake in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the year ended December 31, 2010.

 

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10.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

		December 31
		2011								2010
		Carrying Amount				% of Owner- ship				Carrying Amount				% of Owner- ship
TSMC Global Ltd. (TSMC Global)		$	44,071,845				100			$	43,710,543				100
TSMC Partners, Ltd. (TSMC Partners)			34,986,964				100				33,565,775				100
TSMC China Company Limited (TSMC China)			13,542,181				100				4,252,270				100
TSMC Solar			10,153,244				100				—				—
Vanguard International Semiconductor Corporation (VIS)			8,988,007				39				9,422,452				38
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			6,289,429				39				7,120,714				39
TSMC North America			2,981,639				100				2,873,888				100
TSMC SSL			1,746,893				100				—				—
Xintec Inc. (Xintec)			1,606,694				40				1,645,201				41
VentureTech Alliance Fund III, L.P. (VTAF III)			1,311,044				53				2,769,423				99
Global UniChip Corporation (GUC)			1,157,188				35				1,113,516				35
VentureTech Alliance Fund II, L.P. (VTAF II)			762,135				98				1,063,057				98
Emerging Alliance Fund, L.P. (Emerging Alliance)			213,235				99				304,310				99
TSMC Europe B.V. (TSMC Europe)			205,171				100				177,784				100
TSMC Japan Limited (TSMC Japan)			161,601				100				150,312				100
TSMC Korea Limited (TSMC Korea)			23,448				100				20,929				100
Motech Industries Inc. (Motech)			—				—				6,733,369				20
TSMC Solar North America, Inc. (TSMC Solar NA)			—				—				26,527				100
TSMC Solar Europe B.V. (TSMC Solar Europe)			—				—				23,971				100
TSMC Lighting North America, Inc. (TSMC Lighting NA)			—				—				3,133				100
		$	128,200,718							$	114,977,174

In the second half year of 2011, the Company continually increased its investment in TSMC China for the amount of NT$6,759,300 thousand, and the Company has received the approval from the Investment Commission of Ministry of Economic Affairs.

For the renewable energy and efficiency related businesses development, the Company established wholly-owned subsidiaries, TSMC Solar NA, TSMC Solar Europe and TSMC Lighting NA, in the third quarter of 2010. In addition, to foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011. Furthermore, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar. As of August 1, 2011, the net book values of the Company’s certain assets, liabilities and shareholders’ equity, including cash, contributed to TSMC SSL and TSMC Solar in exchange for all the shares of TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.

 

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For the year ended December 31, 2010, the Company increased its investment in VTAF III for the amount of NT$1,862,278 thousand, and the Company’s percentage of ownership in VTAF III increased from 98% to 99%. Due to the aforementioned transfer and the effect of the subsequent cash injection of NT$135,297 thousand, the Company’s percentage of ownership further decreased to 53%.

In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited unless permitted by other related regulations.

For the years ended December 31, 2011 and 2010, equity in earnings/losses of equity method investees was a net gain of NT$3,778,083 thousand and NT$7,111,443 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the audited financial statements, except those of Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea for the years ended December 31, 2011 and 2010. The Company believes that, had the aforementioned equity method investees’ financial statements been audited, any adjustments arising would have no material effect on the Company’s financial statements.

As of December 31, 2011 and 2010, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$11,273,200 thousand and NT$14,993,626 thousand, respectively.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	2,504,496			$	1,429,118
Additions			—				2,055,660
Amortizations			(721,482	)			(980,282	)
Effect of spin-off			(1,507,430	)			—
Balance, end of year		$	275,584			$	2,504,496

Movements of the difference allocated to goodwill were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	1,415,565			$	1,061,885
Additions			—				353,680
Effect of spin-off			(353,680	)			—
Balance, end of year		$	1,061,885			$	1,415,565

 

11.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31
		2011				2010
Non-publicly traded stocks		$	338,584			$	338,584
Mutual funds			159,251				159,251
		$	497,835			$	497,835

 

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12.	PROPERTY, PLANT AND EQUIPMENT

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Effect of Spin-off				Balance, End of Year
Cost
Buildings		$	128,646,942			$	22,343,302			$	(36,929	)		$	(388	)		$	(1,457,449	)		$	149,495,478
Machinery and equipment			852,733,592				135,641,295				(2,079,115	)			(17,225	)			(1,299,881	)			984,978,666
Office equipment			11,730,537				2,495,001				(362,032	)			—				(39,072	)			13,824,434
			993,111,071			$	160,479,598			$	(2,478,076	)		$	(17,613	)		$	(2,796,402	)			1,148,298,578
Accumulated depreciation
Buildings			81,347,877			$	8,966,377			$	(14,293	)		$	(55	)		$	(25,639	)			90,274,267
Machinery and equipment			616,495,207				90,613,430				(2,025,728	)			(5,569	)			(192,323	)			704,885,017
Office equipment			8,762,361				1,184,310				(362,031	)			—				(3,127	)			9,581,513
			706,605,445			$	100,764,117			$	(2,402,052	)		$	(5,624	)		$	(221,089	)			804,740,797
Advance payments and construction in progress			80,348,673			$	35,453,130			$	(3,259,587	)		$	—			$	(1,726,464	)			110,815,752
		$	366,854,299																			$	454,373,533

 

		Year Ended December 31, 2010
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Balance, End of Year
Cost
Buildings		$	124,522,047			$	4,262,592			$	(135,497	)		$	(2,200	)		$	128,646,942
Machinery and equipment			713,426,126				141,033,304				(1,867,880	)			142,042				852,733,592
Office equipment			10,781,099				1,639,082				(689,202	)			(442	)			11,730,537
			848,729,272			$	146,934,978			$	(2,692,579	)		$	139,400				993,111,071
Accumulated depreciation
Buildings			73,525,160			$	7,951,678			$	(128,466	)		$	(495	)			81,347,877
Machinery and equipment			545,693,910				72,528,436				(1,867,476	)			140,337				616,495,207
Office equipment			8,545,253				906,714				(689,164	)			(442	)			8,762,361
			627,764,323			$	81,386,828			$	(2,685,106	)		$	139,400				706,605,445
Advance payments and construction in progress			33,786,577			$	49,015,940			$	(2,453,844	)		$	—				80,348,673
		$	254,751,526															$	366,854,299

No interest was capitalized during the years ended December 31, 2011 and 2010.

 

13.	DEFERRED CHARGES, NET

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Amortization				Disposals				Effect of Spin-off				Balance, End of Year
Technology license fees		$	2,277,832			$	10,308			$	(670,830	)		$	—			$	—			$	1,617,310
Software and system design costs			2,075,935				1,324,958				(1,064,884	)			(46	)			(19,392	)			2,316,571
Patent and others			1,102,660				323,030				(416,630	)			—				(223,697	)			785,363
		$	5,456,427			$	1,658,296			$	(2,152,344	)		$	(46	)		$	(243,089	)		$	4,719,244

 

		Year Ended December 31, 2010
		Balance, Beginning of Year				Additions				Amortization				Balance, End of Year
Technology license fees		$	2,979,801			$	—			$	(701,969	)		$	2,277,832
Software and system design costs			1,646,973				1,327,183				(898,221	)			2,075,935
Patent and others			1,264,911				211,118				(373,369	)			1,102,660
		$	5,891,685			$	1,538,301			$	(1,973,5599	)		$	5,456,427

 

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14.	SHORT-TERM LOANS

 

		December 31
		2011				2010
Unsecured loans:
US$856,000 thousand, due by February 2012, and annual interest at 0.45%-1.00% in 2011; US$864,000 thousand and EUR114,900 thousand, due in January 2011, and annual interest at 0.38%-0.65% in 2010		$	25,926,528			$	30,908,637

 

15.	BONDS PAYABLE

 

		December 31
		2011				2010
Domestic unsecured bonds:
Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually		$	10,500,000			$	—
Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually			7,500,000				—
Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually			4,500,000				4,500,000
			22,500,000				4,500,000
Current portion			(4,500,000	)			—
		$	18,000,000			$	4,500,000

With the approval from the Financial Supervisory Commission, the Company issued domestic unsecured bonds in the amount of NT$17,000,000 thousand in January 2012.

 

16.	OTHER LONG-TERM PAYABLES

The Company’s other long-term payables mainly resulted from license agreements for certain semiconductor-related patents.

As of December 31, 2011, other long-term payables due within one year were already paid.

 

17.	PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts and recognized pension costs of NT$1,119,717 thousand and NT$964,063 thousand for the years ended December 31, 2011 and 2010, respectively.

The Company has a defined benefit plan under the Labor Standards Law that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The Company contributes an amount equal to 2% of salaries paid each month to a pension fund (the Fund), which is administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

 

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Due to the spin-off, the Company transferred the pension fund and the accrued pension cost in the amount of NT$46,884 thousand and NT$60,583 thousand, respectively, to TSMC SSL and TSMC Solar in August 2011.

Pension information on the defined benefit plan is summarized as follows:

 

a.

Components of net periodic pension cost for the year

 

		2011				2010
Service cost		$	131,975			$	129,552
Interest cost			164,372				145,151
Projected return on plan assets			(67,051	)			(39,939	)
Amortization			73,306				1,061
Net periodic pension cost		$	302,602			$	235,825

 

b.

Reconciliation of funded status of the plans and accrued pension cost at December 31, 2011 and 2010

 

		2011				2010
Benefit obligation
Vested benefit obligation		$	280,629			$	189,047
Nonvested benefit obligation			5,356,405				5,390,113
Accumulated benefit obligation			5,637,034				5,579,160
Additional benefits based on future salaries			3,389,649				3,634,495
Projected benefit obligation			9,026,683				9,213,655
Fair value of plan assets			(3,039,871	)			(2,853,535	)
Funded status			5,986,812				6,360,120
Unrecognized net transition obligation			(73,599	)			(82,991	)
Prior service cost			145,259				154,738
Unrecognized net loss			(2,197,574	)			(2,607,266	)
Accrued pension cost		$	3,860,898			$	3,824,601
Vested benefit		$	312,213			$	208,176

 

		2011				2010
c.    Actuarial assumptions at December 31, 2011 and 2010
Discount rate used in determining present values			1.75	%			1.75	%
Future salary increase rate			3.00	%			3.00	%
Expected rate of return on plan assets			2.00	%			2.50	%
d.    Contributions to the Fund for the year		$	209,260			$	209,459
e.    Payments from the Fund for the year		$	7,339			$	19,991

 

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18.	INCOME TAX

 

a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rate and income tax currently payable was as follows:

 

		Years Ended December 31
		2011				2010
Income tax expense based on “income before income tax” at statutory rate (17%)		$	24,600,334			$	28,779,335
Tax effect of the following:
Tax-exempt income			(13,231,821	)			(16,669,784	)
Temporary and permanent differences			(1,429,188	)			(704,252	)
Additional income tax under Alternative Minimum Tax Act			286,827				—
Additional tax at 10% on unappropriated earnings			6,259,344				127,489
Income tax credits used			(6,259,344	)			(4,823,988	)
Income tax currently payable		$	10,226,152			$	6,708,800

 

b.

Income tax expense consisted of the following:

 

		Years Ended December 31
		2011				2010
Income tax currently payable		$	10,226,152			$	6,708,800
Income tax adjustments on prior years			464,078				980,428
Other income tax adjustments			309,361				369,220
Net change in deferred income tax assets
Investment tax credits			1,795,254				(7,243,473	)
Temporary differences			27,284				16,790
Valuation allowance			(2,314,671	)			6,853,430
Effect of spin-off			(893	)			—
Income tax expense		$	10,506,565			$	7,685,195

 

c.

Net deferred income tax assets consisted of the following:

 

		December 31
		2011				2010
Current deferred income tax assets
Investment tax credits		$	4,892,158			$	4,182,893
Temporary differences
Allowance for sales returns and others			488,788				624,023
Unrealized gain/loss on financial instruments			308,929				87,735
Others			89,669				239,124
		$	5,779,544			$	5,133,775
Noncurrent deferred income tax assets
Investment tax credits		$	15,287,802			$	17,792,321
Temporary differences
Depreciation			2,044,680				1,981,915
Others			227,433				32,792
Valuation allowance			(10,338,091	)			(12,652,762	)
		$	7,221,824			$	7,154,266

 

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Effective in May 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 20% to 17%. The last amended income tax rate of 17% is retroactively applied on January 1, 2010. The Company recalculated its deferred tax assets in accordance with the new amended Article and adjusted the resulting difference as an income tax expense in 2010. The Company evaluated the effect of Alternative Minimum Tax and applicable year of the profits generated from projects exempt from income tax for a five-year period. As the Company plans to apply the tax-exempt income in later years, income tax payable is anticipated to increase and the Company will utilize available investment tax credits as an offset against income taxes. Since more investment tax credits can be utilized, valuation allowance has been adjusted down accordingly.

Under the Article 10 of the Statute for Industrial Innovation (SII) legislated, effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

 

d.

Integrated income tax information:

The balance of the imputation credit account as of December 31, 2011 and 2010 was NT$4,003,228 thousand and NT$1,669,533 thousand, respectively.

The estimated and actual creditable ratios for distribution of earnings of 2011 and 2010 were 6.67% and 4.96%, respectively.

The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of the imputation credit is made.

 

e.

All earnings generated prior to December 31, 1997 have been appropriated.

 

f.

As of December 31, 2011, investment tax credits consisted of the following:

 

Law/Statute		Item		Total Creditable Amount				Remaining Creditable Amount				Expiry Year
Statute for Upgrading		Purchase of machinery and		$	3,202,253			$	1,165,765				2012
Industries		equipment			6,513,605				6,513,605				2013
					7,006,655				7,006,655				2014
					482,351				482,351				2015
				$	17,204,864			$	15,168,376
Statute for Upgrading		Research and development		$	1,772,824			$	—				2012
Industries		expenditures			4,994,463				4,994,463				2013
				$	6,767,287			$	4,994,463
Statute for Upgrading		Personnel training expenditures		$	17,391			$	—				2012
Industries					17,121				17,121				2013
				$	34,512			$	17,121
Statute for Industrial		Research and development		$	2,432,641			$	—				2011
Innovation		expenditures

 

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g.

The profits generated from the following projects are exempt from income tax for a five-year period:

 

		Tax-exemption Period
Construction and expansion of 2003			2007 to 2011
Construction and expansion of 2004			2008 to 2012
Construction and expansion of 2005			2010 to 2014
Construction and expansion of 2006			2011 to 2015

 

h.

The tax authorities have examined income tax returns of the Company through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

19.	LABOR COST, DEPRECIATION AND AMORTIZATION

 

		Year Ended December 31, 2011
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	23,511,116			$	16,780,285			$	40,291,401
Labor and health insurance			1,225,757				713,298				1,939,055
Pension			899,039				523,178				1,422,217
Meal			640,257				273,002				913,259
Welfare			230,762				137,019				367,781
Others			294,010				143,151				437,161
		$	26,800,941			$	18,569,933			$	45,370,874
Depreciation		$	93,898,048			$	6,858,236			$	100,756,284
Amortization		$	1,407,787			$	744,557			$	2,152,344

 

		Year Ended December 31, 2010
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	24,222,823			$	17,849,735			$	42,072,558
Labor and health insurance			973,364				550,731				1,524,095
Pension			765,872				433,932				1,199,804
Meal			566,425				229,247				795,672
Welfare			228,218				133,376				361,594
Others			63,384				26,614				89,998
		$	26,820,086			$	19,223,635			$	46,043,721
Depreciation		$	76,219,816			$	5,150,747			$	81,370,563
Amortization		$	1,242,824			$	730,735			$	1,973,559

 

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20.	SHAREHOLDERS’ EQUITY

As of December 31, 2011, 1,092,313 thousand ADSs of the Company were traded on the NYSE. The number of common shares represented by the ADSs was 5,461,567 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the Company’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

Capital surplus consisted of the following:

 

		December 31
		2011				2010
Additional paid-in capital		$	23,774,250			$	23,628,908
From merger			22,804,510				22,805,390
From convertible bonds			8,892,847				8,893,190
From long-term investments			374,695				370,891
Donations			55				55
		$	55,846,357			$	55,698,434

The Company’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside the following items accordingly:

 

a.

Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals the Company’s paid-in capital;

 

b.

Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;

 

c.

Bonus to directors and profit sharing to employees of the Company of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of the Company are not entitled to receive the bonus to directors. The Company may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

d.

Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

The Company’s Articles of Incorporation also provide that profits of the Company may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.

Any appropriations of the profits are subject to shareholders’ approval in the following year.

 

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The Company accrued profit sharing to employees based on certain percentage of net income during the year, which amounted to NT$8,990,026 thousand and NT$10,908,338 thousand for the years ended December 2011 and 2010, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

The Company no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2010 and 2009 had been approved in the shareholders’ meetings held on June 9, 2011 and June 15, 2010, respectively. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings								Dividends Per Share (NT$)
		For Fiscal Year 2010				For Fiscal Year 2009				For Fiscal Year 2010				For Fiscal Year 2009
Legal capital reserve		$	16,160,501			$	8,921,784
Special capital reserve			5,120,827				1,313,047
Cash dividends to shareholders			77,730,236				77,708,120			$	3.00			$	3.00
		$	99,011,564			$	87,942,951

TSMC’s profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand for 2010, respectively, and profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, had been approved in the shareholders’ meeting held on June 9, 2011 and June 15, 2010, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and February 9, 2010 and same amount had been charged against earnings of 2010 and 2009, respectively.

 

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The appropriations of earnings for 2011 had been resolved in the meeting of the Board of Directors held on February 14, 2012. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings				Dividends Per Share (NT$)
		For Fiscal Year 2011				For Fiscal Year 2011
Legal capital reserve		$	13,420,128
Special capital reserve			1,172,350
Cash dividends to shareholders			77,748,668			$	3.00
		$	92,341,146

The Board of Directors also resolved to appropriate profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand for 2011, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2011.

The appropriations of earnings, profit sharing to employees and bonus to directors for 2011 are to be resolved in the shareholders’ meeting held on June 12, 2012 (expected).

The information about the appropriations of profit sharing to employees and bonus to directors is available at the Market Observation Post System website.

Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by the Company on earnings generated since January 1, 1998.

 

21.	STOCK-BASED COMPENSATION PLANS

The Company’s Employee Stock Option Plans, consisting of the 2004 Plan, 2003 Plan and 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the 2004 Plan, 2003 Plan and 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries, in which the Company’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of the Company’s common shares listed on the TSE on the grant date.

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2011.

 

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Information about outstanding options for the years ended December 31, 2011 and 2010 was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2011
Balance, beginning of year			21,437			$	31.4
Options exercised			(7,144	)			30.5
Balance, end of year			14,293				32.1
Year ended December 31, 2010
Balance, beginning of year			28,810				32.4
Options exercised			(7,372	)			33.2
Options canceled			(1	)			50.1
Balance, end of year			21,437				32.3

The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings in accordance with the plans.

As of December 31, 2011, information about outstanding options was as follows:

 

		Options Outstanding
Range of Exercise Price (NT$)		Number of Options (In Thousands)				Weighted-average Remaining Contractual Life (Years)				Weighted-average Exercise Price (NT$)
$20.9-$ 29.3			10,584				1.2			$	27.4
38.0- 50.1			3,709				2.9				45.7
			14,293				1.7				32.1

As of December 31, 2011, all of the above outstanding options were exercisable.

No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2011 and 2010. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions at the various grant dates and pro forma results of the Company for the years ended December 31, 2011 and 2010 would have been as follows:

 

Assumptions:
Expected dividend yield		1.00%-3.44%
Expected volatility		43.77%-46.15%
Risk free interest rate		3.07%-3.85%
Expected life		5 years

 

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		Years Ended December 31
		2011				2010
Net income:
Net income as reported		$	134,201,279			$	161,605,009
Pro forma net income			134,146,490				161,470,030
Earnings per share (EPS)- after income tax (NT$):
Basic EPS as reported		$	5.18			$	6.24
Pro forma basic EPS			5.18				6.23
Diluted EPS as reported			5.18				6.23
Pro forma diluted EPS			5.17				6.23

 

22.	TREASURY STOCK

(Shares in Thousands)

 

Purpose of Treasury Stock		Number of Shares, Beginning of Year				Addition				Retirement				Number of Shares, End of Year
Year ended December 31, 2011
Shareholders executed the appraisal right			—				1,000				(1,000	)			—

In August 2011, pursuant to the Company Law and at the option of the shareholders of the Company, certain shareholders requested the Company to buy back their shares at the current market price, which shares were subsequently retired in November 2011.

 

23.	EARNINGS PER SHARE

EPS is computed as follows:

 

		Amounts (Numerator)								Number of Shares (Denominator) (In Thousands)				EPS (NT$)
														Before Income Tax				After Income Tax
		Before Income Tax				After Income Tax
Year ended December 31, 2011
Basic EPS
Earnings available to common shareholders		$	144,707,844			$	134,201,279				25,914,076			$	5.58			$	5.18
Effect of dilutive potential common shares			—				—				10,606
Diluted EPS
Earnings available to common shareholders (including effect of dilutive potential common shares)		$	144,707,844			$	134,201,279				25,924,682			$	5.58			$	5.18
Year ended December 31, 2010
Basic EPS
Earnings available to common shareholders		$	169,290,204			$	161,605,009				25,905,832			$	6.53			$	6.24
Effect of dilutive potential common shares			—				—				13,982
Diluted EPS
Earnings available to common shareholders (including effect of dilutive potential common shares)		$	169,290,204			$	161,605,009				25,919,814			$	6.53			$	6.23

 

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If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the year ended December 31, 2010 to remain at NT$6.24 and NT$6.23, respectively.

 

24.	DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

a.

Fair values of financial instruments were as follows:

 

		December 31
		2011								2010
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets
Financial assets at fair value through profit or loss		$	14,925			$	14,925			$	—			$	—
Available-for-sale financial assets			2,617,134				2,617,134				4,951,323				4,951,323
Held-to-maturity financial assets			1,403,427				1,426,474				6,202,287				6,278,054
Financial assets carried at cost			497,835				—				497,835				—
Liabilities
Financial liabilities at fair value through profit or loss			—				—				7,834				7,834
Bonds payable (including current portion)			22,500,000				22,597,115				4,500,000				4,538,660
Other long-term payables (including current portion)			—				—				718,637				718,637

 

b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

5)

Fair value of bonds payable was based on their quoted market price.

 

6)

Fair value of other long-term payables was based on the present value of expected cash flows, which approximates their carrying amount.

 

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c.

Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as a net gain of NT$14,925 thousand and a net loss of NT$7,834 thousand for the years ended December 31, 2011 and 2010, respectively.

 

d.

As of December 31, 2011 and 2010, financial assets exposed to fair value interest rate risk were NT$1,418,352 thousand and NT$7,235,336 thousand, respectively, financial liabilities exposed to fair value interest rate risk were NT$48,426,528 thousand and NT$35,416,471 thousand, respectively.

 

e.

Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2011 and 2010 were as follows:

 

		Year Ended December 31, 2011
		From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of year		$	(395,306	)		$	504,595			$	109,289
Recognized directly in shareholders’ equity			(1,077,844	)			(165,851	)			(1,243,695	)
Removed from shareholders’ equity and recognized in earnings			(35,151	)			—				(35,151	)
Effect of spin-off			(3,298	)			—				(3,298	)
Balance, end of year		$	(1,511,599	)		$	338,744			$	(1,172,855	)

 

		Year Ended December 31, 2010
		From Available- for-sale Financial Assets				Equity- method Investments				Total
Balance, beginning of year		$	46,672			$	406,949			$	453,621
Recognized directly in shareholders’ equity			(441,978	)			97,646				(344,332	)
Balance, end of year		$	(395,306	)		$	504,595			$	109,289

 

f.

Information about financial risks

 

1)

Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and overseas publicly traded stock; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities.

 

2)

Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

3)

Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments and bonds payable. Therefore, the liquidity risk is low.

 

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4)

Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates.

 

25.	RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

 

a.

Subsidiaries

TSMC North America

TSMC China

TSMC Europe

TSMC Japan

TSMC Global

 

b.

Investees

Xintec (holding a controlling financial interest)

GUC (accounted for using the equity method, as the Company had no controlling interest in GUC since July 2011)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

c.

Indirect subsidiaries

WaferTech, LLC (WaferTech)

TSMC Technology, Inc. (TSMC Technology)

TSMC Design Technology Canada, Inc. (TSMC Canada)

 

d.

Indirect investee

VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method.

 

e.

Others

Related parties over which the Company has control or exercises significant influence but with which the Company had no material transactions.

Transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:

 

		2011								2010
		Amount				%				Amount				%
For the year
Sales
TSMC North America		$	234,902,043				56			$	220,529,792				53
Others			3,882,801				1				3,071,549				1
		$	238,784,844				57			$	223,601,341				54

 

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		2011								2010
		Amount				%				Amount				%
Purchases
TSMC China		$	10,392,189				21			$	8,748,101				18
WaferTech			7,305,879				15				7,878,260				16
VIS			5,577,762				12				4,937,617				10
SSMC			3,949,176				8				4,521,046				10
Others			124,673				—				39,099				—
		$	27,349,679				56			$	26,124,123				54
Manufacturing expenses
Xintec (rent and outsourcing)		$	260,250				—			$	313,397				—
VisEra (outsourcing)			14,588				—				44,488				—
VIS (rent)			5,902				—				9,845				—
		$	280,740				—			$	367,730				—
Marketing expenses—commission
TSMC Europe		$	357,582				15			$	415,765				15
TSMC Japan			284,644				12				266,194				9
TSMC China			64,907				3				59,180				2
Others			22,049				1				19,318				1
		$	729,182				31			$	760,457				27
Research and development expenses
TSMC Technology (primarily consulting fee)		$	534,804				2			$	547,838				2
TSMC Canada (primarily consulting fee)			192,616				1				181,943				1
TSMC Europe			45,489				—				33,907				—
VIS (primarily rent)			1,984				—				12,017				—
Others			30,605				—				32,167				—
		$	805,498				3			$	807,872				3
Sales of property, plant and equipment and other assets
TSMC China		$	2,885,847				86			$	1,409,862				75
Others			109,141				3				84,336				5
		$	2,994,988				89			$	1,494,198				80
Purchases of property, plant and equipment and other assets
TSMC China		$	70,491				—			$	66,337				—
VIS			45,473				—				109,855				—
WaferTech			—				—				9,624				—
Others			1,812				—				—				—
		$	117,776				—			$	185,816				—

 

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		2011								2010
		Amount				%				Amount				%
Non-operating income and gains
VIS (primarily technical service income)		$	227,024				3			$	267,370				2
SSMC (primarily technical service income)			193,781				3				198,218				1
TSMC China (primary gains on disposal from property, plant and equipment)			96,050				1				49,738				—
VisEra (primarily rent)			4,054				—				—				—
Others			7,157				—				9,655				—
		$	528,066				7			$	524,981				3
Non-operating expenses and losses
Xintec (settlement loss)		$	19,686				1			$	—				—
As of December 31
Receivables
TSMC North America		$	24,661,104				99			$	25,579,259				99
Others			116,430				1				154,715				1
		$	24,777,534				100			$	25,733,974				100
Other receivables
VIS		$	87,507				46			$	70,798				5
SSMC			34,260				18				53,788				4
TSMC North America			23,887				13				3,673				1
TSMC China			23,688				13				1,170,407				90
WaferTech			14,196				8				3,543				—
Others			4,490				2				72				—
		$	188,028				100			$	1,302,281				100
Payables
VIS		$	987,937				33			$	428,797				17
TSMC China			946,826				32				895,193				35
WaferTech			420,459				14				568,685				22
SSMC			336,037				11				430,235				17
Others			301,323				10				251,540				9
		$	2,992,582				100			$	2,574,450				100
Other assets
TSMC China		$	1,493				—			$	27,327				2

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain buildings, facilities, and machinery and equipment from Xintec. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under manufacturing expenses.

 

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The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses.

The Company leased certain machinery and equipment to VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental income was received monthly and the related income was classified under non-operating income and gains.

The Company deferred the disposal losses (classified under other assets) derived from sales of property, plant and equipment to TSMC China, and then recognized such losses (classified under non-operating gains and losses) over the depreciable lives of the disposed assets.

The Company borrowed funds from related parties in July 2011. Additional disclosures consisted of the following:

 

		Year Ended December 31, 2011
Financing Company			Maximum Balance			Date			Ending Balance				Interest Rate				Interest Expense				Interest Payable
TSMC Global		$	24,684,000			July 2011 to December 2011		$	—				0.3544	%		$	22,293			$	—

Compensation of directors and management personnel:

 

		Years Ended December 31
		2011				2010
Salaries, incentives and special compensation		$	654,972			$	774,181
Bonus			445,681				593,967
		$	1,100,653			$	1,368,148

The information about the compensation of directors and management personnel is available in the annual report for the shareholders’ meeting. Total compensation expense for the year ended December 31, 2011 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2011 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2012. The total compensation for the year ended December 31, 2010 included the bonuses appropriated from earnings of 2010 which was approved by the shareholders’ meeting held in 2011.

26. PLEDGED OR MORTGAGED ASSETS

As of December 31, 2011, the Company had no assets set aside as collateral. As of December 31, 2010, the Company had pledged time deposits of NT$25,864 thousand (classified as other financial assets) as collateral for land lease agreements and customs duty guarantee.

27. SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land from the Science Park Administration. These operating leases expire on various dates from December 2012 to September 2030 and can be renewed upon expiration.

 

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As of December 31, 2011, future lease payments were as follows:

 

Year		Amount
2012		$	453,868
2013			429,130
2014			414,786
2015			404,465
2016			394,302
2017 and thereafter			3,255,047
		$	5,351,598

 

28.	SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of December 31, 2011, excluding those disclosed in other notes, were as follows:

 

a.

Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by the Company can use up to 35% of the Company’s capacity if the Company’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

b.

Under several foundry agreements, the Company shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with the Company. As of December 31, 2011, the Company had a total of US$13,039 thousand of guarantee deposits.

 

c.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. The Company’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. The Company and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, the Company and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but the Company alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

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e.

In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

f.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time.

 

29.	SPIN-OFF BUSINESS INFORMATION

To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, the Company transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, on August 1, 2011. As of August 1, 2011, the net book values transferred to TSMC SSL and TSMC Solar amounted to NT$2,270,000 thousand and NT$11,180,000 thousand, respectively.

The book values of transferred assets and liabilities were as follows:

 

		TSMC SSL				TSMC Solar				Total
Current assets		$	431,613			$	893,584			$	1,325,197
Long-term investments			2,872				7,912,710				7,915,582
Property, plant and equipment			1,929,563				2,372,214				4,301,777
Other assets			234,696				201,677				436,373
Current liabilities			(292,728	)			(337,439	)			(630,167	)
Other liabilities			(36,272	)			(25,218	)			(61,490	)
Capital surplus			—				(56,094	)			(56,094	)
Unrealized gain (loss) on financial instruments			—				(3,298	)			(3,298	)
Cumulative translation adjustments			256				221,864				222,120
		$	2,270,000			$	11,180,000			$	13,450,000

 

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30.

OTHERS

The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

		December 31
		2011								2010
		Foreign Currency (In Thousands)				Exchange Rate (Note)				Foreign Currency (In Thousands)				Exchange Rate (Note)
Financial assets
Monetary items
USD		$	1,566,212				30.288			$	1,732,529				30.368
EUR			124,425				39.27				224,363				40.65
JPY			33,073,336				0.3897				28,580,962				0.3735
Non-monetary items
HKD			671,060				3.90				1,002,116				3.91
Investments accounted for using equity method
USD			2,983,866				30.288				2,997,686				30.368
EUR			5,225				39.27				4,963				40.65
JPY			414,680				0.3897				402,441				0.3735
RMB			2,823,953				4.81				927,986				4.61
Financial liabilities
Monetary items
USD			1,626,129				30.288				1,776,756				30.368
EUR			106,931				39.27				261,956				40.65
JPY			34,942,421				0.3897				30,604,986				0.3735

 

Note:

Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

31.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Company and its investees:

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: None;

 

c.

Marketable securities held: Please see Table 2 attached;

 

d.

Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

 

f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

 

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g.

Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

 

h.

Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

i.

Names, locations, and related information of investees over which the Company exercises significant influence: Please see Table 7 attached;

 

j.

Information about derivatives of investees over which the Company has a controlling interest:

Do not meet the criteria for hedge accounting

 

1)

TSMC China

TSMC China entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
Sell US$/Buy EUR			January 2012			US$	2,082/EUR1,591
Sell US$/Buy JPY			January 2012			US$	3,335/JPY259,830

For the year ended December 31, 2011, net losses arising from forward exchange contracts of TSMC China amounted to NT$56,819 thousand.

 

2)

Xintec

Xintec entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
Sell US$/Buy NT$			January 2012 to February 2012			US$	16,900/NT$510,122

For the year ended December 31, 2011, net losses arising from forward exchange contracts of Xintec amounted to NT$21,784 thousand.

 

3)

TSMC Partners

TSMC Partners entered into forward exchange contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
Sell RMB/Buy US$			January 2012			RMB1,118,705/US$	177,000

For the year ended December 31, 2011, net losses arising from forward exchange contracts of TSMC Partners amounted to NT$224,638 thousand.

 

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4)

TSMC Solar

TSMC Solar entered into derivative contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
Sell NT$/Buy US$			January 2012 to February 2012			NT$	130,205/US$4,300

Outstanding cross currency swap contracts as of December 31, 2011 consisted of the following:

 

Maturity Date

Contract Amount (In Thousands)

Range of Interest Rates Paid

Range of Interest Rates Received

January 2012

NT$

208,398/US$6,800

0.00

%

0.48

%

For the year ended December 31, 2011, net gains arising from derivative financial instruments of TSMC Solar amounted to NT$3,112 thousand.

 

5)

TSMC SSL

TSMC SSL entered into derivative contracts during the year ended December 31, 2011 to manage exposures due to foreign exchange rate fluctuations. Outstanding forward exchange contracts as of December 31, 2011 consisted of the following:

 

		Maturity Date				Contract Amount (In Thousands)
Sell NT$/Buy US$			January 2012 to February 2012			NT$	33,286/US$1,100

Outstanding cross currency swap contracts as of December 31, 2011 consisted of the following:

 

Maturity Date

Contract Amount (In Thousands)

Range of Interest Rates Paid

Range of Interest Rates Received

January 2012

NT$

212,033/US$7,000

0.00

%

0.48

%

For the year ended December 31, 2011, net gains arising from derivative financial instruments of TSMC SSL amounted to NT$6,365 thousand.

Meet the criteria for hedge accounting

Xintec monitors and manages the financial risk through the analysis of business environment and evaluation of entity’s financial risks. Further, Xintec seeks to reduce the effects of future cash flow related interest rate exposures by primarily using derivative financial instruments.

 

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Xintec is exposed to interest rate risk because its long-term bank loans bear floating interest rates. Accordingly, Xintec enters into interest rate swap contract to hedge such a cash flow interest rate risk. As of December 31, 2011, the outstanding interest rate swap contract of Xintec consisted of the following:

 

Hedged Item

Hedging Financial Instrument

Fair Value December 31, 2011

Expected Cash Flow Generated Period

Expected Timing for the Recognition of Gains or Losses from Hedge

Long-term bank loans

Interest rate swap contract

$

(232

)

2011 to 2012

2011 to 2012

For the year ended December 31, 2011, the adjustment for current period to shareholders’ equity amounted to a loss of NT$98 thousand for the above Xintec’s interest rate swap contract. The amount removed from shareholders’ equity and recognized as a loss amounted to NT$680 thousand.

 

k.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Note 25.

 

32.	OPERATING SEGMENTS INFORMATION

The Company has provided the operating segments disclosure in the consolidated financial statements.

 

33.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors and authorized for issue on February 14, 2012.

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Investees

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

No.		Financing Company				Counter- party				Financial Statement Account		Maximum Balance for the Period (US$ in Thousands) (Note 4)				Ending Balance (US$  in Thousands) (Note 4)				Amount Actually Drawn (US$ in Thousands)				Interest Rate		Nature for Financing		Transaction Amounts				Reason for Financing		Allowance for Bad Debt				Collateral								Financing Limits for Each Borrowing Company (Notes 1 and 2)				Financing Company’s Total Financing Amount Limits (Note 3)
																																						Item				Value
1			TSMC Partners				TSMC China			Long-term receivables from related parties		$ (US$	7,572,000 250,000	)		$ (US$	7,572,000 250,000	)		$ (US$	7,572,000 250,000	)		0.25%-0.26%		The need for short-term financing		$	—			Purchase equipment		$	—				—			$	—			$	34,986,964			$	34,986,964
							TSMC Solar			Other receivables from related parties		(US$	1,211,520 40,000	)		(US$	1,211,520 40,000	)		(US$	454,320 15,000	)		0.4017%-0.4651%		The need for short-term financing			—			Operating capital			—				—				—				3,498,696
							TSMC SSL			Other receivables from related parties		(US$	908,640 30,000	)		(US$	908,640 30,000	)		(US$	348,312 11,500	)		0.4545%		The need for short-term financing			—			Operating capital			—				—				—				3,498,696
2			TSMC Global				TSMC			Other receivables from related parties		(US$	25,744,800 850,000	)			—				—			0.3544%		The need for short-term financing			—			Support the parent company’s short-term operation requirement			—				—				—				44,071,845				44,071,845

 

Note 1:		The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.
Note 2:		The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions.
Note 3:		The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and TSMC Global, respectively.
Note 4:		The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

- 42 -

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES HELD

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
TSMC		Corporate bond
		Nan Ya Plastics Corporation		—		Held-to-maturity financial assets			—			$	1,099,629				N/A			$	1,120,808
		China Steel Corporation		—		”			—				303,798				N/A				305,666
		Stock
		Semiconductor Manufacturing International Corporation		—		Available-for-sale financial assets			1,789,493				2,617,134				7				2,617,134
		TSMC Global		Subsidiary		Investments accounted for using equity method			1				44,071,845				100				44,071,845
		TSMC Partners		Subsidiary		”			988,268				34,986,964				100				34,986,964
		TSMC Solar		Subsidiary		”			1,118,000				10,153,244				100				10,153,244
		VIS		Investee accounted for using equity method		”			628,223				8,988,007				39				6,627,758
		SSMC		Investee accounted for using equity method		”			314				6,289,429				39				6,075,445
		TSMC North America		Subsidiary		”			11,000				2,981,639				100				2,981,639
		TSMC SSL		Subsidiary		”			227,000				1,746,893				100				1,746,893
		Xintec		Investee with a controlling financial interest		”			94,011				1,606,694				40				1,606,694
		GUC		Investee accounted for using equity method		”			46,688				1,157,188				35				4,645,442
		TSMC Europe		Subsidiary		”			—				205,171				100				205,171
		TSMC Japan		Subsidiary		”			6				161,601				100				161,601
		TSMC Korea		Subsidiary		”			80				23,448				100				23,448
		United Industrial Gases Co., Ltd.		—		Financial assets carried at cost			16,783				193,584				10				350,060
		Shin-Etsu Handotai Taiwan Co., Ltd.		—		”			10,500				105,000				7				351,996
		W.K. Technology Fund IV		—		”			4,000				40,000				2				41,372
		Fund
		Horizon Ventures Fund		—		Financial assets carried at cost			—				103,992				12				103,992
		Crimson Asia Capital		—		”			—				55,259				1				55,259
		Capital
		TSMC China		Subsidiary		Investments accounted for using equity method			—				13,542,181				100				13,583,214
		VTAF III		Subsidiary		”			—				1,311,044				53				1,290,093
		VTAF II		Subsidiary		”			—				762,135				98				756,125
		Emerging Alliance		Subsidiary		”			—				213,235				99				213,235
TSMC Solar		Stock
		Motech		Investee accounted for using equity method		Investments accounted for using equity method			87,480				5,612,344				20				3,849,382
		TSMC Solar Europe		Subsidiary		”			—				204,163				100				204,163
		TSMC Solar NA		Subsidiary		”			1				52,187				100				52,187
		Capital
		VTAF III		Investee accounted for using equity method		Investments accounted for using equity method			—				1,681,719				46				1,681,719
TSMC SSL		Stock
		TSMC Lighting NA		Subsidiary		Investments accounted for using equity method			1				2,994				100				2,994

(Continued)

 

- 43 -

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Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign  Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
TSMC Partners		Corporate bond
		General Elec Cap Corp. Mtn		—		Held-to-maturity financial assets			—			US$	20,012				N/A			US$	20,100
		General Elec Cap Corp. Mtn		—		”			—			US$	20,059				N/A			US$	20,740
		Common stock
		TSMC Development, Inc. (TSMC Development)		Subsidiary		Investments accounted for using equity method			1			US$	460,034				100			US$	460,034
		VisEra Holding Company		Investee accounted for using equity method		”			43,000			US$	94,208				49			US$	94,208
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Subsidiary		”			787			US$	11,112				97			US$	11,112
		TSMC Technology		Subsidiary		”			1			US$	10,615				100			US$	10,615
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Subsidiary		”			14,153			US$	9,994				97			US$	9,994
		TSMC Canada		Subsidiary		”			2,300			US$	4,059				100			US$	4,059
		Mcube Inc.		Investee accounted for using equity method		”			5,333				—				80				—
		Preferred stock
		Mcube Inc.		Investee accounted for using equity method		Investments accounted for using equity method			1,000				—				5				—
		Fund
		Shanghai Walden Venture Capital Enterprise		—		Financial assets carried at cost			—			US$	5,000				8			US$	5,000
TSMC North America		Stock
		Spansion Inc.		—		Available-for-sale financial assets			276			US$	2,283				—			US$	2,283
TSMC Development		Corporate bond
		GE Capital Corp.		—		Held-to-maturity financial assets			—			US$	20,090				N/A			US$	20,770
		JP Morgan Chase & Co.		—		”			—			US$	15,000				N/A			US$	15,087
		Stock
		WaferTech		Subsidiary		Investments accounted for using equity method			293,640			US$	220,119				100			US$	220,119
Emerging Alliance		Common stock
		RichWave Technology Corp.		—		Financial assets carried at cost			4,074			US$	1,545				10			US$	1,545
		Global Investment Holding Inc.		—		”			11,124			US$	3,065				6			US$	3,065
		Preferred stock
		Audience, Inc.		—		Financial assets carried at cost			1,654			US$	250				—			US$	250
		Next IO, Inc.		—		”			8			US$	500				—			US$	500
		Pixim, Inc.		—		”			4,641			US$	1,137				2			US$	1,137
		QST Holdings, LLC		—		”			—			US$	142				4			US$	142
		Capital
		VentureTech Alliance Holdings, LLC (VTA Holdings)		Subsidiary		Investments accounted for using equity method			—				—				7				—
VTAF II		Common stock
		Aether Systems, Inc.		—		Financial assets carried at cost			1,800			US$	1,701				23			US$	1,701
		RichWave Technology Corp.		—		”			1,267			US$	1,036				3			US$	1,036
		Sentelic		—		”			1,806			US$	2,607				9			US$	2,607
		Preferred stock
		5V Technologies, Inc.		—		Financial assets carried at cost			2,890			US$	2,168				4			US$	2,168
		Aquantia		—		”			4,556			US$	4,316				3			US$	4,316
		Audience, Inc.		—		”			12,378			US$	2,378				3			US$	2,378

(Continued)

 

- 44 -

---

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign  Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
		Impinj, Inc.		—		Financial assets carried at cost			475			US$	1,000				—			US$	1,000
		Next IO, Inc.		—		”			132			US$	1,110				2			US$	1,110
		Pixim, Inc.		—		”			33,347			US$	1,878				2			US$	1,878
		Power Analog Microelectronics		—		”			7,330			US$	3,482				21			US$	3,482
		QST Holdings, LLC		—		”			—			US$	593				13			US$	593
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method			—				—				31				—
VTAF III		Common stock
		Mutual-Pak Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method			11,868			US$	1,204				57			US$	1,204
		Accton Wireless Broadband Corp.		—		Financial assets carried at cost			2,249			US$	315				6			US$	315
		Preferred stock
		InvenSense, Inc.		—		Available-for-sale financial assets			796			US$	7,932				1			US$	7,932
		BridgeLux, Inc.		—		Financial assets carried at cost			6,771			US$	8,745				3			US$	8,745
		Exclara, Inc.		—		”			59,695			US$	1,812				15			US$	1,812
		GTBF, Inc.		—		”			1,154			US$	1,500				N/A			US$	1,500
		LiquidLeds Lighting Corp.		—		”			1,600			US$	800				11			US$	800
		Neoconix, Inc.		—		”			3,916			US$	4,779				4			US$	4,779
		Powervation, Ltd.		—		”			449			US$	7,030				16			US$	7,030
		Stion Corp.		—		”			8,152			US$	55,473				20			US$	55,473
		Tilera, Inc.		—		”			3,890			US$	3,025				2			US$	3,025
		Validity Sensors, Inc.		—		”			9,340			US$	3,456				4			US$	3,456
		Capital
		Growth Fund Limited (Growth Fund)		Subsidiary		Investments accounted for using equity method			—			US$	510				100			US$	510
		VTA Holdings		Subsidiary		”			—				—				62				—
Growth Fund		Common stock
		Veebeam		—		Financial assets carried at cost			10			US$	25				—			US$	25
ISDF		Common stock
		Integrated Memory Logic, Inc.		—		Available-for-sale financial assets			2,161			US$	6,289				3			US$	6,289
		Memsic, Inc.		—		”			1,286			US$	3,407				5			US$	3,407
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			230			US$	497				2			US$	497
ISDF II		Common stock
		Memsic, Inc.		—		Available-for-sale financial assets			1,072			US$	2,841				5			US$	2,841
		Alchip Technologies Limited		—		Financial assets carried at cost			7,520			US$	3,664				14			US$	3,664
		Sonics, Inc.		—		”			278			US$	10				3			US$	10
		Goyatek Technology, Corp.		—		”			745			US$	163				6			US$	163
		Auden Technology MFG. Co., Ltd.		—		”			1,049			US$	223				3			US$	223
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			264			US$	455				3			US$	455
Xintec		Capital
		Compositech Ltd.		—		Financial assets carried at cost			587				—				3				—
TSMC Solar Europe		Stock
		TSMC Solar Europe GmbH		Subsidiary		Investments accounted for using equity method			1			EUR	5,103				100			EUR	5,103

(Continued)

 

- 45 -

---

Held Company Name

December 31, 2011

Note

Marketable Securities Type and Name

Relationship with the  Company

Financial Statement Account

Shares/Units (In  Thousands)

Carrying Value (Foreign  Currencies in Thousands)

Percentage of Ownership (%)

Market Value or Net Asset Value (Foreign Currencies in Thousands)

TSMC Global

Corporate bond

Aust + Nz Banking Group

—

Held-to-maturity financial assets

20,000

US$

20,000

N/A

US$

19,751

Commonwealth Bank of Australia

—

”

25,000

US$

25,000

N/A

US$

24,905

Commonwealth Bank of Australia

—

”

25,000

US$

25,000

N/A

US$

24,991

Deutsche Bank AG London

—

”

20,000

US$

19,884

N/A

US$

20,033

JP Morgan Chase + Co.

—

”

35,000

US$

35,039

N/A

US$

35,070

Nationwide Building Society-UK Government Guarantee

—

”

8,000

US$

8,000

N/A

US$

8,008

Westpac Banking Corp.

—

”

25,000

US$

25,000

N/A

US$

24,825

Westpac Banking Corp. 12/12 Frn

—

”

5,000

US$

5,000

N/A

US$

5,007

Government bond

Societe De Financement De Lec

—

Held-to-maturity financial assets

15,000

US$

15,000

N/A

US$

14,991

Money market fund

Ssga Cash Mgmt Global Offshore

—

Available-for-sale financial assets

83

US$

83

N/A

US$

83

(Concluded)

 

- 46 -

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TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Investees

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/Units (In Thousands) (Note 1)				Amount (Foreign Currencies in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
TSMC		Stock
		TSMC Solar		Investments accounted for using equity method			—				Subsidiary				—			$	—				1,118,000			$	11,180,000				—			$	—			$	—			$	—				1,118,000			$	10,153,244
		TSMC SSL		”			—				Subsidiary				—				—				227,000				2,270,000				—				—				—				—				227,000				1,746,893
		Capital
		TSMC China		Investments accounted for using equity method			—				Subsidiary				—				4,252,270				—				6,759,300				—				—				—				—				—				13,542,181
		VTAF III		”			—				Subsidiary				—				2,769,423				—				135,297				—				—				—				—				—				1,311,044
TSMC Solar		Stock
		TSMC Solar Europe		Investments accounted for using equity method			—				Subsidiary				—				23,971				—				385,682				—				—				—				—				—				204,163
		Capital
		VTAF III		Investments accounted for using equity method			—				Investee accounted for using equity method				—				—				—				168,548				—				—				—				—				—				1,681,719
TSMC Solar		Stock
Europe		TSMC Solar Europe GmbH		Investments accounted for using equity method			—				Subsidiary				1				EUR 90				—				EUR 9,800				—				EUR —				EUR —				EUR —				1				EUR 5,103
TSMC Global		Corporate bond
		Allstate Life Gbl Fdg Secd		Available-for-sale financial assets			—				—				4,430			US$	4,824				—			US$	—				4,430			US$	4,787			US$	4,834			US$	(47	)			—			US$	—
		American Honda Fin Corp. Mtn		”			—				—				4,000			US$	3,995				—				—				4,000			US$	4,005			US$	3,985			US$	20				—				—
		Anz National Intl Ltd.		”			—				—				3,500			US$	3,554				—				—				3,500			US$	3,555			US$	3,515			US$	40				—				—
		Archer Daniels Midland Co.		”			—				—				—				—				7,000			US$	7,000				7,000			US$	7,010			US$	7,000			US$	10				—				—
		Astrazeneca Plc		”			—				—				3,150			US$	3,397				—				—				3,150			US$	3,356			US$	3,456			US$	(100	)			—				—
		AT+T Wireless		”			—				—				3,500			US$	3,823				—				—				3,500			US$	3,762			US$	3,979			US$	(217	)			—				—
		Banco Bilbao Vizcaya P R		”			—				—				3,250			US$	3,249				—				—				3,250			US$	3,251			US$	3,250			US$	1				—				—
		Bank of Nova Scotia		”			—				—				5,000			US$	5,000				—				—				5,000			US$	5,012			US$	5,000			US$	12				—				—
		Barclays Bank Plc		”			—				—				12,000			US$	11,997				—				—				12,000			US$	12,022			US$	12,035			US$	(13	)			—				—
		Barclays Bk Plc UK Govt Cr		”			—				—				—				—				5,000			US$	5,108				5,000			US$	5,099			US$	5,108			US$	(9	)			—				—
		Bb+T Corporation		”			—				—				—				—				3,840			US$	3,990				3,840			US$	3,977			US$	3,990			US$	(13	)			—				—
		Bear Stearns Cos Inc.		”			—				—				3,500			US$	3,494				—				—				3,500			US$	3,465			US$	3,360			US$	105				—				—
		Berkshire Hathaway Inc. Del		”			—				—				3,500			US$	3,517				—				—				3,500			US$	3,521			US$	3,500			US$	21				—				—
		Bhp Billiton Fin USA Ltd.		”			—				—				—				—				4,000			US$	4,443				4,000			US$	4,447			US$	4,443			US$	4				—				—
		Bnp Paribas SA		”			—				—				3,810			US$	3,844				—				—				3,810			US$	3,838			US$	3,844			US$	(6	)			—				—
		Boeing Cap Corp.		”			—				—				2,925			US$	3,192				—				—				2,925			US$	3,180			US$	3,235			US$	(55	)			—				—
		Bp Capital Markets Plc		”			—				—				3,900			US$	3,988				—				—				3,900			US$	3,992			US$	3,969			US$	23				—				—

(Continued)

 

- 47 -

---

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Shares/ Units (In Thousands) (Note 1)				Amount (Foreign Currencies  in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Bp Capital Markets Plc		Available-for-sale financial assets			—				—				—			US$	—				7,160			US$	7,160				7,160			US$	7,201			US$	7,160			US$	41				—			US$	—
		Chevron Corp.		”			—				—				—				—				4,000			US$	4,305				4,000			US$	4,286			US$	4,305			US$	(19	)			—				—
		Cie Financement Foncier		”			—				—				4,000			US$	4,019				—				—				4,000			US$	4,034			US$	4,029			US$	5				—				—
		Cisco Systems Inc.		”			—				—				—				—				7,050			US$	7,050				7,050			US$	7,073			US$	7,050			US$	23				—				—
		Citigroup Funding Inc.		”			—				—				16,000			US$	16,323				—				—				16,000			US$	16,337			US$	16,262			US$	75				—				—
		Citigroup Funding Inc.		”			—				—				7,300			US$	7,446				—				—				7,300			US$	7,440			US$	7,448			US$	(8	)			—				—
		Citigroup Inc.		”			—				—				5,000			US$	5,490				—				—				5,000			US$	5,478			US$	5,360			US$	118				—				—
		Coca Cola Co.		”			—				—				4,000			US$	4,002				—				—				4,000			US$	4,003			US$	4,000			US$	3				—				—
		Countrywide Finl Corp.		”			—				—				4,000			US$	4,208				—				—				4,000			US$	4,221			US$	4,291			US$	(70	)			—				—
		Credit Suisse New York		”			—				—				3,945			US$	4,090				—				—				3,945			US$	4,069			US$	4,073			US$	(4	)			—				—
		Credit Suisse New York		”			—				—				—				—				3,200			US$	3,200				3,200			US$	3,238			US$	3,200			US$	38				—				—
		Dexia Credit Local		”			—				—				6,000			US$	5,976				—				—				6,000			US$	5,983			US$	6,000			US$	(17	)			—				—
		Dexia Credit Local		”			—				—				4,000			US$	3,984				—				—				4,000			US$	3,927			US$	4,000			US$	(73	)			—				—
		Dexia Credit Local S.A		”			—				—				4,000			US$	3,992				—				—				4,000			US$	3,976			US$	4,000			US$	(24	)			—				—
		Dexia Credit Local SA NY		”			—				—				5,000			US$	4,983				—				—				5,000			US$	4,952			US$	5,000			US$	(48	)			—				—
		Finance for Danish Ind		”			—				—				3,800			US$	3,799				—				—				3,800			US$	3,808			US$	3,801			US$	7				—				—
		General Elec Cap Corp.		”			—				—				7,000			US$	7,002				—				—				7,000			US$	7,005			US$	7,002			US$	3				—				—
		General Elec Cap Corp.		”			—				—				4,000			US$	4,110				—				—				4,000			US$	4,095			US$	4,117			US$	(22	)			—				—
		General Elec Cap Corp.		”			—				—				—				—				5,000			US$	5,000				5,000			US$	5,037			US$	5,000			US$	37				—				—
		Georgia Pwr Co.		”			—				—				4,000			US$	4,006				—				—				4,000			US$	4,002			US$	4,024			US$	(22	)			—				—
		Gmac LLC		”			—				—				4,600			US$	4,731				—				—				4,600			US$	4,715			US$	4,726			US$	(11	)			—				—
		Goldman Sachs Group Inc.		”			—				—				—				—				3,400			US$	3,400				3,400			US$	3,425			US$	3,400			US$	25				—				—
		Hewlett Packard Co.		”			—				—				3,000			US$	3,003				—				—				3,000			US$	3,004			US$	2,995			US$	9				—				—
		Household Fin Corp.		”			—				—				4,330			US$	4,694				—				—				4,330			US$	4,662			US$	4,781			US$	(119	)			—				—
		HSBC Bank Plc		”			—				—				3,400			US$	3,405				—				—				3,400			US$	3,407			US$	3,407				—				—				—
		HSBC Fin Corp.		”			—				—				2,900			US$	3,074				—				—				2,900			US$	3,074			US$	3,142			US$	(68	)			—				—
		IBM Corp.		”			—				—				6,800			US$	6,775				—				—				6,800			US$	6,781			US$	6,772			US$	9				—				—
		Inc Bk Nv Neth St Cr Gtee		”			—				—				—				—				8,500			US$	8,668				8,500			US$	8,655			US$	8,668			US$	(13	)			—				—
		John Deer Capital Corp. Fdic GT		”			—				—				3,500			US$	3,616				—				—				3,500			US$	3,601			US$	3,634			US$	(33	)			—				—
		JP Morgan Chase + Co.		”			—				—				5,000			US$	5,021				—				—				5,000			US$	5,032			US$	5,000			US$	32				—				—
		Lloyds Tsb Bank Plc Ser 144A		”			—				—				5,950			US$	6,009				—				—				5,950			US$	6,007			US$	6,077			US$	(70	)			—				—
		Macquarie Bk Ltd. Sr		”			—				—				3,900			US$	3,975				9,300			US$	9,472				13,200			US$	13,423			US$	13,455			US$	(32	)			—				—
		Massmutual Global Fdg II Mediu		”			—				—				4,000			US$	3,955				—				—				4,000			US$	3,991			US$	3,926			US$	65				—				—
		Mellon Fdg Corp.		”			—				—				3,500			US$	3,475				—				—				3,500			US$	3,479			US$	3,404			US$	75				—				—
		Merck + Co. Inc.		”			—				—				4,000			US$	4,032				—				—				4,000			US$	4,013			US$	4,066			US$	(53	)			—				—
		Merrill Lynch + Co. Inc.		”			—				—				4,691			US$	4,647				—				—				4,691			US$	4,669			US$	4,603			US$	66				—				—
		Merrill Lynch + Co. Inc.		”			—				—				—				—				4,000			US$	4,335				4,000			US$	4,319			US$	4,335			US$	(16	)			—				—
		Met Life Glob Funding I		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,004			US$	3,000			US$	4				—				—
		Metlife Inc.		”			—				—				6,500			US$	6,600				—				—				6,500			US$	6,584			US$	6,527			US$	57				—				—
		Microsoft Corp.		”			—				—				3,250			US$	3,232				—				—				3,250			US$	3,224			US$	3,249			US$	(25	)			—				—
		Morgan Stanley		”			—				—				—				—				9,000			US$	9,000				9,000			US$	9,140			US$	9,000			US$	140				—				—
		Morgan Stanley Dean Witter		”			—				—				8,000			US$	8,524				—				—				8,000			US$	8,513			US$	8,797			US$	(284	)			—				—
		National Australia Bank		”			—				—				—				—				3,000			US$	3,035				3,000			US$	3,040			US$	3,034			US$	6				—				—
		Pepsiamericas Inc.		”			—				—				—				—				4,000			US$	4,329				4,000			US$	4,308			US$	4,329			US$	(21	)			—				—
		Philip Morris Intl Inc.		”			—				—				—				—				4,000			US$	4,640				4,000			US$	4,591			US$	4,640			US$	(49	)			—				—
		Princoa Global Fdg I Medium		”			—				—				5,050			US$	5,011				—				—				5,050			US$	5,042			US$	4,921			US$	121				—				—
		Rabobank Nederland		”			—				—				5,000			US$	5,000				—				—				5,000			US$	5,000			US$	4,997			US$	3				—				—
		Royal Bk of Scotland Plc		”			—				—				5,000			US$	5,052				—				—				5,000			US$	5,045			US$	5,106			US$	(61	)			—				—
		Royal Bk Scotlnd Grp Plc 144A		”			—				—				9,450			US$	9,516				—				—				9,450			US$	9,517			US$	9,596			US$	(79	)			—				—

(Continued)

 

- 48 -

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Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/ Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Shares/Units (In  Thousands) (Note 1)				Amount (Foreign Currencies  in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Sanofi Aventis		Available-for-sale financial assets			—				—				—			US$	—				4,000			US$	4,000				4,000			US$	4,003			US$	4,000			US$	3				—			US$	—
		Sanofi Aventis		”			—				—				—				—				3,870			US$	3,870				3,870			US$	3,884			US$	3,870			US$	14				—				—
		Shell International Fin		”			—				—				4,515			US$	4,536				—				—				4,515			US$	4,533			US$	4,527			US$	6				—				—
		Shell International Fin		”			—				—				3,200			US$	3,248				—				—				3,200			US$	3,256			US$	3,227			US$	29				—				—
		Standard Chartered BK NY		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,001			US$	3,000			US$	1				—				—
		State Str Corp.		”			—				—				6,420			US$	6,417				—				—				6,420			US$	6,423			US$	6,382			US$	41				—				—
		Sun Life Finl Global		”			—				—				4,400			US$	4,332				—				—				4,400			US$	4,351			US$	4,304			US$	47				—				—
		Suncorp Metway Ltd.		”			—				—				8,800			US$	8,982				—				—				8,800			US$	8,937			US$	9,125			US$	(188	)			—				—
		Swedbank Hypotek AB		”			—				—				4,000			US$	3,993				—				—				4,000			US$	3,998			US$	4,002			US$	(4	)			—				—
		Swedbank Hypotek AB		”			—				—				—				—				4,100			US$	4,100				4,100			US$	4,086			US$	4,100			US$	(14	)			—				—
		Teva Pharm Fin III		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,019			US$	4,000			US$	19				—				—
		Teva Pharma Fin III LLC		”			—				—				4,000			US$	4,016				—				—				4,000			US$	4,011			US$	4,000			US$	11				—				—
		Total Capital Canada Ltd.		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,013			US$	4,000			US$	13				—				—
		United Technologies Corp.		”			—				—				—				—				4,000			US$	4,265				4,000			US$	4,244			US$	4,266			US$	(22	)			—				—
		US Central Federal Cred		”			—				—				4,000			US$	4,084				4,500			US$	4,599				8,500			US$	8,664			US$	8,692			US$	(28	)			—				—
		Verizon Communications		”			—				—				—				—				7,725			US$	7,725				7,725			US$	7,785			US$	7,725			US$	60				—				—
		Virginia Elec + Pwr Co.		”			—				—				—				—				3,250			US$	3,489				3,250			US$	3,461			US$	3,489			US$	(28	)			—				—
		Volkswagen Intl Fin NV		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,010			US$	4,000			US$	10				—				—
		Wachovia Corp. Global Medium		”			—				—				5,000			US$	5,141				—				—				5,000			US$	5,142			US$	5,138			US$	4				—				—
		Wal Mart Stores Inc.		”			—				—				4,000			US$	3,964				—				—				4,000			US$	3,968			US$	3,986			US$	(18	)			—				—
		Wal Mart Stores Inc.		”			—				—				3,770			US$	4,325				—				—				3,770			US$	4,261			US$	4,383			US$	(122	)			—				—
		Westpac Banking Corp.		”			—				—				3,500			US$	3,514				—				—				3,500			US$	3,511			US$	3,500			US$	11				—				—
		Westpac Banking Corp.		”			—				—				4,000			US$	4,005				—				—				4,000			US$	4,022			US$	4,044			US$	(22	)			—				—
		Wyeth		”			—				—				3,345			US$	3,657				638			US$	697				3,983			US$	4,325			US$	4,397			US$	(72	)			—				—
		Deutsche Bank AG London		Held-to-maturity financial assets			—				—				—				—				20,000			US$	19,884				—				—				—				—				20,000			US$	19,884
		Government bond
		US Treasury N/B		Available-for-sale financial assets			—				—				41,700			US$	42,042				—				—				41,700			US$	42,042			US$	41,729			US$	313				—				—
		US Treasury N/B		”			—				—				11,100			US$	10,976				—				—				11,100			US$	10,941			US$	11,084			US$	(143	)			—				—
		US Treasury N/B		”			—				—				7,000			US$	7,079				—				—				7,000			US$	7,077			US$	7,078			US$	(1	)			—				—
		US Treasury N/B		”			—				—				5,250			US$	5,212				30,175			US$	29,906				35,425			US$	35,154			US$	35,101			US$	53				—				—
		US Treasury N/B		”			—				—				—				—				19,900			US$	19,872				19,900			US$	19,888			US$	19,872			US$	16				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,084				10,000			US$	10,073			US$	10,084			US$	(11	)			—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,042				10,000			US$	10,046			US$	10,042			US$	4				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,024				10,000			US$	10,035			US$	10,024			US$	11				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	9,988				10,000			US$	9,990			US$	9,988			US$	2				—				—
		US Treasury N/B		”			—				—				—				—				3,300			US$	3,301				3,300			US$	3,298			US$	3,301			US$	(3	)			—				—
		Agency bond
		Fannie Mae		Available-for-sale financial assets			—				—				16,104			US$	16,102				—				—				16,104			US$	16,116			US$	16,098			US$	18				—				—
		Fannie Mae		”			—				—				11,100			US$	11,096				—				—				11,100			US$	11,109			US$	11,096			US$	13				—				—
		Fannie Mae		”			—				—				8,765			US$	8,763				11,500			US$	11,503				20,265			US$	20,280			US$	20,262			US$	18				—				—
		Fannie Mae		”			—				—				4,600			US$	4,589				—				—				4,600			US$	4,606			US$	4,598			US$	8				—				—
		Fannie Mae		”			—				—				3,900			US$	3,861				—				—				3,900			US$	3,851			US$	3,899			US$	(48	)			—				—
		Fannie Mae		”			—				—				3,000			US$	2,994				—				—				3,000			US$	3,000			US$	3,009			US$	(9	)			—				—
		Fannie Mae		”			—				—				—				—				20,300			US$	20,269				20,300			US$	20,301			US$	20,269			US$	32				—				—
		Fannie Mae		”			—				—				—				—				11,045			US$	12,104				11,045			US$	12,044			US$	12,104			US$	(60	)			—				—
		Fannie Mae		”			—				—				—				—				7,500			US$	7,500				7,500			US$	7,508			US$	7,500			US$	8				—				—
		Fannie Mae		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,008			US$	3,000			US$	8				—				—
		Federal Farm Credit Bank		”			—				—				4,000			US$	3,994				—				—				4,000			US$	4,002			US$	3,995			US$	7				—				—

(Continued)

 

- 49 -

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Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/Units (In Thousands) (Note 1)				Amount (Foreign Currencies  in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Federal Farm Credit Bank		Available-for-sale financial assets			—				—				4,000			US$	3,984				—			US$	—				4,000			US$	3,986			US$	3,998			US$	(12	)			—			US$	—
		Federal Farm Credit Bank		”			—				—				—				—				4,000			US$	4,002				4,000			US$	4,003			US$	4,002			US$	1				—				—
		Federal Home Loan Bank		”			—				—				5,000			US$	5,007				—				—				5,000			US$	5,007			US$	5,009			US$	(2	)			—				—
		Federal Home Loan Bank		”			—				—				6,800			US$	6,817				—				—				6,800			US$	6,817			US$	6,811			US$	6				—				—
		Federal Home Loan Bank		”			—				—				8,000			US$	8,040				—				—				8,000			US$	8,033			US$	7,990			US$	43				—				—
		Federal Home Loan Bank		”			—				—				10,000			US$	9,998				—				—				10,000			US$	10,001			US$	9,985			US$	16				—				—
		Federal Home Loan Bank		”			—				—				8,400			US$	8,397				—				—				8,400			US$	8,400			US$	8,399			US$	1				—				—
		Federal Home Ln Bks		”			—				—				5,000			US$	5,046				—				—				5,000			US$	5,043			US$	5,098			US$	(55	)			—				—
		Federal Home Ln Mtg Corp.		”			—				—				3,732			US$	3,727				—				—				3,340			US$	3,340			US$	3,341			US$	(1	)			—				—
		Federal Home Ln Mtg Corp.		”			—				—				3,324			US$	3,453				—				—				3,161			US$	3,288			US$	3,360			US$	(72	)			—				—
		Federal Home Loan Mtg Corp.		”			—				—				5,183			US$	5,168				—				—				4,634			US$	4,634			US$	4,632			US$	2				—				—
		Fhr 2953 Da		”			—				—				3,284			US$	3,466				—				—				2,846			US$	3,028			US$	2,993			US$	35				—				—
		Fhr 3184 Fa		”			—				—				4,096			US$	4,084				—				—				3,810			US$	3,807			US$	3,806			US$	1				—				—
		Fnma Tba Jan 15 Single Fam		”			—				—				—				—				3,000			US$	3,147				3,000			US$	3,142			US$	3,147			US$	(5	)			—				—
		Fnma Tba Feb 15 Single Fam		”			—				—				—				—				3,000			US$	3,138				3,000			US$	3,117			US$	3,138			US$	(21	)			—				—
		Fnma Tba Mar 15 Single Fam		”			—				—				—				—				3,000			US$	3,110				3,000			US$	3,140			US$	3,110			US$	30				—				—
		Fnma Tba Apr 15 Single Fam		”			—				—				—				—				3,000			US$	3,131				3,000			US$	3,164			US$	3,131			US$	33				—				—
		Fnr 2006 60 CO		”			—				—				3,485			US$	3,483				—				—				3,274			US$	3,274			US$	3,272			US$	2				—				—
		Fnr 2009 116 A		”			—				—				4,271			US$	4,640				—				—				3,841			US$	4,137			US$	4,122			US$	15				—				—
		Freddie Mac		”			—				—				5,750			US$	5,764				—				—				5,750			US$	5,761			US$	5,771			US$	(10	)			—				—
		Freddie Mac		”			—				—				4,300			US$	4,316				—				—				4,300			US$	4,312			US$	4,308			US$	4				—				—
		Freddie Mac		”			—				—				10,420			US$	10,411				—				—				10,420			US$	10,414			US$	10,412			US$	2				—				—
		Freddie Mac		”			—				—				—				—				19,000			US$	18,981				19,000			US$	18,986			US$	18,981			US$	5				—				—
		Freddie Mac		”			—				—				—				—				3,550			US$	3,549				3,550			US$	3,553			US$	3,549			US$	4				—				—
		Freddie Mac		”			—				—				—				—				14,200			US$	14,196				14,200			US$	14,204			US$	14,196			US$	8				—				—
		Gnr 2009 45 AB		”			—				—				4,417			US$	4,496				—				—				3,082			US$	3,129			US$	3,215			US$	(86	)			—				—
		Government Natl Mtg Assn		”			—				—				3,050			US$	3,285				—				—				3,050			US$	3,202			US$	3,278			US$	(76	)			—				—
		Ngn 2010 R2 1A		”			—				—				3,732			US$	3,731				—				—				3,490			US$	3,492			US$	3,490			US$	2				—				—
		Ngn 2011 R4 1A		”			—				—				—				—				4,000			US$	4,000				3,914			US$	3,914			US$	3,914				—				—				—
		Money market fund
		Ssga Cash Mgmt Global Offshore		Available-for-sale financial assets			—				—				12,387			US$	12,387				764,155			US$	764,155				776,459			US$	776,459			US$	776,459				—				83			US$	83

 

Note 1:		The shares/units and amount of marketable securities acquired do not include stock dividends from investees.
Note 2:		The data for marketable securities disposed exclude bonds maturities and redemption by the issuer.
Note 3:		The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments, equity in earnings/losses of equity method investees, other adjustments to long-term investment using equity method and amounts transferred from spin-off.

(Concluded)

 

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TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Investees

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name

Types  of Property

Transaction Date

Transaction Amount

Payment Term

Counter-party

Nature of Relationships

Prior Transaction of Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Fab

January 5, 2011 to November 10, 2011

$1,018,438

By the construction progress

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 7, 2011 to December 27, 2011

152,099

By the construction progress

Lead Fu Industrials Corp.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 26, 2011 to December 27, 2011

222,928

By the construction progress

MandarTech Interiors Inc.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 26, 2011 to December 27, 2011

173,899

By the construction progress

I Domain Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 27, 2011

2,425,769

By the construction progress

Da Cin Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 27, 2011

2,036,095

By the construction progress

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to July 24, 2011

480,672

By the construction progress

Tasa Construction Corporation

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 28, 2011

219,004

By the construction progress

Edg Corporation Ltd.

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

February 24, 2011 to December 27, 2011

229,992

By the construction progress

Yankey Engineering Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Xintec

Fab

February 17, 2011

1,050,000

Based on the agreement

Vertex Precision Electronics Inc.

—

N/A

N/A

N/A

N/A

Pricing report

Manufacturing purpose

None

 

- 51 -

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TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Investees

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction								Notes/Accounts Payable or Receivable								Note
						Purchases/ Sales		Amount				% to Total				Payment Terms		Unit Price (Note)				Payment Terms (Note)				Ending Balance				% to Total
TSMC		TSMC North America		Subsidiary		Sales		$	234,902,043				56			Net 30 days after invoice date			—				—			$	24,661,104				55
		GUC		Investee accounted for using equity method		Sales			3,388,912				1			Net 30 days after monthly closing			—				—				116,218				—
		VIS		Investee accounted for using equity method		Sales			302,844				—			Net 30 days after monthly closing			—				—				—				—
		TSMC Solar Europe GmbH		Indirect subsidiary		Sales			148,898				—			Net 60 days after invoice date			—				—				—				—
		TSMC China		Subsidiary		Purchases			10,392,189				21			Net 30 days after monthly closing			—				—				(946,826	)			8
		WaferTech		Indirect subsidiary		Purchases			7,305,879				15			Net 30 days after monthly closing			—				—				(420,459	)			3
		VIS		Investee accounted for using equity method		Purchases			5,577,762				12			Net 30 days after monthly closing			—				—				(987,937	)			8
		SSMC		Investee accounted for using equity method		Purchases			3,949,176				8			Net 30 days after monthly closing			—				—				(336,037	)			3
		Motech		Indirect investee accounted for using the equity method		Purchases			124,673				—			Net 30 days after monthly closing			—				—				—				—
Xintec		OmniVision		Parent company of director (represented for Xintec)		Sales			1,829,969				47			Net 30 days after monthly closing			—				—				241,333				51
		TSMC		Parent company		Sales			267,841				7			Net 30 days after monthly closing			—				—				17,326				4

 

Note:

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

- 52 -

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TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Investees

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name		Related Party		Nature of Relationships		Ending Balance				Turnover Days (Note 1)				Overdue						Amounts Received in Subsequent Period				Allowance for Bad Debts
														Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	24,684,991				39			$	9,115,109			—		$	14,946,365			$	—
		GUC		Investee accounted for using equity method			116,218				15				—			—			—				—
Xintec		OmniVision		Parent company of director (represented for Xintec)			241,333				36				—			—			—				—

Note 1: The calculation of turnover days excludes other receivables from related parties.

 

- 53 -

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TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Investees

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2011												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2011 (Foreign Currencies in Thousands)				December 31, 2010 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	44,071,845			$	431,368			$	431,368			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry			31,456,130				31,456,130				988,268				100				34,986,964				1,745,799				1,745,799			Subsidiary
		TSMC China		Shanghai, China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers			18,939,667				12,180,367				—				100				13,542,181				2,113,521				2,098,233			Subsidiary
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				—				1,118,000				100				10,153,244				(982,868	)			(982,868	)		Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			13,232,288				13,232,288				628,223				39				8,988,007				882,183				(10,337	)		Investee accounted for using equity method
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				6,289,429				3,370,241				1,143,147			Investee accounted for using equity method
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				2,981,639				197,493				197,493			Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			2,270,000				—				227,000				100				1,746,893				(523,002	)			(523,002	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,011				40				1,606,694				166,603				54,449			Investee with a controlling financial interest
		VTAF III		Cayman Islands		Investing in new start-up technology companies			2,074,155 (Note 4	)			3,565,441 (Note 4	)			—				53				1,311,044				(280,045	)			(273,038	)		Subsidiary
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,157,188				527,406				183,843			Investee accounted for using equity method
		VTAF II		Cayman Islands		Investing in new start-up technology companies			949,267				1,166,470				—				98				762,135				32,275				31,629			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			892,855				971,785				—				99				213,235				(11,185	)			(11,129	)		Subsidiary (Note 3)
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				205,171				34,937				34,937			Subsidiary (Note 3)
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				161,601				4,523				4,523			Subsidiary (Note 3)
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				23,448				3,263				3,263			Subsidiary (Note 3)
TSMC Solar		Motech		Taipei, Taiwan		Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems			6,228,661 (Note 4	)			6,228,661 (Note 4	)			87,480				20				5,612,344				(2,193,504	)			Note 2			Investee accounted for using equity method
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,795,131 (Note 4	)			3,565,441 (Note 4	)			—				46				1,681,719				(280,045	)			Note 2			Investee accounted for using equity method
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			411,032 (Note 4	)			25,350 (Note 4	)			—				100				204,163				(196,659	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			147,686 (Note 4	)			60,962 (Note 4	)			1				100				52,187				(63,192	)			Note 2			Subsidiary
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products			3,133 (Note 4	)			3,133 (Note 4	)			1				100				2,994				(34	)			Note 2			Subsidiary

(Continued)

 

- 54 -

---

 

Investor Company

Investee Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of December 31, 2011

Net Income (Losses) of the Investee (Foreign Currencies in Thousands)

Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)

Note

December 31, 2011 (Foreign Currencies in Thousands)

December 31, 2010 (Foreign Currencies in Thousands)

Shares (In Thousands)

Percentage of Ownership

Carrying Value (Foreign Currencies in Thousands)

TSMC Partners

TSMC Development

Delaware, U.S.A.

Investment activities

US$

0.001

US$

0.001

1

100

US$

460,034

US$

56,777

Note 2

Subsidiary

VisEra Holding Company

Cayman Islands

Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry

US$

43,000

US$

43,000

43,000

49

US$

94,208

US$

29,054

Note 2

Investee accounted for using equity method

ISDF

Cayman Islands

Investing in new start-up technology companies

US$

787

US$

4,088

787

97

US$

11,112

US$

3,656

Note 2

Subsidiary

TSMC Technology

Delaware, U.S.A.

Engineering support activities

US$

0.001

US$

0.001

1

100

US$

10,615

US$

737

Note 2

Subsidiary (Note 3)

ISDF II

Cayman Islands

Investing in new start-up technology companies

US$

14,153

US$

16,532

14,153

97

US$

9,994

US$

(642

)

Note 2

Subsidiary

TSMC Canada

Ontario, Canada

Engineering support activities

US$

2,300

US$

2,300

2,300

100

US$

4,059

US$

435

Note 2

Subsidiary (Note 3)

Mcube Inc. (common stock)

Delaware, U.S.A.

Research, development, and sale of micro-semiconductor device

US$

800

US$

800

5,333

80

—

US$

(13,586

)

Note 2

Investee accounted for using equity method (Note 3)

Mcube Inc. (preferred stock)

Delaware, U.S.A.

Research, development, and sale of micro-semiconductor device

US$

1,000

US$

1,000

1,000

5

—

US$

(13,586

)

Note 2

Investee accounted for using equity method (Note 3)

TSMC Development

WaferTech

Washington, U.S.A.

Manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices

US$

280,000

US$

280,000

293,640

100

US$

220,119

US$

54,908

Note 2

Subsidiary

VTAF III

Mutual-Pak Technology Co., Ltd.

Taipei, Taiwan

Manufacturing and selling of electronic parts and researching, developing, and testing of RFID

US$

3,937

US$

3,937

11,868

57

US$

1,204

US$

(1,458

)

Note 2

Subsidiary (Note 3)

Growth Fund

Cayman Islands

Investing in new start-up technology companies

US$

1,830

US$

1,700

—

100

US$

510

US$

(466

)

Note 2

Subsidiary (Note 3)

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

62

—

—

Note 2

Subsidiary (Note 3)

VTAF II

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

31

—

—

Note 2

Subsidiary (Note 3)

Emerging Alliance

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

7

—

—

Note 2

Subsidiary (Note 3)

TSMC Solar Europe

TSMC Solar Europe GmbH

Hamburg, Germany

Selling of solar related products and providing customer service

EUR 9,900

EUR 100

1

100

EUR 5,103

EUR

(4,787)

Note 2

Subsidiary

 

Note 1:		Equity in earnings/losses of investees include the effect of unrealized gross profit from affiliates.
Note 2:		The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.
Note 3:		Equity in earnings/losses was determined based on the unaudited financial statements.
Note 4:		In August 2011, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.

(Concluded)

 

- 55 -

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TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Investees

INFORMATION OF INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of Investment				Accumulated Outflow of Investment from Taiwan as of January 1, 2011 (US$ in Thousand)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2011 (US$ in Thousands)				Percentage of Ownership				Equity in the Earnings (Losses)				Carrying Value as of December 31, 2011 (US$ in Thousands)				Accumulated Inward Remittance of Earnings as of December 31, 2011
																Outflow (US$ in Thousands)				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$	18,939,667 (RMB 4,502,080	)			(Note1	)		$ (US$	12,180,367 371,000	)		$ (US$	6,759,300 225,000	)		$	—			$ (US$	18,939,667 596,000	)			100	%		$	2,098,233 (Note 3	)		$	13,542,181			$	—
Shanghai Walden Venture Capital Enterprise		Investing in new start-up technology companies		(US$	953,709 31,488	)			(Note2	)			—			(US$	147,485 5,000	)			—			(US$	147,485 5,000	)			8	%			(Note 4	)		(US$	151,440 5,000	)			—

 

Accumulated Investment in Mainland China as of December 31, 2011 (US$ in Thousand)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand)				Upper Limit on  Investment (US$ in Thousand)
$ 19,087,152 (US$ 601,000)		$ (US$	19,087,152 601,000	)		$ (US$	19,087,152 601,000	)

 

Note 1:		TSMC directly invested US$596,000 thousand in TSMC China.
Note 2:		TSMC indirectly invested in China company through third region, TSMC Partners.
Note 3:		Amount was recognized based on the audited financial statements.
Note 4:		TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

 

- 56 -

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Taiwan Semiconductor Manufacturing

Company Limited and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2011 and 2010 and

Independent Auditors’ Report

---

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of Taiwan Semiconductor Manufacturing Company Limited as of and for the year ended December 31, 2011, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the revised Statement of Financial Accounting Standards No. 7, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries do not prepare a separate set of combined financial statements.

Very truly yours,

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED

 

By
/S/ MORRIS CHANG
MORRIS CHANG
Chairman
February 14, 2012

 

- 1 -

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying consolidated balance sheets of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of December 31, 2011 and 2010, and the results of their consolidated operations and their consolidated cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

February 14, 2012

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and consolidated financial statements shall prevail.

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Par Value)

 

		2011								2010
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	143,472,277				19			$	147,886,955				20
Financial assets at fair value through profit or loss (Notes 2, 5 and 26)			15,360				—				6,886				—
Available-for-sale financial assets (Notes 2, 6 and 26)			3,308,770				—				28,883,728				4
Held-to-maturity financial assets (Notes 2, 7 and 26)			3,825,680				1				4,796,589				1
Receivables from related parties (Notes 3 and 27)			185,764				—				2,722				—
Notes and accounts receivable (Note 3)			46,321,240				6				51,029,885				7
Allowance for doubtful receivables (Notes 2, 3 and 8)			(490,952	)			—				(504,029	)			—
Allowance for sales returns and others (Notes 2 and 8)			(5,068,263	)			(1	)			(7,546,264	)			(1	)
Other receivables from related parties (Notes 3 and 27)			122,292				—				124,586				—
Other financial assets (Note 28)			617,142				—				1,021,552				—
Inventories (Notes 2 and 9)			24,840,582				3				28,405,984				4
Deferred income tax assets (Notes 2 and 20)			5,936,490				1				5,373,076				1
Prepaid expenses and other current assets			2,174,014				—				2,037,647				—
Total current assets			225,260,396				29				261,519,317				36
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 12 and 26)
Investments accounted for using equity method			24,900,332				3				25,815,385				4
Available-for-sale financial assets			—				—				1,033,049				—
Held-to-maturity financial assets			5,243,167				1				8,502,887				1
Financial assets carried at cost			4,315,005				1				4,424,207				1
Total long-term investments			34,458,504				5				39,775,528				6
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 13, 27 and 28)
Cost
Land and land improvements			1,541,128				—				891,197				—
Buildings			172,872,550				22				145,966,024				20
Machinery and equipment			1,057,588,736				137				913,155,252				127
Office equipment			16,969,266				2				14,856,582				2
Leased assets			791,480				—				701,552				—
			1,249,763,160				161				1,075,570,607				149
Accumulated depreciation			(876,252,220	)			(113	)			(773,278,157	)			(107	)
Advance payments and construction in progress			116,863,976				15				86,151,573				12
Net property, plant and equipment			490,374,916				63				388,444,023				54
INTANGIBLE ASSETS
Goodwill (Note 2)			5,693,999				1				5,704,897				1
Deferred charges, net (Notes 2 and 14)			5,167,564				—				6,027,085				1
Total intangible assets			10,861,563				1				11,731,982				2
OTHER ASSETS
Deferred income tax assets (Notes 2 and 20)			7,436,717				1				7,362,784				1
Refundable deposits			4,518,863				1				8,677,970				1
Others (Notes 2 and 28)			1,353,983				—				1,417,300				—
Total other assets			13,309,563				2				17,458,054				2
TOTAL		$	774,264,942				100			$	718,928,904				100

 

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		2011								2010
		Amount				%				Amount				%
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note 15)		$	25,926,528				3			$	31,213,944				4
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 26)			13,742				—				19,002				—
Hedging derivative financial liabilities (Notes 2, 11 and 26)			232				—				814				—
Accounts payable			10,530,487				1				12,104,173				2
Payables to related parties (Note 27)			1,328,521				—				867,085				—
Income tax payable (Notes 2 and 20)			10,656,124				1				7,184,697				1
Salary and bonus payable			6,148,499				1				6,424,064				1
Accrued profit sharing to employees and bonus to directors and supervisors
(Notes 2 and 22)			9,081,293				1				11,096,147				2
Payables to contractors and equipment suppliers			35,540,526				5				43,259,857				6
Accrued expenses and other current liabilities (Notes 18, 26 and 30)			13,218,235				2				10,779,923				1
Current portion of bonds payable and long-term bank loans (Notes 16, 17, 26 and 28)			4,562,500				1				241,407				—
Total current liabilities			117,006,687				15				123,191,113				17
LONG-TERM LIABILITIES
Bonds payable (Notes 16 and 26)			18,000,000				3				4,500,000				1
Long-term bank loans (Notes 17, 26 and 28)			1,587,500				—				301,561				—
Other long-term payables (Notes 18, 26 and 30)			—				—				6,554,208				1
Obligations under capital leases (Notes 2, 13 and 26)			870,993				—				694,986				—
Total long-term liabilities			20,458,493				3				12,050,755				2
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 19)			3,908,508				—				3,812,351				1
Guarantee deposits (Note 30)			443,983				—				789,098				—
Deferred credits			26,533				—				126,539				—
Others			377,187				—				254,643				—
Total other liabilities			4,756,211				—				4,982,631				1
Total liabilities			142,221,391				18				140,224,499				20
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock - NT$10 par value (Note 22)
Authorized: 28,050,000 thousand shares
Issued: 25,916,222 thousand shares in 2011
25,910,078 thousand shares in 2010			259,162,226				33				259,100,787				36
Capital surplus (Notes 2 and 22)			55,846,357				7				55,698,434				8
Retained earnings (Note 22)
Appropriated as legal capital reserve			102,399,995				13				86,239,494				12
Appropriated as special capital reserve			6,433,874				1				1,313,047				—
Unappropriated earnings			213,357,286				28				178,227,030				24
			322,191,155				42				265,779,571				36
Others (Notes 2, 11, 24 and 26)
Cumulative translation adjustments			(6,433,369	)			(1	)			(6,543,163	)			(1	)
Unrealized gain (loss) on financial instruments			(1,172,855	)			—				109,289				—
			(7,606,224	)			(1	)			(6,433,874	)			(1	)
Equity attributable to shareholders of the parent			629,593,514				81				574,144,918				79
MINORITY INTERESTS (Note 2)			2,450,037				1				4,559,487				1
Total shareholders’ equity			632,043,551				82				578,704,405				80
TOTAL		$	774,264,942				100			$	718,928,904				100

The accompanying notes are an integral part of the consolidated financial statements.

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

		2011								2010
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 27)		$	430,490,500							$	431,630,858
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			3,409,855								12,092,947
NET SALES			427,080,645				100				419,537,911				100
COST OF SALES (Notes 9, 21 and 27)			232,937,388				55				212,484,320				51
GROSS PROFIT BEFORE AFFILIATES ELIMINATION			194,143,257				45				207,053,591				49
UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)			(74,029	)			—				—				—
GROSS PROFIT			194,069,228				45				207,053,591				49
OPERATING EXPENSES (Notes 21 and 27)
Research and development			33,829,880				8				29,706,662				7
General and administrative			14,164,114				3				12,803,997				3
Marketing			4,517,816				1				5,367,597				1
Total operating expenses			52,511,810				12				47,878,256				11
INCOME FROM OPERATIONS			141,557,418				33				159,175,335				38
NON-OPERATING INCOME AND GAINS
Interest income			1,479,514				1				1,665,193				—
Settlement income (Note 30)			947,340				—				6,939,764				2
Equity in earnings of equity method investees, net (Notes 2 and 10)			897,611				—				2,298,159				1
Valuation gain on financial instruments, net (Notes 2, 5 and 26)			507,432				—				320,730				—
Technical service income (Notes 27 and 30)			407,089				—				450,503				—
Gain on settlement and disposal of financial assets, net (Notes 2 and 26)			233,214				—				736,843				—
Others (Notes 2 and 27)			886,327				—				724,880				—
Total non-operating income and gains			5,358,527				1				13,136,072				3

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

		2011								2010
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Interest expense		$	626,725				—			$	425,356				—
Impairment of financial assets (Notes 2, 12 and 26)			265,515				—				159,798				—
Loss on disposal of property, plant and equipment (Note 2)			200,673				—				849,254				—
Foreign exchange loss, net (Note 2)			185,555				—				99,130				—
Impairment loss on idle assets (Note 2)			98,009				—				319				—
Casualty loss (Note 9)			—				—				190,992				—
Others (Note 2)			391,791				—				316,163				—
Total non-operating expenses and losses			1,768,268				—				2,041,012				—
INCOME BEFORE INCOME TAX			145,147,677				34				170,270,395				41
INCOME TAX EXPENSE (Notes 2 and 20)			10,694,417				3				7,988,465				2
NET INCOME		$	134,453,260				31			$	162,281,930				39
ATTRIBUTABLE TO:
Shareholders of the parent		$	134,201,279				31			$	161,605,009				39
Minority interests			251,981				—				676,921				—
		$	134,453,260				31			$	162,281,930				39

 

		2011								2010
		Income Attributable to Shareholders of the Parent								Income Attributable to Shareholders of the Parent
		Before Income Tax				After Income Tax				Before Income Tax				After Income Tax
EARNINGS PER SHARE (NT$, Note 25)
Basic earnings per share		$	5.59			$	5.18			$	6.54			$	6.24
Diluted earnings per share		$	5.59			$	5.18			$	6.54			$	6.23

 

The accompanying notes are an integral part of the consolidated financial statements.		(Concluded)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

 

		Equity Attributable to Shareholders of the Parent
																														Others
		Capital Stock - Common Stock												Retained Earnings																Cumulative Translation Adjustments				Unrealized Gain (Loss) On Financial Instruments																Total Shareholders’ Equity
		Shares (In Thousands)				Amount				Capital Surplus				Legal Capital Reserve				Special Capital Reserve				Unappropriated Earnings				Total												Treasury Stock				Total				Minority Interests
BALANCE, JANUARY 1, 2010			25,902,706			$	259,027,066			$	55,486,010			$	77,317,710			$	—			$	104,564,972			$	181,882,682			$	(1,766,667	)		$	453,621			$	—			$	495,082,712			$	3,965,836			$	499,048,548
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				8,921,784				—				(8,921,784	)			—				—				—				—				—				—				—
Special capital reserve			—				—				—				—				1,313,047				(1,313,047	)			—				—				—				—				—				—				—
Cash dividends to shareholders—NT$3.00 per share			—				—				—				—				—				(77,708,120	)			(77,708,120	)			—				—				—				(77,708,120	)			—				(77,708,120	)
Net income in 2010			—				—				—				—				—				161,605,009				161,605,009				—				—				—				161,605,009				676,921				162,281,930
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				(17,885	)			—				—				—				—				—				—				—				(17,885	)			4,387				(13,498	)
Translation adjustments			—				—				—				—				—				—				—				(4,776,496	)			—				—				(4,776,496	)			7,258				(4,769,238	)
Issuance of stock from exercising employee stock options			7,372				73,721				171,103				—				—				—				—				—				—				—				244,824				—				244,824
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				(337,970	)			—				(337,970	)			3,949				(334,021	)
Net change in shareholders’ equity from equity method investees			—				—				59,206				—				—				—				—				—				(6,031	)			—				53,175				31,702				84,877
Net change in unrealized gain/loss on hedging derivative financial instruments			—				—				—				—				—				—				—				—				(331	)			—				(331	)			(483	)			(814	)
Decrease in minority interests			—				—				—				—				—				—				—				—				—				—				—				(130,083	)			(130,083	)
BALANCE, DECEMBER 31, 2010			25,910,078				259,100,787				55,698,434				86,239,494				1,313,047				178,227,030				265,779,571				(6,543,163	)			109,289				—				574,144,918				4,559,487				578,704,405
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				16,160,501				—				(16,160,501	)			—				—				—				—				—				—				—
Special capital reserve			—				—				—				—				5,120,827				(5,120,827	)			—				—				—				—				—				—				—
Cash dividends to shareholders - NT$3.00 per share			—				—				—				—				—				(77,730,236	)			(77,730,236	)			—				—				—				(77,730,236	)			—				(77,730,236	)
Net income in 2011			—				—				—				—				—				134,201,279				134,201,279				—				—				—				134,201,279				251,981				134,453,260
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				59,898				—				—				—				—				—				—				—				59,898				1,152				61,050
Translation adjustments			—				—				—				—				—				—				—				109,794				—				—				109,794				7,587				117,381
Issuance of stock from exercising employee stock options			7,144				71,439				146,258				—				—				—				—				—				—				—				217,697				—				217,697
Net changes of valuation gain/loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				(1,241,249	)			—				(1,241,249	)			(3,325	)			(1,244,574	)
Net change in shareholders’ equity from equity method investees			—				—				(56,094	)			—				—				—				—				—				(41,133	)			—				(97,227	)			—				(97,227	)
Net change in unrealized gain/loss on hedging derivative financial instruments			—				—				—				—				—				—				—				—				238				—				238				344				582
Acquisition of treasury stock - shareholders executed the appraisal right			—				—				—				—				—				—				—				—				—				(71,598	)			(71,598	)			—				(71,598	)
Retirement of treasury stock			(1,000	)			(10,000	)			(2,139	)			—				—				(59,459	)			(59,459	)			—				—				71,598				—				—				—
Decrease in minority interests			—				—				—				—				—				—				—				—				—				—				—				(379,334	)			(379,334	)
Effect of changes in consolidated entities			—				—				—				—				—				—				—				—				—				—				—				(1,987,855	)			(1,987,855	)
BALANCE, DECEMBER 31, 2011			25,916,222			$	259,162,226			$	55,846,357			$	102,399,995			$	6,433,874			$	213,357,286			$	322,191,155			$	(6,433,369	)		$	(1,172,855	)		$	—			$	629,593,514			$	2,450,037			$	632,043,551

The accompanying notes are an integral part of the consolidated financial statements.

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to shareholders of the parent		$	134,201,279			$	161,605,009
Net income attributable to minority interests			251,981				676,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			107,681,521				87,810,103
Unrealized gross profit from affiliates			74,029				—
Amortization of premium/discount of financial assets			24,711				34,142
Impairment of financial assets			265,515				159,798
Gain on disposal of available-for-sale financial assets, net			(212,442	)			(603,368	)
Gain on disposal of financial assets carried at cost, net			(20,772	)			(133,475	)
Equity in earnings of equity method investees, net			(897,611	)			(2,298,159	)
Cash dividends received from equity method investees			2,848,141				320,002
Loss (gain) on disposal of property, plant and equipment and other assets, net			(3,286	)			633,230
Settlement income from receiving equity securities			(158,779	)			(4,434,364	)
Impairment loss on idle assets			98,009				319
Deferred income tax			(491,122	)			(377,248	)
Changes in operating assets and liabilities:
Financial assets and liabilities at fair value through profit or loss			(13,734	)			198,172
Receivables from related parties			123,265				9,802
Notes and accounts receivable			3,627,110				(6,392,243	)
Allowance for doubtful receivables			(12,844	)			(39,296	)
Allowance for sales returns and others			(2,478,001	)			(1,178,217	)
Other receivables from related parties			2,294				(3,294	)
Other financial assets			376,342				740,959
Inventories			2,611,297				(7,492,233	)
Prepaid expenses and other current assets			(403,762	)			(752,408	)
Accounts payable			(1,968,820	)			933,894
Payables to related parties			462,578				84,078
Income tax payable			3,490,268				(1,615,552	)
Salary and bonus payable			(275,565	)			(2,892,971	)
Accrued profit sharing to employees and bonus to directors and supervisors			(1,925,594	)			4,277,804
Accrued expenses and other current liabilities			304,582				248,192
Accrued pension cost			98,915				15,319
Deferred credits			(92,454	)			(59,150	)
Net cash provided by operating activities			247,587,051				229,475,766

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment		$	(213,962,521	)		$	(186,944,203	)
Available-for-sale financial assets			(35,088,394	)			(48,340,334	)
Held-to-maturity financial assets			(584,280	)			(4,101,501	)
Investments accounted for using equity method			—				(6,242,350	)
Financial assets carried at cost			(403,908	)			(1,812,928	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			59,305,023				37,816,288
Held-to-maturity financial assets			4,789,000				15,943,000
Financial assets carried at cost			226,226				242,335
Property, plant and equipment and other assets			698,055				115,524
Increase in deferred charges			(1,715,892	)			(1,801,728	)
Decrease (increase) in refundable deposits			4,149,543				(5,944,827	)
Decrease (increase) in other assets			63,723				(1,015,458	)
Net cash used in investing activities			(182,523,425	)			(202,086,182	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans			(5,287,416	)			31,213,944
Proceeds from long-term bank loans			2,250,000				—
Repayment of long-term bank loans			(1,142,968	)			(967,034	)
Proceeds from issuance of bonds			18,000,000				—
Decrease in other long-term payables			(3,633,052	)			(1,107,333	)
Decrease in guarantee deposits			(342,242	)			(232,925	)
Proceeds from donation			—				49,021
Proceeds from exercise of employee stock options			217,697				244,824
Acquisition of treasury stock			(71,598	)			—
Cash dividends			(77,730,236	)			(77,708,120	)
Decrease in minority interests			(118,226	)			(130,083	)
Net cash used in financing activities			(67,858,041	)			(48,637,706	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(2,794,415	)			(21,248,122	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(147,682	)			(2,141,264	)
EFFECT OF CHANGES IN CONSOLIDATED ENTITIES			(1,472,581	)			—
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			147,886,955				171,276,341
CASH AND CASH EQUIVALENTS, END OF YEAR		$	143,472,277			$	147,886,955

(Continued)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In Thousands of New Taiwan Dollars)

 

		2011				2010
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	531,518			$	392,805
Income tax paid		$	7,677,085			$	9,818,418
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	207,175,565			$	201,696,476
Decrease (increase) in payables to contractors and equipment suppliers			6,846,682				(14,599,987	)
Nonmonetary exchange trade-out price			(3,164	)			(124,746	)
Increase in other liabilities			(56,562	)			(27,540	)
Cash paid		$	213,962,521			$	186,944,203
Disposal of property, plant and equipment and other assets		$	543,219			$	458,561
Decrease (increase) in other financial assets			158,000				(218,291	)
Nonmonetary exchange trade-out price			(3,164	)			(124,746	)
Cash received		$	698,055			$	115,524
Acquisition of available-for-sale financial assets		$	35,024,974			$	48,405,875
Decrease (increase) in accrued expenses and other current liabilities			63,420				(65,541	)
Cash paid		$	35,088,394			$	48,340,334
NON-CASH FINANCING ACTIVITIES
Current portion of bonds payable		$	4,500,000			$	—
Current portion of long-term bank loans		$	62,500			$	241,407
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	3,399,855			$	1,406,601

 

The accompanying notes are an integral part of the consolidated financial statements.			(Concluded	)

 

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Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

1.

GENERAL

Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, TSMC also engages in the researching, developing, designing, manufacturing and selling of solid state lighting devices and related applications products and systems, and renewable energy and efficiency related technologies and products. In August 2011, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC Solid State Lighting Ltd. (TSMC SSL) and TSMC Solar Ltd. (TSMC Solar), respectively.

On September 5, 1994, TSMC’s shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).

As of December 31, 2011 and 2010, TSMC and its subsidiaries had 35,457 and 35,029 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C.

For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language consolidated financial statements shall prevail.

Significant accounting policies are summarized as follows:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation.

 

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The consolidated entities were as follows:

 

				Percentage of Ownership December 31
Name of Investor		Name of Investee		2011				2010				Remark
TSMC		TSMC North America			100	%			100	%		—
		TSMC Japan Limited (TSMC Japan)			100	%			100	%		—
		TSMC Partners, Ltd. (TSMC Partners)			100	%			100	%		—
		TSMC Korea Limited (TSMC Korea)			100	%			100	%		—
		TSMC Europe B.V. (TSMC Europe)			100	%			100	%		—
		TSMC Global Ltd. (TSMC Global)			100	%			100	%		—
		TSMC China Company Limited (TSMC China)			100	%			100	%		—
		VentureTech Alliance Fund III, L.P. (VTAF III)			53	%			99	%		(Note 1)
		VentureTech Alliance Fund II, L.P. (VTAF II)			98	%			98	%		—
		Emerging Alliance Fund, L.P. (Emerging Alliance)			99.5	%			99.5	%		—
		Global Unichip Corporation (GUC)			(Note 2	)			35	%		—
		Xintec Inc. (Xintec)			40	%			41	%		TSMC obtained three out of five director positions and has a controlling interest in Xintec
		TSMC SSL			100	%			—			Established in August 2011
		TSMC Solar			100	%			—			Established in August 2011
TSMC Partners		TSMC Design Technology Canada Inc. (TSMC Canada)			100	%			100	%		—
		TSMC Technology, Inc. (TSMC Technology)			100	%			100	%		—
		TSMC Development, Inc. (TSMC Development)			100	%			100	%		—
		InveStar Semiconductor Development Fund, Inc. (ISDF)			97	%			97	%		—
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)			97	%			97	%		—
TSMC Development		WaferTech, LLC (WaferTech)			100	%			100	%		—
VTAF III		Mutual-Pak Technology Co., Ltd. (Mutual-Pak)			57	%			57	%		—
		Growth Fund Limited (Growth Fund)			100	%			100	%		—
VTAF III, VTAF II and Emerging Alliance		VentureTech Alliance Holdings, LLC (VTA Holdings)			100	%			100	%		—
GUC		Global Unichip Corp.-NA (GUC-NA)			(Note 2	)			100	%		—
		Global Unichip Japan Co., Ltd. (GUC-Japan)			(Note 2	)			100	%		—
		Global Unichip Europe B.V. (GUC-Europe)			(Note 2	)			100	%		—
		Global Unichip (BVI) Corp. (GUC-BVI)			(Note 2	)			100	%		—
GUC-BVI		Global Unichip (Shanghai) Company, Limited (GUC-Shanghai)			(Note 2	)			100	%		—
TSMC SSL		TSMC Lighting North America, Inc. (TSMC Lighting NA)			100	%			100	%		Established in September 2010 (Note 1)
TSMC Solar		TSMC Solar North America, Inc. (TSMC Solar NA)			100	%			100	%		Established in September 2010 (Note 1)

(Continued)

 

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				Percentage of Ownership December 31
Name of Investor		Name of Investee		2011				2010				Remark
TSMC Solar		TSMC Solar Europe B.V. (TSMC Solar Europe)			100	%			100	%		Established in September 2010 (Note 1)
		VentureTech Alliance Fund III, L.P. (VTAF III)			46	%			—			(Note 1)
TSMC Solar Europe		TSMC Solar Europe GmbH			100	%			100	%		Established in December 2010 (Note 1)

(Concluded)

 

Note 1:		In August 2011, TSMC adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.
Note 2:		TSMC has no controlling interest over the financial, operating and personnel hiring policy decisions of GUC and its subsidiaries since July 2011. As a result, GUC and its subsidiaries are no longer consolidated.

The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated investees as of December 31, 2011:

 

TSMC has no controlling interest over the financial, operating and personnel hiring decisions of GUC and its subsidiaries since July 2011. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

TSMC North America is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC Japan, TSMC Korea and TSMC Europe are engaged mainly in marketing or customer service, engineering and technical supporting activities. TSMC Partners is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global and TSMC Development are engaged in investing activities. TSMC China is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, VTA Holdings, ISDF, ISDF II, and Growth Fund are engaged in investing in new start-up technology companies. TSMC Canada and TSMC Technology are engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. Xintec is engaged in the provision of wafer packaging service. TSMC SSL is engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems. TSMC Lighting NA is engaged in selling and marketing of solid state lighting related products. TSMC Solar is engaged in researching, developing, designing, manufacturing and selling renewable energy and energy saving related technologies and products. TSMC Solar NA is engaged in selling and marketing of solar related products. TSMC Solar Europe is engaged in investing activities of solar related business. TSMC Solar Europe GmbH is engaged in the selling and customer service of solar cell modules and related products. Mutual-Pak is engaged in the manufacturing and selling of electronic parts and researching, developing and testing of RFID.

 

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To foster a stronger sense of corporate entrepreneurship and facilitate business specializations in order to strengthen overall profitability and operational efficiency, TSMC transferred its solid state lighting and solar businesses into its wholly-owned, newly incorporated subsidiaries, TSMC SSL and TSMC Solar, in August 2011.

TSMC together with its subsidiaries are hereinafter referred to collectively as the “Company.”

Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity.

Foreign-currency Transactions and Translation of Foreign-currency Financial Statements

Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.

At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities—spot rates at year-end; shareholders’ equity—historical rates; income and expenses—average rates during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with the aforementioned guidelines and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Cash Equivalents

Repurchase agreements collateralized by government bonds, corporate bonds, and agency bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

 

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Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Investments designated as available-for-sale financial assets include debt securities and equity securities. Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

Fair value is determined as follows: Money market funds—net asset values at the end of the year; publicly traded stocks—closing prices at the end of the year; and other debt securities—average of bid and asked prices at the end of the year.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

Held-to-maturity Financial Assets

Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Hedging Derivative Financial Instruments

Hedge derivatives are mainly derivatives instruments that are for cash flow hedge purposes and determined to be an effective hedge. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in shareholders’ equity. The amount recognized in shareholders’ equity is recognized in profit or loss in the same year or year during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in shareholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss.

 

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Financial Assets Carried at Cost

Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

TSMC’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement (SFAS No. 34).” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Accordingly, the Company evaluates for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.

Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt expense which is recorded in the operating expenses—general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.

Inventories

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

Investments Accounted for Using Equity Method

Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.

 

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When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. Cash dividends received from an investee shall reduce the carrying amount of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income.

Gains or losses on sales from the Company to equity method investees or from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties.

If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.

Property, Plant and Equipment and Assets Leased to Others

Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed using the straight-line method over the following estimated service lives: land improvements—20 years; buildings—10 to 20 years; machinery and equipment—3 to 5 years; office equipment—3 to 15 years; and leased assets—20 years.

Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal.

When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.

Intangible Assets

Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

 

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Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees—the estimated life of the technology or the term of the technology transfer contract; software and system design costs—2 to 5 years; patent and others—the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.

Pension Costs

For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.

Income Tax

The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, net operating loss carryforwards and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.

Stock-based Compensation

Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with SFAS No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.

 

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Treasury Stock

Treasury stock represents the outstanding shares that the Company buys back from market, which is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus—additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus—treasury stock transactions and to retained earnings for any remaining amount. When the Company resells the treasury stock, the treasury stock shall be reversed, and if the selling price is greater than the book value, the amount in excess of the book value shall be credited to additional paid-in capital—treasury stock.

Revenue Recognition and Allowance for Sales Returns and Others

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.

 

3.	ACCOUNTING CHANGES

On January 1, 2011, the Company prospectively adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s consolidated financial statements as of and for the year ended December 31, 2011.

On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting.” The Company conformed to the disclosure requirements as of and for the year ended December 31, 2011. The information for the year ended December 31, 2010 has been recast to reflect the new segment reporting requirement.

 

4.	CASH AND CASH EQUIVALENTS

 

		December 31
		2011				2010
Cash and deposits in banks		$	139,637,363			$	146,622,854
Repurchase agreements collateralized by government bonds			3,834,914				960,432
Corporate bonds			—				151,840
Agency bonds			—				151,829
		$	143,472,277			$	147,886,955

 

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5.	FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

		December 31
		2011				2010
Trading financial assets
Forward exchange contracts		$	15,360			$	6,886
Trading financial liabilities
Forward exchange contracts		$	13,623			$	19,002
Cross currency swap contracts			119				—
		$	13,742			$	19,002

The Company entered into derivative contracts during the years ended December 31, 2011 and 2010 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for derivative contracts.

Outstanding forward exchange contracts consisted of the following:

 

		Maturity Date		Contract Amount (In Thousands)
December 31, 2011
Sell EUR/Buy NT$		January 2012		EUR38,600/NT$1,528,206
Sell US$/Buy NT$		January 2012 to February 2012		US$16,900/NT$510,122
Sell US$/Buy EUR		January 2012		US$2,082/EUR1,591
Sell US$/Buy JPY		January 2012		US$3,335/JPY259,830
Sell RMB/Buy US$		January 2012		RMB1,118,705/US$177,000
Sell NT$/Buy US$		January 2012 to February 2012		NT$163,491/US$5,400
December 31, 2010
Sell NT$/Buy JPY		January 2011 to February 2011		NT$814,882/JPY2,278,420
Sell EUR/Buy US$		February 2011		EUR3,067/US$4,093
Sell RMB/Buy US$		May 2011 to June 2011		RMB529,190/US$80,000
Sell US$/Buy NT$		January 2011 to March 2011		US$11,800/NT$353,076

Outstanding cross currency swap contracts consisted of the following:

 

Maturity Date		Contract Amount (In Thousands)		Range of Interest Rates Paid				Range of Interest Rates Received
December 31, 2011
January 2012		NT$420,431/US$13,880			0.00	%			0.48	%

 

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Net gains on derivative financial instruments for the years ended December 31, 2011 and 2010 were NT$507,432 thousand and NT$320,730 thousand, respectively.

 

6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		December 31
		2011				2010
Publicly traded stocks		$	3,306,248			$	4,634,170
Money market funds			2,522				376,168
Corporate bonds			—				14,871,120
Agency bonds			—				8,021,192
Government bonds			—				2,014,127
			3,308,770				29,916,777
Current portion			(3,308,770	)			(28,883,728	)
		$	—			$	1,033,049

 

7.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		December 31
		2011				2010
Corporate bonds		$	8,614,527			$	12,843,956
Government bonds			454,320				455,520
			9,068,847				13,299,476
Current portion			(3,825,680	)			(4,796,589	)
		$	5,243,167			$	8,502,887

 

8.	ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

Movements of the allowance for doubtful receivables were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	504,029			$	543,325
Reversal			(3,130	)			(37,028	)
Write-off			(9,714	)			(2,268	)
Effect of changes in consolidated entities			(233	)			—
Balance, end of year		$	490,952			$	504,029

 

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Movements of the allowance for sales returns and others were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	7,546,264			$	8,724,481
Provision			3,409,855				12,092,947
Write-off			(5,887,856	)			(13,271,164	)
Balance, end of year		$	5,068,263			$	7,546,264

 

9.	INVENTORIES

 

		December 31
		2011				2010
Finished goods		$	3,347,849			$	5,118,060
Work in process			17,940,960				19,376,372
Raw materials			1,808,615				1,947,396
Supplies and spare parts			1,743,158				1,964,156
		$	24,840,582			$	28,405,984

Write-down of inventories to net realizable value in the amount of NT$35,316 thousand and NT$900,221 thousand, respectively, were included in the cost of sales for the year ended December 31, 2011 and 2010. Inventory losses related to earthquake in the amount of NT$190,992 thousand were classified under non-operating expenses and losses for the year ended December 31, 2010.

 

10.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

		December 31
		2011								2010
		Carrying Amount				% of Owner- ship				Carrying Amount				% of Owner- ship
Common stock
Vanguard International Semiconductor Corporation (VIS)		$	8,988,007				39			$	9,422,452				38
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			6,289,429				39				7,120,714				39
Motech Industries Inc. (Motech)			5,612,344				20				6,733,369				20
VisEra Holding Company (VisEra Holding)			2,853,364				49				2,522,267				49
GUC			1,157,188				35				—				—
Mcube Inc. (Mcube)			—				82				—				70
Aiconn Technology Corporation (Aiconn)			—				—				16,583				43
Preferred stock
Mcube			—				5				—				10
		$	24,900,332							$	25,815,385

 

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The Company has no controlling interest over the financial, operating and personnel hiring policy decisions of GUC and its subsidiaries since July 2011. However, the Company has significant influence over them and therefore, they are no longer consolidated and are accounted for using the equity method.

The Company originally owned 43% of Aiconn, which was merged with Accton Wireless Broadband Corp. (Accton) in March 2011. As a result of the merger, the Company’s equity investment in Aiconn was exchanged for equity of Accton and the Company did not exercise significant influence over Accton. Therefore, the aforementioned investment was reclassified to financial assets carried at cost.

In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited unless permitted by other related regulations.

For the years ended December 31, 2011 and 2010, equity in earnings/losses of equity method investees was a net gain of NT$897,611 thousand and NT$2,298,159 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the audited financial statements, except for Aiconn and Mcube. The Company believes that, had the aforementioned equity method investees’ financial statements been audited, any adjustments arising would have no material effect on the Company’s consolidated financial statements.

The quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method of VIS and GUC were NT$11,273,200 thousand as of December 31, 2011 and of VIS NT$9,297,707 thousand as of December 31, 2010.

Movements of the difference between the cost of investments and the Company’s share in investees’ net assets allocated to depreciable assets were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	2,491,891			$	1,391,500
Additions			—				2,055,660
Deductions			(846,081	)			(955,269	)
Balance, end of year		$	1,645,810			$	2,491,891

Movements of the difference allocated to goodwill were as follows:

 

		Years Ended December 31
		2011				2010
Balance, beginning of year		$	1,415,565			$	1,061,885
Additions			—				353,680
Balance, end of year		$	1,415,565			$	1,415,565

 

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11.	HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

 

		December 31
		2011				2010
Hedging derivative financial liabilities
Interest rate swap contract		$	232			$	814

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. The outstanding interest rate swap contract consisted of the following:

 

Contract Amount (In Thousands)		Maturity Date		Range of Interest Rates Paid		Range of Interest Rates Received
December 31, 2011
NT$80,000		August 31, 2012		1.38%		0.63%-0.86%
December 31, 2010
NT$128,000		August 31, 2012		1.38%		0.56%-0.63%

For the years ended December 31, 2011 and 2010, the adjustment for the current period to shareholders’ equity amounted to net losses of NT$98 thousand and NT$1,166 thousand, respectively; and the amount removed from shareholders’ equity and recognized as a loss from the above interest rate swap contract amounted to NT$680 thousand and NT$352 thousand, respectively.

 

12.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31
		2011				2010
Non-publicly traded stocks		$	4,004,314			$	4,264,956
Mutual funds			310,691				159,251
		$	4,315,005			$	4,424,207

In June 2010, the Company invested in Stion Corporation (Stion, a United States corporation) for US$50,000 thousand and obtained Stion’s preferred stock of 7,347 thousand shares with 23.4% of ownership. Stion is engaged in the manufacturing of high-efficiency thin-film solar photovoltaic modules. Due to certain restrictions contained in the investment agreements, the Company does not have the ability to exert significant influence over Stion’s operating and financial policies. Therefore, the investment was classified under financial assets carried at cost.

The common stock of InvenSense, Inc. was listed on the NYSE in November 2011. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

 

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The common stock of Capella Microsystems (Taiwan), Inc. and Integrated Memory Logic Limited was listed on the Taiwan GreTai Securities Market and Taiwan Stock Exchange in June 2010 and May 2010, respectively. Thus, the Company reclassified the aforementioned investments from financial assets carried at cost to available-for-sale financial assets.

For the years ended December 31, 2011 and 2010, the Company recognized impairment on financial assets carried at cost of NT$265,515 thousand and NT$159,798 thousand, respectively.

 

13.	PROPERTY, PLANT AND EQUIPMENT

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Effect of Changes in Consolidated Entities				Effect of Exchange Rate Changes				Balance, End of Year
Cost
Land and land improvements		$	891,197			$	652,011			$	—			$	—			$	—			$	(2,080	)		$	1,541,128
Buildings			145,966,024				26,592,895				(47,667	)			(388	)			(242,718	)			604,404				172,872,550
Machinery and equipment			913,155,252				146,048,745				(2,305,971	)			(82,475	)			(375,702	)			1,148,887				1,057,588,736
Office equipment			14,856,582				2,825,159				(431,847	)			(72,041	)			(236,153	)			27,566				16,969,266
Leased asset			701,552				56,562				—				—				—				33,366				791,480
			1,075,570,607			$	176,175,372			$	(2,785,485	)		$	(154,904	)		$	(854,573	)		$	1,812,143				1,249,763,160
Accumulated depreciation
Land and land improvements			328,792			$	26,805			$	—			$	—			$	—			$	(42	)			355,555
Buildings			90,472,703				10,343,346				(21,452	)			(55	)			(32,791	)			242,296				101,004,047
Machinery and equipment			671,268,636				93,499,249				(2,252,415	)			(31,287	)			(293,605	)			583,777				762,774,355
Office equipment			10,957,676				1,430,941				(427,103	)			(13,563	)			(148,862	)			21,639				11,820,728
Leased asset			250,350				34,646				—				—				—				12,539				297,535
			773,278,157			$	105,334,987			$	(2,700,970	)		$	(44,905	)		$	(475,258	)		$	860,209				876,252,220
Advance payments and construction in progress			86,151,573			$	31,000,193			$	(455,372	)		$	(2,091	)		$	—			$	169,673				116,863,976
		$	388,444,023																							$	490,374,916

 

		Year Ended December 31, 2010
		Balance, Beginning of Year				Additions				Disposals				Reclassification				Effect of Exchange Rate Changes				Balance, End of Year
Cost
Land and land improvements		$	934,090			$	—			$	—			$	320			$	(43,213	)		$	891,197
Buildings			142,294,558				4,361,536				(135,497	)			2,162				(556,735	)			145,966,024
Machinery and equipment			775,653,489				142,125,965				(2,287,420	)			228,370				(2,565,152	)			913,155,252
Office equipment			13,667,747				1,997,654				(731,094	)			3,704				(81,429	)			14,856,582
Leased asset			714,424				—				—				—				(12,872	)			701,552
			933,264,308			$	148,485,155			$	(3,154,011	)		$	234,556			$	(3,259,401	)			1,075,570,607
Accumulated depreciation
Land and land improvements			317,580			$	28,746			$	—			$	—			$	(17,534	)			328,792
Buildings			81,821,718				9,100,935				(128,466	)			(495	)			(320,989	)			90,472,703
Machinery and equipment			600,795,474				75,237,057				(2,277,047	)			133,318				(2,620,166	)			671,268,636
Office equipment			10,589,349				1,165,827				(726,539	)			(442	)			(70,519	)			10,957,676
Leased asset			219,765				35,084				—				—				(4,499	)			250,350
			693,743,886			$	85,567,649			$	(3,132,052	)		$	132,381			$	(3,033,707	)			773,278,157
Advance payments and construction in progress			34,154,365			$	53,211,321			$	(1,030,521	)		$	(108,035	)		$	(75,557	)			86,151,573
		$	273,674,787																			$	388,444,023

The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to December 2013. The future minimum lease payments as of December 31, 2011 were NT$870,993 thousand.

During the year ended December 31, 2011, the Company capitalized the borrowing costs directly attributable to the acquisition or construction of property, plant and equipment. Information about capitalized interest was as follows:

 

		Year Ended December 31, 2011
Capitalized interest		$	9,093
Capitalization rates			1.07%-1.29	%

 

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14.	DEFERRED CHARGES, NET

 

		Year Ended December 31, 2011
		Balance, Beginning of Year				Additions				Amortization				Disposals				Reclassification				Effect of Changes in Consolidated Entities				Effect of Exchange Rate Changes				Balance, End of Year
Technology license fees		$	2,455,348			$	10,308			$	(716,067	)		$	—			$	—			$	(66,186	)		$	(511	)		$	1,682,892
Software and system design costs			2,333,271				1,360,846				(1,152,331	)			(46	)			2,091				(177,916	)			568				2,366,483
Patent and others			1,238,466				344,738				(469,172	)			—				—				—				4,157				1,118,189
		$	6,027,085			$	1,715,892			$	(2,337,570	)		$	(46	)		$	2,091			$	(244,102	)		$	4,214			$	5,167,564

 

		Year Ended December 31, 2010
		Balance, Beginning of Year				Additions				Amortization				Disposals				Reclassification				Effect of Exchange Rate Changes				Balance, End of Year
Technology license fees		$	3,230,624			$	8,300			$	(783,557	)		$	—			$	—			$	(19	)		$	2,455,348
Software and system design costs			1,834,528				1,547,605				(1,054,194	)			(173	)			5,542				(37	)			2,333,271
Patent and others			1,393,402				245,823				(398,965	)			—				—				(1,794	)			1,238,466
		$	6,458,554			$	1,801,728			$	(2,236,716	)		$	(173	)		$	5,542			$	(1,850	)		$	6,027,085

 

15.	SHORT-TERM LOANS

 

		December 31
		2011				2010
Unsecured loans:
US$856,000 thousand, due by February 2012, and annual interest at 0.45%-1.00% in 2011; US$874,000 thousand and EUR114,900 thousand, due by February 2011, annual interest at 0.38%-1.84% in 2010.		$	25,926,528			$	31,213,944

 

16.	BONDS PAYABLE

 

		December 31
		2011				2010
Domestic unsecured bonds:
Issued in September 2011 and repayable in September 2016, 1.40% interest payable annually		$	10,500,000			$	—
Issued in September 2011 and repayable in September 2018, 1.63% interest payable annually			7,500,000				—
Issued in January 2002 and repayable in January 2012, 3.00% interest payable annually			4,500,000				4,500,000
			22,500,000				4,500,000
Current portion			(4,500,000	)			—
		$	18,000,000			$	4,500,000

With the approval from the Financial Supervisory Commission (FSC), the Company issued domestic unsecured bonds in the amount of NT$17,000,000 thousand in January 2012.

 

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17.	LONG-TERM BANK LOANS

 

		December 31
		2011				2010
Bank loans for working capital:
Repayable in full in one lump sum payment in June 2016, annual interest at 1.00%-1.08%		$	650,000			$	—
Repayable in full in one lump sum payment in March 2013, annual interest at 1.02%-1.16%			500,000				—
Repayable from July 2012 in 16 quarterly installments, annual interest at 1.11%-1.21%			300,000				—
Repayable from September 2012 in 16 quarterly installments, annual interest at 1.13%-1.21%			200,000				—
Secured loans:
Repayable from August 2009 in 17 quarterly installments, annual interest at 0.66%-1.24% in 2010, repayable in full in one lump sum payment in June 2011			—				542,968
			1,650,000				542,968
Current portion			(62,500	)			(241,407	)
		$	1,587,500			$	301,561

Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual financial statements of Xintec must comply with predetermined financial covenants. As of December 31, 2011, Xintec was in compliance with all such financial covenants.

As of December 31, 2011, future principal repayments for the long-term bank loans were as follows:

 

Year of Repayment		Amount
2012		$	62,500
2013			625,000
2014			125,000
2015			125,000
2016			712,500
		$	1,650,000

 

18.	OTHER LONG-TERM PAYABLES

 

		December 31
		2011				2010
Payables for acquisition of property, plant and equipment (Note 30g)		$	3,399,855			$	7,112,172
Payables for royalties			—				848,637
			3,399,855				7,960,809
Current portion (classified under accrued expenses and other current liabilities)			(3,399,855	)			(1,406,601	)
		$	—			$	6,554,208

The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents.

 

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19.	PENSION PLANS

The pension mechanism under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Pursuant to the Act, TSMC, GUC, Xintec, Mutual-Pak, TSMC SSL and TSMC Solar have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts. Furthermore, TSMC North America, TSMC China, TSMC Europe, TSMC Canada, TSMC Solar NA and TSMC Solar Europe GmbH are required by local regulations to make monthly contributions at certain percentages of the basic salary of their employees. Pursuant to the aforementioned Act and local regulations, the Company recognized pension costs of NT$1,297,583 thousand and NT$1,121,650 thousand for the years ended December 31, 2011 and 2010, respectively.

TSMC, GUC, Xintec, TSMC SSL and TSMC Solar have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

Pension information on the defined benefit plans is summarized as follows:

 

a.

Components of net periodic pension cost for the year

 

		2011				2010
Service cost		$	132,995			$	129,722
Interest cost			167,911				146,625
Projected return on plan assets			(68,067	)			(40,967	)
Amortization			74,814				2,196
Net periodic pension cost		$	307,653			$	237,576

 

b.

Reconciliation of funded status of the plans and accrued pension cost at December 31, 2011 and 2010

 

		2011				2010
Benefit obligation
Vested benefit obligation		$	313,463			$	189,047
Nonvested benefit obligation			5,456,913				5,432,624
Accumulated benefit obligation			5,770,376				5,621,671
Additional benefits based on future salaries			3,443,749				3,667,087
Projected benefit obligation			9,214,125				9,288,758
Fair value of plan assets			(3,120,665	)			(2,907,156	)
Funded status			6,093,460				6,381,602
Unrecognized net transition obligation			(74,766	)			(84,230	)
Prior service cost			147,564				154,738
Unrecognized net loss			(2,257,750	)			(2,639,759	)
Accrued pension cost		$	3,908,508			$	3,812,351
Vested benefit		$	349,981			$	208,176

 

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		2011				2010
c. Actuarial assumptions at December 31, 2011 and 2010
Discount rate used in determining present values			1.75%				1.75%-2.25%
Future salary increase rate			2.50%-3.00%				3.00%
Expected rate of return on plan assets			2.00%				2.00%-2.50%
d. Contributions to the Funds for the year		$	211,963			$	212,248
e. Payments from the Funds for the year		$	7,339			$	19,991

 

20.	INCOME TAX

 

a.

A reconciliation of income tax expense based on “income before income tax” at the statutory rates and income tax currently payable was as follows:

 

		Years Ended December 31
		2011				2010
Income tax expense based on “income before income tax” at statutory rates		$	25,964,235			$	30,456,361
Tax effect of the following:
Tax-exempt income			(13,832,239	)			(17,410,223	)
Temporary and permanent differences			(1,597,357	)			(827,033	)
Additional income tax under the Alternative Minimum Tax Act			286,827				—
Additional tax at 10% on unappropriated earnings			6,293,384				138,243
Net operating loss carryforwards used			(395,258	)			(529,347	)
Investment tax credits used			(6,318,215	)			(4,887,947	)
Income tax currently payable		$	10,401,377			$	6,940,054

 

b.

Income tax expense consisted of the following:

 

		Years Ended December 31
		2011				2010
Income tax currently payable		$	10,401,377			$	6,940,054
Income tax adjustments on prior years			470,376				977,876
Other income tax adjustments			312,999				373,051
Net change in deferred income tax assets
Investment tax credits			2,304,884				(7,129,517	)
Net operating loss carryforwards			224,141				546,234
Temporary differences			(71,013	)			(78,187	)
Valuation allowance			(2,873,378	)			6,358,954
Effect of changes in consolidated entities			(74,969	)			—
Income tax expense		$	10,694,417			$	7,988,465

 

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c.

Net deferred income tax assets consisted of the following:

 

		December 31
		2011				2010
Current deferred income tax assets
Investment tax credits		$	4,913,791			$	4,282,132
Temporary differences
Allowance for sales returns and others			506,172				653,452
Unrealized gain/loss on financial instruments			308,929				87,735
Others			348,079				488,806
Valuation allowance			(140,481	)			(139,049	)
		$	5,936,490			$	5,373,076
Noncurrent deferred income tax assets
Investment tax credits		$	15,399,558			$	18,336,101
Net operating loss carryforwards			2,491,708				2,735,278
Temporary differences
Depreciation			2,280,923				2,160,248
Others			654,672				414,830
Valuation allowance			(13,390,144	)			(16,283,673	)
		$	7,436,717			$	7,362,784

Effective in May 2010, the Article 5 of the Income Tax Law of the Republic of China was amended, in which the income tax rate of profit-seeking enterprises would be reduced from 20% to 17%. The last amended income tax rate of 17% is retroactively applied on January 1, 2010. TSMC and its domestic subsidiaries which are subject to the Income Tax Law of the Republic of China recalculated their deferred tax assets in accordance with the new amended Article and adjusted the resulting difference as an income tax expense in 2010. The Company evaluated the effect of Alternative Minimum Tax and applicable year of the profits generated from projects exempt from income tax for a five-year period. As the Company plans to apply the tax-exempt income in later years, income tax payable is anticipated to increase and the Company will utilize available investment tax credits as an offset against income taxes. Since more investment tax credits can be utilized, valuation allowance has been adjusted down accordingly.

Under the Article 10 of the Statute for Industrial Innovation (SII) legislated, effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

As of December 31, 2011, the net operating loss carryforwards generated by WaferTech, TSMC Development, Mutual-Pak, TSMC SSL and TSMC Solar would expire on various dates through 2023.

 

d.

Integrated income tax information:

The balance of the imputation credit account of TSMC as of December 31, 2011 and 2010 was NT$4,003,228 thousand and NT$1,669,533 thousand, respectively.

The estimated and actual creditable ratios for distribution of TSMC’s earnings of 2011 and 2010 were 6.67% and 4.96%, respectively.

 

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The imputation credit allocated to shareholders is based on its balance as of the date of the dividend distribution. The estimated creditable ratio may change when the actual distribution of the imputation credit is made.

 

e.

All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated.

 

f.

As of December 31, 2011, investment tax credits of TSMC, Xintec, Mutual-Pak and TSMC SSL consisted of the following:

 

Law/Statute		Item		Total Creditable Amount				Remaining Creditable Amount				Expiry Year
Statute for Upgrading		Purchase of machinery and		$	22,084			$	—				2011
Industries		equipment			3,209,214				1,172,726				2012
					6,524,655				6,524,655				2013
					7,041,416				7,041,416				2014
					505,941				505,941				2015
				$	17,303,310			$	15,244,738
Statute for Upgrading		Research and development		$	9,067			$	—				2011
Industries		expenditures			1,804,257				31,433				2012
					5,020,042				5,020,042				2013
				$	6,833,366			$	5,051,475
Statute for Upgrading		Personnel training expenditures		$	486			$	—				2011
Industries					17,406				15				2012
					17,121				17,121				2013
				$	35,013			$	17,136
Statute for Industrial		Research and development		$	2,432,641			$	—				2011
Innovation		expenditures

 

g.

The profits generated from the following projects of TSMC and Xintec are exempt from income tax for a five-year period:

 

		Tax-Exemption Period
Construction and expansion of 2003 by TSMC		2007 to 2011
Construction and expansion of 2004 by TSMC		2008 to 2012
Construction and expansion of 2005 by TSMC		2010 to 2014
Construction and expansion of 2006 by TSMC		2011 to 2015
Construction and expansion of 2003 by Xintec		2007 to 2011
Construction and expansion of 2002, 2003 and 2006 by Xintec		2010 to 2014

 

h.

The tax authorities have examined income tax returns of TSMC through 2008. All investment tax credit adjustments assessed by the tax authorities have been recognized accordingly.

 

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21.	LABOR COST, DEPRECIATION AND AMORTIZATION

 

		Year Ended December 31, 2011
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	26,548,111			$	20,686,957			$	47,235,068
Labor and health insurance			1,316,726				923,645				2,240,371
Pension			971,263				634,476				1,605,739
Meal			710,547				297,762				1,008,309
Welfare			714,628				266,891				981,519
Others			341,156				372,673				713,829
		$	30,602,431			$	23,182,404			$	53,784,835
Depreciation		$	98,065,992			$	7,261,159			$	105,327,151
Amortization		$	1,463,405			$	874,165			$	2,337,570

 

		Year Ended December 31, 2010
		Classified as Cost of Sales				Classified as Operating Expenses				Total
Labor cost
Salary and bonus		$	27,246,876			$	22,053,062			$	49,299,938
Labor and health insurance			1,054,566				780,384				1,834,950
Pension			819,775				539,367				1,359,142
Meal			613,870				247,672				861,542
Welfare			704,494				273,722				978,216
Others			115,109				270,739				385,848
		$	30,554,690			$	24,164,946			$	54,719,636
Depreciation		$	80,123,895			$	5,427,488			$	85,551,383
Amortization		$	1,309,257			$	927,459			$	2,236,716

 

22.	SHAREHOLDERS’ EQUITY

As of December 31, 2011, 1,092,313 thousand ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 5,461,567 thousand (one ADS represents five common shares).

Capital surplus can be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of TSMC’s paid-in capital. In addition, the capital surplus from long-term investments may not be used for any purpose. However, according to the revised Company Law, effective January 2012, the aforementioned capital surplus generated from donations and the excess of the issuance price over the par value of capital stock can also be used to distribute cash in proportion to original shareholders’ holding.

 

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Capital surplus consisted of the following:

 

		December 31
		2011				2010
Additional paid-in capital		$	23,774,250			$	23,628,908
From merger			22,804,510				22,805,390
From convertible bonds			8,892,847				8,893,190
From long-term investments			374,695				370,891
Donations			55				55
		$	55,846,357			$	55,698,434

TSMC’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, TSMC shall first offset its losses in previous years and then set aside the following items accordingly:

 

a.

Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve equals TSMC’s paid-in capital;

 

b.

Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge;

 

c.

Bonus to directors and profit sharing to employees of TSMC of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of TSMC are not entitled to receive the bonus to directors. TSMC may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors;

 

d.

Any balance left over shall be allocated according to the resolution of the shareholders’ meeting.

TSMC’s Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution.

Any appropriations of the profits are subject to shareholders’ approval in the following year.

TSMC accrued profit sharing to employees based on certain percentage of net income during the year, which amounted to NT$8,990,026 thousand and NT$10,908,338 thousand for the years ended December 2011 and 2010, respectively. Bonuses to directors were expensed based on estimated amount of payment. If the actual amounts subsequently resolved by the shareholders differ from the estimated amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If profit sharing is resolved to be distributed to employees in stock, the number of shares is determined by dividing the amount of profit sharing by the closing price (after considering the effect of dividends) of the shares on the day preceding the shareholders’ meeting.

TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are being fulfilled by the Audit Committee.

According to the revised Company Law, effective January 2012, the appropriation for legal capital reserve shall be made until the reserve equals the Company’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

 

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A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial instruments, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses.

The appropriations of earnings for 2010 and 2009 had been approved in TSMC’s shareholders’ meetings held on June 9, 2011 and June 15, 2010, respectively. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings								Dividends Per Share (NT$)
		For Fiscal Year 2010				For Fiscal Year 2009				For Fiscal Year 2010				For Fiscal Year 2009
Legal capital reserve		$	16,160,501			$	8,921,784
Special capital reserve			5,120,827				1,313,047
Cash dividends to shareholders			77,730,236				77,708,120			$	3.00			$	3.00
		$	99,011,564			$	87,942,951

TSMC’s profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$10,908,338 thousand and NT$51,131 thousand for 2010, respectively, and profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$6,691,338 thousand and NT$67,692 thousand for 2009, respectively, had been approved in the shareholders’ meeting held on June 9, 2011 and June 15, 2010, respectively. The resolved amounts of the profit sharing to employees and bonus to directors were consistent with the resolutions of meeting of the Board of Directors held on February 15, 2011 and February 9, 2010 and same amount had been charged against earnings of 2010 and 2009, respectively.

TSMC’s appropriations of earnings for 2011 had been resolved in the meeting of the Board of Directors held on February 14, 2012. The appropriations and dividends per share were as follows:

 

		Appropriation of Earnings				Dividends  Per Share (NT$)
		For Fiscal Year 2011				For Fiscal Year 2011
Legal capital reserve		$	13,420,128
Special capital reserve			1,172,350
Cash dividends to shareholders			77,748,668			$	3.00
		$	92,341,146

The Board of Directors of TSMC also resolved to appropriate profit sharing to employees to be paid in cash and bonus to directors in the amounts of NT$8,990,026 thousand and NT$62,324 thousand for 2011, respectively. There is no significant difference between the aforementioned resolved amounts and the amounts charged against earnings of 2011.

The appropriations of earnings, profit sharing to employees and bonus to directors for 2011 are to be resolved in the TSMC’s shareholders’ meeting held on June 12, 2012 (expected).

The information about the appropriations of TSMC’s profit sharing to employees and bonus to directors is available at the Market Observation Post System website.

 

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Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998.

 

23.	STOCK-BASED COMPENSATION PLANS

TSMC’s Employee Stock Option Plans, consisting of the TSMC 2004 Plan, TSMC 2003 Plan, and TSMC 2002 Plan, were approved by the SFB on January 6, 2005, October 29, 2003 and June 25, 2002, respectively. The maximum number of options authorized to be granted under the TSMC 2004 Plan, TSMC 2003 Plan and TSMC 2002 Plan was 11,000 thousand, 120,000 thousand and 100,000 thousand, respectively, with each option eligible to subscribe for one common share of TSMC when exercised. The options may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TSE on the grant date.

Options of the plans that had never been granted or had been granted but subsequently canceled had expired as of December 31, 2011.

Information about TSMC’s outstanding options for the years ended December 31, 2011 and 2010 was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2011
Balance, beginning of year			21,437			$	31.4
Options exercised			(7,144	)			30.5
Balance, end of year			14,293				32.1
Year ended December 31, 2010
Balance, beginning of year			28,810			$	32.4
Options exercised			(7,372	)			33.2
Options canceled			(1	)			50.1
Balance, end of year			21,437				32.3

The number of outstanding options and exercise prices have been adjusted to reflect the distribution of earnings by TSMC in accordance with the plans.

 

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As of December 31, 2011, information about TSMC’s outstanding options was as follows:

 

		Options Outstanding
Range of Exercise Price (NT$)		Number of Options (In Thousands)				Weighted-average Remaining Contractual Life (Years)				Weighted-average Exercise Price (NT$)
$20.9- $29.3			10,584				1.2			$	27.4
38.0- 50.1			3,709				2.9				45.7
			14,293				1.7				32.1

As of December 31, 2011, all of the above outstanding options were exercisable.

Xintec’s Employee Stock Option Plans, consisting of the Xintec 2007 Plan and Xintec 2006 Plan, were approved by the SFB on June 26, 2007 and July 3, 2006, respectively. The maximum number of options authorized to be granted under the Xintec 2007 Plan and Xintec 2006 Plan was 6,000 thousand each, with each option eligible to subscribe for one common share of Xintec when exercised. The options may be granted to qualified employees of Xintec or any of its subsidiaries. The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date.

Information about Xintec’s outstanding options for the years ended December 31, 2011 and 2010 was as follows:

 

		Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
Year ended December 31, 2011
Balance, beginning of year			1,832			$	14.4
Options exercised			(967	)			14.4
Options canceled			(40	)			17.4
Balance, end of year			825				15.1
Year ended December 31, 2010
Balance, beginning of year			3,960			$	14.7
Options exercised			(1,856	)			13.9
Options canceled			(272	)			17.3
Balance, end of year			1,832				15.1

The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in accordance with the plans.

 

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As of December 31, 2011, information about Xintec’s outstanding and exercisable options was as follows:

 

		Options Outstanding												Options Exercisable
Range of Exercise Price (NT$)		Number of Options (In Thousands)				Weighted- average Remaining Contractual Life (Years)				Weighted- average Exercise Price (NT$)				Number of Options (In Thousands)				Weighted- average Exercise Price (NT$)
$10.9-$ 12.7			239				4.8			$	11.0				233			$	11.0
14.9- 18.8			586				5.7				16.8				581				16.8
			825				5.4				15.1				814				15.1

No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2011 and 2010. Had the Company used the fair value based method to evaluate the options using the Black-Scholes model, the assumptions at the various grant dates and pro forma results of the Company for the years ended December 31, 2011 and 2010 would have been as follows:

 

Assumptions:
TSMC		Expected dividend yield		1.00%-3.44%
		Expected volatility		43.77%-46.15%
		Risk free interest rate		3.07%-3.85%
		Expected life		5 years
Xintec		Expected dividend yield		0.80%
		Expected volatility		31.79%-47.42%
		Risk free interest rate		1.88%-2.45%
		Expected life		3 years

 

		Years Ended December 31
		2011				2010
Net income attributable to shareholders of the parent:
As reported		$	134,201,279			$	161,605,009
Pro forma			134,146,490				161,470,030
Earnings per share (EPS)—after income tax (NT$):
Basic EPS as reported		$	5.18			$	6.24
Pro forma basic EPS			5.18				6.23
Diluted EPS as reported			5.18				6.23
Pro forma diluted EPS			5.17				6.23

 

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24.	TREASURY STOCK

(Shares in Thousands)

 

Purpose of Treasury Stock		Number of Shares, Beginning of Year				Addition				Retirement				Number of Shares, End of Year
Year ended December 31, 2011
Shareholders executed the appraisal right			—				1,000				(1,000	)			—

In August 2011, pursuant to the Company Law and at the option of the shareholders of TSMC, certain shareholders requested TSMC to buy back their shares at the current market price, which shares were subsequently retired in November 2011.

 

25.	EARNINGS PER SHARE

EPS is computed as follows:

 

										Number of Shares (Denominator) (In Thousands)				EPS (NT$)
		Amounts (Numerator)												Before Income Tax				After Income Tax
		Before				After
		Income Tax				Income Tax
Year ended December 31, 2011
Basic EPS
Earnings available to common shareholders of the parent		$	144,852,948			$	134,201,279				25,914,076			$	5.59			$	5.18
Effect of dilutive potential common shares			—				—				10,606
Diluted EPS
Earnings available to common shareholders of the parent (including effect of dilutive potential common shares)		$	144,852,948			$	134,201,279				25,924,682			$	5.59			$	5.18
Year ended December 31, 2010
Basic EPS
Earnings available to common shareholders of the parent		$	169,520,145			$	161,605,009				25,905,832			$	6.54			$	6.24
Effect of dilutive potential common shares			—				—				13,982
Diluted EPS
Earnings available to common shareholders of the parent (including effect of dilutive potential common shares)		$	169,520,145			$	161,605,009				25,919,814			$	6.54			$	6.23

 

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If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be settled in shares should be included in the weighted average number of shares outstanding in calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of profit sharing to employees in stock by the closing price (after considering the dilutive effect of dividends) of the common shares on the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shares of profit sharing to employees are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation has been considered for the effect of retrospective adjustments. This adjustment caused each of the basic and diluted after income tax EPS for the year ended December 31, 2010 to remain at NT$6.24 and NT$6.23, respectively.

 

26.	DISCLOSURES FOR FINANCIAL INSTRUMENTS

 

a.

Fair values of financial instruments were as follows:

 

		December 31
		2011								2010
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets
Financial assets at fair value through profit or loss		$	15,360			$	15,360			$	6,886			$	6,886
Available-for-sale financial assets			3,308,770				3,308,770				29,916,777				29,916,777
Held-to-maturity financial assets			9,068,847				9,128,063				13,299,476				13,457,742
Financial assets carried at cost			4,315,005				—				4,424,207				—
Liabilities
Financial liabilities at fair value through profit or loss			13,742				13,742				19,002				19,002
Hedging derivative financial liabilities			232				232				814				814
Bonds payable (including current portion)			22,500,000				22,597,115				4,500,000				4,538,660
Long-term bank loans (including current portion)			1,650,000				1,650,000				542,968				542,968
Other long-term payables (including current portion)			3,399,855				3,399,855				7,960,809				7,960,809
Obligations under capital leases			870,993				870,993				694,986				694,986

 

b.

Methods and assumptions used in the estimation of fair values of financial instruments

 

1)

The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, refundable deposits, short-term loans, payables and guarantee deposits. The carrying amounts of these financial instruments approximate their fair values due to their short maturities.

 

2)

Except for derivatives, available-for-sale and held-to-maturity financial assets were based on their quoted market prices.

 

3)

The fair values of those derivatives are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

 

4)

Financial assets carried at cost have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

 

5)

Fair value of bonds payable was based on their quoted market price.

 

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6)

Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amounts.

 

c.

Valuation gains (losses) arising from changes in fair value of derivatives contracts determined using valuation techniques were recognized as a net gain of NT$1,618 thousand and a net loss of NT$12,116 thousand for the years ended December 31, 2011 and 2010, respectively.

 

d.

As of December 31, 2011 and 2010, financial assets exposed to fair value interest rate risk were NT$9,086,729 thousand and NT$38,588,969 thousand, respectively; financial liabilities exposed to fair value interest rate risk were NT$52,711,118 thousand and NT$43,235,611 thousand, respectively; and financial liabilities exposed to cash flow interest rate risk were NT$1,650,232 thousand and NT$848,275 thousand, respectively.

 

e.

Movements of the unrealized gains or losses on financial instruments for the years ended December 31, 2011 and 2010 were as follows:

 

		Year Ended December 31, 2011
		From Available- for-sale Financial Assets				Equity Method Investments				Gain (Loss) on Cash Flow Hedges				Total
Balance, beginning of year		$	86,158			$	23,462			$	(331	)		$	109,289
Recognized directly in shareholders’ equity			(1,034,446	)			(41,402	)			(36	)			(1,075,884	)
Removed from shareholders’ equity and recognized in earnings			(206,534	)			—				274				(206,260	)
Effect of changes in consolidated entities			(269	)			269				—				—
Balance, end of year		$	(1,155,091	)		$	(17,671	)		$	(93	)		$	(1,172,855	)

 

		Year Ended December 31, 2010
		From Available- for-sale Financial Assets				Equity Method Investments				Gain (Loss) on Cash Flow Hedges				Total
Balance, beginning of year		$	424,128			$	29,493			$	—			$	453,621
Recognized directly in shareholders’ equity			250,475				(6,031	)			(476	)			243,968
Removed from shareholders’ equity and recognized in earnings			(588,445	)			—				145				(588,300	)
Balance, end of year		$	86,158			$	23,462			$	(331	)		$	109,289

 

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f.

Information about financial risks

 

1)

Market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the market exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market exchange rate risk of derivatives will be offset by the foreign exchange risk of these hedged items. Available-for-sale financial assets and held-to-maturity financial assets held by the Company are mainly fixed-interest-rate debt securities and publicly traded stocks; therefore, the fluctuations in market interest rates and market prices will result in changes in fair values of these debt securities.

 

2)

Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The Company evaluated whether the financial instruments for any possible counter-parties or third-parties are reputable financial institutions, business enterprises, and government agencies and accordingly, the Company believed that the Company’s exposure to credit risk was not significant.

 

3)

Liquidity risk. The Company has sufficient operating capital and bank facilities to meet cash needs upon settlement of derivative financial instruments, bonds payable and bank loans. Therefore, the liquidity risk is low.

 

4)

Cash flow interest rate risk. The Company mainly invests in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. The long-term bank loans were floating-rate loans; therefore, changes in the market interest rates will result in changes in the interest rate of the long-term bank loans, which will affect future cash flows.

 

g.

The Company seeks to reduce the effects of future cash flow related interest rate changes by primarily using derivative financial instruments.

The Company’s long-term bank loans bear floating interest rates; therefore, changes in the market interest rate may cause future cash flows to be volatile. Accordingly, the Company entered into an interest rate swap contract in order to hedge cash flow risk caused by floating interest rates. Information about outstanding interest rate swap contract consisted of the following:

 

Hedged Item		Hedging Financial Instrument		Fair Value				Expected Cash Flow Generated Period		Expected Timing for the Recognition of Gains or Losses from Hedge
December 31, 2011
Long-term bank loans		Interest rate swap contract		$	(232	)		2011 to 2012		2011 to 2012
December 31, 2010
Long-term bank loans		Interest rate swap contract			(814	)		2010 to 2012		2010 to 2012

 

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27.	RELATED PARTY TRANSACTIONS

Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions:

 

a.

Investees of TSMC

GUC (prior to July 2011, GUC was a subsidiary. Since July 2011, GUC is accounted for using the equity method. The related party information between the Company and GUC as of and for the six months ended December 31, 2011 is disclosed as follows.)

VIS (accounted for using the equity method)

SSMC (accounted for using the equity method)

 

b.

Indirect investee

VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using the equity method by TSMC.

Mcube, an indirect investee accounted for using the equity method by TSMC.

 

c.

Others

Related parties over which the Company has significant influence but with which the Company had no material transactions.

 

		2011								2010
		Amount				%				Amount				%
For the year
Sales
GUC		$	2,461,345				1			$	—				—
VIS			302,844				—				223,584				—
VisEra			10,885				—				82,595				—
Others			50,342				—				11,397				—
		$	2,825,416				1			$	317,576				—
Purchases
VIS		$	5,597,895				2			$	4,959,050				2
SSMC			3,949,176				2				4,521,046				2
Others			124,673				—				39,099				—
		$	9,671,744				4			$	9,519,195				4
Manufacturing expenses
VisEra (primarily outsourcing and rent)		$	49,155				—			$	102,188				—
VIS (primarily rent)			5,902				—				10,161				—
		$	55,057				—			$	112,349				—

 

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		2011								2010
		Amount				%				Amount				%
Research and development expenses
VisEra		$	19,018				—			$	12,053				—
VIS (primarily rent)			1,984				—				12,017				—
Others			—				—				133				—
		$	21,002				—			$	24,203				—
Sales of property, plant and equipment and other assets
VIS		$	36,008				7			$	37,011				11
VisEra			—				—				4,418				1
SSMC			—				—				2,401				1
		$	36,008				7			$	43,830				13
Purchase of property, plant and equipment and other assets
VIS		$	45,473				—			$	109,855				—
VisEra			11,110				—				—				—
Others			1,812				—				—				—
		$	58,395				—			$	109,855				—
Non-operating incomes and gains
VIS (primarily technical service income)		$	227,024				4			$	267,370				2
SSMC (primarily technical service income)			199,377				4				198,218				2
VisEra (primarily rent)			4,054				—				—				—
		$	430,455				8			$	465,588				4
As of December 31
Receivables
GUC		$	154,086				83			$	—				—
Mcube			31,466				17				—				—
VisEra			212				—				2,599				95
VIS			—				—				123				5
		$	185,764				100			$	2,722				100
Other receivables
VIS		$	87,507				72			$	70,798				57
SSMC			34,260				28				53,788				43
Others			525				—				—				—
		$	122,292				100			$	124,586				100

 

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		2011								2010
		Amount				%				Amount				%
Payables
VIS		$	987,937				75			$	428,797				49
SSMC			336,037				25				430,235				50
Others			4,547				—				8,053				1
		$	1,328,521				100			$	867,085				100

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices and terms were determined in accordance with mutual agreements.

The Company leased certain office space and facilities from VIS. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and the related expenses were classified under research and development expenses and manufacturing expenses.

The Company leased certain factory building from VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental expense was paid monthly and classified under manufacturing expenses.

The Company leased certain machinery and equipment to VisEra. The lease terms and prices were determined in accordance with mutual agreements. The rental income was received monthly and the related income was classified under non-operating income and gains.

Compensation of directors and management personnel:

 

		Years Ended December 31
		2011				2010
Salaries, incentives and special compensation		$	752,767			$	885,766
Bonus			445,681				593,967
		$	1,198,448			$	1,479,733

The information about the compensation of directors and management personnel is available in the annual report for the shareholders’ meeting. Total compensation expense for the year ended December 31, 2011 includes estimated profit sharing to employees and bonus to directors of the Company that relate to 2011 but will be paid in the following year. The actual amount will be finalized and approved upon the resolution of the shareholders’ meeting in 2012. The total compensation for the year ended December 31, 2010 included the bonuses appropriated from earnings of 2010 which was approved by the shareholders’ meeting held in 2011.

 

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28.	PLEDGED OR MORTGAGED ASSETS

The Company provided certain assets as collateral mainly for long-term bank loans, land lease agreements and customs duty guarantee, which were as follows:

 

		December 31
		2011				2010
Other financial assets		$	121,140			$	163,531
Property, plant and equipment, net			—				1,109,249
Other assets			—				40,000
		$	121,140			$	1,312,780

 

29.	SIGNIFICANT LONG-TERM LEASES

The Company leases several parcels of land, factory and office premises from the Science Park Administration and Jhongli Industrial Park Service Center. These operating leases expire on various dates from December 2012 to September 2030 and can be renewed upon expiration.

The Company entered into lease agreements for its office premises and certain office equipment located in the United States, Japan, Shanghai and Taiwan. These operating leases expire between 2012 and 2020 and can be renewed upon expiration.

As of December 31, 2011, future lease payments were as follows:

 

Year		Amount
2012		$	627,882
2013			590,628
2014			566,953
2015			556,993
2016			543,728
2017 and thereafter			3,870,728
		$	6,756,912

 

30.	SIGNIFICANT COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of December 31, 2011, excluding those disclosed in other notes, were as follows:

 

a.

Under a technical cooperation agreement with Industrial Technology Research Institute, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice.

 

b.

Under several foundry agreements, TSMC shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with TSMC. As of December 31, 2011, TSMC had a total of US$13,039 thousand of guarantee deposits.

 

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c.

Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs.

 

d.

In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as “SMIC”) in the Superior Court of California for Alameda County for breach of a 2005 agreement that settled an earlier trade secret misappropriation and patent infringement litigation between the parties, as well as for trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court alleging breach of settlement agreement, implied covenant of good faith and fair dealing. SMIC also filed a civil action against TSMC in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. On June 10, 2009, the Beijing People’s High Court ruled in favor of TSMC and dismissed SMIC’s lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMC’s trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new settlement agreement, the parties have agreed to the entry of a stipulated judgment in favor of TSMC in the California action, and to the dismissal of SMIC’s appeal against the Beijing High Court’s finding in favor of TSMC. Under the new settlement agreement and the related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC totaling US$200 million, which are in addition to the US$135 million previously paid to TSMC under the 2005 settlement agreement, and, conditional upon relevant government regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of Semiconductor Manufacturing International Corporation and a three-year warrant to purchase 695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received the approval from the Investment Commission of Ministry of Economic Affairs and acquired the above mentioned common shares in July 2010, which are recorded within available for sale financial assets, and obtained the subsequent cash settlement income in accordance with the agreement.

 

e.

In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the Eastern District of Texas alleging that TSMC, TSMC North America, and several other leading technology companies infringe three expired U.S. patents. In response, TSMC, TSMC North America, and several co-defendants in the Texas case filed a lawsuit against Keranos in the U.S. District Court for the Northern District of California in November 2010, seeking a judgment declaring that they did not infringe the asserted patents, and that those patents are invalid. These two litigations have been consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The outcome cannot be determined at this time.

 

f.

In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for the Northern District of California accusing TSMC, TSMC North America and one other company of allegedly infringing six U.S. patents. This litigation is in its very early stages and therefore the outcome of the case cannot be determined at this time.

 

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g.

TSMC entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled NT$3,399,855 thousand and NT$7,112,172 thousand as of December 31, 2011 and 2010, respectively, which is included in other long-term payables.

 

h.

Amounts available under unused letters of credit as of December 31, 2011 were NT$263,880 thousand.

 

31.

OTHERS

The significant financial assets and liabilities denominated in foreign currencies were as follows:

 

		December 31
		2011								2010
		Foreign Currencies (In Thousands)				Exchange Rate (Note)				Foreign Currencies (In Thousands)				Exchange Rate (Note)
Financial assets
Monetary items
USD		$	3,744,817				30.288			$	3,944,765				29.13-30.368
EUR			135,857				39.18-39.27				233,213				38.92-40.65
JPY			37,276,671				0.3897-0.3906				29,779,663				0.3582-0.3735
RMB			201,385				4.81				251,319				4.3985-4.61
Non-monetary items
USD			141,498				30.288				189,327				30.368
HKD			671,060				3.90				1,002,116				3.91
Investments accounted for using equity method
USD			294,797				30.288				306,102				30.368
Financial liabilities
Monetary items
USD			1,744,746				30.288				2,021,729				29.13-30.368
EUR			111,750				39.18-39.27				265,360				38.92-40.65
JPY			35,349,169				0.3897-0.3906				31,561,576				0.3582-0.3735
RMB			278,877				4.81				566,778				4.3985-4.61

Note: Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.

 

32.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for TSMC and its investees in which all significant intercompany balances and transactions are eliminated upon consolidation:

 

a.

Financings provided: Please see Table 1 attached;

 

b.

Endorsement/guarantee provided: None;

 

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c.

Marketable securities held: Please see Table 2 attached;

 

d.

Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3 attached;

 

e.

Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: Please see Table 4 attached;

 

f.

Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None;

 

g.

Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached;

 

h.

Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

 

i.

Names, locations, and related information of investees over which TSMC exercises significant influence: Please see Table 7 attached;

 

j.

Information on investment in Mainland China

 

1)

The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 8 attached.

 

2)

Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial reports: Please see Table 9 attached.

 

k.

Intercompany relationships and significant intercompany transactions: Please see Table 9 attached.

 

33.	OPERATING SEGMENT INFORMATION

The Company’s only reportable segment is the foundry segment. The foundry segment engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. The Company also had other operating segments that did not exceed the quantitative threshold. These segments mainly engage in the researching, developing, and providing SoC (System on Chip) design and also engage in the researching, developing, designing, manufacturing and selling of solid state lighting devices and renewable energy and efficiency related technologies and products.

The Company uses the operating profit as the measurement for segment profit and the basis of performance assessment. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 2.

 

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The Company’s operating segment information was as follows:

 

a.

Industry financial information

 

		Foundry				Others				Elimination				Total
Year ended December 31, 2011
Sales from external customers		$	422,691,098			$	4,389,547			$	—			$	427,080,645
Sales among intersegments			1,588,601				6,224				(1,594,825	)			—
Operating profit (loss)			143,222,120				(1,664,702	)			—				141,557,418
Equity in earnings (losses) of equity method investees, net			1,635,303				(737,692	)			—				897,611
Income tax expense			10,649,688				44,729				—				10,694,417
Year ended December 31, 2010
Sales from external customers			409,216,727				10,321,184				—				419,537,911
Sales among intersegments			3,816,530				8,734				(3,825,264	)			—
Operating profit (loss)			159,633,614				(458,279	)			—				159,175,335
Equity in earnings of equity method investees, net			1,755,941				542,218				—				2,298,159
Income tax expense			7,928,663				59,802				—				7,988,465

 

b.

Geographic information

 

		Years Ended December 31
		Sales to Other Than Consolidated Entities								Non-current Assets
		2011				2010				2011				2010
Taiwan		$	49,798,532			$	56,420,375			$	472,168,728			$	379,553,584
United States			250,811,666				221,148,708				8,284,575				8,164,795
Asia			75,946,671				91,862,893				22,121,979				13,817,069
Europe			48,982,743				49,000,320				15,180				17,857
Others			1,541,033				1,105,615				—				—
		$	427,080,645			$	419,537,911			$	502,590,462			$	401,553,305

The geographic information is presented by billed regions. Non-current assets include property, plant and equipment, intangible assets and other assets, but not include financial instruments and deferred income tax assets.

 

c.

Production information

 

		Years Ended December 31
		2011				2010
Production
Wafer		$	384,632,494			$	375,060,853
Mask			23,818,656				19,796,871
Others			18,629,495				24,680,187
		$	427,080,645			$	419,537,911

 

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d.

Major customers representing at least 10% of gross sales

 

		Years Ended December 31
		2011								2010
		Amount				%				Amount				%
Customer A		$	60,412,085				14			$	37,962,026				9
Customer B			31,635,496				7				41,022,200				10

 

34.	PRE-DISCLOSURE OF THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

According to the Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Company is required to provide pre-disclosure regarding the adoption of the International Financial Reporting Standards (IFRSs) in the consolidated financial statements as follows.

 

a.

On May 14, 2009, the FSC announced the roadmap of IFRSs adoption for R.O.C. companies. Starting from 2013, companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare for the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations and related guidance translated by Accounting Research and Development Foundation (ARDF) and issued by the FSC. Due to aforementioned amendments, the Company established a taskforce to monitor and execute the IFRSs adoption plan. The important plan items, responsible divisions and plan progress are listed as follows.

 

Plan Item		Responsible Division		Plan Progress
1) Establish the IFRSs taskforce		Accounting Division		Finished
2) Complete the identification of GAAP differences and impact		Accounting Division, Finance Division and Employee Benefit and Payroll Section		Finished
3) Complete the identification of consolidated entities under IFRSs		Accounting Division		Finished
4) Evaluate potential effect to business operations		Accounting Division, Finance Division, Employee Benefit and Payroll Section and Business System Integration Division		Finished
5) Complete the evaluation of resources and budget needed for IFRSs adoption		Accounting division and Business System Integration Division		Finished
6) Set up a work plan for IFRSs adoption		Accounting Division and Business System Integration Division		Finished
7) Personnel training		Accounting Division		Finished
8) Determine IFRSs accounting policies		Accounting Division, Finance Division and Employee Benefit and Payroll Section		Finished

(Continued)

 

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Plan Item		Responsible Division		Plan Progress
9) Develop financial statement template under IFRSs		Accounting Division and Finance Division		Finished
10) Complete evaluation, configuration and testing of the IT systems		Accounting Division and Business System Integration Division		Finished
11) Communicate with related departments on the impact of IFRSs adoption		Accounting Division		In progress according to the plan
12) Complete the preparation of opening date balance sheet under IFRSs		Accounting Division		In progress according to the plan
13) Complete modification to the relevant internal controls		Accounting Division and Internal Audit Division		In progress according to the plan
14) Prepare comparative financial information under IFRSs for 2012		Accounting Division and Finance Division		In progress according to the plan

(Concluded)

 

b.

As of December 31, 2011, from the Company’s assessment, the significant differences between the Company’s current accounting policies under R.O.C. GAAP and the ones under IFRSs are stated as follows:

Allowance for sales returns and others

Under R.O.C. GAAP, provisions for estimated sales returns and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. Allowance for sales returns and others is recorded as a deduction in accounts receivable. Under IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions (classified under current liabilities) accordingly.

Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset or liability is classified as current or non-current in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or non-current based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset or liability is classified as non-current asset or liability.

In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. Under IFRSs, deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used.

 

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The classification of leased assets and idle assets

Under R.O.C. GAAP, leased assets and idle assets are classified under other assets. Under IFRSs, the aforementioned items are classified as property, plant and equipment according to their nature. Leased assets are mainly dormitories leased to employees and factories leased to suppliers. In accordance with the relevant IFRSs guidance, the dormitories leased to employees are not classified as investment properties; factories leased to suppliers are not considered as investment properties since they cannot be sold separately and comprise only an insignificant portion of the plant.

Employee benefits

The Company had previously applied an actuarial valuation on its defined benefit obligation and recognized the related pension cost and retirement benefit obligation in conformity with R.O.C. GAAP. Under IFRSs, the Company should carry out actuarial valuation on defined benefit obligation in accordance with IAS No. 19, “Employee Benefits.”

Under R.O.C. GAAP, it is not allowed to recognize actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of gains and losses. When using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees.

Under IAS No. 19, “Employee Benefits,” the Company will recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

Investments accounted for using the equity method

The Company’s associates and joint ventures accounted for using the equity method have also assessed the significant differences between their respective present accounting policies and IFRSs. The significant difference is mainly the adjustment to employee benefits.

The reclassification of line items in the statement of comprehensive income

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of IFRSs, income from operations in the consolidated income statement only includes revenue, cost of sales and operating expenses. Under IFRSs, based on the nature of operating transactions, technical service income is reclassified under revenue; rental revenue, depreciation of rental assets, net loss on disposal of property, plant and equipment and intangible assets, and impairment loss of property, plant and equipment, are reclassified under other operating gains and losses, which are reflected in income from operations.

 

c.

The Company’s aforementioned assessment is based on the 2010 version of IFRSs translated by ARDF and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by FSC on December 22, 2011. However, the assessment result may be impacted by the addition or the amendment of IFRSs issued or proposed by International Accounting Standards Board and the possible future rules issued by R.O.C. authorities governing the adoption of IFRSs by companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market.

 

35.	THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors and authorized for issue on February 14, 2012.

 

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TABLE 1

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

No.		Financing Company		Counter-party		Financial Statement Account		Maximum Balance for the Period (US$ in Thousands) (Note 4)				Ending Balance (US$ in Thousands) (Note 4)				Amount Actually Drawn (US$ in Thousands)				Interest Rate		Nature for Financing		Transaction Amounts				Reason for Financing		Allowance for Bad Debt				Collateral								Financing Limits for Each Borrowing Company (Notes 1 and 2)				Financing Company’s Total Financing Amount Limits (Note 3)
																																		Item				Value
1		TSMC Partners		TSMC China		Long-term receivables from related parties		$ (US$	7,572,000 250,000	)		$ (US$	7,572,000 250,000	)		$ (US$	7,572,000 250,000	)		0.25%-0.26%		The need for short-term financing		$	—			Purchase equipment		$	—				—			$	—			$	34,986,964			$	34,986,964
				TSMC Solar		Other receivables from related parties		(US$	1,211,520 40,000	)		(US$	1,211,520 40,000	)		(US$	454,320 15,000	)		0.4017%-0.4651%		The need for short- term financing			—			Operating capital			—				—				—				3,498,696
				TSMC SSL		Other receivables from related parties		(US$	908,640 30,000	)		(US$	908,640 30,000	)		(US$	348,312 11,500	)		0.4545%		The need for short- term financing			—			Operating capital			—				—				—				3,498,696
2		TSMC Global		TSMC		Other receivables from related parties		(US$	25,744,800 850,000	)			—				—			0.3544%		The need for short- term financing			—			Support the parent company’s short-term operation requirement			—				—				—				44,071,845				44,071,845

 

Note 1:		The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Partners. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. While offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions. The restriction of thirty percent (30%) of the borrower’s net worth will not apply to subsidiaries whose voting shares are 90% or more owned, directly or indirectly, by TSMC.
Note 2:		The total amount for lending to a company for funding for a short-term period shall not exceed ten percent (10%) of the net worth of TSMC Global. In addition, the total amount lendable to any one borrower shall be no more than thirty percent (30%) of the borrower’s net worth. TSMC or offshore subsidiaries whose voting shares are 100% owned, directly or indirectly, by TSMC are not subject to the above restrictions.
Note 3:		The total amount available for lending purpose shall not exceed the net worth of TSMC Partners and TSMC Global, respectively.
Note 4:		The maximum balance for the period and ending balance represents the amounts approved by Board of Directors.

 

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TABLE 2

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES HELD

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
TSMC		Corporate bond
		Nan Ya Plastics Corporation		—		Held-to-maturity financial assets			—			$	1,099,629				N/A			$	1,120,808
		China Steel Corporation		—		”			—				303,798				N/A				305,666
		Stock
		Semiconductor Manufacturing International Corporation		—		Available-for-sale financial assets			1,789,493				2,617,134				7				2,617,134
		TSMC Global		Subsidiary		Investments accounted for using equity method			1				44,071,845				100				44,071,845
		TSMC Partners		Subsidiary		”			988,268				34,986,964				100				34,986,964
		TSMC Solar		Subsidiary		”			1,118,000				10,153,244				100				10,153,244
		VIS		Investee accounted for using equity method		”			628,223				8,988,007				39				6,627,758
		SSMC		Investee accounted for using equity method		”			314				6,289,429				39				6,075,445
		TSMC North America		Subsidiary		”			11,000				2,981,639				100				2,981,639
		TSMC SSL		Subsidiary		”			227,000				1,746,893				100				1,746,893
		Xintec		Investee with a controlling financial interest		”			94,011				1,606,694				40				1,606,694
		GUC		Investee accounted for using equity method		”			46,688				1,157,188				35				4,645,442
		TSMC Europe		Subsidiary		”			—				205,171				100				205,171
		TSMC Japan		Subsidiary		”			6				161,601				100				161,601
		TSMC Korea		Subsidiary		”			80				23,448				100				23,448
		United Industrial Gases Co., Ltd.		—		Financial assets carried at cost			16,783				193,584				10				350,060
		Shin-Etsu Handotai Taiwan Co., Ltd.		—		”			10,500				105,000				7				351,996
		W.K. Technology Fund IV		—		”			4,000				40,000				2				41,372
		Fund
		Horizon Ventures Fund		—		Financial assets carried at cost			—				103,992				12				103,992
		Crimson Asia Capital		—		”			—				55,259				1				55,259
		Capital
		TSMC China		Subsidiary		Investments accounted for using equity method			—				13,542,181				100				13,583,214
		VTAF III		Subsidiary		”			—				1,311,044				53				1,290,093
		VTAF II		Subsidiary		”			—				762,135				98				756,125
		Emerging Alliance		Subsidiary		”			—				213,235				99				213,235
TSMC Solar		Stock
		Motech		Investee accounted for using equity method		Investments accounted for using equity method			87,480				5,612,344				20				3,849,382
		TSMC Solar Europe		Subsidiary		”			—				204,163				100				204,163
		TSMC Solar NA		Subsidiary		”			1				52,187				100				52,187

(Continued)

---

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account				December 31, 2011																Note
										Shares/Units (In  Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
		Capital
		VTAF III		Investee accounted for using equity method			Investments accounted for using equity method				—			$	1,681,719				46			$	1,681,719
TSMC SSL		Stock
		TSMC Lighting NA		Subsidiary			Investments accounted for using equity method				1				2,994				100				2,994
TSMC Partners		Corporate bond
		General Elec Cap Corp. Mtn		—			Held-to-maturity financial assets				—			US$	20,012				N/A			US$	20,100
		General Elec Cap Corp. Mtn		—			”				—			US$	20,059				N/A			US$	20,740
		Common stock
		TSMC Development, Inc. (TSMC Development)		Subsidiary			Investments accounted for using equity method				1			US$	460,034				100			US$	460,034
		VisEra Holding Company		Investee accounted for using equity method			”				43,000			US$	94,208				49			US$	94,208
		InveStar Semiconductor Development Fund, Inc. (ISDF)		Subsidiary			”				787			US$	11,112				97			US$	11,112
		TSMC Technology		Subsidiary			”				1			US$	10,615				100			US$	10,615
		InveStar Semiconductor Development Fund, Inc. (II) LDC. (ISDF II)		Subsidiary			”				14,153			US$	9,994				97			US$	9,994
		TSMC Canada		Subsidiary			”				2,300			US$	4,059				100			US$	4,059
		Mcube Inc.		Investee accounted for using equity method			”				5,333				—				80				—
		Preferred stock
		Mcube Inc.		Investee accounted for using equity method			Investments accounted for using equity method				1,000				—				5				—
		Fund
		Shanghai Walden Venture Capital Enterprise		—			Financial assets carried at cost				—			US$	5,000				8			US$	5,000
TSMC North America		Stock
		Spansion Inc.		—			Available-for-sale financial assets				276			US$	2,283				—			US$	2,283
TSMC Development		Corporate bond
		GE Capital Corp.		—			Held-to-maturity financial assets				—			US$	20,090				N/A			US$	20,770
		JP Morgan Chase & Co.		—			”				—			US$	15,000				N/A			US$	15,087
		Stock
		WaferTech		Subsidiary			Investments accounted for using equity method				293,640			US$	220,119				100			US$	220,119
Emerging Alliance.		Common stock
		RichWave Technology Corp		—			Financial assets carried at cost				4,074			US$	1,545				10			US$	1,545
		Global Investment Holding Inc.		—			”				11,124			US$	3,065				6			US$	3,065
		Preferred stock
		Audience, Inc.		—			Financial assets carried at cost				1,654			US$	250				—			US$	250
		Next IO, Inc.		—			”				8			US$	500				—			US$	500
		Pixim, Inc.		—			”				4,641			US$	1,137				2			US$	1,137
		QST Holdings, LLC		—			”				—			US$	142				4			US$	142
		Capital
		VentureTech Alliance Holdings, LLC (VTA Holdings)		Subsidiary			Investments accounted for using equity method				—				—				7				—

(Continued)

 

---

 

Held Company Name		Marketable Securities Type and Name		Relationship with  the Company		Financial  Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
VTAF II		Common stock
		Aether Systems, Inc.		—		Financial assets carried at cost			1,800			US$	1,701				23			US$	1,701
		RichWave Technology Corp.		—		”			1,267			US$	1,036				3			US$	1,036
		Sentelic		—		”			1,806			US$	2,607				9			US$	2,607
		Preferred stock
		5V Technologies, Inc.		—		Financial assets carried at cost			2,890			US$	2,168				4			US$	2,168
		Aquantia		—		”			4,556			US$	4,316				3			US$	4,316
		Audience, Inc.		—		”			12,378			US$	2,378				3			US$	2,378
		Impinj, Inc.		—		”			475			US$	1,000				—			US$	1,000
		Next IO, Inc.		—		”			132			US$	1,110				2			US$	1,110
		Pixim, Inc.		—		”			33,347			US$	1,878				2			US$	1,878
		Power Analog Microelectronics		—		”			7,330			US$	3,482				21			US$	3,482
		QST Holdings, LLC		—		”			—			US$	593				13			US$	593
		Capital
		VTA Holdings		Subsidiary		Investments accounted for using equity method			—				—				31				—
VTAF III		Common stock
		Mutual-Pak Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method			11,868			US$	1,204				57			US$	1,204
		Accton Wireless Broadband Corp.		—		Financial assets carried at cost			2,249			US$	315				6			US$	315
		Preferred stock
		InvenSense, Inc.		—		Available-for-sale financial assets			796			US$	7,932				1			US$	7,932
		BridgeLux, Inc.		—		Financial assets carried at cost			6,771			US$	8,745				3			US$	8,745
		Exclara, Inc.		—		”			59,695			US$	1,812				15			US$	1,812
		GTBF, Inc.		—		”			1,154			US$	1,500				N/A			US$	1,500
		LiquidLeds Lighting Corp.		—		”			1,600			US$	800				11			US$	800
		Neoconix, Inc.		—		”			3,916			US$	4,779				4			US$	4,779
		Powervation, Ltd.		—		”			449			US$	7,030				16			US$	7,030
		Stion Corp.		—		”			8,152			US$	55,473				20			US$	55,473
		Tilera, Inc.		—		”			3,890			US$	3,025				2			US$	3,025
		Validity Sensors, Inc.		—		”			9,340			US$	3,456				4			US$	3,456
		Capital
		Growth Fund Limited (Growth Fund)		Subsidiary		Investments accounted for using equity method			—			US$	510				100			US$	510
		VTA Holdings		Subsidiary		”			—				—				62				—
Growth Fund		Common stock
		Veebeam		—		Financial assets carried at cost			10			US$	25				—			US$	25
ISDF		Common stock
		Integrated Memory Logic, Inc.		—		Available-for-sale financial assets			2,161			US$	6,289				3			US$	6,289
		Memsic, Inc.		—		”			1,286			US$	3,407				5			US$	3,407
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			230			US$	497				2			US$	497

(Continued)

 

---

 

Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2011																Note
								Shares/Units (In  Thousands)				Carrying Value (Foreign Currencies in Thousands)				Percentage of Ownership (%)				Market Value or Net Asset Value (Foreign Currencies in Thousands)
ISDF II		Common stock
		Memsic, Inc.		—		Available-for-sale financial assets			1,072			US$	2,841				5			US$	2,841
		Alchip Technologies Limited		—		Financial assets carried at cost			7,520			US$	3,664				14			US$	3,664
		Sonics, Inc.		—		”			278			US$	10				3			US$	10
		Goyatek Technology, Corp.		—		”			745			US$	163				6			US$	163
		Auden Technology MFG. Co., Ltd.		—		”			1,049			US$	223				3			US$	223
		Preferred stock
		Sonics, Inc.		—		Financial assets carried at cost			264			US$	455				3			US$	455
Xintec		Capital
		Compositech Ltd.		—		Financial assets carried at cost			587				—				3				—
TSMC Solar Europe		Stock
		TSMC Solar Europe GmbH		Subsidiary		Investments accounted for using equity method			1				EUR 5,103				100				EUR 5,103
TSMC Global		Corporate bond
		Aust + Nz Banking Group		—		Held-to-maturity financial assets			20,000			US$	20,000				N/A			US$	19,751
		Commonwealth Bank of Australia		—		”			25,000			US$	25,000				N/A			US$	24,905
		Commonwealth Bank of Australia		—		”			25,000			US$	25,000				N/A			US$	24,991
		Deutsche Bank AG London		—		”			20,000			US$	19,884				N/A			US$	20,033
		JP Morgan Chase + Co.		—		”			35,000			US$	35,039				N/A			US$	35,070
		Nationwide Building Society-UK Government Guarantee		—		”			8,000			US$	8,000				N/A			US$	8,008
		Westpac Banking Corp.		—		”			25,000			US$	25,000				N/A			US$	24,825
		Westpac Banking Corp. 12/12 Frn		—		”			5,000			US$	5,000				N/A			US$	5,007
		Government bond
		Societe De Financement De Lec		—		Held-to-maturity financial assets			15,000			US$	15,000				N/A			US$	14,991
		Money market fund
		Ssga Cash Mgmt Global Offshore		—		Available-for-sale financial assets			83			US$	83				N/A			US$	83

(Concluded)

 

---

TABLE 3

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Company Name		Marketable Securities Type and Name		Financial     Statement     Account		Counter- party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands) (Note 1)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
TSMC		Stock
		TSMC Solar		Investments accounted for using equity method			—				Subsidiary				—			$	—				1,118,000			$	11,180,000				—			$	—			$	—			$	—				1,118,000			$	10,153,244
		TSMC SSL		”			—				Subsidiary				—				—				227,000				2,270,000				—				—				—				—				227,000				1,746,893
		Capital
		TSMC China		Investments accounted for using equity method			—				Subsidiary				—				4,252,270				—				6,759,300				—				—				—				—				—				13,542,181
		VTAF III		”			—				Subsidiary				—				2,769,423				—				135,297				—				—				—				—				—				1,311,044
TSMC Solar		Stock
		TSMC Solar Europe		Investments accounted for using equity method			—				Subsidiary				—				23,971				—				385,682				—				—				—				—				—				204,163
		Capital
		VTAF III		Investments accounted for using equity method			—				Investee accounted for using equity method				—				—				—				168,548				—				—				—				—				—				1,681,719
TSMC Solar		Stock
Europe		TSMC Solar Europe GmbH		Investments accounted for using equity method			—				Subsidiary				1				EUR 90				—				EUR 9,800				—				EUR —				EUR —				EUR —				1				EUR 5,103
TSMC Global		Corporate bond
		Allstate Life Gbl Fdg Secd		Available-for-sale financial assets			—				—				4,430			US$	4,824				—			US$	—				4,430			US$	4,787			US$	4,834			US$	(47	)			—			US$	—
		American Honda Fin Corp. Mtn		”			—				—				4,000			US$	3,995				—				—				4,000			US$	4,005			US$	3,985			US$	20				—				—
		Anz National Intl Ltd.		”			—				—				3,500			US$	3,554				—				—				3,500			US$	3,555			US$	3,515			US$	40				—				—
		Archer Daniels Midland Co.		”			—				—				—				—				7,000			US$	7,000				7,000			US$	7,010			US$	7,000			US$	10				—				—
		Astrazeneca Plc		”			—				—				3,150			US$	3,397				—				—				3,150			US$	3,356			US$	3,456			US$	(100	)			—				—
		AT+T Wireless		”			—				—				3,500			US$	3,823				—				—				3,500			US$	3,762			US$	3,979			US$	(217	)			—				—
		Banco Bilbao Vizcaya P R		”			—				—				3,250			US$	3,249				—				—				3,250			US$	3,251			US$	3,250			US$	1				—				—
		Bank of Nova Scotia		”			—				—				5,000			US$	5,000				—				—				5,000			US$	5,012			US$	5,000			US$	12				—				—
		Barclays Bank Plc		”			—				—				12,000			US$	11,997				—				—				12,000			US$	12,022			US$	12,035			US$	(13	)			—				—
		Barclays Bk Plc UK Govt Cr		”			—				—				—				—				5,000			US$	5,108				5,000			US$	5,099			US$	5,108			US$	(9	)			—				—
		Bb+T Corporation		”			—				—				—				—				3,840			US$	3,990				3,840			US$	3,977			US$	3,990			US$	(13	)			—				—
		Bear Stearns Cos Inc.		”			—				—				3,500			US$	3,494				—				—				3,500			US$	3,465			US$	3,360			US$	105				—				—
		Berkshire Hathaway Inc. Del		”			—				—				3,500			US$	3,517				—				—				3,500			US$	3,521			US$	3,500			US$	21				—				—
		Bhp Billiton Fin USA Ltd.		”			—				—				—				—				4,000			US$	4,443				4,000			US$	4,447			US$	4,443			US$	4				—				—
		Bnp Paribas SA		”			—				—				3,810			US$	3,844				—				—				3,810			US$	3,838			US$	3,844			US$	(6	)			—				—
		Boeing Cap Corp.		”			—				—				2,925			US$	3,192				—				—				2,925			US$	3,180			US$	3,235			US$	(55	)			—				—
		Bp Capital Markets Plc		”			—				—				3,900			US$	3,988				—				—				3,900			US$	3,992			US$	3,969			US$	23				—				—

(Continued)

 

---

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party				Nature of Relation ship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/Units (In Thousands) (Note 1)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Bp Capital Markets Plc		Available-     for-sale     financial     assets			—				—				—			US$	—				7,160			US$	7,160				7,160			US$	7,201			US$	7,160			US$	41				—			US$	—
		Chevron Corp.		”			—				—				—				—				4,000			US$	4,305				4,000			US$	4,286			US$	4,305			US$	(19	)			—				—
		Cie Financement Foncier		”			—				—				4,000			US$	4,019				—				—				4,000			US$	4,034			US$	4,029			US$	5				—				—
		Cisco Systems Inc.		”			—				—				—				—				7,050			US$	7,050				7,050			US$	7,073			US$	7,050			US$	23				—				—
		Citigroup Funding Inc.		”			—				—				16,000			US$	16,323				—				—				16,000			US$	16,337			US$	16,262			US$	75				—				—
		Citigroup Funding Inc.		”			—				—				7,300			US$	7,446				—				—				7,300			US$	7,440			US$	7,448			US$	(8	)			—				—
		Citigroup Inc.		”			—				—				5,000			US$	5,490				—				—				5,000			US$	5,478			US$	5,360			US$	118				—				—
		Coca Cola Co.		”			—				—				4,000			US$	4,002				—				—				4,000			US$	4,003			US$	4,000			US$	3				—				—
		Countrywide Finl Corp.		”			—				—				4,000			US$	4,208				—				—				4,000			US$	4,221			US$	4,291			US$	(70	)			—				—
		Credit Suisse New York		”			—				—				3,945			US$	4,090				—				—				3,945			US$	4,069			US$	4,073			US$	(4	)			—				—
		Credit Suisse New York		”			—				—				—				—				3,200			US$	3,200				3,200			US$	3,238			US$	3,200			US$	38				—				—
		Dexia Credit Local		”			—				—				6,000			US$	5,976				—				—				6,000			US$	5,983			US$	6,000			US$	(17	)			—				—
		Dexia Credit Local		”			—				—				4,000			US$	3,984				—				—				4,000			US$	3,927			US$	4,000			US$	(73	)			—				—
		Dexia Credit Local S.A		”			—				—				4,000			US$	3,992				—				—				4,000			US$	3,976			US$	4,000			US$	(24	)			—				—
		Dexia Credit Local SA NY		”			—				—				5,000			US$	4,983				—				—				5,000			US$	4,952			US$	5,000			US$	(48	)			—				—
		Finance for Danish Ind		”			—				—				3,800			US$	3,799				—				—				3,800			US$	3,808			US$	3,801			US$	7				—				—
		General Elec Cap Corp.		”			—				—				7,000			US$	7,002				—				—				7,000			US$	7,005			US$	7,002			US$	3				—				—
		General Elec Cap Corp.		”			—				—				4,000			US$	4,110				—				—				4,000			US$	4,095			US$	4,117			US$	(22	)			—				—
		General Elec Cap Corp.		”			—				—				—				—				5,000			US$	5,000				5,000			US$	5,037			US$	5,000			US$	37				—				—
		Georgia Pwr Co.		”			—				—				4,000			US$	4,006				—				—				4,000			US$	4,002			US$	4,024			US$	(22	)			—				—
		Gmac LLC		”			—				—				4,600			US$	4,731				—				—				4,600			US$	4,715			US$	4,726			US$	(11	)			—				—
		Goldman Sachs Group Inc.		”			—				—				—				—				3,400			US$	3,400				3,400			US$	3,425			US$	3,400			US$	25				—				—
		Hewlett Packard Co.		”			—				—				3,000			US$	3,003				—				—				3,000			US$	3,004			US$	2,995			US$	9				—				—
		Household Fin Corp.		”			—				—				4,330			US$	4,694				—				—				4,330			US$	4,662			US$	4,781			US$	(119	)			—				—
		HSBC Bank Plc		”			—				—				3,400			US$	3,405				—				—				3,400			US$	3,407			US$	3,407				—				—				—
		HSBC Fin Corp.		”			—				—				2,900			US$	3,074				—				—				2,900			US$	3,074			US$	3,142			US$	(68	)			—				—
		IBM Corp.		”			—				—				6,800			US$	6,775				—				—				6,800			US$	6,781			US$	6,772			US$	9				—				—
		Inc Bk Nv Neth St Cr Gtee		”			—				—				—				—				8,500			US$	8,668				8,500			US$	8,655			US$	8,668			US$	(13	)			—				—
		John Deer Capital Corp. Fdic GT		”			—				—				3,500			US$	3,616				—				—				3,500			US$	3,601			US$	3,634			US$	(33	)			—				—
		JP Morgan Chase + Co.		”			—				—				5,000			US$	5,021				—				—				5,000			US$	5,032			US$	5,000			US$	32				—				—
		Lloyds Tsb Bank Plc Ser 144A		”			—				—				5,950			US$	6,009				—				—				5,950			US$	6,007			US$	6,077			US$	(70	)			—				—
		Macquarie Bk Ltd. Sr		”			—				—				3,900			US$	3,975				9,300			US$	9,472				13,200			US$	13,423			US$	13,455			US$	(32	)			—				—
		Massmutual Global Fdg II Mediu		”			—				—				4,000			US$	3,955				—				—				4,000			US$	3,991			US$	3,926			US$	65				—				—
		Mellon Fdg Corp.		”			—				—				3,500			US$	3,475				—				—				3,500			US$	3,479			US$	3,404			US$	75				—				—
		Merck + Co. Inc.		”			—				—				4,000			US$	4,032				—				—				4,000			US$	4,013			US$	4,066			US$	(53	)			—				—
		Merrill Lynch + Co. Inc.		”			—				—				4,691			US$	4,647				—				—				4,691			US$	4,669			US$	4,603			US$	66				—				—
		Merrill Lynch + Co. Inc.		”			—				—				—				—				4,000			US$	4,335				4,000			US$	4,319			US$	4,335			US$	(16	)			—				—
		Met Life Glob Funding I		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,004			US$	3,000			US$	4				—				—
		Metlife Inc.		”			—				—				6,500			US$	6,600				—				—				6,500			US$	6,584			US$	6,527			US$	57				—				—
		Microsoft Corp.		”			—				—				3,250			US$	3,232				—				—				3,250			US$	3,224			US$	3,249			US$	(25	)			—				—
		Morgan Stanley		”			—				—				—				—				9,000			US$	9,000				9,000			US$	9,140			US$	9,000			US$	140				—				—
		Morgan Stanley Dean Witter		”			—				—				8,000			US$	8,524				—				—				8,000			US$	8,513			US$	8,797			US$	(284	)			—				—
		National Australia Bank		”			—				—				—				—				3,000			US$	3,035				3,000			US$	3,040			US$	3,034			US$	6				—				—
		Pepsiamericas Inc.		”			—				—				—				—				4,000			US$	4,329				4,000			US$	4,308			US$	4,329			US$	(21	)			—				—
		Philip Morris Intl Inc.		”			—				—				—				—				4,000			US$	4,640				4,000			US$	4,591			US$	4,640			US$	(49	)			—				—
		Princoa Global Fdg I Medium		”			—				—				5,050			US$	5,011				—				—				5,050			US$	5,042			US$	4,921			US$	121				—				—
		Rabobank Nederland		”			—				—				5,000			US$	5,000				—				—				5,000			US$	5,000			US$	4,997			US$	3				—				—
		Royal Bk of Scotland Plc		”			—				—				5,000			US$	5,052				—				—				5,000			US$	5,045			US$	5,106			US$	(61	)			—				—
		Royal Bk Scotlnd Grp Plc 144A		”			—				—				9,450			US$	9,516				—				—				9,450			US$	9,517			US$	9,596			US$	(79	)			—				—

(Continued)

---

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands) (Note 1)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Sanofi Aventis		Available-for-sale financial assets			—				—				—			US$	—				4,000			US$	4,000				4,000			US$	4,003			US$	4,000			US$	3				—			US$	—
		Sanofi Aventis		”			—				—				—				—				3,870			US$	3,870				3,870			US$	3,884			US$	3,870			US$	14				—				—
		Shell International Fin		”			—				—				4,515			US$	4,536				—				—				4,515			US$	4,533			US$	4,527			US$	6				—				—
		Shell International Fin		”			—				—				3,200			US$	3,248				—				—				3,200			US$	3,256			US$	3,227			US$	29				—				—
		Standard Chartered BK NY		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,001			US$	3,000			US$	1				—				—
		State Str Corp.		”			—				—				6,420			US$	6,417				—				—				6,420			US$	6,423			US$	6,382			US$	41				—				—
		Sun Life Finl Global		”			—				—				4,400			US$	4,332				—				—				4,400			US$	4,351			US$	4,304			US$	47				—				—
		Suncorp Metway Ltd.		”			—				—				8,800			US$	8,982				—				—				8,800			US$	8,937			US$	9,125			US$	(188	)			—				—
		Swedbank Hypotek AB		”			—				—				4,000			US$	3,993				—				—				4,000			US$	3,998			US$	4,002			US$	(4	)			—				—
		Swedbank Hypotek AB		”			—				—				—				—				4,100			US$	4,100				4,100			US$	4,086			US$	4,100			US$	(14	)			—				—
		Teva Pharm Fin III		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,019			US$	4,000			US$	19				—				—
		Teva Pharma Fin III LLC		”			—				—				4,000			US$	4,016				—				—				4,000			US$	4,011			US$	4,000			US$	11				—				—
		Total Capital Canada Ltd.		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,013			US$	4,000			US$	13				—				—
		United Technologies Corp.		”			—				—				—				—				4,000			US$	4,265				4,000			US$	4,244			US$	4,266			US$	(22	)			—				—
		US Central Federal Cred		”			—				—				4,000			US$	4,084				4,500			US$	4,599				8,500			US$	8,664			US$	8,692			US$	(28	)			—				—
		Verizon Communications		”			—				—				—				—				7,725			US$	7,725				7,725			US$	7,785			US$	7,725			US$	60				—				—
		Virginia Elec + Pwr Co.		”			—				—				—				—				3,250			US$	3,489				3,250			US$	3,461			US$	3,489			US$	(28	)			—				—
		Volkswagen Intl Fin NV		”			—				—				—				—				4,000			US$	4,000				4,000			US$	4,010			US$	4,000			US$	10				—				—
		Wachovia Corp. Global Medium		”			—				—				5,000			US$	5,141				—				—				5,000			US$	5,142			US$	5,138			US$	4				—				—
		Wal Mart Stores Inc.		”			—				—				4,000			US$	3,964				—				—				4,000			US$	3,968			US$	3,986			US$	(18	)			—				—
		Wal Mart Stores Inc.		”			—				—				3,770			US$	4,325				—				—				3,770			US$	4,261			US$	4,383			US$	(122	)			—				—
		Westpac Banking Corp.		”			—				—				3,500			US$	3,514				—				—				3,500			US$	3,511			US$	3,500			US$	11				—				—
		Westpac Banking Corp.		”			—				—				4,000			US$	4,005				—				—				4,000			US$	4,022			US$	4,044			US$	(22	)			—				—
		Wyeth		”			—				—				3,345			US$	3,657				638			US$	697				3,983			US$	4,325			US$	4,397			US$	(72	)			—				—
		Deutsche Bank AG London		Held-to-maturity financial assets			—				—				—				—				20,000			US$	19,884				—				—				—				—				20,000			US$	19,884
		Government bond
		US Treasury N/B		Available-for-sale financial assets			—				—				41,700			US$	42,042				—				—				41,700			US$	42,042			US$	41,729			US$	313				—				—
		US Treasury N/B		”			—				—				11,100			US$	10,976				—				—				11,100			US$	10,941			US$	11,084			US$	(143	)			—				—
		US Treasury N/B		”			—				—				7,000			US$	7,079				—				—				7,000			US$	7,077			US$	7,078			US$	(1	)			—				—
		US Treasury N/B		”			—				—				5,250			US$	5,212				30,175			US$	29,906				35,425			US$	35,154			US$	35,101			US$	53				—				—
		US Treasury N/B		”			—				—				—				—				19,900			US$	19,872				19,900			US$	19,888			US$	19,872			US$	16				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,084				10,000			US$	10,073			US$	10,084			US$	(11	)			—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,042				10,000			US$	10,046			US$	10,042			US$	4				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	10,024				10,000			US$	10,035			US$	10,024			US$	11				—				—
		US Treasury N/B		”			—				—				—				—				10,000			US$	9,988				10,000			US$	9,990			US$	9,988			US$	2				—				—
		US Treasury N/B		”			—				—				—				—				3,300			US$	3,301				3,300			US$	3,298			US$	3,301			US$	(3	)			—				—
		Agency bond
		Fannie Mae		Available-for-sale financial assets			—				—				16,104			US$	16,102				—				—				16,104			US$	16,116			US$	16,098			US$	18				—				—
		Fannie Mae		”			—				—				11,100			US$	11,096				—				—				11,100			US$	11,109			US$	11,096			US$	13				—				—
		Fannie Mae		”			—				—				8,765			US$	8,763				11,500			US$	11,503				20,265			US$	20,280			US$	20,262			US$	18				—				—
		Fannie Mae		”			—				—				4,600			US$	4,589				—				—				4,600			US$	4,606			US$	4,598			US$	8				—				—
		Fannie Mae		”			—				—				3,900			US$	3,861				—				—				3,900			US$	3,851			US$	3,899			US$	(48	)			—				—
		Fannie Mae		”			—				—				3,000			US$	2,994				—				—				3,000			US$	3,000			US$	3,009			US$	(9	)			—				—
		Fannie Mae		”			—				—				—				—				20,300			US$	20,269				20,300			US$	20,301			US$	20,269			US$	32				—				—
		Fannie Mae		”			—				—				—				—				11,045			US$	12,104				11,045			US$	12,044			US$	12,104			US$	(60	)			—				—
		Fannie Mae		”			—				—				—				—				7,500			US$	7,500				7,500			US$	7,508			US$	7,500			US$	8				—				—
		Fannie Mae		”			—				—				—				—				3,000			US$	3,000				3,000			US$	3,008			US$	3,000			US$	8				—				—
		Federal Farm Credit Bank		”			—				—				4,000			US$	3,994				—				—				4,000			US$	4,002			US$	3,995			US$	7				—				—

(Continued)

 

---

 

Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party				Nature of Relationship				Beginning Balance								Acquisition								Disposal (Note 2)																Ending Balance (Note 3)
														Shares/ Units (In Thousands)				Amount (Foreign Currencies  in Thousands)				Shares/ Units (In Thousands) (Note 1)				Amount (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)				Carrying Value (Foreign Currencies in Thousands)				Gain (Loss) on Disposal (Foreign Currencies in Thousands)				Shares/ Units (In Thousands)				Amount (Foreign Currencies in Thousands)
		Federal Farm Credit Bank		Available- for-sale financial assets			—				—				4,000			US$	3,984				—			US$	—				4,000			US$	3,986			US$	3,998			US$	(12	)			—			US$	—
		Federal Farm Credit Bank		”			—				—				—				—				4,000			US$	4,002				4,000			US$	4,003			US$	4,002			US$	1				—				—
		Federal Home Loan Bank		”			—				—				5,000			US$	5,007				—				—				5,000			US$	5,007			US$	5,009			US$	(2	)			—				—
		Federal Home Loan Bank		”			—				—				6,800			US$	6,817				—				—				6,800			US$	6,817			US$	6,811			US$	6				—				—
		Federal Home Loan Bank		”			—				—				8,000			US$	8,040				—				—				8,000			US$	8,033			US$	7,990			US$	43				—				—
		Federal Home Loan Bank		”			—				—				10,000			US$	9,998				—				—				10,000			US$	10,001			US$	9,985			US$	16				—				—
		Federal Home Loan Bank		”			—				—				8,400			US$	8,397				—				—				8,400			US$	8,400			US$	8,399			US$	1				—				—
		Federal Home Ln Bks		”			—				—				5,000			US$	5,046				—				—				5,000			US$	5,043			US$	5,098			US$	(55	)			—				—
		Federal Home Ln Mtg Corp.		”			—				—				3,732			US$	3,727				—				—				3,340			US$	3,340			US$	3,341			US$	(1	)			—				—
		Federal Home Ln Mtg Corp.		”			—				—				3,324			US$	3,453				—				—				3,161			US$	3,288			US$	3,360			US$	(72	)			—				—
		Federal Home Loan Mtg Corp.		”			—				—				5,183			US$	5,168				—				—				4,634			US$	4,634			US$	4,632			US$	2				—				—
		Fhr 2953 Da		”			—				—				3,284			US$	3,466				—				—				2,846			US$	3,028			US$	2,993			US$	35				—				—
		Fhr 3184 Fa		”			—				—				4,096			US$	4,084				—				—				3,810			US$	3,807			US$	3,806			US$	1				—				—
		Fnma Tba Jan 15 Single Fam		”			—				—				—				—				3,000			US$	3,147				3,000			US$	3,142			US$	3,147			US$	(5	)			—				—
		Fnma Tba Feb 15 Single Fam		”			—				—				—				—				3,000			US$	3,138				3,000			US$	3,117			US$	3,138			US$	(21	)			—				—
		Fnma Tba Mar 15 Single Fam		”			—				—				—				—				3,000			US$	3,110				3,000			US$	3,140			US$	3,110			US$	30				—				—
		Fnma Tba Apr 15 Single Fam		”			—				—				—				—				3,000			US$	3,131				3,000			US$	3,164			US$	3,131			US$	33				—				—
		Fnr 2006 60 CO		”			—				—				3,485			US$	3,483				—				—				3,274			US$	3,274			US$	3,272			US$	2				—				—
		Fnr 2009 116 A		”			—				—				4,271			US$	4,640				—				—				3,841			US$	4,137			US$	4,122			US$	15				—				—
		Freddie Mac		”			—				—				5,750			US$	5,764				—				—				5,750			US$	5,761			US$	5,771			US$	(10	)			—				—
		Freddie Mac		”			—				—				4,300			US$	4,316				—				—				4,300			US$	4,312			US$	4,308			US$	4				—				—
		Freddie Mac		”			—				—				10,420			US$	10,411				—				—				10,420			US$	10,414			US$	10,412			US$	2				—				—
		Freddie Mac		”			—				—				—				—				19,000			US$	18,981				19,000			US$	18,986			US$	18,981			US$	5				—				—
		Freddie Mac		”			—				—				—				—				3,550			US$	3,549				3,550			US$	3,553			US$	3,549			US$	4				—				—
		Freddie Mac		”			—				—				—				—				14,200			US$	14,196				14,200			US$	14,204			US$	14,196			US$	8				—				—
		Gnr 2009 45 AB		”			—				—				4,417			US$	4,496				—				—				3,082			US$	3,129			US$	3,215			US$	(86	)			—				—
		Government Natl Mtg Assn		”			—				—				3,050			US$	3,285				—				—				3,050			US$	3,202			US$	3,278			US$	(76	)			—				—
		Ngn 2010 R2 1A		”			—				—				3,732			US$	3,731				—				—				3,490			US$	3,492			US$	3,490			US$	2				—				—
		Ngn 2011 R4 1A		”			—				—				—				—				4,000			US$	4,000				3,914			US$	3,914			US$	3,914				—				—				—
		Money market fund
		Ssga Cash Mgmt Global Offshore		Available- for-sale financial assets			—				—				12,387			US$	12,387				764,155			US$	764,155				776,459			US$	776,459			US$	776,459				—				83			US$	83

 

Note 1:		The shares/units and amount of marketable securities acquired do not include stock dividends from investees.
Note 2:		The data for marketable securities disposed exclude bonds maturities and redemption by the issuer.
Note 3:		The ending balance includes the amortization of premium/discount on bonds investments, unrealized valuation gains/losses on financial assets, translation adjustments, equity in earnings/losses of equity method investees, other adjustments to long-term investment using equity method and amounts transferred from spin-off.

(Concluded)

 

---

TABLE 4

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name

Types of Property

Transaction Date

Transaction Amount

Payment Term

Counter- party

Nature of Relationships

Prior Transaction of Related Counter- party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationships

Transfer Date

Amount

TSMC

Fab

January 5, 2011 to November 10, 2011

$

1,018,438

By the construction progress

China Steel Structure Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 7, 2011 to December 27, 2011

152,099

By the construction progress

Lead Fu Industrials Corp.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 26, 2011 to December 27, 2011

222,928

By the construction progress

MandarTech Interiors Inc.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 26, 2011 to December 27, 2011

173,899

By the construction progress

I Domain Industrial Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 27, 2011

2,425,769

By the construction progress

Da Cin Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 27, 2011

2,036,095

By the construction progress

Fu Tsu Construction Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to July 24, 2011

480,672

By the construction progress

Tasa Construction Corporation

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Fab

January 27, 2011 to December 28, 2011

219,004

By the construction progress

Edg Corporation Ltd.

N/A

N/A

N/A

N/A

Public bidding

Manufacturing

None

Fab

February 24, 2011 to December 27, 2011

229,992

By the construction progress

Yankey Engineering Co., Ltd.

—

N/A

N/A

N/A

N/A

Public bidding

Manufacturing purpose

None

Xintec

Fab

February 17, 2011

1,050,000

Based on the agreement

Vertex Precision Electronics Inc.

—

N/A

N/A

N/A

N/A

Pricing report

Manufacturing purpose

None

 

---

TABLE 5

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name		Related Party		Nature of Relationships		Transaction Details												Abnormal Transaction				Notes/Accounts Payable or Receivable								Note
						Purchases/ Sales		Amount				% to Total				Payment Terms		Unit Price (Note)		Payment Terms (Note)		Ending Balance				% to Total
TSMC		TSMC North America		Subsidiary		Sales		$	234,902,043				56			Net 30 days after invoice date		—		—		$	24,661,104				55
		GUC		Investee accounted for using equity method		Sales			3,388,912				1			Net 30 days after monthly closing		—		—			116,218				—
		VIS		Investee accounted for using equity method		Sales			302,844				—			Net 30 days after monthly closing		—		—			—				—
		TSMC Solar Europe GmbH		Indirect subsidiary		Sales			148,898				—			Net 60 days after invoice date		—		—			—				—
		TSMC China		Subsidiary		Purchases			10,392,189				21			Net 30 days after monthly closing		—		—			(946,826	)			8
		WaferTech		Indirect subsidiary		Purchases			7,305,879				15			Net 30 days after monthly closing		—		—			(420,459	)			3
		VIS		Investee accounted for using equity method		Purchases			5,577,762				12			Net 30 days after monthly closing		—		—			(987,937	)			8
		SSMC		Investee accounted for using equity method		Purchases			3,949,176				8			Net 30 days after monthly closing		—		—			(336,037	)			3
		Motech		Indirect investee accounted for using the equity method		Purchases			124,673				—			Net 30 days after monthly closing		—		—			—				—
Xintec		OmniVision		Parent company of director (represented for Xintec)		Sales			1,829,969				47			Net 30 days after monthly closing		—		—			241,333				51
		TSMC		Parent company		Sales			267,841				7			Net 30 days after monthly closing		—		—			17,326				4

 

Note:

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties.   For other related party transactions, prices and terms were determined in accordance with mutual agreements.

 

---

TABLE 6

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars)

 

Company Name		Related Party		Nature of Relationships		Ending Balance				Turnover Days (Note 1)				Overdue						Amounts Received in Subsequent Period				Allowance for Bad Debts
														Amount				Action Taken
TSMC		TSMC North America		Subsidiary		$	24,684,991				39			$	9,115,109			—		$	14,946,365			$	—
		GUC		Investee accounted for using equity method			116,218				15				—			—			—				—
Xintec		OmniVision		Parent company of director (represented for Xintec)			241,333				36				—			—			—				—

 

Note:

The calculation of turnover days excludes other receivables from related parties.

---

TABLE 7

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2011												Net Income (Losses) of the Investee (Foreign Currencies in Thousands)				Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)				Note
								December 31, 2011 (Foreign Currencies in Thousands)				December 31, 2010 (Foreign Currencies in Thousands)				Shares (In Thousands)				Percentage of Ownership				Carrying Value (Foreign Currencies in Thousands)
TSMC		TSMC Global		Tortola, British Virgin Islands		Investment activities		$	42,327,245			$	42,327,245				1				100			$	44,071,845			$	431,368			$	431,368			Subsidiary
		TSMC Partners		Tortola, British Virgin Islands		Investing in companies involved in the design, manufacture, and other related business in the semiconductor industry			31,456,130				31,456,130				988,268				100				34,986,964				1,745,799				1,745,799			Subsidiary
		TSMC China		Shanghai, China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers			18,939,667				12,180,367				—				100				13,542,181				2,113,521				2,098,233			Subsidiary
		TSMC Solar		Tai-Chung, Taiwan		Engaged in researching, developing, designing, manufacturing and selling renewable energy and saving related technologies and products			11,180,000				—				1,118,000				100				10,153,244				(982,868	)			(982,868	)		Subsidiary
		VIS		Hsin-Chu, Taiwan		Research, design, development, manufacture, packaging, testing and sale of memory integrated circuits, LSI, VLSI and related parts			13,232,288				13,232,288				628,223				39				8,988,007				882,183				(10,337	)		Investee accounted for using equity method
		SSMC		Singapore		Fabrication and supply of integrated circuits			5,120,028				5,120,028				314				39				6,289,429				3,370,241				1,143,147			Investee accounted for using equity method
		TSMC North America		San Jose, California, U.S.A.		Selling and marketing of integrated circuits and semiconductor devices			333,718				333,718				11,000				100				2,981,639				197,493				197,493			Subsidiary
		TSMC SSL		Hsin-Chu, Taiwan		Engaged in researching, developing, designing, manufacturing and selling solid state lighting devices and related applications products and systems			2,270,000				—				227,000				100				1,746,893				(523,002	)			(523,002	)		Subsidiary
		Xintec		Taoyuan, Taiwan		Wafer level chip size packaging service			1,357,890				1,357,890				94,011				40				1,606,694				166,603				54,449			Investee with a controlling financial interest
		VTAF III		Cayman Islands		Investing in new start-up technology companies			2,074,155 (Note 4	)			3,565,441 (Note 4	)			—				53				1,311,044				(280,045	)			(273,038	)		Subsidiary
		GUC		Hsin-Chu, Taiwan		Researching, developing, manufacturing, testing and marketing of integrated circuits			386,568				386,568				46,688				35				1,157,188				527,406				183,843			Investee accounted for using equity method
		VTAF II		Cayman Islands		Investing in new start-up technology companies			949,267				1,166,470				—				98				762,135				32,275				31,629			Subsidiary
		Emerging Alliance		Cayman Islands		Investing in new start-up technology companies			892,855				971,785				—				99				213,235				(11,185	)			(11,129	)		Subsidiary (Note 3)
		TSMC Europe		Amsterdam, the Netherlands		Marketing and engineering supporting activities			15,749				15,749				—				100				205,171				34,937				34,937			Subsidiary (Note 3)
		TSMC Japan		Yokohama, Japan		Marketing activities			83,760				83,760				6				100				161,601				4,523				4,523			Subsidiary (Note 3)
		TSMC Korea		Seoul, Korea		Customer service and technical supporting activities			13,656				13,656				80				100				23,448				3,263				3,263			Subsidiary (Note 3)
TSMC Solar		Motech		Taipei, Taiwan		Manufacturing and sales of solar cells, crystalline silicon solar cell, and test and measurement instruments and design and construction of solar power systems			6,228,661 (Note 4	)			6,228,661 (Note 4	)			87,480				20				5,612,344				(2,193,504	)			Note 2			Investee accounted for using equity method
		VTAF III		Cayman Islands		Investing in new start-up technology companies			1,795,131 (Note 4	)			3,565,441 (Note 4	)			—				46				1,681,719				(280,045	)			Note 2			Investee accounted for using equity method
		TSMC Solar Europe		Amsterdam, the Netherlands		Investing in solar related business			411,032 (Note 4	)			25,350 (Note 4	)			—				100				204,163				(196,659	)			Note 2			Subsidiary
		TSMC Solar NA		Delaware, U.S.A.		Selling and marketing of solar related products			147,686 (Note 4	)			60,962 (Note 4	)			1				100				52,187				(63,192	)			Note 2			Subsidiary
TSMC SSL		TSMC Lighting NA		Delaware, U.S.A.		Selling and marketing of solid state lighting related products			3,133 (Note 4	)			3,133 (Note 4	)			1				100				2,994				(34	)			Note 2			Subsidiary

(Continued)

 

---

Investor Company

Investee Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of December 31, 2011

Net Income (Losses) of the Investee (Foreign Currencies in Thousands)

Equity in the Earnings (Losses) (Note 1) (Foreign Currencies in Thousands)

Note

December 31, 2011 (Foreign Currencies in Thousands)

December 31, 2010 (Foreign Currencies in Thousands)

Shares (In Thousands)

Percentage of Ownership

Carrying Value (Foreign Currencies in Thousands)

TSMC Partners

TSMC Development

Delaware, U.S.A.

Investment activities

US$

0.001

US$

0.001

1

100

US$

460,034

US$

56,777

Note 2

Subsidiary

VisEra Holding Company

Cayman Islands

Investing in companies involved in the design, manufacturing, and other related businesses in the semiconductor industry

US$

43,000

US$

43,000

43,000

49

US$

94,208

US$

29,054

Note 2

Investee accounted for using equity method

ISDF

Cayman Islands

Investing in new start-up technology companies

US$

787

US$

4,088

787

97

US$

11,112

US$

3,656

Note 2

Subsidiary

TSMC Technology

Delaware, U.S.A.

Engineering support activities

US$

0.001

US$

0.001

1

100

US$

10,615

US$

737

Note 2

Subsidiary (Note 3)

ISDF II

Cayman Islands

Investing in new start-up technology companies

US$

14,153

US$

16,532

14,153

97

US$

9,994

US$

(642

)

Note 2

Subsidiary

TSMC Canada

Ontario, Canada

Engineering support activities

US$

2,300

US$

2,300

2,300

100

US$

4,059

US$

435

Note 2

Subsidiary (Note 3)

Mcube Inc. (Common Stock)

Delaware, U.S.A.

Research, development, and sale of micro- semiconductor device

US$

800

US$

800

5,333

80

—

US$

(13,586

)

Note 2

Investee accounted for using equity method (Note 3)

Mcube Inc. (Preferred Stock)

Delaware, U.S.A.

Research, development, and sale of micro- semiconductor device

US$

1,000

US$

1,000

1,000

5

—

US$

(13,586

)

Note 2

Investee accounted for using equity method (Note 3)

TSMC Development

WaferTech

Washington, U.S.A.

Manufacturing, selling, testing and computer- aided designing of integrated circuits and other semiconductor devices

US$

280,000

US$

280,000

293,640

100

US$

220,119

US$

54,908

Note 2

Subsidiary

VTAF III

Mutual-Pak Technology Co., Ltd.

Taipei, Taiwan

Manufacturing and selling of electronic parts and researching, developing, and testing of RFID

US$

3,937

US$

3,937

11,868

57

US$

1,204

US$

(1,458

)

Note 2

Subsidiary (Note 3)

Growth Fund

Cayman Islands

Investing in new start-up technology companies

US$

1,830

US$

1,700

—

100

US$

510

US$

(466

)

Note 2

Subsidiary (Note 3)

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

62

—

—

Note 2

Subsidiary (Note 3)

VTAF II

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

31

—

—

Note 2

Subsidiary (Note 3)

Emerging Alliance

VTA Holdings

Delaware, U.S.A.

Investing in new start-up technology companies

—

—

—

7

—

—

Note 2

Subsidiary (Note 3)

TSMC Solar Europe

TSMC Solar Europe GmbH

Hamburg, Germany

Selling of solar related products and providing customer service

EUR 9,900

EUR 100

1

100

EUR

5,103

EUR

(4,787)

Note 2

Subsidiary

 

Note 1:		Equity in earnings/losses of investees include the effect of unrealized gross profit from affiliates.
Note 2:		The equity in the earnings/losses of the investee company is not reflected herein as such amount is already included in the equity in the earnings/losses of the investor company.
Note 3:		Equity in earnings/losses was determined based on the unaudited financial statements.
Note 4:		In August 2011, the Company adjusted its investment structure by transferring TSMC Lighting NA to TSMC SSL and transferring Motech, TSMC Solar Europe, TSMC Solar NA and part of VTAF III to TSMC Solar.

(Concluded)

 

- 127 -

---

TABLE 8

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INFORMATION OF INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2011

(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

Investee Company		Main Businesses and Products		Total Amount of Paid-in Capital (Foreign Currencies in Thousands)				Method of Investment				Accumulated Outflow of Investment from Taiwan as of January 1, 2011 (US$ in Thousand)				Investment Flows								Accumulated Outflow of Investment from Taiwan as of December 31, 2011 (US$ in Thousands)				Percentage of Ownership				Equity in the Earnings (Losses)				Carrying Value as of December 31, 2011 (US$ in Thousands)				Accumulated Inward Remittanceof Earnings as of December 31, 2011
																Outflow (US$ in Thousands)				Inflow
TSMC China		Manufacturing and selling of integrated circuits at the order of and pursuant to product design specifications provided by customers		$	18,939,667 (RMB 4,502,080	)			(Note 1	)		$ (US$	12,180,367 371,000	)		$ (US$	6,759,300 225,000	)		$	—			$ (US$	18,939,667 596,000	)			100	%		$	2,098,233 (Note 3	)		$	13,542,181			$	—
Shanghai Walden VentureCapital Enterprise		Investing in new start-up technology companies		(US$	953,709 31,488	)			(Note 2	)			—			(US$	147,485 5,000	)			—			(US$	147,485 5,000	)			8	%			(Note 4	)		(US$	151,440 5,000	)			—

 

Accumulated Investment in Mainland China as of December 31, 2011 (US$ in Thousand)		Investment Amounts Authorized by Investment Commission, MOEA (US$ in Thousand)		Upper Limit on Investment (US$ in Thousand)
$ 19,087,152 (US$ 601,000)		$19,087,152 (US$ 601,000)		$19,087,152 (US$ 601,000)

 

Note 1:		TSMC directly invested US$596,000 thousand in TSMC China.
Note 2:		TSMC indirectly invested in China company through third region, TSMC Partners.
Note 3:		Amount was recognized based on the audited financial statements.
Note 4:		TSMC Partners invested in financial assets carried at cost, equity in the earnings from which was not recognized.

---

TABLE 9

Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

A.	For the year ended December 31, 2011

 

No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
0		TSMC		TSMC North America		1		Sales		$	234,902,043			—			55	%
								Receivables from related parties			24,661,104			—			3	%
								Other receivables from related parties			23,887			—			—
								Payables to related parties			26,536			—			—
				TSMC China		1		Sales			9,834			—			—
								Purchases			10,392,189			—			2	%
								Marketing expenses - commission			64,907			—			—
								Sales of property, plant and equipment			2,885,847			—			1	%
								Purchases of property, plant and equipment			70,491			—			—
								Gain on disposal of property, plant and equipment			94,987			—			—
								Technical service income			1,063			—			—
								Other receivables from related parties			23,688			—			—
								Payables to related parties			946,826			—			—
								Other assets			1,493			—			—
				TSMC Japan		1		Marketing expenses - commission			284,644			—			—
								Payables to related parties			68,873			—			—
				TSMC Europe		1		Marketing expenses - commission			357,582			—			—
								Research and development expenses			45,489			—			—
								Payables to related parties			29,957			—			—
				TSMC Korea		1		Marketing expenses - commission			22,049			—			—
								Payables to related parties			3,146			—			—
				GUC (Note 3)		1		Sales			1,158,302			—			—
								Research and development expenses			5,718			—			—
				TSMC Technology		1		Research and development expenses			534,804			—			—
								Payables to related parties			112,926			—			—
				WaferTech		1		Sales			27,049			—			—
								Purchases			7,305,879			—			2	%
								Sales of property, plant and equipment			72,880			—			—
								Gain on disposal of property, plant and equipment			1,463			—			—
								Other receivables from related parties			14,196			—			—
								Payables to related parties			420,459			—			—
				TSMC Canada		1		Research and development expenses			192,616			—			—
								Payables to related parties			18,887			—			—
				Xintec		1		Manufacturing overhead			260,250			—			—
								Research and development expenses			7,313			—			—
								Settlement loss			19,686			—			—
								Payables to related parties			37,013			—			—
				TSMC Solar Europe GmbH		1		Sales			148,898			—			—

Continued

 

- 129 -

---

No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
0		TSMC		TSMC SSL		1		Miscellaneous revenue		$	2,625			—		—
								Other receivables from related parties			1,947			—		—
				TSMC Solar		1		Miscellaneous revenue			2,625			—		—
								Other receivables from related parties			1,857			—		—
				TSMC Global		1		Interest payable			22,293			—		—
1		GUC (Note 3)		TSMC North America		3		Purchases			296,462			—		—
								Manufacturing overhead			120,408			—		—
				GUC-NA		3		Operating expenses			61,369			—		—
								Manufacturing overhead			30,583			—		—
				GUC-Japan		3		Operating expenses			21,826			—		—
				GUC-Shanghai		3		Operating expenses			8,568			—		—
2		TSMC Partners		TSMC China		3		Long-term receivables from related parties			7,591,420			—		1%
								Interest income			17,773			—		—
				TSMC SSL		3		Other receivables from related parties			348,369			—		—
				TSMC Solar		3		Other receivables from related parties			454,634			—		—

 

Note 1:		No. 1 represents the transactions from parent company to subsidiary. No. 3 represents the transactions between subsidiaries.
Note 2:		The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.
Note 3:		The Company has no controlling interest over the financial, operating and personnel hiring policy decisions of GUC and its subsidiaries since July 2011. As a result, GUC and its subsidiaries are no longer consolidated and are accounted for using the equity method.

(Continued)

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B.	For the year ended December 31, 2010

 

No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
0		TSMC		TSMC North America		1		Sales		$	220,529,792			—			51	%
								Receivables from related parties			25,579,259			—			6	%
								Other receivables from related parties			3,673			—			—
								Payables to related parties			11,475			—			—
				TSMC China		1		Sales			17,631			—			—
								Purchases			8,748,101			—			2	%
								Marketing expenses -commission			59,180			—			—
								Gain on disposal of property, plant and equipment			45,251			—			—
								Acquisition of property, plant and equipment			66,337			—			—
								Disposal of property, plant and equipment			1,409,862			—			—
								Technical service income			4,487			—			—
								Other receivables from related parties			1,170,407			—			—
								Payables to related parties			895,193			—			—
								Deferred debits			27,327			—			—
				TSMC Japan		1		Marketing expenses - commission			266,194			—			—
								Payables to related parties			26,115			—			—
				TSMC Europe		1		Marketing expenses - commission			415,765			—			—
								Research and development expenses			33,907			—			—
								Payables to related parties			35,530			—			—
				TSMC Korea		1		Marketing expenses - commission			19,318			—			—
								Payables to related parties			2,466			—			—
				GUC		1		Sales			2,818,499			—			1	%
								Research and development expenses			8,390			—			—
								Receivables from related parties			154,589			—			—
								Payables to related parties			2,271			—			—
				TSMC Technology		1		Research and development expenses			547,838			—			—
								Payables to related parties			88,292			—			—
				WaferTech		1		Sales			9,918			—			—
								Purchases			7,878,260			—			2	%
								Gain on disposal of other assets			9,655			—			—
								Acquisition of property, plant and equipment			9,624			—			—
								Disposal of property, plant and equipment			27,010			—			—
								Disposal of other assets			9,655			—			—
								Other receivables from related parties			3,543			—			—
								Payables to related parties			568,685			—			—
				TSMC Canada		1		Research and development expenses			181,943			—			—
								Payables to related parties			13,495			—			—

(Continued)

 

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No.		Company Name		Counter Party		Nature of Relationship (Note 1)		Intercompany Transactions
								Financial Statements Item		Amount				Terms (Note 2)		Percentage of Consolidated Total Gross Sales or Total Assets
0		TSMC		Xintec		1		Manufacturing overhead		$	313,397			—			—
								Research and development expenses			12,652			—			—
								Disposal of property, plant and equipment			3,841			—			—
								Payables to related parties			69,083			—			—
1		GUC		TSMC North America		3		Purchases			780,070			—			—
								Manufacturing overhead			196,572			—			—
								Payables to related parties			102,302			—			—
				TSMC Korea		3		Operating expenses			1,156			—			—
				GUC-NA		3		Operating expenses			155,643			—			—
								Manufacturing overhead			54,029			—			—
								Accrued expenses			14,353			—			—
				GUC-Japan		3		Operating expenses			45,927			—			—
								Accrued expenses			9,706			—			—
				GUC-Europe		3		Operating expenses			1,778			—			—
				GUC-Shanghai		3		Operating expenses			22,146			—			—
								Accrued expenses			1,945			—			—
2		TSMC Partners		TSMC China		3		Other long-term receivables			3,644,160			—			1	%
3		TSMC China		TSMC Partners		3		Other long-term payables			3,663,678			—			1	%
				WaferTech		3		Acquisition of property, plant and equipment			27,104			—			—

 

Note 1:		No. 1 represents the transactions from parent company to subsidiary.
		No. 3 represents the transactions between subsidiaries.
Note 2:		The sales prices and payment terms of intercompany sales are not significantly different from those to third parties. For other intercompany transactions, prices and terms are determined in accordance with mutual agreements.

(Concluded)

 

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